<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Pursuant to Section 14 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to .
Commission file number : NOT ASSIGNED
F
FIRST AMERICAN CAPITAL CORPORATION
----------------------------------------------------
(exact name of registrant as specified in its charter)
Kansas 48-1187574
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
3360 S.W. Harrison Street, Suite 100
Topeka, Kansas 66611
(Address of principal executive offices) (Zip Code)
(785) 267-7077
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Applicable Only to Corporate Insurers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, No Par Value - 3,249,900 shares as of May 12, 1999
<PAGE>
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
INDEX TO FORM 10-QSB
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II.
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<PAGE>1
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Assets:
Investments:
Short-term investments $10,473,893 $10,718,261
Total investments 10,473,893 10,718,261
Cash and cash equivalents 1,160,839 624,919
Accrued investment income 68,318 53,444
Deferred policy acquisition costs
(net of amortization of
$6,125 in 1999 and $229 in 1998) 110,442 13,119
Prepaid expenses 15,968 7,921
Office furniture and equipment,
less accumulated depreciation of
$20,025 and $ 17,005 in 1999 and
1998, respectively 31,073 30,843
Leasehold improvements
(net of accumulated amortization of
$3,021 and $2,738 in 1999 and 1998,
respectively) 379 662
Advances to agents 126,283 54,585
Other assets 10,854 5,257
Total Assets $11,998,049 $11,509,011
Liabilities and Shareholders' Equity
Policy liabilities and accruals 427,285 15,048
Federal income taxes payable 20,321 8,721
Commissions, salaries, wages and benefits
payable 10,153 2,832
Accounts payable to affiliate 14,431 15,129
Accounts payable and accrued expenses 17,167 26,443
Total liabilities 489,357 68,173
Shareholders' equity:
Preferred stock, 6% non-cumulative
convertible callable, $5.00 par and
liquidation value; 550,000 shares
authorized; 550,000 and 541,506
outstanding at March 31, 1999 and
December 31, 1998, respectively 2,750,000 2,707,530
Common stock, $.10 par value,
8,000,000 shares authorized;
2,720,000 shares issued and
3,270,000 outstanding at
March 31, 1999 and 2,720,000
shares issued and 3,261,500
outstanding at December 31, 1998 327,000 326,150
Additional paid in capital 9,713,490 9,600,478
Retained Earnings-deficit (1,279,798) (1,191,320)
Less: 20,000 treasury shares held at
cost (2,000) (2,000)
Total shareholders' equity 11,508,692 11,440,838
Total liabilities and shareholders'
equity $11,998,049 $11,509,011
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE>2
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues
Premium income $121,071 $ - -
Net investment income 137,192 48,780
Total revenue 258,263 48,780
Benefits and expenses
Salaries, wages and employee benefits 195,986 111,641
Increase in policy reserves 39,839 -
Commissions 72,679 -
Policy acquisition costs deferred (103,448) -
Amortization of deferred policy
acquisition costs 6,125 -
Other insurance benefits and expenses 116 -
Agency expenses 35,155 -
Professional fees 17,231 2,861
Rent 7,918 9,313
Administrative fees - related party 6,851 6,000
Depreciation and amortization 3,302 1,565
Other expenses 53,387 24,095
Total benefits and expenses 335,141 155,475
Loss from operations (76,878) (106,695)
Federal income taxes 11,600 2,989
Net loss $(88,478) $(109,684)
Net loss per common share-basic and diluted $ (0.03) $ (0.04)
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE>3
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities:
Net cash provided/(used) in
operating activities $138,469 $(242,375)
Investing activities:
Maturity of short-term investments 244,368 -
Purchase of short-term investments - (1,010,372)
Purchase of furniture and equipment (3,249)
Net cash provided/(used) in investing
activities 241,119 (1,010,372)
Financing activities:
Proceeds from public stock offering 212,350 1,897,275
Cost of public stock offering (56,018) (203,882)
Net cash provided by financing
activities 156,332 1,693,393
Increase in cash and cash equivalents 535,920 440,646
Cash and cash equivalents beginning of
period $624,919 $120,658
Cash and cash equivalents at end of
period $1,160,839 $561,304
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE>4
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(A) Basis of Presentation
The accompanying condensed consolidated financial statements of First American
Capital Corporation and its Subsidiaries ( the "Company") for the three month
period ended March 31, 1999 and 1998 are unaudited. However, in the opinion of
the Company, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been reflected therein.
Certain financial information which is normally included in financial statements
prepared in accordance with generally accepted accounting principles, but which
is not required for interim reporting purposes, has been omitted. The
accompanying condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-SB for the fiscal year ended December 31, 1998. Certain
reclassifications have been made in the prior period financial statements to
conform with the current year presentation.
(B) Subsidiary Operations
The results of operations of the Company's wholly owned subsidiary, First Life
America Corporation ("FLAC"),are included in the condensed consolidated
financial information for the three month periods ending March 31, 1999 and
1998.
(C) Developmental Stage Activities
The Company was in the developmental stage until insurance operations commenced
in November of 1998. The Company raised $13,750,000 through a Kansas
intra-state public stock offering. The offering commenced on March 11, 1997 and
was completed on January 11, 1999. Test marketing of the insurance products
began in November of 1998 and full insurance operations began upon the
completion of the offering.
(D) Investments
The carrying value of short-term investments approximates their fair value. At
March 31, 1999 and December 31, 1998, the fair value of short-term investments
was $10,473,893 and $10,718,261, respectively.
(E) Deferred Policy Acquisition Costs
Certain costs related to the acquisition of life insurance have been deferred to
the extent recoverable from future policy revenues and gross profits. These
acquisition costs are being amortized over the premium paying period of the
related policies.
(F) Net Loss Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of convertible securities.
Diluted earnings per share is very similar to fully diluted earnings per share.
The net loss per share amounts for all periods have been presented to conform to
the SFAS 128 requirements for basic earnings per share. The diluted earnings
per share amounts are not presented as the effect of inclusion of the conversion
of preferred stock to common stock would be antidilutive.
Net loss per common share is based upon the weighted average number of common
shares outstanding each period. For the three months ended March 31, 1999 and
1998, all shares are assumed to be outstanding for the entire period. The
weighted average outstanding common shares were 3,250,000 in 1999 and 2,993,683
in 1998.
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<PAGE>5
(G) Federal Income Taxes
The company does not file a consolidated federal income tax return with FLAC.
FLAC is taxed as a life insurance company under the provisions of the Internal
Revenue Code and must file a separate tax return for its initial six years of
existence. There was no current federal income tax expense incurred during the
three month period ending March 31, 1999 and $2,989 was incurred during the same
period in 1998. Deferred federal income taxes reflect the impact of "temporary
differences" between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations. At
March 31, 1999, $11,600 of deferred federal income taxes were incurred based on
the operations of FLAC. There were no deferred federal income taxes incurred
during the three months ending March 31, 1998.
(H) Related Party Transactions
Effective December 31, 1998, the Company entered into a service agreement with
FLAC to provide personnel, facilities, and services to FLAC. The services to be
performed pursuant to the service agreement are underwriting, claim processing,
accounting, processing and servicing of policies, and other services necessary
to facilitate FLAC's business. The agreement is in effect until either party
provides ninety days written notice of termination. Under the agreement, FLAC
pays monthly fees based on life premiums delivered by FLAC. The percentages are
25% of first year life premiums; 40% of second year life premiums; 30% of third
year premiums 20% of fourth year life premiums and 10% of life premiums in
years five and thereafter. FLAC will retain general insurance expenses related
to its sales agency, such as agent training and licensing, agency meeting
expenses, and agent's health insurance. Pursuant to the terms of the agreement,
FLAC had incurred expenses of $30,769 for the three months ended March 31, 1999.
The Company has contracted with First Alliance Corporation ("FAC") of Lexington,
Kentucky to provide underwriting and accounting services for FLAC and the
Company. Under the terms of the management agreement, the Company pays fees
based on a percentage of delivered premiums of FLAC. The percentages are 5.5%
for first year premiums; 4% of second year premiums; 3% of third year premiums;
2% of fourth year premiums, 1% of fifth year premiums and 1% for years six
through ten for ten year policies and .5% in years six through twenty for twenty
year policies. Pursuant to the agreement, the Company incurred $6,851 of
management fees during the three months ended March 31, 1999. FAC also owns
approximately 9.9% of the Company's outstanding common shares.
(I) Concentrations of Credit Risk
The Company minimizes credit risk by investing in U.S. Treasury obligations and
certificates of deposit. Certain certificates of deposit exceed the maximum
insurance protection of $100,000 provided by the Federal Deposit Insurance
Corporation ("FDIC"). The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
<PAGE>
<PAGE>6
(J) Segment Information
Prior to 1998 segment data has been presented on an "industry approach" in
accordance with SFAS No. 14, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", became effective for 1998 and superseded
SFAS No. 14, SFAS No. 131 requires a "management approach" (how management
internally evaluates the operating performance of its business units) in the
presentation of business segments. The segment data that follows has been
prepared in accordance with SFAS No. 131. The operations of the Company and its
subsidiaries have been classified into two operating segments as follows: life
and annuity insurance operations and corporate operations. Segment information
as of March 31, 1999 and December 31, 1998 and for the three months ended March
31, 1999 and 1998 is as follows:
<TABLE>
1999 1998
<S> <C> <C>
Revenues:
Life and annuity insurance operations $158,725 $17,061
Corporate operations 99,538 31,719
Total $258,263 $48,780
Income (loss) before income taxes:
Life and annuity insurance operations $77,452 $15,955
Corporate operations (154,330) (122,650)
Total $(76,878) $(106,695)
Assets:
Life and annuity insurance operations $3,633,631 $3,113,186
Corporate operations 8,364,418 8,395,825
Total $11,998,049 $11,509,011
Depreciation and amortization expense:
Life and annuity insurance operations $6,125 $ -
Corporate operations 3,302 1,565
Total $9,427 $1,565
</TABLE>
<PAGE>
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report includes "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934. All statements other than
statements of historical fact included in this Report regarding the Company's
financial position, business strategy, and plans and objectives of management of
the Company for future operations, are forward-looking statements. Although the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause the results, performance
(financial or operating) or achievements expressed or implied by such
forward-looking statements include, without limitation, the market acceptance of
the Company's newly-created annuity and insurance products, the accuracy of the
Company's assumptions as to expected mortality, lapse rates and other factors in
developing the pricing and other terms of its life insurance products, interest
rate fluctuations, its ability to attract, train and retain agents to market its
insurance products, its ability to comply with all applicable governmental
regulations, competition in the insurance business and changes in general
economic conditions. The following discussion should be read in conjunction
with the condensed consolidated financial statements and notes thereto.
Results of Operations
The Company's Kansas intra-state public stock offering, which commenced on March
11, 1997, was completed January 11, 1999. Limited marketing of life insurance
products began in November of 1998 with the test marketing of the initial
insurance product and full operations began in January of 1999. Accordingly,
comparisons between periods are not meaningful.
Revenues for the three months ended March 31, 1999 totaled $258,263 as compared
to $48,780 for the same period during 1998. During the first quarter of 1998,
the only source of revenue for the Company was interest earnings since proposed
operations had yet to commence. Premium income totaled $121,071 for the first
quarter of 1999. there was no premium income during the same period of 1998.
Investment income increased from $48,780 for the first three months of 1998 to
$137,192 for the first three months of 1999. This increase is the result of a
larger invested asset base in 1999 due to capital raised during the public
offering and the operations of FLAC.
Benefits and expenses totaled $335,141 for the three months ended March 31, 1999
as compared to $155,475 for the same period in 1998. Salaries, wages and
employee benefits increased from $111,641 for the first three months of 1998 to
$195,986 for the same period of 1999. This increase is due to the hiring of
additional personnel and increases in employee wage bases.
Expenses related to insurance operations were not incurred during the first
three months of 1998 since operations did not commence until November of 1998.
Policy reserves were established on new business written during 1999. These
reserves are based on such factors as the policyholder's age, mortality
assumptions, amount of death benefits and interest assumptions. The increase in
policy reserves for the first three months of 1999 totaled $39,839. Commissions
incurred on new insurance sales during the first quarter of 1999 totaled
$72,679. Certain costs such as commissions and administrative expenses incurred
with the issuance of new insurance sales are deferred and amortized over the
premium paying period of the policy. These costs are referred to as Deferred
Policy Acquisition Costs. During the first three months of 1999, $103,448 of
these costs were deferred and the related amortization totaled $6,125. Agency
expenses include such costs as agent health insurance, agency meeting expenses,
recruiting and incentives. These expenses totaled $35,155 for the three months
ended March 31, 1999.
Professional fees increased from $2,861 for the first quarter of 1998 to $17,231
for the first quarter of 1999 due to an increase in financial reporting
requirements. Other expenses increased to $53,387 for the first quarter of 1999
from $24,095 for the first quarter of 1998. This increase is due to activity
related to the commencement of insurance operations. Federal income taxes
incurred during the first quarter of 1999 totaled $11,600 and are based on the
operations of FLAC. Federal income taxes incurred during the first quarter of
1998 totaled $2,989.
<PAGE>
<PAGE>8
Consolidated Financial Condition
Total assets increased from $11,509,011 at December 31, 1998 to $11,998,049 at
March 31, 1999. This increase is the result of the following transactions: (i)
short-term investments decreased from $10,718,261 at December 31, 1998 to
$10,473,893 at March 31, 1999 due to maturities of investments held in interest
bearing cash accounts; (ii) an increase in cash from $624,919 at December 31,
1998 to $1,160,839 at March 31, 1999 due to the operations of FLAC and the
maturity of short-term investments; (iii) an increase in deferred acquisition
costs from $13,119 at December 31, 1998 to $110,442 at March 31, 1999 due to
costs related to new insurance sales being deferred and (iv) an increase in
agents balances from $54,585 at December 31, 1998 to $126,283 at March 31, 1999
due to advances on commissions to agents for submitted business.
Total liabilities increased from $68,173 at December 31, 1998 to $489,357 at
March 31, 1999 due to the following transactions: (i) policy liabilities and
accruals increased from $15,048 at December 31, 1998 to $427,285 at March 31,
1999 primarily related to an increase in deposits on pending policy
applications. These deposits totaled $365,843 at March 31, 1999; (ii) an
increase in federal income taxes payable related to the operations of FLAC and
(iii) an increase in commissions, salaries, wages and benefits payable due to
the timing of the payment of salaries.
Liquidity
FLAC's insurance operations generally receive adequate cash flow from premium
collections and investment income to meet their obligations. Insurance policy
liabilities are primarily long-term and generally are paid from future cash
flows. Most of the Company's invested assets are readily marketable. Although
there is no present need or intent to dispose of such investments, the Company
could liquidate portions of their investments if such a need arose.
Year 2000 Concerns
A growing concern is the ability of computer systems to accurately process date
calculations in the year 2000 and beyond. The problem arises from the initial
design of date values which only recognize a two digit year value. As a result,
a computer may interpret a date entered for the year 2000 as the year 1900. Any
computer system that performs date comparisons and calculations is exposed to
such a problem. These systems are typically referred to as information
technology systems ("ITS") or computer based systems. Another concern is
microchips which may also be encoded with a two digit date value. These
microchips are typically found in such office equipment as facsimile machines
and telephone systems. These systems are referred to as non-information
technology systems ("NITS").
The Company's primary exposure to any business interruption would be the result
of an ITS failure. The life insurance industry relies heavily on date sensitive
calculations in daily operations. The inability to process transactions could
be detrimental to the Company's ability to continue operations. The Company
out-sources its primary computer processing system through Navisys, Inc. of
Saint Louis, Missouri. Navisys has assured the Company that its hardware and
software systems have been modified to eliminate any potential year 2000
problems. Testing is scheduled to be completed by mid year 1999. Evaluation of
internal hardware and software is being performed. However, management does not
believe that a failure of these internal systems would cause an interruption of
business. Additionally, a NITS failure would not substantially disrupt
operations.
The costs to address year 2000 issues have been and will continue to be
relatively insignificant for the Company. All of the major costs related to the
insurance processing system have been borne by Navisys. Internally, year 2000
issues may require the replacement of such items as personal computers and
facsimile machines, however these are not expected to cause any significant
financial impact.
The ultimate risk of the year 2000 issue is the Company's inability continue as
a going concern in the event of major computer system failure. The impact could
alter, not only the Company's ability to transact business, but also global
financial systems. Even though the Company is confident that these issues will
not cause significant internal problems, a danger exists regarding the lack of
preparedness of consumers and other institutions, including federal and state
government.
The Company is in the process of developing contingency plans to address any
system failure related to the year 2000. These plans are expected to be
completed during the summer of 1999.
<PAGE>
<PAGE>9
Part II.
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits - None
Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1999
<PAGE>
<PAGE>10
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First American Capital Corporation
(registrant)
/s/ Rickie D. Meyer Date May 14, 1999
Rickie D. Meyer, President
/s/ Chris J. Haas Date May 14, 1999
Chris J. Haas, Secretary/Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 10,473,893
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 10,473,893
<CASH> 1,160,839
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 110,442
<TOTAL-ASSETS> 11,998,049
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 427,285
<NOTES-PAYABLE> 0
0
2,750,000
<COMMON> 327,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,998,049
121,071
<INVESTMENT-INCOME> 137,192
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 6,125
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (76,878)
<INCOME-TAX> 11,600
<INCOME-CONTINUING> (88,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88,478)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<RESERVE-OPEN> 9,554
<PROVISION-CURRENT> 39,839
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 45,333
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
