<PAGE>
United States Securities and Exchange Commission
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended June 30, 2000
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 : 0-25679
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)
(785) 267-7077
(Telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period 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, $.10 Par Value - 5,468,860 shares as of July 31, 2000
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
INDEX TO FORM 10-QSB
Part I. FINANCIAL INFORMATION Page Numbers
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30,
2000 and December 31, 1999. . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations for the
three months ended June 30, 2000 and 1999 and for the
six months ended June 30, 2000 and 1999 . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999. . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements. . . . . . . 6
Management's Discussion and Analysis of Financial Condition . . . 12
and Results of Operations
Part II.
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets (Unaudited)
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost, $4,850,088
in 2000 and $2,667,167 in 1999) $ 4,809,389 $ 2,631,102
Policy loans 7,358 -
Investment in real estate 461,920 325,169
Short-term investments 5,276,297 7,649,382
------------- -------------
Total investments 10,554,964 10,605,653
Cash and cash equivalents 1,017,338 793,885
Investments in related parties 16,800 -
Accrued investment income 146,264 111,352
Federal income tax recoverable 14,707 16,854
Deferred policy acquisition costs (net of
amortization of $510,092 and $234,751 in
2000 and 1999, respectively) 1,050,113 680,211
Prepaid expenses 24,212 13,633
Office furniture and equipment, less
accumulated depreciation of $34,137 and
$31,259 in 2000 and 1999, respectively 40,755 32,198
Advances to agents 84,772 107,951
Premiums due 26,883 8,565
Other assets 10,990 11,033
------------- -------------
Total Assets $ 12,987,798 $ 12,381,335
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Liabilities and Shareholders' Equity (Unaudited)
Policy and contract liabilities:
Annuity contract liability $ 274,327 $ 11,282
Life policy reserves 685,706 374,298
Deposits on pending policy applications 216,032 221,413
Policyholder premium deposits 60,612 66,321
Reinsurance premiums payable 13,574 11,845
------------- -------------
Total policy and contract liabilities 1,250,251 685,159
Federal income taxes payable:
Deferred 235,467 147,865
Other taxes payable 11,007 21,639
Commissions, salaries, wages and benefits
payable 95,207 67,806
Accounts payable and accrued expenses 22,479 30,542
Accounts payable to affiliate 13,215 9,160
------------- -------------
Total liabilities 1,627,626 962,171
Shareholders' equity:
Common stock, $.10 par value, 8,000,000 shares
authorized; 5,468,860 shares issued and
outstanding at June 30, 2000 and December
31, 1999 546,886 546,886
Additional paid in capital 12,230,005 12,230,005
Retained earnings-deficit (1,237,856) (1,331,924)
Accumulated other comprehensive income (loss) (26,863) (23,803)
Less: treasury shares held at cost (95,000
shares in 2000 and 20,000 shares in 1999) (152,000) (2,000)
------------- -------------
Total shareholders' equity 11,360,172 11,419,164
------------- -------------
Total liabilities and shareholders' equity $ 12,987,798 $ 12,381,335
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Gross premium income $ 569,531 $ 413,042 $ 1,111,233 $ 534,113
Reinsurance premiums
ceded (11,892) - (27,203) -
Net premium income 557,639 413,042 1,084,030 534,113
Net Investment Income 163,464 136,462 324,076 273,654
Net realized gain on
disposal of assets 2,236 - 2,236 -
----------- ----------- ------------ -----------
Total revenue 723,339 549,504 1,410,342 807,767
Benefits and expenses
Increase in policy
reserves 150,947 176,804 311,408 216,643
Policyholder surrender
values 3,169 - 3,206 -
Interest credited on
annuities and premium
deposits 4,380 1,240 6,685 1,356
Commissions 255,463 236,530 461,230 309,209
Policy acquisition costs
deferred (355,154) (339,135) (645,243) (442,583)
Amortization of deferred
policy acquisition costs 176,069 104,060 275,341 110,185
Salaries, wages and
employee benefits 176,510 161,627 346,488 357,613
Miscellaneous taxes 11,412 8,247 21,949 8,247
Administrative fees -
related party 33,912 22,573 66,079 29,424
Other operating costs and
expenses 216,111 118,346 377,809 235,339
----------- ----------- ------------ -----------
Total benefits and
expenses 672,819 490,292 1,224,952 825,433
----------- ----------- ------------ -----------
Income/(loss) before
income tax expense 50,520 59,212 185,390 (17,666)
----------- ----------- ------------ -----------
Income tax expense (8,503) 58,454 91,323 70,054
----------- ----------- ------------ -----------
Net Income/(loss) $ 59,023 $ 758 $ 94,067 $ (87,720)
=========== =========== ============ ===========
Net income/(loss) per
common share - basic
and diluted $ 0.01 $ 0.00 $ 0.02 $ (0.03)
=========== =========== ============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six months ended
June 30, June 30,
2000 1999
------------- -------------
<S> <C> <C>
(Unaudited) (Unaudited)
Operating activities:
Net income (loss) $ 94,067 $ (87,720)
Adjustments to reconcile net loss to net cash
used in operating activities:
Interest credited on annuities and premium
deposits 6,685 -
Provision for depreciation and amortization 6,943 6,397
Amortization of leasehold improvements - 566
Amortization of premium and accretion of
discount on fixed maturity and short-term
investments (4,110) -
Interest credited to certificates of deposit
balances (46,116) -
Realized net gain on disposal of assets (2,236) -
Provision for deferred federal income taxes 89,176 -
Increase in accrued investment income (34,912) (13,009)
Decrease (increase) in federal income tax
recoverable 2,147 (4,000)
Increase in deferred policy acquisition costs,
net (369,902) (332,398)
Increase in prepaid expenses (10,579) (15,909)
Decrease (increase) in agent advances 23,179 (56,735)
Increase in policy loans (7,358) -
Increase in premiums due (18,318) -
Decrease (increase) in other assets 43 (7,493)
Increase in policy reserves 311,408 216,643
Increase (decrease) in deposits on pending
policy applications (5,381) 218,487
Increase in reinsurance premiums payable 1,729 -
Increase in federal income taxes payable - 63,954
Decrease in other taxes payable (10,632) -
Increase in commissions, salaries, wages and
benefits payable 27,401 35,681
Increase in accounts payable to affiliate 4,055 10,895
Decrease in accounts payable, accrued
expenses and other liabilities (8,063) (13,441)
------------- -------------
Net cash provided/(used) in operating
activities $ 49,226 $ 21,918
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)
<CAPTION>
Six months ended
June 30, June 30,
2000 1999
------------- -------------
<S> <C> <C>
(Unaudited) (Unaudited)
Investing activities:
Purchase of available-for-sale fixed
maturities $ (2,179,051) $ -
Purchase of investments in related parties (16,800) -
Purchase of investments in real estate (136,751) -
Short-term investments (acquired) disposed,
net 2,419,442 233,893
Disposal (purchases) of furniture and
equipment, net (13,264) (10,026)
------------- -------------
Net cash used in investing activities 73,576 223,867
Financing activities:
Proceeds from public stock offering - 209,850
Cost of public stock offering - (53,463)
Purchase of treasury stock (150,000) -
Deposits on annuity contracts, net 258,095 -
Policyholder premium deposits, net (7,444) 90,497
------------- -------------
Net cash provided by financing activities 100,651 246,884
Increase in cash and cash equivalents 223,453 492,669
Cash and cash equivalents, beginning of period 793,885 624,919
------------- -------------
Cash and cash equivalents, end of period $ 1,017,338 $ 1,117,588
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Basis of Presentation
The accompanying condensed consolidated financial statements of First
American Capital Corporation and its Subsidiaries ( the "Company") for the
six month period ended June 30, 2000 and 1999 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-KSB for the fiscal year ended December 31,
1999. Certain reclassifications have been made in the prior period financial
statements to conform with the current year presentation.
(B) Subsidiary Operations
The Company's wholly owned subsidiary, First Life America Corporation ("FLAC"),
results of operations are included in the condensed consolidated financial
information for the six month periods ending June 30, 2000 and 1999. The
Company's venture capital subsidiary, First Capital Venture Inc. ("FCVI"),
has not been capitalized or commenced operations.
(C) Investments
The Company classifies all of its available-for-sale fixed maturities at the
current market value. Adjustments to market value are recognized as a
separate component of shareholders' equity net of applicable federal income
tax effects. The following table details the investment values at June 30,
2000:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government Bonds $ 1,331,771 $ - $ 3,190 $ 1,328,581
Special Revenue Bonds 1,142,397 1,649 16,646 1,127,400
Corporate Bonds 2,015,920 15,288 37,800 1,993,408
Certificates of Deposit 360,000 - - 360,000
----------- ------------ ----------- -----------
$ 4,850,088 $ 16,937 $ 57,636 $ 4,809,389
=========== ============ =========== ===========
</TABLE>
The fair values for investments in fixed maturities are based on quoted
market prices.
During 1999, the Company acquired approximately seven acres of land, located
in Topeka, Kansas, at a total purchase price of $325,169. Management has
plans to construct a building on approximately one-third of this land, to be
used as a home office. The building will be approximately 20,800 square feet,
of which an estimated 6,500 will be occupied by the Company with the
remaining office space to be leased to unaffiliated parties. No third party
lease agreements have been executed. For the period ended June 30, 2000, the
Company had incurred expenses totaling $136,751 to prepare the land for the
project. The land improvement costs have been capitalized and added to the
cost of the land, for a total investment in real estate of $461,920.
Contracts have been executed with a designer/architect and a building
contractor to complete the project (see note N - Material Commitments). It
is anticipated that the remaining portion of the land will be sold after
construction of the building is complete.
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(C) Investments (continued)
The carrying value of short-term investments approximates their fair value.
At June 30, 2000 and December 31,1999, the fair value of short-term investments
was $5,276,297 and $7,649,382, respectively.
(D) Other assets
Included in "Other Assets" at June 30, 2000 and December 31, 1999 is a $5,000
deposit the Company placed in escrow to purchase a tract of vacant land,
measuring approximately 500 feet by 90 feet. Closing was expected to occur
on May 12, 2000; however, the purchase was not completed due to zoning
restrictions. The Company expects to receive a full refund of the $5,000
escrow deposit.
(E) Deferred Policy Acquisition Costs
Commissions and other costs of acquiring life insurance, which vary with, and
are primarily related to, the production of new insurance contracts have been
deferred to the extent recoverable from future policy revenues and gross
profits. The acquisition costs are amortized over the premium paying period
of the related policies using assumptions consistent with those used in
computing policy reserves.
(F) Net Earnings (Loss) Per Common Share
Net income (loss) per common share for basic and diluted earnings per share
is based upon the weighted average number of common shares outstanding during
the year. The weighted average outstanding common shares was 5,440,618 and
5,444,739 for the three months ended June 30, 2000 and for the six months
ended June 30, 2000, respectively. For the three months and the six months
ended June 30, 1999, the weighted average outstanding common shares were
3,249,900.
(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. At June 30, 2000 and 1999 estimated Federal Income Tax
expense was $91,323 and $70,054, respectively. The Federal Income Tax
expense at June 30, 2000 included $2,147 of current tax expense and $89,176
of deferred tax expense. At June 30, 1999, Federal Income Tax expense
included $1,656 of current tax expense and $68,398 of deferred tax expense.
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.
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 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 life premiums; 20% of fourth year life
premiums and 10% of life premiums in years five and thereafter. FLAC retains
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 $318,266 for the
six months ended June 30, 2000 and $133,374 for the same period ended June
30, 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 $66,079 and $29,424, respectively of management fees during
the six months ended June 30, 2000 and 1999. FAC also owns approximately
9.6% of the Company's outstanding common shares.
(I) Investments in related parties
On June 20, 2000, the Company purchased 168,000 shares of the common stock of
Mid-Atlantic Capital Corporation ("MCC") of Charleston, West Virginia for
$16,800. As of July 31, 2000, all of the organizer shares totaling 2,500,000
shares had been sold for total proceeds of $250,000. After MCC's private
placement and public offerings are complete, the Company will own 3.05% of
the outstanding common stock. Michael N. Fink, who is the Company's Chairman
of the Board, will also serve as a Co-chairman of the Board for MCC.
These shares are not registered under the Securities Act of 1933, are subject
to restrictions on transferability and resales and may not be transferred or
resold except as permitted under the Act and applicable state securities laws,
pursuant to registration or exemption therefrom.
(J) Concentrations of Credit Risk
Credit risk is limited by emphasizing investment grade securities and by
diversifying the investment portfolio among government, special revenue, and
corporate bonds. Credit risk is further minimized by investing in
certificates of deposit. Certain certificates of deposit and cash balances
exceed the maximum insurance protection of $100,000 provided by the Federal
Deposit Insurance Corporation ("FDIC"). However, both certificates of
deposit balances and cash balances exceeding this maximum are protected
through additional insurance. 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>
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(K) Comprehensive Income
The components of comprehensive income (loss) along with the related tax
effects are presented below for the three months and the six months ended
June 30, 2000 and for the three months and the six months ended June 30,
1999. There were no unrealized gains or losses reported on available-for-
sale securities for the periods in 1999 because there were no investments in
such securities until the fourth quarter of 1999.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Unrealized gain/(loss)
on available-for-sale
securities:
Unrealized holding gain
/(loss) during the
period $ 2,441 $ - $ (4,634) $ -
Tax benefit/(expense) (831) - 1,574 -
----------- ----------- ----------- -----------
Other comprehensive
income/(loss) $ 1,610 $ - $ (3,060) $ -
=========== =========== =========== ===========
Net income/(loss) $ 59,023 $ 758 $ 94,067 $ (87,720)
Other comprehensive
income/(loss) net
of tax effect:
Unrealized investment
gain/(loss) 1,610 - (3,060) -
----------- ----------- ----------- -----------
Comprehensive income
/(loss) $ 60,633 $ 758 $ 91,007 $ (87,720)
=========== =========== =========== ===========
Net income/(loss) per
common share - basic
and diluted $ 0.01 $ 0.00 $ 0.02 $ (0.03)
=========== =========== =========== ===========
</TABLE>
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(L) Segment Information
The segment data that follows has been prepared in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." 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 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 June 30, 2000 and December
31, 1999 and for the three months ended June 30, 2000 and 1999 and for the
six months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Life and annuity
insurance operations $ 613,765 $ 451,346 $ 1,190,942 $ 610,071
Corporate operations 109,574 98,158 219,400 197,696
----------- ----------- ----------- -----------
Total $ 723,339 $ 549,504 $ 1,410,342 $ 807,767
=========== =========== =========== ===========
Income (loss) before
income taxes:
Life and annuity
insurance operations $ 135,215 $ 131,172 $ 317,270 $ 208,624
Corporate operations (84,695) (71,960) (131,880) (226,290)
----------- ----------- ----------- -----------
Total $ 50,520 $ 59,212 $ 185,390 $ (17,666)
=========== =========== =========== ===========
Depreciation and
amortization expense:
Life and annuity
insurance operations $ 176,069 $ 104,060 $ 275,341 $ 110,185
Corporate operations 3,700 3,661 6,943 6,963
----------- ----------- ----------- -----------
Total $ 179,769 $ 107,721 $ 282,284 $ 117,148
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Segment asset information as of June 30, 2000 and December 31, 1999.
2000 1999
----------- -----------
<S> <C> <C>
Assets: (unaudited)
Life and annuity insurance operations $ 5,115,127 $ 4,255,380
Corporate operations 7,872,671 8,125,955
----------- -----------
Total $12,987,798 $12,381,335
=========== ===========
</TABLE>
<PAGE>
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(M) Purchase of Treasury Stock
On June 2, 2000, the Company purchased 75,000 shares of its common stock from
Mr. Chris J. Haas, former Secretary/Treasurer and Director of the Company.
These shares, which are held in treasury and reported at cost, were purchased
at $2.00 per share for a cost of $150,000.
(N) Material Commitments
Management is currently in the process of constructing a building to be used
as the Company's home office (see note C). Management estimates land
improvement costs of $201,145, of which $136,751 has been incurred as of June
30, 2000. In addition, the Company has entered into legal contracts with
Schwerdt Design Group, Inc. of Topeka, Kansas as designer/architect and
Ferrell Construction of Topeka, Inc. as building contractor. Based on quoted
costs and other management estimates, total estimated cost to completion is
$3,246,344. Of this estimated total cost, $461,920 has already been incurred,
leaving an estimated remaining cost of $2,784,424.
Management expects the project to be complete between March and May of 2001.
Columbian Bank has offered the Company a construction loan not to exceed
$2,600,000. Management's intention is to borrow $2,000,000 based on this
offer and to finance the remaining estimated costs of $784,424 with internal
funds. Management plans to delay interior finishing of the approximate
13,500 square feet that will be available for leasing until lease agreements
are executed with the leasees. The estimated cost to finish this portion of
the building is $472,500, which is included above in the total estimated cost
to completion. Upon completion of the building, management will either
obtain permanent financing or use internal funds to pay off the construction
loan.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company makes forward-looking statements from time to time and desires to
take advantage of the "safe harbor" which is afforded such statements under
the Private Securities Litigation Reform Act of 1995 when they are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those in the forward-looking
statements.
The statements contained in this report, which are not historical facts, are
forward-looking statements that involve risks and uncertainties that cause
actual results to differ materially from those set forth in the forward-
looking statements. Any projections of financial performances or statements
concerning expectations as to future developments should not be construed in
any manner as a guarantee that such results or developments will, in fact,
occur. There can be no assurance that any forward-looking statement will be
realized or that actual results will not be significantly different from that
set forth in such forward-looking statements. In addition to the risks and
uncertainties or ordinary business operations, the forward-looking statements
of the Company referred to above are also subject to risks and uncertainties.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Results of Operations
The Company completed a Kansas intra-state offering on January 11, 1999
raising total capital of $13,750,000. The offering, which commenced on March
11, 1997, provided capital to form a wholly owned life insurance subsidiary,
First Life America Corporation ("FLAC"); form a venture capital subsidiary,
First Capital Venture, Inc. ("FCVI") and provide working and acquisition
capital. In January of 1999, FLAC commenced insurance operations. During
the six months ended June 30, 1999 and the three months ended June 30, 1999,
FLAC's premium income was derived from first year business only, whereas the
same periods in 2000 produced premium income on both first year and renewal
business. As compared to first year premium income, renewal income generates
fewer direct expenses such as commissions and selling, administrative and
general insurance expenses.
Revenues for the three months ended June 30, 2000 totaled $723,339 as
compared to $549,504 for the same period of 1999. For the six months ended
June 30, 2000 and 1999, revenues totaled $1,410,342 and $807,767, respectively.
Revenues include life insurance premium, net investment income, and net
realized gains on disposal of assets. Gross premium income for the three
months ended June 30, 2000 and the six month ended June 30, 2000 totaled
$569,531 and $1,111,233, respectively. Premium income for the same periods
in 1999 totaled $413,042 and $534,113, respectively. Of the $1,111,233
premium income in 2000, $309,199 was earned from renewal income, a source of
income that FLAC did not have during the six months ended June 30, 1999.
Additionally, greater first year premium income was earned during the first
quarter of 2000 as compared to the first quarter in 1999 since full scale
insurance operations began in January of 1999 with a less experienced sales
force. During the three months ended June 30, 1999, however, the sales force
had gained valuable experience. Therefore, gross premium income during the
three months ended June 30, 1999 as compared to the same period in 2000
increased less dramatically than when comparing the six months ended June 30,
1999 to the six months ended June 30, 2000. Net investment income increased
from $273,654 for the six months ended June 30, 1999 to $324,076 for the same
period during 2000. As cash provided through the sale of insurance has been
invested, greater investment earnings have been achieved. Additionally, in
the second quarter of 1999, management hired an investment manager to
increase investment yields. During the three months ended June 30, 2000, the
Company disposed of some fixed assets, which resulted in a net realized gain
on disposal of assets of $2,236. The Company did not dispose of any such
assets during any other period presented in the financial statements.
Benefits and expenses totaled $1,224,952 and $825,433 for the six months
ended June 30, 2000 and 1999, respectively. The increase in life insurance
reserves totaled $311,408 for the six months ended June 30, 2000 and $216,643
during the same period of 1999. These reserves are actuarially determined
based on such factors as insured age, life expectancy, mortality and interest
assumptions. Commission expense totaled $461,230 and $309,209 for the six
months ended June 30, 2000 and 1999, respectively. The commission expense is
based on a percentage of premium and is determined in the product design.
<PAGE>
Acquisition costs which are related to the sale of insurance are capitalized
and amortized over the premium paying period of the associated policies.
These costs include commissions and management fees incurred in the first
policy year. For the first six months of 2000 and 1999, respectively,
$645,243 and $442,583 of these costs have been capitalized as policy
acquisition costs deferred. The related amortization for the same periods
totaled $275,341 and $110,185, respectively. Included in miscellaneous taxes
is premium tax expense, which totaled $21,949 and $8,247 for the six months
ended June 30, 2000 and 1999, respectively. These expenses are incurred as a
percentage of premium collected.
Administrative fees- related party are fees paid to First Alliance Corporation,
a shareholder of the Company. These fees, which are calculated as a
percentage of FLAC's premium income, are for underwriting and accounting
services. During the first six months of 2000, these fees totaled $66,079 as
compared to $29,424 for the first six months of 1999. The Company incurred
such expenses totaling $33,912 and $22,573, respectively, during the three
months ended June 30, 2000 and 1999.
Consolidated Financial Condition
The following comparisons involve significant changes in the consolidated
balance sheets from December 31, 1999 to June 30, 2000:
Total assets increased from $12,381,335 at December 31, 1999 to $12,987,798
at June 30, 2000. During the first six months of 2000, the Company replaced
$2,179,051 of short-term investments with investments in available-for-sale
fixed maturities with higher yields. The timing of interest payments
increased accrued investment income from $111,352 at December 31, 1999 to
$146,264 at June 30, 2000. During the first six months of 2000, the Company
invested additional resources in its investment in real estate. The change
in this asset from $325,169 at December 31, 1999 to $461,920 at June 30, 2000
represents improvements to the land, which was purchased during 1999.
Investments in related parties of $16,800 at June 30, 2000 represents the
purchase of 168,000 shares of common stock of Mid-Atlantic Capital Corporation
("MCC") of Charleston, West Virginia. An estimated current income tax
provision of $2,147 for the six months ended June 30, 2000 resulted in the
decrease of Federal Income Tax Recoverable from December 31, 1999 to June 30,
2000.
Deferred policy acquisition costs, net of amortization, increased from
$680,211 at December 31, 1999 to $1,050,113 at June 30, 2000 resulting from
the capitalization of acquisition expenses related to the increasing sales
of life insurance. Advances to agents include monies advanced to agents for
living expenses.
Liabilities increased to $1,627,626 at June 30, 2000 from $962,171 at
December 31, 1999. As determined by product design, annuity premiums are not
received until year two of the policy contract. Annuity contract liabilities
were limited at December 31, 1999 since November of 1999 was the first
anniversary of life insurance operations and few policy holders had entered
into their second year terms at the close of 1999. Life policy reserves
established due to the sale of life insurance totaled $374,298 and $685,706
at December 31, 1999 and June 30, 2000, respectively. Other policy and
contract liabilities increased or decreased during the period due to timing
of deposits and payments.
Federal income taxes payable are primarily due to deferred taxes that are
established as a result of timing differences between income recognized for
financial statements and taxable income for the Internal Revenue Service.
The deferred taxes are based on the operations of FLAC. Other taxes payable
consist primarily of premium taxes, which are incurred as a percentage of
premium income. Other increases and decreased in payables are due to the
timing of payments.
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. A significant portion of the Company's invested assets are readily
marketable and highly liquid.
<PAGE>
Part II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Form 8-K
The Company did not file any reports on Form 8-K during the six months
ended June 30, 2000
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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
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(registrant)
/s/ Rickie D. Meyer Date August 11, 2000
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Rickie D. Meyer, President
/s/ Phillip M. Donnelly Date August 11, 2000
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Phillip M. Donnelly, Secretary/Treasurer
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