<PAGE> 1
United States Securities and Exchange Commission
Washington, D.C. 20549
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 September 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 incorporation or (I.R.S. Employer
organization) Identification 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 - 5,418,860 shares as of November 6, 2000
<PAGE> 2
FIRST AMERICAN CAPITAL CORPORATION
INDEX TO FORM 10-QSB
Part I. FINANCIAL INFORMATION Page Numbers
------------------------------ ------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
September 30, 2000 and December 31, 1999................... 1
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2000 and 1999 and
for the nine months ended September 30, 2000 and 1999....... 3
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 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> 3
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost, $5,490,382 $ 5,509,694 $ 2,631,102
in 2000 and $2,667,167 in 1999)
Policy loans 5,345 -
Investment in real estate 746,470 325,169
Notes receivable (net of valuation allowance of $38,567) 14,471 -
Short-term investments 5,090,630 7,649,382
----------- -----------
Total investments 11,366,610 10,605,653
Cash and cash equivalents 631,814 793,885
Investments in related parties 16,800 -
Accrued investment income 160,659 111,352
Federal income tax recoverable 11,695 16,854
Deferred policy acquisition costs (net of amortization of
$667,519 and $234,751 in 2000 and 1999, respectively) 1,164,281 680,211
Prepaid expenses 17,373 13,633
Office furniture and equipment, less accumulated
depreciation of $38,382 and $31,259 in 2000 and
1999, respectively 40,260 32,198
Advances to agents 29,831 107,951
Premiums due 17,336 8,565
Other assets 10,037 11,033
----------- -----------
Total Assets $13,466,696 $12,381,335
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 1
<PAGE> 4
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy and contract liabilities:
Annuity contract liability $ 365,810 $ 11,282
Life policy reserves 794,615 374,298
Deposits on pending policy applications 181,306 221,413
Policyholder premium deposits 62,655 66,321
Reinsurance premiums payable 26,651 11,845
------------ ------------
Total policy and contract liabilities 1,431,037 685,159
Note payable 217,501 -
Commissions, salaries, wages and benefits payable 114,635 67,806
Accounts payable and accrued expenses 33,425 30,542
Accounts payable to affiliate 10,001 9,160
Federal income taxes payable:
Deferred 265,096 147,865
Other taxes payable 19,517 21,639
------------ ------------
Total liabilities 2,091,212 962,171
Shareholders' equity:
Common stock, $.10 par value, 8,000,000 shares
authorized; 5,418,860 shares issued and outstanding
at September 30, 2000 and 5,468,860 shares issued
and outstanding at December 31, 1999 541,886 546,886
Additional paid in capital 12,230,005 12,230,005
Retained earnings-deficit (1,257,151) (1,331,924)
Accumulated other comprehensive income (loss) 12,744 (23,803)
Less: treasury shares held at cost (95,000 shares in 2000
and and 20,000 shares in 1999) (152,000) (2,000)
------------ ------------
Total shareholders' equity 11,375,484 11,419,164
------------ ------------
Total liabilities and shareholders' equity $ 13,466,696 $ 12,381,335
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
Page 2
<PAGE> 5
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Gross premium income $ 428,110 $ 250,042 $ 1,539,343 $ 784,155
Reinsurance premiums ceded (17,731) - (44,934) -
----------- ----------- ----------- -----------
Net premium income 410,379 250,042 1,494,409 784,155
Net Investment Income 176,077 134,451 500,153 408,105
Net realized investment gain 1,251 - 1,251 -
Other income 2,666 - 4,902 -
----------- ----------- ----------- -----------
Total revenue 590,373 384,493 2,000,715 1,192,260
BENEFITS AND EXPENSES
Increase in policy reserves 108,909 55,091 420,317 271,734
Policyholder surrender values 5,683 - 8,889 -
Interest credited on annuities
and premium deposits 6,400 372 13,085 1,728
Commissions 226,513 147,857 687,743 457,066
Policy acquisition costs deferred (271,595) (213,372) (916,838) (655,955)
Amortization of deferred policy
acquisition costs 157,427 56,070 432,768 166,255
Salaries, wages and employee benefits 206,811 160,770 553,299 518,383
Miscellaneous taxes 8,510 5,241 30,459 13,488
Administrative fees - related party 25,619 14,413 91,698 43,837
Other operating costs and expenses 128,154 131,312 505,963 366,651
----------- ----------- ----------- -----------
Total benefits and expenses 602,431 357,754 1,827,383 1,183,187
----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE INCOME
TAX EXPENSE (12,058) 26,739 173,332 9,073
----------- ----------- ----------- -----------
Income tax expense 12,237 31,801 103,560 101,855
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ (24,295) $ (5,062) $ 69,772 $ (92,782)
=========== =========== =========== ===========
Net income/(loss) per common
share - basic and diluted $ 0.00 $ 0.00 $ 0.01 $ (0.02)
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE> 6
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 69,772 $ (92,782)
Adjustments to reconcile net loss to net cash
used in operating activities:
Interest credited on annuities and premium deposits 13,068 -
Realized investment gains (1,251) -
Provision for depreciation and amortization 11,188 10,097
Amortization of leasehold improvements - 662
Amortization of premium and accretion of discount on
fixed maturity and short-term investments (7,539) -
Interest credited to certificates of deposit balances (46,116) -
Realized net gain on disposal of assets (2,236) -
Provision for deferred federal income taxes 98,401 -
Increase in accrued investment income (49,307) (16,829)
Decrease (increase) in federal income tax recoverable 5,159 (15,072)
Increase in deferred policy acquisition costs, net (484,070) (489,700)
Increase in prepaid expenses (3,740) (12,501)
Decrease (increase) in agent advances 78,120 (63,350)
Increase in policy loans (5,345) -
Increase in premiums due (8,771) -
Decrease (increase) in other assets 996 (27,160)
Increase in policy reserves 420,317 271,734
Increase (decrease) in deposits on pending
policy applications (40,107) 197,243
Increase in reinsurance premiums payable 14,806 13,496
Increase in federal income taxes payable - 96,827
Decrease in other taxes payable (2,122) -
Increase in commissions, salaries, wages and
benefits payable 46,829 43,542
Increase (decrease) in accounts payable to affiliate 841 (2,410)
Decrease in accounts payable, accrued
expenses and other liabilities 2,883 7,321
--------- ---------
Net cash provided (used) in operating activities $ 111,776 $ (78,882)
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
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FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
INVESTING ACTIVITIES:
Purchase of available-for-sale fixed maturities $(2,915,830) $ -
Sale of available-for-sale fixed maturities 101,000 -
Purchase of investments in related parties (16,800) -
Purchase of investments in real estate (421,301) -
Increase in notes receivable (14,471) -
Short-term investments (acquired) disposed, net 2,605,274 (58,211)
Disposal (purchases) of furniture and equipment, net (17,014) (14,037)
----------- -----------
Net cash used in investing activities (679,142) (72,248)
FINANCING ACTIVITIES:
Proceeds from public stock offering - 209,850
Cost of public stock offering - (59,197)
Purchase of treasury stock (150,000) -
Proceeds from note payable 217,501 -
Deposits on annuity contracts, net 344,201 -
Policyholder premium deposits, net (6,407) 59,273
----------- -----------
Net cash provided by financing activities 405,295 209,926
Increase (decrease) in cash and cash equivalents (162,071) 58,796
Cash and cash equivalents, beginning of period 793,885 624,919
----------- -----------
Cash and cash equivalents, end of period $ 631,814 $ 683,715
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
<PAGE> 8
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 nine month
period ended September 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 nine month periods ending September 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 September 30, 2000:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Government Bonds $ 1,532,142 $ 8,948 $ 309 $ 1,540,781
Special Revenue Bonds 1,142,319 7,078 4,414 1,144,983
Corporate Bonds 2,455,921 27,070 19,061 2,463,930
Certificates of Deposit 360,000 - - 360,000
------------- ------------- ------------- -------------
$ 5,490,382 $ 43,096 $ 23,784 $ 5,509,694
============= ============= ============= =============
</TABLE>
The fair values for investments in fixed maturities are based on quoted market
prices.
During 1999 the Company purchased approximately seven acres of land located in
Topeka, Kansas for $325,169. A 20,800 square foot building to be used as a home
office is currently being constructed on approximately one-third of this land.
Approximately 6,500 square feet 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. Costs incurred to date at September 30,
2000 totaled $746,470 of which $265,528 was related to land preparation and
$155,773 was related to building construction.
Page 6
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FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(C) Investments (continued)
-----------------------
Contracts have been executed with a designer/architect and a building contractor
to complete the building construction project (see note O - Material
Commitments). It is anticipated that the remaining portion of the land will be
sold after the completion of the building.
During July of 2000, advances to agents in the amount of $18,999 were converted
to notes receivable to be collected over a three year period with a 9.5% annual
interest rate. Balances due from agents previously deemed to be uncollectible
and expensed in prior years were also added to notes receivable. Combined, these
two amounts totaled $60,053, with a corresponding allowance for bad debts of
$41,054. During 2000, payments of $7,015 were received on the note balances.
Notes receivable, net of the valuation allowance of $38,567, is $14,471 at
September 30, 2000.
The carrying value of short-term investments approximates their fair value. At
September 30, 2000 and December 31, 1999, the fair value of short-term
investments was $5,090,630 and $7,649,382, respectively.
(D) Other assets
------------
Included in "Other Assets" at September 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. In October of 2000, the Company received a full refund of the
$5,000 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) Note Payable
------------
To finance the cost of the real estate construction project (see note C), the
Company entered into a twelve month, $2,000,000 construction loan with Columbian
Bank. The Company has pledged certificates of deposit totaling $2,000,000 as
collateral on the loan. Under the terms of the agreement, interest expense,
which is paid monthly, is calculated based on the Company's interest rate earned
on the pledged certificates of deposit plus one percent. At September 30, 2000,
the interest rate on the note balance was 8.25%. The note balance totaled
$217,501 at September 30, 2000 and the related interest payable was $465. Upon
completion of the building, management will either obtain permanent financing or
use internal funds to repay the construction loan.
Page 7
<PAGE> 10
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(G) 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
periods. The weighted average outstanding common shares was 5,342,022 and
5,411,633 for the three months ended September 30, 2000 and for the nine months
ended September 30, 2000, respectively. For the three months and the nine months
ended September 30, 1999, the weighted average outstanding common shares was
5,448,860.
(H) 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 September 30, 2000 and 1999 estimated Federal Income Tax expense
was $103,560 and $101,855, respectively. The Federal Income Tax expense at
September 30, 2000 included $5,159 of current tax expense and $98,401 of
deferred tax expense. At September 30, 1999, Federal Income Tax expense included
$584 of current tax expense and $101,271 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.
(I) 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 $439,666 for the nine months ended September 30, 2000 and
$198,889 for the same period ended September 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 $91,698 and
$43,837, respectively of management fees during the nine months ended September
30, 2000 and 1999. FAC also owns approximately 9.6% of the Company's outstanding
common shares.
(J) Investments in related parties
-------------------------------
On June 20, 2000, the Company purchased, through a private placement, 168,000
shares of the common stock of Mid-Atlantic Capital Corporation ("MCC") of
Charleston, West Virginia for $16,800. At September 30, 2000, MCC had raised
$362,000 from the sale of private placement shares. MCC intends to register a
West Virginia intrastate public offering of $12,000,000. After MCC's private
placement and public offerings are complete, the Company will own 3.05% of the
outstanding common stock. 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
Page 8
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FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
permitted under the Act and applicable state securities laws, pursuant to
registration or exemption therefrom. Michael N. Fink, who is the Company's
Chairman of the Board, will also serve as a Co-chairman of the Board for MCC.
(K) 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.
(L) Comprehensive Income
--------------------
The components of comprehensive income (loss) along with the related tax effects
are presented below for the three months and the nine months ended September 30,
2000 and for the three months and the nine months ended September 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 Nine months ended
September 30, September 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 $ 58,892 $ - $ 55,377 $ -
Tax benefit/(expense) (20,023) - (18,828) -
--------- -------- --------- ---------
Other comprehensive income/(loss) $ 38,869 - $ 36,549 -
========= ======== ========= =========
Net income/(loss) $ (24,295) $ (5,062) $ 69,772 $ (92,782)
Other comprehensive income/(loss) net of tax effect:
Unrealized investment gain/(loss) 38,869 - 36,549 -
--------- -------- --------- ---------
Comprehensive income/(loss) $ 14,574 $ (5,062) $ 106,321 $ (92,782)
========= ======== ========= =========
Net income/(loss)per common share-basic and diluted $ 0.00 $ 0.00 $ 0.02 $ (0.02)
========= ======== ========= =========
</TABLE>
Page 9
<PAGE> 12
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(M) 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 September 30, 2000 and December 31, 1999 and for the three
months ended September 30, 2000 and 1999 and for the nine months ended September
30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited))
<S> <C> <C> <C> <C>
Revenues:
Life and annuity insurance operations $ 474,982 $ 288,333 $ 1,665,924 $ 898,404
Corporate operations 115,391 96,160 334,791 293,856
----------- ----------- ----------- -----------
Total $ 590,373 $ 384,493 $ 2,000,715 $ 1,192,260
=========== =========== =========== ===========
Income (loss) before income taxes:
Life and annuity insurance operations $ 68,093 $ 120,777 $ 385,363 $ 329,401
Corporate operations (80,151) (94,038) (212,031) (320,328)
----------- ----------- ----------- -----------
Total $ (12,058) $ 26,739 $ 173,332 $ 9,073
=========== =========== =========== ===========
Depreciation and amortization expense:
Life and annuity insurance operations $ 144,976 $ 56,070 $ 420,317 $ 166,255
Corporate operations 4,245 3,796 11,188 10,759
----------- ----------- ----------- -----------
Total $ 149,221 $ 59,866 $ 431,505 $ 177,014
=========== =========== =========== ===========
</TABLE>
Segment asset information as of September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Assets:
Life and annuity insurance operations $ 5,632,554 $ 4,255,380
Corporate operations 7,834,142 8,125,955
----------- -----------
Total $13,466,696 $12,381,335
=========== ===========
</TABLE>
Page 10
<PAGE> 13
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(N) 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.
(O) Material Commitments
--------------------
The Company 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 to be $382,144, of which $265,528 has been incurred as of September 30,
2000. The Company contracted 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 land and building construction cost will be $3,246,344. Of these
estimated total costs, $746,470 has been incurred at September 30, 2000, leaving
estimated remaining costs of $2,499,874.
Management expects the project to be completed between March and May of 2001.
The Company entered into a twelve month construction loan with Columbian Bank
for $2,000,000 (see Note F) as partial financing of the project. The remaining
estimated costs of $499,874 will be financed 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 leasees.
The estimated tenant finish cost is approximately $472,500, which is included in
the total estimated land and building construction cost.
Page 11
<PAGE> 14
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 nine months ended
September 30, 1999 and the three months ended September 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 September 30, 2000 totaled $590,373 as
compared to $384,493 for the same period of 1999. For the nine months ended
September 30, 2000 and 1999, revenues totaled $2,000,715 and $1,192,260,
respectively. Revenues include life insurance premium, net investment income,
net realized investment gain and other income. Gross premium income for the
three months ended September 30, 2000 and the nine month ended September 30,
2000 totaled $428,110 and $1,539,343, respectively. Premium income for the same
periods in 1999 totaled $250,042 and $784,155, respectively. Of the $1,539,343
premium income in 2000, $404,225 was earned from renewal premium income.
Insurance operations commenced in 1999; therefore, no renewal premium income was
earned for the nine months ended September 30, 1999. Due to a more experienced
sales force in 2000, premium income earned on first year business increased to
$1,135,118 from $784,155 in 1999. Net investment income increased from $408,105
for the nine months ended September 30, 1999 to $500,153 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.
Benefits and expenses totaled $1,827,383 and $1,183,187 for the nine months
ended September 30, 2000 and 1999, respectively. The increase in life insurance
reserves totaled $420,317 for the nine months ended September 30, 2000 and
$271,734 during the same period of 1999. These reserves are actuarially
determined based on such
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factors as insured age, life expectancy, mortality and interest assumptions.
Commission expense totaled $687,743 and $457,066 for the nine months ended
September 30, 2000 and 1999, respectively. Commission expense is based on a
percentage of premium and is determined in the product design. 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. Costs
capitalized as deferred policy acquisition costs for the first nine months of
2000 and 1999 were $916,838 and $655,955, respectively. The related amortization
for the same periods totaled $432,768 and $166,255, respectively. Included in
miscellaneous taxes is premium tax expense, which totaled $30,459 and $13,488
for the nine months ended September 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 nine months of 2000, these fees totaled $91,698 as compared to $43,837
for the first nine months of 1999. The Company incurred fees totaling $25,619
and $14,413, respectively, during the three months ended September 30, 2000 and
1999.
Consolidated Financial Condition
--------------------------------
The following comparisons involve significant changes in the consolidated
balance sheets from December 31, 1999 to September 30, 2000:
Total assets increased from $12,381,335 at December 31, 1999 to $13,466,696 at
September 30, 2000. During the first nine months of 2000, the Company replaced
$2,558,752 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 $160,659 at
September 30, 2000. The Company's investment in real estate increased from
$325,169 at December 31, 1999 to $746,470 at September 30, 2000. The increase
represents improvements to the land, building construction costs, and
capitalized interest costs. During the third quarter of 2000, certain advances
to agents were converted to notes receivable. Notes receivable at September 30,
2000 totaled $14,471, net of a valuation allowance of $38,567.
Investments in related parties of $16,800 at September 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 $5,159 for the nine months ended September 30, 2000 resulted in the decrease
of Federal Income Tax Recoverable from December 31, 1999 to September 30, 2000.
Deferred policy acquisition costs, net of amortization, increased from $680,211
at December 31, 1999 to $1,164,281 at September 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 $2,091,212 at September 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 premiums received are
recorded as liabilities rather than income pursuant to Statement of Financial
Accounting Standard 97 "Accounting and Reporting by Insurance enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments." These annuity contract liabilities totaled $365,810 and $11,282
at September 30, 2000 and December 31, 1999, respectively. Life policy reserves
established due to the sale of life insurance totaled $374,298 and $794,615 at
December 31, 1999 and September 30, 2000, respectively. Deposits on pending
policy applications are submitted with new insurance applications. These
deposits either become premium income if the application is accepted or returned
if the application is denied. The decrease on these deposits is the result of
processing applications. At September 30, 2000 the Company has a note payable
balance of $217,501 resulting from draws on the construction loan.
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
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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.
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
nine months ended September 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
----------------------------------
(registrant)
/s/ Rickie D. Meyer Date November 10, 2000
------------------------------------------- -----------------------------
Rickie D. Meyer, President
/s/ Phillip M. Donnelly Date November 10, 2000
------------------------------------------- -----------------------------
Phillip M. Donnelly, Secretary/Treasurer
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