United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 2006.
[ ] Transition Report Under 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 small business issuer in its charter)
Kansas 48-1187574
------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
1303 S.W. First American Place Topeka, Kansas 66604
-------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number (785) 267-7077
----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $.10 Par Value - 4,257,057 shares as of November 14, 2006
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X ]
FIRST AMERICAN CAPITAL CORPORATION
INDEX TO FORM 10-QSB
Part I. FINANCIAL INFORMATION Page Numbers
--------------------------------- ------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2006
and December 31, 2005................................................. 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2006 and 2005 and for the
nine months ended September 30, 2006 and 2005......................... 5
Condensed Consolidated Statements of Comprehensive Income for the
three months ended September, 2006 and 2005 and for the
nine months ended September 30, 2006 and 2005......................... 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2006 and 2005......................... 7
Notes to Condensed Consolidated Financial Statements........................ 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................13
Item 3. Controls and Procedures............................................20
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................21
SIGNATURES..................................................................22
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Assets September 30, December 31,
2006 2005
----------------------- ----------------------
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost, $12,333,460
in 2006 and $13,960,005 in 2005) $ 12,149,418 $ 13,854,375
Equity securities (cost of $258,400 in 2006
and $458,150 in 2005) 268,570 456,760
274,564 274,564
Policy loans 163,729 103,493
Mortgage loans on real estate 1,690,954 1,566,382
Other investments 3,034,272 1,656,866
----------------------- ----------------------
Total investments 17,581,507 17,912,440
Cash and cash equivalents 700,498 249,109
Accrued investment income 210,220 250,984
Accounts receivable 267,738 272,200
Reinsurance receivables 95,602 78,725
Deferred policy acquisition costs (net of accumulated
amortization of $4,237,368 in 2006 and $3,712,369 in 2005) 5,212,470 5,133,244
Property and equipment (net of accumulated depreciation
of $927,809 in 2006 and $820,415 in 2005) 2,661,752 2,756,025
Other assets 249,333 24,935
----------------------- ----------------------
Total assets $ 26,979,120 $ 26,677,662
======================= ======================
See notes to condensed consolidated financial statements.
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
September December 31,
Liabilities and Shareholders' Equity 2006 2005
---------------------- ---------------------
Policy and contract liabilities:
Future annuity benefits $ 12,812,047 $ 10,301,546
Future policy benefits 5,911,045 5,267,805
Liability for policy claims 143,660 190,050
Policyholder premium deposits 107,123 146,354
Deposits on pending policy applications 25,921 9,361
Reinsurance premiums payable 54,974 107,334
Amounts held under reinsurance 43,480 219,079
---------------------- ---------------------
Total policy and contract liabilities 19,098,250 16,241,529
Commissions, salaries, wages and benefits payable 58,395 131,873
Other liabilities 247,852 180,086
Notes payable - 2,272,986
Deferred federal income taxes payable 515,331 527,941
---------------------- ---------------------
Total liabilities 19,919,828 19,354,415
Shareholders' equity:
Common stock, $.10 par value, 8,000,000 shares authorized;
5,449,578 shares issued and 4,257,057 shares outstanding
in 2006; and 5,449,578 issued and 4,257,057 shares
outstanding in 2005 544,958 544,958
Additional paid in capital 12,478,903 12,478,903
Accumulated deficit (3,706,116) (3,496,404)
Accumulated other comprehensive income (loss) (139,105) (84,862)
Less: Treasury stock held at cost (1,192,521 shares in 2006
and 1,192,521 in 2005) (2,119,348) (2,119,348)
---------------------- ---------------------
Total shareholders' equity 7,059,292 7,323,247
---------------------- ---------------------
Total liabilities and shareholders' equity $ 26,979,120 $ 26,677,662
====================== =====================
See notes to condensed consolidated financial statements.
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
----------------- ------------------ ----------------- -----------------
Revenues:
Gross premium income $ 1,014,212 $ 1,022,887 $ 3,250,585 $ 3,124,099
Reinsurance premiums assumed - 3,780 8,637 9,660
Reinsurance premiums ceded (143,560) (216,142) (456,433) (284,339)
----------------- ------------------ ----------------- -----------------
Net premium income 870,652 810,525 2,802,789 2,849,420
Net investment income 282,022 220,784 815,698 621,652
Net realized investment loss - (3,378) (70,017) (1,836)
Rental income 61,850 50,394 179,964 141,952
Other income 923 53 2,228 103
----------------- ------------------ ----------------- -----------------
Total revenue 1,215,447 1,078,378 3,730,662 3,611,291
Benefits and expenses:
Increase in policy reserves 207,914 211,750 643,239 890,182
Policyholder surrender values 103,454 59,909 251,375 170,056
Interest credited on annuities
and premium deposits 150,542 104,164 419,789 288,758
Death claims 183,106 140,479 478,137 346,479
Commissions 194,601 228,419 620,220 922,801
Policy acquisition costs
deferred (166,974) (174,678) (604,225) (954,007)
Amortization of deferred policy
acquisition costs 159,256 133,828 524,999 474,772
Salaries, wages, and employee
benefits 183,632 296,449 672,641 929,819
Miscellaneous taxes 37,167 31,374 96,519 109,343
Other operating costs and
expenses 248,356 205,389 837,680 999,256
----------------- ------------------ ----------------- -----------------
Total benefits and
expenses 1,301,054 1,237,083 3,940,374 4,177,459
----------------- ------------------ ----------------- -----------------
Income (Loss) before income tax expense $ (85,607) $ (158,705) $ (209,712) $ (566,168)
----------------- ------------------ ----------------- -----------------
Income tax expense (benefit) - 1,410 - 16,361
----------------- ------------------ ----------------- -----------------
Net Income (Loss) $ (85,607) $ (160,115) $ (209,712) $ (582,529)
================= ================== ================= =================
Net Income (Loss) per common
share - basic and diluted $ (0.02) $ (0.04) $ (0.05) $ (0.13)
================= ================== ================= =================
See notes to condensed consolidated financial statements.
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Unaudited) Three
months ended Nine
months ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
----------------- ------------------ ------------------ ------------------
Net income (loss) $ (85,608) $ (160,115) $ (209,712) $ (582,529)
Unrealized gain (loss) on available-for-sale
securities:
Unrealized holding gain (loss) during the
period 635,421 (337,597) 45,617 (262,015)
Less: Reclassification for gains (loss)
included in net income 182,486 (3,378) 112,469 (1,836)
Tax benefit (expense) (90,588) 66,492 12,609 51,433
----------------- ------------------ ------------------ ------------------
Other comprehensive income (loss) 362,347 (267,727) (54,243) (208,746)
----------------- ------------------ ------------------ ------------------
Comprehensive income (loss) $ 276,739 $ (427,842) $ (263,955) $ (791,275)
================= ================== ================== ==================
Comprehensive income (loss) per common
share-basic and diluted $ 0.07 $ (0.10) $ (0.06) $ (0.18)
================= ================== ================== ==================
See notes to condensed consolidated financial statements.
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30, September 30,
2006 2005
------------------- -------------------
Operating activities:
Net income (loss) $ (209,712) $ (582,529)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Interest credited on annuities and premium deposits 414,383 288,758
Net realized investment loss 70,017 1,836
Provision for depreciation 107,395 114,555
Settlement loss - 35,465
Amortization of premium and accretion of discount on
fixed maturity and short-term investments (96,195) 34,204
Provision for deferred federal income taxes - 16,361
Decrease in accrued investment income 40,764 17,345
(Increase) decrease in accounts receivable 4,462 (206,670)
Increase in reinsurance receivables (16,877) (658,968)
Acquisition costs capitalized (604,225) (954,007)
Amortization of deferred acquisition costs 524,999 474,772
Increase in policy loans (60,236) (15,899)
(Increase) decrease in other assets (224,398) 6,676
Increase in future policy benefits 643,240 890,182
Increase (decrease) in liability for policy claims (46,390) 29,000
Increase (decrease) in deposits on pending policy applications 16,560 (1,174)
Increase (decrease) in reinsurance premiums payable (52,360) 220,760
Increase (decrease) in amounts held under reinsurance (175,599) 300,883
Increase (decrease) in commissions, salaries, wages and
benefits payable (73,478) 18,298
Increase in other liabilities 67,766 168,248
------------------- -------------------
Net cash provided by operating activities $ 330,116 $ 198,096
See notes to condensed consolidated financial statements.
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
September 30, September 30,
2006 2005
------------------- ------------------
Investing activities:
Purchase of available-for-sale fixed maturities $ (1,334,923) $ (1,565,239)
Sale of available-for-sale fixed maturities 2,258,015 400,080
Maturity of available-for-sale fixed maturities 571,000 1,156,623
Purchase of available-for-sale equities - (247,750)
Sale of available-for-sale equities 222,699 25,000
Additions to property and equipment (13,122) (133,870)
Purchase of other investments (1,593,368) (997,900)
Maturity of other investments 351,643 108,333
Purchase of mortgage loans (167,000) (889,600)
Payments received on mortgage loans 42,428 16,293
------------------- ------------------
Net cash provided by (used in) investing activities 337,372 (2,128,030)
Financing activities:
Proceeds from note payable - 570,355
Payments on notes payable (2,272,986) (64,996)
Deposits on annuity contracts 2,096,118 2,793,590
Surrenders on annuity contracts - (496,396)
Policyholder premium deposits 3,070 23,938
Withdrawals on policyholder premium deposits (42,301) (60,245)
Purchase of treasury stock - (770,355)
------------------- ------------------
Net cash provided by (used in) financing activities
(216,099) 1,995,891
------------------- ------------------
Increase in cash and cash equivalents 451,389 65,957
Cash and cash equivalents, beginning of period 249,109 527,028
------------------- ------------------
Cash and cash equivalents, end of period $ 700,498 $ 592,985
=================== ==================
Supplemental disclosure of cash activities:
Interest paid $ 62,295 $ 105,084
=================== ==================
Income taxes paid $ - $ -
=================== ==================
See notes to condensed consolidated financial statements.
FIRST AMERICAN CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements of First American
Capital Corporation and its Subsidiaries (the "Company") for the three month and
nine month periods ended September 30, 2006 and 2005 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 accounting principles generally accepted in the
United States of America, 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, 2005. The results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
2. Intercompany Sale of Building and Payoff of Related Mortgage Notes Payable
On May 1, 2006, the Company sold its home office building to First Life America
Corporation ("FLAC") for $2,800,000. No gain was recognized on this intercompany
sale. The Company paid $1,722,053 to Vision Bank to repay the mortgage note from
the proceeds resulting from the sale of the home office building. Also, the
Company paid $522,822 to Brooke Credit Corporation ("Brooke") to repay the
second mortgage from the proceeds from the sale of the home office building.
3. Net Earnings Per Common Share
Net loss per common share for basic and diluted earnings per share is based upon
the weighted average number of common shares outstanding during each period. On
March 2, 2005 the Company acquired 450,500 shares of its common stock from
Brooke. The weighted average number of common shares outstanding was 4,257,057
and 4,337,239 for the nine months ended September 30, 2006 and September 30,
2005, respectively. The weighted average number of common shares outstanding was
4,257,057 and 4,237,578 for the three months ended September 30, 2006 and
September 30, 2005, respectively.
4. Federal Income Taxes
Current taxes are provided based on estimates of the projected effective annual
tax rate. Deferred taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has elected
to file a consolidated federal income tax return with its subsidiaries, First
Life America Corporation ("FLAC") and First Life Brokerage, Inc. (FLBI). FLAC is
taxed as a life insurance company under the provisions of the Internal Revenue
Code and had to file a separate tax return for its initial five years of
existence, which covers the period from November 1998 through December 31, 2002.
5. Commitments and Contingencies
On November 12, 2003, the Company filed a petition in the District Court of
Shawnee County, Kansas asserting claims against Rickie D. Meyer ("Meyer"), the
Company's former President, arising, in part, out of Meyer's employment with the
Company. Among other things, the Company sought to recover expense
reimbursements previously paid to Meyer and Company funds allegedly
misappropriated by Meyer. On August 8, 2003, the Company settled a claim that it
had breached various marketing agreements with AF&L, a long-term care insurance
company, and certain of its affiliates, through the payment to AF&L of $150,000
plus $15,000 in attorney fees.
On December 12, 2003, Meyer filed an Answer and Counterclaim against the Company
asserting claims for defamation and breach of employment agreement.
5. Commitments and Contingencies (Continued)
On August 1, 2005, the District Court of Shawnee County, Kansas entered an
order, by agreement, submitting the claims to binding arbitration. Following the
conclusion of the arbitration, the parties entered into a settlement agreement
in November of 2005, pursuant to which the Company agreed to pay Meyer $38,500
with Meyer and the Company agreeing to settle all claims. The Company paid the
amount to Meyer in February of 2006. This claim was accrued as of December 31,
2005.
6. Reinsurance
Effective September 29, 2005, the Company and Wilton Reassurance Company
("Wilton Re"), of Wilton, CT, executed a binding letter of intent whereby both
parties agreed that the Company would cede the simplified issue version of its
Golden Eagle Whole Life (Final Expense) product to Wilton Re on a 50/50 quota
share original term coinsurance basis. The letter of intent was executed on a
retroactive basis to cover all applicable business issued by the Company
subsequent to January 1, 2005. Wilton Re agreed to provide various commission
and expense allowances to the Company in exchange for the Company ceding 50% of
the applicable premiums to Wilton Re as they are collected. As of June 24, 2006,
Wilton Re terminated the reinsurance agreement, for new business issued after
the termination date.
7. Liquidity and Capital Resources
During the quarters ended September 30, 2006, and 2005, the Company maintained
liquid assets sufficient to meet operating demands, while continuing to utilize
excess liquidity to purchase various investments. Net cash provided by operating
activities during the nine months ended September 30, 2006 and 2005 totaled
$330,116 and $198,096, respectively.
As of September 30, 2006, the Company and its subsidiaries had consolidated cash
reserves and liquid investments of approximately $13,101,686, as compared with
$14,208,516 as of September 30, 2005. Of these amounts, cash reserves and liquid
investments at FLAC as of these dates were approximately $12,725,026 and
$13,435,302, respectively. FLAC generally receives adequate cash flow from
premium collections and investment income to meet the obligations of its
insurance operations. Insurance policy liabilities are primarily long-term and
generally are paid from future cash flows. Cash collected from deposits on
annuity contracts and policyholder premium deposits are recorded as cash flows
from financing activities. Due to insurance regulatory restrictions, as noted
above, cash generated by FLAC cannot necessarily be used to fund the cash needs
of the parent company on a stand-alone basis.
As of September 30, 2006, cash reserves and liquid investments at the parent
company level were approximately $374,366 as compared with $754,116 as of
September 30, 2005. Cash reserves for FLBI were $2,294 at September 30, 2006 and
$19,098 as of September 30, 2005. Based on the decreasing level of cash reserves
and nonliquid investments at the parent company level over the past few years,
in 2005, management began to pursue all reasonable alternatives for increasing
cash reserves at the parent company level. As an initial step in this process,
the Board of Directors of each of the parent company and FLAC approved a
transaction pursuant to which FLAC agreed to purchase the Company's home office
building and the real property on which it is located from the parent company at
its value of $2,800,000, which was determined based on an independent appraisal.
On March 28, 2006, the Kansas Insurance Department (KID) approved this
transaction pursuant to a Form D (Prior Notice of a Transaction) filed by the
Company. Proceeds from the sale were used by the parent company to pay off the
two creditors that held mortgages on the building, which resulting in interest
savings of approximately $890,000 over the life of the loans. In addition, the
transaction provided the parent company with approximately $478,000 in cash.
This cash will be used to fund operations at the parent company.
7. Liquidity and Capital Resources (Continued)
Based on currently forecasted cash flow levels, management anticipates that the
$478,000 in cash provided to the parent company as a result of the
aforementioned transaction plus the parent company's existing cash reserves will
fund operations at the parent company level into mid 2007. Therefore, in the
interim, management will continue to explore all reasonable opportunities to
provide additional capital to the parent company through the sale of new equity
securities or debt securities, or through borrowed funds. Successful efforts in
this arena will not only help to remedy the parent company's current cash
situation, but also allow management to fully implement its business development
plan of expanding the Company's product lines and marketing efforts through the
infusion of additional capital into FLAC's insurance operations and FLBI's
brokerage operations. If these efforts are not successful, however, then the
Company will have no choice but to cease operations as a public company and
liquidate its assets, which primarily are the insurance operations of its
subsidiary FLAC. There is no assurance of what if any value could be realized by
the parent company in this event.
Pursuant to these efforts, on October 6, 2006, the Company executed a Stock
Purchase and Sale Agreement (the "Agreement") with Brooke Corporation ("Brooke")
pursuant to which, subject to the conditions stated in the Agreement, Brooke has
agreed to acquire newly issued shares of the common stock of FACC in a two step
transaction that will result in Brooke owning 55% of the then issued and
outstanding shares of common stock. In consideration therefore, Brooke will (i)
pay to FACC $3,000,000 in cash and (ii) enter into a Brokerage Agreement
pursuant to which, among other things, CJD & Associates, L.L.C., a Brooke
subsidiary, will cause all of its new managing general agency loan brokerage
business to be transacted through First Life Brokerage, Inc. ("FLB"), a FACC
subsidiary. In the Agreement, the pretax profits of FLB over a three year period
shall be not less than $6,000,000 or Brooke shall be obligated to contribute
funds to FACC as additional consideration for the issuance of the shares of FACC
common stock acquired pursuant to the Agreement to the extent the pretax profit
goal is not made under such schedule. The closing of the transactions
contemplated under the Agreement are subject to a number of conditions,
including the approval of the Kansas Department of Insurance. Although there is
no assurance that these conditions will be met and that the closing of these
transactions will occur, management currently anticipates that the closing will
occur in the fourth quarter of 2006.
8. Other Regulatory Matters
FLAC is licensed to transact life and annuity business in the states of Kansas,
Texas, Illinois, Oklahoma, North Dakota, Kentucky and Nebraska. Due to the
varied processes of obtaining admission to write business in new states,
management cannot reasonably estimate the time frame of expanding its marketing
presence.
FLAC was previously licensed to transact business in the state of Ohio. FLAC's
license in Ohio was suspended during the fourth quarter of 2005. The suspension
resulted from FLAC's statutory basis capital and surplus as of September 30,
2005 of $2,495,616 being less than the minimum required level in Ohio of
$2,500,000. As of September 30, 2006, FLAC's statutory basis capital and surplus
was $2,971,245, which is in excess of the aforementioned minimum requirement.
FLAC appealed the suspension and had its license reinstated on July 27, 2006.
9. Segment Information
The operations of the Company and its subsidiaries have been classified into two
operating segments as follows: life and annuity insurance operations and
corporate and brokerage operations. Segment information for the three and nine
months ended September 30, 2006 and 2005 and as of September 30, 2006 and
December 31, 2005 is as follows:
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
---------------- ---------------- ----------------- ----------------
Revenues:
Life and annuity insurance operations $ 1,215,217 $ 1,023,392 $ 3,648,573 $ 3,445,840
Corporate and brokerage operations 230 54,986 82,089 165,451
---------------- ---------------- ----------------- ----------------
Total $ 1,215,447 $ 1,078,378 $ 3,730,662 $ 3,611,291
================ ================ ================= ================
Income (loss) before income taxes:
Life and annuity insurance operations $ 42,059 $ 16,190 $ 218,834 $ 99,886
Corporate and brokerage operations (127,666) (174,895) (428,546) (666,054)
---------------- ---------------- ----------------- ----------------
Total $ (85,607) $ (158,705) $ (209,712) $ (566,168)
================ ================ ================= ================
Depreciation and amortization expense:
Life and annuity insurance operations $ 175,494 $ 133,828 $ 553,203 $ 474,772
Corporate and brokerage operations 9,308 31,685 63,460 114,555
---------------- ---------------- ----------------- ----------------
Total $ 184,802 $ 165,513 $ 616,663 $ 589,327
================ ================ ================= ================
September 30, December 31,
2006 2005
----------------- ----------------
Assets:
Life and annuity insurance operations $ 26,458,686 $ 23,337,149
Corporate and brokerage operations 520,434 3,340,513
----------------- ----------------
Total $ 26,979,120 $ 26,677,662
================= ================
ITEM 2. 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" that 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 could 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 statement. In addition to the risks and uncertainties of
ordinary business operations, the forward-looking statements of the Company
referred to above are also subject to the following risks and uncertainties,
among others: (i) the strength of the United States economy in general and the
strength of the local economies in which the Company does business; (ii)
inflation, interest rates, market and monetary fluctuations and volatility;
(iii) the timely development of and acceptance of new products and services and
perceived overall value of these products and services by existing and potential
customers; (iv) the persistency of existing and future insurance policies sold
by the Company; (v) the effect of changes in laws and regulations with which the
Company must comply; and (vi) the cost and effects of litigation and of
unexpected or adverse outcomes in litigation.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Critical Accounting Policies and Estimates
------------------------------------------
The accounting policies below have been identified as critical to the
understanding of the results of operations and financial position. The
application of these critical accounting policies in preparing the financial
statements requires management to use significant judgments and estimates
concerning future results or other developments, including the likelihood,
timing or amount of one or more future transactions. Actual results may differ
from these estimates under different assumptions or conditions. On an ongoing
basis, estimates, assumptions and judgments are evaluated based on historical
experience and various other information believed to be reasonable under the
circumstances.
Investments
-----------
The Company's principal investments are in fixed maturity securities.
Investments are exposed to three primary sources of investment risk: credit,
interest rate and liquidity. The fixed maturity securities, which are all
classified as available for sale, are carried at their fair value in the
Company's balance sheet. The investment portfolio is monitored regularly to
ensure that investments which may be other than temporarily impaired are
identified in a timely fashion and properly valued, and that impairments are
charged against earnings as realized investment losses. The valuation of the
investment portfolio involves a variety of assumptions and estimates, especially
for investments that are not actively traded. Fair values are obtained from
broker statements.
Deferred Policy Acquisition Costs
---------------------------------
Deferred policy acquisition costs, principally agent commissions and other
selling, selection and issue costs, which vary with and are directly related to
the production of new business, are capitalized as incurred. These deferred
costs are then amortized in proportion to future premium revenues or the
expected future profits of the business, depending upon the type of product.
Profit expectations are based upon assumptions of future interest spreads,
mortality margins, expense margins and policy and premium persistency
experience. These assumptions involve judgment and are compared to actual
experience on an ongoing basis.
Future Policy Benefits
----------------------
The Company establishes liabilities for amounts payable under insurance
policies. Generally, benefits are payable over an extended period of time and
the reserves established for future policy benefits are dependent on the
assumptions used in the pricing of the products. Principal assumptions used in
pricing policies and in the establishment of reserves for future
policy benefits are mortality, morbidity, expenses, persistency, investment
returns and inflation. Differences between actual experience and assumptions
used in the pricing of these policies and in the establishment of liabilities
may result in variability of net income in amounts which may be material.
Future Annuity Benefits
-----------------------
Future annuity benefits relate to deferred annuity contracts. The account
balances for deferred annuity contracts are equal to the cumulative deposits
less any applicable contract charges plus interest credited. The profitability
of these products is also dependent on principal assumptions similar to
traditional insurance products, and differences between actual experience and
pricing assumptions may result in variability of net income in amounts which may
be material.
Premiums
--------
Premiums for traditional life insurance products are reported as revenue when
due. Traditional insurance products include whole life and term life. Deposits
relate to deferred annuity products. The cash flows from deposits are credited
to policyholder account balances. Deposits are not recorded as revenue.
Income Taxes
------------
Deferred income taxes are recorded on the differences between the tax bases of
assets and liabilities and the amounts at which they are reported in the
consolidated financial statements. Recorded amounts are adjusted to reflect
changes in income tax rates and other tax law provisions as they become enacted.
Reinsurance
-----------
Reinsurance is one of the tools that the Company uses to accomplish its business
objectives. A variety of reinsurance vehicles are currently in use. Reinsurance
supports a multitude of corporate objectives including managing statutory
capital, reducing volatility and reducing surplus strain. At the customer level
it increases the Company's capacity, provides access to additional underwriting
expertise, and generally makes it possible for the Company to offer products at
competitive levels that the Company could not otherwise bring to market without
reinsurance support.
Recent Developments
-------------------
On November 1, 2006, the Company's independent accountant, BKD, LLP, ("BKD")
notified the Company that it was resigning as the Company's independent
certified public accounting firm. BKD stated that its resignation was not a
result of any disagreements with either the management or audit committee of the
Company. BKD's accountant's reports for the Company's financial statements for
the Company's two most recent fiscal years, or any later interim period, did not
contain adverse opinions or disclaimers of opinion, nor were any reports
modified as to uncertainty, audit scope or accounting principles. BKD's
resignation was of its own volition and a change of accountants was not
recommended or approved by the board of directors or an audit or similar
committee of the board of directors.
At no time during the two most recent fiscal years or the interim period through
November 1, 2006 did the Company have any disagreements with BKD on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to BKD's satisfaction, would
have caused BKD to make reference to the subject matter of the disagreement in
connection with its accountant's report.
On November 6, 2006, the Company engaged Summers, Spencer & Callison, CPAs
("SSC"), of Topeka, Kansas, to be the Company's new independent certified public
accounting firm. SSC was selected by the Company due to, among other factors,
its proximity to the Company's location in Topeka, Kansas, and the familiarity
of SSC with the industry within which the Company operates.
Financial Condition
-------------------
Significant changes in the condensed consolidated balance sheets from December
31, 2005 to September 30, 2006 are highlighted below.
Total assets increased from $26,677,662 at December 31, 2005 to $26,979,120 at
September 30, 2006. The increase in total assets is primarily attributable to
the investment of premiums received during the year. Given the long-term nature
of the policy and contract liabilities associated with these premiums,
management is able to invest these premiums for a period of time until a payout
of policy benefits is required.
The Company's available-for-sale fixed maturity securities had a fair value of
$12,149,418 and $13,854,375 at September 30, 2006 and December 31, 2005,
respectively. This investment portfolio is reported at market value with
unrealized gains and losses, net of applicable deferred taxes, reflected as a
separate component of accumulated other comprehensive income. The decrease is
attributable to the sale of FLAC owned investments to facilitate the purchase of
the building from the Company. Credit risk is limited by emphasizing investment
grade securities and by diversifying the investment portfolio among various
investment instruments. Certain cash balances exceed the maximum insurance
protection of $100,000 provided by the Federal Deposit Insurance Corporation.
However, cash balances exceeding this maximum are protected through additional
insurance. As a result, management believes that significant concentrations of
credit risk do not exist.
The Company's available-for-sale equity securities had a fair value of $268,570
and $456,760 at September 30, 2006 and December 31, 2005, respectively. This
investment portfolio is reported at market value with unrealized gains and
losses, net of applicable deferred taxes, reflected as a separate component of
accumulated other comprehensive income. The decrease is attributable to a FLAC
owned investment that was sold to facilitate the purchase of the home office
building from the Company.
Mortgage loans on real estate increased from $1,566,382 at December 31, 2005 to
$1,690,954 at September 30, 2006. The increase is attributable to the purchase
of an additional mortgage loan on a commercial property. The Company currently
owns seven mortgage loans. The Company may purchase more of these types of
investments in the future in limited quantities in an effort to enhance the
Company's investment portfolio yield.
Other investments increased from $1,656,866 at December 31, 2005 to $3,034,272
at September 30, 2006. The increase is attributable to the purchase of
additional investments in lottery prize cash flows during the year. These other
investments involve purchasing assignments of the future payment rights from
lottery winners at a discounted price sufficient to meet the Company's yield
requirements. Payments on these other investments will be made by state run
lotteries and as such are backed by the general credit of the respective state.
The Company may purchase more of these types of investments in the future in
limited quantities in an effort to enhance the Company's investment portfolio
yield.
Cash and cash equivalents increased to $700,498 at September 30, 2006 from
$249,109 at December 31, 2005. Refer to the statement of cash flows for sources
and uses of cash.
Deferred policy acquisition costs, net of amortization, increased from
$5,133,244 at December 31, 2005 to $5,212,470 at September 30, 2006 resulting
from the capitalization of acquisition expenses related to the sales of life
insurance. These acquisition expenses include commissions on first year
business, medical exam and inspection report fees, salaries of employees
directly involved in the marketing, underwriting and policy issuance functions.
Management of the Company
reviews the recoverability of deferred acquisition costs on a quarterly basis
based on current trends as to persistency, mortality and interest. These trends
are compared to the assumptions used in the establishment of the original asset
in order to assess the need for impairment. Based on the results of the
aforementioned procedures performed by management, no impairments have been
recorded against the balance of deferred acquisition costs during the nine
months ended September 30, 2006.
Liabilities increased to $19,919,828 at September 30, 2006 from $19,354,415 at
December 31, 2005. Reserves for future policy benefits, established from the
sale of life insurance increased $643,240, or 12% from December 31, 2005 to
September 30, 2006. These reserves are actuarially determined based on such
factors as insured age, life expectancy, mortality and interest assumptions.
Reserves for future annuity benefits increased $2,510,501 or 24% from December
31, 2005 to September 30, 2006. In 2005 and 2006, annuity contract liabilities
increased due to the introduction of three new annuity products and continued
considerations received on the Company's FA2000 product.
Reinsurance premiums payable decreased from $107,334 at December 31, 2005 to
$54,974 at September 30, 2006. The decrease during the nine months is
representative of the balance due to Wilton Re in conjunction with the
reinsurance of the Company's Golden Eagle Whole Life (Final Expense) product.
The decrease is due to the termination of the reinsurance treaty on June 24,
2006.
Amounts held under reinsurance decreased from $219,079 at December 31, 2005 to
$43,480 at September 30 2006. The decrease during the nine months is
attributable to the termination of the reinsurance treaty with Wilton Re on June
24, 2006. Amount held under reinsurance represents the unearned portion of
commission allowances due to the Company by Wilton Re in conjunction with the
reinsurance of the Company's Golden Eagle Whole Life (Final Expense) product.
Commission allowances are paid to the Company on an annualized basis and
initially recorded by the Company as a liability. The liability is subsequently
released and applied against policy acquisition costs over the first policy year
as premiums are paid on the applicable business.
Other liabilities increased $67,766 from $180,086 at December 31, 2005 to
$247,852 at September 30, 2006. The increase is attributable to timing factors
associated with the payment of significant invoices for professional services
and property taxes.
Notes payable were at $0 at September 30, 2006, a decrease from $2,272,986 at
December 31, 2005. The decrease is due to the Company paying off Vision Bank and
Brooke Credit Corporation notes from proceeds of the sale of the home office
building to FLAC.
Deferred federal income taxes payable decreased to $515,331 at September 30,
2006 from $527,941 at December 31, 2005. Deferred federal income taxes payable
are established based on timing differences between income recognized for
financial statement purposes and taxable income for the Internal Revenue
Service. These deferred taxes are based on the operations of the Company and
FLAC and on unrealized losses on available-for-sale securities. The decrease in
deferred taxes payable is primarily attributable to the increase in unrealized
losses in the investment portfolio at September 30, 2006 compared to December
31, 2005.
Results of Operations
---------------------
Significant components of revenues include life insurance premiums (net of
reinsurance) and net investment income. The following table provides information
concerning net premium income for the three and nine months ended September 30,
2006 and 2005:
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
---------------- ---------------- ---------------- -----------------
Whole life insurance:
First year $ 138,164 $ 310,783 $ 552,982 $ 810,797
Renewal 869,844 707,413 2,666,008 2,285,428
Term insurance:
First year 836 935 3,147 1,912
Renewal 2,168 1,856 15,448 14,842
Single premium 3,200 1,900 13,000 11,120
---------------- ---------------- ---------------- -----------------
Gross premium income 1,014,212 1,022,887 3,250,585 3,124,099
Reinsurance premiums assumed - 3,780 8,637 9,660
Reinsurance premiums ceded (143,560) (216,142) (456,433) (284,339)
---------------- ---------------- ---------------- -----------------
Net premium income $ 870,652 $ 810,525 $ 2,802,789 $ 2,849,420
================ ================ ================ =================
Net premium income decreased $46,631 or 2% from the nine months ended September
30, 2006 compared to the same period during 2005. Total first year whole life
premium decreased $257,815 or 32% for the nine months ended September 30, 2006
compared to the same period during 2005. The decrease is attributable to a
decrease in the production of the Company's Golden Eagle Whole Life (Final
Expense) product.
Management released several new annuity, term and whole life products during
2005. The Company's goal in introducing these new products is to diversify the
Company's product mix and to manage its first year production to both the needs
and capacity of the Company.
Total renewal year whole life premiums increased $380,580 or 17% from the nine
months ended September 30, 2005 to the same period during 2006. Renewal premiums
reflect the premium collected in the current year for those policies that have
surpassed their first anniversary. Renewal premiums will continue to increase
unless premiums lost from surrenders, lapses, settlement options or application
of the non-forfeiture options, exceed prior year's first year premium, other
than single premium.
Reinsurance premiums ceded increased $172,094 or 61% for the nine months ended
September 30, 2006, compared to the same period in 2005. The increase is
primarily attributable to premiums paid to Wilton Re in conjunction with the
reinsurance of the Company's Golden Eagle Whole Life (Final Expense) product.
Net premium income increased $60,127 or 7% from the three months ended September
30, 2006 to the same period during 2005. Total first year whole life premium
decreased $172,619 or 56% from the three months ended September 30, 2006
compared to the same period during 2005. The decrease is attributable to a
decrease in the production of the Company's Golden Eagle Whole Life (Final
Expense) product.
Total renewal year whole life premiums increased $162,431 or 23% from the three
months ended September 30, 2005 to the same period during 2006.
Reinsurance premiums ceded decreased $72,582 or 34% for the three months ended
September 30, 2006, compared to the same period in 2005. The decrease is
primarily attributable to the termination of the treaty to reinsure the
Company's Golden Eagle Whole Life (Final Expense) product with Wilton Re on June
24, 2006.
Net investment income increased $194,046 or 31% for the nine months ended
September 30, 2006, compared to the same period for 2005. The increase is due to
an increase of average yields on the Company's portfolio and the increase in the
investment portfolio. The Company's investment strategy is focused primarily on
matching maturities to the anticipated cash needs of the Company, but also
attempts to match the investment mix to others within the Company's industry
peer group.
Net realized investment loss increased $68,181 from the nine months ended
September 30, 2006 to the same period during 2005. The decrease is attributable
to the sale of a significant portion of the Company's investment portfolio
during the nine months ended September 30, 2006. Losses totaling $92,968 were
realized upon the sale of these bonds and gains of $22,949 were realized on the
sale of stock.
Benefits and expenses totaled $3,940,374 and $4,177,459 during the nine months
ended September 30, 2006 and 2005, respectively. Included in total benefits and
expenses were policy reserve increases of $643,239 and $890,182 during the nine
months ended September 30, 2006 and 2005, respectively. Benefits and expenses
totaled $1,301,054 and $1,237,083 during the three months ended September 30,
2006 and 2005, respectively. Included in total benefits and expenses were policy
reserve increases of $207,914 and $211,750 during three months ended September
30, 2006 and 2005, respectively. Life insurance reserves are actuarially
determined based on such factors as insured age, life expectancy, mortality and
interest assumptions. As more life insurance is written and existing policies
reach additional durations, policy reserves will continue to increase.
Policyholder surrender values increased $81,319 from $170,056 during the nine
months ended September 30, 2005 to $251,375 during the same period in 2006. This
increase is attributable to the maturation of policies.
Interest credited on annuities and premium deposits totaled $419,789 and
$288,758 for the nine months ended September 30, 2006 and 2005, respectively.
The increase during 2006 of $131,031or 45% is primarily a result of the increase
in annuity fund balances. Both interest credited on annuities and premium
deposits have increased as a result of the increase in the number of policies
inforce. The average interest credit rate on annuities and premium deposits has
increased from 4.7% to 5.1% during the nine months ended September 30, 2005 and
2006, respectively.
Death claims increased $131,658, or 38%, for the nine months ended September 30,
2006, compared to the same period for 2005. The increase is attributable to the
increase in the number of policies inforce and the continued maturation of those
policies. Mortality experienced by the Company to date is within management's
expectations.
Commission expense totaled $620,220 and $922,801 for the nine months ended
September 30, 2006 and 2005, respectively. Commission expense is based on a
percentage and is determined in the product design. Additionally, higher
percentage commissions are paid for first year business rather than the renewal
year. Commission expense decreased $302,581 primarily due to a decrease in first
year production and commission allowances received on reinsured business due
from Wilton Re of $261,122 during the quarter being netted against the
commission expense. Commission allowances received on reinsurance business
essentially serve as a reimbursement to the Company for acquisition costs
incurred to write business.
Salaries, wages and employee benefits decreased $257,178 from $929,819 for the
nine months ended September 30, 2005, to $672,641 for the same period in 2006.
The decrease in 2006 is primarily attributable to a decrease in employee
headcount resulting in decreased employee salary and benefit expenses.
Other operating costs and expenses totaled $837,680 and $999,256 for the nine
months ended September 30, 2006 and 2005, respectively. The net decrease of
$161,576, or 16%, was primarily due to lower operating costs, reimbursement from
Wilton Re in the amount of $99,551 for administering its portion of the
reinsured Final Expense business and a loss on a Treasury Stock transaction of
$35,465 recognized in March 31, 2005. The Company had no Treasury Stock
transactions for the same period in 2006.
As a result of the items noted above the Company had a net loss before income
tax expense of $209,712 and $566,168 for the nine months ended September 30,
2006 and 2005, respectively.
Liquidity and Capital Resources
-------------------------------
During the quarters ended September 30, 2006, and 2005, the Company maintained
liquid assets sufficient to meet operating demands, while continuing to utilize
excess liquidity to purchase various investments. Net cash provided by operating
activities during the nine months ended September 30, 2006 and 2005 totaled
$330,116 and $198,096, respectively.
As of September 30, 2006, the Company and its subsidiaries had consolidated cash
reserves and liquid investments of approximately $13,101,686, as compared with
$14,208,516 as of September 30, 2005. Of these amounts, cash reserves and liquid
investments at FLAC as of these dates were approximately $12,725,026 and
$13,435,302, respectively. FLAC generally receives adequate cash flow from
premium collections and investment income to meet the obligations of its
insurance operations. Insurance policy liabilities are primarily long-term and
generally are paid from future cash flows. Cash collected from deposits on
annuity contracts and policyholder premium deposits are recorded as cash flows
from financing activities. Due to insurance regulatory restrictions, as noted
above, cash generated by FLAC cannot necessarily be used to fund the cash needs
of the parent company on a stand-alone basis.
As of September 30, 2006, cash reserves and liquid investments at the parent
company level were approximately $374,366 as compared with $754,116 as of
September 30, 2005. Cash reserves for FLBI were $2,294 at September 30, 2006 and
$19,098 as of September 30, 2005. Based on the decreasing level of cash reserves
and nonliquid investments at the parent company level over the past few years,
in 2005, management began to pursue all reasonable alternatives for increasing
cash reserves at the parent company level. As an initial step in this process,
the Board of Directors of each of the parent company and FLAC approved a
transaction pursuant to which FLAC agreed to purchase the Company's home office
building and the real property on which it is located from the parent company at
its value of $2,800,000, which was determined based on an independent appraisal.
On March 28, 2006, the Kansas Insurance Department (KID) approved this
transaction pursuant to a Form D (Prior Notice of a Transaction) filed by the
Company. Proceeds from the sale were used by the parent company to pay off the
two creditors that held mortgages on the building, which resulting in interest
savings of approximately $890,000 over the life of the loans. In addition, the
transaction provided the parent company with approximately $478,000 in cash.
This cash will be used to fund operations at the parent company.
Based on currently forecasted cash flow levels, management anticipates that the
$478,000 in cash provided to the parent company as a result of the
aforementioned transaction plus the parent company's existing cash reserves will
fund operations at the parent company level into mid 2007. Therefore, in the
interim, management will continue to explore all reasonable opportunities to
provide additional capital to the parent company through the sale of new equity
securities or debt securities, or through borrowed funds. Successful efforts in
this arena will not only help to remedy the parent company's current cash
situation, but also allow management to fully implement its business development
plan of expanding the Company's product lines and marketing efforts through the
infusion of additional capital into FLAC's insurance operations and FLBI's
brokerage operations. If these efforts are not successful, however, then the
Company will have no choice but to cease operations as a public company and
liquidate its assets, which primarily are the insurance operations of its
subsidiary FLAC. There is no assurance of what if any value could be realized by
the parent company in this event.
Liquidity and Capital Resources (Continued)
-------------------------------------------
Pursuant to these efforts, on October 6, 2006, the Company executed a Stock
Purchase and Sale Agreement (the "Agreement") with Brooke Corporation ("Brooke")
pursuant to which, subject to the conditions stated in the Agreement, Brooke has
agreed to acquire newly issued shares of the common stock of FACC in a two step
transaction that will result in Brooke owning 55% of the then issued and
outstanding shares of common stock. In consideration therefore, Brooke will (i)
pay to FACC $3,000,000 in cash and (ii) enter into a Brokerage Agreement
pursuant to which, among other things, CJD & Associates, L.L.C., a Brooke
subsidiary, will cause all of its new managing general agency loan brokerage
business to be transacted through First Life Brokerage, Inc. ("FLB"), a FACC
subsidiary. In the Agreement, the pretax profits of FLB over a three year period
shall be not less than $6,000,000 or Brooke shall be obligated to contribute
funds to FACC as additional consideration for the issuance of the shares of FACC
common stock acquired pursuant to the Agreement to the extent the pretax profit
goal is not made under such schedule. The closing of the transactions
contemplated under the Agreement are subject to a number of conditions,
including the approval of the Kansas Department of Insurance. Although there is
no assurance that these conditions will be met and that the closing of these
transactions will occur, management currently anticipates that the closing will
occur in the fourth quarter of 2006.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. This information is accumulated and
communicated to the Company's management to allow timely decisions regarding
disclosure. The Company's Chief Executive Officer and President conducted an
evaluation of the Company's disclosure controls and procedures as of the end of
the period covered by this report. Based upon the evaluation of those controls
and procedures, the Chief Executive Officer and President of the Company
concluded that the Company's disclosure controls and procedures are effective in
alerting on a timely basis, material information required to be disclosed in the
Company's periodic filings except as set forth in the following paragraphs.
In connection with its review of the financial statements filed with this
Amendment, the Company's independent public accounting firm advised management
that it had noted certain matters that it considered to be "material
weaknesses," which is a significant deficiency, or a combination of significant
deficiencies, in the Company's internal financial procedures or controls, that
results in more than a remote likelihood that a material misstatement of the
Company's financial statements will not be prevented or detected. The auditors
noted that due to the resignation of the Chief Financial Officer of the Company
effective March 31, 2006, the Company did not then have adequate review
procedures in place to ensure the development of timely, complete and accurate
financial statements and related footnotes.
Since March 31, 2006, the Company has taken significant steps to remediate this
material weakness, including enhancing the knowledge and skills of the existing
staff, hiring outside consultants and independent contractors to assist the
staff in handling financial statement matters, and engaging as a full-time
consultant an individual who had previously served as the Company's controller
and who during that tenure was primarily responsible for preparing both the
Company's statutory and GAAP financial statements. Although the Company has been
unable to hire a qualified Chief Financial Officer due to the uncertainty of its
financial position prior to the announcement of the transaction with Brooke
Corporation described in the Form 10-QSB, management believes that the material
weakness that existed with respect to the preparation of the Company's financial
statements for the quarter ended March 31, 2006, remained at June 30,
2006, but were substantially remediated prior to the preparation of the
financial statements for the quarters ended June 30, 2006 and September 30,
2006.
With these remediation steps remaining in place and the addition of the
functional financial support to be provided by Brooke Corporation pursuant to
the Services Agreement described in the Form 10-QSB, management believes that
these material weakness will continue to be remediated and that the Company's
internal control over financial reporting is effective at a reasonable assurance
level as of the date of this Form 10-QSB and has been for a period of time prior
hereto.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Index to Exhibits
Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (*)
31.2 Certification of Chairman & Secretary of the Board of Directors
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (*)
32.1 Certificate of Chief Executive Officer pursuant to Section 18
U.S.C. Section 1350 (*)
32.2 Certificate of Chairman & Secretary of the Board of Directors
pursuant to Section 18 U.S.C. Section 1350 (*)
(*) Filed herewith
b) Reports on Form 8-K
The Company filed current reports on Forms 8-K dated October 6,
2006 and November 6, 2006, announcing current developments.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST AMERICAN CAPITAL CORPORATION
Date: November 14, 2006 By: /s/ John F. Van Engelen
-------------------------- ---------------------------------------
John F. Van Engelen
President & Chief Executive Officer
Date: November 14, 2006 By: /s/ Harland E. Priddle
-------------------------- --------------------------------------
Harland E. Priddle
Chairman & Secretary of the Board of
Directors