United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A AMENDMENT NO. 1
(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, 2002.
[ ] 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
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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 Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceeding 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 [ ]
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 - 4,676,485 shares as of November 1, 2002
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
FIRST AMERICAN CAPITAL CORPORATION
INDEX TO FORM 10-QSB
Page Numbers
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2002
and December 31, 2001......................................................................... 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2002 and 2001 and for
the nine months ended September 30, 2002 and 2001............................................. 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2002 and 2001................................................. 6
Notes to Condensed Consolidated Financial Statements................................................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................................................ 12
Item 3. Controls and Procedures..................................................................... 15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ 16
Signature........................................................................................... 17
Certifications...................................................................................... 18
2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2002 2001
------------- -------------
(Unaudited)
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost, $9,310,560
in 2002 and $8,313,448 in 2001) $ 9,930,240 $ 8,605,901
Investments in real estate 274,564 274,564
Policy loans 58,954 33,178
Notes receivable (net of valuation allowance
of $2,368 in 2002 and $4,406 in 2001) 30,555 --
Short-term investments 867,354 2,286,095
------------- -------------
Total investments 11,161,667 11,199,738
Cash and cash equivalents 371,996 463,363
Investments in related parties 138,769 150,576
Accrued investment income 207,738 181,719
Accounts receivable 254,647 104,447
Accounts receivable from affiliate -- 124,881
Deferred policy acquisition costs (net of accumulated
amortization of $1,659,452 in 2002 and $1,259,744 in 2001) 2,748,295 1,928,820
Property and equipment (net of accumulated depreciation
of $229,650 in 2002 and $129,977 in 2001) 2,984,529 3,060,347
Other assets 57,447 26,072
------------- -------------
Total assets $ 17,925,088 $ 17,239,963
============= =============
3
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001
------------- ------------
(Unaudited)
Policy and contract liabilities:
Annuity contract liabilities $ 2,491,531 $ 1,424,118
Life policy reserves 2,108,584 1,522,794
Liability for policy claims 3,014 --
Policyholder premium deposits 250,151 166,182
Deposits on pending policy applications 78,326 172,616
Reinsurance premiums payable 39,304 32,142
------------- ------------
Total policy and contract liabilities 4,970,910 3,317,852
Commissions, salaries, wages and benefits payable 159,782 84,038
Other liabilities 77,095 28,395
Note payable 1,909,080 1,967,328
Accounts payable to affiliate -- 18,022
Federal income taxes payable:
Current -- 613
Deferred 911,429 533,793
------------- -------------
Total liabilities 8,028,296 5,950,041
Shareholders' equity:
Common stock, $.10 par value, 8,000,000 shares authorized; 543,899 543,899
5,438,985 shares issued and 4,676,485 shares outstanding
in 2002 and 5,273,985 shares outstanding in 2001;
Additional paid in capital 12,328,617 12,328,617
Accumulated deficit (1,993,143) (1,529,613)
Accumulated other comprehensive income 402,902 191,277
Less: Treasury shares held at cost (762,500 shares in 2002 (1,385,483) (244,258)
and 165,000 shares 2001)
------------- -------------
Total shareholders' equity 9,896,792 11,289,922
------------- -------------
Total liabilities and shareholders' equity $ 17,925,088 $ 17,239,963
============= =============
See notes to condensed consolidated financial statements.
4
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Gross premium income $ 871,974 $ 594,226 $ 2,560,640 $ 1,772,355
Reinsurance premiums ceded (26,557) (12,109) (94,536) (64,052)
------------- ------------- ------------- -------------
Net premium income 845,417 582,117 2,466,104 1,708,303
Net investment income 168,261 167,349 447,846 544,956
Net realized gain on disposal of assets 39,153 5,699 22,848 3,539
Rental income 70,919 57,426 212,007 57,426
Other income 254 3,430 1,244 11,396
------------- ------------- ------------- -------------
Total revenue 1,124,004 816,021 3,150,049 2,325,620
Benefits and expenses:
Increase in policy reserves 154,396 151,053 585,790 402,584
Policyholder surrender values 13,992 17,000 51,641 36,683
Interest credited on annuities and
premium deposits 46,993 22,325 117,718 52,840
Death claims 3,013 11,250 4,087 47,250
Commissions 391,461 236,282 956,143 578,800
Policy acquisition costs deferred (456,257) (312,973) (1,219,183) (753,135)
Amortization of deferred policy
acquisition costs 182,638 141,070 399,708 310,449
Salaries, wages, and employee benefits 344,821 283,057 1,030,796 709,559
Miscellaneous taxes 7,462 4,583 26,589 13,231
Administrative fees - related party 222,794 34,735 288,936 103,716
Other operating costs and expenses 348,595 381,965 1,107,477 933,949
------------- ------------- ------------- -------------
Total benefits and expenses 1,259,908 970,347 3,349,702 2,435,926
------------- ------------- ------------- -------------
Income before income tax expense (135,904) (154,326) (199,653) (110,306)
------------- ------------- ------------- -------------
Income tax expense 106,392 36,897 263,877 133,535
-------------- ------------- ------------- -------------
Net income $ (242,296) $ (191,223) $ (463,530) $ (243,841)
============== ============= ============= =============
Net income per common
share - basic and diluted $ (0.05) $ (0.04) $ (0.09) $ (0.05)
============== ============= ============= =============
See notes to condensed consolidated financial statements.
5
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
September 30, September 30,
2002 2001
------------- -------------
(Unaudited) (Unaudited)
Net loss $ (463,530) $ (243,841)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Interest credited on annuities and premium deposits 73,992 55,355
Net realized investment loss (22,848) (4,574)
Provision for depreciation and amortization 99,673 53,319
Equity loss in investment in affiliate 21,612 --
Amortization of premium and accretion of discount on
fixed maturity and short-term investments 40,348 (15,730)
Interest credited to certificates of deposit balances (7,020) (39,308)
Realized net loss on disposal of assets -- 1,034
Provision for deferred federal income taxes 263,689 134,976
Increase in prepaid administrative fees - related party -- (25,121)
Increase in accrued investment income (26,019) (2,057)
Increase in accounts receivable (150,200) (25,843)
Decrease (increase) in accounts receivable from affiliate 124,881 (8,931)
Increase in deferred policy acquisition costs, net (819,475) (442,686)
Increase in policy loans (25,776) (25,717)
Increase in other assets (31,375) (50,180)
Increase in policy reserves 585,790 402,584
Increase (decrease) in liability for policy claims 3,014 (22,306)
(Decrease) increase in deposits on pending policy applications (94,290) 129,612
Increase in reinsurance premiums payable 7,162 1,287
Increase in commissions, salaries, wages and benefits payable 75,744 56,109
Decrease in accounts payable to affiliate (18,022) (13,767)
Increase in other liabilities 48,087 144,110
------------- -------------
Net cash (used in) provided by operating activities $ (314,563) $ 58,325
6
FIRST AMERICAN CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
September 30, September 30,
2002 2001
------------- -------------
(Unaudited) (Unaudited)
INVESTING ACTIVITIES:
Purchase of available-for-sale fixed maturities $ (3,966,200) $ (4,052,732)
Sale or maturity of available-for-sale fixed maturities 2,983,351 1,550,865
Additions to property and equipment, net (23,855) (2,033,788)
Purchases of real estate held for investment -- (274,564)
Purchase of investments in affiliates (9,805) (25,000)
Changes in notes receivable, net (30,555) 9,675
Short-term investments disposed, net 1,392,343 2,414,682
------------- -------------
Net cash provided by (used in) investing activities 345,279 (2,410,862)
FINANCING ACTIVITIES:
Proceeds from note payable -- 1,301,982
Payments on note payable (58,248) (13,812)
Deposits on annuity contracts, net 1,001,476 666,254
Purchase of treasury stock (1,141,225) --
Policyholder premium deposits, net 75,914 46,588
------------- -------------
Net cash (used in) provided by financing activities (122,083) 2,001,012
------------- -------------
Decrease in cash and cash equivalents (91,367) (351,525)
Cash and cash equivalents, beginning of period 463,363 832,485
------------- -------------
Cash and cash equivalents, end of period $ 371,996 $ 480,960
============= =============
See notes to condensed consolidated financial statements.
7
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 the nine month periods ended September 30, 2002 and 2001 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, 2001. Certain reclassifications have been made in the prior period financial
statements to conform with the current period presentation.
2. INVESTMENTS IN RELATED PARTIES
During 2001, the Company purchased a 50% interest in First Computer Services,
LLC ("FCS"). FCS owns the computer hardware and software that operates a Company
policy administration, underwriting, claim processing, and accounting system.
The company uses the equity method to account for this investment, which is
owned jointly by the Company and First Alliance Corporation. As of September 30,
2002, the carrying value of the FCS investment was $96,969. This amount
represents total capital contributions of $125,000 reduced by the Company's
$28,031 share of the cumulative operating losses to date. Selected financial
data for FCS at September 30, 2002 and for the period ended September 30, 2002
is listed below.
Total Assets: $ 193,938
Total Liabilities: 0
Total Liabilities and Equity: 193,938
Loss from Operations: (43,225)
3. DEBT
On February 12, 2002, the Company obtained a $300,000 line of credit from Bank
of America. The line of credit expires on February 12, 2003 and interest is
accrued on the outstanding principal balance at Bank of America's Prime Rate.
The line of credit was obtained solely to secure the issuance of standby letters
of credit by the Company's subsidiary, First Life America Corporation ("FLAC").
The standby letters of credit are used to guarantee reserve credits taken by
FLAC's reinsurers in conjunction with reinsurance agreements. At September 30,
2002, FLAC has a $10,000 letter of credit secured by the line of credit
agreement. FLAC has pledged bonds with a market value of $25,000 as collateral
for the letter of credit. As of September 30, 2002, the Company has not borrowed
against this line of credit and does not anticipate utilizing the line of
credit.
4. NET EARNINGS PER COMMON SHARE
Net income per common share for basic and diluted earnings per share is based
upon the weighted average number of common shares outstanding during each
period. For the three and nine months ended September 30, 2002, the weighted
average common shares outstanding was 5,262,952 and 5,270,267, respectively. For
the three and nine months ended September 30, 2001, the weighted average common
shares outstanding was 5,303,860.
8
5. 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.
6. RELATED PARTY TRANSACTIONS
Effective December 31, 1998, the Company entered into a service agreement with
FLAC to provide personnel, facilities, and services to FLAC. The services to be
performed pursuant to the service agreement were underwriting, claim processing,
accounting, processing and servicing of policies, and other services necessary
to facilitate FLAC's business. The agreement was in effect until either party
provided ninety days written notice of termination. Under the agreement, FLAC
paid monthly fees based on life premiums delivered by FLAC. The percentages were
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 retained general insurance expenses related to
its sales agency, such as agent training and licensing, agency meeting expenses,
and agent's health insurance.
Effective January 1, 2002, FLAC entered into a new service agreement with the
Company. Under the terms of the agreement, the Company provides personnel,
facilities, and services incident to the operations of FLAC. Services performed
pursuant to the agreement are underwriting, claim processing, accounting, policy
processing and other services necessary for FLAC to operate. The agreement is
effective until either party provides ninety days written notice of termination.
FLAC pays fees equal to the Company's cost of providing such services, including
an appropriate allocation of the Company's overhead expenses, in accordance with
accounting principles generally accepted in the United States of America. FLAC
still bears all direct selling costs which include agent recruiting, training
and licensing; agent commissions; any benefits or awards directly for or to
agents or management including the cost of any life or health insurance; and any
taxes (federal, state or county) directly related to the business of FLAC.
Additionally, FLAC is responsible for any reinsurance premiums; legal expenses
related to settlement of claims; state examination fees; directors fees and
directors liability insurance; interest on indebtedness; costs related to
mergers or acquisitions and costs related to fulfilling obligations of the life
insurance and annuity contracts written by the agents of FLAC.
Pursuant to the terms of the above agreements, FLAC had incurred expenses of
$1,017,328 and $515,800 for the nine months ended September 30, 2002 and 2001,
respectively. For the three months ended September 30, 2002 and 2001, FLAC
incurred expenses of $390,574 and $169,286, respectively.
Effective September 30, 2002 the Company acquired 525,000 shares of its common
stock held by First Alliance Corporation ("FAC"), an insurance company based in
Lexington, Kentucky, for an aggregate purchase price of $1,002,750. In
conjunction with the agreement to repurchase the stock, the Company also
acquired 72,500 shares of its common stock held by six individuals associated
with FAC for an aggregate purchase price of $138,475. In a related agreement,
the Company and FAC agreed to terminate an Administration Agreement between the
parties through which the Company received administrative, reporting and
underwriting services from FAC. Termination of the Administration Agreement
occurred by the Company making a lump-sum payment of $212,000 to FAC on
September 30, 2002. This amount represents the present value of fees earned by
FAC under the Administration Agreement which would otherwise have been payable
over time. These agreements effectively severe FAC's financial interest in the
Company.
9
7. COMPREHENSIVE INCOME
The components of comprehensive income along with the related tax effects for
the three months and the nine months ended September 30, 2002 and 2001 are as
follows:
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Unrealized gain on available-for-sale securities:
Unrealized holding gain during the period $ 201,504 $ 222,886 $ 325,574 $ 219,532
Tax expense (70,526) (78,010) (113,952) (79,022)
------------- ------------- ------------- -------------
Other comprehensive income $ 130,978 $ 144,876 $ 211,622 $ 140,510
============= ============= ============= =============
Net loss $ (242,296) $ (191,223) $ (463,530) $ (243,841)
Other comprehensive income net of
tax effect:
Unrealized investment gain 130,978 144,876 211,622 140,510
------------- ------------- ------------- -------------
Comprehensive loss $ (111,318) $ (46,347) $ (251,908) $ (103,331)
============= ============= ============= =============
Net loss per common share-basic and diluted $ (0.02) $ (0.01) $ (0.05) $ (0.02)
============= ============= ============= =============
10
8. 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 operations. Segment information as of September 30, 2002 and December
31, 2001 and for the three months and the nine months ended September 30, 2002
and 2001 is as follows:
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenues
Life and annuity insurance operations $ 949,254 $ 665,416 $ 2,743,663 $ 1,948,864
Corporate operations 174,750 150,605 406,386 376,756
------------- ------------- ------------- -------------
Total $ 1,124,004 $ 816,021 $ 3,150,049 $ 2,325,620
============= ============= ============= =============
Loss before income taxes:
Life and annuity insurance operations $ 43,099 $ 121,938 $ 250,010 $ 381,669
Corporate operations (179,003) (276,264) (449,663) (491,975)
------------- ------------- ------------- -------------
Total $ (135,904) $ (154,326) $ (199,653) $ (110,306)
============= ============= ============= =============
Depreciation and amortization expense:
Life and annuity insurance operations $ 182,638 $ 141,070 $ 399,708 $ 310,449
Corporate operations 33,778 30,090 99,673 53,319
------------- ------------- ------------- -------------
Total $ 216,416 $ 171,160 $ 499,381 $ 363,768
============= ============= ============= =============
Segment asset information as of September 30, 2002 and December 31, 2001:
2002 2001
------------ ------------
Assets:
Life and annuity insurance operations $ 11,095,132 $ 8,795,709
Corporate operations 6,829,956 8,444,254
------------ ------------
Total $ 17,925,088 $ 17,239,963
============ ============
11
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" 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 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 risks and uncertainties.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Financial Condition
Significant changes in the condensed consolidated balance sheets from December
31, 2001 to September 30, 2002 are highlighted below.
Total assets increased from $17,239,963 at December 31, 2001 to $17,925,088 at
September 30, 2002. The Company's available-for-sale fixed maturities had a fair
value of $9,930,240 and $8,605,901 at September 30, 2002 and December 31, 2001,
respectively. The increase of $1,324,339 is due to the sale or maturation of
short-term investments which were reinvested into available for sale securities.
This investment portfolio is reported at market value with unrealized gains and
losses, net of applicable deferred taxes, reflected as a separate component in
Shareholders' Equity.
Notes receivable increased to $30,555 at September 30, 2002 from $0 at December
31, 2001. This increase is due to the issuance of a note to an employee of the
Company.
Short-term investments decreased from $2,286,095 at December 31, 2001 to
$867,354 at September 30, 2002. Several of the short-term investments held by
the Company were either sold or matured during the nine months ended September
30, 2002, and the proceeds were converted to available-for-sale securities. This
resulted in a $1,418,741 or 62% decrease in short-term investments.
Cash and cash equivalents decreased $91,367 from $463,363 at December 31, 2001
to $371,996 at September 30, 2002. The decrease in cash is primarily the result
of $1,141,225 being used to repurchase common stock for treasury, offset by
$1,001,476 received on deposit for annuity contracts. Refer to the statement of
cash flows for more sources and uses of cash.
Accounts receivable increased 144% from $104,447 at December 31, 2001 to
$254,647 at September 30, 2002. The increase is due primarily to a $92,725
increase in amounts due from agents and a $50,311 increase in due premiums.
These amounts are expected to be fully recoverable.
12
Accounts receivable from affiliate decreased from $124,881 at December 31, 2001
to $0 at September 30, 2002 due to the termination of the Administration
Agreement between FACC and First Alliance Corporation ("FAC"). FACC paid the
present value of the future payments to FAC which was offset by the balance that
FAC owed FACC.
Deferred policy acquisition costs, net of amortization, increased 42% from
$1,928,820 at December 31, 2001 to $2,748,295 at September 30, 2002 resulting
from the capitalization of acquisition expenses related to the increasing sales
of life insurance. These acquisition expenses include commissions and other fees
incurred in the first policy year.
Other assets increased 120% from $26,072 at December 31, 2001 to $57,447 at June
30, 2002. The increase is primarily due to an increase in escrow deposits of
$31,375 and prepaid expenses of $6,188.
Liabilities increased to $8,028,296 at September 30, 2002 from $5,950,041 at
December 31, 2001. A significant portion of this increase is due to life
insurance related policy liabilities. Policy reserves established due to the
sale of life insurance increased $585,790 or 38% from 2001 to 2002. These
reserves are actuarially determined based on such factors as insured age, life
expectancy, mortality and interest assumptions. Liabilities for policy claims
are recorded based on reported death.
There was a 75% increase in the amount of $1,067,413 for annuity contract
liabilities from December 31, 2001 to September 30, 2002. According to the
design of FLAC's primary life insurance product, first year premium payments are
allocated 100% to life insurance and renewal payments are split 50% to life and
50% to annuity. In the first nine months of 2002, annuity contract liabilities
increased as additional policies reached the second policy year.
Policyholder premium deposits increased 51% to $250,151 at September 30, 2002
from $166,182 at December 31, 2001 due to $105,880 in new deposits, $8,056 in
interest credited, and $29,966 in withdrawals.
Deposits on pending policy applications decreased from $172,616 at December 31,
2001 to $78,326 at September 30, 2002 because of the increased efficiency of the
underwriting department in acceptance or denial of policies.
There was an increase of $75,744 in commissions, salaries, wages and benefits
payable from the December 31, 2002 balance of $84,038 to the September 30, 2002
balance of $159,782. The increase is attributable to an increase in the number
of employees and the timing factors associated with payroll dates.
Federal income taxes payable have increased 71% from $534,406 at December 31,
2001 to $911,429 at September 30, 2002. Federal income taxes payable are due to
deferred taxes established based on timing differences between income recognized
for financial statements and taxable income for the Internal Revenue Service.
These deferred taxes are based on the operations of FLAC and on unrealized gains
of fixed maturities.
Results of Operations
Revenues for the nine months ended September 30, 2002 totaled $3,150,049 as
compared to $2,325,620 for the same period of 2001. The increase is primarily
due to a 44% increase in net premium income of $757,801 resulting from the
growth in the policyholder base. A decrease in net investment income of $97,110
was primarily a result of significantly lower investment yields. Rental income
increased $154,581 when compared to September 30, 2001 due to the Company having
rental income only during the third quarter in 2001.
Revenues for the three months ended September 30, 2002 totaled $1,124,004 as
compared to $816,021 for the same period of 2001. The increase is primarily due
to a 45% increase in net premium income of $263,300 resulting from the growth in
the policyholder base. Rental income increased $13,493 due to the Company's
lease agreements with its tenants not beginning until August of 2001.
13
Benefits and expenses for the nine months ended September 30, 2002 totaled
$3,349,702 as compared to $2,435,926 for the same period of 2001. The total
increase in benefits and expenses is $913,776 or 38%. Other operating costs
accounted for $173,528 of the total increase due to increases in depreciation,
interest expense, building expenses, travel, medical exam fees, and data
processing. As a result of the growth in the policyholder base, the increase in
policy reserves was $183,206 greater than the same period in 2001. Salaries and
wages increased $321,237 as a result of an increase in the number of employees.
Commissions increased $377,343 due to the increase in premium income and
increased sales of the Final Expense product. FLAC began marketing the Final
Expense product during the fourth quarter of 2001. Commission rates paid on
first year premiums received on the Final Expense product are typically higher
than those paid on the other products being marketed by FLAC. Administration
fees increased $185,220 when compared to the same period in 2001 due the
termination of the management agreement with FAC.
Benefits and expenses for the three months ended September 30, 2002 totaled
$1,259,908 as compared to $970,347 for the same period of 2001. The total
increase in benefits and expenses is $289,561 or 30%. Salaries and wages
increased $61,764 as a result of an increase in the number of employees.
Commissions increased $155,179 due to the increase in premium income and
increased sales of the Final Expense product. FLAC began marketing the Final
Expense product during the fourth quarter of 2001. Commission rates paid on
first year premiums received on the Final Expense product are typically higher
than those paid on the other products being marketed by FLAC. Administration
fees increased $188,059 due to the termination of the management agreement with
FAC.
Liquidity and Capital Resources
During the quarters ended September 30, 2002 and 2001, the Company maintained
liquid assets sufficient to meet operating demands, while continuing to utilize
excess liquidity for fixed maturity investments. Net cash (used in) provided by
operating activities during the periods ended September 30, 2002 and 2001
totaled ($314,563) and $58,325, respectively.
FLAC's insurance operations generally receive adequate cash flows 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. Cash collected from deposits on annuity contracts and policyholder
premium deposits are recorded as cash flows from financing activities. A
significant portion of the Company's invested assets are readily marketable and
highly liquid.
14
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the Chief Executive and Chief Financial Officer of the Company
concluded that the Company's disclosure controls and procedures were adequate.
Changes in Internal Controls.
The Company made no significant changes in its internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation of those controls by the Chief Executive and Chief Financial
Officer.
15
Part II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits. The following exhibit was filed with this report
Exhibit No. Description of Exhibit
------------- ------------------------
99.1 CEO Certification pursuant to 18 USC 1350,
dated November 13, 2002
b) A Form 8-K dated September 19, 2002 was filed relating to Item 5 - Other
Events. The form disclosed the termination of the Administration Agreement
between First American Capital Corporation and First Alliance Corporation and
the purchase of First American Capital Corporation common stock owned by First
Alliance Corporation and six individuals associated with First Alliance
Corporation.
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this amended report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIRST AMERICAN CAPITAL CORPORATION
Date: 11/27/02 By: /s/ Rickie D. Meyer
-------- ---------------------------------------
Rickie D. Meyer,
President and Chief Executive Officer/
Assistant Treasurer and Chief Financial Officer
17
CERTIFICATIONS
I, Rickie D. Meyer, certify, that:
1. I have reviewed this quarterly report on Form 10-QSB of First American
Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures(as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report(the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud,whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date November 27, 2002 /s/ Rickie D. Meyer
----------------------- ------------------------
Rickie D. Meyer,
President and Chief Executive Officer
18
CERTIFICATIONS
I, Rickie D. Meyer, certify, that:
1. I have reviewed this quarterly report on Form 10-QSB of First American
Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures(as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report(the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud,whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect the internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date November 27, 2002 /s/ Rickie D. Meyer
----------------------- ------------------------
Rickie D. Meyer,
Assistant Treasurer and Chief Financial Officer
19
EXHIBIT 99.1
CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First American Capital Corporation
(the "Company") on Form 10-QSB for the period ending September 30, 2002 as
filed with the Securities and Exchange Commission (the "Report"), I,
Rickie D. Meyer, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. To my knowledge, the information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company as of and for the period
covered by the Report.
Date November 13, 2002 /s/ Rickie D. Meyer
----------------------- ----------------------
Rickie D. Meyer,
President and Chief Executive Officer/
Assistant Treasurer and Chief Financial Officer
20