-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXs2n23aXvz/sHqS62enD9sdFWoK13r8tKK1pq1av/Ly0anFis2GW20uTFivVxXL ++7FqHg6mMPUQ5eZitERnw== 0001013816-06-000647.txt : 20061114 0001013816-06-000647.hdr.sgml : 20061114 20061114171423 ACCESSION NUMBER: 0001013816-06-000647 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061114 DATE AS OF CHANGE: 20061114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST AMERICAN CAPITAL CORP /KS CENTRAL INDEX KEY: 0001082084 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 481187574 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25679 FILM NUMBER: 061216699 BUSINESS ADDRESS: STREET 1: 1303 SW FIRST AMERICAN PLACE STREET 2: 1303 SW FIRST AMERICAN PLACE CITY: TOPEKA STATE: KS ZIP: 66604 BUSINESS PHONE: 7852677077 MAIL ADDRESS: STREET 1: 1303 SW FIRST AMERICAN PLACE CITY: TOPEKA STATE: KS ZIP: 66604 10QSB 1 form10qsb_111406.txt FORM 10--QSB 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 EX-31 2 form10qsb_111406ex311.txt EXH. 31.1 RULE 13A-14(A) CERT OF PRES & CEO Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certifications I, John F. Van Engelen, 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 small business issuer as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d. Disclosed in this quarterly report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. November 14, 2006 /s/ John F. Van Engelen - --------------------- ------------------------------------ Date John F. Van Engelen, President and Chief Executive Officer EX-31 3 form10qsb_111406ex312.txt EXH. 31.2 RULE 13A-14(A) CERT OF CHAIRMAN & SEC Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certifications I, Harland E. Priddle, 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 small business issuer as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d. Disclosed in this quarterly report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. November 14, 2006 /s/ Harland E. Priddle - ----------------------- -------------------------------------------- Date Harland E. Priddle, Chairman & Secretary of the Board of Directors EX-32 4 form10qsb_111406ex321.txt EXH. 32.1 SECTION 906 CERT OF PRES & CEO Exhibit 32.1 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 on Form 10-QKSB of First American Capital Corporation (the "Company") for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John F. Van Engelen, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. November 14, 2006 /s/ John F. Van Engelen - ------------------------------ ------------------------------------ Date John F. Van Engelen, President and Chief Executive Officer EX-32 5 form10qsb_111406ex322.txt EXH. 32.2 SECTION 906 CERT OF CHAIRMAN & SEC Exhibit 32.2 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 on Form 10-QSB of First American Capital Corporation (the "Company") for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harland E. Priddle, Chairman & Secretary of the Board of Directors, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. November 14, 2006 /s/ Harland E. Priddle - -------------------------- ------------------------------------ Date Harland E. Priddle, Chairman & Secretary of the Board of Directors -----END PRIVACY-ENHANCED MESSAGE-----