Filed by Bowne Pure Compliance
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
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þ |
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Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2007.
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o |
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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
BROOKE CAPITAL CORPORATION
(Exact Name of small business issuer in its charter)
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Kansas
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48-1187574 |
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(State of incorporation)
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(I.R.S. Employer Identification Number) |
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8500 College Blvd., Overland Park, KS 66210 |
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(Address of principal executive offices) |
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Issuers telephone number (913) 661-0123
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 þ No o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No o
State the number of shares outstanding of each of the issuers classes of common equity, as of the
latest practicable date.
Common Stock, $.01 Par Value 3,085,817 shares as of July 19, 2007
Transitional Small Business Disclosure Format (check one): Yes o No þ
BROOKE CAPITAL CORPORATION
INDEX TO FORM 10-QSB
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROOKE CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited) |
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June 30, |
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December 31, |
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Assets |
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2007 |
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2006 |
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Investments: |
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Securities available-for-sale, at fair value: |
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Fixed maturities (amortized cost, $17,023,155
in 2007 and $12,532,067 in 2006) |
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$ |
16,384,834 |
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$ |
12,298,780 |
|
Equity securities (cost of $241,600 in 2007
and $258,400 in 2006) |
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|
239,617 |
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283,060 |
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Investments in real estate |
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274,564 |
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274,564 |
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Policy loans |
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181,032 |
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166,026 |
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Mortgage loans on real estate |
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1,898,628 |
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1,937,281 |
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Other investments |
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3,460,975 |
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3,067,369 |
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Total investments |
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22,439,650 |
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18,027,080 |
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Cash and cash equivalents |
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4,804,645 |
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3,542,928 |
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Accrued investment income |
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|
294,770 |
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|
233,858 |
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Accounts receivable |
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134,326 |
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|
281,894 |
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Reinsurance receivables |
|
|
180,509 |
|
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|
112,145 |
|
Deferred policy acquisition costs (net of accumulated
amortization of $4,808,605 in 2007 and $4,449,936 in 2006) |
|
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5,340,116 |
|
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|
5,209,693 |
|
Property and equipment (net of accumulated depreciation
of $1,006,888 in 2007 and $945,228 in 2006) |
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2,578,902 |
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2,627,586 |
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Other assets |
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1,013,031 |
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1,221,559 |
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Total assets |
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$ |
36,785,949 |
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$ |
31,256,743 |
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See notes to condensed consolidated financial statements.
3
BROOKE CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
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(Unaudited) |
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June 30, |
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December 31, |
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Liabilities and Shareholders' Equity |
|
2007 |
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2006 |
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|
|
|
|
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Policy and contract liabilities: |
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|
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|
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Future annuity benefits |
|
$ |
16,857,235 |
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$ |
13,658,174 |
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Future policy benefits |
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|
6,590,741 |
|
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|
6,109,055 |
|
Liability for policy claims |
|
|
97,561 |
|
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|
211,932 |
|
Policyholder premium deposits |
|
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80,642 |
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|
104,038 |
|
Deposits on pending policy applications |
|
|
16,031 |
|
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|
27,788 |
|
Reinsurance premiums payable |
|
|
49,538 |
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54,732 |
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Amounts held under reinsurance |
|
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18,321 |
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Total policy and contract liabilities |
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23,691,748 |
|
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20,184,040 |
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Commissions, salaries, wages and benefits payable |
|
|
279,906 |
|
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|
49,661 |
|
Other liabilities |
|
|
427,522 |
|
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|
257,085 |
|
Federal income taxes payable |
|
|
662,631 |
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|
Deferred federal income taxes payable |
|
|
422,044 |
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508,380 |
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Total liabilities |
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25,483,851 |
|
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20,999,166 |
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Shareholders equity: |
|
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Common stock, $.01 par value, 25,000,000 shares authorized;
3,214,486 issued and 3,085,817 outstanding in 2007; and
2,666,666 issued and outstanding in 2006 |
|
|
32,145 |
|
|
|
26,667 |
|
Additional paid in capital |
|
|
14,919,456 |
|
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|
14,530,631 |
|
Accumulated deficit |
|
|
(2,401,248 |
) |
|
|
(4,132,804 |
) |
Accumulated other comprehensive loss |
|
|
(512,258 |
) |
|
|
(166,917 |
) |
Less: Treasury stock held at cost (128,669 shares in 2007
and 0 shares in 2006) |
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(735,997 |
) |
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|
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Total shareholders equity |
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11,302,098 |
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10,257,577 |
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Total liabilities and shareholders equity |
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$ |
36,785,949 |
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$ |
31,256,743 |
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See notes to condensed consolidated financial statements.
4
BROOKE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited) |
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(Unaudited) |
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues: |
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Gross premium income |
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$ |
968,183 |
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$ |
972,407 |
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$ |
2,187,358 |
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$ |
2,236,373 |
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Reinsurance premiums assumed |
|
|
6,471 |
|
|
|
6,471 |
|
|
|
9,058 |
|
|
|
8,637 |
|
Reinsurance premiums ceded |
|
|
(125,493 |
) |
|
|
(150,520 |
) |
|
|
(274,191 |
) |
|
|
(312,873 |
) |
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|
|
|
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|
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|
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Net premium income |
|
|
849,161 |
|
|
|
828,358 |
|
|
|
1,922,225 |
|
|
|
1,932,137 |
|
Net investment income |
|
|
353,180 |
|
|
|
267,710 |
|
|
|
675,811 |
|
|
|
533,676 |
|
Net realized investment gain (loss) |
|
|
80,640 |
|
|
|
(68,293 |
) |
|
|
80,594 |
|
|
|
(70,017 |
) |
Rental income |
|
|
59,596 |
|
|
|
59,057 |
|
|
|
119,192 |
|
|
|
118,114 |
|
Consulting fees and other income |
|
|
3,989,951 |
|
|
|
1,054 |
|
|
|
4,245,158 |
|
|
|
1,305 |
|
|
|
|
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|
|
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Total revenue |
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5,332,528 |
|
|
|
1,087,886 |
|
|
|
7,042,980 |
|
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2,515,215 |
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Benefits and expenses: |
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|
Increase in policy reserves |
|
|
152,060 |
|
|
|
185,348 |
|
|
|
481,686 |
|
|
|
435,325 |
|
Policyholder surrender values |
|
|
59,040 |
|
|
|
76,556 |
|
|
|
145,746 |
|
|
|
147,921 |
|
Interest credited on annuities and
premium deposits |
|
|
193,109 |
|
|
|
142,943 |
|
|
|
365,853 |
|
|
|
269,247 |
|
Death claims |
|
|
103,745 |
|
|
|
162,467 |
|
|
|
417,282 |
|
|
|
295,031 |
|
Commissions |
|
|
245,021 |
|
|
|
175,299 |
|
|
|
498,435 |
|
|
|
425,620 |
|
Policy acquisition costs deferred |
|
|
(238,346 |
) |
|
|
(162,257 |
) |
|
|
(489,092 |
) |
|
|
(437,251 |
) |
Amortization of deferred policy
acquisition costs |
|
|
194,810 |
|
|
|
209,827 |
|
|
|
358,669 |
|
|
|
365,743 |
|
Salaries, wages, and employee benefits |
|
|
879,573 |
|
|
|
218,176 |
|
|
|
1,228,510 |
|
|
|
489,009 |
|
Miscellaneous taxes |
|
|
28,703 |
|
|
|
32,223 |
|
|
|
58,344 |
|
|
|
59,351 |
|
Other operating costs and expenses |
|
|
1,012,676 |
|
|
|
230,231 |
|
|
|
1,357,876 |
|
|
|
589,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
2,630,391 |
|
|
|
1,270,813 |
|
|
|
4,423,309 |
|
|
|
2,639,319 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income tax expense |
|
|
2,702,137 |
|
|
|
(182,927 |
) |
|
|
2,619,671 |
|
|
|
(124,104 |
) |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income tax expense |
|
|
888,115 |
|
|
|
|
|
|
|
888,115 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
1,814,022 |
|
|
$ |
(182,927 |
) |
|
$ |
1,731,556 |
|
|
$ |
(124,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net Income (Loss) per common
share basic and diluted |
|
$ |
0.58 |
|
|
$ |
(0.13 |
) |
|
$ |
0.57 |
|
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
See notes to condensed consolidated financial statements.
5
BROOKE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
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|
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|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,814,022 |
|
|
$ |
(182,927 |
) |
|
$ |
1,731,556 |
|
|
$ |
(124,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding loss during the period |
|
|
(371,432 |
) |
|
|
(285,437 |
) |
|
|
(351,083 |
) |
|
|
(589,804 |
) |
Less: Reclassification for gains (loss)
included in net income |
|
|
80,640 |
|
|
|
(68,293 |
) |
|
|
80,594 |
|
|
|
(70,017 |
) |
Tax benefit |
|
|
90,415 |
|
|
|
40,334 |
|
|
|
86,336 |
|
|
|
103,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(361,657 |
) |
|
|
(176,810 |
) |
|
|
(345,341 |
) |
|
|
(416,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
1,452,365 |
|
|
$ |
(359,737 |
) |
|
$ |
1,386,215 |
|
|
$ |
(540,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
BROOKE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,731,556 |
|
|
$ |
(124,104 |
) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Interest credited on annuities and premium deposits |
|
|
365,853 |
|
|
|
269,247 |
|
Net realized investment (gain) loss |
|
|
(80,594 |
) |
|
|
70,017 |
|
Provision for depreciation |
|
|
62,278 |
|
|
|
66,117 |
|
Amortization of premium and accretion of discount on
fixed maturity and short-term investments |
|
|
(104,114 |
) |
|
|
(42,505 |
) |
Acquisition costs capitalized |
|
|
(489,092 |
) |
|
|
(437,251 |
) |
Amortization of deferred acquisition costs |
|
|
358,669 |
|
|
|
365,743 |
|
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
(60,912 |
) |
|
|
24,476 |
|
Accounts receivable |
|
|
147,568 |
|
|
|
68,263 |
|
Reinsurance receivables |
|
|
(68,364 |
) |
|
|
(34,050 |
) |
Policy loans |
|
|
(15,006 |
) |
|
|
(38,437 |
) |
Other assets |
|
|
208,528 |
|
|
|
(97,813 |
) |
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
Future policy benefits |
|
|
481,686 |
|
|
|
435,325 |
|
Liability for policy claims |
|
|
(114,371 |
) |
|
|
(12,979 |
) |
Deposits on pending policy applications |
|
|
(11,757 |
) |
|
|
7,120 |
|
Reinsurance premiums payable |
|
|
(5,194 |
) |
|
|
(41,137 |
) |
Amounts held under reinsurance |
|
|
(18,321 |
) |
|
|
(123,650 |
) |
Commissions, salaries, wages and benefits payable |
|
|
230,245 |
|
|
|
(70,244 |
) |
Income tax payable |
|
|
662,631 |
|
|
|
|
|
Other liabilities |
|
|
170,434 |
|
|
|
56,523 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
3,451,723 |
|
|
$ |
340,661 |
|
See notes to condensed consolidated financial statements.
7
BROOKE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchase of available-for-sale fixed maturities |
|
$ |
(4,536,733 |
) |
|
$ |
(664,852 |
) |
Sale of available-for-sale fixed maturities |
|
|
|
|
|
|
2,258,015 |
|
Maturity of available-for-sale fixed maturities |
|
|
23,958 |
|
|
|
471,000 |
|
Sale of available-for-sale equities |
|
|
97,440 |
|
|
|
222,699 |
|
Additions to property and equipment |
|
|
(13,594 |
) |
|
|
(7,755 |
) |
Purchase of other investments |
|
|
(592,400 |
) |
|
|
(1,329,068 |
) |
Maturity of other investments |
|
|
324,552 |
|
|
|
203,687 |
|
Payments received on mortgage loans |
|
|
38,653 |
|
|
|
27,429 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,658,124 |
) |
|
|
1,181,155 |
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Payments on notes payable |
|
|
|
|
|
|
(2,272,986 |
) |
Deposits on annuity contracts |
|
|
3,307,397 |
|
|
|
1,929,687 |
|
Surrenders on annuity contracts |
|
|
(472,299 |
) |
|
|
(337,060 |
) |
Policyholder premium deposits |
|
|
2,431 |
|
|
|
|
|
Withdrawals on policyholder premium deposits |
|
|
(27,717 |
) |
|
|
(14,109 |
) |
Purchase of treasury stock |
|
|
(735,997 |
) |
|
|
|
|
Proceeds from redemption of warrant |
|
|
394,303 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
2,468,118 |
|
|
|
(694,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
1,261,717 |
|
|
|
827,348 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
3,542,928 |
|
|
|
249,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
4,804,645 |
|
|
$ |
1,076,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash activities: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
|
|
|
$ |
62,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
8
BROOKE CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Brooke Capital Corporation (BCAP
formerly First American Capital Corporation) and its Subsidiaries (collectively the Company) for
the three month and six month periods ended June 30, 2007 and 2006 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 Companys annual report on
Form 10-KSB for the fiscal year ended December 31, 2006. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the full year.
Significant intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
A complete summary of significant accounting policies is included in the notes to the audited
consolidated financial statements included in the Companys annual report on Form 10-KSB for the
year ended December 31, 2006.
2. Net Income (Loss) Per Common Share
Basic net income (loss) per common share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted net income (loss) is calculated by
including the weighted average effect of dilutive warrants outstanding during the periods. The
weighted average number of shares issuable upon the exercise of outstanding warrants assumes that
the applicable proceeds from such exercises are used to acquire treasury shares at the average
price of common stock during the periods. Basic and diluted net income (loss) per share for the
three month and six month periods ended June 30, 2007 and 2006, were determined as follows
(adjusted for the 1-for-3 reverse stock split approved by the Companys shareholders on January 31,
2007 and effective as of April 13, 2007):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,814,022 |
|
|
$ |
(182,926 |
) |
|
$ |
1,731,556 |
|
|
$ |
(124,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding (after
the effect of 1-for-3 reverse stock split) used
for basic and diluted earnings per share |
|
|
3,101,568 |
|
|
|
1,419,019 |
|
|
|
3,063,890 |
|
|
|
1,419,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic and diluted |
|
$ |
0.58 |
|
|
$ |
(0.13 |
) |
|
$ |
0.57 |
|
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 2, 2007, the Company concluded a modified Dutch auction tender offer for shares of
its common stock. The Company accepted for purchase 379,248 (126,416 post 1-for-3 reverse stock
split) shares of its common stock at a price of $1.60 ($4.80 post split) per share for an aggregate
price paid to shareholders of approximately $607,000. In connection with the execution of the
reverse stock split, the Company purchased an additional 2,253 shares of common stock in accordance
with its commitment to purchase for cash, any fractional shares that resulted from the reverse
stock split. As of July 19, 2007, the Company had 3,085,817 shares of common stock outstanding.
9
3. 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 Brooke Capital Advisors, Inc., (BCA) for 2007 and 2006.
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.
4. 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 has 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 treaty, for new business issued after the
termination date.
5. Other Regulatory Matters
The Company believes that it is currently in material compliance with all state, federal and
foreign regulations to which the Company is subject and the Company is unaware of any pending or
threatened investigation, action or proceeding by any state federal or foreign regulatory agency
involving the Company that would have a material adverse effect on the Companys operations.
FLAC is licensed to transact life and annuity business in the states of Kansas, Texas, Illinois,
Oklahoma, North Dakota, Kentucky, Nebraska and Ohio. In the fourth quarter 2005, Ohio suspended
FLACs license because its statutory capital and surplus fell below the minimum amount of
$2,500,000 as of September 30, 2005. This shortfall was corrected as of December 31, 2005 and Ohio
reinstated FLACs license in 2006. FLAC operated under a Confidential Memorandum of Understanding
(MOU) which restricted its ability to write new business in Ohio until May 3, 2007, when FLAC was
released from its MOU with the Ohio Department of Insurance. FLAC is now working to re-establish
relationships with agents in that market.
10
6. Financial Information Relating to Industry Segments
The operations of the Company and its subsidiaries have been classified into three operating
segments as follows: life and annuity insurance operations (conducted by FLAC and by BCAP pursuant
to a shared Services Agreement); brokerage operations conducted by BCA and corporate operations.
All sales of life insurance by FLAC are to unaffiliated customers. Financial information related
to these three segments of the Companys business is presented below as of the dates and for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and annuity insurance operations |
|
$ |
1,260,520 |
|
|
$ |
1,067,962 |
|
|
$ |
2,708,441 |
|
|
$ |
2,433,356 |
|
Brokerage operations |
|
|
3,989,925 |
|
|
|
1,055 |
|
|
|
4,245,132 |
|
|
|
1,270 |
|
Corporate |
|
|
82,083 |
|
|
|
18,869 |
|
|
|
89,407 |
|
|
|
80,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,332,528 |
|
|
$ |
1,087,886 |
|
|
$ |
7,042,980 |
|
|
$ |
2,515,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and annuity insurance operations |
|
$ |
215,733 |
|
|
$ |
(67,691 |
) |
|
$ |
223,124 |
|
|
$ |
176,776 |
|
Brokerage operations |
|
|
2,853,315 |
|
|
|
(1,480 |
) |
|
|
2,932,440 |
|
|
|
(6,426 |
) |
Corporate |
|
|
(366,911 |
) |
|
|
(113,756 |
) |
|
|
(535,893 |
) |
|
|
(294,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,702,137 |
|
|
$ |
(182,927 |
) |
|
$ |
2,619,671 |
|
|
$ |
(124,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and annuity insurance operations |
|
$ |
212,447 |
|
|
$ |
221,793 |
|
|
$ |
393,553 |
|
|
$ |
377,709 |
|
Brokerage operations |
|
|
48 |
|
|
|
146 |
|
|
|
97 |
|
|
|
292 |
|
Corporate |
|
|
11,128 |
|
|
|
18,580 |
|
|
|
27,297 |
|
|
|
53,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
223,623 |
|
|
$ |
240,519 |
|
|
$ |
420,947 |
|
|
$ |
431,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Assets: |
|
|
|
|
|
|
|
|
Life and annuity insurance operations |
|
$ |
31,305,082 |
|
|
$ |
28,570,332 |
|
Brokerage operations |
|
|
4,499,222 |
|
|
|
1,198,212 |
|
Corporate |
|
|
981,645 |
|
|
|
1,488,199 |
|
|
|
|
|
|
|
|
Total |
|
$ |
36,785,949 |
|
|
$ |
31,256,743 |
|
|
|
|
|
|
|
|
11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report on Form 10-QSB for the quarter and six month period ended June 30, 2007 includes
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 and is subject to the safe harbor created by that act. Among other things, these statements
relate to the Companys financial condition, results of operations and business. These
forward-looking statements are generally identified by the words or phrases would be, will
allow, expect to, intend to, will continue, is anticipated, estimate, plan, may,
believe, implement, build, project or similar expressions and references to strategies or
plans.
While the Company provides forward-looking statements to assist in the understanding of the
Companys anticipated future financial performance, the Company cautions readers not to place undue
reliance on any forward-looking statements, which speak only as of the date that the Company makes
them. Forward-looking statements are subject to significant risks and uncertainties, many of which
are beyond the Companys control. Although the Company believes that the assumptions underlying
its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate.
Actual results may differ materially from those contained in or implied by these forward-looking
statements for a variety of reasons. These risks and uncertainties are discussed in more detail in
the Companys annual report on Form 10-KSB for the fiscal year ended December 31, 2006, in its
other filings with the Securities and Exchange Commission, and in this section of this report and
include, but are not limited to: the uncertainty that plans relating to the Companys acquisition
of a federal savings bank will be successfully implemented, the uncertainty as to the effect of the
potential transaction on the earnings and operations of the Company; the uncertainty that the
Company will achieve short-term and long-term profitability and growth goals, uncertainties
associated with market acceptance of and demand for the products and services of the Company or its
subsidiaries, the impact of competitive products and pricing, the dependence on third-party
suppliers and their pricing, the availability of capital and funding sources, the exposure to
market risks, uncertainties associated with the development of technology, changes in the law and
in economic, political and regulatory environments, the impact of inflation and general economic
conditions on the Companys liquidity and capital resources, changes in management, the dependence
on intellectual property rights, the effectiveness of internal controls, and risks and factors
described from time to time in reports and registration statements filed by the Company with the
Securities and Exchange Commission. When considering forward-looking statements, you should keep
these factors in mind as well as the other cautionary statements in this report. You should not
place undue reliance on any forward-looking statement. The Company is not obligated to update
forward-looking statements.
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.
Consulting Fees. Brooke Capital Advisors, Inc. (BCA) uses its industry contacts and expertise in
insurance brokerage to broker loans for, and consult with, managing general agencies and managing
general agencies that own insurance companies, specializing in hard-to-place insurance sales,
captive insurance agencies and funeral homes. BCA receives consulting fees for these activities.
The fees associated with this service are recognized upon loan closing as all of the consulting
services related to the transaction have been provided by BCA at or prior to closing.
BCA will also use its expertise in the hard-to-place and niche insurance industry to preserve
collateral and monitor insurance agency borrowers on behalf of lenders. Fees are received for this
collateral preservation activity. An initial fee is received and recognized upon loan closing.
Ongoing fees are received monthly from these activities and are recognized as services are
provided.
12
Investments. The Company classifies all of its fixed maturity and equity investments as
available-for-sale. Available-for-sale fixed maturities are carried at fair value with unrealized
gains and losses, net of applicable taxes, reported in other comprehensive income. Equity
securities are carried at fair value with unrealized gains and losses, net of applicable taxes,
reported in other comprehensive income. Mortgage loans on real estate are carried at cost less
principal payments. Other investments are carried at amortized cost. Discounts originating at the
time of purchase, net of capitalized acquisition costs, are amortized using the level yield method
on an individual basis over the remaining contractual term of the investment. Policy loans are
carried at unpaid balances. Cash equivalents consist of highly liquid investments with maturities
of three months or less at the date of purchase and are carried at cost, which approximates fair
value. Realized gains and losses on sales of investments are recognized in operations on the
specific identification basis. Interest earned on investments is included in net investment income.
Deferred Policy Acquisition Costs. Commissions and other costs of acquiring life insurance, which
vary with, and are primarily related to, the production of new business have been deferred to the
extent recoverable from future policy revenues and gross profits. The acquisition costs are being
amortized over the premium paying period of the related policies using assumptions consistent with
those used in computing policy reserves.
Future Policy Benefits. Traditional life insurance policy benefit liabilities are computed on a
net level premium method using assumptions with respect to current yield, mortality, withdrawal
rates, and other assumptions deemed appropriate by the Company.
Future Annuity Benefits. Annuity contract liabilities are computed using the retrospective deposit
method and consist of policy account balances before deduction of surrender charges, which accrue
to the benefit of policyholders. Premiums received on annuity contracts are recognized as an
increase in a liability rather than premium income. Interest credited on annuity contracts is
recognized as an expense.
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 is 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 Companys 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.
13
Results of Operations and Financial Condition
The Companys consolidated results of operations improved as a result of the Companys expansion of
its loan brokerage activities beginning in the fourth quarter of 2006 pursuant to a brokerage
agreement with a Brooke Corporation (Brooke) subsidiary. Brooke owns a majority of the Companys
common stock. That activity and other significant aspects of the Companys operations during the
first half of 2007 are discussed below. The following table shows revenues and expenses (in
thousands, except percentages) for the three and six month periods ended June 30, 2007 and 2006,
along with selected percentage changes from period to period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Three months ended |
|
|
% increase |
|
|
Six months ended |
|
|
% increase |
|
|
|
June 30, |
|
|
June 30, |
|
|
(decrease) |
|
|
June 30, |
|
|
June 30, |
|
|
(decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
over 2006 |
|
|
2007 |
|
|
2006 |
|
|
over 2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premium income |
|
$ |
968 |
|
|
$ |
973 |
|
|
|
|
|
|
$ |
2,187 |
|
|
$ |
2,236 |
|
|
|
|
|
Reinsurance premiums assumed |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
Reinsurance premiums ceded |
|
|
(125 |
) |
|
|
(151 |
) |
|
|
|
|
|
|
(274 |
) |
|
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium income |
|
|
849 |
|
|
|
828 |
|
|
|
3 |
% |
|
|
1,922 |
|
|
|
1,932 |
|
|
|
-1 |
% |
Net investment income |
|
|
353 |
|
|
|
268 |
|
|
|
32 |
% |
|
|
676 |
|
|
|
534 |
|
|
|
27 |
% |
Net realized investment gain (loss) |
|
|
81 |
|
|
|
(68 |
) |
|
|
|
|
|
|
81 |
|
|
|
(70 |
) |
|
|
|
|
Rental income |
|
|
60 |
|
|
|
59 |
|
|
|
|
|
|
|
119 |
|
|
|
118 |
|
|
|
|
|
Consulting fees and other income |
|
|
3,989 |
|
|
|
1 |
|
|
|
|
|
|
|
4,245 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
5,332 |
|
|
|
1,088 |
|
|
|
390 |
% |
|
|
7,043 |
|
|
|
2,515 |
|
|
|
180 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in policy reserves |
|
|
152 |
|
|
|
185 |
|
|
|
-18 |
% |
|
|
482 |
|
|
|
435 |
|
|
|
11 |
% |
Policyholder surrender values |
|
|
59 |
|
|
|
77 |
|
|
|
-23 |
% |
|
|
146 |
|
|
|
148 |
|
|
|
-1 |
% |
Interest credited on annuities and
premium deposits |
|
|
193 |
|
|
|
143 |
|
|
|
35 |
% |
|
|
366 |
|
|
|
269 |
|
|
|
36 |
% |
Death claims |
|
|
104 |
|
|
|
162 |
|
|
|
-36 |
% |
|
|
417 |
|
|
|
295 |
|
|
|
41 |
% |
Commissions |
|
|
245 |
|
|
|
175 |
|
|
|
40 |
% |
|
|
498 |
|
|
|
426 |
|
|
|
17 |
% |
Policy acquisition costs deferred |
|
|
(238 |
) |
|
|
(162 |
) |
|
|
47 |
% |
|
|
(489 |
) |
|
|
(437 |
) |
|
|
12 |
% |
Amortization of deferred policy
acquisition costs |
|
|
195 |
|
|
|
210 |
|
|
|
-7 |
% |
|
|
359 |
|
|
|
366 |
|
|
|
-2 |
% |
Salaries, wages, and employee benefits |
|
|
880 |
|
|
|
218 |
|
|
|
303 |
% |
|
|
1,229 |
|
|
|
489 |
|
|
|
151 |
% |
Miscellaneous taxes |
|
|
29 |
|
|
|
32 |
|
|
|
-11 |
% |
|
|
58 |
|
|
|
59 |
|
|
|
-2 |
% |
Other operating costs and expenses |
|
|
1,011 |
|
|
|
231 |
|
|
|
337 |
% |
|
|
1,357 |
|
|
|
589 |
|
|
|
130 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses |
|
|
2,630 |
|
|
|
1,271 |
|
|
|
107 |
% |
|
|
4,423 |
|
|
|
2,639 |
|
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income tax expense |
|
|
2,702 |
|
|
|
(183 |
) |
|
|
|
|
|
|
2,620 |
|
|
|
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
1,814 |
|
|
$ |
(183 |
) |
|
|
|
|
|
$ |
1,732 |
|
|
$ |
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Brokerage Operations
The Company reported higher levels of revenue during the second quarter of 2007 compared to the
second quarter of 2006 as a result of its ability to broker loans to managing general insurance
agencies through its subsidiary, BCA. During this period, BCA generated almost $3,700,000 in loan
and other related fees. These amounts, along with other loan brokerage consulting related fees
totaled $3,990,000 for the second quarter of 2007 and $4,245,000 for the six months ended June 30,
2007. No similar fees were reported during the first six months of 2006. Income before taxes from
the loan brokerage subsidiary was about $2,853,000 and $2,932,000 during the three and six month
periods ended June 30, 2007.
14
Significant expenses related to the loan brokerage activity for the three and six month periods
ended June 30, 2007 included salaries, wages and employee benefits of about $514,000 and $649,000,
respectively. Incentive compensation related to second quarter loan closings is the primary reason
for the increase in commissions and payroll related amounts payable at June 30, 2007. Other
significant expenses during the three months ended June 30, 2007 included loan brokerage expenses
of about $125,000 and shared services expenses of $435,000 paid to Brooke Corporation.
Life and Annuity Operations
The following table provides information concerning net premium income, in thousands, reported by
the Companys life insurance subsidiary, FLAC, during the three and six month periods ended June
30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Three months ended |
|
|
% increase |
|
|
Six months ended |
|
|
% increase |
|
|
|
June 30, |
|
|
June 30, |
|
|
(decrease) |
|
|
June 30, |
|
|
June 30, |
|
|
(decrease) |
|
|
|
2007 |
|
|
2006 |
|
|
over 2006 |
|
|
2007 |
|
|
2006 |
|
|
over 2006 |
|
First year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance premiums |
|
$ |
117 |
|
|
$ |
180 |
|
|
|
|
|
|
$ |
238 |
|
|
$ |
417 |
|
|
|
|
|
Reinsurance premiums ceded |
|
|
(3 |
) |
|
|
(79 |
) |
|
|
|
|
|
|
(20 |
) |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net first year premium
income |
|
|
114 |
|
|
|
101 |
|
|
|
12 |
% |
|
|
218 |
|
|
|
236 |
|
|
|
-8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance premiums |
|
|
850 |
|
|
|
789 |
|
|
|
|
|
|
|
1,945 |
|
|
|
1,809 |
|
|
|
|
|
Reinsurance premiums ceded |
|
|
(122 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
(254 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net renewal year
premium income |
|
|
728 |
|
|
|
718 |
|
|
|
1 |
% |
|
|
1,691 |
|
|
|
1,677 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single premium |
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
4 |
|
|
|
10 |
|
|
|
|
|
Reinsurance premiums assumed |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium income |
|
$ |
849 |
|
|
$ |
828 |
|
|
|
3 |
% |
|
$ |
1,922 |
|
|
$ |
1,932 |
|
|
|
-1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premium income levels for the three and six month periods ended June 30, 2007 were similar
to those reported in the comparable prior year periods. Gross first year premium income in 2007
continues to trail the levels reported during 2006 primarily due to FLACs inability to write new
business in the state of Ohio during those periods and capital restrictions that limited its
ability to promote other new business. FLAC was released from its Memorandum of
Understanding with the Ohio Department of Insurance on May 3, 2007 and is now working to
re-establish relationships with agents in that market. The significant decline in first year
reinsurance premiums ceded is due to the termination of the reinsurance treaty with Wilson Re for
the life insurance companys Final Expense product for policies issued after June 24, 2006.
Net renewal year premium income increased slightly during the three and six month periods ended
June 30, 2007 as compared to the prior year periods. Renewal premiums reflect the premium
collected in the current year for those policies that have surpassed their first policy
anniversary. Renewal premiums will continue to increase unless premiums lost from surrenders,
lapses, settlement options or application of the non-forfeiture options, exceed prior years first
year premium. The increases in reinsurance premiums ceded are due to policies ceded to Wilton Re
from January 1, 2005 to June 24, 2006 surpassing their first year policy anniversary.
Increased policy reserve expense for the six months ended 2007 as compared to the same period in
2006 reflect the higher levels of expense recorded during the first quarter of 2007. 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 reserve requirements will continue to increase.
15
The Companys experience with death claims improved significantly during the second quarter of 2007
as those expenses were 36% below the levels reported during the same period in the prior year.
However, death claims expense for the six month period ended June 30, 2007 was 41% higher than the
same period in 2006 reflecting a higher level of claims filed during the first quarter of 2007 as
compared to the same time period in 2006. As a result of recent payouts on death claims and a
decline in the number of claims filed, the Companys reported liability for policy claims is about
$98,000 at June 30, 2007 as compared to $212,000 at December 31, 2006.
Commission expense increased 40% and 17% during the three and six month periods ended June 30, 2007
as compared to the prior year periods. Commission expense is based on a percentage of premiums and
is determined in the product design. Additionally, higher percentage commissions are paid for
first year business than renewal year. The significant increase in this expense during the second
quarter of 2007 is due to the termination of the reinsurance treaty with Wilton Re resulting in a
significant reduction in first year commission allowance.
Policy acquisition costs deferred increased 47% during the second quarter of 2007 as compared to
the same period in the prior year. These acquisition costs result from the capitalization of costs
related to the sales of life insurance and include commissions on first year business, medical exam
and inspection report fees, and salaries of employees directly involved in the marketing,
underwriting and policy issuance functions. Management performs quarterly reviews of the
recoverability of deferred acquisition costs 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.
Interest credited on annuities and premium deposits increased 35% and 36% during the three and six
month periods ended June 30, 2007 as compared to the prior year periods. A similar increase was
noted during the first quarter of 2007 and reflects the increases in annuity fund balances due to
deposits of about $3,307,000 less surrenders of about $472,000 during the six month period ended
June 30, 2007. Both interest credited on annuities and premium deposits have increased as a result
of the increase in the number of policies inforce. Increases in the Companys annuity and policy
benefit liabilities are largely related to increased sales of the Companys various annuity and
life insurance products. Reserves for future policy benefits are actuarially determined based on
such factors as insured age, life expectancy, mortality and interest assumptions.
The Companys available-for-sale fixed maturity securities increased to about $16,385,000 as a
result of its ability to
invest funds generated from the sale of annuity and other insurance products and other sources.
Purchases of available-for-sale fixed maturity securities, net of maturities were about $4,513,000.
Net investment income was 32% and 27% higher during the three and six month periods ended June 30,
2007 as compared to the prior year periods primarily as a result of this growth in the portfolio.
During the second quarter of 2007, the market value of the Companys available-for-sale fixed
maturity and equity securities declined by about $371,000, due primarily to changes in interest
rates. As a result, the Companys other comprehensive income was reduced by about $362,000 for the
three month period ended June 30, 2007. Similar declines were reported for the six month period
ended June 30, 2007.
Corporate and other activities
On March 30, 2007, the Companys application to acquire a 100% interest in Brooke Savings Bank was
filed with the Office of Thrift Supervision (OTS).
During April 2007, the Company completed a tender offer, buying back 379,248 shares (126,416 post
split) of its stock for a price of $1.60 per share ($4.80 post split). Also in April, the Company
completed a 1-for-3 reverse stock split buying back 2,253 shares of common stock resulting from the
split. Direct costs associated with the purchase of these shares have been included as a part of
the overall cost of acquiring this Treasury stock.
During May 2007, the Company filed its application with the American Stock Exchange (AMEX) for
original listing of its common stock.
16
Consulting, legal, filing and other fees related to the applications filed with the OTS and AMEX
and the recently completed reverse stock split totaling about $201,000 have been charged to expense
during the three months ended June 30, 2007. These costs, along with the loan brokerage and shared
services expenses incurred during the second quarter by BCA (described above) represent
substantially all of the significant increases noted in the Companys consolidated other operating
costs and expenses during the three and six month periods ended June 30, 2007 as compared to the
same periods in the prior year.
The Companys Chief Executive and Chief Financial Officers assumed their current positions on March
1, 2007. Their compensation related expenses, along with those previously discussed for BCA,
represent substantially all of the significant increases noted in the Companys consolidated
salaries, wages, and employee benefits expense during the three and six month periods ended June
30, 2007 as compared to the same periods in the prior year.
During the second quarter of 2007, the Company received $97,000 as a payout on its original
investment in the stock of an unaffiliated insurance holding company. The resulting gain of
$81,000 has been reported as income during the period.
The Company recorded a consolidated income tax provision of $888,000 during the second quarter of
2007. In recording this provision, the Company has recognized the benefit associated with
utilization of available net operating loss carry-forward amounts, subject to limitations under the
tax code. The Companys deferred income tax asset and valuation allowance related to the benefit
associated with remaining net operating loss carry-forward amounts have been reduced accordingly.
Federal and state income taxes payable have been reduced for income taxes receivable related to
amounts withheld by taxing authorities on certain lottery cash flow contracts held by the Company.
The Companys other assets included receivables from an affiliate of about $953,000 and $1,196,000
at June 30, 2007 and December 31, 2006, respectively. Other liabilities included payables to
affiliates of about $229,000 at June 30, 2007. The Companys cash balances are sometimes
commingled with the balances of Brooke and its other subsidiaries for cash management purposes. As
mentioned above, the Company recorded $435,000 in expense during the second quarter of 2007 in
connection with a shared services agreement between BCA and Brooke.
Liquidity and Capital Resources
During 2007, the Company maintained liquid assets sufficient to meet operating demands, while
continuing to utilize excess liquidity to make various investments. At June 30, 2007, the
Companys cash and cash equivalents and other liquid assets, in thousands, included the following
(as compared to December 31, 2006):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooke Capital |
|
|
Brooke Capital |
|
|
First Life America |
|
|
|
|
|
|
Corporation |
|
|
Advisors |
|
|
Corporation |
|
|
Consolidated |
|
Cash and Cash Equivalents |
|
$ |
885 |
|
|
$ |
3,546 |
|
|
$ |
374 |
|
|
$ |
4,805 |
|
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
16,624 |
|
|
|
16,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
$ |
885 |
|
|
$ |
3,546 |
|
|
$ |
16,998 |
|
|
$ |
21,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
$ |
1,978 |
|
|
$ |
1 |
|
|
$ |
14,129 |
|
|
$ |
16,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first six months of 2007, the Companys net cash provided by operations was
approximately $3,452,000 as compared to $341,000 during the first six months of 2006. 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.
Existing cash balances at the parent company level combined with expected cash flows from its
brokerage subsidiary, income tax sharing arrangements and administrative services reimbursements
from FLAC are believed by management to be sufficient to fund the parents normal operations and
pay its corporate expenses, income taxes and dividends.
17
The nature of the Companys brokerage subsidiarys operations is such that it is not expected to
require any capital contributions in 2007. Instead, if BCA is successful in implementing its
marketing plans, it will likely be a source of cash to BCAP. If the Companys life insurance
subsidiary, FLAC, is successful in implementing its marketing plans and its premiums increase
significantly as a result, then FLAC may require additional capital contributions in 2007 from the
parent company. In this event, capital contributions are not expected to exceed $1,000,000 and any
such required contributions are expected to be funded internally.
As previously noted, the Company has filed an application with the AMEX for an original listing on
that exchange. Management believes that such a listing will improve the Companys prospects for
selling additional equity securities, acquiring a business by merger or issuing debt. If another
suitable bank, life insurance or brokerage acquisition opportunity arises, the Company may require
additional capital. In this event, the required capital for an acquisition is expected to be
funded from the sale of common or preferred equity to public or private investors.
The Company is currently awaiting notice from the OTS regarding their review of its application to
acquire all of the outstanding common stock of Brooke Savings Bank in exchange for 2,015,968 shares
of the Companys common stock (value estimated of approximately $10,100,000). Although the
transaction, if consummated, will not affect the parent companys cash balances, it will increase
the Companys total equity capital. If Brooke Savings Bank is acquired and it is successful in
implementing its business plan, the Bank may require additional capital contributions from BCAP.
In this event, additional capital requirements are not expected to exceed $10,000,000 and are
expected to be funded from the sale of the Companys common or preferred stock to public or private
investors.
The Company may also receive additional capital contributions from Brooke during the next three
years resulting from an agreement by Brooke to contribute up to an additional $6,000,000 to the
Companys capital if the Companys brokerage subsidiary does not achieve $6,000,000 in pre tax
income over an approximate three year period ending September 30, 2009, in accordance with an
agreed upon schedule.
Recently Issued Accounting Standards
On July 14, 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of Statement of
Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. FIN 48 prescribes guidance to address
inconsistencies among entities with the measurement and recognition in accounting for income tax
positions for financial statement purposes. Specifically, FIN 48 addresses the timing of the
recognition of income tax benefits. FIN 48 requires the financial statement recognition of an
income tax benefit when the company determines that it is more-likely-than-not that the tax
position will be ultimately sustained. FIN 48 is effective for fiscal years beginning after
December 15, 2006, which, for the Company, is fiscal year 2007. The Company does not anticipate a
material effect on its consolidated financial statements as a result of the issuance of FIN 48.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides enhanced
guidance for using fair value measurements in financial reporting. While the standard does not
expand the use of fair value in any new circumstance, it has applicability to several current
accounting standards that require or permit entities to measure assets and liabilities at fair
value. This standard defines fair value, establishes a framework for measuring fair value in GAAP
and expands disclosures about fair value measurements. Application of this standard is required
for the Company beginning in 2008. Management is currently assessing what impact, if any, the
application of this standard could have on the Companys reported results of operations and
financial position.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This Statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is effective for an entitys
first fiscal year that begins after November 15, 2007, which, for the Company, is fiscal year 2008.
Management is currently assessing what impact, if any, the application of this standard could have
on the Companys reported results of operations and financial position.
18
Related Party Transactions
On March 2, 2005, the Company entered into a Stock Repurchase Agreement with Brooke under which the
Company repurchased 450,500 shares of Company common stock from Brooke. Brooke had previously
acquired the shares from a third party for a total purchase price of $772,255. The privately
negotiated transaction involved approximately 9.7 % of Company common stock then outstanding. The
shares were purchased at a price of $1.71 per share for a total purchase price of $770,355. The
Company paid the purchase price using $200,000 of its working capital and financed the remaining
amount with a loan from Brooke Credit Corporation, an affiliate of Brooke, at a fixed rate of 8%
over a ten-year period. The repurchase agreement also granted Brooke warrants to purchase up to
150,000 shares of Company common stock at prices ranging from $1.71 to $5.00 per share. These
warrants were cancelled as part of the 2006 Stock Purchase Agreement (as later defined).
The mortgage note on the commercial property and office building that the Company owned was
financed by Vision Bank of Topeka, Kansas. Gary Yager, a former Director of the Company, is the
President and CEO of Vision Bank. As of December 31, 2006 the mortgage note was paid in full.
Management believes that the terms obtained from Vision Bank at the time of financing were no less
favorable to the Company than those available from an independent lender.
The Boards of Directors of the Company and FLAC and the Kansas Insurance Department (KID)
authorized the parent company to sell its office building and related real estate to FLAC. The
proceeds were used in part to repay the notes to Vision Bank and Brooke described above. Closing
of this transaction occurred May 1, 2006.
On October 5, 2006, Mr. Van Engelen, a then officer and director of the Company, was awarded a
warrant to purchase up to 50,000 shares of Company common stock at an exercise price of $1.72 per
share (16,666 shares at an exercise price of $5.16 per share after the 1-for-3 reverse stock split
effective April 13, 2007). The warrant was awarded to Mr. Van Engelen in exchange for his services
in successfully negotiating and closing the transactions contemplated by the 2006 Stock Purchase
Agreement. Mr. Van Engelen entered into an employment agreement with the Company effective
December 8, 2006 to serve as President and CEO of FLAC.
On October 5, 2006, Thomas Fogt, a then director of the Company, was awarded a warrant to purchase
up to 100,000 shares of Company common stock at an exercise price of $1.72 per share (33,333 shares
at an exercise price of $5.16 per share after the 1-for-3 reverse stock split). Mr. Fogt was
awarded the warrant in exchange for his services in successfully negotiating and closing the
transactions proposed by the 2006 Stock Purchase Agreement.
The Company entered into a Stock Purchase and Sale Agreement dated October 6, 2006 (the 2006 Stock
Purchase Agreement) with Brooke that provided for a series of transactions that resulted in the
acquisition by Brooke of a majority of BCAPs outstanding common stock. As more fully discussed in
Description of Business Recent Developments and Market for Common Equity and Related
Stockholder Matters Sales of Unregistered Securities sections of the Companys Form 10-KSB for
the fiscal year ended December 31, 2006, Brooke had or has a direct and/or indirect material
interest in the 2006 Stock Purchase Agreement. Brooke also has an indirect interest in the
Companys proposed acquisition of Brooke Savings Bank. As a result of his relationship with
Brooke, Robert D. Orr, a Company director and the Companys Chairman of the Board, President and
Chief Executive Officer, has an indirect material interest in these transactions.
With respect to the Companys proposed acquisition of Brooke Savings Bank from Brooke Brokerage
Corporation (BBC), the Company agreed to exchange 6,047,904 shares of its common stock (2,015,968
shares after the effects of the reverse stock split) with a value of approximately $10.1 million,
for all of the stock of Brooke Savings Bank. The agreed upon purchase price of approximately $10.1
million equals the price paid by BBC to acquire Brooke Savings Bank on January 8, 2007. For the
purpose of the proposed transaction, the shares of Company common stock have been valued at $1.67
per share. This valuation equals the approximate price per share paid by Brooke for its 55%
ownership interest in the Company in the change of control transactions that occurred in December
2006 and January 2007. Based on the number of Company shares of common stock currently
outstanding, and taking into account the results of the tender offer for shares of the Companys
common stock concluded on April 2, 2007, the proposed transaction would result in an increase in
Brookes combined direct and indirect ownership of the Company from 55% to approximately 74%. The
proposed transaction, after adjustments, would also reduce Brookes indirect ownership of Brooke
Savings Bank from 100% to approximately 74%.
BCA entered into a services agreement with Brooke on March 21, 2007 that, in addition to other
benefits to BCA, provided for the transfer of certain additional loan brokerage activities that
were not a part of the original transfer of loan brokerage activities provided for in the 2006
Stock Purchase Agreement between the Company and Brooke. This services agreement provides for
monthly fees totaling $145,000, beginning in April 2007 and continuing until December 2007.
19
Included in the Companys other assets are certain receivables from an affiliate of about $953,000
and $1,196,000 at June 30, 2007 and December 31, 2006, respectively. These amounts represent fees
earned by BCA in connection with its ongoing collateral preservation and loan brokerage activities.
Other liabilities at June 30, 2007 included payables to affiliates of about $229,000 of which
$145,000 represented the amount due for one months shared services fee. The Companys cash
balances are sometimes commingled with the balances of Brooke and its other subsidiaries for cash
management purposes.
The Company has employed Robert D. Orr, as CEO of the Company and William R. Morton Jr., as CFO of
the Company. These individuals are also employed by Brooke or its other subsidiaries. The Company
reimburses Brooke and certain of its affiliates for the payroll related costs of these and other
employees.
Impact of Inflation and General Economic Conditions
The Companys liquidity and capital resources are subject to inflation and general market
conditions. The Company is primarily invested in fixed maturity securities. A majority of these
assets are debt securities and are considered fixed income investments. In addition, the Company
has investments in mortgage loans. Both of these investments are exposed to three primary sources
of investment risk: credit, interest rate and liquidity. In addition, the Companys investments
are subject, in varying degrees, to market risk that can affect their return and their fair market
value.
Interest rate risk arises from the price sensitivity of investments to changes in interest rates.
Coupon and/or dividend income represent the greatest portion of an investments total return for
most fixed income instruments in stable interest rate environments. The changes in the fair market
values of such investments are inversely related to changes in market interest rates. As interest
rates fall, the coupon and dividend streams of existing fixed rate investments become more valuable
and the market values rise. As interest rates rise, the opposite effect occurs.
The Companys mortgage loan investments are also particularly sensitive to interest rate changes.
As long-term rates
fall, borrowers become more likely to refinance their mortgages causing a prepayment of outstanding
mortgage principal that requires reinvestment at lower rates. As interest rates rise,
policyholders may become more likely to surrender policies or to borrow against cash values, often
to meet sudden needs in an inflationary environment or to invest in higher yielding opportunities
elsewhere. This risk of disintermediation may force the Company to liquidate part of its portfolio
at a time when the fair market values of fixed income investments are falling.
A majority of the Companys investments are exposed to varying degrees of credit risk. Credit risk
is the risk that the value of the investment may decline due to the deterioration of the financial
strength of the issuer and that the timely or ultimate payment of principal or interest may occur.
The Company mitigates credit risk by diversifying the investment portfolio across a broad range of
issuers, investment sectors and security types and by timing the amount of investments in any
particular entity.
20
ITEM 3. CONTROLS AND PROCEDURES
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 and the
information is accumulated and communicated to the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosure. The Companys Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the Companys 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 Chief Financial Officer concluded that the Companys disclosure controls and procedures
are effective in alerting management on a timely basis, of material information required to be
disclosed in the Companys reports as set forth in this section.
In connection with its review of the financial statements filed with the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2005, the Companys independent public accounting firm
advised management that it had noted certain matters that it considered to be a material
weakness. A material weakness is a significant deficiency, or a combination of significant
deficiencies, in the Companys internal financial procedures or controls, that results in more than
a remote likelihood that a material misstatement of the Companys 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 Companys controller and
who during that tenure was primarily responsible for preparing both the Companys statutory and
GAAP financial statements. On March 1, 2007, the Board of Directors elected Mr. Morton as the new
Chief Financial Officer replacing John Van Engelen, the President and Chief Executive Officer of
FLAC, who served in an interim capacity as the Chief Financial Officer of the Company from January
31, 2007 to March 1, 2007.
With these remediation steps remaining in place and the addition of the functional financial
support provided by Brooke pursuant to the Brooke Servicing Agreement referred to above, management
believes that the material weakness has been remediated and that the Companys internal control
over financial reporting as of the date of this report is effective at a
reasonable assurance level and has been for a period of time prior hereto. In connection with its
review of the financial statements filed with the Companys Annual Report on Form 10-KSB, for the
year ended December 31, 2006, the Companys independent public accounting firm has advised
management that it has not identified any matters that it considered to represent material
weaknesses.
Internal Control Over Financial Reporting. There were no changes in the Companys internal control
over financial reporting that have materially affected, or are reasonably likely to affect, the
Companys internal control over financial reporting for the quarter ended June 30, 2007. We have
undertaken remediation efforts, as discussed above. These staffing additions and training efforts
are in response to the material weaknesses identified.
21
PART II
OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As reported on Item 2 of the Companys quarterly report on Form 10-QSB for the period ended March
31, 2007, the Company concluded a modified Dutch auction tender offer for shares of its common
stock on April 2, 2007. The Company accepted for purchase 379,248 shares of its $0.01 par value
common stock at a price of $1.60 per share for an aggregate price paid to shareholders of
approximately $607,000. Upon completion of the offer, the Company had 9,264,212 shares of common
stock outstanding. As noted previously, effective as of the close of business on April 13, 2007,
the Company completed a 1-for-3 reverse stock split. Upon completion of the reverse stock split,
the Company had 3,085,817 shares of common stock outstanding (after the purchase of fractional
shares representing the equivalent of 2,253 shares).
The following table provides information about the repurchases made by the Company as a result of
the tender offer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
|
|
|
|
|
(c) |
|
Maximum number |
|
|
|
|
|
|
Total number of |
|
(or approximate |
|
|
|
|
|
|
shares purchased as |
|
dollar value) of |
|
|
(a) |
|
(b) |
|
part of publicly |
|
shares that may yet |
|
|
Total number of |
|
Average price paid |
|
announced plans or |
|
be purchased under |
Period (1) |
|
shares purchased |
|
per share |
|
programs |
|
the plans or programs |
March 2 April 2, 2007
|
|
379,248
(126,416 post split)
|
|
$1.60
($4.80 post split)
|
|
379,248
(126,416 post split)
|
|
0 |
|
|
|
(1) |
|
Shareholders were given notice of the tender offer on March 2, 2007, pursuant to the
Offer to Purchase filed by the Company on Schedule TO on the same date. The tender offer
expired on April 2, 2007. |
The following table provides information about the repurchases made by the Company as a result of
its commitment to purchase for cash any fractional shares that resulted from the reverse stock
split.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
|
|
|
|
|
(c) |
|
Maximum number |
|
|
|
|
|
|
Total number of |
|
(or approximate |
|
|
|
|
|
|
shares purchased as |
|
dollar value) of |
|
|
(a) |
|
(b) |
|
part of publicly |
|
shares that may yet |
|
|
Total number of |
|
Average price paid |
|
announced plans or |
|
be purchased under |
Date (1) |
|
shares purchased |
|
per share |
|
programs |
|
the plans or programs |
April 13, 2007
|
|
2,253
|
|
$5.16
|
|
2,253
|
|
0 |
|
|
|
(1) |
|
Shareholders were given notice of the reverse stock split on December 22, 2006 pursuant to
the Companys filing of an Information Statement related thereto. The reverse stock split was
effective April 13, 2007. |
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Companys annual meeting of shareholders was held on June 7, 2007. At the meeting, five
directors, constituting the entire Board of Directors, were elected to hold office until the annual
meeting of shareholders in 2008 or until their respective successors are elected and qualified, the
shareholders approved the proposal to adopt the First American Capital Corporation 2007 Equity
Incentive Plan, the shareholders approved the amendment to the Companys Articles of Incorporation
changing the name of the Company from First American Capital Corporation to Brooke Capital
Corporation, and the shareholders approved the proposal to ratify the appointment by the Board of
Directors of Summers, Spencer and Callison, CPAs, Chartered, as the Companys independent
registered public accounting firm for the fiscal year ending December 31, 2007. Final tabulations
of the vote at the annual meeting of shareholders was as follows:
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
FOR |
|
WITHHOLD AUTHORITY |
Robert D. Orr |
|
|
2,141,792 |
|
|
|
14,973 |
|
Keith E. Bouchey |
|
|
2,140,991 |
|
|
|
15,774 |
|
Paul E. Burke, Jr. |
|
|
2,139,393 |
|
|
|
17,372 |
|
Richard E. Gill |
|
|
2,140,458 |
|
|
|
16,307 |
|
Michael S. Hess |
|
|
2,140,727 |
|
|
|
16,038 |
|
Approval of First American Capital Corporation 2007 Equity Incentive Plan:
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN |
|
|
|
|
|
2,111,492
|
|
19,581
|
|
15,244 |
Approval of Amendment to Articles of Incorporation Changing the Name of the Company:
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN |
|
|
|
|
|
2,135,405
|
|
11,237
|
|
10,123 |
Ratification of Appointment of Independent Auditor:
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN |
|
|
|
|
|
2,144,057
|
|
4,117
|
|
8,591 |
23
ITEM 6. EXHIBITS
|
|
|
Exhibit No. |
|
Description |
|
|
|
3.1
|
|
Articles of Incorporation of First American Capital Corporation (Incorporated by reference
from Exhibit 2.1 to the Registrants amended Form 10-SB filed August 13, 1999) |
|
|
|
3.2
|
|
Certificate of Amendment of Articles of Incorporation of First American Capital Corporation
adopted January 31, 2007 (incorporated by reference from Exhibit 3.1 to the Registrants 8-K
filed on February 2, 2007). |
|
|
|
3.3
|
|
Certificate of Amendment of Articles of Incorporation of First American Capital Corporation
adopted June 7, 2007 (*). |
|
|
|
3.4
|
|
Copy of the Articles of Incorporation of First American Capital Corporation, as amended by
the Certificate of Amendment adopted January 31, 2007 and the Certificate of Amendment adopted
June 7, 2007 (*). |
|
|
|
3.5
|
|
Bylaws of First American Capital Corporation, as amended (Incorporated by reference from
Exhibit 3.2 to the Registrants Form 8-K filed April 11, 2005) |
|
|
|
3.6
|
|
Amendment to Amended and Restated Bylaws dated April 7, 2007 adopted on June 7, 2007
(incorporated by reference to Exhibit 3.1 to the Registrants 8-K dated June 7, 2007). |
|
|
|
3.7
|
|
Copy of Amended and Restated Bylaws of First American Capital Corporation, as amended by the
Board of Directors on June 7, 2007 (*). |
|
|
|
4
|
|
Certificate of Designations, Preferences and Relative,
Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations, and Restrictions Thereof of
6% Non-Cumulative, Convertible and Callable Preferred Stock (Incorporated by reference from
Exhibit 3 to the Registrants amended Form 10-SB filed August 13, 1999) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (*) |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (*) |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350 (*) |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350 (*) |
|
|
|
|
|
(*) Filed herewith |
24
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.
BROOKE CAPITAL CORPORATION
|
|
|
|
|
|
|
|
Date: July 27, 2007 |
By: |
/s/ ROBERT D. ORR
|
|
|
|
Robert D. Orr |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
Date: July 27, 2007 |
By: |
/s/ WILLIAM R. MORTON, JR.
|
|
|
|
William R. Morton, Jr. |
|
|
|
Chief Financial Officer and Treasurer |
|
|
25
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
|
|
|
3.3
|
|
Certificate of Amendment of Articles of Incorporation of First American Capital Corporation
adopted June 7, 2007 (*). |
|
|
|
3.4
|
|
Copy of the Articles of Incorporation of First American Capital Corporation, as amended by
the Certificate of Amendment adopted January 31, 2007 and the Certificate of Amendment adopted
June 7, 2007 (*). |
|
|
|
3.7
|
|
Copy of Amended and Restated Bylaws of First American Capital Corporation, as amended by the
Board of Directors on June 7, 2007 (*). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (*) |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (*) |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350 (*) |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350 (*) |
|
|
|
|
|
(*) Filed herewith |
26