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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _________________.
Commission file number 0-2500111
21st Century Holding Company
----------------------------
(Exact name of registrant as specified in its charter)
FL 65-0248866
------------------------------- ------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
4161 N.W. 5th Street, Plantation, FL 33317
------------------------------------------
(Address of principal executive offices) (Zip Code)
954-581-9993
------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value - 3,043,828 shares outstanding as of May 13, 2003.
21ST CENTURY HOLDING COMPANY
INDEX
PART I: FINANCIAL INFORMATION PAGE
-----
ITEM 1:
FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets
as of March 31, 2003
and December 31, 2002................................................ 3
Consolidated Statements of Operations
for the three months ended March 31, 2003
and 2002............................................................. 4
Consolidated Cash Flow Statements
for the three months ended March 31, 2003
and 2002............................................................. 5
Notes to Consolidated Financial Statements................................ 6
ITEM 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations..................... 9
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk................ 14
ITEM 4
Controls and Procedures................................................... 14
PART II: OTHER INFORMATION
Other Information......................................................... 14
Signatures................................................................ 16
Certifications ........................................................... 17
2
PART I
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
21ST CENTURY HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
(See Note 1)
ASSETS
Investments
Fixed maturities, available for sale, at fair value $ 26,687,897 $ 24,693,047
Equity securities -- 539,706
Mortgage loans 143,873 145,043
------------ ------------
Total investments 26,831,770 25,377,796
------------ ------------
Cash and cash equivalents 7,565,988 4,478,383
Finance contracts, net of allowance for credit
losses of $369,546 in 2003 and $404,356 in 2002 6,712,498 7,217,873
Prepaid reinsurance premiums 9,872,901 11,251,193
Premiums receivable, net of allowance for credit losses of $283,000 and $210,000, respectively 8,038,953 8,373,104
Reinsurance recoverable, net 11,110,986 7,856,972
Deferred acquisition costs, net 433,487 7,721
Income taxes recoverable -- --
Deferred income taxes 2,410,239 2,691,309
Property, plant and equipment, net 4,947,256 4,819,617
Goodwill, net 1,699,069 1,789,353
Other assets 1,689,079 1,454,690
------------ ------------
Total assets $ 81,312,226 $ 75,318,011
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 21,545,684 $ 16,983,756
Unearned premiums 29,312,355 28,934,486
Premiums deposits 1,127,018 655,713
Revolving credit outstanding 4,122,645 4,312,420
Bank overdraft 827,511 844,947
Unearned commissions 18,721 18,721
Income taxes payable 243,513 1,676,020
Accounts payable and accrued expenses 3,102,300 3,746,030
Drafts payable to insurance companies 48,805 48,254
------------ ------------
Total liabilities 60,348,552 57,220,347
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock of $0.01 par value. Authorized 25,000,000 shares; issued 3,435,667 and
3,411,667 shares, respectively;
Outstanding 3,012,201 and 2,990,201 shares, respectively 34,357 34,117
Additional paid-in capital 13,110,355 12,855,543
Accumulated other comprehensive income (deficit) 306,076 (227,091)
Retained earnings 8,618,574 6,521,027
Treasury stock, 423,466 and 421,466 shares, respectively, at cost (1,105,688) (1,085,932)
------------ ------------
Total shareholders' equity 20,963,674 18,097,664
------------ ------------
Total liabilities and shareholder's equity $ 81,312,226 $ 75,318,011
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
21ST CENTURY HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
------------ ------------
Revenue:
Gross premium written $ 16,611,980 $ 13,074,985
Gross premium ceded (4,398,875) (5,893,430)
------------ ------------
Net premiums written 12,213,105 7,181,555
Decrease in unearned premiums, net
of prepaid reinsurance premiums (1,756,161) (1,747,061)
------------ ------------
Net premiums earned 10,456,944 5,434,494
Commission income 433,039 428,346
Finance revenue 1,127,826 1,061,431
Managing general agent fees 632,547 959,000
Net investment income 365,205 334,622
Net realized investments gains 350,882 53,781
Other income 1,495,567 1,235,326
------------ ------------
Total revenue 14,862,010 9,507,000
Expenses:
Loss and loss adjustment expenses 6,787,709 3,184,631
Operating and underwriting expenses 2,681,278 2,845,525
Salaries and wages 2,146,335 2,002,890
Amortization of deferred acquisition costs, net (360,181) (70,282)
------------ ------------
Total expenses 11,255,141 7,962,764
Income before provision for income tax expense 3,606,869 1,544,236
Provision for income tax expense 1,298,468 552,866
------------ ------------
Net income $ 2,308,401 $ 991,370
============ ============
Basic net income per share $ 0.77 $ 0.33
============ ============
Weighted average number of common shares outstanding and
Weighted average number of common shares outstanding (assuming dilution) 3,004,620 3,028,926
============ ============
Dividends paid per common share $ 0.06 $ 0.02
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
21ST CENTURY HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
------------ ------------
Cash flow from operating activities:
Net income (loss) $ 2,308,401 $ 991,370
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Amortization (accretion) of investment premium (discount), net 39,947 (15,029)
Depreciation and amortization of property plant and equiqment 101,639 95,895
Deferred income tax expense 281,070 (149,700)
Net realized investment (gains) losses (350,882) (53,781)
Amortization of deferred acquisition costs, net (360,181) (70,282)
Provision for credit losses, net 194,708 474,361
Provision for uncollectible premiums receivable 10,627 96,679
Other 254,312 5,052
Changes in operating assets and liabilities:
Premiums receivable 323,524 (2,011,600)
Prepaid reinsurance premiums 1,378,292 (2,395,023)
Reinsurance recoverable, net (3,254,014) 1,322,946
Deferred acquisition costs, net (65,585) 780,152
Goodwill (179,716) --
Other assets (234,389) 1,139,065
Unpaid losses and loss adjusting expenses 4,561,928 921,472
Unearned premiums 377,869 4,142,084
Premium deposits 471,305 334,052
Unearned commissions -- (435,332)
Income taxes payable (1,432,507) --
Accounts payable and accrued expenses (642,990) 277,319
Drafts payable to insurance companies 551 636,803
------------ ------------
Net cash provided by operating activities 3,783,909 6,086,503
------------ ------------
Cash flow from investing activities:
Proceeds from sale of investment securities available for sale 40,687,613 1,767,061
Purchases of investment securities available for sale (41,298,655) (4,920,801)
Finance contracts receivable, consumer loans and pay advances receivable 310,667 (1,800,801)
Sale of and collection of mortgage loans 1,170 451,590
Purchases of property and equipment (229,278) (91,748)
Net cash used in acqusitions -- 199,687
Proceeds from sale of assets 270,000 --
------------ ------------
Net cash used in investing activities (258,483) (4,395,012)
------------ ------------
Cash flow from financing activities:
Bank overdraft (17,436) (1,337,377)
Dividends paid (210,854) (60,868)
Purchases of treasury stock (19,756) (,744)
Revolving credit outstanding (189,775) (511,145)
------------ ------------
Net cash used in financing activities (437,821) (1,918,134)
------------ ------------
Net (decrease) increase in cash and cash equivalents 3,087,605 (226,643)
Cash and cash equivalents at beginning of period 4,478,383 775,699
------------ ------------
Cash and cash equivalents at end of period $ 7,565,988 $ 549,056
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 55,412 $ 101,172
============ ============
Income taxes $ 2,450,000 $ 258
============ ============
Non-cash investing and financing activities:
Accrued dividends payable $ 210,807 $ 60,268
============ ============
Notes receivable, net of deferred gains, received for sale of agencies $ 13,712 --
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
The accompanying unaudited consolidated financial statements of 21st
Century Holding Company ("the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. These
financial statements do not include all information and notes required by
generally accepted accounting principles for complete financial statements, and
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 2002. The December 31, 2002 year-end balance sheet data
was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The financial
information furnished reflects all adjustments, consisting only of normal
recurring accruals, which are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations and cash
flows for the periods presented. The results of operations are not necessarily
indicative of results of operations, which may be achieved in the future.
The Company is a vertically integrated insurance holding company,
which, through its subsidiaries, controls substantially all aspects of the
insurance underwriting, distribution and claims process. The Company underwrites
nonstandard and standard personal automobile insurance and homeowners and mobile
home property and casualty insurance in the State of Florida through its
wholly-owned subsidiaries, Federated National Insurance Company ("Federated
National") and American Vehicle Insurance Company ("American Vehicle"). The
Company has underwriting authority for third-party insurance companies, which it
represents through a wholly owned managing general agent, Assurance Managing
General Agents, Inc. ("Assurance MGA"). The Company internally processes claims
made by Federated National, American Vehicle and third-party insurance companies
through a wholly-owned claims adjusting company, Superior Adjusting, Inc.
("Superior"). The Company also offers premium financing to its own and
third-party insureds through its wholly-owned subsidiary, Federated Premium
Finance, Inc. ("Federated Premium"). In the first quarter of 2002, the Company
decided to discontinue offering pay advances through its wholly-owned
subsidiary, FedFirst Corp. ("FedFirst"), due to declining profits in this line
of business.
The Company markets and distributes its own and third-party insurers'
products and its other services primarily in South Florida, through a network of
24 agencies, owned by Federated Agency Group, Inc. ("Federated Agency Group"), a
wholly-owned subsidiary, 34 operating franchised agencies and approximately 125
independent agents. The Company, through its wholly-owned subsidiary, FedUSA,
Inc. ("FedUSA"), franchises agencies under the FedUSA name. As of March 31,
2003, franchises were granted for 40 FedUSA agencies, of which 34 were
operating. The Company intends to focus its future expansion efforts for its
agency network on franchised agencies.
The Company offers income tax preparation software and service through
its 80%-owned subsidiary, Express Tax Service Company ("Express Tax").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions about future events that affect the
amounts reported in the financial statements and accompanying notes. Future
events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.
The most significant accounting estimates inherent in the preparation
of the Company's financial statements include estimates associated with
management's evaluation of the determination of liability for unpaid losses and
loss adjustment expense and the recoverability of goodwill. In addition,
significant estimates form the bases for the Company's reserves with respect to
finance contracts, premiums receivable, deferred income taxes and loss
contingencies. Various assumptions and other factors underlie the determination
of these significant estimates. The process of determining significant estimates
is fact specific and takes into account factors such as historical experience,
as well as current and expected economic conditions. Management constantly
re-evaluates these significant factors and makes adjustments where facts and
circumstances dictate.
6
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(B) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." Statement of Financial Accounting Standard No. 146
supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Statement of Financial
Accounting Standard No. 146 requires that, in certain instances, costs
associated with an exit or disposal plan be recognized when incurred rather than
at the date of a commitment to an exit or disposal plan. Statement of Financial
Accounting Standard No. 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The adoption of Statement of
Financial Accounting Standard No. 146 has no effect on the Company's financial
statements.
In October 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 147, "Acquisitions of Certain
Financial Institutions," which clarifies the accounting treatment for
acquisitions of financial institutions. In addition, this Statement amends
Statement of Financial Accounting Standard No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor and borrower relationship intangible assets and credit cardholder
intangible assets. Statement of Financial Accounting Standard No. 147 is
effective on October 1, 2002. The adoption of Statement of Financial Accounting
Standard No. 147 has no effect on the Company's financial statements.
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amended Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation." The new
standard provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
Additionally, the statement amends the disclosure requirements of
Statement of Financial Accounting Standard No. 123 to require prominent
disclosures in the annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This statement is effective for financial statements
for fiscal years ending after December 15, 2002. In compliance with Statement of
Financial Accounting Standard No. 148, the Company has elected to continue to
follow the intrinsic value method in accounting for the Company's stock-based
employee compensation arrangement as defined by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
(C) EARNINGS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing net
income by the weighted average number of common shares outstanding during each
period presented. Diluted earnings per share ("Diluted EPS") is computed by
dividing net income by the weighted average number of common stock and common
stock equivalents during the period presented; outstanding warrants and stock
options are considered common stock equivalents and are included in the
calculation using the treasury stock method. Diluted EPS for the year ended
December 31, 2002 excluded the impact of warrants and stock options as their
effect would have been anti-dilutive. For the period ended March 31, 2003 the
dilutive effect of the outstanding warrants and vested stock options would have
decreased Basic EPS by $0.01 per share, as such the dilutive effect is deemed to
be immaterial and not separately disclosed.
(3) REVOLVING CREDIT OUTSTANDING
Federated Premium's operations are funded by a revolving loan agreement
("Revolving Agreement") with FlatIron Funding Company LLC ("FlatIron"). The
Revolving Agreement is structured as a sale of contracts receivable under a sale
and assignment agreement with FPF, Inc. (a wholly-owned subsidiary of FlatIron),
which gives FPF, Inc. the right to sell or assign these contracts receivable.
Federated Premium, which services these contracts, has recorded transactions
under the Revolving Agreement as secured borrowings. The Revolving Agreement,
which was amended and revised in September 2001, allowed for a maximum credit
commitment of $7.0 million plus an initial additional amount of $700,000 for the
transition from September 30, 2001 when the previous agreement expired. The line
declined by $100,000 each month beginning November 1, 2001. In September 2002
the line was amended and revised allowing for a maximum credit commitment of
$4.0 million. The decline in the required credit commitment is due primarily to
Federated National and American Vehicle's newly developed direct bill program.
Direct billing is where the insurance company accepts from the insured, as a
receivable, a promise to pay the premium, as opposed to requiring the full
amount of
7
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) REVOLVING CREDIT OUTSTANDING - (CONTINUED)
the policy, either directly from the insured or from a premium finance company.
The amount of FPF's advance is subject to availability under a borrowing base
calculation, with maximum advances outstanding not to exceed the maximum credit
commitment. The annual interest rate on advances under the Revolving Agreement
is the prime rate plus additional interest varying from 1.25% to 3.25% based on
the prior month's ratio of contracts receivable related to insurance companies
with an A. M. Best rating of B or worse to total contracts receivable. The
Revolving Agreement contains various operating and financial covenants, with
which the Company was in compliance at March 31, 2003 and December 31, 2002. The
Revolving Agreement, as amended, expires September 30, 2004. Outstanding
borrowings under the Revolving Agreement as of March 31, 2003 and December 31,
2002 were approximately $4.1 million and $4.3 million, respectively. Outstanding
borrowings in excess of the $4.0 million commitment totaled $122,645 and
$312,420 for March 31, 2003 and December 31, 2002, respectively and are
permissible by reason of a compensating cash balance held for the benefit of
FPF, Inc. Interest expense on this revolving credit line for the first quarter
of 2003 and the year ended December 31, 2002 totaled approximately $55,000 and
$342,000, respectively.
(4) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
In June 2000, a lawsuit was filed against the Company and its directors
and executive officers seeking compensatory damages on the basis of allegations
that the Company's amended registration statement dated November 4, 1998 was
inaccurate and misleading concerning the manner in which the Company recognized
ceded insurance commission income, in violation of Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. The lawsuit was filed in the United States District Court for the
Southern District of New York and seeks class action status. The plaintiff class
purportedly includes purchasers of the Company's common stock between November
5, 1998 and August 13, 1999. The Company believes that the lawsuit is without
merit and is vigorously defending such action. The Court recently denied the
Company's Motion to Dismiss the plaintiff's First Amended Complaint and the
Company filed an Answer and Affirmative Defenses.
Prior to its acquisition by the Company in 2001, American Vehicle was
involved in litigation with a former officer and director. The litigation was
adjudicated and American Vehicle, among others, was found liable and paid the
final judgment. A petition was filed seeking costs of $136,000 and appellate
attorneys fees in excess of $2.0 million for fees, American Vehicle's previous
owners have agreed to indemnify the Company against any such fees and costs and,
the $500,000 purchase price for American Vehicle is held in escrow pending
settlement of the fees and costs issued. On February 26, 2003, the 11th Judicial
Circuit in Miami, Florida entered an amended final judgment awarding the
plaintiffs $1,140,387 in attorney fees and costs. Both parties are appealing
this judgment. Management anticipates that there will be no material effect
associated with the settlement of this case, consequently, no liability for fees
and costs have been accrued.
(5) COMPREHENSIVE INCOME
For the three months ended March 31, 2003 and 2002, comprehensive
income consisted of the following:
2003 2002
---------- ----------
Net income $2,308,401 $ 991,370
Change in net unrealized gain (losses) on investments
held for sale, net of income taxes 376,150 (543,926)
---------- ----------
Comprehensive income $2,684,551 $ 447,444
========== ==========
(6) SEGMENT INFORMATION
The Company and its subsidiaries operate principally in two business
segments consisting of insurance and financing. The insurance segment consists
of underwriting through Federated National and American Vehicle, managing
general agent operations through Assurance MGA, claims processing through
Superior, and marketing and distribution through Federated Agency Group. The
insurance segment sells personal automobile and homeowner insurance and includes
substantially all aspects of the insurance, distribution and claims process. The
financing segment consists of premium financing through Federated Premium. The
financing segment provides premium financing to both Federated National's,
American Vehicle's insureds and to a lesser extent third-party insureds. The
insurance segment marketed through the Company's distribution network of
Company-owned agencies and franchised agents.
8
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) SEGMENT INFORMATION - (CONTINUED)
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies and practices. The Company
evaluates its business segments based on GAAP pretax operating earnings.
Corporate overhead expenses are allocated to business segments. Transactions
between reportable segments are accounted for at fair value.
Operating segments that are not individually reportable are included in
the "All Other" category, which includes the operations of 21st Century Holding
Company, franchise operations and income tax return preparation.
Information regarding components of operations for the three-month
period ending March 31, 2003 and 2002 follows:
2003 2002
------------ ------------
TOTAL REVENUE
Insurance segment $ 15,449,365 $ 8,187,365
Financing segment 679,814 1,000,764
All other 1,184,760 1,213,452
------------ ------------
Total operating segments 17,313,939 10,401,581
Intercompany eliminations (2,451,929) (894,581)
------------ ------------
Total revenues $ 14,862,010 $ 9,507,000
============ ============
EARNINGS BEFORE INCOME TAXES
Insurance segment $ 3,121,270 $ 401,414
Financing segment 198,673 159,234
All other 286,926 983,588
------------ ------------
Total Earnings before Income Taxes $ 3,606,869 $ 1,544,236
============ ============
Information regarding total assets as of March 31, 2003 and December
31, 2002 follows:
2003 2002
------------ ------------
TOTAL ASSETS
Insurance segment $ 73,491,480 $ 66,663,775
Finance segment 6,955,089 7,548,841
All other 2,816,451 3,003,827
------------ ------------
Total Operating Segments 83,263,020 77,216,443
Intercompany eliminations (1,950,794) (1,898,432)
------------ ------------
Total Assets $ 81,312,226 $ 75,318,011
============ ============
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
Statements in this report or in documents that are incorporated by
reference that are not historical fact are forward-looking statements that are
subject to certain risks and uncertainties that could cause actual events and
results to differ materially from those discussed herein. Without limiting the
generality of the foregoing, words such as "may", "will", "expect", "believe",
"anticipate", "intend", "could", "would", "estimate", or "continue" or the
negative other variations thereof or comparable terminology are intended to
identify forward-looking statements. The risks and uncertainties include,
without limitation, uncertainties related to estimates, assumptions and
projections generally; inflation and other changes in economic conditions
(including changes in interest rates and financial markets); pricing competition
and other initiatives by competitors; ability to obtain regulatory approval for
requested rate changes and the timing thereof; legislative and regulatory
developments; the outcome of litigation pending against the Company; risks
related to the nature of the Company's business; dependence on investment income
and the composition of the Company's investment portfolio; the adequacy of its
liability for loss and loss adjustment expense ("LAE"); insurance agents; claims
experience; limited experience in the insurance industry; ratings by industry
services; catastrophe losses; reliance on key personnel; weather conditions
(including the severity and frequency of storms, hurricanes, tornadoes and
hail); changes in driving patterns and loss trends; acts of war and terrorist
activities; courts decisions and trends in litigation and health care and auto
repair costs; and other matters described from time to time by the Company in
this report, and other filings with the SEC. You are cautioned not to place
reliance on these forward-looking statements, which are valid only as of the
date they were made. The Company undertakes no obligation to update or revise
any forward-looking statements to reflect new
9
FORWARD-LOOKING STATEMENTS - (CONTINUED)
information or the occurrence of unanticipated events or otherwise. In addition,
investors should be aware that generally accepted accounting principles
prescribe when a company may reserve for particular risks, including litigation
exposures. Accordingly results for a given reporting period could be
significantly affected if and when a reserve is established for a major
contingency. Reported results may therefore appear to be volatile in certain
accounting periods.
OVERVIEW
The Company is a vertically integrated insurance holding company, which, through
its subsidiaries, controls substantially all aspects of the insurance
underwriting, distribution and the claims process. The Company underwrites
personal automobile insurance, homeowners insurance and mobile home property and
casualty insurance in the State of Florida through its wholly-owned
subsidiaries, Federated National Insurance Company ("Federated National") and
American Vehicle Insurance Company ("American Vehicle"). The Company internally
processes claims made by its own and third party insureds through a wholly-owned
claims adjusting company, Superior Adjusting, Inc. ("Superior"). The Company
also offers premium financing to its own and third-party insureds through its
wholly-owned subsidiary, Federated Premium Finance, Inc. ("Federated Premium").
The Company markets and distributes its own and third-party insurers'
products and its other services primarily in Central and South Florida, through
a network of 24 agencies, owned by Federated Agency Group, Inc. ("Federated
Agency Group"), a wholly-owned subsidiary, 40 franchised agencies and
approximately 125 independent agents. The Company, through its wholly-owned
subsidiary, FedUSA, Inc. ("FedUSA"), franchises agencies under the FedUSA name.
As of March 31, 2003, franchises were granted for 40 FedUSA agencies, of which
34 were operating. The Company intends to focus its future expansion efforts for
its agency network on franchised agencies.
The Company offers income tax preparation software and service through
Express Tax Service, Inc. ("Express Tax"), an 80% owned subsidiary, as well as
franchise opportunities for these services through EXPRESSTAX Franchise
Corporation ("EXPRESSTAX"), a wholly-owned subsidiary of Express Tax. As of
March 31, 2003 there were 138 EXPRESSTAX franchises granted.
The Company believes that it can be distinguished from its competitors
because it generates revenue from substantially all aspects of the insurance
underwriting, distribution and claims process. The Company provides quality
service to both its agents and insureds by utilizing an integrated computer
system, which links the Company's insurance and service entities. The Company's
computer and software systems allow for automated premium quotation, policy
issuance, billing, payment and claims processing and enables the Company to
continuously monitor substantially all aspects of its business. Using these
systems, the Company's agents can access a customer's driving record, quote a
premium, offer premium financing and, if requested, generate a policy on-site.
The Company believes that these systems have facilitated its ability to market
and underwrite insurance products on a cost-efficient basis, allow Company-owned
and franchised agencies to be a "one stop" shop for insurance, tax preparation
and other services, and will enhance the Company's ability to expand in Florida
and to other states.
The Company's primary products are standard and nonstandard personal
automobile insurance. The former is principally provided to insureds who present
an average risk profile in terms of payment history, driving record, vehicle
type and other factors. The latter is principally provided to insureds who are
unable to obtain preferred or standard insurance coverage because of their
payment history, driving record, age, vehicle type or other factors, including
market conditions for preferred or standard risks. Underwriting standards for
standard insurance coverage have become more restrictive, thereby requiring more
drivers to seek coverage in the nonstandard automobile insurance market. These
factors have contributed to an increase in the size of the nonstandard personal
automobile insurance market.
The Company currently underwrites and sells insurance only in Florida;
however, the Company intends to expand to other selected states and American
Vehicle has applied to obtain a license to underwrite and sell personal
automobile insurance in South Carolina and Louisiana. The Company will select
additional states for expansion based on a number of criteria, including the
size of the personal automobile insurance market, statewide loss results,
competition and the regulatory climate. The Company's ability to expand into
other states will be subject to the prior regulatory approval of each state.
Certain states impose operating requirements upon licensee applicants, which may
impose burdens on the Company's ability to obtain a license to conduct insurance
business in those other states. There can be no assurance that the Company will
be able to obtain the required licenses, and the failure to do so would limit
the Company's ability to expand geographically.
The Company's executive offices are located at 4161 N.W. 5th Street,
Plantation, Florida and its telephone number is (954) 581-9993.
10
ANALYSIS OF FINANCIAL CONDITION
AS OF MARCH 31, 2003 AS COMPARED TO DECEMBER 31, 2002
INVESTMENTS. Investments increased $1.5 million, or 5.7%, to $26.8
million as of March 31, 2003 as compared to $25.4 million as of December 31,
2002. This increase in investments is the result of an increase in premiums
written discussed below.
FINANCE CONTRACTS. Finance contracts decreased $505,000, or 0.07%, to
$6.7 million as of March 31, 2003 from $7.2 million as of December 31, 2002. The
decline in contracts receivable is due to the direct-bill feature offered by the
insurance companies wherein the policyholder can renew and pay premiums directly
to the Federated National and American Vehicle.
PREPAID REINSURANCE PREMIUMS. Prepaid reinsurance premiums decreased
$1.4 million, or 12.2%, to $9.9 million as of March 31, 2003 from $11.3 million
as of December 31, 2002 The decrease is the result a decrease in Federated
National's ceded quota-share reinsurance on automobile insurance from 40% of
premiums written in 2002 to 30% for premiums written in 2003. American Vehicle
also reduced its ceded quota-share reinsurance from 70% of its premiums written
to 40% effective November 1, 2002.
REINSURANCE RECOVERABLE. Reinsurance recoverable increased $3.3 million
to $11.1 million as of March 31, 2003 from $7.9 million as of December 31, 2002.
This increase is the result of the timing of settlements between the Company and
its reinsurer. All amounts are considered current.
DEFERRED ACQUISITION COSTS, NET. Deferred acquisition costs increased
from $7,721 as of December 31, 2002 to $433,487 as of March 31, 2003. Included
in the December 31, 2002 balance were deferred commissions of $3.0 million
offset by unearned ceded commissions of $3.0 million. As of March 31, 2003,
deferred commissions were $74,000 offset by unearned ceded commissions of
$500,000. Deferred commissions increased due to the increase in premiums. The
increase in unearned ceded commissions is related to the decline of Federated
National's and American Vehicle's 2003 reinsurance cession treaties.
UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES. Unpaid loss and loss
adjustment expenses increased $4.6 million from $17.0 million as of December 31,
2002 to $21.6 as of March 31, 2003. The increase is due to first quarter loss
reserve strengthening and to the timing of claim payments issued.
PREMIUM DEPOSITS. Premium deposits represent premiums collected in
advance of the policy's effective date of coverage and are generally associated
with the Home and Mobile Home insurance policies. Premium deposits increased
from $656,000 as of December 31, 2002 to $1.1 million as of March 31, 2003.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
GROSS PREMIUMS WRITTEN. Gross premiums written increased $3.5 million,
or 27%, to $16.6 million for the three months ended March 31, 2003 as compared
to $13.1 million for the comparable period in 2002. $1.4 million of this
increase is attributable to American Vehicle which was acquired in August 2001.
Federated National's automobile premiums written also increased by $1.4 million
and its homeowner premiums written increased by $681,000 as compared to March
31, 2002.
GROSS PREMIUMS CEDED. Gross premiums ceded decreased $1.5 million to
$4.4 million for the three months ended March 31, 2003, from $5.9 million for
the three months ended March 31, 2002. The decrease is primarily due to the
decline in the Company's ceded quota-share reinsurance on automobile insurance.
DECREASED UNEARNED PREMIUMS, NET OF PREPAID REINSURANCE PREMIUMS. The
decrease in unearned premiums, net of prepaid reinsurance premiums was $1.7
million for the three months ended March 31, 2002 as compared to a decrease of
$1.7 million for the three months ended March 31, 2003 as well. The decline is a
function of the increase in written premiums and declining ceded reinsurance
quota-share percentages.
MGA FEES. MGA fees decreased $326,000 to $633,000 for the three-month
period ended March 31, 2003 from $959,000 for the same period in 2002. The
decrease is due to commissions earned from a nonaffiliated insurance company
during the first quarter of 2002.
NET REALIZED INVESTMENT GAINS. The Company experienced net realized
gains of $351,000 for the three-month period ended March 31, 2003 compared to
realized gains of $54,000 for the same period in 2002. Realized gains or losses
are primarily a function of the bond and equity markets. There can be no
assurance that the Company will record gains in the future.
LOSSES AND LAE. The Company's loss ratio, as determined in accordance
with GAAP, for the three-month period ended March 31, 2003 was 64.9% compared
with 58.6% for the same period in 2002. Losses and LAE incurred increased $3.6
million to
11
RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2002 - (CONTINUED)
$6.8 million for the three-month period ended March 31, 2003 from $3.2 million
for the same period in 2002. Losses and LAE, the Company's most significant
expense, represent actual payments made and changes in estimated future payments
to be made to or on behalf of its policyholders, including expenses required to
settle claims and losses. The Company attributes the 113% increase to reserve
strengthening. Loss ratios by company by major line are as follows:
March 31, 2003 March 31, 2002
-------------- --------------
Federated National Automobile 83.5% 79.2%
Federated National Home and Mobile home Owners 16.8% 25.1%
American Vehicle Automobile 76.8% 77.9%
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS. Amortization of
deferred policy acquisition costs increased from a credit of $70,000 for the
three-month period ended March 31, 2002 to a credit of $360,000 for the same
period in 2003. Amortization of deferred policy acquisition costs consists
primarily of net commissions. The increase is due to an increase in commissions
earned on reinsurance ceded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are revenues generated from
operations, investment income and borrowings under the Revolving Agreement,
described below. Because the Company is a holding company, it is largely
dependent upon dividends and fees from its subsidiaries for cash flow.
Federated Premium's operations are funded by a revolving loan agreement
("Revolving Agreement") with FlatIron Funding Company LLC ("FlatIron"). The
Revolving Agreement is structured as a sale of contracts receivable under a sale
and assignment agreement with FPF, Inc. (a wholly-owned subsidiary of FlatIron),
which gives FPF, Inc. the right to sell or assign these contracts receivable.
Federated Premium, which services these contracts, has recorded transactions
under the Revolving Agreement as secured borrowings. The Revolving Agreement,
which was amended and revised in September 2001, allowed for a maximum credit
commitment of $7.0 million plus an initial additional amount of $700,000 for the
transition from September 30, 2001 when the previous agreement expired. The line
declined by $100,000 each month beginning November 1, 2001. In September 2002
the line was amended and revised allowing for a maximum credit commitment of
$4.0 million. The decline in the required credit commitment is due primarily to
Federated National and American Vehicle's newly developed direct bill program.
Direct billing is where the insurance company accepts from the insured, as a
receivable, a promise to pay the premium, as opposed to requiring the full
amount of the policy, either directly from the insured or from a premium finance
company. The amount of FPF's advance is subject to availability under a
borrowing base calculation, with maximum advances outstanding not to exceed the
maximum credit commitment. The annual interest rate on advances under the
Revolving Agreement is the prime rate plus additional interest varying from
1.25% to 3.25% based on the prior month's ratio of contracts receivable related
to insurance companies with an A. M. Best rating of B or worse to total
contracts receivable. The Revolving Agreement contains various operating and
financial covenants, with which the Company was in compliance at March 31, 2003
and December 31, 2002. The Revolving Agreement, as amended, expires September
30, 2004. Outstanding borrowings under the Revolving Agreement as of March 31,
2003 and December 31, 2002 were approximately $4.1 million and $4.3 million,
respectively. Outstanding borrowings in excess of the $4.0 million commitment
totaled $122,645 and $312,420 for March 31, 2003 and December 31, 2002,
respectively and are permissible by reason of a compensating cash balance held
for the benefit of FPF, Inc. Interest expense on this revolving credit line for
the first quarter of 2003 and the year ended December 31, 2002 totaled
approximately $55,000 and $342,000, respectively.
For the three months ended March 31, 2003, operations generated
operating cash flow of $3.8 million, which was primarily attributable to the
increase in premiums written. Operating cash flow is currently expected to be
positive in both the short-term and the reasonably foreseeable future. In
addition, the Company's investment portfolio is highly liquid as it consists
almost entirely of readily marketable securities. Cash flow used in net
investing activities was $258,000 for the quarter ended March 31, 2003 as the
Company invested the cash flow from operating activities. In the future, the
Company expects a continued cash flow deficit from investing activities as the
Company invests cash from operations. Cash deficit from financing activities was
$438,000 for the quarter ended March 31, 2003, as the Company reduced its bank
overdraft and the amount outstanding under its Revolving Agreement as well as
dividends paid. The Company believes that its current capital resources,
together with cash flow from its operations, will be sufficient to meet its
currently anticipated working capital requirements. There can be no assurances,
however, that such will be the case.
To retain its certificate of authority, Florida insurance laws and
regulations require that Federated National and American Vehicle maintain
capital surplus equal to the greater of 10% of its liabilities or the 2002
statutory minimum capital and surplus requirement of $3.25 million as defined in
the Florida Insurance Code. The insurance companies are also required to adhere
to prescribed premium-to-capital surplus ratios.
12
LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)
Under Florida law, a domestic insurer may not pay any dividend or
distribute cash or other property to its shareholders except out of that part of
its available and accumulated capital surplus funds which is derived from
realized net operating profits on its business and net realized capital gains. A
Florida domestic insurer may not make dividend payments or distributions to
shareholders without prior approval of the Florida Department of Financial
Services if the dividend or distribution would exceed the larger of (i) the
lesser of (a) 10.0% of its capital surplus or (b) net income, not including
realized capital gains, plus a two-year carryforward, (ii) 10.0% of capital
surplus with dividends payable constrained to unassigned funds minus 25% of
unrealized capital gains or (iii) the lesser of (a) 10.0% of capital surplus or
(b) net investment income plus a three-year carryforward with dividends payable
constrained to unassigned funds minus 25.0% of unrealized capital gains.
Alternatively, a Florida domestic insurer may pay a dividend or distribution
without the prior written approval of the Florida Department of Financial
Services (i) if the dividend is equal to or less than the greater of (a) 10.0%
of the insurer's capital surplus as regards policyholders derived from realized
net operating profits on its business and net realized capital gains or (b) the
insurer's entire net operating profits and realized net capital gains derived
during the immediately preceding calendar year, (ii) the insurer will have
policy holder capital surplus equal to or exceeding 115.0% of the minimum
required statutory capital surplus after the dividend or distribution, (iii) the
insurer files a notice of the dividend or distribution with the Florida
Department of Financial Services at least ten business days prior to the
dividend payment or distribution and (iv) the notice includes a certification by
an officer of the insurer attesting that, after the payment of the dividend or
distribution, the insurer will have at least 115% of required statutory capital
surplus as to policyholders. Except as provided above, a Florida domiciled
insurer may only pay a dividend or make a distribution (i) subject to prior
approval by the Florida Department of Financial Services or (ii) 30 days after
the Florida Department of Financial Services has received notice of such
dividend or distribution and has not disapproved it within such time.
Under these laws, Federated National would be permitted to pay
dividends of approximately $142,000 to the Company in 2003, and American Vehicle
would be permitted to pay $9,000 in dividends in 2003. Although the Company
believes that amounts required for it to meet its financial and operating
obligations will be available from sources other than dividends from insurance
subsidiaries, there can be no assurance in this regard. Further, there can be no
assurance that, if requested, the Florida Department of Financial Services will
allow any dividends in excess of the amount available, to be paid by Federated
National to the Company in the future. No dividends were paid by Federated
National or American Vehicle in 2002, 2001 or 2000, and none are anticipated in
2003. The maximum dividends permitted by state law are not necessarily
indicative of an insurer's actual ability to pay dividends or other
distributions to a parent company, which also may be constrained by business and
regulatory considerations, such as the impact of dividends on capital surplus,
which could affect an insurer's competitive position, the amount of premiums
that can be written and the ability to pay future dividends. Further, state
insurance laws and regulations require that the statutory capital surplus of an
insurance company following any dividend or distribution by it be reasonable in
relation to its outstanding liabilities and adequate for its financial needs.
Insurance companies are required to comply with the risk-based capital
requirements of the NAIC. The NAIC's risk-based capital requirements are a
method of measuring the amount of capital appropriate for an insurance company
to support its overall business operations in light of its size and risk
profile. NAIC's risk-based capital standards are used by regulators to determine
appropriate regulatory actions relating to insurers who show signs of weak or
deteriorating condition. As of March 31, 2003, based on calculations using the
appropriate NAIC formula, the Company's total adjusted capital is in excess of
ratios that would require regulatory action. GAAP differs in some respects from
reporting practices prescribed or permitted by the Florida Department of
Financial Services. Federated National's and American Vehicle's statutory
capital surplus levels as of March 31, 2003 were approximately $9.8 million and
$5.2 million, respectively, and their statutory net income for the quarter ended
March 31, 2003 was $511,000 and $293,000, respectively.
During 2002 Federated National entered into a 10% quota-share agreement
with its affiliate American Vehicle. The agreement ceded 10% of its premium and
losses on all policies with an effective date of 2002. For presentation purposes
and in accordance with the principles of consolidation the agreement between the
two affiliated insurance companies has been eliminated.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein
have been prepared in accordance with GAAP which requires the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or with the same magnitude
as the cost of paying losses and LAE.
13
Insurance premiums are established before the Company knows the amount
of loss and LAE and the extent to which inflation may affect such expenses.
Consequently, the Company attempts to anticipate the future impact of inflation
when establishing rate levels. While the Company attempts to charge adequate
rates, the Company may be limited in raising its premium levels for competitive
and regulatory reasons. Inflation also affects the market value of the Company's
investment portfolio and the investment rate of return. Any future economic
changes which result in prolonged and increasing levels of inflation could cause
increases in the dollar amount of incurred loss and LAE and thereby materially
adversely affect future liability requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information related to quantitative and qualitative disclosures about
market risk was included under Item 7a, "Quantitative and Qualitative
Disclosures about Market Risk" in the Company's Annual Report on Form 10-K as of
December 31, 2002. No material changes have occurred in market risk since this
information was disclosed except as discussed below.
The Company's investment portfolio is available for sale and is carried
at fair value. Gains, that represent securities with a fair value in excess of
amortized cost, and losses (amortized cost is in excess of fair value) that are
deemed temporary by management are recorded in shareholders' equity in
accumulated other comprehensive income. Losses that are deemed other than
temporary by management are recorded as net realized losses in the consolidated
statement of operations.
A summary of the investment portfolio as of March 31, 2003 follows:
Amortized Cost Fair Value Gain (Loss)
------------ ----------- ------------
Corporate Securities
Communications Industry $ 2,602,080 $ 2,782,225 $ 180,145
Financial Industry 4,354,347 4,379,431 25,084
Other Industries 4,258,484 4,323,758 65,274
----------- ----------- -----------
Total Corporate Securities 11,214,911 11,485,414 270,503
Obligations of State and Municipal Subdivisions 13,485,242 13,589,451 104,209
U. S. Government and Government Agencies 103,488 104,094 606
----------- ----------- -----------
Total Fixed Maturities $24,803,641 $25,178,959 $ 375,318
=========== =========== ===========
Equity Securities - Common Stocks $ 1,599,737 $ 1,508,939 $ (90,798)
=========== =========== ===========
As shown in the table above, at March 31, 2003 the Company had
investments with a fair value of $2.7 million and amortized cost of $2.6 million
in the communications industry. At the time these investments were made, the
Company believed that these were prudent and would enhance the yield on the
investment portfolio.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. TCHC's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in Sections 13a-14c of the Securities Exchange Act of 1934) as of a date (the
"Evaluation Date") within 90 days before the filing date of this quarterly
report, have concluded that as of the Evaluation Date, the Company's disclosure
controls and procedures were effective and designed to ensure that material
information relating to the Company and its consolidated subsidiaries would be
made known to them by others within those entities to allow timely decisions
regarding required disclosures.
CHANGES IN INTERNAL CONTROLS. TCHC does not believe that there are
significant deficiencies in the design or operation of its internal controls
that could adversely affect its ability to record, process, summarize and report
financial data. However, management continually evaluates and enhances TCHC's
internal control structure and, in response to the current focus on corporate
governance, has undertaken a review and documentation of its internal control
systems.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls subsequent to
the Evaluation Date.
PART II. OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
ITEM 5
OTHER INFORMATION
None
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K filed on May 5, 2003, attached and incorporated by reference Exhibit
99.1, Press release of TCHC, dated May 5, 2003, reporting financial results for
the first quarter of 2003.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
21ST CENTURY HOLDING COMPANY
By: /s/ Edward J. Lawson
-----------------------------------------
Edward J. Lawson, Chairman of the Board,
President and Chief Executive Officer
/s/ James G. Jennings III
----------------------------------------------
James G. Jennings III, Chief Financial Officer
Date: May 14, 2003
16
CERTIFICATIONS
I, Edward J. Lawson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of 21st Century Holding
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003.
/s/ Edward J. Lawson
- --------------------------
Chief Executive Officer
17
CERTIFICATIONS - (CONTINUED)
I, James G. Jennings III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of 21st Century Holding
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003.
/s/ J. G. Jennings, III
- --------------------------
Chief Financial Officer