-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DJsmHHsmzEYFvQ0R1nK9f6ujZwjXLStD7ORQvZxnx+1LZLHioOKG+1EkWy8LL19s rLfYntpLt7Z7tgqtK9xm1A== 0000100716-05-000006.txt : 20050513 0000100716-05-000006.hdr.sgml : 20050513 20050513160318 ACCESSION NUMBER: 0000100716-05-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050513 DATE AS OF CHANGE: 20050513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICO AMERICAN CORP CENTRAL INDEX KEY: 0000100716 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 952583928 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03978 FILM NUMBER: 05829291 BUSINESS ADDRESS: STREET 1: 23251 MULHOLLAND DR CITY: WOODLAND HILLS STATE: CA ZIP: 91364 BUSINESS PHONE: 8185919800 MAIL ADDRESS: STREET 1: 23251 MULHOLLAND DRIVE CITY: WOODLAND HILLS STATE: CA ZIP: 91364 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL COVERAGE CORP DATE OF NAME CHANGE: 19730823 10-Q 1 unam0305.txt FORM 10-Q 1 of 16 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2005 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 0-3978 UNICO AMERICAN CORPORATION (Exact name of registrant as specified in its charter) Nevada 95-2583928 (State or other jurisdiction of (I.R.S. Employee incorporation or organization) Identification No.) 23251 Mulholland Drive, Woodland Hills, California 91364 (Address of Principal Executive Offices) (Zip Code) (818) 591-9800 (Registrant's telephone number, Including Area Code) No Change (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 shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- 5,496,315 Number of shares of common stock outstanding as of May 10, 2005 1 PART 1 - FINANCIAL INFORMATION ------------------------------ ITEM 1 - FINANCIAL STATEMENTS - ----------------------------- UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31 December 31 2005 2004 ---- ---- ASSETS - ------ Investments Available for sale: Fixed maturities, at market value (amortized cost: March 31, 2005 $133,930,281; December 31, 2004 $128,989,658) $133,541,399 $129,559,615 Short-term investments, at cost 3,194,066 3,118,118 ----------- ----------- Total Investments 136,735,465 132,677,733 Cash 21,500 15,016 Accrued investment income 1,068,551 1,047,278 Premiums and notes receivable, net 6,952,575 7,770,560 Reinsurance recoverable: Paid losses and loss adjustment expenses 363,178 18,512 Unpaid losses and loss adjustment expenses 21,024,435 20,119,011 Deferred policy acquisition costs 7,741,435 8,203,238 Property and equipment (net of accumulated depreciation) 283,836 278,404 Deferred income taxes 1,779,996 1,667,195 Other assets 805,706 773,329 ----------- ----------- Total Assets $176,776,677 $172,570,276 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ LIABILITIES - ----------- Unpaid losses and loss adjustment expenses $90,962,233 $87,469,000 Unearned premiums 33,090,324 35,656,393 Advance premium and premium deposits 928,793 1,067,224 Income taxes payable 590,494 227,551 Notes payable-related parties 250,000 500,000 Accrued expenses and other liabilities 7,644,722 5,224,783 ----------- ----------- Total Liabilities $133,464,566 $130,144,951 ----------- ----------- STOCKHOLDERS' EQUITY - -------------------- Common stock, no par - authorized 10,000,000 shares; issued and outstanding shares 5,496,315 at March 31, 2005, and 5,492,315 at December 31, 2004 $2,720,487 $2,708,047 Accumulated other comprehensive income (256,662) 376,172 Retained earnings 40,846,286 39,341,106 ---------- ---------- Total Stockholders' Equity $43,310,111 $42,425,325 ---------- ---------- Total Liabilities and Stockholders' Equity $176,776,677 $172,570,276 =========== ===========
See notes to unaudited consolidated financial statements. 2 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31 -------- 2005 2004 ---- ---- REVENUES - -------- Insurance Company Revenues Premium earned $16,675,645 $16,474,958 Premium ceded 3,849,687 3,888,639 ---------- ---------- Net premium earned 12,825,958 12,586,319 Net investment income 1,035,847 1,091,591 Other income 25,824 30,291 ---------- ---------- Total Insurance Company Revenues 13,887,629 13,708,201 Other Revenues from Insurance Operations Gross commissions and fees 1,373,325 1,710,597 Investment income 13,421 9,827 Finance charges and fees earned 203,042 246,965 Other income 3,697 4,601 ---------- ---------- Total Revenues 15,481,114 15,680,191 ---------- ---------- EXPENSES - -------- Losses and loss adjustment expenses 8,372,112 8,956,987 Policy acquisition costs 2,605,672 2,478,410 Salaries and employee benefits 1,287,357 1,216,119 Commissions to agents/brokers 185,040 271,123 Other operating expenses 674,606 789,108 ---------- ---------- Total Expenses 13,124,787 13,711,747 ---------- ---------- Income Before Taxes 2,356,327 1,968,444 Income Tax Provision 851,147 710,447 --------- --------- Net Income $1,505,180 $1,257,997 ========= ========= PER SHARE DATA - -------------- Basic Shares Outstanding 5,494,847 5,489,815 Basic Earnings Per Share $0.27 $0.23 Diluted Shares Outstanding 5,615,644 5,577,686 Diluted Earnings Per Share $0.27 $0.23
See notes to unaudited consolidated financial statements. 3 UNICO AMERICAN CORPORATION AND SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended March 31 -------- 2005 2004 ---- ---- Net Income $1,505,180 $1,257,997 Other changes in comprehensive income, net of tax: Unrealized gains (losses) on securities classified as available-for-sale arising during the period (632,834) 141,252 ------- --------- Comprehensive Income $872,346 $1,399,249 ======= ========= See notes to unaudited consolidated financial statements. 4 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31,
2005 2004 ---- ---- Cash Flows from Operating Activities: Net Income $1,505,180 $1,257,997 Adjustments to reconcile net income to net cash from operations Depreciation 23,877 23,139 Bond amortization, net 47,540 81,500 Changes in assets and liabilities Premium, notes and investment income receivable 796,712 (214,070) Reinsurance recoverable (1,250,090) (2,722,135) Prepaid reinsurance premiums - 11,224 Deferred policy acquisitions costs 461,803 41,975 Other assets (32,377) 546,837 Reserve for unpaid losses and loss adjustment expenses 3,493,233 3,297,428 Unearned premium reserve (2,566,069) (324,907) Funds held as security and advanced premiums (138,431) (61,542) Accrued expenses and other liabilities 2,419,939 (1,013,578) Income taxes current/deferred 576,147 315,446 --------- --------- Net Cash Provided from Operations 5,337,464 1,239,314 --------- --------- Investing Activities Purchase of fixed maturity investments (7,488,163) (20,987,800) Proceeds from maturity of fixed maturity investments 2,500,000 16,470,000 Net (increase) decrease in short-term investments (75,948) 3,315,278 Additions to property and equipment (29,309) (30,290) --------- --------- Net Cash (Used) by Investing Activities (5,093,420) (1,232,812) --------- --------- Financing Activities Proceeds from issuance of common stock 12,440 - Repayment of notes payable - related parties (250,000) - ------- Net Cash (Used) by Financing Activities (237,560) - ------- Net increase in cash 6,484 6,502 Cash at beginning of period 15,016 37,988 ------ ------ Cash at End of Period $21,500 $44,490 ====== ====== Supplemental Cash Flow Information Cash paid during the period for: Interest $5,000 $14,087 Income taxes $275,000 $395,000
See notes to unaudited consolidated financial statements. 5 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Nature of Business - ------------------ Unico American Corporation is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, health and life insurance through its agency subsidiaries; and provides insurance premium financing and membership association services through its other subsidiaries. Unico American Corporation is referred to herein as the "Company" or "Unico" and such references include both the corporation and its subsidiaries, all of which are wholly owned, unless otherwise indicated. Unico was incorporated under the laws of Nevada in 1969. Principles of Consolidation - --------------------------- The accompanying unaudited consolidated financial statements include the accounts of Unico American Corporation and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Basis of Presentation - --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. Quarterly financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company's 2004 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. NOTE 2 - OMNIBUS STOCK PLAN - --------------------------- The Company's 1999 Omnibus Stock Plan that covers 500,000 shares of the Company's common stock (subject to adjustment in the case of stock splits, reverse stock splits, stock dividends, etc.) was approved by shareholders June 4, 1999. On August 26, 1999, the Company granted 135,000 incentive stock options of which 40,000 were terminated and 95,000 were outstanding and exercisable as of March 31, 2005. These options expire 10 years from the date of the grant. On December 18, 2002, the Company granted an additional 182,000 incentive stock options under the Company's 1999 Omnibus Stock Plan of which 6,500 options were exercised, 2,500 options were terminated and 173,000 were outstanding as of March 31, 2005. These options expire 10 years from the date of the grant. These options become exercisable as follows: Currently Exercisable 105,500 January 1, 2006 37,500 January 1, 2007 30,000 ------- Total 173,000 ======= The Company applies the intrinsic-value based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations including FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. FASB Statement No. 123, "Accounting for Stock-Based Compensation," and FASB Statement No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure," an amendment of FASB Statement No. 123, established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. As permitted by existing accounting standards, the Company has elected to continue to apply the intrinsic-value based method of accounting described above and has adopted only the disclosure requirements of Statement 123, as amended. 6 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 2 - OMNIBUS STOCK PLAN (continued) - -------------------------------------- Had compensation cost for the Company's stock-based compensation plan been reflected in the accompanying consolidated financial statements based on the fair value at the grant dates for option awards consistent with the method of SFAS 123, the Company's net income would have been reduced to the pro forma amounts indicated below: Three Months Ended March 31 -------- 2005 2004 ---- ---- Net income As reported $1,505,180 $1,257,997 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 7,432 11,396 --------- ----------- Pro forma $1,497,748 $1,246,601 ========= ========= Income per share As reported $0.27 $0.23 Pro forma $0.27 $0.23 Income per share - assuming dilution: As reported $0.27 $0.23 Pro forma $0.27 $0.22 Calculations of the fair value under the method prescribed by SFAS No. 123 were made using the Black-Scholes Option-Price Model with the following weighted average assumptions used for the 1999 and 2002 grants: 2002 1999 Grant Grant ----- ----- Dividend yield 1.40% 2.46% Expected volatility 34% 43% Expected lives 10 Years 10 Years Risk-free interest rates 4.05% 6.09% Fair value of options granted $1.32 $4.30 NOTE 3 - REPURCHASE OF COMMON STOCK - EFFECT ON STOCKHOLDERS' EQUITY - -------------------------------------------------------------------- The Company has previously announced that its Board of Directors had authorized the repurchase in the open market from time to time of up to an aggregate of 945,000 shares of the common stock of the Company. During the three months ended March 31, 2005, the Company did not repurchase any shares of the Company's common stock. As of March 31, 2005, the Company had purchased and retired under the Board of Directors' authorization an aggregate of 868,958 shares of its common stock at a cost of $5,517,465. NOTE 4 - EARNINGS PER SHARE - --------------------------- The following table represents the reconciliation of the numerators and denominators of the Company's basic earnings per share and diluted earnings per share computations reported on the Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004: Three Months Ended March 31 2005 2004 ---- ---- Basic Earnings Per Share - ------------------------ Net income numerator $1,505,180 $1,257,997 ========= ========= Weighted average shares outstanding denominator 5,494,847 5,489,815 ========= ========= Basic Earnings Per Share $0.27 $0.23 7 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 4 - EARNINGS PER SHARE (continued) - -------------------------------------- Diluted Earnings Per Share - -------------------------- Net income numerator $1,505,180 $1,257,997 ========= ========= Weighted average shares outstanding 5,494,847 5,489,815 Effect of diluted securities 120,797 87,871 --------- --------- Diluted shares outstanding denominator 5,615,644 5,577,686 ========= ========= Diluted Earnings Per Share $0.27 $0.23 NOTE 5 - SEGMENT REPORTING - -------------------------- Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information," became effective for fiscal years effective after December 15, 1997. SFAS No. 131 establishes standards for the way information about operating segments is reported in financial statements. The Company has adopted SFAS No. 131 and has identified its insurance company operation, Crusader Insurance Company (Crusader), as its primary reporting segment. Revenues from this segment comprised 90% of consolidated revenues for the three months ended March 31, 2005, and 87% of revenues for the three months ended March 31, 2004. The Company's remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually insignificant to consolidated revenues. Revenues, income before income taxes, and assets by segment are as follows: Three Months Ended March 31 -------- 2005 2004 ---- ---- Revenues - -------- Insurance company operation $13,887,629 $13,708,201 Other insurance operations 5,462,244 6,404,849 Intersegment elimination (1) (3,868,759) (4,432,859) --------- --------- Total other insurance operations 1,593,485 1,971,990 ---------- ---------- Total Revenues $15,481,114 $15,680,191 ========== ========== Income Before Income Taxes - -------------------------- Insurance company operation $2,398,193 $1,330,058 Other insurance operations (41,866) 638,386 --------- --------- Total Income Before Income Taxes $2,356,327 $1,968,444 ========= ========= As of March 31 -------------- 2005 2004 ---- ---- Assets - ----- Insurance company operation $157,219,525 $143,961,736 Intersegment eliminations (2) (1,770,109) (3,129,884) ----------- ----------- Total insurance company operation 155,099,416 140,831,852 Other insurance operations 21,327,261 23,842,041 ----------- ----------- Total Assets $176,776,677 $164,673,893 =========== =========== (1) Intersegment revenue eliminations reflect commission paid by Crusader to Unifax Insurance Systems, Inc., (Unifax) a wholly owned subsidiary of the Company. (2) Intersegment asset eliminations reflect the elimination of Crusader receivables and Unifax payables. 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS --------------------- OVERVIEW - -------- General - ------- Unico American Corporation is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, health and life insurance through its agency subsidiaries; and through its other subsidiaries provides insurance premium financing and membership association services. The Company had a net income of $1,505,180 for the three months ending March 31, 2005, compared to net income of $1,257,997 for the three months ended March 31, 2004, an increase in net income of $247,183. This overview discusses some of the relevant factors that management considers in evaluating the Company's performance, prospects and risks. It is not all-inclusive and is meant to be read in conjunction with the entirety of the management discussion and analysis, the Company's financial statements and notes thereto and all other items contained within the report on this Form 10-Q. Revenue and Income Generation - ----------------------------- The Company receives its revenue primarily from earned premium derived from the insurance company operations, commission and fee income generated from the insurance agency operations, finance charges and fee income from the premium finance operations, and investment income from cash generated primarily from the insurance operation. The insurance company operation generates approximately 90% of the Company's total revenue. The Company's remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually not material to consolidated revenues. Insurance Company Operation - --------------------------- The property and casualty insurance industry is highly competitive and includes many insurers, ranging from large companies offering a wide variety of products worldwide to smaller, specialized companies in a single state or region offering only a single product. Many of the Company's existing or potential competitors have considerably greater financial and other resources, have a higher rating assigned by independent rating organizations such as A.M. Best Company, have greater experience in the insurance industry and offer a broader line of insurance products than the Company. Currently, Crusader is writing primarily Commercial Multiple Peril business only in the state of California and is rated B+ (Very Good) by A.M. Best Company. A primary challenge of the property and casualty insurance company operation is contending with the fact that the Company sells its products before the ultimate costs are actually known. When pricing its products, the Company projects the ultimate claim and loss adjustment cost that it anticipates will be incurred after the policy is sold. In addition, factors such as changes in, among other things, regulations, the legal environment, and inflation can all impact the ultimate cost. The Company's future writings growth is dependent on market conditions, competition, and the Company's ability to introduce new and profitable products. The Company believes that the "hard market" condition experienced by the Company in the last few years no longer exists. The Company believes that rate adequacy is more important than premium growth and that underwriting profit is the Company's primary goal. Management's assessment of trends and underwriting results is a primary factor in its decisions to expand or contract its business. The Company has no plan to expand into additional states or to expand its marketing channels. Instead, the Company intends to allocate its resources toward improving its California business rates, rules, and forms. As a result of underwriting losses, in 2000 through 2002, management analyzed and acted upon various components of its underwriting activity. The Company believes that the implementation of these actions contributed to the improved underwriting results. 9 Crusader's underwriting results are as follows:
Three Months Ended Three Months Ended Increase March 31, 2005 March 31, 2004 (Decrease) -------------- -------------- -------- Net premium earned $12,825,958 $12,586,319 $239,639 Less: Losses and loss adjustment expenses 8,372,112 8,956,987 (584,875) Policy acquisition costs 2,605,672 2,478,410 127,262 ---------- ---------- ------- Total 10,977,784 11,435,397 (457,613) ---------- ---------- ------- Underwriting profit (before income taxes) $1,848,174 $1,150,922 $697,252 ========= ========= =======
Premium written before reinsurance decreased $2,040,494 (13%) to $14,109,556 for the three months ended March 31, 2005, compared to $16,150,050 for the three months ended March 31, 2004. Policies issued also decreased to 4,695 for the three months ended March 31, 2005, compared to 5,142 for the three months ended March 31, 2004. The decrease in written premium and policies issued in the three months ended March 31, 2005, compared to the three months ended March 31, 2004, was primarily the result of the change in the current market conditions from a "hard market " to a "soft market." Other Operations - ---------------- The Company's other operations generate commissions, fees, and finance charges from various insurance products. The events that have the most significant economic impact on other operations are as follows: Unifax primarily sells and services insurance policies for Crusader. The commissions paid by Crusader to Unifax are eliminated as intercompany transactions and are not reflected as income in the financial statements. Unifax also receives policy fee income that is directly related to the Crusader policies it sells. As a result of the decrease in Crusader policies sold by Unifax, policy fee income decreased $102,925 (13%) in the three months ended March 31, 2005, compared to the three months ended March 31, 2004. American Insurance Brokers, Inc. (AIB) sells and services health insurance policies for individual/family and small business groups and receives commission and fee income based on the premiums that it writes. Commission income in this program decreased $213,342 (34%) in the three months ended March 31, 2005; compared to the three months ended March 31, 2004. The decrease is primarily a result of CIGNA HealthCare's (CIGNA) decision to discontinue its individual/family health insurance program over the period from November 1, 2003, through October 1, 2004. AIB had been assisting former CIGNA policyholders to find health coverage with other insurance carriers that AIB represents. Investments and Liquidity - ------------------------- The Company generates revenue from its investment portfolio, which consisted of approximately $133.9 million (at amortized cost) at March 31, 2005, compared to $129.0 million (at amortized cost) at December 31, 2004. Although the portfolio slightly increased in 2005, investment income decreased $52,150. Although investment yield have been rising, the decrease in investment income is primarily the result of a decline over the last five years in yields in the marketplace and a shorter weighted average maturity of the Company's portfolio. Due to the current interest rate environment, management believes it is prudent to purchase fixed maturity investments with approximately two-year maturities and with minimal credit risk. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Due to the nature of the Company's business (insurance and insurance services) and whereas Company growth does not normally require material reinvestments of profits into property or equipment, the cash flow generated from operations usually results in improved liquidity for the Company. Crusader generates a significant amount of cash as a result of its holdings of unearned premium reserves, reserves for loss payments, and its capital and surplus. Crusader's loss and loss adjustment expense payments are the most significant cash flow requirement of the Company. These payments are continually monitored and projected to ensure that the Company has the liquidity to cover these payments without the need to liquidate its investments. As of March 31, 2005, the Company had cash and investments of $137,145,847 (at amortized cost) of which $134,881,803 (98%) were investments of Crusader. 10 As of the quarter ended March 31, 2005, the Company had invested $133,930,281 (at amortized cost) or 98% of its invested assets in fixed maturity obligations. In accordance with Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company is required to classify its investments in debt and equity securities into one of three categories: held-to-maturity, available-for-sale, or trading securities. Although all of the Company's investments are classified as available-for-sale, the Company's investment guidelines place primary emphasis on buying and holding high-quality investments. The Company's investments in fixed maturity obligations of $133,930,281 (at amortized cost) include $961,514(0.7%) of pre-refunded state and municipal tax-exempt bonds, $85,269,032 (63.7%) of U.S. treasury securities, $11,999,143 (8.9%) of U.S. government sponsored enterprise securities, $35,200,592 (26.3%) of industrial and miscellaneous securities, and $500,000 (0.4%) of long-term certificates of deposit. The tax-exempt interest income earned for the three months ended March 31, 2005 and 2004 was $3,724 and $17,087, respectively. The balance of the Company's investments is in short-term investments that include, bank money market accounts, certificates of deposit, commercial paper and a short-term treasury money market fund. The Company's investment guidelines on equity securities limit investments in equity securities to an aggregate maximum of $2,000,000. The Company's investment guidelines on fixed maturities limit fixed maturity investments to high-grade obligations with a maximum term of eight years. The maximum investment authorized in any one issuer is $2,000,000 and in any one U.S. government agency or U.S. government sponsored enterprise is $3,000,000. This dollar limitation excludes bond premiums paid in excess of par value and U.S. government or U.S. government guaranteed issues. All investments in municipal securities are pre-refunded and secured by U.S. treasury securities. The short-term investments are either U.S. government obligations, FDIC insured, or are in an institution with a Moody's rating of P2 and/or a Standard & Poor's rating of A1. All of the Company's fixed maturity investment securities are rated and readily marketable and could be liquidated without any materially adverse financial impact. On September 29, 2003, the Company borrowed $1,000,000 from Erwin Cheldin, a director and the Company's principal shareholder, president and chief executive officer. As of December 31, 2004, the Company repaid $500,000 of the Erwin Cheldin note and on January 31, 2005, the Company repaid an additional $250,000. The note from Erwin Cheldin is unsecured and it is payable upon demand of lender (on no less than fourteen days' notice) and, if no demand is made, then it is payable in full on September 28, 2007. The note may be prepaid at any time without penalty. The note bears an adjustable interest of 6.0% as of March 31, 2005. The interest is payable monthly and is adjustable every third month by adding a margin of one percentage point to the prime rate. On April 29, 2005, the Company repaid the remaining $250,000. The Company anticipates incurring approximately $600,000 of capital expenditures in 2005 for computer hardware and software related to its conversion to a "paperless office." The Company expects this project to be completed in 2005. The Company's analysis of its potential return on this capital expenditure is estimated to be approximately two years due to anticipated productivity improvements and lower operating costs. The Company has previously announced that its Board of Directors had authorized the repurchase in the open market from time to time of up to an aggregate of 945,000 shares of the common stock of the Company (See Note 3). No shares were repurchased in the three months ended March 31, 2005. Although material capital expenditures may also be funded through borrowings, the Company believes that its cash and short-term investments as of the date of this report, net of trust restriction of $825,025, statutory deposits of $700,000, cash of $200,000 deposited with superior courts in lieu of bonds, and the dividend restriction between Crusader and Unico plus the cash to be generated from operations, should be sufficient to meet its operating requirements during the next twelve months without the necessity of borrowing funds. RESUTLS OF OPERATIONS - --------------------- All comparisons made in this discussion are comparing the three months ended March 31, 2005, to the three months ended March 31, 2004, unless otherwise indicated. The Company had net income of $1,505,180 for the three months ending March 31, 2005, compared to net income of $1,257,997 for the three months ended March 31, 2004, an increase in net income of $247,183 (20%). Total revenue for the three months ended March 31, 2005, decreased $199,077 (1%) to $15,481,114, compared to total revenue of $15,680,191 for the three months ended March 31, 2004. 11 Premium written before reinsurance decreased $2,040,494 (13%) to $14,109,556 for the three months ended March 31, 2005, compared to $16,150,050 for the three months ended March 31, 2004. The Company primarily writes commercial multiple peril business package policies in California. This line of business represents approximately 98% of Crusader's total written premium for the three months ended March 31, 2005 and 2004, respectively. The $2,040,494 decrease in written premium in the three months ended March 31, 2005, compared to the three months ended March 31, 2004, was primarily the result of the change in the current market conditions from a "hard market " to a "soft market." A decrease in the Industry-wide underwriting losses, an increase in investment yield, and decreases in reinsurance cost have all contributed to the change from the "hard market" that existed in California in the past few years to a "soft market." The Company cannot determine how long the existing market conditions will continue, nor in which direction they might change. The Company's future writings and growth are dependent on market conditions, competition, and the Company's ability to introduce new and profitable products. The Company's average gross written premium per policy issued is as follows: Gross Quarter Ended Written Policies Average Gross March 31 Premium Issued Written Premium -------- ------- ------ --------------- 2005 $14,109,556 4,695 $3,005 2004 $16,150,050 5,142 $3,141 Beginning July 1, 2003, the Company had placed moratoriums on all non-California business, primarily due to the fact that much of the Company's business outside of California has not been profitable. The Company has no current plan to expand into additional states or to expand its marketing channels. Instead, the Company intends to allocate its resources toward improving its California business rates, rules, and forms. The Company continues to believe that it can compete effectively and profitably by offering better service and by marketing its policies through its current independent agents and brokers. PREMIUM EARNED before reinsurance increased $200,687 (1%) to $16,675,645 for the three months ended March 31, 2005, compared to $16,474,958 for the three months ended March 31, 2004. The Company writes annual policies and, therefore, earns written premium over the one-year policy term. The slight increase in direct earned premium, in spite of the 13% decrease in direct written premium, is a direct result of the increase in direct premium written during 2004 over 2003. Premium ceded decreased $38,952 (1%) to $3,849,687 for the three months ended March 31, 2005, compared to ceded premium of $3,888,639 in the three months ended March 31, 2004. Earned premium ceded consists of both premium ceded under the Company's current reinsurance contracts and premium ceded to the Company's provisionally rated reinsurance contracts. Prior to January 1, 1998, the Company's reinsurer charged a provisional rate on exposures up to $500,000 that was subject to adjustment and was based on the amount of losses ceded, limited by a maximum percentage that could be charged. That provisionally rated treaty was cancelled on a runoff basis in 1997. Direct earned premium, earned ceded premium, and ceding commission are as follows:
Three Months Ended March 31 -------- Increase 2005 2004 (Decrease) ---- ---- -------- Direct earned premium $16,675,645 $16,474,958 $200,687 Earned ceded premium Excluding provisionally rated ceded premium 3,650,109 4,196,062 (545,953) Provisionally rated ceded premium 199,578 (307,423) 507,001 --------- --------- ------- Total earned ceded premium 3,849,687 3,888,639 (38,952) Ceding commission 1,198,403 1,463,636 (265,233) --------- --------- ------- Earned ceded premium, net of ceding commission $2,651,284 $2,425,003 $226,281 ========= ========= =======
The decrease in earned ceded premium (excluding provisionally rated ceded premium) for the three months ended March 31, 2005, is primarily related to the decrease in the reinsurance rate charged by the Company's reinsurers. In 2005 and 2004 Crusader retained a participation in its excess of loss reinsurance treaties of 10% in its 1st layer ($750,000 in excess of $250,000), 10% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 30% in its property clash treaty. 12 Beginning January 1, 2005, Crusader increased its retention from $250,000 to $300,000 per risk. There has been no change in the annual aggregate deductible or participation rates compared to 2004. The 2005 1st layer primary excess of loss treaty does not provide for a contingent commission. Crusader's 2004 and 2003 1st layer primary excess of loss treaty provides for a contingent commission equal to 45% of the net profit, if any, accruing to the reinsurer. The first accounting period for the contingent commission is December 31, 2005. Based on losses and loss adjustment expenses ceded (including incurred but not reported losses) as of March 31, 2005, no contingent commission has been accrued. NET INVESTMENT INCOME, excluding realized investment gains, decreased $52,150 (5%) to $1,049,268 for the three months ended March 31, 2005, compared to investment income of $1,101,418 for the three months ended March 31, 2004. The decrease in investment income is primarily the result of a decline in the average return on reinvested assets in the Company's investment portfolio. Also contributing to the decline in average return is a shorter weighted average maturity of new and reinvested assets. Due to the current interest rate environment, management believes it is prudent to purchase fixed maturity investments with approximately two-year maturities and with minimal credit risk. At March 31, 2005, the Company held fixed maturity investments with unrealized appreciation of $677,726 and fixed maturity investments with unrealized depreciation of $1,066,608. The Company monitors its investments closely. If an unrealized loss is determined to be other than temporary, it is written off as a realized loss through the Consolidated Statements of Operations. The Company's methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time and the extent to which the fair value has been less than the cost, the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, and the Company's intent to hold the investment for a period of time sufficient to allow the Company to recover its costs. The Company has concluded that the gross unrealized losses of $1,066,608 at March 31, 2005, were temporary in nature. However, facts and circumstances may change which could result in a decline in market value considered to be other than temporary. The following table summarizes, for all fixed maturities in an unrealized loss position at March 31, 2005, the aggregate fair value and gross unrealized loss by length of time those fixed maturities have been continuously in an unrealized loss position: Gross Fair Value Unrealized Loss ---------- --------------- 0-6 months $32,528,497 $315,912 7-12 months 56,474,085 597,571 Over 12 months 8,807,414 153,125 ---------- --------- Total $97,809,996 $1,066,608 ========== ========= As of March 31, 2005, the fixed maturity investments with a gross unrealized loss for a continuous period of 0 to 6 months consisted of U.S. treasury securities and industrial securities. The fixed maturity investments with a gross unrealized loss position for a continuous period of 7 to 12 months consisted of U.S. treasury securities and U.S. government sponsored enterprise securities. The fixed maturity investments with a gross unrealized loss position for a continuous period over 12 months consisted of U.S. treasury securities, U.S. government sponsored enterprise securities and pre-refunded state bonds. GROSS COMMISSION AND FEE INCOME decreased $337,272 (20%) to $1,373,325 for the three months ended March 31, 2005, compared to commission and fee income of $1,710,597 for the three months ended March 31, 2004. 13 The decrease in gross commission and fee income for the three months ended March 31, 2005, compared to the three months ended March 31, 2004, are as follows:
Three Months Ended March 31 -------- Increase 2005 2004 (Decrease) ---- ---- -------- Policy fee income $738,021 $840,946 $(102,925) Health and life insurance program commission and fee income 416,174 629,516 (213,342) Other commission and fee income 98,254 98,536 (282) Daily automobile rental insurance program: Commission income (excluding contingent commission) 120,876 132,111 (11,235) Contingent commission - 9,488 (9,488) --------- --------- ------- Total $1,373,325 $1,710,597 $(337,272) ========= ========= =======
The decrease in policy fee income is a result of a decrease in the number of policies issued during the three months ended March 31, 2005, as compared to the three months ended March 31, 2004. The Company has increased its policy fee approximately 8% for policies effective on or after June 26, 2005. The effect of this increase should be recognized beginning in the quarter ending September 30, 2005. Commission and fee income in the health and life program decreased 34% in the three months ended March 31, 2005, compared to the three months ended March 31, 2004. The decrease is a result of CIGNA's decision to discontinue its individual/family health insurance program over the period from November 1, 2003, through October 1, 2004. AIB had been assisting former CIGNA policyholders to find health coverage with other insurance carriers that AIB represents. LOSSES AND LOSS ADJUSTMENT EXPENSES were 65% of net premium earned for the three months ended March 31, 2005, compared to 71% of net premium earned for the three months ended March 31, 2004. In the quarter ended March 31, 2005, current year losses incurred were 71% of net premium earned and the Company incurred favorable development of prior years' losses of approximately $739,000. In the quarter ended March 31, 2004, current year losses incurred were 71% of net earned premium and the Company incurred favorable development of prior years' losses of approximately $10,000. As a result of Crusader underwriting losses that began in year ended December 31, 2000, Crusader's management has been analyzing and acting upon various components of its underwriting activity. These components include the following: 1. Business Outside of California 2. Habitability Exposure 3. Construction Defect Exposure 4. Special Risk Class of Business 5. Increased Cost of Settling Claims, Indemnity and Expense 6. Increased Cost of Reinsurance 7. Mold Exposure 8. Terrorism Exposure Crusader believes that implementation of management's actions on the underwriting components discussed above have contributed to improved operating results. The Company`s consolidated financial statements include estimated reserves for unpaid losses and related claim settlement or loss adjustment expenses of the insurance company operation. Crusader sets loss and loss adjustment expense reserves at each balance sheet date as management's best estimate of the ultimate payments that it anticipates will be made to settle all losses incurred and related expenses incurred as of that date for both reported and unreported losses. Estimating loss reserves is a difficult process as there are many factors that can ultimately affect the final settlement of a claim and, therefore, the reserve that is needed. Changes in the regulatory and legal environment, results of litigation, medical costs, the cost of repair materials and labor rates can all impact ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims. The liability for unpaid losses and loss adjustment expenses is based upon the accumulation of individual case estimates for losses reported prior to the close of the accounting period plus estimates based on experience and industry data for development of case estimates and for unreported losses and loss adjustment expenses. Since the emergence and disposition of claims are subject 14 to uncertainties, the net amounts that will ultimately be paid to settle claims may vary significantly from the estimated amounts provided for in the accompanying consolidated financial statements. Any adjustments to reserves are reflected in the operating results of the periods in which they are made. The Company believes that the aggregate reserves for losses and loss adjustment expenses are reasonable and adequate to cover the cost of claims, both reported and unreported. POLICY ACQUISITION COSTS consist of commissions, premium taxes, inspection fees, and certain other underwriting costs, which are related to the production of Crusader insurance policies. These costs include both Crusader expenses and allocated expenses of other Unico subsidiaries. Crusader's reinsurers pay Crusader a ceding commission, which is primarily a reimbursement of the acquisition cost related to the ceded premium. Policy acquisition costs, net of ceding commission, are deferred and amortized as the related premiums are earned. These costs were approximately 20% of net premium earned for the three months ended March 31, 2005 and 2004. SALARIES AND EMPLOYEE BENEFITS increased $71,238 (6%) to $1,287,357 for the three months ended March 31, 2005, compared to salary and employee benefits of $1,216,119 for the three months ended March 31, 2004. COMMISSION TO AGENTS/BROKERS decreased $86,083 (32%) to $185,040 for the three months ended March 31, 2005, compared to commission expense of $271,123 for the three months ended March 31, 2004. The decrease is primarily the result of a decrease in premiums written in the health and life insurance program and is related to the decrease in the health and life insurance program commission income. OTHER OPERATING EXPENSES decreased $114,502 (15%) to $674,606 for the three months ended March 31, 2005, compared to $789,108 for the three months ended March 31, 2004. The decrease in other operating expenses is primarily due to a decrease of approximately $93,000 in legal expenses. INCOME TAX PROVISION was an expense of $851,147 (36% of pre-tax income) for the three months ended March 31, 2005, compared to an income tax expense of $710,447 in the three months ended March 31, 2004 (36% of pre-tax income). The increase in tax expense was primarily due to a pre-tax income of $2,356,326 (including tax-exempt investment income of $3,724) in the three months ended March 31, 2005, compared to pre-tax income of $1,968,444 (including tax-exempt investment income of $17,087) in the three months ended March 31, 2004. The effect of inflation on net income of the Company during the three months ended March 31, 2005, and the three months ended March 31, 2004, was not significant. Forward Looking Statements - -------------------------- Certain statements contained herein, including the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," that are not historical facts are forward looking. These statements, which may be identified by forward-looking words or phrases such as "anticipate," "believe," "expect," "intend," "may," "should," and "would," involve risks and uncertainties, many of which are beyond the control of the Company. Such risks and uncertainties could cause actual results to differ materially from these forward-looking statements. Factors which could cause actual results to differ materially include underwriting actions not being effective, rate increases for coverages not being sufficient, premium rate adequacy relating to competition or regulation, actual versus estimated claim experience, regulatory changes or developments, unforeseen calamities, general market conditions, the Company's ability to introduce new profitable products, and the Company's ability to expand geographically. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- The Company's consolidated balance sheet includes a substantial amount of invested assets whose fair values are subject to various market risk exposures including interest rate risk and equity price risk. The Company's invested assets consist of the following:
March 31 December 31 2005 2004 Increase ---- ---- -------- Fixed maturity bonds (at amortized value) $133,430,281 $128,489,658 $4,940,623 Short-term cash investments (at cost) 3,194,066 3,118,118 75,948 Certificates of deposit (over 1 year, at cost) 500,000 500,000 - ----------- ----------- --------- Total invested assets $137,124,347 $132,107,776 $5,016,571 =========== =========== =========
15 There have been no material changes in the composition of the Company's invested assets or market risk exposures since the end of the preceding fiscal year end. ITEM 4 - CONTROLS AND PROCEDURES - -------------------------------- An evaluation was carried out by the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2005 (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. During the period covered by this report, there have been no changes in the Company's internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 6 - EXHIBITS - ----------------- 31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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 thereunto duly authorized. UNICO AMERICAN CORPORATION Date: May 11, 2005 By: /s/ ERWIN CHELDIN ----------------- Chairman of the Board, President and Chief Executive Officer, (Principal Executive Officer) Date: May 11, 2005 By: /s/ LESTER A.AARON ------------------ Lester A. Aaron Treasurer, Chief Financial Officer, (Principal Accounting and Principal Financial Officer) 16 EXHIBIT INDEX - ------------- Exhibit No. Description - ---------- ----------- 31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) EX-31 2 ex31-1.txt EX-31.1 EXHIBIT 31.1 CERTIFICATION Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Erwin Cheldin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Unico American Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 13, 2005 /s/ Erwin Cheldin - ------------------ Erwin Cheldin Chairman of the Board, President and Chief Executive Officer EX-31 3 ex31-2.txt EX-31.2 EXHIBIT 31.2 CERTIFICATION Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Lester A. Aaron, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Unico American Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 13, 2005 /s/ Lester A. Aaron - -------------------- Lester A. Aaron Treasurer, Chief Financial Officer EX-32 4 ex32-1.txt EX-32.1 EXHIBIT 32.1 ------------ CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report on Form 10-Q of Unico American Corporation (the "Company") for the period ended Marach 31, 2005, as filed with the Securities and Exchange Commission as of the date hereof (the "Report"), I, Erwin Cheldin, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Erwin Cheldin ------------------ Name: Erwin Cheldin Title: Chairman of the Board, President and Chief Executive Officer Date: May 13, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Unico American Corporation, and will be retained by Unico American Corporation, and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 5 ex32-2.txt EX-32.2 EXHIBIT 32.2 ------------ CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report on Form 10-Q of Unico American Corporation (the "Company") for the period ended March 31, 2005, as filed with the Securities and Exchange Commission as of the date hereof (the "Report"), I, Lester A. Aaron, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Lester A. Aaron -------------------- Name: Lester A. Aaron Title: Treasurer and Chief Financial Officer Date: May 13, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Unico American Corporation, and will be retained by Unico American Corporation, and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----