-----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, LYk3vvzU6REKyBesHVOc++iw0/Vxp8P9V/7kRxNtwvL8bpjmBww7Pa0hUJEgXJBQ 5rK+QjMWrFMtFzsDx9aMZw== 0000950170-99-000625.txt : 19990420 0000950170-99-000625.hdr.sgml : 19990420 ACCESSION NUMBER: 0000950170-99-000625 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 21ST CENTURY HOLDING CO CENTRAL INDEX KEY: 0001069996 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 650248866 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40/A SEC ACT: SEC FILE NUMBER: 000-25001 FILM NUMBER: 99596958 BUSINESS ADDRESS: STREET 1: 4161 N W 5TH STREET CITY: PLANTATION STATE: FL ZIP: 33317 BUSINESS PHONE: 9545819993 MAIL ADDRESS: STREET 1: 4161 N W 5TH STREET CITY: PLANTATION STATE: FL ZIP: 33317 10KSB40/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A (AMENDMENT NO. 1) (MARK ONE) ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 (Fee Required) For the fiscal year ended DECEMBER 31, 1998 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period of _____________to_______________ Commission file number 0-2500111 21ST CENTURY HOLDING COMPANY (Exact name of small business issuer as specified in its Charter) FL 65-0248866 ------------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No) 4161 N.W. 5TH STREET PLANTATION, FLORIDA 33317 ------------------------------------------------------------- (Address of Principal executive offices) (Zip Code Registrant's telephone number, including area code (954) 581-9993 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.01 PER SHARE -------------------------------------- (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter periods 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 ___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge. In definitive proxy or information statements incorporated by reference in Part III of this Form 100KSB or any amendment to this Form 10-KSB. [ X ] State issuer's revenues for its most recent fiscal year: $20,668,467 The aggregate market value of the Issuer's Common Stock, $.01 par value, held by non-affiliates on March 29, 1999, based on the last sale price of the Common Stock as reported by the Nasdaq National Market was: $7,709,873 As of March 29, 1999 there were 3,390,000 the issuer's Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1 $10.9 million in 1997. This increase is mainly due to the increase in volume experienced during 1998. COMMISSION INCOME. Commission income decreased 16.7% to $2.0 million in 1998 from $2.4 million in 1997. Commission income consists of fees earned by the Company-owned agencies placing business with third party insurers and third party premium finance companies. The decrease is partially attributable to a $300,000 decrease in commissions earned on business placed with third party finance companies. During 1997, premium financing was placed almost exclusively with third party companies for which commissions were received, as compared to 1998, where premium financing was placed substantially with Federated Premium for which no commissions are paid. FINANCE REVENUES. Finance revenues increased 718.2% to $1.8 million in 1998 from $220,000 in 1997. In order to terminate a premium finance lending arrangement which was not favorable to the Company's overall growth strategy, Federated Premium ceased all new premium financing with its customers in July 1996 and subsequently terminated the premium finance lending arrangement with its lender in early 1997. In September 1997, a new premium finance lending arrangement was established and the Company recommenced its premium financing activities. In addition, during 1998 the Company began offering auto title loans which generated $217,000in revenue for the year. INVESTMENT INCOME. Investment income consists of net investment income and net realized investment gains (losses). Investment income increased 40% to $1.4 million in 1998 from $1.0 million in 1997. The Company experienced realized gains of $442 in 1998 compared to realized losses of ($19) in 1997 and net investment income of $984 in 1998 compared to $1.0 in 1997. OTHER INCOME. Other income increased 16.7% to $1.4 million in 1998 from $1.2 million in 1997, due to the expansion of the agency network and the increase in the business they generate. Other income is comprised mainly of the managing general agent's policy fee income on all new and renewal insurance policies and revenue on auto tag products. Policy fee income increased 18.5% to $972,000 in 1998 from $820,000 in 1997. In addition, auto tag income increased 39.4% to $386,000 in 1998 from $277,000 in 1997. LOSSES AND LAE. The Company's Loss Ratio, as determined in accordance with GAAP, for 1998 was 65.4% compared with 67.9% in 1997. The loss and LAE increased 23.0% to $9.1 million in 1998 from $7.4 million in 1997 as compared to net premium earned which increased by 28.4% to $14.0 million in 1998 from $10.9 million in 1997. The lower Loss Ratio in 1998 was primarily attributable to the hiring of experienced key personnel, improvement on the claims evaluation process and implementing a strategy to minimize legal expenses. In addition, the Loss Ratio related to the mobile home product is below that of non-standard automobile products. The increase in written premiums related to the program further contributed to the reduction of the Loss Ratio during 1998. Non-standard automobile insurance rates increased in 1998, further contributing to the decrease in the Loss Ratio. OPERATING AND UNDERWRITING EXPENSES. Operating and underwriting expenses increased 30.3% to $4.3 million in 1998 from $3.3 million in 1997. This increase is primarily due to the additional expenses incurred during 1998 as it relates to the increase in premiums written. In addition, operating expenses increased with the additional agencies, which were acquired during 1998. Interest expense increased $268,000 from $54,000 in 1997 to $322,000 in 1998. This is attributable to the new lending arrangement Federated Premium established in September 1997 and the increase in the amount outstanding. SALARIES AND WAGES. Salaries and wages increased 29.0% to $4.0 in 1998, from $3.1 million in 1997. This increase is mainly due to the increase in business in addition to the increase in Company-owned agencies that were acquired during 1998. AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS. Amortization of deferred policy acquisition costs decreased 48.0% to $179,000 in 1998 from $344,000 in 1997. Amortization of deferred acquisition costs consists of the actual amortization of deferred policy acquisition costs less commission earned on reinsurance ceded. The decrease in the amortization of deferred policy acquisition costs is attributable to the increase in commissions from reinsurance ceded and is also the result of the modification of the reinsurance agreement in April 1997. Also, contributing to the decrease was a settlement with the reinsurer 25
21ST CENTURY HOLDING COMPANY CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 ------------ ------------ Cash flow from operating activities: Net income ........................................................................ $ 1,817,620 $ 1,164,531 Adjustments to reconcile net income to net cash flow used in operating activities: Amortization of investment premiums ............................................. 6,759 1,175 Depreciation and amortization ................................................... 54,089 50,935 Amortization of goodwill ........................................................ 239,619 38,102 Deferred income tax expense ..................................................... (143,226) 105,291 Loss (gain) on sale of investment securities .................................... (441,810) 19,395 Gain on sale of property and equipment .......................................... -- (11,433) Provision for credit losses ..................................................... 158,903 38,362 Changes in operating assets and liabilities: Finance contracts receivables and auto title loans receivable .................. (5,025,719) (1,674,974) Prepaid reinsurance premiums ................................................... (430,434) 707,320 Due from reinsurers ............................................................ (902,224) (484,134) Deferred acquisition costs ..................................................... 71,410 (338,322) Other assets ................................................................... (330,925) (319,626) Unpaid losses and loss adjustment expenses ..................................... 876,998 492,502 Unearned premiums .............................................................. 1,034,578 1,255,201 Premium deposits ............................................................... (849,134) 398,826 Revolving credit outstanding ................................................... 469,196 1,593,752 Unearned commissions ........................................................... (59,001) 37,700 Accounts payable and accrued expenses .......................................... 892,141 770,880 Drafts payable to insurance companies .......................................... 26,787 269,160 ------------ ------------ Net cash flow (used in) provided by operating activities ...................... (2,534,373) 4,114,643 ------------ ------------ Cash flow from investing activities: Proceeds from sale of investment securities available for sale .................... 39,841,097 21,088,211 Purchases of investment securities available for sale ............................. (42,087,422) (24,469,367) Loans from Shareholders ........................................................... 31,000 -- Cost of mortgage loan ............................................................. -- (200,000) Sale of mortgage loan ............................................................. 120,548 89,421 Acquisition of affiliates previously combined ..................................... -- (80,175) Purchases of property and equipment ............................................... (1,431,608) (102,073) Proceeds from sales of property and equipment ..................................... -- 314,874 Acquisitions of Agencies .......................................................... (1,100,000) -- ------------ ------------ Net cash flow used in investing activities .................................... (4,626,385) (3,359,109) ------------ ------------ Cash flow from financing activities: Bank overdraft .................................................................... 469,652 211,477 Capital contribution .............................................................. 0 222,500 Distributions to shareholders ..................................................... (100,000) (457,553) Net proceeds from IPO ............................................................. 7,909,342 -- Borrowings from bank .............................................................. -- 431,000 Repayment of indebtedness ......................................................... (552,625) (710,146) ------------ ------------ Net cash flow (used in) provided by financing activities ...................... 7,726,369 (302,722) ------------ ------------ Net increase in cash and cash equivalents ..................................... 565,611 452,812 Cash and cash equivalents at beginning of year ...................................... 1,684,450 1,231,638 ------------ ------------ Cash and cash equivalents at end of year ............................................ $ 2,250,061 $ 1,684,450 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for: Interest ......................................................................... $ 322,313 $ 21,758 ============ ============ Income taxes ..................................................................... $ 226,047 $ 26,211 ============ ============ Cash received during the year from: Income taxes ..................................................................... $ -- $ 61,000 ============ ============ See note 2(a) regarding non-cash financing and investing activities
See accompanying notes to consolidated financial statements F-6 21ST CENTURY HOLDING COMPANY NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS-(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (13) SEGMENT INFORMATION (CONTINUED) Information regarding components of operations for the years ended December 31 follows: 1998 1997 ------------ ------------ TOTAL REVENUES Insurance Segment Earned Premiums 13,962,731 10,924,279 Investment Income 1,451,464 1,027,953 Adjusting Income 909,019 773,959 MGA Fee Income 971,794 819,576 Commission Income 3,122,492 3,111,092 Miscellaneous Income 426,990 329,953 ------------ ------------ Total Insurance Revenue 20,844,499 16,986,812 ============ ============ Financing Segment: Premium Finance Income 1,608,145 220,434 Title Loan Interest 217,122 0 Investment Income 9,450 0 Miscellaneous Income 13,525 29,433 ------------ ------------ Total Financing Revenues 1,848,242 249,867 ============ ============ All Other Total All Other 535,118 63,057 ============ ============ Total Operating Segments 23,227,859 17,299,736 Intercompany Eliminations (2,559,392) (1,550,596) ------------ ------------ Total Revenues $ 20,668,467 $ 15,749,140 ============ ============ EARNINGS BEFORE INCOME TAXES Insurance Segment 2,663,740 1,512,838 Financing Segment 619,461 (14,023) All Other (497,724) 5,085 ------------ ------------ Total Operating Segments 2,803,477 1,503,900 Intercompany Eliminations (20,857) 0 ------------ ------------ Total Earnings before Income Taxes $ 2,782,620 $ 1,503,900 ============ ============ TOTAL ASSETS Insurance Segment $ 28,706,376 $ 22,288,678 Finance Segment 7,076,524 2,279,388 All Others 4,523,632 987,799 ------------ ------------ Total Operating Segments 40,306,532 25,555,865 Intercompany Eliminations (2,130,129) (370,973) ------------ ------------ TOTAL ASSETS $ 38,176,403 $ 25,184,892 ============ ============ F-26 21ST CENTURY HOLDING COMPANY NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS-(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (15) STOCK COMPENSATION PLANS (CONTINUED) WEIGHTED AVERAGE Options exercisable at: NUMBER OF SHARES OPTION EXERCISE PRICE ---------------- --------------------- December 31, 1999 77,700 $10 December 31, 2000 77,700 $10 December 31, 2001 77,700 $10 December 31, 2002 77,700 $10 ------ --- 310,800 $10 The Company continues to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost for stock options is recognized for stock option awards granted at or above fair market value. Had compensation expense for the Company's stock compensation plan been determined based upon fair values at the grant dates for awards under those plans in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below. Additional stock option awards are anticipated in future years. 1998 ---- Net earnings As reported $ 1,817,620 Pro forma $ 1,805,443 Earnings per share As reported $ 0.79 Pro forma $ 0.78 The weighted average fair value of options granted during 1998 estimated on the date of grant using the Black-Scholes option-pricing model was $1.61. The fair value of 1998 options granted is estimated on the date of grant using the following assumptions: dividends yield of 0% expected volatility of 50%, risk-free interest rate of 4.4% and an expected life of 10 years. Summary information about the Company's stock options outstanding at December 31, 1998:
WEIGHTED OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED RANGE OF AT 12/31/98 CONTRACTUAL AVERAGE AT 12/31/98 AVERAGE EXERCISE PRICE (IN THOUSANDS) PERIODS IN YEARS EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- $10 310,000 9.9 $10 0 $0
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