UNITED STATES

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, 2014

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________________ to ________________

Commission file number 333-189686

HOMEOWNERS OF AMERICA HOLDING CORPORATION

 (Exact name of registrant as specified in its charter)

Delaware	57-1219329
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1333 Corporate Drive, Suite 325, Irving, TX 75038

(Address of principal executive offices)(Zip Code)

(972) 607-4241

(Registrant’s telephone number, including area code)

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £ Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant's common stock, $0.0001 par value, outstanding as of May 13, 2014 was 16,158,602.

INDEX

		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements	1
	Consolidated Balance Sheets at March 31, 2014 (unaudited) and December 31, 2013	1
	Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2014 and 2013	2
	Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2014	3
	Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2013	4
	Consolidated Statement of Cash Flows (unaudited) for the three months ended March 31, 2014 and 2013 (Restated)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6.	Exhibits	26
SIGNATURES		27

All other items called for by the instructions to Form 10-Q have been omitted because the items are not applicable or the relevant information is not material.

i

Homeowners of America Holding Corporation

CONSOLIDATED BALANCE SHEETS

March 31, 2014 and December 31, 2013

	March 31,			December 31,
	2014			2013
	(Unaudited)
Assets:
Cash and cash equivalents	$	10,209,144		$	8,104,310
Short-term investments		4,316,294			4,151,011
Restricted cash and investments		2,240,000			1,000,000
Long-term investments		-			1,960,000
Accrued investment income		7,246			8,853
Due and deferred premiums		3,653,799			4,169,824
Balance due from reinsurers		53,478,327			46,281,756
Property, equipment and software, net		229,583			244,516
Deferred policy acquisition costs		6,216,053			6,214,334
Prepaid expenses and other		411,741			128,195
Deferred tax assets, net		941,919			933,221
Total assets	$	81,704,106		$	73,196,020
Liabilities:
Loss and loss adjustment expenses	$	17,462,319		$	15,884,062
Advance premiums		151,631			90,854
Ceded reinsurance premiums payable		9,216,262			3,271,858
Unearned premiums		31,281,940			31,297,118
Unearned ceding commissions		8,063,312			8,067,162
Commissions payable, reinsurers and agents		4,369,302			3,716,423
General and other accrued expenses payable		1,953,462			1,906,265
Funds held under reinsurance treaty		2,782			-
Income tax payable		265,809			211,198
Taxes, licenses and other fees payable		-			474,503
Total liabilities		72,766,819			64,919,443
Stockholders’ equity:
Preferred stock, convertible; 12.5% cumulative; $0.0001 par value per share; 20,500,000 shares authorized; no shares issued and outstanding as of March 31, 2014 and December 31, 2013		-			-
Common stock, $0.0001 par value per share; 40,000,000 shares authorized; 17,469,602 shares issued and 16,119,602 shares outstanding as of March 31, 2014 and 17,181,140 shares issued and 15,831,140 shares outstanding as of December 31, 2013		1,612			1,583
Treasury stock, $0.0001 par value per share; 1,350,000 common shares as of March 31, 2014 and December 31, 2013		(135	)		(135	)
Additional paid-in-capital		6,154,986			5,969,550
Retained earnings		2,780,824			2,305,579
Total stockholders’ equity		8,937,287			8,276,577
Total liabilities and stockholders’ equity	$	81,704,106		$	73,196,020

See accompanying notes to the consolidated financial statements.

1

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three Months Ended

March 31, 2014 and 2013

	March 31, 2014			March 31, 2013
Revenues:
Premiums earned	$	14,444,123		$	12,510,863
Ceded premiums		(13,146,456	)		(11,406,965	)
Net premiums earned		1,297,667			1,103,898
Policy fees		1,126,725			977,651
Ceding commissions		2,814,544			2,544,494
Gross investment income		7,447			11,316
Reinsurance profit sharing, installment fees and other income		864,696			324,161
Total Revenue		6,111,079			4,961,520
Expenses:
Losses and loss adjustment expenses		350,976			532,417
Policy acquisition expenses		3,197,446			2,676,813
Underwriting and other operating expenses		1,831,500			1,339,223
Total Expenses		5,379,922			4,548,453
Income before income taxes		731,157			413,067
Provision (benefit)for income taxes:
Current		264,610			134,017
Deferred		(8,698	)		13,353
Total income taxes		255,912			147,370
Net income	$	475,245		$	265,697
Cumulative preferred stock dividends		-			(357,496	)
Net income (loss) available to common stockholders	$	475,245		$	(91,799	)
Basic income (loss) per common share	$	0.03		$	(0.04	)
Weighted average number of common shares outstanding - basic		16,023,448			2,250,000
Diluted income (loss) per common share	$	0.03		$	(0.04	)
Weighted average number of common shares outstanding - diluted		16,925,948			2,250,000
Cash dividend declared per common share	$	0		$	0

See accompanying notes to the consolidated financial statements.

2

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three Months Ended

March 31, 2014

										Additional				Total
	Common Stock				Treasury Stock					Paid-In		Retained		Shareholders'
	Shares		Amount		Shares		Amount			Capital		Earnings		Equity
Balance December 31, 2013		15,831,140	$	1,583		1,350,000		(135	)	$	5,969,550	$	2,305,579	$	8,276,577
Net Income		-		-		-		-			-		475,245		475,245
Common stock issued		288,462		29		-		-			149,971		-		150,000
Stock-based compensation		-		-		-		-			35,465		-		35,465
Balance March 31, 2014		16,119,602	$	1,612		1,350,000	$	(135	)	$	6,154,986	$	2,780,824	$	8,937,287

See accompanying notes to the consolidated financial statements.

3

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three Months Ended

March 31, 2013

													Additional				Total
	Preferred Stock Series A				Preferred Stock Series B				Common Stock				Paid-In		Retained		Shareholders'
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Earnings		Equity
Balance December 31, 2012		4,500,000	$	450		500,000	$	50		900,000	$	90	$	4,906,000	$	336,816	$	5,243,406
Net Income		-		-		-		-		-		-		-		265,697		265,697
Balance March 31, 2013		4,500,000	$	450		500,000	$	50		900,000	$	90	$	4,906,000	$	602,513	$	5,509,103

See accompanying notes to the consolidated financial statements.

4

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Three Months Ended

March 31, 2014 and 2013

	March 31,			March 31,
	2014			2013
				(Restated)
Cash flows from operating activities:
Net income	$	475,245		$	265,697
Adjustments to reconcile net income to net cash provided by (used in) by operating activities:
Depreciation & amortization		27,295			19,854
Accounting charge related to stock-based compensation expense		35,465			-
Common stock compensation for management services		150,000			-
Deferred tax assets		(8,698	)		13,353
(Increase) decrease in:
Accrued investment income		1,607			(2,961	)
Due and deferred premiums		516,025			410,779
Balance due from reinsurers		(7,196,571	)		(3,476,141	)
Deferred policy acquisition costs		(1,719	)		132,150
Prepaid and other		(283,546	)		(169,339	)
Increase (decrease) in:
Losses and loss adjustment expenses		1,578,257			1,451,007
Advance premiums		60,777			55,917
Ceded reinsurance premiums payable		5,944,404			2,413,860
Unearned premiums		(15,178	)		(733,938	)
Ceded deferred premiums		-			(2,724	)
Unearned ceding commissions		(3,850	)		(168,239	)
Commissions payable, reinsurance & agents		652,879			560,902
General and other accrued expenses		47,197			2,047,234
Funds held under reinsurance treaty		2,782			-
Income tax payable		54,611			(215,762	)
Taxes, licenses and other fees payable		(474,503	)		(431,382	)
Net cash provided by operating activities		1,562,479			2,170,267
Cash flows from investing activities:
Purchases of long-term certificate of deposit		-			(1,617,610	)
Maturities  of long-term certificate of deposit		1,960,000			-
Maturities of short-term investments		1,309,717			-
Purchases of short-term investments		(2,715,000	)		(274,665	)
Additions to furniture, equipment and software		(12,362	)		2,398
Net cash provided by (used in) investing activities		542,355			(1,889,877	)
Net increase in cash and cash equivalents		2,104,834			280,390
Cash and cash equivalents, beginning of period		8,104,310			10,194,375
Cash and cash equivalents, end of the period	$	10,209,144		$	10,474,765
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	210,000		$	215,595

See accompanying notes to the consolidated financial statements.

5

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Homeowners of America Holding Corporation (“HAHC”) is an insurance holding company established to hold insurance entities for the purpose of marketing homeowners insurance products on a national basis. HAHC owns 100% of Homeowners of America Insurance Company (“HAIC”). HAIC is domiciled in Texas, licensed in multiple states and is authorized to write various forms of homeowners and auto insurance. All coverage is concentrated in Texas. HAHC also owns 100% of Homeowners of America MGA, Inc. (“MGA”), a Texas Corporation, formed as a captive managing general agency to produce business for HAIC. HAHC, along with its subsidiaries HAIC and MGA, are collectively referred to as “the Company”.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Homeowners of America Holding Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Restatement of Prior Year Amounts

In conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 31, 2014, we restated the unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2013. These restatements resulted in money market mutual fund accounts held at financial institutions which were previously classified as short-term investments to be now classified as cash and cash equivalents. In addition, checks issued in excess of cash book balances, not yet presented for payment, which were previously classified as cash and cash equivalents are now classified as general and other accrued expenses payable.

	Three Months Ended
	March 31, 2013
	As
	Previously					As
	Reported			Adjustment		Restated
Consolidated Statements of Cash Flows:
Cash flows from operating activities
General and other accrued expenses	$	(6,556	)	$	2,053,790	$	2,047,234
Net cash provided by operating activities		116,477			2,053,790		2,170,267
Cash flows from investing activities
Purchases of short term investments		(7,264,905	)		6,990,240		(274,665	)
Net cash used in investing activities		(8,880,117	)		6,990,240		(1,889,877	)
Net increase (decrease) in cash and cash equivalents		(8,763,640	)		9,044,030		280,390
Cash and cash equivalents, beginning of period		10,194,375			-		10,194,375
Cash and cash equivalents, end of period	$	1,430,735		$	9,044,030	$	10,474,765

Cash and cash equivalents

Cash and cash equivalents include cash and highly liquid short-term investments, with original maturities of three months or less. The amount is carried at cost, which approximates fair value. At March 31, 2014 and December 31, 2013, cash and cash equivalents consist of cash on deposit with financial institutions, as well as money market mutual funds.

General and other accrued expenses payable as of March 31, 2014 and December 31, 2013, include $1.2 million, respectively, of checks issued in excess of cash book balances, not yet presented for payment.

Investments

The Company’s investments are comprised of short-term and restricted investments as of March 31, 2014 and short-term, restricted, and long-term investments as of December 31, 2013. Restricted investments and long-term investments are described below. Short-term investments include certificates of deposit with original maturities greater than three months and maturities of one year or less. Due to the short-term nature of these investments, significant changes in prevailing interest rates and economic conditions should not adversely affect the timing and amount of cash flows on such investments or their related values. Accordingly, certificates of deposit are carried at cost, which approximates fair value.

The Company has pledged to the Texas Department of Insurance $2.0 million for the purpose of meeting obligations to policyholders and creditors. Restricted assets are shown separately in the accompanying consolidated balance sheets as “Restricted cash and investments”. Although the Company, with the approval of the Texas Department of Insurance, may exchange the investments with other funds or investments, management intends to hold the portion of these restricted investments in certificates of deposit to their maturity. As such, these restricted certificates of deposit are carried at cost, which approximates fair value. Interest earned on these investments inures to the benefit of the Company.

The Company has pledged an additional $240,000 to the Nevada Department of Insurance as part of the application process to write business in Nevada.

As of December 31, 2013, the Company’s investments also included certificates of deposit that mature more than one year after the balance sheet date and are reflected on the consolidated balance sheets as Long-term investments. Based on management’s intent to hold to maturity, this investment is carried at cost. Cost approximates fair value based on the rates currently offered for deposits of similar remaining maturities.

6

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company’s investments in certificates of deposits and money market accounts do not qualify as securities as defined in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, Investment – Debt and Equity Securities. Accordingly, the fair value disclosures required by FASB ASC 820, Fair Value Measurements and Disclosures are not provided. Where applicable, the Company assesses investments of an issuer currently carrying a net unrealized loss. If in management’s judgment, the decline in value is other than temporary, the cost of the investment is written down to fair value with a corresponding charge to earnings. Factors considered in determining whether an impairment exists include financial condition, business prospects and creditworthiness of the issuer, the length of time and magnitude that the asset value has been less than cost, and the ability and intent to hold such investments until the fair value recovers.

Comprehensive Income

FASB ASC 220 - Comprehensive Income, requires that recognized revenues, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, these items, along with net income (loss), are components of comprehensive income. The Company characterizes their fixed income portfolio as available-for-sale securities, with appropriate adjustments to other comprehensive income. There were no qualifying items reported in comprehensive income for the three months ended March 31, 2014 or 2013.

Recognition of Premium Revenues

Premiums are recognized as revenue on a daily pro rata basis over the policy term. The portion of premiums related to the unexpired term of policies in force as of the end of the measurement period and to be earned over the remaining term of those polices, is deferred and reported as unearned premiums.

Ceding Commission

Ceding commissions represent acquisition costs associated with insurance risk ceded to reinsurers and is earned on a pro-rata basis over the life of the associated policy.

Policy Fees

Policy fee income includes application fees which are intended to reimburse the Company for a portion of the costs incurred in establishing the insurance. Policy fees on policies where premium is traditionally paid in full upon inception of the policy are recognized when written, while fees charged on policies where premiums are paid in installments, are recognized when collected.

Reinsurance Profit Sharing, Installment Fees and Other Income

Reinsurance profit share income is recognized when earned. Installment and other fees associated with the collection of installment premium payments are recognized as income when collected. Reinsurance profit share income for the three months ended March 31, 2014 was 8.9% of total revenue within this classification on the consolidated statements of operations. Loss adjustment fee income for the three months ended March 31, 2013 was 5.1% of total revenue within this classification on the consolidated statements of operations.

Property, Equipment and Software

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which range from three to five years. The cost and related accumulated depreciation of assets sold or disposed are removed from the accounts and the resulting gain or loss is included in the consolidated statements of operations. Maintenance and repairs are expensed as incurred.

Software installation and development is stated at cost, net of accumulated amortization. Amortization is calculated on a straight-line basis method over three years.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment and software, are reviewed for impairment whenever business events or circumstances could lead to or indicate that the value of the asset is in fact may not be recoverable. The assessment of possible impairment is based on whether the carrying amount of the assets exceeds its fair value. The Company uses estimates of undiscounted future cash flows in determining the recoverability of long-lived assets. As of March 31, 2014 and December 31, 2013, no impairment has been recorded.

7

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Deferred Policy and Acquisition Costs

Deferred policy acquisitions costs (“DAC”) as of March 31, 2014 and December 31, 2013, consist of commissions, premium taxes and policy underwriting and production expenses which are incurred through and vary directly with, the level of production of new and renewal insurance business and are amortized over the terms of the policies they relate to. The method used in calculating DAC limits the amount of the deferred cost to their estimated realizable value, which gives effect to allocating their expense along with other period costs associated with the insurance business, in relation to the amount of gross premium earned on policies to which they relate and investment income. DAC is reviewed to determine if it is recoverable from future income, including investment income. The amount of DAC considered recoverable could be reduced in the near term if estimates of future premium income from their related lines of insurance are revised.

Reserve for Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses (“LAE”) are estimates of the amounts required to cover known incurred losses and LAE, developed through the review and assessment of loss reports, along with the development of known claims. In addition, loss and loss adjustment expense reserves include management’s estimate of an amount for losses incurred but not reported (“IBNR”), determined from reviewing overall loss reporting patterns as well as the loss development cycles of individual claim cases. Such liabilities are necessarily based on estimates and while management believes that the amount is adequate, the ultimate liability may be more or less than the amounts provided. The approach and methods for making such estimates and for establishing the resulting liability are continually reviewed and any adjustments are reflected in current earnings.

Due and Deferred Premiums

Due and deferred premiums consist of uncollateralized premiums and agents’ balances in the course of collection as well as premiums booked but not yet due.

Reinsurance

In the normal course of business, the Company seeks to reduce the overall exposure to losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises or reinsurers. The Company uses only quality, financially rated reinsurers and continually monitors the financial ratings of these companies through its brokers. The amount and type of reinsurance purchased each year is based on management’s estimate of its probable maximum loss and the conditions within the reinsurance market. The Company continually monitors its risk exposure through the use of the AIR modeling system and other modeling tools provided by its reinsurance brokers. Reinsurance premiums, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums paid for reinsurance are reported as reductions of earned premium income.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss carryforwards, and liabilities are measured using enacted tax rates expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the realizable value of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

8

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Uncertain Tax Positions

The Company recognizes uncertain tax positions in the consolidated financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns, and that its accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including experience and interpretations of tax laws applied to the facts of each matter. At March 31, 2014, the Company’s tax years from 2010 through 2013 remain subject to examination.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s primary areas of estimate are for liabilities for unpaid losses and loss adjustment expenses, deferred policy acquisition costs, deferred tax and asset valuation, and reinsurance. Actual results could differ significantly from those estimates.

Fair Value of Financial Instruments

The carrying value for the Company’s cash and cash equivalents and short-term investments approximate fair values as of March 31, 2014 and December 31, 2013 due to their short-term nature. Fair value for securities are based on the framework for measuring fair value established by FASB ASC Topic 820, Fair Value Measurements and Disclosures.

Convertible Notes Payable

The Company accounts for convertible notes payable under FASB ASC Topic 470-20 – Debt with Conversion and Other Options, which requires issuers to assess whether or not an embedded conversion feature is required to be separately accounted for as a derivative liability for liability and equity components and if the conversion feature is beneficial to the holder. See Note 9 on Convertible Notes Payable for additional disclosure.

Stock Based Compensation

The Company accounts for stock-based compensation under the fair value recognition provisions of FASB ASC Topic 718 –Compensation – Stock Compensation, which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with FASB ASC Topic 718, the Company recognizes stock-based compensation, if any, in the consolidated statements of operations on a straight line basis over the vesting period of the stock award. For those stock awards vesting 100% at the issue date, the Company recognizes stock-based compensation immediately.

Earnings (Loss) Per Share

Basic earnings (loss) per share of common stock is computed by dividing net income or loss, less cumulative preferred stock dividends for the period whether or not earned or paid, by the weighted-average number of common shares during the period.

For the three months ended March 31, 2014, the net income attributable to common stockholders was $475,245.

For the three months ended March 31, 2013, the net income attributable to common stockholders was decreased for cumulative dividends on preferred stock during the period of $357,496.

Diluted earnings (loss) per share of common stock is computed by dividing net income or loss attributable to common stockholders, adjusted for the effect of potentially dilutive securities, by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include convertible notes payable, outstanding convertible preferred stock and common stock options.

For the three months ended March 31, 2014, all of the Company’s dilutive securities were included in the computation of diluted earnings per share as dilutive. The total number of dilutive shares of common stock that were included totaled 902,500.

9

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended March 31, 2013, all of the Company’s potentially dilutive securities were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive shares of common stock that were excluded totaled 13,118,125.

2. RECENT ACCOUNTING PRONOUNCEMENTS

There have been no recent accounting pronouncements or changes in recent accounting pronouncements during the three months ended March 31, 2014, as compared to those described in our Annual Report on Form 10-K for the year ended December 31, 2013, that are of significance, or potential significance, to the Company.

3. RELATED PARTY TRANSACTIONS

MGA commenced operations September 1, 2010. As a captive insurance agency formed to service HAIC, MGA has the authority to receive and accept proposals for insurance, charge and collect premiums, maintain underwriting guidelines, prepare rate filings, appoint agents and create marketing materials and advertising. As compensation for these services, MGA retains the policy fees charged on each policy ranging from $50 to $75, as well as installment and delinquent collection fees. The policy fees and other miscellaneous charges were previously a component of HAIC operations.

In conjunction with the retention of certain policy fees at MGA, HAIC allocates a significant portion of its general expense base to MGA. HAIC allocated $1,523,107 and $1,213,862 of general expenses and taxes, licenses and fees to MGA during the three months ended March 31, 2014 and 2013, respectively. The expense allocation agreement has been approved by the Texas Department of Insurance. On a consolidated company basis these transactions are eliminated.

During the three months ended March 31, 2014 and 2013, MGA collected policy fees in the amount of $1,126,725 and $977,651, respectively.

In December 2012, HAHC entered into a Convertible Promissory Note with Inter-Atlantic Fund, L.P. and Phoenix Associates, Inc., (companies controlled by a shareholder and former director, respectively). See Note 9 Convertible Notes Payable for additional disclosure.

4. INVESTMENTS

Gross investment income from investments totaled $7,447 and $11,316 for the three months ended March 31, 2014 and 2013, respectively.

There were no realized or unrealized gains or losses recognized for the periods due to the short term nature of the investments held. The intent is to hold to maturity certificates of deposit carried at amortized cost.

The following table provides the Company’s investment holdings by type of financial instruments that were used to estimate the fair value disclosures for financial instruments:

10

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	March 31, 2014				December 31, 2013
	Book Value		Fair Value / Carrying Value		Book Value		Fair Value / Carrying Value
Financial Assets:
Restricted certificates of deposit	$	2,240,000	$	2,240,000	$	785,000	$	785,000
Restricted cash		-		-		215,000		215,000
Long-term investments		-		-		1,960,000		1,960,000
Short-term investments		4,316,294		4,316,294		4,151,011		4,151,011
	$	6,556,294	$	6,556,294	$	7,111,011	$	7,111,011

	March 31, 2014		December 31, 2013
	Range of Maturities	Interest Rates	Range of Maturities	Interest Rates
Restricted certificates of deposit	Less than 1 year	0.10% - 0.40%	Less than 1 year	0.10% - 0.25%
Restricted cash	Less than 1 year	-	-	-
Long-term investments	More than 1 year	-	More than 1 year	0.30% - 0.70%
Short-term investments	Less than 1 year	0.20% - 1.242%	Less than 1 year	0.20% - 1.242%

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial assets carried at fair value have been classified, for disclosure purposes, based on the hierarchy established within FASB ASC 820-10 – Fair Value Measurements and Disclosures. When market prices are not available, fair value is generally estimated utilizing valuation techniques that vary by asset class and incorporate available trade, bid and other market information, when available. The acceptable valuation techniques include (a) market approach, which uses prices or relevant information derived from market transactions for identical or comparable assets or liabilities, (b) the Income Approach, which converts future amounts such as cash flows or earnings to a single present value amount based on current market expectations about those future amounts, and (c) the Cost Approach, which is based on the amount that currently would be required to replace the service capacity of an asset. In certain circumstances, these valuation techniques may involve some level of management estimation and judgment which becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk premium inherent in a particular methodology, model or input used.

The fair value hierarchy is used to prioritize valuation inputs into three levels:

· Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities. These inputs are considered to be the most reliable evidence of fair value.

· Level 2 – quoted prices for similar assets in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the investment. Such inputs include market interest rates and volatilities, spreads and yield curves.

· Level 3 – termed unobservable inputs which are utilized in situations where there is little or no market activity for the asset or liability at the measurement date. The approach typically involves a significant subjective management judgment toward the pricing of the security.

The Company’s short-term investments comprised of certificates of deposit held at financial institutions which are not measured at fair value on a recurring basis. A portion of the Company’s cash and cash equivalents include money market mutual fund accounts held at financial institutions which are measured at fair value on a recurring basis. The following tables provide information as of March 31, 2014 and December 31, 2013, about the Company’s financial assets measured at fair value on a recurring basis:

11

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
As of March 31, 2014
Money market mutual funds	$	8,029,553	$	-	$	-	$	8,029,553
Total	$	8,029,553	$	-	$	-	$	8,029,553

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
As of December 31, 2013
Money market mutual funds	$	5,903,478	$	-	$	-	$	5,903,478
Total	$	5,903,478	$	-	$	-	$	5,903,478

The following methods and assumptions were used to estimate the fair value disclosures for financial instruments:

Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above.

6. PROPERTY, EQUIPMENT, AND SOFTWARE NET

Property, equipment, and software net consist of the following as of March 31, 2014 and December 31, 2013, respectively:

	March 31,			December 31,
	2014			2013			Useful Life
Computer equipment	$	225,004		$	222,225		3 years
Office equipment	$	13,999			13,999		5 years
Furniture and fixtures	$	106,524			106,524		5 years
Software installation and development	$	759,783			750,200		3 years
Total, at cost		1,105,310			1,092,948
Less accumulated depreciation and amortization		(875,727	)		(848,432	)
Property and equipment, net	$	229,583		$	244,516

Depreciation and amortization expense for property, equipment and software totaled $27,295 and $19,854 for the three months ended March 31, 2014 and 2013, respectively.

7. DEFERRED POLICY ACQUISION COSTS AND CEDING COMMISSIONS

Total capitalized deferred policy acquisition costs as of March 31, 2014 and March 31, 2013, comprised of commissions, premium taxes and costs associated with underwriting and issuing policies were $6,216,053 and $5,142,365, respectively.

Changes in deferred policy acquisition costs for the three months ended March 31, 2014 and March 31, 2013, are as follows:

	March 31,			March 31,
	2014			2013
Deferred policy acquisition charges, beginning of the period	$	6,214,334		$	5,274,515
Capitalized costs		2,834,495			2,232,767
Amortized costs		(2,832,776	)		(2,364,917	)
Deferred policy acquisition charges, end of the period	$	6,216,053		$	5,142,365

12

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Deferred ceding commissions, which represent acquisition costs associated with insurance risk ceded to other reinsurance partners, as of March 31, 2014 and March 31, 2013 were $0 and $683,914, respectively. The decrease of $683,914 is due to a change in settlement procedures affecting the property quota share reinsurance program.

Changes in deferred ceding commissions for the three months ended March 31, 2014 and March 31, 2013 are as follows:

	March 31,		March 31,
	2014		2013
Deferred ceding commission, beginning of the period	$	-	$	683,914
Capitalized commissions		-		3,025,410
Amortized commissions		-		(3,025,410	)
Deferred ceding commission, end of the period	$	-	$	683,914

8. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Losses and loss adjustment expenses (LAE), less related reinsurance and deductibles, are charged to operations as incurred. Unpaid losses and LAE are based on claims adjusters’ estimates of the cost of settlement plus an estimate for losses IBNR based upon historical experience, industry loss experience, and management’s estimates. Loss reserves reflect Company management’s best estimate of the total cost of (i) claims that have been incurred but not yet paid, and (ii) claims that have been incurred, but not yet reported (IBNR). Loss reserves that are established by Company management are not an exact calculation of our liability, but rather loss reserves represent management’s best estimate for our Company’s liability based on the application of actuarial techniques and other projection methodology, taking into consideration other facts and circumstances known as of the balance sheet date. The process of setting reserves is complex and necessarily imprecise. The impact of both internal and external variables on ultimate loss and LAE costs is difficult to estimate. To arrive as its best estimate for losses, the Company uses damage estimating software developed and owned by acknowledged industry leader, Insurance Service Office. Reserves factors for IBNR are reviewed quarterly by an independent actuarial consultant. In addition, our appointed independent actuary attests to the adequacy of our unpaid claim reserve, including IBNR at calendar year end.

13

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Losses and Loss Adjustment Expenses

The following table provides the reconciliation of the beginning and ending reserve balances for losses and LAE, gross of reinsurance for the three months ended March 31, 2014 and for March 31, 2013:

	Three Months Ended
	March 31,
	2014			2013
Reserve for losses and LAE, beginning of period	$	15,884,062		$	11,641,296
Reinsurance recoverables on losses and LAE		(15,090,175	)		(10,618,032	)
Reserve for losses and LAE, net of reinsurance recoverables at beginning of year		793,887			1,023,264
Add provision for claims and LAE occurring in:
Current year		98,976			620,417
Prior years		252,000			(88,000	)
Net incurred losses and LAE during the current period		350,976			532,417
Deduct payments for claims and LAE occuring in:
Current year		167,599			297,000
Prior years		222,628			262,151
Net claim and LAE payments during the current period		390,227			559,151
Reserve for losses and LAE, net of reinsurance recoverables, at end of period		754,636			996,530
Reinsurance recoverables on losses and LAE		16,707,683			12,095,774
Reserve for losses and LAE, end of period	$	17,462,319		$	13,092,304

As a result of additional information on claims occurring in prior years becoming available to management, changes in estimates of provisions of claims and claim adjustment expenses were made resulting in an increase of $252,000 for the three months ended March 31, 2014 and a decrease of $88,000 for the three months ended March 31, 2013.

9. CONVERTIBLE NOTES PAYABLE

As of December 31, 2013, the Convertible Promissory Note agreements with Inter-Atlantic Fund, L.P. and Phoenix Associates, Inc. (companies controlled by a shareholder and former director, respectively) in the amounts of $950,000 and $50,000, respectively, with an interest rate equal to 10% per annum (accelerating to 12.5% per annum in the event of default) were converted into 2,306,152 and 124,988 common shares, respectively.

During the three months ended March 31, 2013, interest expense on these notes totaled $24,658.

10. STOCKHOLDERS’ EQUITY

Preferred Stock

As of March 31, 2014 and December 31, 2013, the Company has 20,500,000 shares of preferred stock, convertible, 12.5% cumulative, $0.0001 par value per share, authorized and none issued and outstanding.

14

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Common Stock

As of March 31, 2014, the Company has 40,000,000 shares authorized and 17,469,602 shares issued and 16,119,602 shares outstanding of $0.0001 par value common stock. Holders of common stock are entitled to one (1) vote for each share of common stock held at all meetings of stockholders, unless restricted by the Company’s Amended and Restated Certificate of Incorporation.

As of December 31, 2013, the Company has 40,000,000 shares authorized and 17,181,140 shares issued and 15,831,140 shares outstanding of $0.0001 par value common stock. Holders of common stock are entitled to one (1) vote for each share of common stock held at all meetings of stockholders, unless restricted by the Company’s Amended and Restated Certificate of Incorporation.

On February 1, 2014, the Company issued 288,462 shares of common stock at $0.52 a share, to Inter-Atlantic Management Inc., a beneficial owner of more than 5% of our outstanding shares of common stock. Per the terms of the Advisory Agreement dated August 1, 2013, Inter-Atlantic Management Inc. will be issued annually on February 1^st, a grant of the Company’s common stock which in aggregate had a fair market value of $150,000 at the time of grant.

There were no common stock warrants or options issued during the three months ended March 31, 2014 and March 31, 2013.

11. STOCK BASED COMPENSATION

The Company accounts for stock-based compensation under the fair value recognition provision of FASB ASC Topic 718 –Compensation – Stock Compensation.

Incentive Plans

The Company’s 2005 Management Incentive Plan (the “2005 Plan”) provides for granting of stock options to enable the Company to obtain and retain the services of selected persons, both employees and directors, considered to be essential to the long-range success of the Company. Under the 2005 Plan, options may be granted to purchase a total not to exceed 789,475 shares of common stock in the aggregate, made up of original issue shares, treasury shares or a combination of the two. At March 31, 2014 and 2013, options to purchase 783,750 shares of common stock have been granted under the 2005 Plan.

The Company’s 2013 Equity Compensation Plan (the “2013 Plan”) provides for granting of stock options, incentive stock options, stock awards, and restricted stock units to enable the Company to obtain and retain the services of selected persons, both employees and directors, considered to be essential to the long-range success of the Company. Under the 2013 Plan, options may be granted to purchase a total not to exceed 2,925,000 shares of common stock, made up of original issue shares, treasury shares or a combination of the two. At March 31, 2014, options to purchase 1,925,000 shares of common stock have been granted under the 2013 Plan.

A summary of the activity of the Company’s stock option plan for the three months ended March 31, 2014 and March 31, 2013 is as follows:

	Number of Options		Weighted Avg Exercise Price		Weighted Avg Remaining Cont. Term		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2013		2,708,750	$	0.58		8.41	$	4
Outstanding at March 31, 2014		2,708,750		0.58		8.16	$	21
Exercisable at March 31, 2014		902,500		0.70		5.55	$	6
Outstanding at December 31, 2012		783,750	$	0.78		5.91	$	-
Outstanding at March 31, 2013		783,750		0.78		5.66	$	-
Exercisable at March 31, 2013		618,125		0.76		5.17	$	-

15

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company records stock-based compensation expense related to granting stock options in underwriting and other operating expenses. During the three months ended March 31, 2014, and 2013, the Company did not grant any stock options. The Company recognized compensation expense as follows for the three months ended March 31:

	Three Months Ended
	March 31,
	2014			2013
Total gross compensation expense	$	35,465	(1)		-
Total tax benefit associated with compensation expense		(7,163	)		-
Total net compensation expense	$	28,302			-

(1) Represents 1,925,000 stock options granted in October 2013, of which 200,000 options vested immediately and 1,725,000 vesting annually over a period of 5 years.

As of March 31, 2014, the Company expects to record compensation expense in the future as follows:

	Nine
	months
	ending			Year ending December 31,
	December 31, 2014			2015			2016			2017			2018
Total gross unrecognized compensation expense	$	26,109		$	34,812		$	34,812		$	34,812		$	28,229
Tax benefit associated with unrecognized compensation expense		(515	)		(686	)		(686	)		(686	)		(556	)
Total net unrecognized compensation expense	$	25,594		$	34,126		$	34,126		$	34,126		$	27,673

12. INCOME TAXES

During the three months ended March 31, 2014, the Company recorded $255,912 of income tax expense which resulted in estimated annual effective tax rate of 34.25%. The effective tax rate was primarily impacted as a result of permanent tax differences on meals and entertainment and stock-based compensation.

During the three months ended March 31, 2013, the Company recorded $147,370 of income tax expense which resulted in estimated annual effective tax rate of 34.50%. The effective tax rate was primarily impacted as a result of permanent tax differences on meals and entertainment.

The Company’s federal income tax return is consolidated with HAIC and MGA. Allocation of tax expense or refunds among the consolidated group is based on separate return calculations.

13. REINSURANCE

Certain premiums and benefits are ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide HAIC with increased capacity to write larger risks and maintain its exposure to loss within its capital resources. Ceded reinsurance contracts do not relieve HAIC from its obligations to policyholders. HAIC remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements. To minimize its exposure to significant losses from reinsurer insolvencies, HAIC evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers.

For the 12 month period commencing April 1, 2013 and ending March 31, 2014, the Company reinsured with various third party reinsurers under residential quota share reinsurance treaties, 90% of its risk. The reinsurers’ liability under the quota share arrangement beginning in respect to any one loss occurrence shall not exceed $80,000,000. Property catastrophe treaties, which went into effect on the same day and have the same term as the quota share treaties, develop over four layers and cover a gross loss of $76,000,000 excess of $4,000,000 per occurrence. The Company’s net retention is $400,000 per occurrence.

16

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

From April 1, 2012 through March 31, 2013, the Company reinsured with various reinsurers under homeowners quotashare reinsurance treaties ceding 90% of its risk to reinsurers. The reinsurers’ liability under the quota share arrangement beginning April 1, 2012, in respect to any one loss occurrence shall not exceed $60,000,000. Property catastrophe treaties in effect at the end of 2012 develop over four layers and cover a gross loss of $62,000,000 excess of $3,000,000 per occurrence. The Company’s net retention is $300,000 per occurrence.

The Company also purchases reinsurance covering non-weather losses (two occurrences) in excess of a gross loss of $500,000 per occurrence for all coverage lines (a net loss of $50,000). This coverage which was in force during 2013 and 2012 has been obtained principally to protect the Company in the event of a large fire loss.

The effects of reinsurance on premiums written and earned were as follows, for the three months ended March 31, 2014 and March 31, 2013:

	March 31, 2014						March 31, 2013
	Written			Earned			Written			Earned
Direct premiums	$	14,428,945		$	14,444,123		$	11,776,925		$	12,510,863
Ceded premiums		(12,883,015	)		(13,146,456	)		(10,452,707	)		(11,406,965	)
Net Premiums	$	1,545,930		$	1,297,667		$	1,324,218		$	1,103,898

Following is a summary of HAIC’s reinsurance balances under the above described reinsurance treaties as of and for the three months ended March 31, 2014 and December 31, 2013:

	March 31, 2014		December 31, 2013
Ceded premiums payable	$	9,216,262	$	3,271,858
Ceded loss adjustment expenses		956,055		4,424,649
Ceded loss and loss adjustment expense reserve		16,707,683		15,090,175
Ceded unearned premium reserve		27,910,486		27,924,037
Ceded earned premiums		13,146,456		48,422,943

14. CONCENTRATION OF CREDIT RISK

The Company has exposure and remains liable in the event of an insolvency of one of its primary reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its reinsurer base companies.

Financial instruments which potentially subject the Company to credit risk consist principally of cash and money market accounts on deposit with financial institutions, money market funds, certificates of deposit and premium balance in the course of collection. With respect to cash and money market accounts. Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act provides temporary (to December 31, 2012) Federal Deposit Insurance Corporation (“FDIC”) insurance coverage on all balances held in non-interest bearing accounts. Subsequent to December 31, 2012, insurance coverage on interest and non-interest bearing accounts continues at $250,000 per bank. At times, the Company’s bank deposits may exceed the FDIC limit.

The Concentration of credit risk with respect to premium balances in the course of collection is limited, due to the large number of insureds comprising the Company’s customer base. However, substantially all of the Company’s revenues are derived from customers in Texas, which could be adversely affected by economic conditions, an increase in competition, or other environmental changes.

17

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

15. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its corporate office space and certain office equipment under non-cancelable operating leases which expire at various dates through 2018. Future minimum lease payments required under the non-cancelable operating leases are as follows for the years ending December 31:

2014        (9 months)	$	124,470
2015		151,911
2016		158,017
2017		74,592
2018		5,496
	$	514,486

Rent expense under such leases for the three months ended March 31, 2014 and March 31, 2013 was $31,573 and $28,426, respectively.

Litigation

The Company is the defendant in routine litigation involving matters that are incidental to the claims aspect of the Company’s business for which estimated losses are included in unpaid loss and loss adjustment expense reserves in the Company’s consolidated financial statements. It is management’s opinion that these lawsuits are not material individually or in the aggregate to the Company’s financial position, results of operations, or cash flow.

16. REGULATORY REQUIREMENTS AND RESTRICTIONS

HAIC is subject to the laws and regulations of the State of Texas and the regulations of any other states in which HAIC conducts business. State regulations cover all aspects of HAIC’s business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of stockholders. The Texas Insurance Code requires all property and casualty insurers to have a minimum of $2.5 million in capital stock and $2.5 million in surplus.

As of December 31, 2013, HAIC’s total statutory surplus was $8,963,573 (capital stock of $2,500,000 and surplus of $6,463,573).

As of March 31, 2014, HAIC’s total statutory surplus was $9,665,821 (capital stock of $3,000,000 and surplus of $6,665,821).

As of March 31, 2014 and December 31, 2013, HAIC had restricted cash and investments totaling $2.0 million and $1.0 million, respectively, which have been pledged to the Texas Department of Insurance. As of March 31, 2014, HAIC has pledged $240,000 to the Nevada Department of Insurance. States routinely require deposits of assets for the protection of policyholders and creditors.

The Texas Insurance Code limits dividends from insurance companies to their stockholders to net income accumulated in the Company’s surplus account, or “earned surplus”.

The maximum dividend that may be paid without approval of the Insurance Commissioner is limited to the greater of 10% of the statutory surplus at the end of the preceding calendar year or the statutory net income of the preceding calendar year. No dividends were paid by HAIC in 2014 or 2013.

HAIC prepares its statutory-based financial statements in conformity with accounting practices prescribed or permitted by the Texas Department of Insurance. Prescribed statutory accounting practices primarily include those published as statements of SAP by the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practice not so prescribed. As of March 31, 2014 and December 31, 2013, there were no material permitted statutory accounting practice utilized by HAIC.

18

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

17. SUBSEQUENT EVENTS

On April 24, 2014, Inter-Atlantic Advisors, Ltd., a beneficial owner of more than 5% of the outstanding shares of common stock, distributed 2,928,128 shares, $.0001 par value per share, to the owners of Inter-Atlantic Advisors, Ltd. as part of the liquidation of Inter-Atlantic Advisors, Ltd.

On April 15, 2014, the Company issued 39,000 shares by way of common stock held in Treasury at $0.52 a share under the Company’s 2013 Equity Compensation Plan as a stock award to employees of the Company.

19

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effect of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; and other risks and uncertainties detailed herein and from time to time in our publicly available filings with the Securities and Exchange Commission (the “ SEC”).

You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included under this Item 2 and elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the SEC on March 31, 2014. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HAHC,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to Homeowners of America Holding Corporation and its subsidiaries.

OVERVIEW

General

HAHC is a property and casualty insurance holding company incorporated in Delaware in 2005. In May 2006, we began selling property and casualty insurance products in Texas and beginning April, 2014, we began offering property and casualty insurance products in Arizona through our subsidiary, Homeowners of America Insurance Company. Through the use of highly automated underwriting tools, we currently offer homeowners, dwelling fire and extended coverage, tenant and condominium owners policies, within market segments which have proven to have long term profitability. Using internet-enabled applications, our products are offered to the public through independent insurance agents.

We did, until recently, offer private passenger automobile policies to homeowners in Texas. Our last policy expired October, 2013. The Texas private passenger automobile program was terminated as we were unable to capture a sufficient portion of the market at pricing which we deemed adequate to cover our expenses and provide a margin for profits.

We have applied for licenses to write business in thirty states. To date, we have received certificates of authority from Indiana, Kentucky, Louisiana, Missouri, Nebraska, Nevada, South Dakota, and Utah to offer homeowners, dwelling fire and extended coverage, tenant and condominium owners policies.

As mentioned previously, the Company sells insurance policies predominately in Texas. As such, the health of the Texas economy and housing market has a direct impact on the Company’s business activity. The following selected statistics are key indicators that management monitors when evaluating the Company’s current financial condition and operating results:

· Texas unemployment was 5.5% at March month end, as compared to the national U.S. of 6.3%.

· Single family building permits were up 7.4% and single family home prices were up 8.1% year over year as of March month end.

· Texas nonfarm employment rate increased 2.8% at March month end, as compared to an increase of the national U.S. rate of 1.7%.

These favorable economic indicators, in addition to the reduced numbers and intensity of springtime convectional thunder storm activity in the geographical areas where the Company writes the majority of its business are all factors which aided in the positive results recorded by the Company for the quarter ended March 31, 2014.

Our principal revenues are earned premiums (which are reported net of reinsurance costs), ceding commissions and policy fees. We cede a substantial portion of our earned premium to reinsurers under a quota share program to mitigate high frequency risks as well as catastrophic events and under excess of loss contracts to mitigate losses from catastrophic events. Our principal expenses are claims from policyholders, policy acquisition expenses, and underwriting and other operating expenses. Our net income for the three months ended March 31, 2014 was $475,245.

Net income available to common stockholders was $475,245 for the three months ended March 31, 2014. As of March 31, 2014 we had total assets of $81.7 million and stockholders’ equity of $8.9 million.

20

At the end of 2013, our market share of the approximately $7.2 billion Texas homeowners insurance market was estimated to be 0.66% by SNL Financial, making us the 20^th largest Texas homeowners company in terms of Texas premium. Our current property insurance policy in force count of 63,261 represents annualized premiums of approximately $61.3 million.

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three months ended March 31, 2014 and 2013:

	March 31, 2014			March 31, 2013
Revenues:
Premiums earned	$	14,444,123		$	12,510,863
Ceded premiums		(13,146,456	)		(11,406,965	)
Net premiums earned		1,297,667			1,103,898
Policy fees		1,126,725			977,651
Ceding commissions		2,814,544			2,544,494
Gross investment income		7,447			11,316
Reinsurance profit sharing, installment fees and other income		864,696			324,161
Total Revenue		6,111,079			4,961,520
Expenses:
Losses and loss adjustment expenses		350,976			532,417
Policy acquisition expenses		3,197,446			2,676,813
Underwriting and other operating expenses		1,831,500			1,339,223
Total Expenses		5,379,922			4,548,453
Income before income taxes		731,157			413,067
Provision (benefit) for income taxes:
Current		264,610			134,017
Deferred		(8,698	)		13,353
Total income taxes		255,912			147,370
Net income	$	475,245		$	265,697
Cumulative preferred stock dividends		-			(357,496	)
Net income (loss) available to common stockholders	$	475,245		$	(91,799	)
Basic income (loss) per common share	$	0.03		$	(0.04	)
Weighted average number of common shares outstanding - basic		16,023,448			2,250,000
Diluted income (loss) per common share	$	0.03		$	(0.04	)
Weighted average number of common shares outstanding - diluted		16,925,948			2,250,000
Cash dividend declared per common share	$	0		$	0
Losses and loss adjustment expenses to net earned premium		27.05	%		48.23	%
Expenses to direct earned premium		34.82	%		32.10	%
Acquisition & underwriting and other operating expenses to fee income		104.64	%		104.41	%
Combined loss & expense to total earned revenue		88.14	%		91.88	%

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Net income for the three months ended March 31, 2014 was positively impacted by improved underwriting results. Net income was $475,245 for the three months ended March 31, 2014 as compared to net income of $265,697 for the three months ended March 31, 2013. The primary factor in our improved results was the improvement in underwriting income, a direct result of reduced numbers and intensity of springtime convectional thunder storm activity in the geographical areas where the Company writes the majority of its business.

For the 12 month period commencing April 1, 2013 and ending March 31, 2014, the Company reinsured with various third party reinsurers under residential quota share reinsurance treaties, 90% of its risk. The reinsurers’ liability under the quota share arrangement beginning in respect to any one loss occurrence shall not exceed $80,000,000. Property catastrophe treaties, which went into effect on the same day and have the same term as the quota share treaties, develop over four layers and cover a gross loss of $76,000,000 excess of $4,000,000 per occurrence. The Company’s net retention is $400,000 per occurrence.

Three Months ended March 31, 2014 compared to the Three Months ended March 31, 2013

Our results of operations for the three months ended March 31, 2014 reflect income available to common stockholders of $475,245, or $0.03 earnings per diluted common share, compared to loss available to common stockholders of $91,799, or $(0.04) earnings per diluted common share, for the three months ended March 31, 2013.

Revenue

Premium production for the three months ended March 31, 2014 was $14.4 million, an increase of $2.7 million or 22.52% over the same period in 2013. The Company attributes this growth to the effects of an increased number of insured properties, increased pricing in selected markets and maintaining persistency on policies subject to renewal in its target markets.

Gross Premiums Earned for the three months ended March 31, 2014 and 2013 were $14.4 million and $12.5 million, respectively. The $1.9 million increase or 15.45%, is primarily the result of increased property insurance premium, which increased $2.8 million or 23.89%. The increase in property insurance premium is partially offset by a reduction of $0.1 million in private passenger auto insurance written premium year over year. The Company has made the strategic decision to exit the private passenger auto insurance business, with the last policy expiring in October 2013.

Premiums Ceded for the three months ended March 31, 2014 and 2013 were approximately $13.1 million and $11.4 million, respectively. Our premiums ceded represent amounts paid to reinsurers to cover losses under both our quota share and excess of loss reinsurance treaties. Premiums ceded were 91.02% and 91.18% of gross premiums earned during the three months ended March 31, 2014 and 2013, respectively, primarily the result of our 90% quota share reinsurance program. We expect our reinsurance premiums applicable to the current fiscal year, as well as the reinsurance treaty year, to remain in excess of 90% of direct earned premium, trending slightly upward reflecting our increase in in-force premium.

Net Premiums Earned for the three months ended March 31, 2014 and 2013 were $1.3 million and $1.1 million, respectively, and reflect the gross premiums earned less the appropriate reinsurance costs as described above.

Ceding Commission, Reinsurance Profit Sharing and Other Fee Income for the three months ended March 31, 2014 was $4.8 million compared to $3.9 million for the three months ended March 31, 2013. The primary factors for this improvement include increased policy volume and improved underwriting results mentioned previously.

Net Premiums Written during the three months ended March 31, 2014 and 2013 totaled $1.5millionand $1.3 million, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable quota share reinsurance costs.

The following is a reconciliation of our total net premiums written to net premiums earned for the three months ended March 31, 2014 and 2013 (values in thousands):

	Three Months Ended
	March 31,
	2014			2013
Net Premiums Written	$	1,546		$	1,324
Change in Unearned Premium		2			141
Catastrophe & EXOL Premium		(250	)		(361	)
Net Premiums Earned	$	1,298		$	1,104

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Gross Investment Income decreased approximately 34.18% in the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. This is primarily the result of lower interest rates on the Company’s invested assets.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $350,976 and $532,417, respectively, during the three months ended March 31, 2014 and 2013. During the three months ended March 31, 2014,we experienced improved loss experience due to fewer convectional thunderstorm events in the geographical areas where our business is located, plus to a lesser extent, favorable loss developmentwith respect to our net unpaid losses and loss adjustment expenses established as of December 31, 2013. Together, these factors contributed to the overall favorable variance of approximately $181,000 with respect to the total losses and loss adjustment expenses incurred during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.Our liability for losses and loss adjustment expense (“Reserves”) is more fully described below under “Critical Accounting Policies and Estimates”. These Reserves include both case reserves on reported claims and our reserves for IBNR losses. At each period-end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience.

Policy Acquisition Expenses for the three months ended March 31, 2014 and 2013 of $3.2 million and $2.7 million, respectively, primarily reflect the amortization of deferred acquisition costs including commissions payable to agents for production and renewal of policies, premium taxes and other costs associated with the acquisition of insurance policies.The net increase from the corresponding period in 2013 is primarily attributable to the increase in our overall production.

Underwriting and Other Operating Expenses for the three months ended March 31, 2014 and 2013 were $1.8 million and $1.3 million, respectively.The $0.5 million increase is primarily attributable to increases in compensation and compensation-related costs, and other administrative costs, which include a variety of professional service fees and other general expenses. As of March 31, 2014, we had 40 employees compared to 36 employees as of March 31, 2013.

Income Taxes for the three months ended March 31, 2014 and 2013 were $255,912and $147,370, respectively, for state and federal taxes resulting in an effective tax rate of 34.25% for 2014 and 34.50% for 2013. The effective tax rate for the three months ended March 31, 2014 was impacted as a result of permanent tax differences on meals and entertainment.

Ratios:

The loss ratio applicable to the three months ended March 31, 2014 (losses and loss adjustment expenses incurred related to net premiums earned) was 27.05% compared to 48.23% for the three months ended March 31, 2013. Our loss ratio was positively impacted by a significant decrease in incurred losses incurred as a result of spring storm events, as previously mentioned.

Our expenses (policy acquisition, underwriting, and other operating expenses), as a percentage of direct earned premium was 34.82% for the three months ended March 31, 2014, compared to 32.10% for the three months ended March 31, 2013. The increase in our expense ratio is primarily attributable to higher property inspections, the result of an increase in quoting the Company’s product by its agency force, and other underwriting expenses, including an increase in compensation and compensation-related costs.

Another important measurement of operational effectiveness of the Company is the margin between our fee income and acquisition, underwriting, and other operating expenses due to our reliance on quota share reinsurance, under which approximately 90% of our property insurance premium is ceded to reinsurers. The Company receives a ceding commission from reinsurers for the production of the business. This fee income, along with other policy related fees that the Company charges, are used to offset the underwriting and other operating expenses it incurs in the production of premium. For the three months ended March 31, 2014 our acquisition and underwriting and other operating expenses were 104.64%, of policy related fee income, as compared to 104.41% for the three months ending March 31, 2013.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to total earned revenues is more relevant in assessing overall performance. The combined loss and expense ratio to total earned revenue for the three months ended March 31, 2014 was 88.14% compared to 91.88% for the three months ended March 31, 2013.

Seasonality of Our Business

Our insurance business is seasonal, as convectional thunderstorms producing tornadoes and hail typically occur during the period from March 1 through June 30 each year. With our reinsurance treaty year effective April 1 each year, any variation in the cost of our reinsurance, whether due to changes in reinsurance rates or changes in the total insured value of our policy base will occur and be reflected in our financial results beginning April 1 each year.

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LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our cash flow requirements through net premiums received and investment income. We believe our cash flow from net premiums and investment income will be sufficient to cover our cash outflows for at least the next 12 months. Beyond the next 12 months, our primary cash flow sources will continue to be from premiums and investment income.

In the insurance industry cash collected for premium from policies written is invested, interest and dividends earned thereon. Our primary cash outflows are claim payments and operating expense. In regard to claim payments, while the substantial portion of our claims are paid out within 90 – 180 days, the period of time payments are made varies by the circumstances of the claim, and loss settlement expenses can be paid over periods of more than one year. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and overhead expenses.

We believe that we maintain sufficient liquidity to pay claims and expense obligations of HAIC as well as to satisfy any unforeseen events including inadequate premium rates and reserve deficiencies. The Company maintains substantial reinsurance through reinsurers with superior financial ratings to provide sufficient liquidity in the case disasters impact the business we underwrite.

Cash Flows

Our cash flows from operating and investing activities for the three months ended March 31, 2014 and 2013 are summarized below.

Summary of Cash Flows

	Three Months Ended
	March 31,
	2014		2013
Net cash provided by operating activities		1,562,179		2,170,267
Net cash provided by (used in) investing activities		542,355		(1,889,877	)

We restated the unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2013. These restatements resulted in money market mutual fund accounts held at financial institutions, which were previously classified as short-term investments to be now classified as cash and cash equivalents. In addition, checks issued in excess of cash book balances, not yet presented for payment, which were previously classified as cash and cash equivalents are now classified as general and other accrued expenses payable. This correction resulted in a $9.0 million decrease in short-term investments included in cash flows used in investing activities and a corresponding increase in cash and cash equivalents, along with a $2.1 million increase in general and other accrued expenses payable in net cash provided by operating activities and a corresponding increase in cash flows used in investing activities. See Note 1 Organization and Summary of Significant Accounting Policies for additional disclosure.

Cash Flows for the three months ended March 31, 2014

Net cash provided by operating activities for the three months ended March 31, 2014 was approximately $1.6 million. Significant factors in this movement consisted primarily of cash received from net written premiums and investment income less cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash provided by investing activities of $0.5 million was primarily due to redemptions of short-term and long-term investments of $1.3 million and $1.9 million, respectively, offset by purchases of short-term investments of $2.7 million.

Cash Flows for the three months ended March 31, 2013

Net cash provided by operating activities for the three months ended March 31, 2013 was approximately $2.2 million. Significant factors in this movement consisted primarily of cash received from net written premiums and investment income less cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash used in investing activities of $1.9 million was primarily due to purchases of short-term and long-term investments of $0.3 million and $1.6 million, respectively.

The decrease of net cash provided by operating activities of $0.6 million for the three months ended March 31, 2014 as compared to March 31, 2013 is primarily due to the net impact of balances due from reinsurers.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2014, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In the preparation of these consolidated statements, Company management has made estimates and judgments to develop amounts reported as part of our results. Material estimates that are particularly susceptible to changes over time are primarily related to our claim reserves. These include estimates for known claims, claims incurred but not yet reported and income taxes.

Reserves for Losses and Loss Adjustment Expenses

We establish reserves for the estimated total unpaid cost of losses including loss adjustment expenses, or LAE. Loss reserves reflect Company management’s best estimate of the total cost of (i) claims that have been incurred but not yet paid, and (ii) claims that have been incurred, but not yet reported (IBNR). Loss reserves that are established by Company management are not an exact calculation of our liability, but rather loss reserves represent management’s best estimate for our Company’s liability based on the application of actuarial techniques and other projection methodology, taking into consideration other facts and circumstances known as of the balance sheet date. The process of setting reserves is complex and necessarily imprecise. The impact of both internal and external variables on ultimate loss and LAE costs is difficult to estimate. To arrive at its best estimate for reserves for losses and loss adjustment expenses, the Company uses damage estimating software developed and owned by acknowledged industry leader, Insurance Service Office.

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Item 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) the Company has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded these disclosure controls and procedures are effective as of March 31, 2014.

Previously Reported Material Weakness

Our management concluded that our internal control over financial reporting was ineffective as of December 31, 2013. The material weakness in internal control over financial reporting identified by management related to the incorrect classification of cash and cash equivalents, short-term investments, and general and other accrued expenses payable during the first, second, and third quarters of 2013. See Note 1 Organization and Summary of Significant Accounting Policies for additional disclosure.

Changes in Internal Control Over Financial Reporting

The Company does not have any changes in our internal controls over financial reporting to report for the quarter ended March 31, 2014 which have materially affected or would likely materially affect our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosures and procedures, we recognize that any controls and procedures no matter how well designed and operated can produce only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on management’s judgment in evaluation of their benefits relative to cost.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company is party to a number of legal actions as a result of claims filed by policyholders. These legal actions routinely arise in the ordinary course of our insurance business. Although we cannot predict with certainty the ultimate resolution of the lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1a – RISK FACTORS

There have been no material changes to the risk factors previously disclosed in the section entitled, “Risk Factors”, in our Form 10-K which was filed with the SEC on March 31, 2014.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds

None.

(c) Repurchase of Securities

None.

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ITEM 6 – EXHIBITS

31.1*	Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32*	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**	XBRL INSTANCE DOCUMENT
101.SCH**	XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL**	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF**	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB**	XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE**	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

* Filed herewith

** Furnished herewith

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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.

		HOMEOWNERS OF AMERICA HOLDING CORPORATION
May 15, 2014	By:	/s/  Spencer Tucker
		Spencer Tucker
		Chief Executive Officer
May 15, 2014	By:	/s/ Michael C. Rosentraub
		Michael C. Rosentraub
		Chief Financial Officer

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