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
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(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
<PAGE>
$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
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<TABLE>
<CAPTION>
21ST CENTURY HOLDING COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
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<S> <C> <C>
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
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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) --
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Net cash flow used in investing activities .................................... (4,626,385) (3,359,109)
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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)
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Net cash flow (used in) provided by financing activities ...................... 7,726,369 (302,722)
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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
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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
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<FN>
See note 2(a) regarding non-cash financing and investing activities
</FN>
</TABLE>
See accompanying notes to consolidated financial statements
F-6
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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
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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
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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)
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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
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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
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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
<PAGE>
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
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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:
<TABLE>
<CAPTION>
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
- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$10 310,000 9.9 $10 0 $0
</TABLE>
F-28
