SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _________________.
Commission file number 0-2500111
21st Century Holding Company
----------------------------
(Exact name of registrant as specified in its charter)
FL 65-0248866
------------------------------- ------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
4161 N.W. 5th Street, Plantation, FL 33317
------------------------------------------
(Address of principal executive offices) (Zip Code)
954-581-9993
------------
(Registrant's telephone number, including area code)
CHECK WHETHER THE REGISTRANT (1) 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 [ ] NO [X]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICAL DATE:
COMMON STOCK, PAR VALUE $.01 PER SHARE - 3,384,567 SHARES OUTSTANDING AS OF
AUGUST 8, 2000.
<PAGE>
21ST CENTURY HOLDING COMPANY
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
ITEM 1:
<S> <C>
Consolidated Balance Sheets
as of June 30, 2000 (Unaudited)
and December 31, 1999 (Audited)..................................................................... 3
Consolidated Statements of Income
for the three and six months ended June 30, 2000 (Unaudited)
and 1999 (Unaudited)................................................................................ 4
Consolidated Cash Flow Statements
for the six months ended June 30, 2000 (Unaudited)
and 1999 (Unaudited)................................................................................ 5
Condensed Notes to Consolidated Financial Statements..................................................... 6
ITEM 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations.................................................... 10
PART II: OTHER INFORMATION
Other Information........................................................................................ 16
Signature................................................................................................ 18
</TABLE>
2
<PAGE>
PART I
ITEM I. FINANCIAL INFORMATION
21ST CENTURY HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,1999
(UNAUDITED)
ASSETS
<S> <C> <C>
Available for sale at fair value:
Investments
Fixed maturities $ 19,286,311 $ 11,170,035
Equity securities 3,696,095 2,627,232
Mortgage loans 277,160 119,304
------------ ------------
Total investments 23,259,566 13,916,571
------------ ------------
Cash and cash equivalents 6,538,560 923,175
Finance contracts, consumer loans and pay advances receivable, net of
allowances for credit losses of $438,304 and $272,192, respectively 14,325,499 9,642,163
Prepaid reinsurance premiums 1,718,068 2,604,607
Premiums receivable, net of allowance of $175,000 and $50,000, respectively 1,231,453 1,256,485
Due from reinsurers, net 1,590,310 1,670,849
Deferred acquisition costs, net 663,581 (10,243)
Deferred income taxes 2,546,432 1,785,514
Property, plant and equipment net 3,226,849 2,514,505
Other assets 965,893 980,375
Goodwill 3,091,802 3,402,403
------------ ------------
TOTAL ASSETS $ 59,158,013 $ 38,686,404
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 8,515,893 $ 6,314,307
Unearned premiums 16,248,212 8,394,269
Revolving credit outstanding 5,829,872 4,650,026
Bank overdraft 2,898,712 1,528,736
Unearned commissions 1,096,325 802,757
Due to third party insurers 3,979,444 --
Accounts payable and accrued expenses 1,345,607 511,997
Notes payable -- 417,773
Drafts payable to insurance companies 2,990,183 312,651
------------ ------------
TOTAL LIABILITIES 42,904,248 22,932,516
------------ ------------
Commitments and contingencies
-- --
Shareholders' equity:
Common stock of $.01 par value. Authorized 25,000,000 shares
issued 3,410,667 and 3,370,000 shares, and outstanding 3,391,667
and 3,365,000 shares, respectively 34,107 33,700
Additional paid-in capital 12,894,630 12,690,087
Accumulated other comprehensive income (1,758,436) (1,244,830)
Retained earnings 5,173,992 4,297,994
Treasury stock, 19,000 and 5,000 shares, at cost, respectively (90,528) (23,063)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 16,253,765 15,753,888
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 59,158,013 $ 38,686,404
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
21ST CENTURY HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $ 9,206,734 $ 5,776,332 $ 18,161,437 $ 11,837,795
Gross premiums ceded (911,271) (1,799,955) (664,087) (3,715,335)
------------ ------------ ------------ ------------
Net premiums written 8,295,463 3,976,377 17,497,350 8,122,460
Increase in unearned premiums, net
of prepaid reinsurance premiums (2,397,683) (410,831) (7,296,170) (1,142,965)
------------ ------------ ------------ ------------
Net premiums earned 5,897,780 3,565,546 10,201,180 6,979,495
Commission income 478,907 1,148,891 1,733,091 2,054,497
Managing general agent fees 1,860,253 256,129 2,585,891 506,806
Finance revenue 1,490,137 837,100 2,699,718 1,631,922
Net investment income 315,102 244,104 535,262 471,989
Net realized investment (losses) gains (49,326) 306,032 412,847 479,098
Other income 383,485 256,936 1,238,480 519,953
------------ ------------ ------------ ------------
Total revenue 10,376,338 6,614,748 19,406,469 12,643,760
------------ ------------ ------------ ------------
Expenses:
Losses and loss adjustment expenses 4,377,200 1,963,810 7,375,276 3,901,339
Operating and underwriting expenses 2,622,701 1,737,850 4,950,792 3,199,269
Salaries and wages 2,209,364 1,874,374 4,487,343 3,488,208
Policy acquisition costs 528,056 (132,748) 977,488 (206,005)
Amortization of goodwill 155,300 129,592 310,601 254,065
------------ ------------ ------------ ------------
Total expenses 9,892,621 5,572,878 18,101,500 10,636,876
------------ ------------ ------------ ------------
Income before provision for income
tax expense 483,717 1,041,870 1,304,969 2,006,883
Provision for income tax expense 148,948 328,980 428,971 684,268
------------ ------------ ------------ ------------
Net income $ 334,769 $ 712,890 $ 875,998 $ 1,322,616
============ ============ ============ ============
Net income per share and net income
per share-assuming dilution $ 0.10 $ 0.21 $ 0.26 $ 0.39
============ ============ ============ ============
Weighted average number of common shares outstanding and
weighted average number of common shares outstanding 3,405,667 3,390,000 3,395,445 3,390,000
(assuming dilution)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
21ST CENTURY HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 875,998 $ 1,322,615
Adjustments to reconcile net income to net cash flow used
in operating activities:
(Accretion) amortization of investment (discounts) premiums (6,323) 8,184
Depreciation and amortization 111,555 59,878
Amortization of goodwill 310,601 254,065
Deferred income tax expense (500,697) (109,177)
Net realized investment gains (412,847) (479,098)
Amortization of deferred acquisition costs, net 977,488 (206,005)
Provision for credit losses 707,209 223,957
Provision for uncollectible premiums receivable 125,000 --
Stock issued to employees 100,000 --
Changes in operating assets and liabilities:
Premiums receivable (99,968) (1,156,565)
Prepaid reinsurance premiums 886,539 (521,190)
Due from reinsurers 80,539 429,064
Deferred acquisition costs, net (1,651,312) 133,308
Other assets 14,482 (363,823)
Unpaid loss and loss adjustment expenses 2,201,586 (1,152,452)
Unearned premiums 7,853,943 1,359,773
Unearned commissions 293,568 166,469
Accounts payable and accrued expenses 833,610 (1,237,998)
Due to third party insurers 3,979,444 --
Drafts payable to insurance companies 2,677,532 (291,360)
------------ ------------
Net cash flow provided by operating activities 19,357,947 (1,560,355)
------------ ------------
Cash flow from investing activities:
Proceeds from sale of investment securities available for sale 21,792,982 16,451,359
Purchases of investment securities available for sale (31,332,778) (16,835,380)
Finance contracts, consumer loans and pay advances receivable (5,390,545) (1,353,971)
Mortgage loans (157,856) 163,164
Purchases of property and equipment (823,899) (727,634)
Acquisition of agencies -- (290,551)
------------ ------------
Net cash flow used in investing activities (15,912,096) (2,590,013)
------------ ------------
Cash flows from financing activities
Increase (decrease) in bank overdraft 1,369,976 348,638
Repayment of notes payable (312,823) (125,000)
Increase in revolving credit outstanding 1,179,846 2,476,677
Purchase of treasury stock (67,465) --
------------ ------------
Net cash flow provided by financing activities 2,169,534 2,700,315
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,615,385 (1,453,053)
Cash and cash equivalents at beginning of year 923,175 2,250,061
------------ ------------
Cash and cash equivalents at end of period $ 6,538,560 $ 797,008
============ ============
Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Shares issued for settlement of note payable $ 104,950 --
============ ============
Shares issued for agency acquisition -- $ 280,000
============ ============
Notes payable issued for agency acquisition -- $ 300,000
============ ============
Cash paid during the year for:
Interest $ 290,015 $ 150,230
============ ============
Income taxes $ 500,000 $ 1,660,550
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
21ST CENTURY HOLDING COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
The accompanying unaudited consolidated financial statements of 21st
Century Holding Company (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-QSB and Item 310 of Regulation S-B. These
financial statements do not include all information and notes required by
generally accepted accounting principles ("GAAP") for complete financial
statements, and should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended December 31, 1999. The December 31, 1999
year-end balance sheet data was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. The financial information furnished reflects all adjustments,
consisting only of normal recurring accruals which are, in the opinion of
management, necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented. The results of
operations are not necessarily indicative of results of operations which may be
achieved in the future.
The Company is a vertically integrated insurance holding company,
which, through its subsidiaries, controls substantially all aspects of the
insurance underwriting, distribution and claims process. The Company underwrites
nonstandard and standard personal automobile insurance as well as homeowners and
mobile home property and casualty insurance in the State of Florida through its
subsidiary, Federated National Insurance Company ("Federated National"). The
Company has underwriting authority for third-party insurance companies, which it
represents through a wholly owned managing general agent, Assurance MGA
("Assurance MGA"). The Company processes claims made by Federated National's
insureds and for third-party insurance companies through a wholly owned claims
adjusting company, Superior Adjusting, Inc. ("Superior). The Company also offers
premium financing to its own and third-party insureds through its wholly owned
subsidiary, Federated Premium Finance, Inc. ("Federated Premium"), tax
preparation software through its 80% owned subsidiary Express Tax Service, Inc.
and pay advances through FedFirst Corp ("FedFirst"). These products are offered
through the Company's forty agencies operated by the Company's wholly owned
subsidiary Federated Agency Group, Inc. as well as agencies owned by third
parties.
In May 2000, the Company decided to discontinue making consumer loans
and to let the portfolio run off. This process should take approximately one
year. Additionally, the Company is seeking a buyer to purchase its pay advance
business. The Company has determined that its customers who utilize these
products are not the customers that the Company targets for its insurance,
premium finance, tax preparation and bank services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires all derivatives to be
recognized at fair value as either assets or liabilities on the balance sheet.
Any gain or loss resulting from changes in such fair value is required to be
recognized in earnings, to the extent the derivatives are not effective as
hedges. SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of SFAS No. 133" issued in June 1999,
defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. Adoption of this statement is not expected
to have a material impact on the Company's results of operations or financial
position.
(B) COMPREHENSIVE INCOME (DEFICIT)
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income (deficit) presents a measure of all
changes in shareholders' equity except for changes resulting from transactions
with shareholders in their capacity as shareholders. The Company's total
comprehensive income (deficit) presently consists of net income adjusted for the
change in net unrealized holding gains (losses), net of income taxes on debt
investments available for sale and equity investments. The net change in net
unrealized holding losses on debt investments available for sale and equity
investments was ($512,475) and ($238,286) for the three months ended June 30,
2000 and 1999, respectively and ($513,606) and ($463,874) for six months ended
June 30, 2000 and 1999, respectively. Total comprehensive income (loss) was
($177,706) and $474,604 for the three months ended June 30, 2000 and 1999
respectively, and $362,392 and $858,741 for the six months ended June 30, 2000
and 1999, respectively.
(C) RECLASSIFICATIONS
Certain amounts in the Company's 1999 financial statements have been
reclassified to conform with the 2000 presentation.
6
<PAGE>
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(D) Earnings per share
Basic earnings per share ("Basic EPS") is computed by dividing net
income by the weighted average number of common shares outstanding during each
period presented. Diluted earnings per share ("Diluted EPS") is computed by
dividing net income by the weighted average number of common stock and common
stock equivalents during the period presented; outstanding warrants and stock
options are considered common stock equivalents and are included in the
calculation using the treasury stock method. Diluted EPS excluded the impact of
warrants and stock options as such amounts are anti-dilutive.
(E) MANAGING GENERAL AGENT FEES
Managing general agent fees and the related commission expense are
recognized at the time the policy is underwritten and are net of estimated
cancellations.
(3) REVOLVING CREDIT OUTSTANDING
On September 24, 1997, the Company, through Federated Premium entered
into a revolving loan agreement ("Revolving Agreement") with Flatiron Funding
Company LLC. Under the Revolving Agreement, the Company can borrow up to the
maximum credit commitment of $5.0 million. The Revolving Agreement contains
various operating and financial covenants and is collateralized by a first lien
on and assignment of all of the Company's eligible finance contracts receivable.
The amount of an advance is subject to availability under a borrowing base
calculation, with maximum advances outstanding not to exceed the maximum credit
commitment. In January 2000, the maximum credit commitment was increased to $7.0
million and the annual interest rate was changed to the prime rate plus
additional interest varying from .75 percent to prime only based on the prior
month's average outstanding balance.
(4) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
In June 2000, a lawsuit was filed against the Company and its directors
and executive officers seeking compensatory damages on the basis of allegations
that the Company's amended registration statement dated November 4, 1998 was
inaccurate and misleading concerning the manner in which the Company recognized
ceded insurance commission income, in violation of Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. The lawsuit was filed in the United States District Court for the
Southern District of New York and seeks class action status. The plaintiff class
purportedly includes purchasers of the Company's common stock between November
5, 1998 and August 13,1999. The Company believes that the lawsuit is without
merit and intends to vigorously defend such action.
(5) ORGANIZATION OF NEW BANK
In September 1999, the Company filed applications with the Office of
Thrift Supervision for approval to charter a new federal savings bank (the
"Proposed Bank") and to become a savings and loan holding company. Such
applications remain pending as of the date of this report and the Office of
Thrift Supervision has indicated to the Company that the final approval or
disapproval could likely take several additional months.
The Company currently intends to use internal funds to capitalize the
Proposed Bank.
There can be no assurance that the regulatory authorities will approve
the applications or that the Company will be able to obtain the financing
required to capitalize the Proposed Bank.
7
<PAGE>
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
.
(6) SEGMENT INFORMATION
The Company and its subsidiaries operate principally in two business
segments, insurance and financing. The insurance segment consists of
underwriting through Federated National, managing general agent activities
through Assurance MGA, claims processing through Superior Adjusting, and
marketing and distribution through Federated Agency Group. The insurance segment
sells primarily nonstandard personal automobile insurance and includes
substantially all aspects of the insurance, distribution and claims processing.
The financing segment consists of premium financing through Federated Premium,
consumer loans through RPA Financial Corporation, and pay advances through
FedFirst Corp and is marketed through the Company's distribution network of
Company-owned agencies (Federated Agency Group) and independent agents.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates its
business segments based on GAAP pretax operating earnings. Corporate overhead
expenses are not allocated to business segments.
Operating segments that are not individually reportable are included in
the "All Other" category, which includes the operations of the parent company,
21st Century Holding Company.
Information regarding components of operations for the three month and
six month periods ending June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenue
Insurance Segment:
Earned Premiums $ 5,897,780 $ 3,565,546 $ 10,201,180 $ 6,979,495
Investment Income 213,581 519,800 852,542 945,705
Adjusting Income 36,301 234,950 70,090 461,995
MGA Fee Income 1,860,253 256,129 2,585,891 506,806
Commission Income 391,626 1,595,928 1,733,091 3,041,481
Miscellaneous Income 46,498 221,241 81,500 464,749
------------ ------------ ------------ ------------
Total Insurance Revenues 8,446,047 6,393,594 15,524,294 12,400,231
------------ ------------ ------------ ------------
Financing Segment:
Premium Finance Income 1,199,099 700,302 2,046,638 1,385,874
Consumer Loan Interest 75,813 134,672 186,997 243,922
Pay Advance Fees 189,468 -- 382,780 --
Other Income (4,243) -- 53,303 9,330
------------ ------------ ------------ ------------
Total Financing Revenues 1,460,137 834,974 2,669,718 1,639,126
------------ ------------ ------------ ------------
All Other 392,742 599,311 1,209,740 1,008,400
------------ ------------ ------------ ------------
Total Operating Segments 10,298,926 7,827,879 19,403,752 15,047,757
Intercompany Eliminations (77,412) (1,213,131) 2,717 (2,403,997)
------------ ------------ ------------ ------------
Total Revenues $ 10,376,338 $ 6,614,748 $ 19,406,469 $ 12,643,760
============ ============ ============ ============
Earnings Before Income Taxes
Insurance Segment $ 1,035,658 $ 834,910 $ 1,890,442 $ 1,740,647
Financing Segment 412,392 393,579 769,562 708,380
All Other (964,333) (184,995) (1,355,035) (447,628)
------------ ------------ ------------ ------------
Total Operating Segments 483,717 1,043,494 1,304,969 2,001,399
Intercompany Eliminations -- (1,624) -- 5,484
------------ ------------ ------------ ------------
Total Earnings before Income Taxes $ 483,717 $ 1,041,870 $ 1,304,969 $ 2,006,883
============ ============ ============ ============
</TABLE>
8
<PAGE>
21ST CENTURY HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) SEGMENT INFORMATION
Information regarding components of the balance sheets for June 30,
2000 and December 31, 1999 follows:
Total Assets June 30, 2000 December 31,1999
------------- ----------------
Insurance Segment $ 35,832,712 $ 24,895,860
Finance Segment 15,749,247 10,779,524
All Other 7,645,947 4,972,955
------------ ------------
Total Operating Segments 58,814,442 40,648,339
Intercompany Eliminations (69,892) (1,961,935)
------------ ------------
Total Assets $ 59,158,013 $ 38,686,404
============ ============
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
21st Century Holding Company (the "Company") cautions readers that
certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements
which may be deemed to have been made in this Report or which are otherwise made
by or on behalf of the Company. For this purpose, any statements contained in
this Report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "would", "estimate", or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. Factors which may affect the Company's results include, but are not
limited to, risks related to the nature of the Company's business; dependence on
investment income; the adequacy of its liability for loss and loss adjustment
expense ("LAE"); regulation; insurance agents; claims experience; limited
experience in the insurance industry; competition; ratings by industry services;
catastrophe losses; reliance on key personnel; and other risks discussed
elsewhere in this Report and in the Company's other filings with the Securities
and Exchange Commission.
OVERVIEW
The Company is a vertically integrated insurance holding company,
which, through its subsidiaries, controls substantially all aspects of the
insurance underwriting, distribution and claims process. The Company underwrites
nonstandard and standard personal automobile insurance as well as homeowners and
mobile home property and casualty insurance in the State of Florida through its
subsidiary, Federated National. The Company has underwriting authority for
third-party insurance companies, which it represents through a wholly owned
managing general agent, Assurance MGA. The Company processes claims made by
Federated National's insureds and for third-party insurance companies through a
wholly owned claims adjusting company. The Company also offers premium financing
to its own and third-party insureds through its wholly owned subsidiary,
Federated Premium, tax preparation software through its 80% owned subsidiary
Express Tax Service, Inc. and pay advances through FedFirst. These products are
offered through the Company's forty agencies operated by the Company's wholly
owned subsidiary Federated Agency Group, Inc. as well as agencies owned by third
parties. Prior to May 2000, the Company offered consumer loans through its
wholly owned subsidiary, RPA Financial.
The Company's business, results of operations and financial condition
are subject to fluctuations due to a variety of factors. Abnormally high
severity or frequency of claims in any period could have a material adverse
effect on the Company's business, results of operations and financial condition.
Also, if Federated National's estimated liabilities for unpaid losses and LAE is
less than actual losses and LAE, Federated National will be required to increase
reserves with a corresponding reduction in Federated National's net income in
the period in which the deficiency is identified. The Company operates in a
highly competitive market and faces competition from both national and regional
insurance companies, many of whom are larger and have greater financial and
other resources than the Company, have favorable A.M. Best ratings and offer
more diversified insurance coverage. The Company's competitors include other
companies that market their products through agents, as well as companies, that
sell insurance directly to customers.
Large national writers may have certain competitive advantages over
agency writers, including increased name recognition, increased loyalty of their
customer base and reduced acquisition costs. The Company may also face
competition from new or temporary entrants in its niche markets. In some cases,
such entrants may, because of inexperience, desire for new business or other
reasons, price their insurance below that of the Company. Although the Company's
pricing is inevitably influenced to some degree by that of its competitors, the
Company's management believes that it is generally not in the Company's best
interest to compete solely on price, choosing instead to compete on the basis of
underwriting criteria, its distribution network and superior service to its
agents and insureds. The Company competes with respect to automobile insurance
in Florida with more than 100 companies which underwrite personal automobile
insurance.
The Company also intends to significantly expand the financial products
and services it offers by establishing a newly chartered federal savings bank,
FedFirst Bank, FSB (the "Proposed Bank"), which is intended to operate as a
wholly owned subsidiary of the Company. There can be no assurance that the
Company will be able to obtain the required regulatory approvals to operate the
Proposed Bank.
In May 2000, the Company decided to discontinue making consumer loans
and let the portfolio run off. This process should take approximately one year.
Additionally, the Company is seeking a buyer to purchase its pay advance
business. The Company has determined that its customers who utilize these
products are not the customers that the Company targets for its insurance,
premium finance, tax preparation and bank services.
10
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
AS OF JUNE 30, 2000 AS COMPARED TO DECEMBER 31, 1999
Investments. Investments increased $9.4 million to $23.3 million as of
June 30, 2000 as compared to $13.9 million as of December 31, 1999. This
increase in investments is due to the investing of cash generated by the
increase in gross premiums written and amounts due third-party insurers in 2000.
Cash and Cash Equivalents. Cash and cash equivalents were $6.5 million
as of June 30, 2000, as compared to $923,000 as of December 31, 1999. This
increase of $5.6 million is due primarily to cash flow from increased revenues
during the quarter.
Finance Contracts, Consumer Loans and pay advance receivables. Finance
contracts, consumer loans and pay advance receivables increased $4.7
million from $9.6 million at December 31, 1999 to $14.3 million at June 30,
2000. This increase is due to an increase in premium finance receivables which
are the result of the increase in premiums written during the quarter as well as
premiums underwritten for third-party insurers by Assurance MGA.
Prepaid Reinsurance Premiums. Prepaid reinsurance premiums decreased
$887,000 to $1.7 million as of June 30, 2000 from $2.6 million as of December
31, 1999 because the Company reduced its reinsurance on automobile insurance
from 30% of premiums to 15%, effective January 1, 2000. In addition, the Company
reduced its reinsurance on mobile homes from 40% to 0% effective January 1,
2000. Effective July 1, 2000, the Company obtained catastrophe reinsurance
coverage for its mobile home and homeowners insurance to cover losses in excess
of $2.5 million. This reinsurance, together with the Florida Hurricane
Catastrophe Fund, will cover losses up to approximately $22 million, the
equivalent of estimated losses in a once-every-125-year storm.
Deferred Acquisition Costs, Net. Deferred acquisition costs increased
from a credit of $10,000 as of December 31, 1999 to a debit of $664,000 as of
June 30, 2000. Included in the December 31, 1999 balance were deferred
commissions of $746,000 offset by unearned ceded commissions of $756,000. As of
June 30, 2000, deferred commissions were $1.1 million offset by unearned ceded
commissions of $498,000. The increase in deferred commissions is related to the
increase in premiums written discussed below, and the decrease in unearned ceded
commissions is due to the reduction in reinsurance discussed above.
Property, Plant and Equipment, Net. Property, plant and equipment
increased $712,000 to $3.2 million as of June 30, 2000, from $2.5 million as of
December 31, 1999 primarily as a result of the purchase of approximately 8 acres
of land for $600,000. The Company currently intends to build a new headquarters
on a portion of this land.
Unpaid Loss and Loss Adjustment Expenses. Unpaid loss and loss
adjustment expenses increased $2.2 million to $8.5 million as of June 30, 2000,
as compared to $6.3 million as of December 31, 1999. This increase is related to
the increase in net premiums earned discussed below.
Unearned Premiums. Unearned premiums increased $7.8 million to $16.2
million as of June 30, 2000 from $8.4 million as of December 31, 1999. This
increase is the result of the increase in written premiums discussed below.
Revolving Credit Outstanding. The outstanding borrowings under the
Revolving Agreement increased $1.2 million to $5.8 million as of June 30, 2000
from $4.7 million as of December 31, 1999 primarily to fund the increase in
finance contracts receivables.
Bank Overdraft. Bank overdraft is the result of the cash management
techniques employed by the Company. The overdraft was $2.9 million as of June
30, 2000, a $1.4 million increase from $1.5 million as of December 31, 1999.
This increase is due to increased business activity driven by the increase in
revenues.
Due to Third Party Insurers. This represents amounts owed an insurance
company, including amounts due for reinsurance, for which the Company acts as
managing general agent and processes claims. This arrangement became effective
January 1, 2000, and, therefore, there was no such liability as of December 31,
1999.
Accounts Payable and Accrued Expenses. Accounts payable and accrued
expenses increased $834,000 from $512,000 as of December 31, 1999 to $1.3
million as of June 30, 2000 primarily due to an overall increase in expenses
generally.
Drafts Payable to Insurance Companies. Drafts payable to insurance
companies increased from $313,000 as of December 31, 1999 to $3.0 million as of
June 30, 2000, principally due to new finance contracts receivable.
11
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Gross Premiums Written. Gross premiums written increased $3.4 million,
or 59.4% to $9.2 million for the three months ended June 30, 2000 as compared to
$5.8 million for the comparable period in 1999. This increase is attributable to
an increase in pricing by two major competitors of the Company, as well as a 10%
rate reduction by the Company, all effective December 1, 1999. Prior to December
1999, these competitors' pricing was below the Company's pricing. After the
price changes, the Company became more competitive with respect to pricing,
resulting in a substantial increase in written premiums. The Company reversed
its 10% rate reduction effective June 1, 2000 to slow the growth in premiums
written.
Net Premiums Written. Net premiums written increased 109% to $8.3
million for the three-month period ended June 30, 2000 from $4.0 million for the
same period in 1999. The increase in gross premiums written, discussed above,
was further enhanced by a decrease in the amount of premiums ceded from $1.8
million to $911,000 due to the reduction in automobile and mobile home
reinsurance.
Net Premiums Earned. Net premiums earned increased 65.4% to $5.9
million for the three-month period ended June 30, 2000 from $3.6 million for the
same period in 1999. The increase in net premiums written discussed above was
partially offset by the increase in the deferral of premiums over the life of
the policies.
Commission Income. Commission income decreased 58.4% to $479,000 for
the three-month period ended June 30, 2000 from $1.1 million for the same period
in 1999. Commission income consists of fees earned by Company-owned agencies
placing business with third-party insurers and third-party premium finance
companies. The decrease is attributable to a higher percentage of commissions
from Federated National and Assurance MGA which are eliminated in consolidation.
Managing General Agent Fees. Managing general agent fees increased from
$256,000 for the three-month period ended June 30, 1999 to $1.9 million for the
same period in 2000. This increase is because Assurance MGA began writing
policies for two third -party insurance companies in the past year. Prior to
July 1999, substantially all policies were written for Federated National
Insurance Company for which Assurance MGA retained $25 per policy.
Finance Revenues. Finance revenues increased 78.0% to $1.5 million for
the three-month period ended June 30, 2000 from approximately $837,000 for the
same period in 1999. The increase was attributable to an increase in the number
of premium contracts financed by Federated Premium, as well as income generated
from pay advances, which began operations in the third quarter 1999, of
$189,000.
Net Realized Investment Gains (Losses). The Company experienced
realized losses of $49,000 for the three-month period ended June 30, 2000
compared to realized gains of $306,000 for the same period in 1999, as the
Company was able to take advantage of a favorable equity market in 1999. There
can be no assurances as to whether the Company will record gains or further
losses in the future.
Other Income. Other income increased 49% to $383,000 for the
three-month period ended June 30, 2000 from $257,000 for the same period in
1999. This increase is primarily attributable to increase tax preparation fees
of $128,000 for the three-month period ended June 30, 2000 compared to $24,000
in 1999.
Losses and LAE. The Company's loss ratio, as determined in accordance
with GAAP, for the three-month period ended June 30, 2000 was 75.4% compared
with 76.2% for the same period in 1999. Losses and LAE incurred increased 123%
to $4.4 million for the three-month period ended June 30, 2000 from $2.0 million
for the same period in 1999. Losses and LAE, the Company's most significant
expense, represent actual payments made and changes in estimated future payments
to be made to or on behalf of its policyholders, including expenses required to
settle claims and losses.
Operating and Underwriting Expenses. Operating and underwriting
expenses increased 50.9% to $2.6 million for the three-month period ended June
30, 2000 from $1.7 million for the same period in 1999. The increase is due to a
57% increase in revenues and is expected to continue in the near future. In
addition, the Company increased its advertising expenses from $223,000 in the
first quarter of 1999 to $478,000 in the same quarter in 2000.
Federated National's expense and combined ratios were 34.5% and 109.8%,
respectively, for the three-month period ended June 30, 2000 compared with 44.9%
and 121.2% in the same period for 1999. The decreases in these ratios is
primarily due to faster growth in premiums earned than in the related
underwriting expense.
12
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 31, 1999
(CONTINUED)
Salaries and Wages. Salaries and wages increased 17.9% to $2.2 million
for the three months ended June 30, 2000 from $1.9 million for the same period
in 1999. The increase is related to the increase in the volume of business
during the quarter.
Policy Acquisition Costs. Policy acquisition costs increased from a
credit of $133,000 for the three-month period ended June 30, 1999 to a debit of
$528,000 for the same period in 2000. Policy acquisition costs consists of
commission expense paid to third-party agencies less commissions earned on
reinsurance ceded. The increase is due to an increase in premiums earned, as
well as the reduction of commissions earned on reinsurance ceded.
Income Tax Expense. The Company's estimated effective income tax rate
was 30.8 % for the three months ended June 30, 2000 compared to 31.6% for the
same period in 1999.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Gross Premiums Written. Gross premiums written increased $6.3 million,
or 53.4% to $18.2 million for the six months ended June 30, 2000 as compared to
$11.8 million for the same period in 1999. This increase is attributable to an
increase in pricing by the Company's major competitors, as well as a 10% rate
reduction by the Company, all effective December 1, 1999. Prior to December
1999, these two competitors' pricing was below the Company's pricing. After the
price changes, the Company became more competitive with respect to pricing,
resulting in a substantial increase in written premiums. The Company reversed
its 10% rate reduction effective June 1, 2000 to slow the growth in premiums
written.
Net Premiums Written. Net premiums written increased 115% to $17.5
million for the six-month period ended June 30, 2000 from $8.1 million for the
same period in 1999. The increase in gross premiums written, discussed above,
was further enhanced by a decrease in the amount of premiums ceded from $3.7
million in 1999 to $664,000 in 2000 due to the reduction in automobile and
mobile home reinsurance.
Net Premiums Earned. Net premiums earned increased 46.2% to $10.2
million for the six-month period ended June 30, 2000 from $7.0 million for the
same period in 1999. The increase in net premiums written discussed above was
partially offset by the increase in the deferral of premiums over the life of
the policies.
Commission Income. Commission income decreased 15.6% to $1.7 million
for the six-month period ended June 30, 2000 from $2.1 million for the same
period in 1999. Commission income consists of fees earned by Company-owned
agencies placing business with third-party insurers and third-party premium
finance companies. The decrease is attributable to a higher percentage of
commissions from Federated National and Assurance MGA, which are eliminated in
consolidation.
Managing General Agent Fees. Managing general agent fees increased from
$507,000 for the six-month period ended June 30, 1999 to $2.6 million for the
same period in 2000. This increase is because Assurance MGA began writing
policies for two third-party insurance companies in the past year. Prior to
July 1999, substantially all policies were written for Federated National for
which Assurance MGA retained $25 per policy.
Finance Revenues. Finance revenues increased 65.4% to $2.7 million for
the six-month period ended June 30, 2000 from approximately $1.6 million for the
same period in 1999. The increase was attributable to an increase in the number
of premium contracts financed by Federated Premium, as well as income generated
from pay advances, which began operations in the third quarter 1999, of
$383,000.
Other Income. Other income increased 138% to $1.2 million for the
six-month period ended June 30, 2000 from $520,000 for the same period in 1999.
This increase is primarily attributable to increased tax preparation fees of
$768,000 for the six-month period ended June 30, 2000 compared to $172,000 in
the 1999.
13
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
(CONTINUED)
Losses and LAE. The Company's loss ratio, as determined in accordance
with GAAP, for the six-month period ended June 30, 2000 was 72.9% compared with
62.7 % for the same period in 1999. Losses and LAE incurred increased 89.1% to
$7.4 million for the six-month period ended June 30, 2000 from $3.9 million for
the same period in 1999. Losses and LAE, the Company's most significant expense,
represent actual payments made and changes in estimated future payments to be
made to or on behalf of its policyholders, including expenses required to settle
claims and losses. The Company believes the increase in its loss ratio is a
function of increased claims on certain newly issued policies, coupled with a
10% price reduction on policies written from December 1, 1999 to May 31, 2000.
Operating and Underwriting Expenses. Operating and underwriting
expenses increased 54.7% to $4.9 million for the six-month period ended June 30,
2000 from $3.2 million for the same period in 1999. The increase is due to a 53%
increase in revenues and is expected to continue in the near future. In
addition, the Company increased its advertising expenses from $589,000 in the
first six months of 1999 to $1.0 million in the same period in 2000.
Federated National's Expense and Combined Ratios were 40.1% and 113.0%,
respectively, for the six-month period ended June 30, 2000 compared with 34.3%
and 96.3% in the same period for 1999. The increases in these ratios are
primarily due to a 10% price reduction on policies written from December 1, 1999
to May 31, 2000.
Included In Operating and Underwriting Expenses are the Provision for
credit losses and the provision for uncollectible premiums receivable. The
provision for credit losses increased to $707,000 for the six months ended June
30, 2000 from $224,000 for the same period in 1999. The provision for
uncollectible premiums receivable increased to $125,000 for the six months
ended June 30, 2000 from zero in 1999. Both of these increases are due to volume
growth in the related receivables.
Salaries and Wages. Salaries and wages increased 28.6% to $4.5 million
for the six months ended June 30, 2000 from $3.5 million for the same period in
1999. The increase is related to the increase in the volume of business during
the quarter.
Policy Acquisition Costs. Policy acquisition costs increased from a
credit of $206,000 for the six-month period ended June 30, 1999 to a debit of
$977,000 for the same period in 2000. Policy acquisition costs consists of
commission expense paid to third-party agencies less commissions earned on
reinsurance ceded. The increase is due to an increase in premiums earned, as
well as the reduction of commissions earned on reinsurance ceded.
Income Tax Expense. The Company's estimated effective income tax rate
was 32.9 % for the six months ended June 30, 2000 compared to 34.1% for the same
period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are revenues generated from
operations, investment income and borrowings under the Credit Facility. Because
the Company is a holding company, it is largely dependent upon dividends from
its subsidiaries for cash flow.
Federated Premium is party to the Revolving Agreement, which is used to
fund its operations. Under the Revolving Agreement, Federated Premium can borrow
up to the maximum credit commitment of $7.0 million. The amount of an advance is
subject to availability under a borrowing base calculation, with maximum
advances outstanding not to exceed the maximum credit commitment. The annual
interest rate on advances under the Revolving Agreement varies based on the
average outstanding balance from the previous month, between prime and .75%
above prime. The Revolving Agreement contains various operating and financial
covenants and is collateralized by a first lien on and assignment of all of the
Company's finance contracts receivable. The Revolving Agreement expires on
September 30, 2000. Outstanding borrowings under the Credit Facility as of June
30, 2000 and December 31,1999 were approximately $5.8 million and $4.7 million,
respectively. At June 30, 2000 and December 31, 1999, the Company was in
compliance with all covenants under the Revolving Agreement. The Company
currently anticipates that the Revolving Agreement will be extended prior to its
expiration date. However, there can be no assurances that the Company will be
able to extend this agreement.
14
<PAGE>
For the six months ended June 30, 2000, operations generated operating
cash flow of $19.4 million, which was primarily attributable to the increase in
unearned premiums and amounts due third party insurers. Operating cash flow is
expected to be positive in both the short-term and the reasonably foreseeable
future due to a recent increase in insurance policies written. In addition, the
Company's investment portfolio is highly liquid as it consists almost entirely
of readily marketable securities. Cash deficit from investing activities was
$15.9 million for the six months ended June 30, 2000. The Company expects a
continued cash flow deficit from investing activities as the Company intends to
invest cash from operations and financing activities. Cash flow provided by
financing activities was $2.2 million for the quarter ended June 30, 2000, which
was derived primarily from borrowings under the Revolving Agreement and from an
increase in bank overdrafts. The Company believes that its current capital
resources, together with cash flow from its operations and financing activities
will be sufficient to meet its anticipated working capital requirements through
at least 2000. There can be no assurances, however, that such will be the case.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
To retain its certificate of authority, the Florida insurance laws and
regulations require that Federated National maintain capital surplus equal to
the greater of 10% of its liabilities or the 1999 statutory minimum capital and
surplus requirement of $2.5 million as defined in the Florida Insurance Code.
The Company is also required to adhere to prescribed premium-to-capital surplus
ratios. The Company is in compliance with these requirements.
The maximum amount of dividends, which can be paid by Florida insurance
companies without prior approval of the Florida Commissioner, is subject to
restrictions relating to statutory surplus. The maximum dividend that may be
paid in 2000 by the Company without prior approval is limited to the lesser of
statutory net income from operations of the preceding calendar year or 10% of
statutory unassigned capital surplus as of December 31 of the preceding year..
No dividends were paid during 1999 or through June 30, 2000.
The Company is required to comply with the risk-based capital
requirements of the National Association of Insurance Commissioners ("NAIC").
The NAIC's risk-based capital requirements are a method of measuring the amount
of capital appropriate for an insurance company to support its overall business
operations in light of its size and risk profile. NAIC's risk-based capital
standards are used by regulators to determine appropriate regulatory actions
relating to insurers who show signs of weak or deteriorating condition. As of
June 30, 2000, based on calculations using the appropriate NAIC formula, the
Company's total adjusted capital is in excess of ratios that would require
regulatory action. GAAP differs in some respects from reporting practices
prescribed or permitted by the Florida Department of Insurance. Federated
National's statutory capital surplus was approximately $6.3 million as of June
30, 2000. Statutory net loss was $1.2 million for the six months ended June 30,
2000.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein
have been prepared in accordance with GAAP which requires the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of the general levels of inflation.
Interest rates do not necessarily move in the same direction or with the same
magnitude as the cost of paying losses and LAE.
Insurance premiums are established before the Company knows the amount
of loss and LAE and the extent to which inflation may affect such expenses.
Consequently, the Company attempts to anticipate the future impact of inflation
when establishing rate levels. While the Company attempts to charge adequate
rates, the Company may be limited in raising its premium levels for competitive
and regulatory reasons. Inflation also affects the market value of the Company's
investment portfolio and the investment rate of return. Any future economic
changes which result in prolonged and increasing levels of inflation could cause
increases in the dollar amount of incurred loss and LAE and thereby materially
adversely affect future liability requirements.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
In June 2000, a lawsuit was filed against the Company and its directors
and executive officers seeking compensatory damages on the basis of allegations
that the Company's amended registration statement dated November 4, 1998 was
inaccurate and misleading concerning the manner in which the Company recognized
ceded insurance commission income, in violation of Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934.. The lawsuit was filed in the United States District Court for the
Southern District of New York and seeks class action status. The plaintiff class
purportedly includes purchasers of the Company's common stock between November
5,1998 and August 13, 1999. The Company believes that the lawsuit is without
merit and intends to vigorously defend such action.
ITEM 2
CHANGES IN SECURITIES
During the quarter ending June 30, 2000, the Company reached an
agreement with Carla Leonard, a former director, where by the Company issued
20,667 shares of the Company's common stock and paid $172,000 in full settlement
of a note payable having a balance of $276,950 plus accrued interest. The
foregoing shares were issued without registration pursuant to the exemption
afforded by Section 4 (2) of the Securities Act of 1933.
ITEM 3
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 6, 2000, the Company held its Annual Meeting of Shareholders
(the "Meeting"). At the Meeting, the following matters were voted upon:
(i) Election of Directors
The following table sets forth the name of each nominee and
the voting with respect to each nominee for director:
<TABLE>
<CAPTION>
Withhold
Name For Authority
---- --- ---------
<S> <C> <C> <C>
Robert E. McNally (until 2002) 2,988,875 4,400
Patrick D. Doyle (until 2003) 2,988,875 4,400
Wallace J. Hilliard (until 2003) 2,993,075 200
Bruce F. Simberg (until 2003) 2,993,075 200
</TABLE>
(ii) Amendment to 1998 Stock Option Plan
Approval of an Amendment to the Company's 1998 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
from an aggregate of 350,000 shares to an aggregate of 600,000 shares.
With respect to the foregoing matter, 2,061,739 shares were voted in
favor, 21,115 shares were voted against and 100 shares abstained. There were no
broker non-votes.
16
<PAGE>
ITEM 5
OTHER INFORMATION
None.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Financial Data Schedule: Ex. 27
(b) Reports on Form 8-K: On May 19, 2000, the Company filed a current report
on Form 8-K to disclose that the Company had changed its Independent
Certifying Accountants from KPMG LLP to McKean, Paul, Chrycy, Fletcher
and Co. effective May 12, 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
21ST CENTURY HOLDING COMPANY
DATE: August 11, 2000 By: /s/ Samuel A. Milne
-----------------------
Title: Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule
19
