-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N0MJ/WKj4b0TPdTG8wiFy5sCCszAaRdNQ88jvj2wKVFISDB1nsG73KTDjFwn5Qmo xA1PlzFtTTwerPGcJpchkw== 0001116502-03-000906.txt : 20030515 0001116502-03-000906.hdr.sgml : 20030515 20030515164954 ACCESSION NUMBER: 0001116502-03-000906 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 21ST CENTURY HOLDING CO CENTRAL INDEX KEY: 0001069996 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 650248866 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25001 FILM NUMBER: 03705764 BUSINESS ADDRESS: STREET 1: 4161 N W 5TH STREET CITY: PLANTATION STATE: FL ZIP: 33317 BUSINESS PHONE: 9545819993 MAIL ADDRESS: STREET 1: 4161 N W 5TH STREET CITY: PLANTATION STATE: FL ZIP: 33317 10-Q 1 twentyfistcentury-10q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q [X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003 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) -------------------------------------------------- (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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value - 3,043,828 shares outstanding as of May 13, 2003. 21ST CENTURY HOLDING COMPANY INDEX PART I: FINANCIAL INFORMATION PAGE ----- ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002................................................ 3 Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002............................................................. 4 Consolidated Cash Flow Statements for the three months ended March 31, 2003 and 2002............................................................. 5 Notes to Consolidated Financial Statements................................ 6 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 9 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk................ 14 ITEM 4 Controls and Procedures................................................... 14 PART II: OTHER INFORMATION Other Information......................................................... 14 Signatures................................................................ 16 Certifications ........................................................... 17 2 PART I ITEM I. FINANCIAL STATEMENTS (UNAUDITED) 21ST CENTURY HOLDING COMPANY CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 DECEMBER 31, 2002 -------------- ----------------- (See Note 1) ASSETS Investments Fixed maturities, available for sale, at fair value $ 26,687,897 $ 24,693,047 Equity securities -- 539,706 Mortgage loans 143,873 145,043 ------------ ------------ Total investments 26,831,770 25,377,796 ------------ ------------ Cash and cash equivalents 7,565,988 4,478,383 Finance contracts, net of allowance for credit losses of $369,546 in 2003 and $404,356 in 2002 6,712,498 7,217,873 Prepaid reinsurance premiums 9,872,901 11,251,193 Premiums receivable, net of allowance for credit losses of $283,000 and $210,000, respectively 8,038,953 8,373,104 Reinsurance recoverable, net 11,110,986 7,856,972 Deferred acquisition costs, net 433,487 7,721 Income taxes recoverable -- -- Deferred income taxes 2,410,239 2,691,309 Property, plant and equipment, net 4,947,256 4,819,617 Goodwill, net 1,699,069 1,789,353 Other assets 1,689,079 1,454,690 ------------ ------------ Total assets $ 81,312,226 $ 75,318,011 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Unpaid losses and loss adjustment expenses $ 21,545,684 $ 16,983,756 Unearned premiums 29,312,355 28,934,486 Premiums deposits 1,127,018 655,713 Revolving credit outstanding 4,122,645 4,312,420 Bank overdraft 827,511 844,947 Unearned commissions 18,721 18,721 Income taxes payable 243,513 1,676,020 Accounts payable and accrued expenses 3,102,300 3,746,030 Drafts payable to insurance companies 48,805 48,254 ------------ ------------ Total liabilities 60,348,552 57,220,347 ------------ ------------ Commitments and contingencies Shareholders' equity: Common stock of $0.01 par value. Authorized 25,000,000 shares; issued 3,435,667 and 3,411,667 shares, respectively; Outstanding 3,012,201 and 2,990,201 shares, respectively 34,357 34,117 Additional paid-in capital 13,110,355 12,855,543 Accumulated other comprehensive income (deficit) 306,076 (227,091) Retained earnings 8,618,574 6,521,027 Treasury stock, 423,466 and 421,466 shares, respectively, at cost (1,105,688) (1,085,932) ------------ ------------ Total shareholders' equity 20,963,674 18,097,664 ------------ ------------ Total liabilities and shareholder's equity $ 81,312,226 $ 75,318,011 ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 21ST CENTURY HOLDING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 2002 ------------ ------------ Revenue: Gross premium written $ 16,611,980 $ 13,074,985 Gross premium ceded (4,398,875) (5,893,430) ------------ ------------ Net premiums written 12,213,105 7,181,555 Decrease in unearned premiums, net of prepaid reinsurance premiums (1,756,161) (1,747,061) ------------ ------------ Net premiums earned 10,456,944 5,434,494 Commission income 433,039 428,346 Finance revenue 1,127,826 1,061,431 Managing general agent fees 632,547 959,000 Net investment income 365,205 334,622 Net realized investments gains 350,882 53,781 Other income 1,495,567 1,235,326 ------------ ------------ Total revenue 14,862,010 9,507,000 Expenses: Loss and loss adjustment expenses 6,787,709 3,184,631 Operating and underwriting expenses 2,681,278 2,845,525 Salaries and wages 2,146,335 2,002,890 Amortization of deferred acquisition costs, net (360,181) (70,282) ------------ ------------ Total expenses 11,255,141 7,962,764 Income before provision for income tax expense 3,606,869 1,544,236 Provision for income tax expense 1,298,468 552,866 ------------ ------------ Net income $ 2,308,401 $ 991,370 ============ ============ Basic net income per share $ 0.77 $ 0.33 ============ ============ Weighted average number of common shares outstanding and Weighted average number of common shares outstanding (assuming dilution) 3,004,620 3,028,926 ============ ============ Dividends paid per common share $ 0.06 $ 0.02 ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 21ST CENTURY HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 2002 ------------ ------------ Cash flow from operating activities: Net income (loss) $ 2,308,401 $ 991,370 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization (accretion) of investment premium (discount), net 39,947 (15,029) Depreciation and amortization of property plant and equiqment 101,639 95,895 Deferred income tax expense 281,070 (149,700) Net realized investment (gains) losses (350,882) (53,781) Amortization of deferred acquisition costs, net (360,181) (70,282) Provision for credit losses, net 194,708 474,361 Provision for uncollectible premiums receivable 10,627 96,679 Other 254,312 5,052 Changes in operating assets and liabilities: Premiums receivable 323,524 (2,011,600) Prepaid reinsurance premiums 1,378,292 (2,395,023) Reinsurance recoverable, net (3,254,014) 1,322,946 Deferred acquisition costs, net (65,585) 780,152 Goodwill (179,716) -- Other assets (234,389) 1,139,065 Unpaid losses and loss adjusting expenses 4,561,928 921,472 Unearned premiums 377,869 4,142,084 Premium deposits 471,305 334,052 Unearned commissions -- (435,332) Income taxes payable (1,432,507) -- Accounts payable and accrued expenses (642,990) 277,319 Drafts payable to insurance companies 551 636,803 ------------ ------------ Net cash provided by operating activities 3,783,909 6,086,503 ------------ ------------ Cash flow from investing activities: Proceeds from sale of investment securities available for sale 40,687,613 1,767,061 Purchases of investment securities available for sale (41,298,655) (4,920,801) Finance contracts receivable, consumer loans and pay advances receivable 310,667 (1,800,801) Sale of and collection of mortgage loans 1,170 451,590 Purchases of property and equipment (229,278) (91,748) Net cash used in acqusitions -- 199,687 Proceeds from sale of assets 270,000 -- ------------ ------------ Net cash used in investing activities (258,483) (4,395,012) ------------ ------------ Cash flow from financing activities: Bank overdraft (17,436) (1,337,377) Dividends paid (210,854) (60,868) Purchases of treasury stock (19,756) (,744) Revolving credit outstanding (189,775) (511,145) ------------ ------------ Net cash used in financing activities (437,821) (1,918,134) ------------ ------------ Net (decrease) increase in cash and cash equivalents 3,087,605 (226,643) Cash and cash equivalents at beginning of period 4,478,383 775,699 ------------ ------------ Cash and cash equivalents at end of period $ 7,565,988 $ 549,056 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 55,412 $ 101,172 ============ ============ Income taxes $ 2,450,000 $ 258 ============ ============ Non-cash investing and financing activities: Accrued dividends payable $ 210,807 $ 60,268 ============ ============ Notes receivable, net of deferred gains, received for sale of agencies $ 13,712 -- ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 21ST CENTURY HOLDING COMPANY 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-Q and Rule 10-01 of Regulation S-X. These financial statements do not include all information and notes required by generally accepted accounting principles 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-K for the year ended December 31, 2002. The December 31, 2002 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 and homeowners and mobile home property and casualty insurance in the State of Florida through its wholly-owned subsidiaries, Federated National Insurance Company ("Federated National") and American Vehicle Insurance Company ("American Vehicle"). The Company has underwriting authority for third-party insurance companies, which it represents through a wholly owned managing general agent, Assurance Managing General Agents, Inc. ("Assurance MGA"). The Company internally processes claims made by Federated National, American Vehicle and 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"). In the first quarter of 2002, the Company decided to discontinue offering pay advances through its wholly-owned subsidiary, FedFirst Corp. ("FedFirst"), due to declining profits in this line of business. The Company markets and distributes its own and third-party insurers' products and its other services primarily in South Florida, through a network of 24 agencies, owned by Federated Agency Group, Inc. ("Federated Agency Group"), a wholly-owned subsidiary, 34 operating franchised agencies and approximately 125 independent agents. The Company, through its wholly-owned subsidiary, FedUSA, Inc. ("FedUSA"), franchises agencies under the FedUSA name. As of March 31, 2003, franchises were granted for 40 FedUSA agencies, of which 34 were operating. The Company intends to focus its future expansion efforts for its agency network on franchised agencies. The Company offers income tax preparation software and service through its 80%-owned subsidiary, Express Tax Service Company ("Express Tax"). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (A) CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of the Company's financial statements include estimates associated with management's evaluation of the determination of liability for unpaid losses and loss adjustment expense and the recoverability of goodwill. In addition, significant estimates form the bases for the Company's reserves with respect to finance contracts, premiums receivable, deferred income taxes and loss contingencies. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, as well as current and expected economic conditions. Management constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. 6 21ST CENTURY HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (B) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No.146, "Accounting for Costs Associated with Exit or Disposal Activities." Statement of Financial Accounting Standard No. 146 supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement of Financial Accounting Standard No. 146 requires that, in certain instances, costs associated with an exit or disposal plan be recognized when incurred rather than at the date of a commitment to an exit or disposal plan. Statement of Financial Accounting Standard No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of Statement of Financial Accounting Standard No. 146 has no effect on the Company's financial statements. In October 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 147, "Acquisitions of Certain Financial Institutions," which clarifies the accounting treatment for acquisitions of financial institutions. In addition, this Statement amends Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Statement of Financial Accounting Standard No. 147 is effective on October 1, 2002. The adoption of Statement of Financial Accounting Standard No. 147 has no effect on the Company's financial statements. In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amended Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation." The new standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, the statement amends the disclosure requirements of Statement of Financial Accounting Standard No. 123 to require prominent disclosures in the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for financial statements for fiscal years ending after December 15, 2002. In compliance with Statement of Financial Accounting Standard No. 148, the Company has elected to continue to follow the intrinsic value method in accounting for the Company's stock-based employee compensation arrangement as defined by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." (C) 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 for the year ended December 31, 2002 excluded the impact of warrants and stock options as their effect would have been anti-dilutive. For the period ended March 31, 2003 the dilutive effect of the outstanding warrants and vested stock options would have decreased Basic EPS by $0.01 per share, as such the dilutive effect is deemed to be immaterial and not separately disclosed. (3) REVOLVING CREDIT OUTSTANDING Federated Premium's operations are funded by a revolving loan agreement ("Revolving Agreement") with FlatIron Funding Company LLC ("FlatIron"). The Revolving Agreement is structured as a sale of contracts receivable under a sale and assignment agreement with FPF, Inc. (a wholly-owned subsidiary of FlatIron), which gives FPF, Inc. the right to sell or assign these contracts receivable. Federated Premium, which services these contracts, has recorded transactions under the Revolving Agreement as secured borrowings. The Revolving Agreement, which was amended and revised in September 2001, allowed for a maximum credit commitment of $7.0 million plus an initial additional amount of $700,000 for the transition from September 30, 2001 when the previous agreement expired. The line declined by $100,000 each month beginning November 1, 2001. In September 2002 the line was amended and revised allowing for a maximum credit commitment of $4.0 million. The decline in the required credit commitment is due primarily to Federated National and American Vehicle's newly developed direct bill program. Direct billing is where the insurance company accepts from the insured, as a receivable, a promise to pay the premium, as opposed to requiring the full amount of 7 21ST CENTURY HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) REVOLVING CREDIT OUTSTANDING - (CONTINUED) the policy, either directly from the insured or from a premium finance company. The amount of FPF's 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 is the prime rate plus additional interest varying from 1.25% to 3.25% based on the prior month's ratio of contracts receivable related to insurance companies with an A. M. Best rating of B or worse to total contracts receivable. The Revolving Agreement contains various operating and financial covenants, with which the Company was in compliance at March 31, 2003 and December 31, 2002. The Revolving Agreement, as amended, expires September 30, 2004. Outstanding borrowings under the Revolving Agreement as of March 31, 2003 and December 31, 2002 were approximately $4.1 million and $4.3 million, respectively. Outstanding borrowings in excess of the $4.0 million commitment totaled $122,645 and $312,420 for March 31, 2003 and December 31, 2002, respectively and are permissible by reason of a compensating cash balance held for the benefit of FPF, Inc. Interest expense on this revolving credit line for the first quarter of 2003 and the year ended December 31, 2002 totaled approximately $55,000 and $342,000, respectively. (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 is vigorously defending such action. The Court recently denied the Company's Motion to Dismiss the plaintiff's First Amended Complaint and the Company filed an Answer and Affirmative Defenses. Prior to its acquisition by the Company in 2001, American Vehicle was involved in litigation with a former officer and director. The litigation was adjudicated and American Vehicle, among others, was found liable and paid the final judgment. A petition was filed seeking costs of $136,000 and appellate attorneys fees in excess of $2.0 million for fees, American Vehicle's previous owners have agreed to indemnify the Company against any such fees and costs and, the $500,000 purchase price for American Vehicle is held in escrow pending settlement of the fees and costs issued. On February 26, 2003, the 11th Judicial Circuit in Miami, Florida entered an amended final judgment awarding the plaintiffs $1,140,387 in attorney fees and costs. Both parties are appealing this judgment. Management anticipates that there will be no material effect associated with the settlement of this case, consequently, no liability for fees and costs have been accrued. (5) COMPREHENSIVE INCOME For the three months ended March 31, 2003 and 2002, comprehensive income consisted of the following: 2003 2002 ---------- ---------- Net income $2,308,401 $ 991,370 Change in net unrealized gain (losses) on investments held for sale, net of income taxes 376,150 (543,926) ---------- ---------- Comprehensive income $2,684,551 $ 447,444 ========== ========== (6) SEGMENT INFORMATION The Company and its subsidiaries operate principally in two business segments consisting of insurance and financing. The insurance segment consists of underwriting through Federated National and American Vehicle, managing general agent operations through Assurance MGA, claims processing through Superior, and marketing and distribution through Federated Agency Group. The insurance segment sells personal automobile and homeowner insurance and includes substantially all aspects of the insurance, distribution and claims process. The financing segment consists of premium financing through Federated Premium. The financing segment provides premium financing to both Federated National's, American Vehicle's insureds and to a lesser extent third-party insureds. The insurance segment marketed through the Company's distribution network of Company-owned agencies and franchised agents. 8 21ST CENTURY HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) SEGMENT INFORMATION - (CONTINUED) The accounting policies of the segments are the same as those described in the summary of significant accounting policies and practices. The Company evaluates its business segments based on GAAP pretax operating earnings. Corporate overhead expenses are allocated to business segments. Transactions between reportable segments are accounted for at fair value. Operating segments that are not individually reportable are included in the "All Other" category, which includes the operations of 21st Century Holding Company, franchise operations and income tax return preparation. Information regarding components of operations for the three-month period ending March 31, 2003 and 2002 follows:
2003 2002 ------------ ------------ TOTAL REVENUE Insurance segment $ 15,449,365 $ 8,187,365 Financing segment 679,814 1,000,764 All other 1,184,760 1,213,452 ------------ ------------ Total operating segments 17,313,939 10,401,581 Intercompany eliminations (2,451,929) (894,581) ------------ ------------ Total revenues $ 14,862,010 $ 9,507,000 ============ ============ EARNINGS BEFORE INCOME TAXES Insurance segment $ 3,121,270 $ 401,414 Financing segment 198,673 159,234 All other 286,926 983,588 ------------ ------------ Total Earnings before Income Taxes $ 3,606,869 $ 1,544,236 ============ ============
Information regarding total assets as of March 31, 2003 and December 31, 2002 follows:
2003 2002 ------------ ------------ TOTAL ASSETS Insurance segment $ 73,491,480 $ 66,663,775 Finance segment 6,955,089 7,548,841 All other 2,816,451 3,003,827 ------------ ------------ Total Operating Segments 83,263,020 77,216,443 Intercompany eliminations (1,950,794) (1,898,432) ------------ ------------ Total Assets $ 81,312,226 $ 75,318,011 ============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION FORWARD-LOOKING STATEMENTS Statements in this report or in documents that are incorporated by reference that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "intend", "could", "would", "estimate", or "continue" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. The risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions and projections generally; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; ability to obtain regulatory approval for requested rate changes and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against the Company; risks related to the nature of the Company's business; dependence on investment income and the composition of the Company's investment portfolio; the adequacy of its liability for loss and loss adjustment expense ("LAE"); insurance agents; claims experience; limited experience in the insurance industry; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in driving patterns and loss trends; acts of war and terrorist activities; courts decisions and trends in litigation and health care and auto repair costs; and other matters described from time to time by the Company in this report, and other filings with the SEC. You are cautioned not to place reliance on these forward-looking statements, which are valid only as of the date they were made. The Company undertakes no obligation to update or revise any forward-looking statements to reflect new 9 FORWARD-LOOKING STATEMENTS - (CONTINUED) information or the occurrence of unanticipated events or otherwise. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore appear to be volatile in certain accounting periods. OVERVIEW The Company is a vertically integrated insurance holding company, which, through its subsidiaries, controls substantially all aspects of the insurance underwriting, distribution and the claims process. The Company underwrites personal automobile insurance, homeowners insurance and mobile home property and casualty insurance in the State of Florida through its wholly-owned subsidiaries, Federated National Insurance Company ("Federated National") and American Vehicle Insurance Company ("American Vehicle"). The Company internally processes claims made by its own and third party insureds 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"). The Company markets and distributes its own and third-party insurers' products and its other services primarily in Central and South Florida, through a network of 24 agencies, owned by Federated Agency Group, Inc. ("Federated Agency Group"), a wholly-owned subsidiary, 40 franchised agencies and approximately 125 independent agents. The Company, through its wholly-owned subsidiary, FedUSA, Inc. ("FedUSA"), franchises agencies under the FedUSA name. As of March 31, 2003, franchises were granted for 40 FedUSA agencies, of which 34 were operating. The Company intends to focus its future expansion efforts for its agency network on franchised agencies. The Company offers income tax preparation software and service through Express Tax Service, Inc. ("Express Tax"), an 80% owned subsidiary, as well as franchise opportunities for these services through EXPRESSTAX Franchise Corporation ("EXPRESSTAX"), a wholly-owned subsidiary of Express Tax. As of March 31, 2003 there were 138 EXPRESSTAX franchises granted. The Company believes that it can be distinguished from its competitors because it generates revenue from substantially all aspects of the insurance underwriting, distribution and claims process. The Company provides quality service to both its agents and insureds by utilizing an integrated computer system, which links the Company's insurance and service entities. The Company's computer and software systems allow for automated premium quotation, policy issuance, billing, payment and claims processing and enables the Company to continuously monitor substantially all aspects of its business. Using these systems, the Company's agents can access a customer's driving record, quote a premium, offer premium financing and, if requested, generate a policy on-site. The Company believes that these systems have facilitated its ability to market and underwrite insurance products on a cost-efficient basis, allow Company-owned and franchised agencies to be a "one stop" shop for insurance, tax preparation and other services, and will enhance the Company's ability to expand in Florida and to other states. The Company's primary products are standard and nonstandard personal automobile insurance. The former is principally provided to insureds who present an average risk profile in terms of payment history, driving record, vehicle type and other factors. The latter is principally provided to insureds who are unable to obtain preferred or standard insurance coverage because of their payment history, driving record, age, vehicle type or other factors, including market conditions for preferred or standard risks. Underwriting standards for standard insurance coverage have become more restrictive, thereby requiring more drivers to seek coverage in the nonstandard automobile insurance market. These factors have contributed to an increase in the size of the nonstandard personal automobile insurance market. The Company currently underwrites and sells insurance only in Florida; however, the Company intends to expand to other selected states and American Vehicle has applied to obtain a license to underwrite and sell personal automobile insurance in South Carolina and Louisiana. The Company will select additional states for expansion based on a number of criteria, including the size of the personal automobile insurance market, statewide loss results, competition and the regulatory climate. The Company's ability to expand into other states will be subject to the prior regulatory approval of each state. Certain states impose operating requirements upon licensee applicants, which may impose burdens on the Company's ability to obtain a license to conduct insurance business in those other states. There can be no assurance that the Company will be able to obtain the required licenses, and the failure to do so would limit the Company's ability to expand geographically. The Company's executive offices are located at 4161 N.W. 5th Street, Plantation, Florida and its telephone number is (954) 581-9993. 10 ANALYSIS OF FINANCIAL CONDITION AS OF MARCH 31, 2003 AS COMPARED TO DECEMBER 31, 2002 INVESTMENTS. Investments increased $1.5 million, or 5.7%, to $26.8 million as of March 31, 2003 as compared to $25.4 million as of December 31, 2002. This increase in investments is the result of an increase in premiums written discussed below. FINANCE CONTRACTS. Finance contracts decreased $505,000, or 0.07%, to $6.7 million as of March 31, 2003 from $7.2 million as of December 31, 2002. The decline in contracts receivable is due to the direct-bill feature offered by the insurance companies wherein the policyholder can renew and pay premiums directly to the Federated National and American Vehicle. PREPAID REINSURANCE PREMIUMS. Prepaid reinsurance premiums decreased $1.4 million, or 12.2%, to $9.9 million as of March 31, 2003 from $11.3 million as of December 31, 2002 The decrease is the result a decrease in Federated National's ceded quota-share reinsurance on automobile insurance from 40% of premiums written in 2002 to 30% for premiums written in 2003. American Vehicle also reduced its ceded quota-share reinsurance from 70% of its premiums written to 40% effective November 1, 2002. REINSURANCE RECOVERABLE. Reinsurance recoverable increased $3.3 million to $11.1 million as of March 31, 2003 from $7.9 million as of December 31, 2002. This increase is the result of the timing of settlements between the Company and its reinsurer. All amounts are considered current. DEFERRED ACQUISITION COSTS, NET. Deferred acquisition costs increased from $7,721 as of December 31, 2002 to $433,487 as of March 31, 2003. Included in the December 31, 2002 balance were deferred commissions of $3.0 million offset by unearned ceded commissions of $3.0 million. As of March 31, 2003, deferred commissions were $74,000 offset by unearned ceded commissions of $500,000. Deferred commissions increased due to the increase in premiums. The increase in unearned ceded commissions is related to the decline of Federated National's and American Vehicle's 2003 reinsurance cession treaties. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES. Unpaid loss and loss adjustment expenses increased $4.6 million from $17.0 million as of December 31, 2002 to $21.6 as of March 31, 2003. The increase is due to first quarter loss reserve strengthening and to the timing of claim payments issued. PREMIUM DEPOSITS. Premium deposits represent premiums collected in advance of the policy's effective date of coverage and are generally associated with the Home and Mobile Home insurance policies. Premium deposits increased from $656,000 as of December 31, 2002 to $1.1 million as of March 31, 2003. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 GROSS PREMIUMS WRITTEN. Gross premiums written increased $3.5 million, or 27%, to $16.6 million for the three months ended March 31, 2003 as compared to $13.1 million for the comparable period in 2002. $1.4 million of this increase is attributable to American Vehicle which was acquired in August 2001. Federated National's automobile premiums written also increased by $1.4 million and its homeowner premiums written increased by $681,000 as compared to March 31, 2002. GROSS PREMIUMS CEDED. Gross premiums ceded decreased $1.5 million to $4.4 million for the three months ended March 31, 2003, from $5.9 million for the three months ended March 31, 2002. The decrease is primarily due to the decline in the Company's ceded quota-share reinsurance on automobile insurance. DECREASED UNEARNED PREMIUMS, NET OF PREPAID REINSURANCE PREMIUMS. The decrease in unearned premiums, net of prepaid reinsurance premiums was $1.7 million for the three months ended March 31, 2002 as compared to a decrease of $1.7 million for the three months ended March 31, 2003 as well. The decline is a function of the increase in written premiums and declining ceded reinsurance quota-share percentages. MGA FEES. MGA fees decreased $326,000 to $633,000 for the three-month period ended March 31, 2003 from $959,000 for the same period in 2002. The decrease is due to commissions earned from a nonaffiliated insurance company during the first quarter of 2002. NET REALIZED INVESTMENT GAINS. The Company experienced net realized gains of $351,000 for the three-month period ended March 31, 2003 compared to realized gains of $54,000 for the same period in 2002. Realized gains or losses are primarily a function of the bond and equity markets. There can be no assurance that the Company will record gains in the future. LOSSES AND LAE. The Company's loss ratio, as determined in accordance with GAAP, for the three-month period ended March 31, 2003 was 64.9% compared with 58.6% for the same period in 2002. Losses and LAE incurred increased $3.6 million to 11 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 - (CONTINUED) $6.8 million for the three-month period ended March 31, 2003 from $3.2 million for the same period in 2002. 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 attributes the 113% increase to reserve strengthening. Loss ratios by company by major line are as follows:
March 31, 2003 March 31, 2002 -------------- -------------- Federated National Automobile 83.5% 79.2% Federated National Home and Mobile home Owners 16.8% 25.1% American Vehicle Automobile 76.8% 77.9%
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS. Amortization of deferred policy acquisition costs increased from a credit of $70,000 for the three-month period ended March 31, 2002 to a credit of $360,000 for the same period in 2003. Amortization of deferred policy acquisition costs consists primarily of net commissions. The increase is due to an increase in commissions earned on reinsurance ceded. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of capital are revenues generated from operations, investment income and borrowings under the Revolving Agreement, described below. Because the Company is a holding company, it is largely dependent upon dividends and fees from its subsidiaries for cash flow. Federated Premium's operations are funded by a revolving loan agreement ("Revolving Agreement") with FlatIron Funding Company LLC ("FlatIron"). The Revolving Agreement is structured as a sale of contracts receivable under a sale and assignment agreement with FPF, Inc. (a wholly-owned subsidiary of FlatIron), which gives FPF, Inc. the right to sell or assign these contracts receivable. Federated Premium, which services these contracts, has recorded transactions under the Revolving Agreement as secured borrowings. The Revolving Agreement, which was amended and revised in September 2001, allowed for a maximum credit commitment of $7.0 million plus an initial additional amount of $700,000 for the transition from September 30, 2001 when the previous agreement expired. The line declined by $100,000 each month beginning November 1, 2001. In September 2002 the line was amended and revised allowing for a maximum credit commitment of $4.0 million. The decline in the required credit commitment is due primarily to Federated National and American Vehicle's newly developed direct bill program. Direct billing is where the insurance company accepts from the insured, as a receivable, a promise to pay the premium, as opposed to requiring the full amount of the policy, either directly from the insured or from a premium finance company. The amount of FPF's 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 is the prime rate plus additional interest varying from 1.25% to 3.25% based on the prior month's ratio of contracts receivable related to insurance companies with an A. M. Best rating of B or worse to total contracts receivable. The Revolving Agreement contains various operating and financial covenants, with which the Company was in compliance at March 31, 2003 and December 31, 2002. The Revolving Agreement, as amended, expires September 30, 2004. Outstanding borrowings under the Revolving Agreement as of March 31, 2003 and December 31, 2002 were approximately $4.1 million and $4.3 million, respectively. Outstanding borrowings in excess of the $4.0 million commitment totaled $122,645 and $312,420 for March 31, 2003 and December 31, 2002, respectively and are permissible by reason of a compensating cash balance held for the benefit of FPF, Inc. Interest expense on this revolving credit line for the first quarter of 2003 and the year ended December 31, 2002 totaled approximately $55,000 and $342,000, respectively. For the three months ended March 31, 2003, operations generated operating cash flow of $3.8 million, which was primarily attributable to the increase in premiums written. Operating cash flow is currently expected to be positive in both the short-term and the reasonably foreseeable future. In addition, the Company's investment portfolio is highly liquid as it consists almost entirely of readily marketable securities. Cash flow used in net investing activities was $258,000 for the quarter ended March 31, 2003 as the Company invested the cash flow from operating activities. In the future, the Company expects a continued cash flow deficit from investing activities as the Company invests cash from operations. Cash deficit from financing activities was $438,000 for the quarter ended March 31, 2003, as the Company reduced its bank overdraft and the amount outstanding under its Revolving Agreement as well as dividends paid. The Company believes that its current capital resources, together with cash flow from its operations, will be sufficient to meet its currently anticipated working capital requirements. There can be no assurances, however, that such will be the case. To retain its certificate of authority, Florida insurance laws and regulations require that Federated National and American Vehicle maintain capital surplus equal to the greater of 10% of its liabilities or the 2002 statutory minimum capital and surplus requirement of $3.25 million as defined in the Florida Insurance Code. The insurance companies are also required to adhere to prescribed premium-to-capital surplus ratios. 12 LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED) Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its shareholders except out of that part of its available and accumulated capital surplus funds which is derived from realized net operating profits on its business and net realized capital gains. A Florida domestic insurer may not make dividend payments or distributions to shareholders without prior approval of the Florida Department of Financial Services if the dividend or distribution would exceed the larger of (i) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two-year carryforward, (ii) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (iii) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25.0% of unrealized capital gains. Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida Department of Financial Services (i) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer's capital surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer's entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (ii) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (iii) the insurer files a notice of the dividend or distribution with the Florida Department of Financial Services at least ten business days prior to the dividend payment or distribution and (iv) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (i) subject to prior approval by the Florida Department of Financial Services or (ii) 30 days after the Florida Department of Financial Services has received notice of such dividend or distribution and has not disapproved it within such time. Under these laws, Federated National would be permitted to pay dividends of approximately $142,000 to the Company in 2003, and American Vehicle would be permitted to pay $9,000 in dividends in 2003. Although the Company believes that amounts required for it to meet its financial and operating obligations will be available from sources other than dividends from insurance subsidiaries, there can be no assurance in this regard. Further, there can be no assurance that, if requested, the Florida Department of Financial Services will allow any dividends in excess of the amount available, to be paid by Federated National to the Company in the future. No dividends were paid by Federated National or American Vehicle in 2002, 2001 or 2000, and none are anticipated in 2003. The maximum dividends permitted by state law are not necessarily indicative of an insurer's actual ability to pay dividends or other distributions to a parent company, which also may be constrained by business and regulatory considerations, such as the impact of dividends on capital surplus, which could affect an insurer's competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, state insurance laws and regulations require that the statutory capital surplus of an insurance company following any dividend or distribution by it be reasonable in relation to its outstanding liabilities and adequate for its financial needs. Insurance companies are required to comply with the risk-based capital requirements of the 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 March 31, 2003, 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 Financial Services. Federated National's and American Vehicle's statutory capital surplus levels as of March 31, 2003 were approximately $9.8 million and $5.2 million, respectively, and their statutory net income for the quarter ended March 31, 2003 was $511,000 and $293,000, respectively. During 2002 Federated National entered into a 10% quota-share agreement with its affiliate American Vehicle. The agreement ceded 10% of its premium and losses on all policies with an effective date of 2002. For presentation purposes and in accordance with the principles of consolidation the agreement between the two affiliated insurance companies has been eliminated. 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 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. 13 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Information related to quantitative and qualitative disclosures about market risk was included under Item 7a, "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K as of December 31, 2002. No material changes have occurred in market risk since this information was disclosed except as discussed below. The Company's investment portfolio is available for sale and is carried at fair value. Gains, that represent securities with a fair value in excess of amortized cost, and losses (amortized cost is in excess of fair value) that are deemed temporary by management are recorded in shareholders' equity in accumulated other comprehensive income. Losses that are deemed other than temporary by management are recorded as net realized losses in the consolidated statement of operations. A summary of the investment portfolio as of March 31, 2003 follows:
Amortized Cost Fair Value Gain (Loss) ------------ ----------- ------------ Corporate Securities Communications Industry $ 2,602,080 $ 2,782,225 $ 180,145 Financial Industry 4,354,347 4,379,431 25,084 Other Industries 4,258,484 4,323,758 65,274 ----------- ----------- ----------- Total Corporate Securities 11,214,911 11,485,414 270,503 Obligations of State and Municipal Subdivisions 13,485,242 13,589,451 104,209 U. S. Government and Government Agencies 103,488 104,094 606 ----------- ----------- ----------- Total Fixed Maturities $24,803,641 $25,178,959 $ 375,318 =========== =========== =========== Equity Securities - Common Stocks $ 1,599,737 $ 1,508,939 $ (90,798) =========== =========== ===========
As shown in the table above, at March 31, 2003 the Company had investments with a fair value of $2.7 million and amortized cost of $2.6 million in the communications industry. At the time these investments were made, the Company believed that these were prudent and would enhance the yield on the investment portfolio. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. TCHC's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in Sections 13a-14c of the Securities Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were effective and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities to allow timely decisions regarding required disclosures. CHANGES IN INTERNAL CONTROLS. TCHC does not believe that there are significant deficiencies in the design or operation of its internal controls that could adversely affect its ability to record, process, summarize and report financial data. However, management continually evaluates and enhances TCHC's internal control structure and, in response to the current focus on corporate governance, has undertaken a review and documentation of its internal control systems. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date. PART II. OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K Form 8-K filed on May 5, 2003, attached and incorporated by reference Exhibit 99.1, Press release of TCHC, dated May 5, 2003, reporting financial results for the first quarter of 2003. 15 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 By: /s/ Edward J. Lawson ----------------------------------------- Edward J. Lawson, Chairman of the Board, President and Chief Executive Officer /s/ James G. Jennings III ---------------------------------------------- James G. Jennings III, Chief Financial Officer Date: May 14, 2003 16 CERTIFICATIONS I, Edward J. Lawson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of 21st Century Holding Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003. /s/ Edward J. Lawson - -------------------------- Chief Executive Officer 17 CERTIFICATIONS - (CONTINUED) I, James G. Jennings III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of 21st Century Holding Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003. /s/ J. G. Jennings, III - -------------------------- Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----