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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2004 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-3978
UNICO AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 95-2583928
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
23251 Mulholland Drive, Woodland Hills, California 91364
(Address of Principal Executive Offices) (Zip Code)
(818) 591-9800
(Registrant's telephone number, Including Area Code)
No Change
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
5,489,815
Number of shares of common stock outstanding as of August 11, 2004
1
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30 December 31
2004 2003
---- ----
ASSETS
- ------
Investments
Available for sale:
Fixed maturities, at market value (amortized cost:
June 30, 2004 $118,157,182; December 31, 2003 $111,325,592) $119,306,496 $114,524,046
Short-term investments, at cost 5,977,443 7,229,315
----------- -----------
Total Investments 125,283,939 121,753,361
Cash 57,084 37,988
Accrued investment income 1,092,908 1,251,126
Premiums and notes receivable, net 8,344,580 8,290,169
Reinsurance recoverable:
Paid losses and loss adjustment expenses 201,161 622,964
Unpaid losses and loss adjustment expenses 20,152,154 19,255,229
Prepaid reinsurance premiums 60,615 81,872
Deferred policy acquisition costs 8,111,993 8,054,363
Property and equipment (net of accumulated depreciation) 323,246 323,090
Deferred income taxes 1,361,799 975,701
Other assets 303,106 847,832
----------- -----------
Total Assets $165,292,585 $161,493,695
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
- -----------
Unpaid losses and loss adjustment expenses $81,700,671 $78,139,090
Unearned premiums 34,952,379 34,675,180
Advance premium and premium deposits 1,098,711 1,118,618
Income taxes payable 412,053 614,662
Notes payable-related parties 1,500,000 1,500,000
Accrued expenses and other liabilities 6,018,959 6,975,288
----------- -----------
Total Liabilities $125,682,773 $123,022,838
----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, no par - authorized 10,000,000 shares; issued and outstanding
shares 5,489,815 at June 30, 2004, and 5,489,815 at December 31, 2003 $2,700,272 $2,700,272
Accumulated other comprehensive income 758,547 2,110,979
Retained earnings 36,150,993 33,659,606
---------- ----------
Total Stockholders' Equity $39,609,812 $38,470,857
---------- ----------
Total Liabilities and Stockholders' Equity $165,292,585 $161,493,695
=========== ===========
See notes to unaudited consolidated financial statements.
2
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2004 2003 2004 2003
---- ---- ---- ----
REVENUES
- --------
Insurance Company Revenues
Premium earned $16,839,035 $12,648,631 $33,313,993 $24,073,551
Premium ceded 4,511,488 3,915,105 8,400,127 7,379,201
---------- --------- ---------- ----------
Net premium earned 12,327,547 8,733,526 24,913,866 16,694,350
Net investment income 1,023,076 1,213,867 2,114,667 2,480,785
Other income 18,897 23,926 49,188 42,696
---------- --------- ---------- ----------
Total Insurance Company Revenues 13,369,520 9,971,319 27,077,721 19,217,831
Other Revenues from Insurance Operations
Gross commissions and fees 1,629,153 2,069,423 3,339,750 4,006,932
Investment income 8,576 13,077 18,403 26,162
Finance charges and fees earned 234,773 230,829 481,738 451,007
Other income 1,392 7,368 5,993 6,675
---------- ---------- ---------- ----------
Total Revenues 15,243,414 12,292,016 30,923,605 23,708,607
---------- ---------- ---------- ----------
EXPENSES
- --------
Losses and loss adjustment expenses 8,651,801 6,995,682 17,608,788 13,675,845
Policy acquisition costs 2,644,762 1,870,052 5,123,172 3,653,943
Salaries and employee benefits 1,097,345 1,286,275 2,313,464 2,479,685
Commissions to agents/brokers 231,173 382,315 502,296 784,893
Other operating expenses 672,921 886,095 1,462,029 1,882,564
---------- ---------- ---------- ----------
Total Expenses 13,298,002 11,420,419 27,009,749 22,476,930
---------- ---------- ---------- ----------
Income Before Taxes 1,945,412 871,597 3,913,856 1,231,677
Income Tax Provision 712,022 310,321 1,422,469 437,318
--------- ------- --------- -------
Net Income $1,233,390 $561,276 $2,491,387 $794,359
========= ======= ========= =======
PER SHARE DATA
- --------------
Basic Shares Outstanding 5,489,815 5,489,533 5,489,815 5,489,533
Basic Earnings Per Share $0.22 $0.10 $0.45 $0.14
Diluted Shares Outstanding 5,572,944 5,526,420 5,575,315 5,516,691
Diluted Earnings Per Share $0.22 $0.10 $0.45 $0.14
See notes to unaudited consolidated financial statements.
3
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2004 2003 2004 2003
---- ---- ---- ----
Net Income $1,233,390 $561,276 $2,491,387 $794,359
Other changes in comprehensive income, net of tax:
Unrealized gains (losses) on securities classified
as available-for-sale arising during the period (1,493,684) 130,254 (1,352,432) 105,684
--------- ------- --------- -------
Comprehensive Income (Loss) $(260,294) $691,530 $1,138,955 $900,043
======= ======= ========= =======
See notes to unaudited consolidated financial statements.
4
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30
2004 2003
---- ----
Cash Flows from Operating Activities:
Net Income $2,491,387 $794,359
Adjustments to reconcile net income to net cash from operations
Depreciation 47,521 44,590
Bond amortization, net 158,291 155,941
Changes in assets and liabilities
Premium, notes and investment income receivable 103,807 (1,414,861)
Reinsurance recoverable (475,122) 5,454,628
Prepaid reinsurance premiums 21,257 45,615
Deferred policy acquisition costs (57,630) (814,443)
Other assets 544,726 667,394
Reserve for unpaid losses and loss adjustment expenses 3,561,581 (1,183,230)
Unearned premium reserve 277,199 4,112,222
Funds held as security and advanced premiums (19,907) (129,104)
Accrued expenses and other liabilities (956,329) (2,194,116)
Income taxes current/deferred 108,000 (357,561)
Federal income tax recoverable - 609,817
--------- ---------
Net Cash Provided from Operations 5,804,781 5,791,251
--------- ---------
Investing Activities
Purchase of fixed maturity investments (31,481,030) (15,134,149)
Proceeds from maturity of fixed maturity investments 24,490,000 17,140,000
Net (increase) decrease in short-term investments 1,253,022 (6,980,749)
Additions to property and equipment (47,677) (24,636)
--------- ---------
Net Cash (Used) by Investing Activities (5,785,685) (4,999,534)
--------- ---------
Financing Activities
Repayment of notes payable - related parties - (750,000)
-------
Net Cash (Used) by Financing Activities - (750,000)
-------
Net increase in cash 19,096 41,717
Cash at beginning of period 37,988 19,766
------ ------
Cash at End of Period $57,084 $61,483
====== ======
Supplemental Cash Flow Information Cash paid during the period for:
Interest $42,452 $24,055
Income taxes $1,370,000 $185,060
See notes to unaudited consolidated financial statements.
5
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business
- ------------------
Unico American Corporation is an insurance holding company that underwrites
property and casualty insurance through its insurance company subsidiary;
provides property, casualty, health and life insurance through its agency
subsidiaries; and through its other subsidiaries provides claim administration
services (through December 31, 2003), insurance premium financing, and
membership association services. Unico American Corporation is referred to
herein as the "Company" or "Unico" and such references include both the
corporation and its subsidiaries, all of which are wholly owned, unless
otherwise indicated. Unico was incorporated under the laws of Nevada in 1969.
Principles of Consolidation
- ---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Unico American Corporation and its subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America (GAAP) for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 2004,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. Quarterly financial statements should be read in
conjunction with the consolidated financial statements and related notes in the
Company's 2003 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
NOTE 2 - OMNIBUS STOCK PLAN
- ---------------------------
The Company's 1999 Omnibus Stock Plan covers 500,000 shares of the Company's
common stock (subject to adjustment in the case of stock splits, reverse stock
splits, stock dividends, etc.). Shareholders approved the plan on June 4, 1999.
On August 26, 1999, the Company granted 135,000 incentive stock options of which
40,000 were terminated, 95,000 were outstanding, and 95,000 were exercisable as
of March 31, 2004. On December 18, 2002, the Company granted an additional
182,000 incentive stock options under the Company's 1999 Omnibus Stock Plan. All
of these options were outstanding and 57,000 were exercisable as of June 30,
2004. These options expire 10 years from the date of the grant. Options granted
as of June 30, 2004, are exercisable as follows:
Grant Date Grant Date
Date Exercisable August 26, 1999 December 18, 2002 Total
- ---------------- --------------- ----------------- -----
Currently Exercisable 95,000 57,000 152,000
January 1, 2005 - 57,500 57,500
January 1, 2006 - 37,500 37,500
January 1, 2007 - 30,000 30,000
------ ------- -------
Total 95,000 182,000 277,000
====== ======= =======
The Company applies Accounting Principles Board Opinion No. 25 (APB No. 25) in
accounting for its incentive stock option plans. Accordingly, no compensation
cost has been recognized in the accompanying statements of operations. Had
compensation cost for the Company's stock-based compensation plan been reflected
in the accompanying consolidated financial statements based on the fair value at
the grant dates for option awards consistent with the method of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), the Company's net income
would have been reduced to the pro forma amounts indicated in the following
table:
6
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 2 - OMNIBUS STOCK PLAN (continued)
- --------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2004 2003 2004 2003
---- ---- ---- ----
Net Income
As reported $1,233,390 $561,276 $2,491,387 $794,359
Pro forma $1,221,994 $548,366 $2,468,594 $768,539
Income Per Share
As reported $0.22 $0.10 $0.45 $0.14
Pro forma $0.22 $0.10 $0.45 $0.14
Income Per Share - Assuming Dilution:
As reported $0.22 $0.10 $0.45 $0.14
Pro forma $0.22 $0.10 $0.45 $0.14
Calculations of the fair value under the method prescribed by SFAS No. 123 were
made using the Black-Scholes Option-Price Model with the following weighted
average assumptions used for the 1999 and 2002 grants:
2002 1999
Grant Grant
----- -----
Dividend yield 1.40% 2.46%
Expected volatility 34% 43%
Expected lives 10 Years 10 Years
Risk-free interest rates 4.05% 6.09%
Fair value of options granted $1.32 $4.30
NOTE 3 - REPURCHASE OF COMMON STOCK - EFFECT ON STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------
The Company has previously announced that its Board of Directors had authorized
the repurchase in the open market from time to time of up to an aggregate of
945,000 shares of the common stock of the Company. During the six months ended
June 30, 2004, the Company did not repurchase any shares of the Company's common
stock. As of June 30, 2004, the Company had purchased and retired under the
Board of Directors' authorization an aggregate of 868,958 shares of its common
stock at a cost of $5,517,465.
NOTE 4 - EARNINGS PER SHARE
- ---------------------------
The following table represents the reconciliation of the numerators and
denominators of the Company's basic earnings per share and diluted earnings per
share computations reported on the Consolidated Statements of Operations for the
three and six months ended June 30, 2004 and 2003:
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2004 2003 2004 2003
---- ---- ---- ----
Basic Earnings Per Share
- ------------------------
Net income numerator $1,233,390 $561,276 $2,491,387 $794,359
========= ======= ========= =======
Weighted average shares outstanding denominator 5,489,815 5,489,533 5,489,815 5,489,533
========= ========= ========= =========
Basic Earnings Per Share $0.22 $0.10 $0.45 $0.14
7
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
NOTE 4 - EARNINGS PER SHARE (continued)
- ---------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------ -------
2004 2003 2004 2003
---- ---- ---- ----
Diluted Earnings Per Share
Net income numerator $1,233,390 $561,276 $2,491,387 $794,359
========= ======= ========= =======
Weighted average shares outstanding 5,489,815 5,489,533 5,489,815 5,489,533
Effect of diluted securities 83,129 36,887 85,500 27,158
--------- --------- --------- ---------
Diluted shares outstanding denominator 5,572,944 5,526,420 5,575,315 5,516,691
========= ========= ========= =========
Diluted Earnings Per Share $0.22 $0.10 $0.45 $0.14
NOTE 5 - SEGMENT REPORTING
- --------------------------
Statement of Financial Accounting Standards No. 131 (SFAS No. 131), Disclosures
about Segments of an Enterprise and Related Information, became effective for
fiscal years effective after December 15, 1997. SFAS No. 131 establishes
standards for the way information about operating segments is reported in
financial statements. The Company has adopted SFAS No. 131 and has identified
its insurance company operation, Crusader Insurance Company (Crusader), as its
primary reporting segment. Revenues from this segment comprised 88% of
consolidated revenues for the three and six months ended June 30, 2004, and 81%
of revenues for the three and six months ended June 30, 2003. The Company's
remaining operations constitute a variety of specialty insurance services, each
with unique characteristics and individually insignificant to consolidated
revenues.
Revenues, income before income taxes, and assets by segment are as follows:
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2004 2003 2004 2003
---- ---- ---- ----
Revenues
- --------
Insurance company operation $13,369,520 $9,971,319 $27,077,721 $19,217,831
Other insurance operations 6,661,853 6,750,716 13,066,703 12,212,584
Intersegment elimination (1) (4,787,959) (4,430,019) (9,220,819) (7,721,808)
--------- --------- --------- ---------
Total other insurance operations 1,873,894 2,320,697 3,845,884 4,490,776
--------- --------- --------- ---------
Total Revenues $15,243,414 $12,292,016 $30,923,605 $23,708,607
========== ========== ========== ==========
Income Before Income Taxes
- --------------------------
Insurance company operation $1,019,570 $(464,183) $2,349,628 $(373,497)
Other insurance operations 925,842 1,335,780 1,564,228 1,605,174
--------- --------- --------- ---------
Total Income Before Income Taxes $1,945,412 $871,597 $3,913,856 $1,231,677
========= ======= ========= =========
As of June 30
-------------
2004 2003
---- ----
Assets
- ------
Insurance company operation $144,634,718 $129,582,467
Intersegment eliminations (2) (1,568,714) (2,874,758)
----------- ------------
Total insurance company operation 143,066,004 126,707,709
Other insurance operations 22,226,581 22,734,711
----------- -----------
Total Assets $165,292,585 $149,442,420
=========== ===========
(1) Intersegment revenue eliminations reflect commission paid by Crusader to
Unifax Insurance Systems, Inc., (Unifax) a wholly owned subsidiary of the
Company.
(2) Intersegment asset eliminations reflect the elimination of Crusader
receivables and Unifax payables.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
- --------
General
- -------
Unico American Corporation is an insurance holding company that underwrites
property and casualty insurance through its insurance company subsidiary;
provides property, casualty, health and life insurance through its agency
subsidiaries; and through its other subsidiaries provides insurance premium
financing, and membership association services.
The Company had a net income of $1,233,390 for the three months ending June 30,
2004, compared to net income of $561,276 for the three months ended June 30,
2003, an increase in net income of $672,114 (120%). For the six months ended
June 30, 2004, the Company had a net income of $2,491,387 compared to a net
income of $794,359 for the six months ended June 30, 2003, an increase in net
income of $1,697,028 (214%).
This overview discusses some of the relevant factors that management considers
in evaluating the Company's performance, prospects and risks. It is not
all-inclusive and is meant to be read in conjunction with the entirety of the
management's discussion and analysis, the Company's financial statements and
notes thereto and all other items contained within the report on this Form 10-Q.
Revenue and Income Generation
- -----------------------------
The Company receives its revenue primarily from earned premium derived from the
insurance company operations, commission and fee income generated from the
insurance agency operations, finance charges and fee income from the premium
finance operations, and investment income from cash generated primarily from the
insurance operation. The insurance company operation generated approximately 88%
of the Company's total revenue for both the three and six months ended June 30,
2004. The Company's remaining operations constitute a variety of specialty
insurance services, each with unique characteristics and individually not
material to consolidated revenues.
Insurance Company Operation
- ---------------------------
The property and casualty insurance industry is highly competitive and includes
many insurers, ranging from large companies offering a wide variety of products
worldwide to smaller, specialized companies in a single state or region offering
only a single product. Many of the Company's existing or potential competitors
have considerably greater financial and other resources, have a higher rating
assigned by independent rating organizations such as A.M. Best Company, have
greater experience in the insurance industry and offer a broader line of
insurance products than the Company. Currently, Crusader is writing primarily
Commercial Multiple Peril business only in the state of California and is rated
B+ (Very Good) by A.M. Best Company.
The primary challenge of the property and casualty insurance company operation
is the fact that the Company sells its products before the ultimate costs are
actually known. When pricing its products, the Company projects the ultimate
claim and loss adjustment cost that it anticipates will be incurred after the
policy is sold. In addition, factors such as changes in, among other things,
regulations, changes in the legal environment, and inflation can all impact the
ultimate cost.
The insurance Company's current year's premiums reflect only premiums written in
the state of California, as the Company discontinued writing insurance premiums
outside of California in 2003. Primarily as a result of losses from liquor and
premise liability coverages, much of the Company's business outside of
California has not been profitable. In 2002 the Company began placing
moratoriums on non-California business on a state-by-state basis. By July 2003,
the Company had placed moratoriums on all non-California business. In the six
months ended June 30, 2004, all written premium had been produced in California.
The Company has no short-term plan to expand into additional states or to expand
its marketing channels. Instead, the Company intends to allocate its resources
toward improving its California business rates, rules, and forms.
As a result of the current market conditions and rate increases on some of the
Company's products, written premiums have increased $1,215,066 (7%) to
$17,441,142 for the three months and $5,405,420 (19%) to $33,591,193 for the six
months ended June 30, 2004, when compared to written premiums for the three and
six months ended June 30, 2003. The Company cannot determine how long the
existing market conditions will continue, nor in which direction they might
change. The Company's future writings and growth are dependent on, among other
things, market conditions, competition, and the Company's ability to introduce
new and profitable products.
9
Over the past few years, the insurance industry has seen some difficult times as
a result of September 11, industry-wide underwriting losses, decreases in
investment yield, and increases in reinsurance cost that have all contributed to
the change from a "soft market" to a "hard market. The Company believes that a
"hard market" cycle currently exists in the insurance marketplace. The Company
has experienced beneficial market changes in its primary line of business and is
benefiting from the fact that some of its competitors have gone out of business
and others have raised rates or adopted more restrictive rules. Although the
Company has increased its rates and adopted more restrictive underwriting
guidelines, the beneficial market changes have contributed to a 19% increase in
direct written premiums in the six months ended June 30, 2004, compared to the
six months ended June 30, 2003. The Company cannot determine how long the
existing market conditions will continue, nor in which direction they might
change. The Company's future writings and growth are dependent on, among other
things, market conditions, competition, and the Company's ability to introduce
new and profitable products. The Company believes that rate adequacy is more
important than premium growth, and underwriting profit is the Company's primary
goal. Management's assessment of trends and underwriting results is a primary
factor in its decisions to expand or contract its business.
Other Operations
- ----------------
The Company's other operations generate commissions, fees, and finance charges
from various insurance related products. The events that have the most
significant economic impact on other operations are as follows:
Unifax primarily sells and services insurance policies for Crusader. The
commissions paid by Crusader to Unifax are eliminated as intercompany
transactions and are not reflected in the financial statements. As a result of
the increase in policies sold by Unifax, policy fee income increased 4% in the
six months ended June 30, 2004, compared to the six months ended June 30, 2003.
American Insurance Brokers, Inc. (AIB), a wholly owned subsidiary of the
Company, sells and services health insurance policies for individual/family and
small business groups primarily for CIGNA HealthCare and receives commission and
fee income based on the premiums that it writes. In April 2003, CIGNA
discontinued its individual and family health insurance program to new
policyholders in the state of California. On November 1, 2003, CIGNA began
terminating approximately 2,200 individual and family policyholders on a runoff
basis. The termination of policyholders will continue through October 1, 2004.
In April 2003, AIB began assisting affected policyholders with the purchase of
new health coverage through other insurance carriers. AIB has secured both
commission and override commission relationships with other carriers including
Health Net, Nationwide (formerly CalFarm), and PacifiCare, and is continuing its
efforts to diversify and offer a wider variety of products to its customers.
Overall, the commissions/overrides from other carriers are generally higher than
the commission structure paid by CIGNA.
Investments and Liquidity
- -------------------------
The Company generates revenue from its investment portfolio, which consisted of
approximately $124.1 million (at amortized cost) at June 30, 2004, compared to
$118.6 million (at amortized cost) at December 31, 2003. Although the portfolio
increased in 2004, investment income for the six months ended June 30, 2004
decreased $0.4 million. The decrease in investment income is primarily the
result of a decline in short and long-term yields in the marketplace and a
shorter weighted average maturity of the portfolio. Due to the interest rate
environment, management believed it was prudent to purchase fixed maturity
investments with shorter maturities with minimal credit risk.
The Company generated positive cash flows from operations of approximately $5.8
million in the six months ended June 30, 2004 and 2003.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Due to the nature of the Company's business (insurance and insurance services)
and whereas Company growth does not normally require material reinvestments of
profits into property or equipment, the cash flow generated from operations
usually results in improved liquidity for the Company.
Crusader generates a significant amount of cash as a result of its holdings of
unearned premium reserves, reserves for loss payments, and its capital and
surplus. Crusader's loss and loss adjustment expense payments are the most
significant cash flow requirement of the Company. These payments are continually
monitored and projected to ensure that the Company has the liquidity to cover
these payments without the need to liquidate its investments. As of June 30,
2004, the Company had cash and investments of $124,191,709 (at amortized cost)
of which $121,858,595 (98%) were investments of Crusader.
10
As of June 30, 2004, the Company had invested $118,157,182 (at amortized cost)
or 95% of its invested assets in fixed maturity obligations. In accordance with
Statement of Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the Company is required to classify
its investments in debt and equity securities into one of three categories:
held-to-maturity, available-for-sale, or trading securities. Although all of the
Company's investments are classified as available-for-sale, the Company's
investment guidelines place primary emphasis on buying and holding high-quality
investments.
The Company's investments in fixed maturity obligations of $118,157,182 (at
amortized cost) include $988,394 (0.8%) of pre-refunded state and municipal
tax-exempt bonds, $59,774,226 (50.6%) of U.S. treasury securities, $11,998,014
(10.2%) of U.S. government agency securities, $44,896,548 (38.0%) of industrial
and miscellaneous securities, and $500,000 (0.4%) of certificates of deposit.
The tax-exempt interest income earned for the three and six months ended June
30, 2004 was $12,430 and $29,517, respectively.
The balance of the Company's investments is in short-term investments that
include, bank money market accounts, certificates of deposit, commercial paper
and a short-term treasury money market fund.
The Company's investment guidelines on equity securities limit investments in
equity securities to an aggregate maximum of $2,000,000. The Company's
investment guidelines on fixed maturities limit fixed maturity investments to
high-grade obligations with a maximum term of eight years. The maximum
investment authorized in any one issuer is $2,000,000 and any one U.S.
government agency is $3,000,000. This dollar limitation excludes bond premiums
paid in excess of par value and U.S. government or U.S. government guaranteed
issues. All investments in municipal securities are pre-refunded and secured by
U.S. treasury securities. The short-term investments are either U.S. government
obligations, FDIC insured, or are in an institution with a Moody's rating of P2
and/or a Standard & Poor's rating of A1. All of the Company's fixed maturity
investment securities are rated and readily marketable and could be liquidated
without any materially adverse financial impact.
The Company has previously announced that its Board of Directors had authorized
the repurchase in the open market from time to time of up to an aggregate of
945,000 shares of the common stock of the Company (see Note 3). No shares were
repurchased by the Company in the six months ended June 30, 2004.
Although material capital expenditures may also be funded through borrowings,
the Company believes that cash to be generated from operations plus cash and
short-term investments as of the date of this report, net of trust restriction
of $310,606, statutory deposits of $600,000, cash of $752,659 deposited with
superior courts in lieu of bonds, and the dividend restriction between Crusader
and Unico, should be sufficient to meet its operating requirements during the
next twelve months without the necessity of borrowing funds.
Results of Operations:
- ---------------------
All comparisons made in this discussion are comparing the three months and six
months ended June 30, 2004, to the three months and six months ended June 30,
2003, unless otherwise indicated.
The Company had a net income of $1,233,390 for the three months ending June 30,
2004, compared to net income of $561,276 for the three months ended June 30,
2003, an increase in net income of $672,114. For the six months ended June 30,
2004, the Company had a net income of $2,491,387 compared to a net income of
$794,359 for the six months ended June 30, 2003, an increase in net income of
$1,697,028. Total revenues increased $2,951,398 (24%) to $15,243,414 for the
three months and $7,214,998 (30%) to $30,923,605 for the six months ended June
30, 2004, when compared to total revenues of $12,292,016 for the three months
and $23,708,607 for the six months ended June 30, 2003.
Premium written, before reinsurance, increased $1,215,066 (7%) to $17,441,142
for the three months and $5,405,420 (19%) to $33,591,193 for the six months
ended June 30, 2004, compared to written premium of $16,226,076 for the three
months and $28,185,773 for the six months ended June 30, 2003. The growth in
written premium in the three and six months ended June 30, 2004 was primarily
the result of higher premium rates charged by the Company which has resulted in
a 16% increase in the average premium per policy for the six months ended June
30, 2004, compared to the six months ended June 30, 2003. The increase in
average gross written premium per policy is a result of several factors
including a subsidence in price based competition in the property casualty
insurance market and an increase in rates for some of the Company's products.
11
The Company's average gross written premium per policy issued is as follows:
Gross
Year to Date Written Policies Average Gross
June 30 Premium Issued Written Premium
------- ------- ------ ---------------
2004 $33,591,193 10,515 $3,195
2003 $28,185,773 10,229 $2,755
The Company primarily writes commercial multiple peril business package policies
in the state of California. This line of business represents approximately 98%
of Crusader's total written premium for the three months and six months ended
June 30, 2004. The Company has no short-term plan to expand into additional
states, or to expand its marketing channels. Instead, the Company intends to
allocate its resources toward improving its California business rates, rules,
and forms.
PREMIUM EARNED before reinsurance increased $4,190,404 (33%) to $16,839,035 for
the three months and $9,240,442 (38%) to $33,313,993 for the six months ended
June 30, 2004, compared to $12,648,631 for the three months and $24,073,551 for
the six months ended June 30, 2003. The Company writes annual policies and,
therefore, earns written premium over the one-year policy term. The increase in
earned premium is a direct result of the related increase in written premium
previously discussed.
PREMIUM CEDED increased $596,383 (15%) to $4,511,488 for the three months ended
and $1,020,926 (14%) to $8,400,127 for the six months ended June 30, 2004,
compared to ceded premium of $3,915,105 in the three months and $7,379,201 for
the six months ended June 30, 2003. Earned premium ceded consists of both
premium ceded under the Company's current reinsurance contracts and premium
ceded to the Company's provisionally rated reinsurance contracts. Premium ceded
under the provisionally rated contract, which was canceled on a runoff basis
effective December 31, 1997, is subject to adjustment based on the amount of
losses ceded, limited by a maximum percentage that can be charged by the
reinsurer. The change in premium ceded between the three and six months ended
June 30, 2004, and June 30, 2003, is as follows:
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
Increase Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---- ---- -------- ---- ---- --------
Direct earned premium $16,839,035 $12,648,631 $4,190,404 $33,313,993 $24,073,551 $9,240,442
Earned ceded premium:
Excluding provisionally rated ceded premium 4,488,767 3,887,165 601,602 8,684,829 7,310,271 1,374,558
Provisionally rated ceded premium 22,721 27,940 (5,219) (284,702) 68,930 (353,632)
--------- --------- ------- --------- --------- --------
Total earned ceded premium 4,511,488 3,915,105 596,383 8,400,127 7,379,201 1,020,926
Ceding commission 1,496,280 1,278,271 218,009 2,959,916 2,432,618 527,298
--------- --------- ------- --------- --------- -------
Total earned ceded premium
net of ceding commission $3,015,208 $2,636,834 $378,374 $5,440,211 $4,946,583 $493,628
========= ========= ======= ========= ========= =======
The increase in ceded premium (excluding provisionally rated ceded premium) for
the three and six months ended June 30, 2004, is primarily related to the
increase in direct earned premium. Other factors effective January 1, 2004,
affecting ceded premium were a slight decrease in the reinsurance rate charged
by the Company's reinsurers and a change in the Company's participation in
certain reinsurance treaties. In 2003 Crusader retained a participation in its
excess of loss reinsurance treaties of 5% on its 1st layer ($750,000 in excess
of $250,000), 10% on its 2nd layer ($1,000,000 in excess of $1,000,000), and 30%
on its property clash treaty. In 2004 Crusader retained participation on its
excess of loss reinsurance treaties of 10% for both its 1st and 2nd layer and
15% on its property clash treaty.
NET INVESTMENT INCOME, excluding realized investment gains, decreased $195,292
(16%) to $1,031,652 for the three months and $373,877(15%) to $2,133,070 for the
six months ended June 30, 2004, compared to investment income of $1,226,944 for
the three months and $2,506,947 for the six months ended June 30, 2003. The
decrease in investment income is primarily the result of a continued decline in
the average return on invested assets in the Company's investment portfolio due
to both a general decline in short and long-term yield in the marketplace and a
shorter weighted average maturity of the portfolio.
12
The Company continually evaluates the recoverability of its investment holdings.
The assessment of whether a decline in fair value is considered temporary or
other then temporary includes management's judgment as to the financial position
and future prospects of the entity issuing the security. When a decline in value
of fixed maturities or equity securities is considered other than temporary, a
loss is recognized in the consolidated statement of operations. During the
quarter ended June 30, 2004, the Company had no investments with a decline in
market value that was considered other than temporary. No investments were sold
in the quarter ended June 30, 2004.
At June 30, 2004, the Company held fixed maturity investments with unrealized
appreciation of $1,738,368 and fixed maturity investments with unrealized
depreciation of $589,054. The Company does not deem the unrealized depreciation
to be significant or indicative of an other-than-temporary decline, either
individually or in the aggregate. The following table summarizes, for all fixed
maturities in an unrealized loss position at June 30, 2004, the aggregate fair
value and gross unrealized loss by length of time those fixed maturities have
been continuously in an unrealized loss position:
Gross
Fair Value Unrealized Loss
---------- ---------------
0-6 months $63,483,290 $574,207
7-12 months 958,500 14,535
Over 12 months 15,046 312
---------- -------
Total $64,456,836 $589,054
========== =======
As of June 30, 2004, the fixed maturity investments with a gross unrealized loss
for a continuous period of 0 to 6 months consisted of U.S. treasury securities
and U.S. government agency securities with a fair value of $61,998,185 and an
unrealized loss of $559,312 and a single industrial bond with a fair value of
$1,485,105 and an unrealized loss of $14,895. The fixed maturity investments
with a gross unrealized loss position for a continuous period of 7 to 12 months
consists of a single pre-refunded municipal bond with a fair value of $985,500
and an unrealized loss of $14,535. The fixed maturity investments with a gross
unrealized loss position for a continuous period over 12 months consists of a
single pre-refunded state bond with a fair value of $15,046 and an unrealized
loss of $312.
GROSS COMMISSION AND FEES decreased $440,270 (21%) to $1,629,153 for the three
months and $667,182 (17%) to $3,339,750 for the six months ended June 30, 2004,
compared to commission and fees of $2,069,423 for the three months and
$4,006,932 for the six months ended June 30, 2003.
The decrease in gross commission and fee income for the three and six months
ended June 30, 2004, compared to the three and six months ended June 30, 2003,
are as follows:
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
Increase Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---- ---- ---------- ---- ---- --------
Policy fee income $865,135 $897,716 $(32,581) $1,706,081 $1,637,797 $68,284
Health and life insurance program 531,745 864,571 (332,826) 1,161,262 1,754,223 (592,961)
Other commission and fee income 93,876 136,568 (42,692) 192,412 269,697 (77,285)
Daily automobile rental program:
Excluding contingent commission 138,397 143,894 (5,497) 270,507 286,950 (16,443)
Claim administration fee - 26,674 (26,674) - 58,265 (58,265)
Contingent commission - - - 9,488 - 9,488
--------- --------- ------- --------- --------- -------
Gross commission and fee income $1,629,153 $2,069,423 $(440,270) $3,339,750 $4,006,932 $(667,182)
========= ========= ======= ========= ========= =======
The decrease in health and life insurance program commission and fee income of
approximately 34% is primarily due to a decrease in premium written by AIB due
to CIGNA's discontinuing its individual and family health insurance programs in
the state of California. CIGNA's termination of their California individual and
family health insurance does not affect CIGNA's individual and family dental
program. Due to intense competition in both rates and benefits offered, CIGNA
small business group program has also decreased.
The decrease in claim administration fee is due to the fact that as of December
31, 2003, the Company no longer provides claim administration services. Prior to
December 31, 2003, a subsidiary of the Company provided insurance claim
administration services to a non-affiliated property and casualty insurance
company. As of December 31, 2003, the non-affiliated insurance company assumed
the claim administration responsibility for all outstanding and IBNR claims. As
such, the Company's subsidiary that provided the claim administration services
is currently inactive.
13
LOSSES AND LOSS ADJUSTMENT EXPENSES were 70% of net premium earned for the three
months and 71% of net premium earned for the six months ended June 30, 2004,
compared to 80% of net premium earned for the three months and 82% of net
premium earned for the six months ended June 30, 2003. Current year losses and
loss adjustment expenses were 71% of net premium earned for the three and six
months ended June 30, 2004, compared to 78% for the three and six months ended
June 30, 2003. Incurred losses of prior years were approximately $154,000
(favorable development) in the three months and $175,000 (favorable development)
in the six months ended June 30, 2004, compared to an incurred losses of prior
years of approximately $161,000 (adverse development) in the three months and
$656,000 (adverse development) in the six months ended June 30, 2003.
As a result of Crusader underwriting losses that began in year ended December
31, 2000, Crusader's management has been analyzing and acting upon various
components of its underwriting activity. These components include the following:
1. Business Outside of California
2. Habitability Exposure
3. Construction Defect Exposure
4. Special Risk Class of Business
5. Increased Cost of Settling Claims, Indemnity and Expense
6. Increased Cost of Reinsurance
7. Mold Exposure
8. Terrorism Exposure
Crusader believes that implementation of management's actions on the
underwriting components discussed above have contributed to improved operating
results.
Estimating loss reserves is a difficult process as there are many factors that
can ultimately affect the final settlement of a claim and, therefore, the
reserve that is needed. Changes in the regulatory and legal environment, results
of litigation, medical costs, the cost of repair materials and labor rates can
all impact ultimate claim costs. In addition, time can be a critical part of
reserving determinations since the longer the span between the incidence of a
loss and the payment or settlement of the claim, the more variable the ultimate
settlement amount can be. Accordingly, short-tail claims, such as property
damage claims, tend to be more reasonably predictable than long-tail liability
claims. The liability for unpaid losses and loss adjustment expenses is based
upon the accumulation of individual case estimates for losses reported prior to
the close of the accounting period plus estimates based on experience and
industry data for development of case estimates and for unreported losses and
loss adjustment expenses. Since the emergence and disposition of claims are
subject to uncertainties, the net amounts that will ultimately be paid to settle
claims may vary significantly from the estimated amounts provided for in the
accompanying consolidated financial statements. Any adjustments to reserves are
reflected in the operating results of the periods in which they are made.
Management believes that the aggregate reserves for losses and loss adjustment
expenses are reasonable and adequate to cover the cost of claims, both reported
and unreported.
POLICY ACQUISITION COSTS consist of commissions, premium taxes, inspection fees,
and certain other underwriting costs, which are related to the production of
Crusader insurance policies. These costs include both Crusader expenses and
allocated expenses of other Unico subsidiaries. Crusader's reinsurers pay
Crusader a ceding commission, which is primarily a reimbursement of the
acquisition cost related to the ceded premium. Policy acquisition costs, net of
ceding commission, are deferred and amortized as the related premiums are
earned. These costs were 21% of net premium earned for the three and the six
months ended June 30, 2004, and 21% of net earned premium for the three months
ended June 30, 2003, and 22% of net earned premium for the six months ended June
30, 2003.
SALARIES AND EMPLOYEE BENEFITS decreased $188,930 (15%) to $1,097,345 for the
three months and $166,221 (7%) to $2,313,464 for the six months ended June 30,
2004, compared to salary and employee benefits of $1,286,275 for the three
months and $2,479,685 for the six months ended June 30, 2003.
The decrease in the three months was primarily due to the classification of
employees associated with the production of Crusader insurance policies whose
salaries and employee benefits are capitalized as part of policy acquisition
cost. In addition, the Company stopped providing claim administration services
in 2004 and, therefore, did not incur any salaries and employee benefits as
compared to the three and six months ended June 30, 2003.
14
COMMISSIONS TO AGENTS/BROKERS decreased $151,142 (40%) to $231,173 for the three
months and $282,597 (36%) to $502,296 for the six months ended June 30, 2004,
compared to commission expense of $382,315 for the three months and $784,893 for
the six months ended June 30, 2003. The decrease is primarily the result of a
decrease in premiums written in the health and life insurance program and is
related to the decrease in commission income.
OTHER OPERATING EXPENSES decreased $213,174 (24%) to $672,921 for the three
months and $420,535 (22%) to $1,462,029 for the six months ended June 30, 2004,
compared to $886,095 for the three months and $1,882,564 for the six months
ended June 30, 2003. The decrease in other operating expenses in the three and
six months ended June 30, 2004 is primarily due to a decrease of approximately
$163,000 and $287,000 in legal expenses respectively.
INCOME TAX PROVISION was an expense of $712,022 (37% of pre-tax income) for the
three months and $1,422,469 (36% of pre-tax income) for the six months ended
June 30, 2004, compared to an income tax expense of $310,321 (36% of pre-tax
income) in the three months and an income tax expense of $437,318 (36% of
pre-tax income) for the six months ended June 30, 2003. This change was
primarily due to a pre-tax income of $1,945,412 (including tax-exempt investment
income of $12,430) in the three months and $3,913,856 (including tax-exempt
investment income of $29,517) in the six months ended June 30, 2004, compared to
pre-tax income of $871,597 (including tax-exempt investment income of $34,879)
in the three months and a pre-tax income of $1,231,677 (including tax-exempt
investment income of $70,183) in the six months ended June 30, 2003.
The effect of inflation on net income of the Company during the three and six
months ended June 30, 2004, and the three and six months ended June 30, 2003,
was not significant.
Forward Looking Statements
- --------------------------
Certain statements contained herein, including the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," that are not historical facts are forward looking. These
statements, which may be identified by forward-looking words or phrases such as
"anticipate," "believe," "expect," "intend," "may," "should," and "would,"
involve risks and uncertainties, many of which are beyond the control of the
Company. Such risks and uncertainties could cause actual results to differ
materially from these forward-looking statements. Factors which could cause
actual results to differ materially include underwriting actions not being
effective, rate increases for coverages not being sufficient, premium rate
adequacy relating to competition or regulation, actual versus estimated claim
experience, regulatory changes or developments, unforeseen calamities, general
market conditions, the Company's ability to introduce new profitable products,
and the Company's ability to expand geographically.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company's consolidated balance sheet includes a substantial amount of
invested assets whose fair values are subject to various market risk exposures
including interest rate risk and equity price risk.
The Company's invested assets consist of the following:
June 30 December 31 Increase
2004 2003 (Decrease)
---- ---- --------
Fixed maturity bonds (at amortized value) $117,657,182 $110,825,592 $6,831,590
Short-term cash investments (at cost) 5,977,443 7,229,315 (1,251,872)
Certificates of deposit (over 1 year, at cost) 500,000 500,000 -
----------- ----------- ---------
Total invested assets $124,134,625 $118,554,907 $5,579,718
=========== =========== =========
There have been no material changes in the composition of the Company's invested
assets or market risk exposures since the end of the preceding fiscal year end.
ITEM 4 - CONTROLS AND PROCEDURES
- --------------------------------
An evaluation was carried out by the Company's management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
June 30, 2004, (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective.
15
During the period covered by this report, there have been no changes in the
Company's internal control over financial reporting that have materially
affected or are reasonably likely to materially affect the Company's internal
control over financial reporting.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 2 - CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
- ------------------------------------------------------------------------------
SECURITIES
----------
The following table sets forth certain information with respect to purchases of
common stock of the Company during the quarter ended June 30, 2004, by the
Company and persons who may be deemed to be "affiliated purchasers" as defined
in Rule 10b-18(a)(3) promulgated under the Securities Exchange Act of 1934.
Total Number Maximum
of Shares Number
Total Purchased as Part of Shares
Number of Average Of Publicly that May Yet Be
Shares Price Paid Announced Plans Purchased Under the
Period Purchased per Share or Programs(1) Plans or Programs
------ --------- --------- ----------- -----------------
April 1, 2004
Through
April 30, 2004 - - - 76,042
May 1, 2004
Through
May 31, 2004 12(2) $5.00 - 76,042
June 1,2004
Through
June 30, 2004 2,700(2) $5.92 - 76,042
----- ---- ------
Total 2,712(2) $5.92 - 76,042
===== ==== ======
(1) In March 2000, the Board of Directors authorized the purchase of up to an
aggregate of 945,000 shares of common stock. The program has no expiration
date and may be terminated by the Board of Directors at any time. As of
June 30, 2004, an aggregate of 868,958 shares of common stock had been
purchased by the Company pursuant to this authorization.
(2) Purchased by executive officers who may be deemed to be "affiliated
purchasers" as defined in Rule 10b-18(a)(3)(ii) promulgated under the
Securities Exchange Act of 1934. Nothing contained herein shall be deemed
an admission that any of such executive officers is an "affiliated
purchaser" as defined in Rule 10b-18(a)(3)(ii).
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- --------------------------------------------------------
(a) On May 27, 2004, the Company held its Annual Meeting of Stockholders.
(b) Proxies for the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934; there was no solicitation in opposition to
nominees of the Board of Directors as listed in the Proxy Statement and all
such nominees were elected.
(c) At the meeting, the following persons were elected by the vote indicated as
directors to serve until the next annual meeting of stockholders and until
their successors are duly elected and qualified.
Name For Against or Withheld
---- --- -------------------
Erwin Cheldin 4,540,430 265,636
Lester A. Aaron 4,532,435 273,631
Cary L. Cheldin 4,532,435 273,631
George C. Gilpatrick 4,541,335 264,731
David A. Lewis 4,530,997 275,069
Warren D. Orloff 4,531,997 274,069
Donald B. Urfrig 4,646,897 159,169
16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On May 14, 2004, the Company filed a Form 8-K pursuant to which the
Company furnished under Item 12 its earnings press release for the quarter
ended March 31, 2004.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNICO AMERICAN CORPORATION
Date: August 12, 2004 By: /s/ ERWIN CHELDIN
-----------------
Erwin Cheldin
Chairman of the Board, President and Chief
Executive Officer, (Principal Executive Officer)
Date: August 12, 2004 By: /s/ LESTER A. AARON
-------------------
Lester A. Aaron
Treasurer, Chief Financial Officer, (Principal
Accounting and Principal Financial Officer)
17
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- -----------
31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)