U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
CENTURY CONTROLS INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
File No. 000-30313
Utah 41-1294552
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3140 Neil Armstrong Blvd, Suite 226
Eagan, MN 55121
Issuer's Telephone Number: (651) 454-0323
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.004
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part I
1. Description of Business 3
2. Management's Discussion and Analysis or Plan of 6
Operations
3. Description of Properties 8
4. Security Ownership of Certain Beneficial Owners and 9
Management
5. Directors, Executive Officers, Promoters and Control 10
Persons
6. Executive Compensation 11
7. Certain Relationships and Related Transactions 11
8. Description of Securities 11
Part II
1. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 12
2. Legal Proceedings 12
3. Changes in and Disagreements with Accountants 12
4. Recent Sales of Unregistered Securities 13
5. Indemnification of Directors and Officers 13
Part F/S Financial Statements 14
Part III
1. Index to Exhibits 15
2. Description of Exhibits 15
2
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PART I
Item 1. Description of Business
The Company
Century Controls International, Inc., is a publicly held
Utah corporation which, through its subsidiary Century Controls,
Inc., develops and markets a proprietary line of microprocessor
based boiler control products. It has been actively engaged in
this business for over the past eight years.
Excessive energy consumption and pollution control are
recognized as significant problems to be addressed now and in the
future. More than a half a dozen states and Canada have already
mandated installation of "BACT" (Best Available Control
Technology) on tens of thousands of boilers. Governmental
consortia including the Southern California Air Quality District
and NESCAUM (Northeast States for Coordinated Air Use Management)
are also mandating emission standards for boilers. Companies,
like Century, which offer products to address the problem expect
to see expanding markets for their products with increasing
environmental consciousness and government regulation.
Century develops and markets oxygen control, boiler loading
control, multiple boiler control, and air compressor control
systems used in industrial and commercial applications. Excess
air in the boiler's combustion chamber causes excess fuel
consumption, excessive stack exit temperatures, and increased
stack emissions. High firing rates in uncontrolled start up or
increased temperature set points causes excess fuel consumption
and unnecessary wear on boiler systems. Inefficient sequencing
of multiple boiler systems causes excess fuel consumption,
increased stack emissions, and unnecessary wear on boiler
systems. Inefficient sequencing of air compressors, each loading
and unloading uncoordinated, wastes energy. Century's control
systems are designed to resolve these problems so that boiler
systems operate at high efficiency, which results in lower energy
consumption, lower nitrogen oxide emissions, less wear on boiler
systems, and significant savings on fuel costs and system
repairs.
Products
Century offers products suitable for a wide variety of
boiler system configurations. The following is a list of
products and uses.
Product Use
CC-100 Oxygen control system
CC-200 Oxygen control system
CC-150 Firing rate control system
CC-300 Oxygen control system for up to four
boilers
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CC-600 Firing sequence control for of up to
four boilers
CC-700 Oxygen and firing sequence control
for up to four boilers
CC-2000 Process Controller
CC-6000 Compressor sequence control for up
to 12 compressors
The newly designed air compressor Sequencer offers a new
improved method of coordinating multiple air compressors for
significant energy savings as well as protection of the
equipment. The sequence control technology used in Century's
products is covered by a patent issued in 1992 and another issued
in 1995. Century believes this patented technology has
applications in other areas, such as air conditioning and power
generators, which may be developed by Century or licensed to
other companies.
Century believes its products contain features that can not
be found in its competitors products, such as the ability to
control a multiple boiler system with a single control unit.
Accordingly, prices for Century's products represent the added
value inherent in the design and operation of the products.
Prices to end users for single boiler systems range from $5,500
to $15,000, and prices for the higher-end multiple boiler systems
range from $15,000 to $60,000.
Century purchases the components for its products from third
party suppliers, and assembles and tests its finished products at
its UL approved facility. Products are only assembled and
shipped against purchase orders. Century's practice is to
maintain an inventory of component parts necessary to satisfy
three months of projected product purchases. Various extra
components are in stock due to blanket orders for better-pricing.
There is no single supplier from which Century purchases more
then 10% of its product components. There is no component part
that Century can not obtain from sources other than current
suppliers.
Research and development is company-sponsored. Development
projects currently in progress are focusing on varying and
modifying controls to fit other applications such as
refrigeration compressor sequencing and small OEM controls.
Research and development is expected to cost approximately
$10,000 to $15,000 in 1999.
Marketing
Century's marketing effort focuses on the operational
qualities of its products, compliance with applicable
environmental standards imposed by government regulation, and
lower costs of fuel consumption and boiler system repairs that
will pay for the Century product in a relatively short period of
time and then represent real savings to the end user.
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Century currently employs one salesperson who markets its
products directly to end users. Century generates product
brochures for distribution to its independent sales
representatives, boiler system contractors, industrial and
commercial boiler system users, and compressor distributors.
Century also advertises in trade publications and uses its sales
person to respond to prospective customers that respond to the
advertisements.
Century markets its products directly to boiler system
manufacturers, who sell Century's products as an add-on to boiler
systems sold to end users. Century currently has sales
agreements with two boiler manufacturers, who accounted for
approximately 4% of total boiler system sales in the United
States in 1998.
Century has distribution agreements with approximately 18
independent distributors located in the United States. Of the
distributors, 16 purchase products directly from Century for
resale to end users. The remaining distributors forward purchase
orders to Century made by the end user, so that the sale is made
by Century and a commission is paid to the distributor.
Product sales are not seasonal. The months of highest and
lowest sales vary from year to year.
To support and service end users, Century furnishes a
technician for start-up and operator training on each system
sold, which is billed as a separate cost in addition to the cost
of the system. Plant personnel are trained to handle minor
service problems over the phone. Century employs one technician
to perform extensive repair services as required. Century's
independent distributors also employ their own technicians who
perform repair services.
Century's warranty on its products covers all material and
workmanship for a one year period from start-up date.
During the fiscal year ended February 28, 2000, IBP, Inc.,
purchased products accounting for approximately 10% of Century's
total sales. During the fiscal year ended February 29, 2000,
Limbach Company purchased products accounting for 10% of
Century's total sales. Century does not expect sales to this
customer to exceed 10% of total sales in fiscal year 2001. One
independent distributor, Energy Products Company, was responsible
for 13% of Century's total sales in fiscal year 2000. Century
expects this distributor to account for more than 10% of total
sales in fiscal year 2001.
Competition
Principal competitors are Rosemount Engineering, Preferred
Instruments, and Heat Timer, all of which offer boiler control
products at prices lower than Century's products. Century
competes with these companies on the basis of the features it
offers in its products. Management believes this approach will
be successful in the future because consulting engineers are
starting to specify Century's products for systems they design
for end users.
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Government Regulation
There is no meaningful government regulation of Century's
products or business.
Employees
As of May 31, 2000, Century had 5 employees, none of whom
are represented by labor unions. Management considers its
relations with its employees to be good.
Item 2. Management's Discussion and Analysis or Plan of
Operations
Overview
Century develops and markets oxygen control, boiler loading
control, multiple boiler control, and air compressor control
systems used in industrial and commercial applications.
Century's control systems are designed to resolve common problems
such as excess fuel consumption, excessive stack exit
temperatures and increased stack emissions. With the
introduction of Century's control systems, boilers operate at
high efficiency, which result in lower energy consumption, lower
nitrogen oxide emissions, less wear on boiler systems and
significant savings on fuel costs and system repairs.
Over the past several years, Century's boiler control
systems have become more widely implemented into various key
markets around the country. As the number of Century's products
has increased, a growing interest has occurred among consulting
engineers. This escalating interest in turn, has resulted in a
growing number of engineering specifications written around
Century's products, which has provided Century with an increase
in sales. Additionally, Century's air compressor sequence
controller has been operating in Sara Lee Hosiery, a Fortune 500
Company plant, with outstanding results and a positive return on
investment. Due to this increased interest and positive feedback
within the industry, Century's is able to claim its product
performance as superior in the industry.
Century's goal is to increase industry acceptance and
increase sales significantly by concentrating more heavily in
sales and marketing. Century's strategy for achieving this goal
is to obtain highly qualified marketing individuals to increase
Century's sales and increase its advertising in various trade
magazines, emphasizing Century's newest product, the air
compressor sequencer. Additionally, Century anticipates further
product development in its communications software, allowing
Century's systems to interface with various energy management
systems and minor hardware design modifications which will allow
Century to produce a slightly lower cost OEM (original equipment
manufacturer) control, that can be marketed as a part of the
initial sale of the various boilers.
Results of Operations, Fiscal Years Ended February 28, 2000 and
1999
Century had net sales of $494,234 and $599,842 for the
fiscal years ended February 28, 2000 and 1999, respectively.
Three customers accounted for 33.7% of Century's sales in 2000
and one customer accounted for 20.2% in 1999. The decrease in
sales is primarily a result of
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higher than normal sales to a single customer in 1999, that did
not recur in 2000. Management believes sales in fiscal year 2000
are consistent with historical levels
In 2000, Century's Cost of sales was $216,050 compared to
$285,708 for the year ended 1999. This decrease is primarily due
to few sales of product in 2000 as compared to 1999.
Operating expenses for the years ended 2000 and 1999, were
$354,639 and $319,284, respectively. The increase in operating
expenses is attributable to increased commissions to independent
distributors and increased professional fees relating to becoming
a reporting company under the Securities Exchange Act of 1934.
Although inventory remained essentially unchanged from 1999
to 2000, in 2000 Century recorded an inventory allowance of
$60,000. Century maintains a substantial repair inventory, which
is used for maintenance and service on older models of Century's
products that are in service. Due to uncertainty as to whether
this repair inventory will be used and sold in Century's
maintenance service, management determined to record the
inventory allowance.
As a result of the foregoing factors, Century realized a net
loss of $148,555 in the year ended 1999 and $13,051 in the year
ended 1999.
Liquidity and Capital Resources
At February 29, 2000, Century had a working capital deficit
of $105,525 as compared to a working capital deficit of $21,627
at February 28, 1999. Century's cash balance at February 29,
2000 was $5,513. Century has used cash flow from operations and
occasional bank borrowings to finance its operating activities
during the fiscal years ended February 29, 2000 and 1999.
Century had a $50,000 secured revolving line-of-credit to fund
its operations until February 1999 when Century refinanced its
line-of-credit balance through a term loan, which bears interest
at 2% above the bank's prime rate.
Century's ability to continue in existence is dependent upon
obtaining adequate financing and profitable operations.
Management is expanding its product line with a new low cost
microprocessor controller for smaller boilers and a sequencer
program for air compressors, which are expected to generate
additional profitable sales. However, the ability of Century to
bring its products to market will be hampered as long as Century
does not have the working capital necessary to pursue more
aggressive marketing. Century is now seeking equity financing
through a private offering of its common stock and warrants, but
there is no assurance this offering will be successful. Century
has not identified any alternative sources of debt or equity
financing and can not predict whether any such financing will be
available to Century on terms acceptable to Century.
Year 2000 Compliance
Century's internal computer information system is Year 2000
compliant. Any new software purchases will similarly be Year
2000 Compliant, which should eliminate any internal
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Year 2000 issues. As Century has determined it has no internal
Year 2000 issues, it has not developed a contingency plan with
respect to internal issues.
Year 2000 issues and any potential business interruptions,
costs, damages or losses related thereto are primarily dependent
upon the Year 2000 compliance of third parties. Century has not
experienced any such interruptions, costs, or losses as a result
of Year 2000 problems of third parties, and does not expect any
to occur.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1985
provides a safe harbor for forward-looking statements made by
Century. All statements, other than statements of historical
fact, which address activities, actions, goals, prospects, or new
developments that Century expects or anticipates will or may
occur in the future, including such things as expansion and
growth of its operations and other such matters are forward-
looking statements. Any one or a combination of factors could
materially affect Century's operations and financial condition.
These factors include competitive pressures, success or failure
of marketing programs, changes in pricing and availability of
component parts, new technology developments, and conditions in
the capital markets. Forward-looking statements made by Century
are based on knowledge of its business and the environment in
which it operates as of the date of this report. Because of the
factors listed above, as well as other factors beyond its
control, actual results may differ from those in the forward-
looking statements.
Item 3. Description of Properties
The plant and office facilities of Century consist of
approximately 1,380 square feet of space in a single building
located at 3140 Neil Armstrong Blvd, Suite 226 in Eagan,
Minnesota. The facilities are leased at a monthly rate of
$821.37, under a lease that expires in August 2002. Management
believes that the office space is adequate for Century's
anticipated needs for at least the next 12 months.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of May 31, 2000, the
number and percentage of the outstanding shares of common stock
which, according to the information supplied to Century, were
beneficially owned by (i) each person who is currently a
director, (ii) each executive officer, (iii) all current
directors and executive officers as a group and (iv) each person,
other than an officer or director, who to the knowledge of
Century is the beneficial owner of more than 5% of the
outstanding common stock. Except as otherwise indicated, the
persons named in the table have sole voting and dispositive power
with respect to all shares beneficially owned, subject to
community property laws where applicable.
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Common Percent
Shares Options of Class
(1) (2)
Principal Stockholders
Dr. Michael Baghdaian 326,000 0 8.4%
13479 Northline
Southgate, MI 48195
Officers and Directors
Leo Christiansen 816,583 0 21.1%
731 Mohican Court
Mendota Heights, MN 55120
David Brown 131,250 34,000 4.3%
PO Box 197
Goodridge, MN 56725
James W. Sampair 90,000 10,000 2.6%
2067 W. Lakeview Blvd., #D-9
North Fort Meyers, FL 33903
J. Clinton Shaver 152,450 10,000 4.2%
6601 Beach Road
Eden Prairie, MN 55346
Craig Laughlin 177,129 10,000 4.8%
11900 Wayzata Blvd., Suite 100
Hopkins, MN 55305
All Executive officers and 1,402,312 74,000 38.2%
Directors as a Group (5 persons)
(1) These figures represent options that are vested or will vest
within 60 days from the date as of which information is
presented in the table.
(2) These figures represent the percentage of ownership of the
named individuals assuming each of them alone has exercised
his options, and percentage ownership of all officers and
directors as a group assuming all purchase rights held by
such individuals are exercised.
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Item 5. Directors, Executive Officers, Promoters and Control Persons
Directors and Officers
The following table sets forth the names, ages, and
positions with Century for each of the directors and officers.
Name Age Positions (1) Since
Leo Christiansen 69 Chairman of the Board and 1990
President
David Brown 57 Senior Research & Development 1990
Engineer, and Director
James W. Sampair 68 Director & Secretary 1990
J. Clinton Shaver 68 Director 1990
Craig Laughlin 49 Director & Vice President 1991
All directors hold office until the next annual meeting of
stockholders and until their successors are elected and qualify.
Officers serve at the discretion of the Board of Directors.
The following is information on the business experience of
each director and officer.
Leo Christiansen, has served as President and Chairman of
the Board of Directors of Century for the past nine years.
David Brown has served as Senior Research & Development
Engineer, Electronic hardware designer and a Director of Century
for the past nine years.
James W. Sampair was the President of Arena Contractors &
Equipment Co., a contracting company of St. Paul, Minnesota, from
1993 until October 1996, when he retired.
J. Clinton Shaver has served for over the past five years as
the Chief Executive Officer of Atlantis, Intl., of Long Lake,
Minnesota, a company engaged in the business of inventory
closeouts for retail and wholesale businesses.
Craig Laughlin is the founder and President of SRC Funding,
Inc., which structures venture capital financing for early stage
companies. Mr. Laughlin has been a consultant in the areas of
mergers, acquisitions, and early stage financing since 1986.
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Item 6. Executive Compensation
Annual Compensation
The following table sets forth certain information regarding
the annual and long-term compensation for services in all
capacities to Century for the prior fiscal years ended February
29, 2000, and February 28, 1999, and 1998, of those persons who
were either (i) the chief executive officer during the last
completed fiscal year or (ii) one of the other four most highly
compensated executive officers of the end of the last completed
fiscal year whose annual salary and bonuses exceeded $100,000
(collectively, the "Named Executive Officers").
Name and Principal Position Annual Compensation
_____________________
Year Salary ($)
Leo Christiansen 2000 $59,800
Chairman and President 1999 $59,800
1998 $59,800
Century has no other arrangement for compensating any of its
executive officers.
Warrants
David Brown, a director and employee of Century, holds a
warrant to purchase 34,000 shares of Century's common stock at a
price of $0.18 per share, which expires February 19, February 19,
2003. The warrant was issued in consideration of the services
rendered by Mr. Brown to Century.
In May 2000, Century issued to each of James W. Sampair, J.
Clinton Shaver, and Craig Laughlin, all directors of Century,
warrants to purchase 10,000 shares of common stock at an exercise
price of $0.25 per share, which expire May 22, 2003. The
warrants were issued in consideration of their services as
directors.
Item 7. Certain Relationships and Related Transactions
There were no material transactions between Century and any
of its affiliates during the two year period ended February 29,
2000.
Item 8. Description of Securities
The authorized capitalization of Century consists of
50,000,000 shares of common stock, par value $0.004, of which
3,863,635 shares are outstanding. Holders of common stock are
entitled to one vote for each share held on all matters submitted
to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of all
common stock outstanding entitled to vote in any election of
directors may elect all of the
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directors standing for election. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of funds legally available
therefor. Upon the liquidation, dissolution or winding up of
Century, the holders of all shares of common stock are entitled
to receive ratably the net assets of Century available after the
payment of all debts and other liabilities. Holders of common
stock have no preemptive, subscription, redemption or conversion
rights.
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters
The common stock of Century trades sporadically in the over-
the-counter market. The following table sets forth for the
respective periods indicated the prices of the common stock in
the over-the-counter market, as reported and summarized on the
OTC Bulletin Board. Such prices are based on inter-dealer bid
and asked prices, without markup, markdown, commissions, or
adjustments and may not represent actual transactions.
Calendar Quarter High Bid ($) Low Bid ($)
Ended
May 31, 1998 $0.50 $0.1875
August 31, 1998 $0.375 $0.125
November 30, 1998 $0.375 $0.125
February 28, 1999 $0.4375 $0.125
May 31, 1999 $0.1875 $0.1875
August 31, 1999 $0.21875 $0.125
November 30, 1999 $0.125 $0.125
February 28, 2000 $0.00 $0.00
Since its inception, no dividends have been paid on the
common stock. Century intends to retain any earnings for use in
its business activities, so it is not expected that any dividends
on the common stock will be declared and paid in the foreseeable
future. At May 31, 2000, there were approximately 232 holders of
record of the common stock.
Item 2. Legal Proceedings
Century is not a party to any material pending legal
proceedings, and to the best of its knowledge, no such
proceedings by or against Century have been threatened.
Item 3. Changes in and Disagreements with Accountants
On April 16, 1999, Century's board of directors appointed
the accounting firm of Callahan, Johnston & Associates, LLC as
Century's Independent Accountant. There have been no
disagreements with Century's former or present accountants over
the past three years.
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Item 4. Recent Sales of Unregistered Securities
Century has had no recent sales of unregistered securities
within the past three years.
Item 5. Indemnification of Directors and Officers
Section 16-10a-902 of the Utah Code Annotated provides in
relevant part as follows:
(1) Except as provided in Subsection (4), a corporation may
indemnify an individual made a party to a proceeding because he
is or was a director, against liability incurred in the
proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not
opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(4) A corporation may not indemnify a director under this
section:
(a) in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that
the director derived an improper personal benefit, whether or not
involving action in his official capacity, in which proceeding he
was adjudged liable on the basis that he derived an improper
personal benefit.
(5) Indemnification permitted under this section in
connection with a proceeding by or in the right of the
corporation is limited to reasonable expenses incurred in
connection with the proceeding.
Section 16-10a-903 of the Utah Code Annotated provides in
relevant part as follows:
Unless limited by its articles of incorporation, a corporation
shall indemnify a director who was successful, on the merits or
otherwise, in the defense of any proceeding, or in the defense of
any claim, issue, or matter in the proceeding, to which he was a
party because he is or was a director of the corporation, against
reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
Section 16-10a-907 of the Utah Code Annotated provides in
relevant part as follows:
Unless a corporation's articles of incorporation provide
otherwise:
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(1) an officer of the corporation is entitled to mandatory
indemnification under Section 16-10a-903, and is entitled to
apply for court-ordered indemnification under Section 16-10a-905,
in each case to the same extent as a director;
(2) the corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the
same extent as to a director; and
(3) a corporation may also indemnify and advance expenses to
an officer, employee, fiduciary, or agent who is not a director
to a greater extent, if not inconsistent with public policy, and
if provided for by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
Century's by-laws provide that it shall indemnify to the
full extent of its power to do so under Utah law, all directors
and officers of Century for any liability including costs of
defense reasonably incurred in connection with any action, suit,
or proceeding to which such person may be a party by reason of
such person's position with Century, if the officer or director
acted in good faith and in a manner the officer or director
reasonably believed to be in, or not opposed to, the best
interests of the corporation. Consequently, Century intends to
indemnify its officers and directors to the full extent permitted
by the statute noted above.
PART F/S
Financial Statements
The financial statements of Century appear at the end of
this registration statement beginning with the Index to Financial
Statements on page F-1.
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PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
Copies of the following documents are included as exhibits
to this report.
Exhibit Form 1-A Title of Document
No. Ref. No.
1 (2) Articles of Incorporation, as amended*
2 (2) By-Laws*
3 (6) Form of Warrant granted to Directors
4 (6) Lease for Company Facilities*
5 (15) Financial Data Schedules**
* These exhibits are incorporated herein by this reference to
the Company's Registration Statement on Form 10-SB filed with the
Securities and Exchange Commission on April 12, 2000.
** The Financial Data Schedule is presented only in the
electronic filing with the Securities and Exchange Commission.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be
signed on its behalf by the undersigned thereunto duly
authorized.
CENTURY CONTROLS INTERNATIONAL, INC.
Date: June 7, 2000 By: /s/ Leo Christiansen, President
In accordance with the Exchange Act, this registration
statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Dated: June 7, 2000 /s/ Leo Christiansen,
Chief Executive Officer and Director
Dated: June 7, 2000 /s/ James W. Sampair, Director
Dated: June 9, 2000 /s/ J. Clinton Shaver, Director
Dated: June 7, 2000 /s/ Craig Laughlin, Director
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CENTURY CONTROLS
INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND
FEBRUARY 28, 1999
TABLE OF CONTENTS
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and
Accumulated Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
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INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Century Controls International, Inc.
Eagan, Minnesota
We have audited the accompanying consolidated balance sheets of
Century Controls International, Inc. as of February 29, 2000 and
February 28, 1999, and the related statements of operations and
accumulated deficit and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Century Controls International, Inc. as of February
29, 2000 and February 28, 1999, and the results of operations and
cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that Century Controls International, Inc. will
continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's recurring losses
from operations and stockholders' deficit raise substantial doubt
about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
CALLAHAN, JOHNSTON & ASSOCIATES, LLC
Minneapolis, Minnesota
May 15, 2000
F-2
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CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Years Ended
February 29, February 28,
2000 1999
ASSETS
Current assets:
Cash $ 5,513 $ 3,514
Accounts receivable, trade,
net of allowance for doubtful
accounts of $5,000 in 2000 and
$500 in 1999 31,427 83,499
Inventories 79,399 76,748
Prepaid expenses 4,430 5,807
Total current assets 120,769 169,568
Fixed assets 61,789 66,023
Less accumulated depreciation 33,303 54,037
Net fixed assets 28,486 11,986
Other assets:
Inventories, less valuation allowance of
$60,000 in 2000 and $-0- in 1999 20,000 71,171
Deposit 821 -
Patents, net of accumulated amortization
of $4,917 in 2000 and $3,296 in 1999 27,866 28,012
Total other assets 48,687 99,183
Total assets $ 197,942 $ 280,737
F-3
<PAGE>
Years Ended
February 29, February 28,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 32,117 $ 24,307
Notes payable - stockholders 23,000 23,000
Accounts payable 145,958 88,808
Accrued expenses:
Payroll and related 12,253 4,905
Warranty 3,000 2,500
Interest 6,866 4,321
State minimum fee 100 100
Total current liabilities 223,294 147,941
Long-term debt:
Notes payable, net of current maturities 12,735 22,328
Total liabilities 236,029 170,269
Stockholders' equity (deficit):
Common stock, $.004 par value, 50,000,000
shares authorized; issued and
outstanding 3,863,635 in 2000 and 1999 15,455 15,455
Additional paid-in capital 1,254,399 1,254,399
Accumulated deficit (1,307,941) (1,159,386)
Total stockholders' equity (deficit) (38,087) 110,468
Total liabilities and
stockholders' equity (deficit) $ 197,942 $ 280,737
The accompanying notes are an integral part of
these financial statements.
F-4
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
Years Ended
February 29, February 28,
2000 1999
Net sales $ 494,234 $ 599,842
Cost of sales 216,050 285,708
Gross profit 278,184 314,134
Operating expenses 354,639 319,284
Operating loss (76,455) (5,150)
Other expenses:
Inventory valuation allowance 60,000 -
Interest expense 12,000 7,901
Total other expenses 72,000 7,901
Net loss before income taxes (148,455) (13,051)
Income taxes 100 100
Net loss (148,555) (13,151)
Accumulated deficit:
Beginning of year (1,159,386) (1,146,235)
End of year $(1,307,941) $(1,159,386)
Basic earnings per share $ (.04) $ (.00)
Weighted-average number of
shares outstanding 3,863,635 3,863,635
Diluted earnings per share $ (.04) $ (.03)
Weighted-average number of
shares outstanding 3,880,696 3,983,856
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
February 29, February 28,
2000 1999
Cash flows from operating activities:
Net loss $(148,555) $ (13,151)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 6,196 5,412
Amortization 1,621 1,132
Allowance for doubtful accounts 4,500 (1,500)
Inventory valuation allowance 60,000 -
Decrease (increase) in:
Accounts receivable - trade 47,572 (30,011)
Inventories (11,480) 35,368
Prepaid expense 1,377 1,245
Other assets (821) -
Increase (decrease) in accounts payable
and accrued expenses 67,543 22,714
Net cash used by operating activities 27,953 21,209
Cash flows from investing activities:
Purchase of fixed assets (6,500) (877)
Incurrence of patent costs (1,475) (10,417)
Net cash used by investing activities (7,975) (11,294)
Cash flows from financing activities:
Net borrowings on revolving line of credit - (8,218)
Net borrowings on notes payable - stockholders - 1,600
Payment of long-term debt (17,979) (6,459)
Net cash provided by financing activities (17,979) (13,077)
Increase (decrease) in cash 1,999 (3,162)
Cash, beginning of year 3,514 6,676
Cash, end of year $ 5,513 $ 3,514
The accompanying notes are an integral part of
these financial statements.
F-6
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
1. Summary of Significant Accounting Policies
Nature of Business
The Company was incorporated March 15, 1984 under the laws of
the State of Utah. In July 1991 the Company changed its name
to Century Controls International, Inc. On July 25, 1991,
the Company acquired, as a wholly-owned subsidiary, Century
Controls, Inc. Century Controls, Inc. was incorporated
February 3, 1977 under the laws of the State of Minnesota.
All operations are carried out through Century Controls, Inc.
Century Controls International, Inc. acts merely as a holding
company.
Century Controls, Inc. develops, manufactures and markets
proprietary lines of microprocessor-based oxygen control,
boiler loading control, multiple boiler control, and
compressor control systems used in industrial and commercial
applications.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary,
Century Controls, Inc. All intercompany transactions and
balances have been eliminated in consolidation.
Fair Value of Financial Instruments
All of the Company's financial instruments are nonderivative.
A summary of the fair value of the Company's financial
instruments and the methods and significant assumptions used
to estimate those values is as follows:
Short-Term Financial Instruments
The fair value of short-term financial instruments,
including cash and cash equivalents, trade accounts
receivable and payable and certain accrued liabilities,
approximates their carrying amounts in the financial
statements due to the short maturity of such instruments.
F-7
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
1. Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
Notes Payable and Long-Term Debt
The fair value of the variable rate term note payable
approximates their carrying amount since the currently
effective rates reflect market rates. It is not
practicable to estimate the fair value of notes payable -
stockholders.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market,
principally applying the first-in, first-out (FIFO) method.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful
lives of the related assets, ranging from three to seven
years. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs
is expensed as incurred; significant renewals and betterments
are capitalized. Deduction is made for retirements resulting
from renewals or betterments.
Depreciation expense was $6,196 in 2000 and $5,542 in 1999.
Intangible Assets
Costs incurred obtaining patents on the Company's proprietary
products are recorded at cost and amortized over the life of
the patents, generally 20 years.
F-8
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
1. Summary of Significant Accounting Policies (Continued)
Long-Lived Assets
In accordance with SFAS 121, Accounting For The Impairment Of
Long-Lived Assets And For Long-Lived Assets To Be Disposed
Of, the Company reviews its long-lived assets and intangibles
related to those assets periodically to determine potential
impairment by comparing the carrying value of the long-lived
assets outstanding with estimated future cash flows expected
to result from the use of the assets, including cash flows
from disposition. Should the sum of the expected future cash
flows be less than the carrying value, the Company would
recognize an impairment loss. An impairment loss would be
measured by comparing the amount by which the carrying value
exceeds the fair value of the long-lived assets and
intangibles. Management determined that no impairment of
long-lived assets existed at February 29, 2000 or February
28, 1999.
Earnings Per Share
The Company has implemented FASB 128: Earnings Per Share.
Accordingly, earnings per share (EPS) information for prior
periods has been restated to conform with FASB 128. FASB 128
replaces the presentation of primary EPS with basic EPS.
Basic EPS excludes dilution and is computed by dividing net
income by the weighted-average number of common shares
outstanding for the year. Diluted EPS reflects the potential
dilution from stock options and is computed using the
treasury stock method. Under the treasury stock method stock
options are assumed to have been exercised at the beginning
of the period if the average market price exceeds the
exercise price during the period. The computation of diluted
EPS does not assume conversion, exercise or contingent
issuance of securities that would have an antidilutive effect
on earnings per share.
2000 1999
Weighted-average shares for basic EPS 3,863,635 3,863,635
Incremental shares from assumed
exercise of options and warrants 17,061 120,221
Adjusted weighted-average shares
for diluted EPS 3,880,696 3,983,856
Loss available to common stockholders $(148,555) $ (13,151)
F-9
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company has implemented FASB 109: Accounting for Income
Taxes. Timing differences relate to the allowance for
doubtful accounts and assumed expenses not currently
deductible. The tax effects of these temporary differences
and net operating loss carryforwards give rise to significant
deferred tax assets. FASB 109 requires that deferred tax
assets be reduced by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax
asset will not be realized (see Note 10).
The Company and its wholly-owned subsidiary, Century
Controls, Inc., file separate income tax returns. All
operating results have historically been filed under Century
Controls, Inc.
Concentrations and Uncertainties
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Accounts Receivable
Accounts receivable are unsecured. Orders greater than
$20,000 typically require a twenty-five percent (25%) down
payment. The estimated loss that management believes is
probable is included in the allowance for doubtful
accounts. While the ultimate loss may differ, management
believes that any additional loss will not have a material
impact on the Company's financial position. Due to
uncertainties in the settlement process, however, it is at
least reasonably possible that management's estimate will
change during the next year. That amount cannot be
estimated.
A receivable from a large customer totaled 36.4% of
accounts receivable at February 29, 2000. This receivable
was paid subsequent to year end.
F-10
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
1. Summary of Significant Accounting Policies (Continued)
Concentrations and Uncertainties (Continued)
Inventory
As is disclosed in Note 3, $80,000 or 50.2% of inventory
at February 29, 2000 and $71,171 or 48.1% of inventory at
February 28, 1999 is repair inventory. This repair
inventory is not currently used in production. Repair
inventory is utilized as maintenance and service is
performed on older models of the Company's products.
Management recorded a valuation allowance of $60,000
against this repair inventory in fiscal year 2000 against
any unrecoverable amounts. Due to uncertainties in the
business cycle, however, it is at least reasonably
possible that management's estimate will change during the
next year. That amount cannot be estimated.
Major Customer
Three customers accounted for 33.7% of the Company's sales
in 2000. One customer accounted for 20.2% of sales in
1999.
Continued Existence
The Company's recurring losses and stockholders' deficit
raise concern over the Company's ability to continue in
existence. Management's plans in regards to continued
existence are discussed in Note 2.
Advertising
Advertising expenses are recognized in the period incurred.
Advertising expenses totaled $3,125 in 2000 and $9,362 in
1999.
Reclassifications
Certain balances in the 1999 financial statements have been
reclassified to conform to the 2000 presentation. These
reclassifications had no effect on net (loss) for either
period.
F-11
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
2. Continued Existence
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles which contemplates the continuance of the Company
as a going concern. The Company has experienced recurring
operating losses and operating cash flow deficits since 1993.
Capital raised from common stock offerings has provided the
financial support necessary for the Company to satisfy its
obligations. The Company's ability to continue in existence
is dependent upon obtaining adequate financing and obtaining
profitable operations. The Company is presently trying to
raise additional monies through a private placement of its
common stock (see Note 12). Management is also expanding its
product line with a new low cost microprocessor controller
for smaller boilers and a sequencer program for air
compressors which are expected to generate additional
profitable sales. The Company's efforts to attain
profitability remains uncertain; accordingly, it is not known
whether the Company can continue to satisfy its obligations.
The consolidated financial statements do not include any
adjustments relating to the recoverability of recorded asset
amounts or the amounts of liabilities that might be necessary
should the Company be unable to continue as a going concern.
3. Inventories
Inventories consisted of the following:
2000 1999
Current inventory:
Raw materials and work in process $ 79,399 $ 76,748
Long-term inventory:
Repair inventory 80,000 71,171
Less valuation allowance (see Note 1) 60,000 -
20,000 71,171
$ 99,399 $ 147,919
F-12
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
4. Fixed Assets
Fixed assets consisted of the following:
2000 1999
Automobiles $ 45,212 $ 28,518
Furniture and equipment 16,577 37,505
$ 61,789 $ 66,023
Various fully depreciated assets were written off in fiscal
year 2000.
5. Accounts Payable
Accounts payable in the accompanying financial statements
includes:
* $12,116 borrowed on credit cards bearing interest at
20.43% to 23.93% per annum.
* $36,693 borrowed from an employee on which the Company
pays the interest on the employee's underlying credit
card indebtedness at 12.5% per annum.
6. Long-Term Debt
2000 1999
Long-term debt consisted of the following:
Note payable - bank, payable in monthly
installments of $1,900 including
interest at bank rate plus 2% (9.0% at
February 28, 1999). Balloon due
December 1, 2000. Secured by all
corporate assets and subordination of
notes payable - stockholders. $ 28,657 $ 41,781
Note payable - bank, payable in monthly
installments of $412 including
interest at 10.12%, secured by
automobile, final payment
February 2004. 16,195 -
F-13
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
6. Long-Term Debt (Continued)
2000 1999
Note payable - payable in monthly
installments of $395 including
interest at 9.75%, secured by
automobile, final payment in 2000. $ - $ 4,854
44,852 46,635
Less current portion 32,117 24,307
$ 12,735 $ 22,328
Maturities of long-term debt are as follows:
Years ending February 28,
2001 $ 32,117
2002 3,832
2003 4,223
2004 4,680
$ 44,852
7. Lease
In June 1999, the Company entered into an office lease
agreement which calls for monthly payments of $821 plus
common area expense through August 31, 2002. Minimum
payments due under this lease are as follows:
Years ended February 28:
2001 $ 9,852
2002 $ 9,852
2003 $ 4,926
Rent expense charged to operations was $16,755 in 2000 and
$18,900 in 1999.
F-14
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
8. Note Payable - Stockholders
Activity relating to the notes payable - stockholders is as
follows:
2000 1999
Beginning of year $ 23,000 $ 21,400
Borrowings - 6,100
Repayments - (4,500)
End of year $ 23,000 $ 23,000
These loans are unsecured, due on demand and bear interest at
rates from -0-% to 10%. Interest expense relating to these
loans was $1,796 in 2000 and $1,620 in 1999. Accrued
interest was $5,760 and $3,964 at February 29, 2000 and
February 28, 1999, respectively.
Repayment of $17,000 of these notes payable - stockholders is
subordinated to the note payable - bank (see Note 6).
9. Stockholders' Equity
Warrants to purchase 35,000 common shares for $.10 per share
were issued to a former employee in connection with his
employment agreement. The warrants expired on July 29, 1999.
Warrants to purchase 10,000 common shares at $.37-1/2 per
share for two years were issue to four members of the Board
of Directors are compensation for their services as
directors. The warrants expired on November 7, 1999.
Warrants to purchase 108,750 shares for $.25 per share were
issued to a business development consultant in connection
with the August 1995 Private Placement. Additionally,
warrants to purchase 64,000 shares for $.25 per share were
issued to the consultant in consideration for other services
rendered. The warrants are due to expire on August 1, 2000.
Warrants to purchase 34,000 shares of common stock for $.18
per share for five years were issued to an employee. The
warrants are due to expire February 19, 2003.
F-15
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
10. Income Taxes
The Company and its wholly-owned subsidiary, Century
Controls, Inc., file separate income tax returns. All
operating results have historically been filed under Century
Controls, Inc.
Income taxes consisted of the following at:
February 29, February 28,
2000 1999
Current:
Federal $ - $ -
State - -
State minimum fee (100) (100)
(100) (100)
Deferred:
Federal - -
State - -
- -
Income tax benefit (expense) $ (100) $ (100)
The reconciliation between expected federal income tax rates
is as follows:
February 29, February 28,
2000 1999
Amount Percent Amount Percent
Expected federal tax $ 50,500 34.0 % $ 4,500 34.0 %
Surtax exemption (9,300) (6.3) (2,500) (19.0)
State income tax, net
of federal tax
benefit 2,000 1.3 800 6.3
Valuation and utilization
of deferred tax assets
and carryforwards (43,200) (28.9) (2,800) (21.3)
State minimum fee (100) (.1) (100) (.5)
$ (100) (.1)% $ (100) (.5)%
F-16
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
10. Income Taxes (Continued)
Differences between accounting rules and tax laws cause
differences between the bases of certain assets and
liabilities for financial reporting purposes and tax
purposes. The tax effects of these differences, to the
extent they are temporary, are recorded as deferred tax
assets and liabilities under SFAS 109, and consisted of the
following:
2000 1999
Deferred tax assets:
Allowance for doubtful accounts $ 1,700 $ 100
Inventory valuation allowance 20,500 -
Vacation accrual 200 100
Accumulated depreciation - 700
Intangible assets 39,000 31,000
Warranty accrual 1,000 600
Carryforwards 299,000 227,900
Gross deferred tax asset 361,400 260,400
Valuation allowance (359,500) (260,400)
Net deferred tax asset 1,900 -
Deferred tax liability:
Accumulated depreciation (1,900) -
Net deferred tax asset (liability) $ - $ -
At February 29, 2000, the Company's wholly-owned subsidiary,
Century Controls, Inc. has carryforwards available to offset
its future taxable income as follows:
Federal
State
Regular NOL Credits NOL
2003 $ 16,000 $ 9,200 $ 48,000
2004 45,000 - 45,000
2005 31,000 - 31,000
2006 22,000 - 11,000
2007 30,000 - 12,000
2008 184,000 - 76,000
2009 95,000 - 45,000
2010 - - -
2011 61,000 - 30,000
2012 125,000 - 66,000
2013 106,000 - 49,000
2014 - - -
2015 73,000 - 32,000
$ 788,000 $ 9,600 $ 440,000
F-17
<PAGE>
CENTURY CONTROLS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
10. Income Taxes (Continued)
The Company annually assesses its past earnings history and
trends, sales backlog, budgeted sales, and expiration dates
of carryforwards to determine which deferred tax assets are
more likely than not to be utilized. The valuation allowance
is maintained on deferred tax assets which the Company has
not determined to be more likely than not realized at this
time.
11. Supplemental Cash Flow Disclosures
February 29, February 28,
2000 1999
Interest paid $ 9,455 $ 5,997
Income taxes paid $ 100 $ 100
Non cash activity:
In February 2000, the Company incurred indebtedness
totaling $16,195 towards the purchase of an automobile.
12. Subsequent Event
The Company is presently attempting to raise $700,000 through
a private placement of common stock at $.25 per share in
blocks of 10,000 shares. If successful the Company will use
the net proceeds of $630,000, before accountable and
nonaccountable offering expenses, as follows:
Marketing $ 280,000
New sales executive 100,000
Working capital 250,000
$ 630,000
The Company will issue warrants to purchase one share of the
Company's common stock for each ten shares sold in this
offering. The warrants will be exercisable at $.32 per share
during a four-year period beginning one year from the date of
sale.
F-18
<PAGE>
