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FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 09607
CENTRUM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1654011
- --------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6135 TRUST DRIVE, SUITE 104A, HOLLAND, OH 43528
- ----------------------------------------- ----------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (419) 868-3441
-----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------- -------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON CAPITAL STOCK, $.05 PAR VALUE
--------------------------------------
(TITLE OF CLASS)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation SK is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10K. []
Aggregate market value of voting stock held by non-affiliates of the registrant
at May 31, 1997. (for the sole purpose of making this calculation, the term
"non-affiliate" has been interpreted to exclude directors and executive
officers of the Company. Such interpretation is not intended to be, and should
not be construed to be, an admission of the Company that such directors and
executive officers of the Company are "affiliates" of Centrum Industries, Inc.
as that term is defined under the Securities Act of 1934.(computed by reference
to actual trades in the over the counter market on the Bulletin Board
on May 31, 1997): $ 15,958,660
Number of shares outstanding of common stock, $.05 par value, as of May 31,
1997: 8,368,904
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CENTRUM INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
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PART I PAGE
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Item 1.Business 3
Item 2.Properties 8
Item 3.Legal Proceedings 9
Item 4.Submission of Matters to a Vote of Security Holders 9
PART II
Item 5.Market for Centrum's Common Stock and Related Stockholder Matters 10
Item 6.Selected Financial Data 11
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 8.Financial Statements and Supplementary Data 19
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of Centrum 50
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and Management 55
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
</TABLE>
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
GENERAL
Centrum Industries, Inc. ("Centrum", the "Company" or the "Company and its
subsidiaries") is a Delaware corporation which is a holding company for three
manufacturing segments: Metal Forming Operations (65% of 1997 sales), Material
Handling Systems (23% of 1997 sales), and Motor Production Systems (12% of 1997
sales). Centrum was originally incorporated in North Dakota in 1977 under the
name "Energy Resources of North Dakota, Inc." (In this document, years reflect
the fiscal year ended March 31, unless otherwise noted.)
The metal forming operations began when McInnes Steel Company was purchased
through a subsidiary merger on March 8, 1996 for approximately $12.3 million,
which was financed by debt and the sale of Centrum's common stock. The
material handling systems segment was formed September 2, 1993, when the stock
of American Handling, Inc. was acquired through a subsidiary merger in exchange
for Centrum's common stock valued, by management, at $2.29 million. The motor
production systems began when Centrum purchased all of the outstanding common
stock of Micafil, Inc. on May 17, 1993. The purchase price of $1.75 million
was paid in the form of two promissory notes to ASEA, Brown, Boveri, Inc., the
seller. The oil and gas segment has been reclassified and combined with the
corporate office due to immateriality.
Acquisitions are a key element of Centrum's business strategy. Centrum
focuses on businesses involved in basic industries such as steel, material
handling and machine tools which posess capital and technology barriers to
entry. The Company looks for businesses manufacturing high quality products
that can be improved by making fundamental changes, such as reducing fixed
costs and improving asset utilization. Centrum continues to actively seek new
acquisitions which complement its core manufacturing segments.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information relating to the amounts of revenue, operating profit or loss and
identifiable assets attributable to each of the Company's industry segments for
1995-1997 is included in Note 13 to the Consolidated Financial Statements.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
METAL FORMING OPERATIONS
The largest subsidiary of Centrum is McInnes Steel Company (McInnes Steel).
McInnes Steel was acquired in March 1996 and comprises the metal forming
operations. McInnes Steel operates four metal forming facilities: McInnes
Steel Company (MSC), McInnes Rolled Rings (MRR), Taylor Forge Company
(Taylor), acquired on June 4, 1997, and Erie Bronze & Aluminum Company (EBA).
Products and Markets
The metal forming operations produce specialty steel forgings, steel seamless
rolled rings, and nonferrous castings.
MSC is located in Northwestern Pennsylvania and produces forged steel
components, primarily utilizing an open-die forging manufacturing process.
Open-die forging is the process of compressing heated metal into a
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desired shape using a press or hammer without completely enclosing the metal
within the die. The forgings can range in sizes up to 45,000 lbs. MSC and MRR
both have heat treat capabilities. Heat treat techniques are used to
manipulate the microstructures and mechanical properties of the metal. The
forgings are then generally machined to customer specifications. Specialty
steel forgings are utilized in the power generation, compressor and
miscellaneous commercial industries. There are numerous domestic and foreign
competitors in the specialty steel forging industry, however, Patriot Forge and
FOMAS S.p.A. are the main competitors in the commercial power generation
market.
MRR and Taylor produce steel seamless rolled rings from 4 inches to 160 inches,
in weights from 2 to 11,000 pounds. A seamless rolled ring is produced by
punching a hole in a heated pre-formed round of metal and then rolling the
pre-form to customer specifications. The rings are produced in various cross
sections and material grades, and can be provided in a rough forged or machined
condition. Rolled rings are sold to bearing, off-road construction equipment
manufacturers, oil and gas, mining and specialty machine manufacturers. There
are numerous domestic and foreign competitors in the rolled ring industry,
however, F.R.I.S.A., in Mexico, and Ovako-Ajax, Inc. and Scot Forge in the
United States are the main competitors in the industry. MRR is recognized as
an industry leader in quality, price and delivery. This is due to the design
of the MRR facility, which was constructed in 1992 as a state of the art, fully
automated seamless ring rolling mill. Taylor is competitive in the 70 to 160
inch rolled ring market. Taylor was purchased in June of 1997 in order to
complement the MRR facility in the larger end of the ring market. The combined
facilities will now be able to serve over 90% of the target markets and
represent one of the largest suppliers to the industry.
Nonferrous castings are produced at EBA in Erie Pennsylvania. The castings
range in sizes from one ounce to 1,000 pounds in either bronze or aluminum. EBA
is one of two main suppliers to the domestic and Canadian glass bottle mold
producers. The other main supplier is Ross Mould. Sales are also made in the
international market. EBA sells its castings to the pump and valve industries
and other commercial applications along with other international glass
customers.
Sales
The products of the metal forming operations are marketed primarily through an
internal sales force. The metal forming operations sells its products both
domestically and internationally, however, approximately 85% of the metal
forming operations sales are made domestically. The metal forming operations
sales are subject to slight seasonal fluctuations. Quality, service, delivery
and price are decisive competitive factors.
Sales during 1997 to the power generation industry accounted for approximately
16% of net sales on a consolidated basis and 25% of the metal forming operations
sales. Sales during 1997 to General Electric Company (GE) were 14% of net sales
on a consolidated basis and 22% of the metal forming operations sales. Loss of
this customer could have a significant impact on the results of operations. No
other customer exceeds 10% of the consolidated or metal forming operations
sales. Approximately one-half to three quarters of the metal forming operations
segment customers provide repeat business. Customers are billed for the
products upon shipment.
Backlog at the metal forming group was $12.3 million and $16 million as of May
31, 1997 and 1996, respectively. This decrease represents a change in the
inflow of power generation orders. The May 1996 backlog includes orders which
had been received during the first quarter of 1997 representing commitments for
the entire fiscal year. Currently, this customer is placing their orders
ratably over the year. All of the backlog orders are expected to be filled
within the next year.
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Raw Materials
The primary raw material of the metal forming operations is steel, which is
purchased from regional and national suppliers. There are no long-term
contracts for the purchase of steel. The raw material supplies have been and
are expected to remain sufficiently abundant to support operations. The metal
forming operations require maintaining a stock inventory of raw materials due to
the variety of its products and the customer lead-time requirements, however
supplier consignment is expected to be utilized more often in the future.
Energy is a significant requirement in the production of the metal forming
operations. Energy is required to forge and heat treat the forged metals.
Natural gas and electricity are the main sources of energy. Supplies of
natural gas and electricity have been sufficient and are expected to remain at
adequate levels.
Employees
At May 30, 1997, the metal forming operations had approximately 320 employees.
Approximately 140 employees at MSC are represented by a collectively bargained
agreement which expires on October 1, 1997. Approximately 50 employees at EBA
are represented by a collectively bargained agreement which expires on August 1,
1997. Seven employees are represented by a collectively bargained agreement
which expires on October 1, 1999. Management anticipates that the terms of the
agreements to be negotiated will not materially differ from those presently
existing. Management believes that it has good relations with its employees.
MATERIAL HANDLING SYSTEMS
The material handling systems segment contains American Handling, Inc. (AH).
Products and Markets
The materials handling systems offer material handling systems and components
to companies with warehouse and distribution facilities. Designing a material
handling system requires expertise in facilities planning and system design,
inventory analysis and determination of equipment needs, procurement and
installation of equipment, and coordinated relocation of the customer
inventory.
The principal market is the automotive after-market, which accounts for
approximately 50% of sales, catalogue fulfillment is approximately 20% of sales
and the balance comes from new markets such as hardware, office products, candy,
tobacco, lawn and garden, and consumer electronics. Sales during 1997 to
Carquest, a customer in the automotive after-market contributed approximately 4%
of consolidated sales and 18% of the material handling systems sales. Loss of
this repeat customer would not have a material impact on the consolidated
results, however, it would adversely affect the material handling systems
segment.
The material handling systems competes primarily on price, product, performance
guarantees and the extent of services which can be provided. There are few
direct competitors in the industry which provide the turnkey service provided
by AH. Competition is primarily in the individual phases of the work. For
example, a competitor may provide construction and installation services or
design services, but few competitors provide the range of services offered by
AH. The competitors compete primarily on price.
Sales
The material handling systems segment markets its services and products in the
domestic market through an internal sales force. Sales are not seasonal,
although projects involving new construction can be delayed due to weather
conditions.
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The industry and the material handling systems segment have minimal working
capital requirements due to the large amount of revenues derived from goods
shipped directly to the customers' job site. Generally, all goods drop-shipped
are special orders which permits AH to maintain minimal inventory levels and
still be able to meet customer demand. A project typically lasts from six to
eight months and is supported by a progress payment schedule to conserve
working capital.
As of May 31, 1997, the backlog of firm orders is valued at approximately $9.7
million. This backlog represents a 54% increase from the backlog as of May 31,
1996 of approximately $6.2 million. This increase is due to customer requested
delivery reschedules from 1997 into 1998. All of the backlog orders are
expected to be filled within the next year.
Raw Materials
Raw materials are purchased to fabricate mezzanines structures, cart racks and
catwalks and consist mainly of raw steel. Other material handling products,
such as shelving, rack and conveyor equipment, are purchased from multiple
suppliers. Raw materials and material handling products are readily available
from many different suppliers.
Employees
At May 31, 1997, the material handling systems had approximately 65 employees,
who are not covered by a collective bargaining agreement. Management believes
that relations with employees are good.
MOTOR PRODUCTION SYSTEMS
The motor production systems segment consists of Micafil, Inc. (Micafil) and
its 50% equity interest in Micafil - Axis, L.L.C. (M-A Joint Venture).
Products and Markets
The motor production systems segment designs and manufactures armature and
stator winding machines and complete production systems for small fractional
horsepower electric motors used primarily in the automotive and consumer
durable goods markets. Micafil has a specific niche in both design of small
armature assembly lines and the manufacture of armature winders and is
recognized within the industry as a pioneer in this technology. In addition to
the sale of machines and machining lines, revenue is also generated from
rebuilding and retrofitting existing machines and selling replacement parts.
This represents approximately 25% of Micafil's total revenue and is viewed as a
critical component to being recognized as a full-service supplier in this
industry.
Micafil is one of four major suppliers of small fractional horsepower motor
production equipment in the world. The other three suppliers are Globe, Axis
S.p.A. and Odawara. No single competitor has a dominant position. Competition
is based upon product performance, price, delivery time, and local plant
preference.
Sales
The products of the motor production systems segment are marketed both
domestically and internationally primarily through an internal sales force.
The majority of the sales are made domestically. Sales during 1997 to
industries serving the automotive market accounted for 7% of consolidated sales
and 65% of the motor production systems sales. Sales during 1997 to Hoover and
ITT and its subsidiaries were 4% each of consolidated sales and 31% and 35%,
respectively, of the motor production systems. Loss of either of these
customers would not have a material impact on the consolidated results,
however, it would adversely affect the
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motor production systems segment over the long term, as customers typically
place repeat orders over a 3 to 5 year cycle.
Customers are billed 30% with order placement, 60% at time of shipment and the
balance is net 30 days. This is consistent with industry practice.
The M - A Joint Venture was formed during fiscal 1997, between Micafil and
Axis S.p.A, which offers a complementary product line. The purpose of this
strategic marketing alliance is to increase the marketing and distribution of
machines and systems within North America. Sales during 1997 to the M-A Joint
Venture were not material.
As of May 31, 1997, the backlog in firm orders was valued at approximately $2.1
million, and all of the backlog orders are expected to be filled within the
next year. This backlog amount represents a decrease of $4.1 million from the
backlog as of May 31, 1996. The prior year backlog contained two large orders
which subsequently shipped during 1997 and early 1998.
Raw Materials
The material used in the production process generally consists of steel and
aluminum and purchased electrical and mechanical components such as valves,
cylinders and motors. Micafil has local sources for its production material
and there is ready availability for all components although some items require
longer lead time due to machining or special order items.
Employees
At May 31, 1997, Micafil had approximately 60 employees, who are not covered by
a collective bargaining agreement. Management believes that the relations with
employees are good.
(d) COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state and local provisions dealing with the
protection of the environment. The Company is involved in certain regulatory
proceedings involving environmental matters which are incorporated by reference
from Note 10 to the Consolidated Financial Statements contained in Item 8
hereof. Expenditures related to the environmental regulatory matters were not
material for fiscal 1997 and are not anticipated to be material for 1998. Based
upon historical experience and information currently available, the Company does
not expect compliance with environmental regulations to have a material adverse
effect on the Company's operations.
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ITEM 2. PROPERTIES
Centrum's principal facilities are set forth in the table below:
Location Use Leased/Owned
CORPORATE OFFICES
Holland, Ohio Corporate Office Leased
Medina County, Ohio Oil & Gas Exploration Leased (1)
METAL FORMING OPERATIONS
Corry, Pennsylvania Administration/Sales Office
Production/Warehousing Owned
Fairview, Pennsylvania Administration/Sales Office
Production/Warehousing Owned
Erie, Pennsylvania Administration/Sales Office
Production/Warehousing Owned
Erie, Pennsylvania Production Leased
Memphis, Tennesse Administration/Sales Office
(Acquired June 4, 1997) Production Owned
MATERIAL HANDLING SYSTEMS
Cleveland, Ohio Administration/Sales Office Leased (2)
Production/Warehousing
Cleveland, Ohio Warehousing Leased
Cleveland, Ohio Warehousing Leased
MOTOR PRODUCTION SYSTEMS
Englewood, Ohio Administration/Sales Office Owned
Production/Warehousing
The Metal Forming Operations properties located in Pennsylvania secure
bank debt and industrial development financing. Details of the
encumbrance are incorporated by reference from Note 6 and Note 10 to the
Consolidated Financial Statements contained in Item 8 hereof.
The manufacturing facilities are well maintained and are suitable for the
Company's current and anticipated needs. The facilities are operating at
capacities which range from approximately 70% to 80%.
(1) Represents mineral rights.
(2) In February 1996, an option to purchase this space for approximately
$1,150,000 was exercised. The transaction was not consummated, however, in
May 1997, an agreement to extend the option to purchase and the lease was
reached with the lessor.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation arising out of the normal course of
business activities. None of these legal proceedings including the regulatory
proceedings discussed below are expected to have a material adverse effect on
the Company.
The Company is involved in certain regulatory proceedings involving
environmental matters. On October 16, 1989, the USEPA filed a federal court
cost recovery action in the United States District Court for the Western
District of Pennsylvania against various alleged owners and transporters
relating to an unpermitted landfill site in Millcreek Township, Erie County,
Pennsylvania ("Millcreek site"). EBA was identified as one of various
"potentially responsible parties" ("PRP's") which allegedly caused "hazardous
substances," as defined in CERCLA, to be taken to the Millcreek site. With
regard to this cost recovery action, EBA has negotiated a settlement which has
been approved in federal court and has been concluded in May of 1996.
In addition to the above, on March 31, 1992, USEPA issued a CERCLA Section 106
unilateral administrative order ("Section 106 order") to EBA and most other
PRP's relating to the Millcreek site. The Section 106 order required the named
PRP's to perform soil cap remediation work at the Millcreek site. The PRP's
have submitted their work plan, which has been approved by the government and
construction is expected to begin during 1997.
EBA is also involved in two other private party actions brought by landowners
relating to the Millcreek site. Management does not believe that these suits
have any merit and believes that any resolution would not be material.
Additional details involving environmental matters are incorporated by
reference from Note 10 to the Consolidated Financial Statements contained in
Item 8 hereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This item is not applicable.
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PART II
ITEM 5. MARKET FOR CENTRUM'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Subsequent to September 1995, the Company's common stock is traded over the
counter on the Bulletin Board under the symbol CIII. Prior to September 1995,
trades were primarily made through Continental Capital, Inc. Continental
Capital, Inc. See Item 10, "Directors and Executive Officers of Centrum," and
Item 12, "Security Ownership of Certain Beneficial Owners and Management."
The following table presents the quarterly high and low selling price in the
over the counter market, with the exception of the first two quarters of fiscal
year 1996, and represent actual transactions. The selling prices during the
first two quarters of fiscal year 1996 were trades made primarily through
Continental Capital, Inc.
<TABLE>
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1996: High Low
Quarter ending June 30, 1995 $1.00 $0.25
Quarter ending September 30, 1995 1.50 0.25
Quarter ending December 31, 1995 3.63 1.00
Quarter ending March 31, 1996 2.75 1.25
1997:
Quarter ending June 30, 1996 2.50 1.50
Quarter ending September 30, 1996 2.75 1.25
Quarter ending December 31, 1996 3.25 1.75
Quarter ending March 31, 1997 3.00 2.00
</TABLE>
As of May 31, 1997, there were approximately 1,000 shareholders of record.
Shareholders are entitled to receive dividends when and as declared by the Board
of Directors. However, Centrum has never paid a dividend, and intends to
conserve capital to finance future acquisitions and, accordingly, does not
anticipate payment of any dividends in the foreseeable future. Furthermore, any
proposed dividends must be approved, in advance, by both the holders of the 11%
convertible, unsecured notes payable, and Huntington National Bank, the
Company's principal lender.
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6. SELECTED FINANCIAL DATA
The following five year selected financial data should be read in conjunction
with the Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations that appear elsewhere
in this report.
<TABLE>
<CAPTION>
As of and for the Years Ended March 31,
-------------------------------------------------
1997 1996 (B) 1995 1994 (A) 1993
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net sales $71,154,726 $27,525,702 $18,292,696 $ 8,760,667
Other expense (2,475,411) (402,520) (270,912) (483,599) $ (132,258)
Income (loss) from continuing
operations before income taxes 1,676,603 1,063,054 386,927 (1,112,897) (436,780)
Provision (benefit) for
income taxes (773,675) 257,814 223,679
----------- ----------- ----------- ---------- ------------
Income (loss) from continuing
operations $ 2,450,278 $ 805,240 $ 163,248 $(1,112,897) $ (436,780)
=========== =========== =========== ========= ============
PER SHARE DATA:
Income (loss) from continuing
operations $ .28 $ .13 $ .03 $ (.26) $ (.21)
FINANCIAL POSITION:
Current assets $25,768,427 $23,195,165 $ 5,393,369 $3,450,374 $ 231,910
Current liabilities 22,640,435 24,028,677 4,432,101 5,810,033 508,600
Working capital (deficiency) 3,127,992 (835,312) 961,268 (2,359,659) (276,690)
Total assets 43,000,647 40,611,748 9,547,336 7,941,039 697,504
Long-term liabilities 11,021,938 12,173,408 3,609,487 1,035,499 325,000
</TABLE>
(A) On May 17, 1993, the Company acquired all of the outstanding common stock
of Micafil Inc. Micafil had net sales of $2,718,943 and a loss from continuing
operations of $339,983 for the ten month period ended March 31, 1994. On
September 2, 1993, the Company acquired the stock of American Handling, Inc.
American Handling had net sales of $6,041,724 and income from continuing
operations of $89,012 for the seven month period ended March 31, 1994. These
acquisitions have been accounted for as purchases and their results of
operations have been included in the consolidated financial statements since
the dates of acquisition.
(B) On March 8, 1996, McInnes Steel Company was purchased through a subsidiary
merger. This transaction was accounted for as a purchase and its operations
have been included in the consolidated financial statements since that date.
McInnes had net sales of $2,539,899 and income from continuing operations of
$70,141 for the period from March 8, 1996 to March 31, 1996.
During the five year period ending March 31, 1997 no dividends were declared or
paid.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Centrum is a publicly traded holding company that acquires and operates
companies that have strong niche positions in their industries. During 1996,
Centrum completed its largest acquisition to date when the Company purchased
McInnes Steel. The Company's long-range strategy is to own and acquire control
of companies in basic manufacturing industries with quality products in
industries with capital and technological barriers to entry. All of the
Company's present manufacturing subsidiaries were acquired subsequent to April
1993.
RESULTS OF OPERATIONS
The Company's operations have been classified into four business segments:
metal forming operations, material handling systems, motor production systems,
and corporate office. The metal forming operations segment was established on
March 8, 1996 with the acquisition of McInnes Steel Company (McInnes), and
consists of steel open die forging, non-ferrous casting and seamless rolled
ring operations. Taylor Forge Company (Taylor) was acquired on June 4, 1997
and is not included in the results of operations for fiscal year 1997. The
material handling systems segment was established with the acquisition of
American Handling, Inc. (AH) on September 2, 1993, and consists of the design,
procurement and installation of material handling systems for warehouses and
distribution facilities. The motor production system segment was established
with the acquisition of Micafil, Inc. (Micafil) on May 17, 1993, and consists
of the manufacture of armature winding machines and complete production systems
for numerous complex manufacturing processes. The Corporate office functions
to oversee the operating segments and pursue future acquisitions.
YEAR ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
Consolidated results
Net sales for 1997 increased by $43.6 million or 159% to $71.2 million. The
primary reason for the increase is due to the inclusion of the metal forming
operations for a full twelve months in 1997 as opposed to 1996 which only
included sales for the period from March 8, 1996 through March 31, 1996.
Consolidated gross margins decreased to 23% of sales as compared to 26.2%
in the prior year. The decreased gross margins are reflective of the change in
the composition of the operating segments since the acquisition of the metal
forming operations coupled with reduced margins experienced during 1997 at the
other two segments. Selling, general and administrative expenses increased by
$6.6 million in 1997 to $12.1 million, reflecting the inclusion of McInnes.
Interest expense increased by $2.2 million to $2.75 million primarily
reflecting the increased level of debt required to fund the McInnes
acquisition. During 1997, management recorded a provision for income tax
expense of $827,000 which was offset by a $1.6 million credit to deferred
income tax expense. The credit to deferred income tax expense was to reduce
existing valuation allowances and was based upon new information evaluated
during the year regarding the availability of certain federal net operating
loss carryforwards (NOLs) and the continued improvements and operating profits
throughout the Company.
Results for each of the individual segments are as follows.
Metal forming operations
Sales at the metal forming operations were $46.6 million during 1997 as
compared to the calendar year prior to Centrum's acquisition of $37.9 million.
The increase in revenues is primarily due to continued growth at the seamless
rolled ring operations and open-die forging operations. Gross margins were
23.6% of sales for 1997 as compared to 22.1% in the fiscal year prior to the
acquisition date. The increase in gross margin is mainly
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attributable to higher margins in the rolled ring products and emphasis by
management on cost controls. Selling, general and administrative expenses were
15.1% of sales for 1997 and 19.3% of sales in the pre-acquisition period. The
reduction is mainly due to increased revenues and emphasis on controls over
fixed costs.
Material Handling Systems
Revenues for 1997 were $16.2 million, which was a decrease of $3.3 million from
the prior year. The decrease is primarily due to customer requested delivery
reschedules from fiscal 1997 into 1998. Gross margins of 23.2% of sales for
1997 reflected a decrease over the prior year's margin of 26.3%. The decreased
gross profit margin is reflective of higher sales of warehouse management
software purchased from an outside vendor which has a gross margin of 15 - 18%.
As a percent of sales, the 1997 selling, general and administrative expenses
increased to 20.4% of sales from 19.1% in 1996. The increase for 1997 is due
to the decrease in sales revenue, which covered a lesser proportion of fixed
expenses.
Motor Production Systems
Revenues for 1996 were $8.3 million, which was an increase of $2.8 million from
the prior year. The primary reason for the increase is the continued
penetration into the appliance and power tool markets. Gross margins of 19.8%
of sales decreased as compared to the prior year's gross margin of 24.9%. The
lower gross margin is the result of competitive pressures, which necessitated
accepting lower margins to produce sales growth. Gross margins are expected to
remain lower than those experienced in prior years. Selling, general and
administrative expenses for 1997 as a percent of sales decreased to 11.4% in
1997 from 16.1% in 1996. The decrease for 1997 is due to the increase in sales
revenue which covered a greater proportion of fixed expenses.
Corporate Office
During 1997, the corporate office recorded general and administrative expenses
of $940,000, as compared to $600,000 in the prior year. The increase is due
primarily to increased professional fees for 1997 compared to 1996 and with
additional administrative expenses associated with the overall growth in the
business. Interest expense for 1997 was $810,000 as compared to $242,000 in
1996. The increase in interest expense was due to debt incurred primarily in
connection with the acquisition of McInnes. The oil and gas operations, which
are immaterial, have been included in Corporate Office.
YEAR ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995
Consolidated results
Net sales for 1996 increased by $9.2 million or 50% to $27.5 million. The
primary reason for the increase in sales was a $6.5 million increase at the
material handling systems segment. In addition, consolidated sales for 1996
include sales by the metal forming operations segment of $2.5 million for the
period from March 8, 1996 (the date Centrum acquired McInnes) to March 31,
1996. Gross margins of $7.2 million increased by $2.4 million from the prior
year and increased slightly to 26.2% from 26.1% of sales. Selling, general and
administrative expenses increased by $1.7 million to $5.8 million, reflecting
the increased level of operations, but decreased as a percent of sales from
22.5% for fiscal 1995 to 20.9% for the current year. Interest expense
increased by $.2 million to $.5 million primarily reflecting the increased
level of debt required to fund the McInnes acquisition. The 1996 consolidated
income tax provision of $258,000 increased over the prior year's provision of
$224,000. The slight increase was due to a higher current provision,
reflecting the improved profitability of the consolidated group, which was
somewhat offset by a deferred income tax benefit of $191,000. During 1996, net
operating losses of approximately $820,000 were used to offset income taxes
payable. However, in accordance with Statement of Financial Standards No. 109,
"Accounting for Income Taxes" (FAS 109), utilization of net operation losses
(NOLs) relating to net operating losses of AH and Micafil which were
13
<PAGE> 14
fully reserved at the time they were acquired, resulted in a $192,000 decrease
to goodwill and other intangibles, rather than as a reduction of income tax
expense.
Results for each of the individual segments are as follows.
Material Handling Systems
Revenues for 1996 were $19.5 million, which was an increase of $6.5 million or
50% of the revenue generated in 1995. The primary reasons for the increase
were the continued repositioning of AH into leading-edge high tech systems
integration markets and the ongoing strength of the manufacturing sector
economies. Gross margins of $5.1 million, or 26.3% of sales for 1996,
reflected a slight decrease over the prior year's margin of 26.9%. Selling,
general and administrative expenses for 1996 were $3.7 million, which is an
increase of $1.0 million over 1995. The increase in selling, general and
administrative expenses is primarily due to increased wages, reflecting AH's
expanding operations, and increased bonus expense as a result of improved
profitability. As a percent of sales, the 1996 selling, general and
administrative expenses decreased to 19.1% of sales from 20.8% in 1995. The
decrease in 1996 is due to an increase in sales volume which covered a greater
proportion of fixed expenses.
Motor Production Systems
Revenues for 1996 were $5.5 million, which was an increase of $.2 million from
the prior year. The primary reason for the increase is the continued
improvement in the appliance and power tool markets. Gross margins of $1.4
million, or 24.9% of sales improved over the prior year's gross margin of
24.2%. The gross margin improvement was due to Micafil accepting a larger
proportion of higher margin contracts as a result of increased demand within
the industry. Selling, general and administrative expenses for 1996 were $.9
million or $.2 million higher than the previous year. As a percent of sales,
selling, general and administrative expenses increased from 16.1% in 1995 to
16.5% in 1996. The increase was primarily due to an increase in the number of
administrative personnel.
Corporate Office
Interest expense for 1996 was $242,000 as compared to $130,000 in 1995. The
increase in interest expense was due to debt incurred primarily in connection
with the acquisition of McInnes.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES CASH FLOW
Cash used by operating activities for the year ended March 31, 1997 was $1.6
million. During 1997, the largest uses of cash were the reduction of accounts
payable by $2.8 million and the $1.1 million increase in costs and estimated
earnings in excess of billings due to the timing of certain vendor payments and
the timing of billings related to two large contracts which were in process at
year end. During 1996 and 1995, the primary use of cash for operating
activities was a $2.2 million and $1.8 million increase, respectively, in
accounts receivable, due to the increasing fourth quarter revenues at the
material handling and motor productions systems segments. The increases in
accounts receivable were partially offset by increases in accounts payable of
$1.7 million and $700,000 at March 31, 1996 and 1995, respectively, which
reflects the increased level of operations at the operating subsidiaries. Net
income for 1997, 1996 and 1995 combined with depreciation and amortization
expense was $4.3 million, $1.1 million, and $423,081, respectively. The
Company recorded a noncash income tax provision of $191,000 and $224,000,
during 1996 and 1995, respectively, for the utilization of fully reserved, pre
acquisition net operating losses at AH and Micafil.
14
<PAGE> 15
FINANCING AND INVESTING ACTIVITIES CASH FLOW
To meet operating expenses and to finance acquisitions, during 1997 and 1996,
Centrum relied upon a combination of new capital and debt. During 1996,
Centrum initiated a Private Placement Offering ("Offering") for 2.3 million
shares of its common stock. During 1997, the offering was completed and total
proceeds were $3.1 million, which is net of $347,000 in issuance costs and
expenses. During 1997, an additional $2.8 million was drawn on the revolving
line of credit to support operations and working capital requirements.
Centrum also obtained funds for operating expenses from the proceeds of several
private placements of debt. Beginning in January 1995, Centrum offered
unsecured five year term notes with attached warrants. The notes bear interest
at prime plus .5%. The warrants allow the note holder to purchase 20,000
shares of the Company's common stock for each $50,000 of notes held at a
purchase price of $1 per share. There were $550,000 of notes sold in 1996 and
$650,000 in 1995. The proceeds from these sales were used to fund corporate
office operations. During 1997 and 1996, $238,000 and $83,000 of these notes
were repaid. Subsequent to 1996, the Company has not initiated any new private
placements of debt.
Acquisitions
On June 4, 1997, Centrum acquired substantially all of the assets of Taylor
Forge International, Inc. (TFI), through a subsidiary of McInnes which will be
known as Taylor Forge Company (Taylor). Taylor produces steel seamless rolled
rings for the oil, bearing and miscellaneous commercial industries. The
purchase price of approximately $6.8 million includes the repayment of $4.5
million of debt existing at TFI. The acquisition was financed by debt
agreements and the issuance of 94,000 shares of the Company's common stock. An
additional 30,000 shares of the Company's common stock may be issued as a
result of the final determination of net working capital of TFI at the
acquisition date. Financing for the transaction was provided by an increase in
McInnes' line of credit with Huntington National Bank (Bank) and new term debt.
McInnes drew $2.2 million on the line of credit and obtained a $4 million, five
year term note, which bears interest at 1.25% above prime. Additionally, seller
financed notes with interest payable at prime plus 1.25% in the amount of
$250,000 were obtained.
Centrum acquired all the stock of McInnes through a subsidiary merger on March
8, 1996. The acquisition of McInnes was primarily financed in the form of debt
agreements and proceeds from the sale of the Company's common stock. The debt
agreement consisted of a promissory note issued to a commercial bank for $2.9
million payable in monthly installments at 1.25% above the prime rate and a
line-of-credit for the lesser of $15.5 million or "borrowing base," as defined
in the agreement. As of March 31, 1997, approximately $15 million in total
loans and commitments was available of which the Company had borrowed $10.5
million and had stand-by letters of credit issued of approximately $3.9
million. A Note and Warrant Purchase Agreement was entered into with three
investment funds which provides for $2.5 million aggregate principal amount of
11% convertible debt with warrants for the purchase of 1,250,000 shares of the
Company's common stock for $2 per share. Additional funds to finance the
acquisition were obtained through the Offering. The remaining funds were
provided by the issuance of $1.2 million aggregate principal amount of term
notes which bear interest at 2% per month to certain of the Company's
shareholders and directors and were repaid during 1997 from the proceeds of
the Offering.
The financing provided by the Bank for the acquisition of McInnes is secured
by substantially all the real and personal property of Centrum and its direct
and indirect subsidiaries and contains various financial, operational and
reporting covenants. Included among these covenants is a prohibition on the
Company from incurring new secured debt or new unsecured debt in excess of
certain thresholds or from making any business acquisitions, unless a waiver is
first obtained from the Bank. The financial covenants include the requirements
that McInnes is
15
<PAGE> 16
to maintain a fixed charge coverage ratio not less than 1.20 to 1, a ratio of
total liabilities to tangible net worth not to exceed 8.5 to 1, and tangible
net worth not less than $2.5 million. The Bank permits certain management fees
and advances to be paid by the Company's subsidiaries to Centrum, and Centrum
will use these advances primarily for payment of principal and interest expense
and for working capital purposes.
The 11% convertible subordinated debt (Notes) are convertible at any time at
the option of the holder (Holders) to shares of the Company's common stock at a
price of $2.00 per share. The warrants are exercisable at an initial exercise
price of $2.00 per share, subject to various anti-dilution adjustments
affecting the exercise price and/or the number of shares subject to the
warrants. The Notes are presently secured by the guarantees of two of the
Company's subsidiaries, American Handling, Inc. and Micafil, Inc., and the
Notes have been subordinated to the Bank Loan. The Note agreements contain
various financial, operational, and reporting covenants and requirements
including a requirement that each of the Holders must approve certain financial
and operational transactions of the Company, including the incurrence of new
secured or unsecured debt, with certain exceptions, and any business
acquisitions. The financial covenants include the requirements that the Company
maintain a fixed charge coverage ratio not less than 1 to 1, and a ratio of
total liabilities to net worth not to exceed 5.4, 3.5 and 2.4 to 1 for the
years ending March 31, 1997, 1998 and 1999, respectively. Net worth is not to
be less than $5.1, $7.4 and $9.8 million at March 31, 1997, 1998 and 1999,
respectively. Additionally, the Company may not pay dividends or issue
additional shares of common stock (with certain exceptions), without the prior
approval of the Holders. The Company has also entered into an Equity Holders
Agreement, in which the Company has agreed to use its best efforts to cause two
persons designated by the Holders to be nominated to the Company's Board of
Directors. Pursuant to which, the Board nominated, and the shareholders
elected, two designees, (Messrs. Schroder and Klaffky), to the Board during
1997.
Capital expenditures
As of March 31, 1997, the Company exercised an option to purchase certain
warehousing and office space now being leased by AH for approximately $1.2
million. The transaction was not consummated and an agreement to extend the
option to purchase and the lease was reached with the lessor. Centrum has no
other material commitments for capital expenditures other than the acquisition
of the Taylor assets. Additions to property, plant and equipment were
approximately $815,000 in 1997, $526,000 in 1996 and $99,000 in 1995. During
1998 capital expenditures, excluding the purchase of Taylor, are expected to be
$1.8 million, which will be invested primarily to enhance the metal forming
facilities.
Future Funding
The primary sources of funds available to the Company in 1998 for operations,
planned capital expenditures and debt repayments include available cash,
operating income and funds available under the line of credit agreement.
Management believes that, beyond 1998, sufficient funds for operations, debt
repayments and acquisitions can be raised through cash flows generated by the
operating subsidiaries, funds available under the line of credit agreement, and
from persons who are accredited investors in accordance with the private
offering requirements of federal and state securities laws.
Tax and other matters
At March 31, 1997, the Company has $9.8 million in NOLs available which would
reduce income tax payable in future years. However, there are uncertainties
related to both the amount and ultimate realization of the NOLs. At March 31,
1997, a remaining valuation reserve of $1.7 million has been maintained,
primarily due to limitations on the usage of certain pre-acquisition NOLs. The
remaining valuation allowance could be increased or reduced in the near term if
estimates of future taxable income during the carryforward period change
16
<PAGE> 17
substantially. During 1997, 1996 and 1995, the Company reduced its income taxes
payable by $534,000, $278,000 and $224,000, respectively, through the use of
NOLs.
The Company does not anticipate that expenditures to ensure that its
computerized systems are year 2000 compliant will have a material impact on
financial position or the results of operation.
The Company is involved in routine litigation and various legal efforts
incidental to the normal operations of its business. In management's opinion,
none of these matters will have material adverse effects on the Company's
liquidity or results of operations. See also "Environmental Matters," below.
ENVIRONMENTAL MATTERS
The Company's continuing compliance with existing federal, state and local
provisions dealing with the protection of the environment is not expected to
have a material effect upon the Company's capital expenditures, earnings,
competitive position or liquidity.
EBA is a direct defendant in two governmental cost recovery actions and other
related private party actions at a waste disposal site. With regard to the
most significant cost recovery action, EBA has negotiated a settlement which
has been approved in federal court. In addition, EBA and other parties are
responsible for performing certain cleanup work at the site pursuant to a
government order.
Private party suits and actual cleanup costs in excess of governmental
estimates can affect the reliability of the Company's loss estimates. In
addition, unasserted claims are not reflected in the Company's cost estimates.
Pursuant to the environmental statutes, the Company may be found jointly and
severally liable to the government for cleanup costs; however, management
believes that the current status of government settlements and group cleanup
participation at the site indicates that the liability will be shared by
responsible parties. Currently, there are at least 17 parties participating in
a pro rata cost sharing arrangement with respect to the site cleanup work. The
Company has negotiated an insurance settlement which requires the carrier to
reimburse the Company for site expenses, subject to a ceiling. At March 31,
1997 and 1996, the Company has recorded liabilities of $600,000 and $695,800,
respectively, of which $350,000 is recorded as a current liability. At March
31, 1997 and 1996, the Company has recorded a receivable from its insurance
carrier which is included in current assets. Funds are expected to be paid
over approximately three years. The total anticipated site costs and private
suits are not expected to vary materially from the recorded accruals and
insurance settlement.
OUTLOOK
Operating revenues are expected to increase in 1998 in the metal forming group
as a result of the acquisition of Taylor and continued growth at MRR. The
cost of integrating Taylor into the metal forming operations is not expected to
be material. Operations at the material handling systems and motor production
systems segments are expected to remain stable throughout 1998 and earnings are
expected to be consistent with those experienced in 1997. Interest expense for
1998 is anticipated to remain constant in light of scheduled 1997 repayments of
debt which will be offset by borrowings related to the Taylor acquisition.
During 1998, management will focus on further improvements in operating margins
at existing segments and seek potential acquisitions which will complement the
current operations and enhance future earnings. Management will continue their
emphasis on maintaining operating margins at the manufacturing segments in
excess of 8% and annual consolidated revenue growth of 20-30% fueled by both
complementary acquisitions and increased market penetration by each operating
segment. Earnings per share for 1998 are not expected to reflect a tax benefit
to the extent realized in 1997.
17
<PAGE> 18
This annual report on Form 10-K, including "Business" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
contains forward-looking statements within the meaning of the "safe-harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties which could cause actual results to differ
materially from those described in the forward-looking statements. Such
factors and uncertainties include, but are not limited to: the impact of the
level of the Company's indebtedness; the impact of changes in interest rates on
the Company's variable rate borrowings; restrictive covenants contained in the
Company's various debt documents; general economic conditions; the Company's
dependence on a few large customers; price fluctuations in the raw materials
used by the Company, particularly steel; competitive conditions in the
Company's markets; and the impact of federal, state and local environmental
requirements (including the impact of current or future environmental claims
against the Company). As a result, the Company's operating results may
fluctuate, especially when measured on a quarterly basis.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedules
<TABLE>
<S> <C>
Financial Statements: Page
----
Report of Independent Accountants 20
Consolidated Balance Sheet at March 31, 1997 and 1996 21
Consolidated Statement of Operations for the three
years ended March 31, 1997 22
Consolidated Statement of Changes in Shareholders' Equity
for the three years ended March 31, 1997 23
Consolidated Statement of Cash Flows for the
three years ended March 31, 1997 24
Notes to Consolidated Financial Statements 25
Financial Statement Schedule for the three years ended March 31, 1997
II Valuation and Qualifying Accounts 49
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This item is not applicable.
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Centrum Industries, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Centrum Industries, Inc. and its subsidiaries at March 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles. These 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Toledo, Ohio
May 23, 1997, except as to Note 16,
which is as of June 4, 1997
20
<PAGE> 21
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,758,219 $ 2,100,749
Accounts receivable, less allowance for doubtful
accounts of $78,161 and $93,761, respectively 11,080,819 10,979,166
Cost and estimated earnings in excess of
billings on uncompleted contracts 1,513,808 372,699
Inventories, net 9,897,925 9,395,244
Prepaid expenses and other 517,656 347,307
-------------- --------------
Total current assets 25,768,427 23,195,165
Property, plant and equipment, net 10,627,764 11,062,201
Other assets 6,604,456 6,354,382
-------------- --------------
Total assets $ 43,000,647 $ 40,611,748
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 10,644,724 $ 7,886,486
Current portion of long-term debt 1,607,629 2,785,425
Accounts payable 6,640,781 9,506,022
Income taxes payable - 251,143
Deferred income taxes 246,140 122,974
Accrued expenses and other 3,501,161 3,476,627
-------------- --------------
Total current liabilities 22,640,435 24,028,677
-------------- --------------
Long-term debt, less current portion 11,021,938 12,173,409
-------------- --------------
Other liabilities 595,636 826,670
-------------- --------------
Commitments and contingent liabilities (Note 10) - -
-------------- --------------
Shareholders' equity:
Preferred stock - $.05 par value, 1,000,000 shares
authorized, 70,000 issued and outstanding (liquidation
preference of $10 per share) 3,500 3,500
Common stock - $.05 par value, 15,000,000 shares
authorized, 8,368,904 and 6,170,860 issued and
outstanding at March 31, 1997 and 1996, respectively 418,445 308,543
Additional paid-in capital 7,918,233 5,318,767
Retained earnings (accumulated deficit) 402,460 (2,047,818)
-------------- -------------
Total shareholders' equity 8,742,638 3,582,992
-------------- --------------
Total liabilities and shareholders' equity $ 43,000,647 $ 40,611,748
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 22
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 71,154,726 $ 27,525,702 $ 18,292,696
-------------- -------------- --------------
Cost and expenses:
Costs of goods sold 53,435,948 20,306,567 13,516,489
Depreciation and amortization 1,489,268 314,284 259,833
Selling, general and administrative expenses 12,077,496 5,439,277 3,858,535
-------------- -------------- --------------
Total costs and expenses 67,002,712 26,060,128 17,634,857
-------------- -------------- --------------
Operating income 4,152,014 1,465,574 657,839
-------------- -------------- --------------
Other income (expense):
Interest income 199,250 18,206 2,638
Interest expense (2,750,203) (515,538) (331,287)
Miscellaneous income, net 75,542 94,812 57,737
-------------- -------------- --------------
Total other expense (2,475,411) (402,520) (270,912)
-------------- -------------- --------------
Income before income taxes 1,676,603 1,063,054 386,927
-------------- -------------- --------------
Provision (benefit) for income taxes:
Current 43,771 448,838 -
Deferred (817,446) (191,024) 223,679
-------------- -------------- ---------------
Total provision (benefit) for income taxes (773,675) 257,814 223,679
-------------- -------------- ---------------
Net income $ 2,450,278 $ 805,240 $ 163,248
============== ============== ==============
Net income per common share: $ .28 $ .13 $ .03
============== ============== ==============
Weighted average number of common
and common equivalent shares 8,638,253 6,243,174 5,850,005
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 23
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Additional Earnings
Preferred Stock Common Stock Paid-in (Accumulated
------------------------ -----------------------
Shares Amount Shares Amount Capital Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1994 70,000 $ 3,500 5,473,056 $ 273,653 $ 3,834,660 $ (3,016,306)
Issuance of common stock - - 272,304 13,615 233,378 -
Net income for the year - - - - - 163,248
--------- ---------- --------- ---------- ----------- ------------
Balance,
March 31, 1995 70,000 3,500 5,745,360 287,268 4,068,038 (2,853,058)
Issuance of common stock - - 485,500 24,275 612,775 -
Purchase of common stock - - (60,000) (3,000) (57,000) -
Issuance of warrants - - - - 600,000 -
Issuance of options - - - - 94,954 -
Net income for the year - - - - - 805,240
--------- ---------- --------- ---------- ----------- ------------
Balance,
March 31, 1996 70,000 3,500 6,170,860 308,543 5,318,767 (2,047,818)
Issuance of common stock - - 1,954,523 97,726 2,494,676 -
Exercise of warrants and
options - - 243,521 12,176 104,790 -
Net income for the year - - - - - 2,450,278
--------- ---------- --------- ---------- ----------- ------------
Balance,
March 31, 1997 70,000 $ 3,500 8,368,904 $ 418,445 $ 7,918,233 $ 402,460
========= ========== ========= ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 24
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,450,278 $ 805,240 $ 163,248
Adjustments to reconcile net income to
net cash provided by (used for) operating activities:
Gain on sale of fixed assets (55,683) - -
Depreciation 1,346,125 157,573 82,276
Amortization of intangible assets 143,143 156,711 177,557
Amortization of debt premium and issue costs 334,892 - -
Deferred income taxes (817,446) (191,024) -
Reduction of goodwill for utilization of
preacquisition net operating loss - 190,564 223,679
Changes in assets and liabilities that provided
(used) operating cash, net of acquisition:
Accounts receivable (101,653) (2,216,194) (1,848,417)
Costs and estimated earnings in excess
of billings on uncompleted contracts (1,141,109) 109,345 67,411
Inventories (502,681) (111,597) 141,520
Accounts payable (2,865,241) 1,664,084 731,367
Prepaid expenses and other 87,707 (213,923) (31)
Accrued expenses and other (457,643) 159,144 130,188
--------------- ----------- -----------
Net cash provided by (used for)
operating activities (1,579,311) 509,923 (131,202)
--------------- ----------- -----------
Cash flows from investing activities:
Purchase of McInnes, net of cash acquired - (12,306,627) -
Purchase of property and equipment (815,215) (525,940) (98,768)
Other (86,343) 10,000 34,000
--------------- ----------- -----------
Net cash used for investing activities (901,558) (12,822,567) (64,768)
--------------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 525,000 6,386,136 774,501
Debt issue costs - (884,501) -
Net change in bank lines of credit 2,758,239 7,601,485 (109,000)
Repayments on short-term debt (2,854,267) (339,450) (331,000)
Proceeds from the issuance of common stock
and warrants 2,709,367 1,237,050 246,993
Repurchase of common stock - (60,000) -
--------------- ----------- -
Net cash provided by financing
activities 3,138,339 13,940,720 581,494
--------------- ----------- -----------
Increase in cash and cash equivalents 657,470 1,628,076 385,524
Cash and cash equivalents at beginning of year 2,100,749 472,673 87,149
--------------- ----------- -----------
Cash and cash equivalents at end of year $ 2,758,219 $ 2,100,749 $ 472,673
=============== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 25
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Centrum Industries, Inc. (the Company) is a holding company. At March
31, 1997, the Company's subsidiaries included the following companies:
Metal Forming Operations
McInnes Steel Company (McInnes), with operating subsidiaries located
in Northwestern Pennsylvania, produces open die steel forgings for the
power generation, compressor and other industrial markets. McInnes
also produces seamless steel rolled rings for bearing and special
machine manufacturers and nonferrous castings for the glass container
manufacturers and pump and valve industries. Sales of McInnes'
products are made to both domestic and international customers.
McInnes was purchased by Centrum on March 8, 1996 (see Note 2).
Material Handling Systems
American Handling, Inc. (AH), located in Cleveland, Ohio, designs,
manufactures and installs material handling equipment for various
domestic manufacturing companies.
Motor Production Systems
Micafil, Inc. (Micafil), located in Dayton, Ohio, manufactures
armature winding machines and completed production systems primarily
for domestic customers in the appliance and automotive industries.
During 1997, Micafil entered into a joint venture with an unaffiliated
company to increase the marketing and distribution of machines and
systems within North America. The joint venture is accounted for
under the equity method.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated. Affiliated
companies (20% to 50% ownership) are recorded in the financial
statements using the equity method.
25
<PAGE> 26
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
USE OF ESTIMATES
The preparation of these 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 at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Some of the more significant estimates include depreciation
and amortization of long lived assets, deferred tax and inventory
valuations, environmental accruals, postemployment and postretirement
benefits and allowances for doubtful accounts. Actual results could
differ from those estimates.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to reduce
foreign exchange risks relating to export sales. The Company does not
hold or issue derivative financial instruments for trading purposes.
Gains or losses on contracts designated as hedges for identifiable
foreign currency firm commitments are deferred and included in the
measurement of the related foreign currency transaction.
DEBT ISSUANCE COSTS
Debt issuance costs are deferred and amortized over the life of the
related note utilizing the interest method for debt with scheduled
principal payments, otherwise utilizing the straight-line method over
the life of the debt agreement.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no
current or future benefit is discernible. The Company determines its
liability on a site-by-site basis and records a liability at the time
when it is probable and can be reasonably estimated. Unasserted
claims are not included in the estimated liability. The Company's
estimated liability is reduced to reflect the anticipated
participation of other potentially responsible parties in those
instances where it is probable that such parties are legally
responsible and financially capable of paying their respective shares
of the relevant costs. Where the cost estimates result in a range of
equally probable amounts, the lower end of the range is accrued. The
estimated liability of the Company is not discounted or reduced for
possible recoveries from insurance carriers. Potential insurance
recoveries are evaluated separately from the related liability and are
recorded only if they are probable of receipt.
26
<PAGE> 27
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market. Inventory cost
at Micafil is principally determined by the specific identification
method. Effective April 1, 1995, to better match revenues and
expenses, the Company changed its method of accounting for
inventories, other than those held by Micafil, from the first in,
first out (FIFO) method to the last in, first out (LIFO) method. The
effect of the change was not material. At March_31, 1997 and 1996,
approximately 95% and 94%, respectively, of inventories are valued on
the LIFO method.
GOODWILL
The Company has classified as goodwill the cost in excess of fair
value of the net assets acquired in the AH purchase transaction.
Goodwill is being amortized by the straight-line method over 20 years,
which is the period expected to be benefited. Management reviews
goodwill and other long-lived assets for impairment whenever events
and circumstances indicate that recovery of the asset's carrying value
is unlikely. In performing the reviews for recoverability, management
compares the carrying value of the asset against the estimated future
cash flows expected to result from the use of the asset and its
eventual disposition. If the cash flows are less than the carrying
value, the asset is written down to its estimated fair market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is
computed over the estimated useful lives using the straight-line
method for financial reporting purposes and accelerated methods for
federal income tax purposes.
REVENUE RECOGNITION
Sales of products and services, primarily made by McInnes and AH, are
recognized as products are shipped and services are performed. The
estimated sales value of performance under significant contracts,
supplied by Micafil, is recognized under the percentage-of-completion
method of accounting measured by the contract costs incurred to date
as a percentage of total estimated contract costs. Contracts executed
by Micafil generally have terms of less than one year.
27
<PAGE> 28
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
include cash and cash equivalents, accounts receivable and accounts
payable, approximate their fair market values at March 31, 1997 and
1996. Variable rate debt and debt maturing within one year with a
carrying value of $18,010,466 and $18,323,834 approximates its fair
market value at March 31, 1997 and 1996, respectively. Long-term,
fixed rate debt with a carrying value of $5,263,825 and $4,521,486 had
a fair market value of approximately $4,000,000 and $3,660,000 at
March 31, 1997 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company sells the majority of its products to
distributors and original equipment manufacturers in a variety of
industries including the power generation, compressor and other
industrial markets. The Company performs continuing credit
evaluations of its customers and, in certain circumstances, the
Company may require letters of credit from its customers.
Historically, the Company has not experienced significant losses
related to receivables from individual customers or groups of
customers in any particular industry or geographic area.
PENSION PLANS
Annual net periodic pension costs under the Company's defined benefit
pension plans are determined on an actuarial basis. The Company's
policy is to fund these costs as accrued, including the amortization
of obligations arising due to plan amendments, over the period
benefited, through deposits with the trustee. Benefits are determined
based upon employees' length of service.
POSTRETIREMENT BENEFITS OTHER THEN PENSIONS
Annual net postretirement benefits liability and expenses are
determined on an actuarial basis. The Company's current policy is to
pre- fund these benefits to the extent allowable under current IRS
guidelines. Benefits are determined primarily based upon employees'
length of service and include applicable employee cost sharing.
WORKERS' COMPENSATION EXPENSE
McInnes recognizes workers' compensation expense based upon the level
of premiums for each fiscal year and also evaluates the adequacy of
the workers' compensation accrual quarterly based upon actual and
forecasted experience. Changes in claims experience are recognized
currently as adjustments to workers' compensation expense.
28
<PAGE> 29
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation for stock-based employee
compensation plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations.
INCOME TAXES
Current tax liabilities and assets are recognized for the estimated
taxes payable or refundable on the tax returns for the current year.
Deferred tax liabilities or assets are recognized for the estimated
future tax effects attributable to temporary differences and
carryforwards that result from events that have been recognized in
either the financial statements or the tax returns, but not both. The
measurement of current deferred tax liabilities and assets is based on
provisions of enacted tax laws. Deferred tax assets are reduced, if
necessary, by the amount of any tax benefits that are not expected to
be realized.
EARNINGS PER SHARE
Primary earnings per common and common equivalent share are based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during the respective periods, computed in
accordance with the assumptions required by the treasury stock method.
Common equivalent shares include shares that would be issuable upon
the exercise of outstanding warrants and options reduced by the number
of shares that are assumed to be purchased by the Company with the
proceeds from the exercise of the warrants and options. The shares
purchased by the Company are assumed to be purchased at the average
market price existing during the respective years and exclude options
and warrants that are anti-dilutive. In February 1997, the Financial
Accounting Standards Board, issued SFAS No. 128, "Earnings Per Share."
Under the new statement, the Company will be required to disclose
"basic" and "diluted" earnings per share, as defined by the statement,
for the year ending March 31, 1998. Under the new statement, the
Company's current presentation of net income per share will
approximate "diluted" earnings per share. Pro-forma "basic" earnings
per share for the year ended March 31, 1997 would approximate $.33.
STATEMENT OF CASH FLOWS
For purposes of the consolidated statement of cash flows, the Company
considers all cash and highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
29
<PAGE> 30
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. ACQUISITION OF MCINNES
On March 8, 1996, the Company purchased all of the outstanding stock
of McInnes through a subsidiary merger. The purchase method of
accounting was used to account for this business combination. The
operating results of McInnes are included in the Company's
consolidated statement of operations from the date of acquisition.
The total purchase price of approximately $12,300,000 was financed
primarily in the form of new debt agreements and proceeds from the
sale of the Company's common stock.
The following unaudited information presents the Company's results of
operations for the years ended March 31, 1996 and 1995 as if the
acquisitions of McInnes had occurred at the beginning of each of the
periods presented. The pro forma information is not necessarily
indicative of the results of operations which would have actually been
obtained during such periods.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31, MARCH 31,
1996 1995
(UNAUDITED)
<S> <C> <C>
Sales $ 62,248,000 $ 52,408,000
Net loss $ (2,177,000) $ (2,366,000)
Net loss per common share $ (.31) $ (.34)
Weighted average number of common
and common equivalent shares 6,937,750 6,997,550
</TABLE>
30
<PAGE> 31
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
3. INVENTORIES
Inventories consisted of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials $ 5,407,088 $ 5,035,001
Work in process 4,055,079 4,332,492
Finished goods 656,300 305,798
-------------- --------------
10,118,467 9,673,291
LIFO reserve (120,442) 172,720
Reserve for excess of cost over market (100,100) (450,767)
-------------- --------------
$ 9,897,925 $ 9,395,244
=============== ==============
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 312,770 $ 298,679
Buildings 3,056,991 3,038,821
Machinery and equipment 8,099,452 7,455,583
Furniture and fixtures 722,517 331,209
Vehicles 95,134 252,469
--------------- --------------
Total 12,286,864 11,376,761
Less accumulated depreciation (1,659,100) (314,560)
--------------- --------------
$ 10,627,764 $ 11,062,201
=============== ==============
</TABLE>
5. COMPOSITION OF OTHER ASSETS
Other assets consisted of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred income tax benefits $ 2,830,901 $ 2,066,393
Goodwill, net of $545,268 and $404,494
in accumulated amortization, respectively 2,298,842 2,439,616
Debt issue costs, net of $520,822 and $185,926
in accumulated amortization, respectively 805,630 1,133,412
Other 669,083 714,961
--------------- --------------
$ 6,604,456 $ 6,354,382
=============== ==============
</TABLE>
31
<PAGE> 32
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
6. BANK LINES OF CREDIT
A debt agreement with The Huntington National Bank (Huntington)
permits the Company to borrow up to $15,500,000 on a revolving basis,
subject to available collateral, which consists of eligible accounts
receivable, equipment and inventory. Interest accrues on the unpaid
portion of the borrowings at the Huntington's prime rate (8.50% at
March 31, 1997) plus .75%. Borrowings under the agreement and
commitments for a standby letters of credit are secured by all of
McInnes' cash, trade and other accounts receivable, inventory,
equipment and intangible assets. In addition, Huntington has either a
first or second secured interest in McInnes' real property. The total
carrying value of security at March_31, 1997, including second
mortgages, was $27,307,920. At March 31, 1997, approximately $15
million in total loans and commitments was available of which
$14,398,423, including $3,893,699 in standby letters of credit, was
outstanding.
The agreement places, among other things, restrictions or limitations
on McInnes' ability to pay dividends, to pay management fees to other
affiliates or Centrum, and to make capital expenditures and incur rent
expense exceeding certain specified levels in any year. The agreement
requires McInnes to maintain minimum specified tangible net worth
levels, maintain a specified fixed charge coverage ratio and not
exceed a specified ratio of total liabilities to tangible net worth.
The Company was in compliance with all covenants related to this
agreement at March 31, 1997.
The agreement also requires the Company to pay monthly collateral
administration and an annual facility fees aggregating $96,000 per
year and contains early termination fees of up to $185,000. The
agreement expires on February 28, 1999.
An agreement with Huntington permits Micafil to borrow up to the lower
of $250,000 or "borrowing base," as defined in the loan agreement.
Interest accrues on the unpaid portion of the borrowings at
Huntington's prime rate (8.50% at March 31, 1997) plus .75%.
Borrowings under the agreement and commitments for a stand by letter
of credit are secured by Micafil's cash, trade and other accounts
receivable, equipment and certain other assets. The total carrying
value of the security at March 31, 1997 was $1,790,453. At March 31,
1997, approximately $250,000 in total loans and commitments was
available of which the Micafil had borrowed $140,000. No commitments
relating to standby letters of credits were outstanding at March_31,
1997. The agreement expires July 1, 1997.
32
<PAGE> 33
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
6. BANK LINES OF CREDIT (CONTINUED)
The agreement places, among other things, restrictions or limitations
on Micafil's ability to pay dividends or management fees to other
affiliates or Centrum, and to make capital expenditures and incur rent
expense exceeding certain specified levels in any year. The agreement
requires Micafil to maintain minimum specified tangible net worth, as
well as comply with several non-financial covenants. At March 31,
1997, Micafil was not in compliance with one of the non-financial
covenants. Huntington has waived compliance with respect to this
covenant.
7. LONG-TERM DEBT
Long-term debt consisted of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable to Huntington National Bank in monthly
installments of $39,584. The note bears interest at the
prime rate (8.50% at March 31, 1997) plus 1.25%.
Outstanding principal and accrued interest are due in
April 1999. This note is secured by the property
specified by the Huntington line of credit (see Note 6). $ 2,336,209 $ 2,810,416
$2.5 million aggregate principal amount of 11% convertible,
unsecured subordinated notes and warrants. The notes are
convertible for up to 1,250,000 shares of Centrum's
common stock and include warrants for the purchase
of 1,250,000 shares of Centrum's common stock
at $2 per share. The notes were originally recorded net
of $600,000 allocated to the warrants. The implicit interest
rate on the notes is 14.5% and the outstanding balance is due in
March 2001. This agreement places certain restrictions on
the Company, including the requirement that the holders
of the notes approve, in advance, any dividends, the
incurrence of new debt (with certain exceptions), and
acquisitions. 2,020,000 1,900,000
Industrial development revenue bonds payable in
annual installments. Interest is set at a daily
variable rate (1997 weighted average rate was
3.51%) and payable monthly. The bonds mature
in November 2001. McInnes pays an annual
commitment fee of 3% on the amount committed
under a direct pay letter of credit issued by a bank
as a credit enhancement for the bonds. This note
is secured by the property specified by the
Huntington line of credit (see Note 6). 3,800,000 4,500,000
</TABLE>
33
<PAGE> 34
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable to the former owner of Micafil,
due in monthly installments of $13,346, including
interest at an implicit rate of 8.61% per annum,
through June 2005. A balloon payment of
$1,452,384 will be payable in June 2005. The
note is secured by the land and building at
Micafil which had a carrying value of $709,980
at March 31, 1997. $ 1,654,399 $ 1,671,361
Unsecured notes payable to shareholders and
directors of the Company. The notes bear
interest at 2% per month. - 1,239,000
Unsecured notes payable to individuals, including
$520,000 and $405,000 at March 31, 1997 and
1996, respectively, to certain shareholders of the
Company. The notes bear interest at 10% to 12%
with interest payable semi-annually. The notes
are due in March 1999. 615,000 675,000
Unsecured notes payable to individuals, including
$346,000 and $275,000 at March 31, 1997 and
1996, respectively, to certain shareholders of the
Company, with attached warrants. The notes are
are due in March 1999 with interest accruing at
a rate of 10% per annum. The attached warrants
allow the note holders to purchase 1,000 shares
of the Company's common stock for each $10,000
of notes held at a purchase price of $1 per share. 526,000 659,000
Unsecured five year term notes payable to individuals,
including $756,901 and $555,000 at March 31,
1997 and 1996, respectively, to certain shareholders
of the Company, with attached warrants. The notes
bear interest at prime (8.50% at March 31, 1997)
plus 0.5% to 1.0%. Principal and interest payments
are due monthly. The attached warrants allow the
note holders to purchase 20,000 shares of the
Company's common stock for each $50,000 of
notes held at a purchase price of $1 per share. 879,533 1,117,348
</TABLE>
34
<PAGE> 35
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
City of Erie Enterprise Development Zone term
note payable in monthly principal and interest
installments of $4,625. The note bears interest
at 3% per annum and matures on November 2,
2002. The note is secured by specific property
with a carrying value of $866,729 at March 31,
1997. $ 288,510 $ 330,709
Pennsylvania Industrial Development Authority
note payable in monthly principal and interest
installments of $3,378. The note bears interest
at 2% per annum and matures on October 1, 2011.
The note is secured by specific property with
carrying value of $1,260,000 at March 31, 1997. 509,916 -
Unsecured note payable to an individual with
interest imputed at 8.66% per annum. - 56,000
------------- -------------
12,629,567 14,958,834
Less current maturities 1,607,629 2,785,425
------------- -------------
Noncurrent portion of long-term debt $ 11,021,938 $ 12,173,409
============= =============
</TABLE>
The aggregate scheduled maturities of long-term debt for the fiscal
years subsequent to March_31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 1,607,629
1999 2,707,785
2000 1,650,968
2001 3,353,346
2002 1,348,032
Thereafter 1,961,807
--------------
$ 12,629,567
==============
</TABLE>
Cash paid for interest was $2,821,336, $651,954 and $282,635 for the
years ended March 31, 1997, 1996 and 1995, respectively.
35
<PAGE> 36
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFITS
PENSION PLANS
McInnes has two noncontributory defined benefit pension plans covering
substantially all of its hourly employees. Monthly benefits are based
upon a rate per year of service and vest upon the completion of five
years of service. The Company's funding policy is to contribute
amounts sufficient to satisfy ERISA funding requirements.
Following is a summarization of the funded status and amounts
recognized for the McInnes' defined benefit pension plans in the
consolidated balance sheet:
At March 31, 1997:
<TABLE>
<CAPTION>
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS TOTAL
<S> <C> <C> <C>
Projected benefits obligation $ 4,285,986 $ 351,579 $ 4,637,565
Plan assets at fair value, primarily
intermediate bonds and common stock 4,292,663 329,980 4,622,643
-------------- ------------- -------------
Funded status 6,677 (21,599) (14,922)
Unrecognized net (gain) loss 205,874 (30,510) 175,364
-------------- ------------- -------------
Prepaid (accrued) pension cost $ 212,551 $ (52,109) $ 160,442
============== ============= =============
</TABLE>
At March 31, 1996:
<TABLE>
<CAPTION>
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS TOTAL
<S> <C> <C> <C>
Projected benefits obligation $ 3,752,913 $ 338,046 $ 4,090,959
Plan assets at fair value, primarily
intermediate bonds and common stock 3,950,115 247,016 4,197,131
-------------- ------------- -------------
Funded status 197,202 (91,030) 106,172
Unrecognized net (gain) loss 4,427 (15,568) (11,141)
-------------- ------------- -------------
Prepaid (accrued) pension cost $ 201,629 $ (106,598) $ 95,031
============== ============= =============
</TABLE>
At March 31, 1997 and 1996, $4,438,416 and $3,901,597, respectively,
of projected benefit obligations were vested.
36
<PAGE> 37
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFITS (CONTINUED)
Net periodic pension cost for the year ended March 31, 1997 is
computed as follows:
<TABLE>
<S> <C>
Service cost $ 131,352
Interest cost 318,518
Actual return on plan assets (541,179)
Actuarial gain 213,845
---------------
Net periodic pension cost $ 122,536
===============
</TABLE>
Net pension cost for the defined pension plans for the period from
March 8, 1996 (the date the Company acquired McInnes) through March
31, 1996 was not material.
The assumptions used to determine pension costs and projected benefit
obligations are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
<S> <C> <C>
Expected long-term rate of return on plan assets 7.5% 8.0%
Discount rate 7.5% 7.5%
</TABLE>
McInnes, Micafil and AH also sponsor individual 401(k) profit sharing
plans covering substantially all salaried employees. The Company's
contributions to these plans in 1997, 1996 and 1995 were $123,200,
$50,900, and $33,600, respectively.
OTHER POSTEMPLOYMENT BENEFITS
Certain of the McInnes' employees are entitled to other postemployment
benefits, comprised primarily of health insurance benefits under the
terms of various agreements and based on a specified amount per month.
37
<PAGE> 38
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFITS (CONTINUED)
The funded status of the plans at March 31 was as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
1997 1996
<S> <C> <C>
Actuarial present value of:
Fully eligible active participants $ (50,000) $ (53,000)
Other active participants (123,000) (128,000)
Retired participants (1,048,000) (1,093,000)
-------------- ------------
Accumulated benefit obligation (1,221,000) (1,274,000)
Plan assets at fair value 1,178,000 1,253,000
-------------- ------------
Unfunded status (43,000) (21,000)
Unrecognized net gain (loss) 70,000 (91,000)
-------------- ------------
Net postretirement benefit asset (liability) $ 27,000 $ (112,000)
============== ============
</TABLE>
Net periodic postemployment cost for the year ended March 31, 1997 is
computed as follows:
<TABLE>
<S> <C>
Service cost $ 30,000
Interest cost 87,000
Actual return on plan assets (101,000)
---------------
Net periodic postretirement benefit cost $ 16,000
===============
</TABLE>
The net periodic postretirement benefit cost for the period from March
8, 1996 (the date the Company acquired McInnes) through March 31, 1996
was not material. Investments in these plans consist of investments in
money market funds, fixed income securities, investment contracts and
equity mutual funds.
As of March 31, 1997 and 1996, the discount rate was 7.50% and 7.25%,
respectively. A medical costs trend rate of 6% per year is assumed up
to a maximum benefit of $3,120 per year pre age 65 and $924 post age
64. An increase in the assumed medical trend rate of 1% would
increase the accumulated postretirement benefit obligation as of March
31, 1997 by approximately $5,000. The increase to the aggregate of
the service and interest cost component of the net postretirement
benefit cost would not be material.
38
<PAGE> 39
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
9. INCOME TAXES
The provision (benefit) for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 30,000 $ 448,838
State and local 13,771 -
-------------- -----------
43,771 448,838
-------------- -----------
Deferred:
Federal (749,747) (191,024) $ 223,679
State and local (67,699) - -
-------------- ----------- -----------
(817,446) (191,024) 223,679
-------------- ----------- -----------
Total provision $ (773,675) $ 257,814 $ 223,679
============== =========== ===========
</TABLE>
The difference between the total income tax provision (benefit)
computed using the federal statutory income tax rates and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
1997 1996 1995
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Amortization of intangibles 2.8 5.0 15.6
Utilization of fully reserved
preacquisition net operating losses - 17.9 19.7
Change in valuation allowance (96.7) (38.0) (16.4)
State and local taxes 1.4
Other 12.4 5.4 4.9
------- ------- -------
Effective tax rate (46.1)% 24.3% 57.8%
======= ======= =======
</TABLE>
39
<PAGE> 40
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
9. INCOME TAXES (CONTINUED)
During 1997, management recorded a provision for income tax expense
which was offset by a $1,621,000 credit to deferred income tax
expense. The credit to deferred income tax expense was to reduce the
existing valuation allowance and was based on new information
evaluated during the year regarding the availability of certain
federal net operating loss carryforwards (NOLs) and the continued
improvements in operating profits and backlogs throughout the Company.
These factors have reduced the level of uncertainties with respect to
a portion of these NOLs where management has now concluded that they
expect to realize these tax benefits. At March 31, 1997, a remaining
valuation reserve of $1.7 million has been maintained primarily due to
limitations on the usage of certain pre-acquisition NOLs. The
remaining valuation allowance could be increased or reduced in the
near term if estimates of future taxable income during the
carryforward period change substantially or if new information
regarding the uncertainties is received.
During 1997, 1996 and 1995, the Company reduced its income taxes
payable by $534,000, $278,000 and $224,000, respectively, through the
use of net operating losses (NOLs). However, utilization of
preacquisition NOLs of $191,564 and $223,679 for 1996 and 1995,
respectively, which were fully reserved at the time of the
acquisition, were recorded as a reduction of goodwill and other
intangibles, rather than as a reduction of income tax expense.
40
<PAGE> 41
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
9. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities are comprised of the
following at March 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets:
Environmental liabilities $ 179,050 $ 217,957
Vacation 158,293 208,026
Bonus 283,897 146,158
Other employee-related accruals 85,213 261,467
Other 146,858 141,858
Net operating loss and alternative
minimum tax carryforwards 4,208,255 4,927,253
------------ ------------
Deferred tax assets before valuation allowance 5,061,566 5,902,719
Valuation allowance (1,664,790) (3,286,184)
------------ ------------
Deferred tax assets after valuation allowance 3,396,776 2,616,535
------------ ------------
Liabilities:
Inventory (756,217) (471,460)
Property, plant and equipment (55,798) (201,656)
------------ ------------
Deferred tax liabilities (812,015) (673,116)
------------ ------------
Net deferred tax asset $ 2,584,761 $ 1,943,419
============ ============
</TABLE>
At March 31, 1997, the Company had approximately $9,840,000 in federal
and state net operating losses (NOLs) available which expire in the
years 2003 through 2010, and AMT credit carryforwards of $862,500
which do not expire. Under Section 382 of the United States Internal
Revenue Code of 1986, as amended (the Code), the NOLs may be subject
to limitations. If certain stock ownership changes described in the
Code occur in the future, these restrictions would further limit the
Company's future use of its NOLs.
10. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION
The Company is involved in routine litigation and various legal
efforts incidental to the normal operations of its business. In
management's opinion, none of these matters will have a material
adverse effect on the Company's consolidated financial position or
results of operations.
41
<PAGE> 42
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
ENVIRONMENTAL
Erie Bronze (Erie), a subsidiary of McInnes, is a direct defendant in
two governmental cost recovery actions and other related private party
actions at a waste disposal site. With regard to the most significant
cost recovery action, Erie has negotiated a settlement which has been
approved in federal court. In addition, Erie and other parties are
responsible for performing certain cleanup work at the site pursuant
to a government order.
Private party suits and actual cleanup costs in excess of governmental
estimates can affect the reliability of the Company's loss estimates.
In addition, unasserted claims are not reflected in the Company's cost
estimates. Pursuant to the environmental statutes, the Company may be
found jointly and severally liable to the government for cleanup
costs; however, management believes that the current status of
government settlements and group cleanup participation at the site
indicates that the liability will be shared by responsible parties.
Currently, there are at least 17 parties participating in various
settlements of the cost recovery actions, including a pro rata cost
sharing arrangement with respect to the site cleanup work. The
Company has negotiated an insurance settlement which requires the
carrier to reimburse the Company for site expenses and certain legal
fees subject to a ceiling. At March 31, 1997 and 1996, the Company
has recorded liabilities of $600,000 and $695,800, respectively, of
which $350,000 was recorded as current liabilities at March 31, 1997
and 1996 and has recorded a receivable from its insurance carrier
which is included in current assets. Funds are expected to be paid
over approximately three years. The total anticipated site costs and
private suits are not expected to materially exceed the recorded
liabilities.
LEASE COMMITMENTS
The Company leases certain equipment and vehicles under operating
lease agreements which expire at various dates through fiscal 2001.
The aggregate minimum commitments relating to these operating leases
following March 31, 1997 are set forth below:
<TABLE>
<S> <C>
1998 $ 250,648
1999 120,020
2000 58,938
2001 7,159
-------------
$ 436,765
=============
</TABLE>
The Company also leases office space and additional warehouse space on
a month to month basis. Total rental expense under all of the above
agreements was $326,563, $336,652 and $358,642 for the years ended
March 31, 1997, 1996 and 1995, respectively.
LETTERS OF CREDIT
At March 31, 1997 and 1996, McInnes had a $3.9 million and $4.6
million, respectively, letter of credit issued as a credit enhancement
for the Erie County Development Authority bonds (see Note 7).
42
<PAGE> 43
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OTHER
During February 1996, AH exercised its option to purchase its main
office and manufacturing facility, which currently is being leased,
for approximately $1,150,000. The option expired during 1997 but was
extended by mutual agreement.
11. CAPITAL STOCK
The Company is a Delaware corporation with two classes of stock,
common stock and serial preferred stock.
During 1997, the Company issued common stock valued at $48,000 to pay
director fees and $72,251 for payment of a note payable. These
transactions have been excluded from the accompanying consolidated
statement of cash flows since they are non-cash transactions. In
addition, options and warrants to acquire 243,521 shares of common
stock were exercised at option prices ranging between $.372 and $1.00
per share.
During 1996 and 1997, the Company sold 2.3 million shares of common
stock for $3,120,000, which is net of $347,000 in issuance cost and
expenses. The shares were sold by Continental Capital, Inc. (see Note
12). During 1996, the Company repurchased 60,000 shares of its common
stock for $60,000.
During 1995, the Company issued 232,000 shares of common stock for
$232,000. In addition, options to acquire 40,304 shares of common
stock were exercised at $.372 per share.
The preferred stock is issuable in series and the Board of Directors,
at their discretion, may fix for each series (1) the rate of dividend,
(2) the price at and the terms and conditions on which shares may be
redeemed, (3) the amount payable per share in the event of voluntary
or involuntary liquidation, (4) sinking fund provisions, (5) the terms
and conditions on which shares may be converted, if a convertible
series, and (6) voting rights, if any.
43
<PAGE> 44
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
12. RELATED PARTIES
The Company has subordinated debt agreements with First New England
Capital, MorAmerica and the North Dakota Small Business Investment
Company. Certain representatives of the lenders are also members of
the Company's board of directors. During fiscal 1997, the Company
recorded $289,000 in interest expense related to these debt agreements.
Continental Capital, Inc. (Continental) is a shareholder of the
Company. During 1995 its Chairman and Chief Executive Officer was the
Company's Chairman and Chief Executive Officer and, since June 1995,
was a Director and Vice President of the Company and, since December
1995, is a Director, Vice President and Secretary. In 1997, 1996 and
1995, the Company paid Continental $274,000, $132,500 and $15,000,
respectively, for fees related to the issuance of stock and debt.
At March 31, 1997 and 1996, the Company had unsecured notes payable to
certain of its shareholders, as described in Note 7.
44
<PAGE> 45
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
13. BUSINESS SEGMENT INFORMATION
At March 31, 1997, the Company's operations have been classified into
business segments as described in Note 1.
Summarized financial information by business segment for fiscal 1997,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
MATERIAL MOTOR METAL CORPORATE
HANDLING PRODUCTION FORMING OFFICE AND
1997 SYSTEMS SYSTEMS OPERATIONS OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Net sales to unaf-
filiated customers $ 16,183,002 $ 8,325,861 $ 46,638,620 $ 7,243 $ 71,154,726
Operating income (loss) 443,772 695,511 3,952,713 (939,982) 4,152,014
Identifiable assets 6,724,590 4,104,030 29,837,983 2,334,044 43,000,647
Depreciation 72,418 41,737 1,227,152 4,818 1,346,125
Amortization 140,774 2,369 - - 143,143
Capital expenditures 95,300 98,478 612,443 8,994 815,215
1996
Net sales to unaf-
filiated customers $ 19,451,267 $ 5,534,536 $ 2,539,899 $ - $ 27,525,702
Operating income (loss) 1,409,694 468,409 229,937 (642,466) 1,465,574
Identifiable assets 8,236,864 3,016,597 27,624,426 1,733,861 40,611,748
Depreciation 59,496 31,094 63,373 3,610 157,573
Amortization 150,225 6,486 - - 156,711
Capital expenditures 67,948 17,274 433,695 7,023 525,940
1995
Net sales to unaf-
filiated customers $ 12,969,997 $ 5,322,699 $ - $ - $ 18,292,696
Operating income (loss) 739,397 434,827 - (516,385) 657,839
Identifiable assets 6,086,694 3,044,195 - 416,447 9,547,336
Depreciation 45,003 33,223 - 4,050 82,276
Amortization 160,654 16,903 - - 177,557
Capital expenditures 88,702 10,066 - - 98,768
</TABLE>
14. STOCK OPTIONS AND WARRANTS
During 1997, non-employee directors of the Company's board of
directors received options for 50,000 and 25,000 shares of the
Company's common stock with exercise prices of $1.50 and $2.00 per
share, respectively. Options and warrants to acquire 243,521 shares
of common stock were exercised at option prices ranging between $.372
and $1.00 per share.
Also during 1997, officers and employees of the Company received
options for 100,000 and 226,568 shares of the Company's common stock
with exercise prices of $1.50 and $2.00 per share, respectively.
45
<PAGE> 46
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
14. STOCK OPTIONS AND WARRANTS (CONTINUED)
In connection with the acquisition of McInnes, two officers of
McInnes received options for 110,333 shares of common stock having an
exercise price of $.64 per share resulting in $94,954 in additional
paid-in capital. This transaction has been excluded from the
consolidated statement of cash flows since it is a non-cash
transaction. During 1996, officers and employees of the Company
received options for 350,000 and 295,000 shares of the Company's
common stock with exercise prices of $1.00 and $1.50, per share,
respectively.
During 1996, the Company issued 1,250,000 warrants to purchase its
common stock for $2 per share for a period of eight years. The
warrants, which were issued in connection with the 11% convertible
subordinated notes, have been valued at $600,000.
In addition, warrants to purchase 220,000 shares of the Company's
common stock for $1.00 per share were issued during 1996 in
connection with individual debt agreements with certain shareholders.
The following summarizes the stock option and warrant transactions
for the years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
NUMBER PRICE PER
OF SHARES SHARE
<S> <C> <C>
Outstanding at March 31, 1995 860,755 $ .372 - 1.00
Activity for the year
ended March 31, 1996
Granted 2,225,333 $ .64 - 2.00
Exercised -
Cancelled -
-
------------- -------------
Outstanding at March 31, 1996 3,086,088 $ .372 - 2.00
Activity for the year
ended March 31, 1997
Granted 401,568 $ 1.50 - 2.00
Exercised (243,521) $ .372 - 1.00
Cancelled (13,311)
------------- -------------
Outstanding at March 31, 1997 3,230,835 $ .64 - 2.00
============= =============
</TABLE>
46
<PAGE> 47
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
14. STOCK OPTIONS AND WARRANTS (CONTINUED)
No expense has been charged to income relating to stock options. If
the fair value method of accounting for stock options prescribed by
SFAS No. 123 had been used, the expense relating to the stock options
would have been $97,500 in 1997 and $46,785 in 1996. Pro forma net
income would have been $2,415,913 in 1997 and $774,362 in 1996. Pro
forma earnings per share would have been $.28 and $.12 in 1997 and
1996, respectively. The pro forma effect on net income is not
representative of the pro forma effect on net income that will be
disclosed in future years because it does not take into consideration
pro forma compensation expense relating to grants made prior to 1996.
The fair value of each option grant was estimated on the date of
grant using the Constant Elasticity Variance model with the following
assumptions.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Risk-free interest rate 6.4% 6.4%
Expected average life 10 years 5 years
Stock price volatility 35% 35%
</TABLE>
15. SALES TO MAJOR CUSTOMER
During fiscal 1997 and 1996, the Company's sales to its largest
customer totaled $10.3 and $3.5 million or 14% and 13% of sales,
respectively. The 1997 sales were recorded by the metal forming
segment to a Company in the power generation market. The 1996 sales
were recorded by the material handling segment to a customer engaged
in the sale of automotive parts.
47
<PAGE> 48
CENTRUM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
16. SUBSEQUENT EVENT
On June 4, 1997, the Company acquired certain assets of Taylor Forge
International (Taylor). The purchase price of $2.3 million and
repayment of $4.5 million in existing debt at Taylor was financed by
debt agreements and the issuance of 94,000 shares of the Company's
common stock. The purchase price is subject to adjustment post
closing through the issuance of up to 30,000 additional shares of the
Company's common stock. The financing was provided by an extension of
the Company's bank line of credit with Huntington and a new five year
term loan in the amount of $4 million bearing interest at 1.25% above
prime. Additionally, seller financed notes with interest payable at
prime plus 1.25% in the amount of $250,000 were issued.
The following unaudited information presents the Company's results of
operations for the years ended March 31, 1997 and 1996 as if the
acquisitions of Taylor had occurred at the beginning of each of the
periods presented. The pro forma information is not necessarily
indicative of the results of operations which would have actually been
obtained during such periods.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31, MARCH 31,
1997 1996
(UNAUDITED)
<S> <C> <C>
Sales $ 80,377,700 $ 36,443,700
Net income $ 1,939,000 $ 579,000
Net income per common share $ .22 $ .09
Weighted average number of common
and common equivalent shares 8,762,000 6,367,000
</TABLE>
48
<PAGE> 49
Centrum Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------------- -------- Additions ------------ ---------
----------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Accounts Deductions Balance at
Description of Period Expenses -Describe -Describe End of Period
- -------------------------- ------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997
Valuation allowance for
excess cost over market $ 450,767 $(350,667) (A) $ 100,100
Valuation for LIFO reserve (172,720) $ 293,162 120,442
Valuation allowance
for accounts receivable 93,761 (15,600) (D) 78,161
Valuation allowance for
note receivable 24,733 24,733
Year ended March 31, 1996
Valuation allowance for
excess cost over market $ 107,585 $ 40,282 $316,202 (B) $ (13,302) (C) $ 450,767
Valuation allowance for
LIFO reserve (172,720) (B) (172,720)
Valuation allowance
for accounts receivable 60,658 19,491 56,403 (B) (42,791) (D) 93,761
Valuation allowance for
note receivable 24,733 24,733
Valuation allowance
for lease receivable 6,782 (6,782) (E)
Year ended March 31, 1995
Valuation allowance for
marketable equity
securities $ 337,875 $(337,875) (F)
Valuation allowance
for obsolete inventory 186,121 (78,536) (C) $ 107,585
Valuation allowance
for accounts receivable 64,047 $ 47,265 (50,654) (D) 60,658
Valuation allowance
for note receivable 24,733 24,733
Valuation allowance
for lease receivable 6,782 6,782
</TABLE>
(A) - Disposal of inventory.
(B) - Valuation allowance was in the opening balance sheet of a company
acquired by Centrum.
(C) - Based on the physical inventory, the need for inventory obsolescence
allowance was reduced.
(D) - Allowance for doubtful accounts was reduced by the amount of accounts
written off.
(E) - Allowance for lease receivable was reduced by the amount of lease written
off.
(F) - The marketable equity securities were sold during 1995.
49
<PAGE> 50
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF CENTRUM
The executive officers and directors of Centrum at March 31, 1997 were as
follows:
<TABLE>
<S> <C> <C>
George H. Wells Age 52 Chief Executive Officer since June 1995. President
and Chief Operating Officer from 1992 to May 1995.
Director since 1992.
William C. Davis Age 50 Vice President and Secretary since December 1995.
Vice President since May 1995. Chief Executive
Officer, from 1992 to May 1995. Director since
1988.
Timothy M. Hunter Age 34 Chief Financial Officer, Treasurer and Assistant
Secretary since August 1996.
Vice President, Chief Financial Officer,
Secretary/Treasurer, McInnes Steel Company, since
March 1996.
Anthony A. Montani Age 58 President and Chief Operating Officer, McInnes
Steel Company, since March 1996.
Robert J. Fulton Age 54 Director, since 1993.
David L. Hart Age 52 Director, since 1989.
Richard C. Klaffky Age 50 Director, since 1996.
Mervyn H. Manning Age 64 Director, since 1996.
David R. Schroder Age 54 Director, since 1996.
Thomas E. Seiple Age 51 Director, since 1988.
</TABLE>
Information concerning the backgrounds and occupations for directors and
executive officers is as follows:
George H. Wells has been Chief Executive Officer since June 1995 and President
and Chief Operating Officer since October 1992 to May 1995. From 1990 to
October, 1991, he served as President and Chief Executive Officer of
Doehler-Jarvis, a Toledo, Ohio based producer of die cast and semipermanent
mold aluminum components utilized by the automotive industry and in general
industrial applications. From 1985 to 1989, he served as President and Chief
Operating Officer and as a Director of National Forge Company of Irvine,
Pennsylvania, which produced precision machined components.
William C. Davis is President, Chairman and Director of Continental Capital
Corporation, positions which he has held for over five years. From 1988 to
1995, he was the Chairman of the Board and Chief Executive Officer of Centrum.
Since 1995, he has been a Vice President and Secretary of Centrum.
Timothy M. Hunter was appointed Chief Financial Officer, Treasurer and
Assistant Secretary in August 1996. He has been Vice-President, Chief
Financial Officer and Secretary/Treasurer of McInnes Steel Company since March
1996. He has been with McInnes Steel Company since 1986, where he most
recently served as Treasurer and as a Director.
Anthony A. Montani has been President and Chief Operating Officer of McInnes
Steel Company since March 1996. He has been active in the forging industry for
over 30 years. He has been with McInnes Steel Company for over 25 years,
serving in his most recent capacity as Vice-President of Sales and Marketing,
and as a Director.
50
<PAGE> 51
Robert J. Fulton has been a director since 1993. From 1990 until December
1992, he served as Executive Vice President and Chief Operating Officer
of Doehler-Jarvis. From 1986 through 1990, he served as a Director and
Executive Vice President in charge of marketing and manufacturing of National
Forge Company. Currently he is president, CEO of the Hoeganaes Company.
David L. Hart has worked as a manufacturer's representative in the automotive
industry and has been President of his own firm, Lee Hart Associates, for over
five years. He has been a director since 1989.
Richard C. Klaffky is President and Chief Executive Officer of First New
England Capital, LP, a lender to Centrum. Mr. Klaffky is a member of the Board
of Governors of the National Association of Small Business Investment Companies
and serves on the boards of several companies. He has been a director since
September, 1996.
Mervyn H. Manning has recently retired as a senior executive at Ford Motor
Company where he had overall responsibility for Latin American and Asian
Automotive Operations. He has been a director since September, 1996.
David R. Schroder, is President of InvestAmerica Investment Advisors Inc., and
InvestAmerica N.D. Management, Inc. These two companies manage MorAmerica
Capital Corporation and The North Dakota Small Business Investment Company,
both of whom are lenders to Centrum. Mr. Schroder is a director of MACC Private
Equities, Inc. He has been a director since September, 1996.
Thomas E. Seiple has been the President of United Roofing & Sheet Metal, Inc.,
and other construction businesses located in Toledo, Ohio, for more than
fifteen years. Mr. Seiple has been a Centrum Director since 1988.
Section 16(a) Beneficial Ownership Reporting Deficiencies
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors, certain of its officers, and beneficial owners of more than 10% of
the outstanding Common Stock are required to file reports with the Securities
and Exchange Commission concerning their ownership of and transactions in
Common Stock; such persons are also required to furnish the Company with copies
of such reports.
During 1997, Richard Klaffky, Mervyn Manning and David Schroder were late in
filing their reports on Form 3, the Initial Statement of Beneficial Ownership
of Securities, in September 1996.
Based solely upon the reports and related information furnished to the Company,
the Company believes that all such filing requirements were complied with in a
timely manner during and with respect to 1997, with the exception of the three
reports described above.
51
<PAGE> 52
ITEM 11. EXECUTIVE COMPENSATION
The following table shows compensation paid or awarded by Centrum during the
fiscal years ended March 31, 1997, 1996, and 1995 to the current executive
officer of Centrum and the other executive officers of the Company for
services in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------- Long term
compensation
Name and Other annual ------------
principal position Year Salary Bonus compensation (1) Options (#)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
George H. Wells 1997 $ 189,600 $ 114,100 $ 6,860 100,000
1996 $ 175,000 $ 56,000 $ 6,860 150,000
1995 $ 175,000 $ 20,000 $11,094
Timothy M. Hunter 1997 $ 101,339 $ 33,385 $ 6,085 1,898
1996 $ 64,523 $ 6,044 169,133
1995 $ 62,400 $ 5,051
Anthony A. Montani 1997 $ 141,185 $ 33,385 $ 6,389 1,898
1996 $ 106,769 $ 6,439 216,200
1995 $ 104,000 $ 6,439
</TABLE>
- ----------------------
(1) Automobile Lease
OPTION GRANTS IN 1997
For Named Executive Officers
<TABLE>
<CAPTION>
Number of Percent of
securities total options
underlying granted to Exercise or
options employees in base price Expiration Grant date
granted fiscal year per share Date value (1)
---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
George H. Wells 100,000 30.6% $1.50 December 2, 2006 $135,000
Timothy M. Hunter 1,898 0.5% 2.00 December 2, 2006 2,278
Anthony A. Montani 1,898 0.5% 2.00 December 2, 2006 2,278
</TABLE>
- ----------------------
1)Based on the Constant Elasticity Variance of the Black-Scholes model using
the following assumptions: (a) a ten year option term; (b) 35% volatility
rate; and (c) 0% dividend yield. Actual gain, if any, is dependent upon the
actual performance of the shares of common stock underlying these options.
There is no assurance that the amounts shown in this column will be achieved.
The options for Messrs. Hunter and Montani were based upon the results of the
metal forming operations for the period of March 8, 1996 through March 31,
1996.
No options were exercised during the fiscal year ended March 31, 1997 by any of
the named executives included in the summary compensation table.
52
<PAGE> 53
EXECUTIVE COMPENSATION (INCLUDING TERMINATION OF EMPLOYMENT) AGREEMENTS
The following table sets forth information concerning the aggregate number of
options held and the value of unexercised "in-the-money" options held at March
31, 1997 (the difference between the aggregate exercise price of all such
options held and the market value of the shares covered by such options at
March 31, 1997).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAREND OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year end (#) Fiscal Year end ($)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George H. Wells 416,667 -0- $512,501 $-0-
Timothy M. Hunter 108,531 62,500 $118,404 $46,875
Anthony A. Montani 143,098 75,000 $163,307 $56,250
</TABLE>
Mr. George Wells has an employment agreement with the Company which provides
for an annual salary of $200,000. In addition to his salary, Mr. Wells is
entitled to receive a performance bonus of 5% of Centrum's consolidated before
tax profit. The agreement also calls for an annual stock or cash bonus to be
awarded at the discretion of the Board. The contract has an annual term,
which renews automatically unless terminated by either party in writing 60 days
prior to the expiration date.
The employment agreement with Mr. Wells provides for the termination of Mr.
Wells for cause. In the event that Mr. Wells is terminated for any reason
other than cause prior to expiration of the agreement, he is entitled to
severance compensation of nine months salary, any discretionary bonus awarded
but not yet paid, and the pro rata amount of the performance bonus earned prior
to termination.
Mr. Davis as Vice President and Secretary of the Company does not receive
compensation for services rendered in this capacity as of year end, and is not
involved in the daily operations of the Company. See directors compensation
with respect to Mr. Davis' compensation as a director.
Messrs. Hunter and Montani entered into employment agreements with McInnes
Steel Company, a subsidiary of Centrum, dated February 29, 1996 which have a
three year term. The agreements automatically renew from year to year on the
anniversary commencing on the expiration of the three year term unless
terminated by either party in writing 30 days prior to the expiration date.
Mr. Hunter's annual salary as determined by the agreement is $90,000 and Mr.
Montani's annual salary is $140,000. Both salaries are to be increased
annually by a minimum of the greater of the change in the CPI or 4% per year.
The contracts provide for the termination of Messrs. Hunter and Montani for
cause. In the event that either Mr. Hunter or Mr. Montani is terminated for
any reason other than cause prior to expiration of the agreement, he is
entitled to monthly severance compensation of his base monthly salary reduced
by any salary or consulting income received from any source for the remaining
term of the agreement for a minimum period of one year.
In addition, to his employment agreement with McInnes, Mr. Hunter is
compensated $18,000 annually as an employee of Centrum.
53
<PAGE> 54
DIRECTORS' FEES AND COMPENSATION
Directors who are employees of the Company or any subsidiary do not receive any
fees for the Board or committee service. The Company reimburses all directors
for travel, lodging, and related expenses that they may incur in attending
Board and committee meetings.
Robert J. Fulton, Thomas E. Seiple, and David L. Hart each received 8,000
shares of Centrum's common stock during 1997 for services rendered as directors.
The following table sets forth the stock option grants received by Directors
during 1997. No options were exercised for the fiscal year ended March 31, 1997
by any of the Directors included in the option grant table.
OPTION GRANTS IN 1997
For Board of Directors
<TABLE>
<CAPTION>
Number of
securities Percentage of
underlying total options Exercise or
options granted in in base price Expiration Grant date
granted fiscal year per share date value (1)
---------- ------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
William C. Davis 10,000 2.5% $1.50 December 2, 2006 $13,500
5,000 1.2% 2.00 December 2, 2006 6,000
Robert J. Fulton 10,000 2.5% $1.50 December 2, 2006 $13,500
5,000 1.2% 2.00 December 2, 2006 6,000
David L. Hart 10,000 2.5% $1.50 December 2, 2006 $13,500
5,000 1.2% 2.00 December 2, 2006 6,000
Thomas E. Seiple 10,000 2.5% $1.50 December 2, 2006 $13,500
5,000 1.2% 2.00 December 2, 2006 6,000
</TABLE>
- --------------------
(1) Based on the Constant Elasticity Variance of the Black-Scholes model
using the following assumptions: (a) a ten year option term; (b) 35%
volatility rate; and (c) 0% dividend yield. Actual gain, if any, is
dependent upon the actual performance of the shares of common stock
underlying these options. There is no assurance that the amounts shown in
this column will be achieved.
54
<PAGE> 55
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of Common Stock beneficially
owned as of May 31, 1997 by each director and nominee, each of the executive
officers named in the Summary Compensation Table included elsewhere herein, all
directors and executive officers of the Company as a group, and each 5% holder.
<TABLE>
<CAPTION>
Number of shares of Centrum
common stock
beneficially owned % of class
------------------ ------------
<S> <C> <C>
George H. Wells (a) 584,940 7.0
William C. Davis (b) 115,000 1.4
Timothy M. Hunter (c) 183,031 2.2
Anthony A. Montani (d) 218,098 2.6
Robert J. Fulton (e) 457,939 5.5
David L. Hart (f) 245,418 2.9
Mervyn Manning (g) 50,000 0.6
Thomas E. Seiple (h) 122,163 1.5
John R. Ayling (m) 591,536 7.1
Moramerica Capital Corp (i)(l) 627,500 7.5
North Dakota Small Business 247,500 3.0
Investment Company (j)(l)
First New England Capital Limited 375,000 4.5
Partnership (k)(l)
All current directors and executive
officers of the company as group 3,226,589 38.5
</TABLE>
The beneficial owner has sole voting and investment power with respect to all
shares listed, unless otherwise noted.
(a) Includes 416,667 shares Mr. Wells currently has the right to acquire
pursuant to stock options; includes 1,606 shares with respect to Mr. Wells'
ownership of shares held by Seneca Sheet Metal.
(b) Includes 115,000 shares Mr. Davis currently has the right to acquire
pursuant to stock options.
(c) Includes 171,031 shares Mr. Hunter currently has the right to acquire
pursuant to stock options.
(d) Includes 218,098 shares Mr. Montani currently has the right to acquire
pursuant to stock options.
(e) Includes 281,667 shares Mr. Fulton currently has the right to acquire
pursuant to stock options;
includes 1,605 shares with respect to Mr. Fulton's ownership of shares held by
Seneca Sheet Metal.
(f) Includes 15,000 shares Mr. Hart currently has the right to acquire pursuant
to stock options; includes 29,085 shares held by Mr. Hart's wife with respect
to which she has sole voting and dispositive power.
(g) Includes 50,000 shares held by the Mervyn H. Manning Trust.
(h) Includes 15,000 shares Mr. Seiple currently has the right to acquire
pursuant to stock options.
(i) Includes 627,500 shares MorAmerica Capital Corporation currently has the
right to acquire pursuant to a note and warrant purchase agreement with the
holders of the 11% convertible subordinated debt.
(j) Includes 247,500 shares The North Dakota Small Business Investment Company
currently has the right to acquire pursuant to a note and warrant purchase
agreement with the holders of the 11% convertible subordinated debt.
(k) Includes 375,000 shares First New England Capital, LP currently has the
right to acquire pursuant to a note and warrant purchase agreement with the
holders of the 11% convertible subordinated debt.
(l) MorAmerica Capital Corporation, The North Dakota Small Business Investment
Company and First New England Capital, LP as group have beneficial ownership
in excess of 10% of the Company's common stock.
(m) Includes 15,000 shares Mr Ayling has the right to acquire pursuant to stock
options.
55
<PAGE> 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Continental Capital, Inc. (Continental) is a shareholder of the Company and its
Chairman and Chief Executive Officer was, from 1988 to 1995, a Director and
Chief Executive Officer of the Company and has been a Vice President and
Director since June 1995 and has been a Director, Vice President and Secretary
since December 1995. In 1996 and 1995, the Company paid $47,500 and $15,000,
respectively, to Continental for fees relating to the issuance of debt. In
1997 and 1996, the Company paid Continental $274,000 and $85,000 for fees
relating to the issuance of stock.
During 1997, the Company had an unsecured note payable the amount of $80,000
with interest at 2% per month to Sarah McHugh, the spouse of David L. Hart. The
note was used for bridge financing to complete the McInnes acquisition and its
terms were the same as those offered to non-affilitates. The note principal was
paid in full during 1997 with the issuance of 12,000 shares of the Company's
common stock valued at $18,000 and $62,000 in cash. Interest of $7,890 was
paid with the issuance of 5,085 shares and $262 in cash.
Additionally, during 1997, the Company had an unsecured note payable in the
amount of $101,000 with interest at 2% per month to Seneca Sheet Metal, a
partnership owned jointly by George Wells and Robert Fulton. The note was used
for bridge financing to complete the McInnes acquisition and its terms were the
same as those offered to non-affilitates. The note principal was paid in full
during 1997. Interest of $9,534 was paid with the issuance of 3,211 shares of
the Company's common stock and $4,717 in cash.
56
<PAGE> 57
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a) The following exhibits are filed as part of the report:
3.1 Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal
year ended March 31, 1996, file number 0-9607, and incorporated
herein by reference).
3.2 Bylaws (filed as Exhibit 3.2 to the Company's Report
on Form 10-K for the fiscal year ended March 31, 1996, file
number 0-9607, and incorporated herein by reference).
3.3 Participating Preferred Agreement (filed as Exhibit
3.3 to the Company's Report on Form 10-K for the fiscal year
ended March 31, 1996, file number 0-9607, and incorporated
herein by reference).
4.1 The instruments defining the rights of the holders of
debentures issued in calendar year 1995, with options at $1.00
per share are not being filed herewith, as permitted by
Regulation Section 229.601(b)(4)(iii), because such securities
do not exceed 10 percent of the total assets of the Company and
its consolidated subsidiaries. The Company hereby agrees to
furnish a copy of such agreements to the Commission upon
request.
4.2 The instruments defining the rights of the holders of
certain notes, styled as "Loans," issued in 1991-1993, are not
being filed herewith, as permitted by Regulation Section
229-601(b)(4)(iii), because such securities do not exceed 10
percent of the total assets of the Company and its consolidated
subsidiaries. The Company hereby agrees to furnish a copy of
such agreements to the Commission upon request.
4.3 The instruments defining the rights of the holders of
certain subordinated notes originally issued by American
Handling, Inc. in 1991 are not being filed herewith, as
permitted by Regulation Section 229-601(b)(4)(iii), because such
securities do not exceed 10 percent of the total assets of the
Company and its consolidated subsidiaries. The Company hereby
agrees to furnish a copy of such agreements to the Commission
upon request.
4.4 The instruments defining the rights of the holders of
certain notes, styled as "Loans with Warrants," issued in
1993-1995, are not being filed herewith, as permitted by
Regulation Section 229-601(b)(4)(iii), because such securities
do not exceed 10 percent of the total assets of the Company and
its consolidated subsidiaries. The Company hereby agrees to
furnish a copy of such agreements to the Commission upon
request.
4.5 The 11% Convertible Subordinated Notes issued in
March 1996 in the aggregate principal amount of $2,500,000
(issued together with warrants for 1,250,000 shares of the
Company's common stock) are not being filed herewith, as
permitted by Regulation Section 229-601(b)(4)(iii), because such
securities do not exceed 10 percent of the total assets of the
Company and its consolidated subsidiaries. The Company hereby
agrees to furnish a copy of such agreements to the Commission
upon request.
57
<PAGE> 58
4.6 Certain subordination agreements executed in March
1996 by new and existing noteholders of the Company are not
being filed herewith, as permitted by Regulation Section
229.601(b)(4)(iii), because such securities do not exceed 10
percent of the total assets of the Company and its consolidated
subsidiaries. The Company hereby agrees to furnish a copy of
such agreements to the Commission upon request.
4.7 The instrument defining the rights of the holders
certain debt incurred in the acquisition of substantially all
the assets of Taylor Forge International, Inc., issued in June
1997 in the principal amount of $250,000, is not being filed
herewith, as permitted by Regulation Section 229.601(b)(4)(iii),
because such security does not exceed 10 percent of the total
assets of the Company and its consolidated subsidiaries. The
Company hereby agrees to furnish a copy of such to the
Commission upon request.
4.8 The instruments defining the rights of the holders of
certain debt incurred in the acquisition of Micafil, Inc., in
May 1993, including the restatements of such original
instruments, are not being filed herewith, as permitted by
Regulation Section 229.601(b)(4)(iii), because such securities
do not exceed 10 percent of the total assets of the Company and
its consolidated subsidiaries. The Company hereby agrees to
furnish a copy of such agreements to the Commission upon
request.
4.9 Reimbursement Agreement, dated as of February 29,
1996, with respect to a letter of credit issued by The
Huntington National Bank, relating to $6,000,000 Erie County
Industrial Development Authority Variable Rate Demand Industrial
Development Revenue Bonds (McInnes Steel Company Project) (filed
as Exhibit 4.9 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
4.10 Installment Sales Agreement, dated as of November 1,
1991, relating to the loan of proceeds from the sale of
$6,000,000 Erie County Industrial Development Authority Variable
Rate Demand Industrial Development Revenue Bonds (McInnes Steel
Company Project) (filed as Exhibit 4.10 to the Company's Report
on Form 10-K for the fiscal year ended March 31, 1996, file
number 0-9607, and incorporated herein by reference).
9.1 Equity Holders Agreement dated as of February 29,
1996, effective as of March 8, 1996, by and among First New
England Capital Limited Partnership, Moramerica Capital Corp.,
North Dakota Small Business Investment Company, Centrum
Industries, Inc. and certain shareholders of Centrum Industries,
Inc. (filed as Exhibit 9.1 to the Company's Report on Form 10-K
for the fiscal year ended March 31, 1996, file number 0-9607,
and incorporated herein by reference).
10.1 Asset Purchase Agreement by and among Centrum
Industries, Inc., Centrum Acquisition Corporation, and Taylor
Forge International, Inc., dated as of April 29, 1997 as amended
May 14, 1997 (filed as Exhibit 10.1 to the Company's Report on
Form 8-K, filed with the Commission on June 19, 1997, file
number 0-9607, and incorporated herein by reference).
10.2 Registration Rights Agreement by and among Centrum
Industries, Inc. and Taylor Forge International, Inc., dated
June 4, 1997 (filed as Exhibit 10.2 to the Company's Report on
58
<PAGE> 59
Form 8-K, filed with the Commission on June 19, 1997, file
number 0-9607, and incorporated herein by reference).
10.3 Note and Warrant Purchase Agreement dated as of
February 29, 1996 and effective as of March 8, 1996, by and
among Moramerica Capital Corporation, First New England Capital
Limited Partnership, and North Dakota Small Business Investment
Company and Centrum Industries, Inc. with respect to 11%
convertible, subordinated notes and warrants for the purchase of
1,250,000 shares of the Company's common stock (filed as Exhibit
10.3 to the Company's Report on Form 10-K for the fiscal year
ended March 31, 1996, file number 0-9607, and incorporated
herein by reference).
10.4 Common Stock Warrant dated as of February 29, 1996
and effective as of March 8, 1996, issued to MorAmerica Capital
Corporation for 627,445 shares of common stock (filed as Exhibit
10.4 to the Company's Report on Form 10-K for the fiscal year
ended March 31, 1996, file number 0-9607, and incorporated
herein by reference).
10.5 Common Stock Warrant dated as of February 29, 1996
and effective as of March 8, 1996, issued to First New England
Capital Limited Partnership for 375,000 shares of common stock
(filed as Exhibit 10.5 to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.6 Common Stock Warrant dated as of February 29, 1996
and effective as of March 8, 1996, issued to First New England
Capital Limited Partnership and North Dakota Small Business
Investment Company for 247,555 shares of common stock (filed as
Exhibit 10.6 to the Company's Report on Form 10-K for the fiscal
year ended March 31, 1996, file number 0-9607, and incorporated
herein by reference).
10.7 Put Agreement by and among Moramerica Capital
Corporation, First New England Capital Limited Partnership, and
North Dakota Small Business Investment Company and Centrum
Industries, Inc. (filed as Exhibit 10.7 to the Company's Report
on Form 10-K for the fiscal year ended March 31, 1996, file
number 0-9607, and incorporated herein by reference).
10.8 Registration Rights Agreement dated as of February
29, 1996, effective as of March 8, 1996, by and among Moramerica
Capital Corporation, First New England Capital Limited
Partnership and North Dakota Small Business Investment Company
and Centrum Industries, Inc. (filed as Exhibit 10.8 to the
Company's Report on Form 10-K for the fiscal year ended March
31, 1996, file number 0-9607, and incorporated herein by
reference).
10.9 Loan and Security Agreement dated as of February 29,
1996, by and among The Huntington National Bank and McInnes
Steel Company, Eballoy Glass Products Company, Erie Bronze &
Aluminum Company, and McInnes International, Inc. as Borrowers,
and Centrum Industries, Inc. and McInnes Services, Inc. as
Guarantors (filed as Exhibit 10.9 to the Company's Report on
Form 10-K for the fiscal year ended March 31, 1996, file number
0-9607, and incorporated herein by reference).
10.10 Amended and Restated Continuing Guaranty Unlimited
of Centrum dated June 4, 1997 (filed as Exhibit 10.6 to the
Company's report on Form 8-K, filed with the Commission on
June 19, 1997, file number 0-9607, and incorporated herein by
reference).
59
<PAGE> 60
10.11 Form of Common Stock Warrant, issued in connection
with the debt instruments referenced in Exhibits 4.5 above
(filed as Exhibit 10.11 to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.12 Loan Agreement by and between the City of Erie by
and through the Enterprise Development Zone Revolving Loan Fund
and McInnes Steel Company dated as of November 2, 1995 (filed as
Exhibit 10.12 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.13 Amended and Restated Employment Agreement with
George H. Wells executed November 18, 1996 (filed herewith).
10.14 Employment Agreement with Anthony A. Montani (filed
as Exhibit 10.14 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.15 Employment Agreement with Timothy M. Hunter (filed
as Exhibit 10.15 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.16 Services Agreement with Stephen J. Mahoney (filed as
Exhibit 10.16 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.17 Stock Option Agreement with Anthony A. Montani
(filed as Exhibit 10.17 to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.18 Stock Option Agreement with Anthony A. Montani
(filed as Exhibit 10.17 to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.19 Stock Option Agreement with Timothy M. Hunter (filed
as Exhibit 10.19 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.20 Stock Option Agreement with Timothy M. Hunter (filed
as Exhibit 10.20 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.21 Bonus and Stock Option Plan of McInnes Steel Company
and its Subsidiaries (filed as Exhibit 10.21 to the Company's
Report on Form 10-K for the fiscal year ended March 31, 1996,
file number 0-9607, and incorporated herein by reference).
60
<PAGE> 61
10.22 Bonus and Stock Option Plan of Micafil, Inc. (filed
as Exhibit 10.22 to the Company's Report on Form 10-K for the
fiscal year ended March 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.23 Amendment No. 2 to Loan Agreement with Huntington
National Bank dated June 4, 1997 (filed as Exhibit 10.5 to the
Company's report on Form 8-K, filed with the Commission on June
19, 1997, file number 0-9607, and incorporated herein by
reference).
10.24 Model Board of Directors Stock Option Agreement
filed as Exhibit 10.24 to the Company's Report on Form 10-Q for
the quarter ended December 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.25 Model Employee Stock Option Agreement (filed as
Exhibit 10.25 to the Company's Report on Form 10-Q for the
quarter ended December 31, 1996, file number 0-9607, and
incorporated herein by reference).
10.26 Stock Option Agreement with George H. Wells dated
December 2, 1996 (filed as Exhibit 10.26 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1996, file
number 0-9607, and incorporated herein by reference).
10.27 Stock Option Agreement with Timothy M. Hunter dated
December 2, 1996 (filed as Exhibit 10.27 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1996, file
number 0-9607, and incorporated herein by reference).
10.28 Stock Option Agreement with Anthony A. Montani dated
December 2, 1996 (filed as Exhibit 10.28 to the Company's Report
on Form 10-Q for the quarter ended December 31, 1996, file
number 0-9607, and incorporated herein by reference).
10.29 Amendment No. 1 to Loan Agreement with Huntington
National Bank dated January 1, 1997(filed herein)
11 Computation of earnings per share (filed herewith).
21 List of Subsidiaries of Centrum Industries, Inc. (filed
herewith).
27 Financial Data Schedules (filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
ended March 31, 1997.
61
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Centrum has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CENTRUM INDUSTRIES, INC.
By: /s/ Timothy M. Hunter
-------------------------------------
Timothy M. Hunter
Chief Financial Officer
Date: June 23, 1998
-----------------------------------
62
<PAGE> 63
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Centrum in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Date
<S> <C>
/s/ George H. Wells
- --------------------------------- Principal June 23, 1997
George H. Wells Executive
Chief Executive Officer, Member - Officer
Board of Directors
/s/ William C. Davis June 24, 1997
- ---------------------------------
William C. Davis
Vice President, Secretary
Member Board of Directors
/s/ Timothy M. Hunter
- --------------------------------- Principal June 23, 1997
Timothy M. Hunter Financial
Chief Financial Officer Officer
/s/ Robert J. Fulton June 26, 1997
- ---------------------------------
Robert J. Fulton
Member Board of Directors
/s/ David L. Hart June 25, 1997
- ---------------------------------
David L. Hart
Member Board of Directors
/s/ Richard C. Klaffky June 26, 1997
- ---------------------------------
Richard C. Klaffky
Member Board of Directors
/s/ Mervyn H. Manning June 26, 1997
- ---------------------------------
Mervyn H. Manning
Member Board of Directors
/s/ David R. Schroder June 26, 1997
- ---------------------------------
David R. Schroder
Member Board of Director
/s/ Thomas E. Seiple June 26, 1997
- ---------------------------------
Thomas E. Seiple
Member Board of Directors
</TABLE>
63
<PAGE> 64
Exhibit Index
Exhibit Description of Exhibit
Number
10.29 Amendment No. 1 to Loan Agreement with Huntington
National Bank dated January 1, 1997(filed herein)
11 Computation of earnings per share (filed herewith).
21 List of Subsidiaries of Centrum Industries, Inc.
(filed herewith).
27 Financial Data Schedules (filed herewith).
64
<PAGE> 1
EXHIBIT 10.29
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to the Loan and Security
Agreement is entered into as of the 1st day of January, 1997, by and between
McInnes Steel Company, Eballoy Glass Products Company, Erie Bronze & Aluminum
Company, and McInnes International, Inc., as borrowers (the foregoing shall be
referred to herein collectively as "Borrowers" and separately as a "Borrower"),
Centrum Industries, Inc. and McInnes Services, Inc., as guarantors
(collectively the "Guarantors" and separately a "Guarantor"), and The
Huntington National Bank (the "Bank").
RECITALS:
A. As of February 29, 1996, the Borrowers, the Guarantors and the
Bank executed a certain Loan and Security Agreement (hereinafter the "Loan
Agreement"), setting forth the terms of certain extensions of credit to the
Borrowers; and
B. As of February 29, 1996, the Borrowers executed and delivered
to the Bank, inter alia, a revolving note in the original principal sum of
Fifteen Million Five Hundred Thousand Dollars ($15,500,000.00) (hereinafter the
"Revolving Note"); and
C. As of February 29, 1996, the Borrowers executed and delivered
to the Bank, inter alia, a commercial loan note in the original principal sum
of Two Million Eight Hundred Fifty Thousand Dollars ($2,850,000.00)
(hereinafter the "Term Note") (the Revolving Note and the Term Note are
hereinafter referred to as the "Note"); and
D. In connection with the Loan Agreement and the Note, the
Borrowers executed and delivered to the Bank certain other loan documents, a
reimbursement agreement, open-end mortgages, assignment of rents and security
agreements, a second mortgage, assignment of rents and security agreement,
lockbox agreements, consents, assignments, security agreements, agreements,
instruments and financing statements in connection with the indebtedness
referred to in the Loan Agreement (all of the foregoing, together with the Note
and the Loan Agreement, are hereinafter collectively referred to as the "Loan
Documents"); and
E. The Borrowers have requested modifications to certain
provisions in the Loan Agreement, and the Borrowers and the Bank are willing to
do so upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assigns do hereby agree, represent and
warrant as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Loan Agreement.
2. Section 1.2, "Borrowing Base," of the Loan Agreement is hereby
amended to recite in its entirety as follows:
1.2 Borrowing Base. The principal balance of the
Revolving Loans made to any Borrower, plus the aggregate
stated value outstanding at any time of Letter of Credit
issued for such Borrower, shall not exceed such Borrower's
Borrowing Base. "Borrowing Base" shall mean, with respect to
any Borrower, the sum of the following with respect to such
Borrower (a) 70% of Eligible Raw Materials Inventory not to
exceed the Consolidated Eligible Raw Materials Inventory Cap;
plus (b) 60% of Eligible Material Content of WIP Inventory not
to exceed the Consolidated Eligible Material Content WIP
Inventory Cap, plus (c) the Eligible Equipment Availability,
plus (d) 85% of Eligible Accounts (collectively the "Borrowing
<PAGE> 2
Base"). "Consolidated Eligible Raw Materials Inventory Cap"
means an amount not to exceed $3,500,000 with respect to the
Eligible Raw Materials Inventory of all of the Borrowers in
the aggregate. "Consolidated Eligible Material Content of WIP
Inventory Cap" means an amount not to exceed $1,500,000 with
respect to the Eligible Material Content of WIP Inventory of
all of the Borrowers in the aggregate. The Bank, in its sole
good faith discretion, reserves the right upon notice to the
Borrowers to increase or decrease the foregoing percentages or
the maximum dollar amount attributable to the Consolidated Raw
Materials Inventory Cap or the Consolidated Eligible Material
Content of WIP Inventory Cap. "Eligible Equipment
Availability" shall mean with respect to Eligible Equipment
the following amounts with respect to the following periods:
(i) from the date of this Agreement through and including
December 30, 1996, with respect to MSC, the sum of
$3,700,000, with respect to EBA, the sum of $767,000,
and with respect to Eballoy, the sum of $283,000,
(ii) beginning December 31, 1996, and continuing through
and including December 30, 1997, with respect to MSC,
the sum of $3,083,333, with respect to EBA, the sum
of $586,500, and with respect to Eballoy, the sum of
$235,833,
(iii) beginning December 31, 1997, and continuing through
and including December 30, 1998, and with respect to
MSC, the sum of $2,466,667, with respect to EBA, the
sum of $406,000, with respect to Eballoy, the sum of
$188,667, and
(iv) beginning December 31, 1998, and continuing at all
times thereafter, with respect to MSC, the sum of
$1,850,000, with respect to EBA, the sum of $225,500,
and with respect to Eballoy, the sum of $141,500,
minus with respect to each applicable period the appraised
value of any Equipment that is sold, transferred or disposed
of pursuant to the terms of this Agreement or becomes obsolete
after December 27, 1995.
3. Schedule 6.11 referenced in Section 6.11, "Compensation of
Officers and Affiliated Persons," of the Loan Agreement is hereby amended and
replaced with the Schedule 6.11 attached hereto and incorporated herein by this
reference.
4. Section 6.19, "Operating Lease Rentals," of the Loan Agreement
is hereby amended to recite in its entirety as follows:
6.19 Operating Lease Rentals. The Borrowers and MSI have
entered into the operating leases as set forth in Schedule
6.19 attached hereto The Borrowers and MSI, on a consolidated
basis, will not without the prior written approval of the Bank
enter into operating leases providing in the aggregate for
annual rentals which exceed $200,000.00.
5. Section 6.22, "Accounts Payable Turnover Days," of the Loan
Agreement is hereby amended to recite in its entirety as follows:
6.22 Accounts Payable Turnover Days. At any time, on a
consolidated basis, the Borrower's Accounts Payable Turnover
Days shall not exceed 70. "Accounts Payable Turnover Days"
shall mean the ratio of such Borrower's (a) average month-end
balance of trade
-2-
<PAGE> 3
accounts payable for such period, to (b) the Average Daily
Cost of Sales for such period. "Average Daily Cost of Sales"
shall mean the total cost of sales for such period divided by
the number of days in such period. Such ratio shall be
determined as of the last day of each month for the twelve
month period ending on such date or, if fewer than twelve
months have occurred since the date of this Agreement, for the
period from the date of this Agreement to such date.
6. Conditions of Effectiveness. This Amendment shall become
effective as of January 1, 1997, upon satisfaction of all of the following
condition:
(a) The Bank shall have received two duly executed copies of the
First Amendment to Loan and Security Agreement and such other certificates,
instruments, documents, agreements, and opinions of counsel as may be required
by the Bank, each of which shall be in form and substance satisfactory to the
Bank and its counsel; and
(b) The representations contained in paragraph 7 below shall be
true and accurate.
7. Representations. Each of the Borrowers represents and
warrants that after giving effect to this Amendment (a) each and every one of
the representations and warranties made by or on behalf of such Borrower in the
Loan Agreement or the Loan Documents is true and correct in all respects on and
as of the date hereof, except to the extent that any of such representations
and warranties related, by the expressed terms thereof, solely to a date prior
hereto; (b) such Borrower has duly and properly performed, complied with and
observed each of its covenants, agreements and obligations contained in the
Loan Agreement and Loan Documents; and (c) no event has occurred or is
continuing, and no condition exists which would constitute an Event of Default
or Pending Default.
8. Amendment to Loan Agreement. (a) Upon the effectiveness of
Section 2 through Section 5 hereof, each reference in the Loan Agreement to
"Loan and Security Agreement," "Loan Agreement," "Agreement," the prefix
"herein," "hereof," or words of similar import, and each reference in the Loan
Documents to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as amended hereby. (b) Except as modified herein, all of the
representations, warranties, terms, covenants and conditions of the Loan
Agreement, the Loan Documents and all other agreements executed in connection
therewith shall remain as written originally and in full force and effect in
accordance with their respective terms, and nothing herein shall affect,
modify, limit or impair any of the rights and powers which the Bank may have
thereunder. The amendment set forth herein shall be limited precisely as
provided for herein, and shall not be deemed to be a waiver of, amendment of,
consent to or modification of any of the Bank's rights under or of any other
term or provisions of the Loan Agreement, any Loan Document, or other agreement
executed in connection therewith, or of any term or provision of any other
instrument referred to therein or herein or of any transaction or future action
on the part of the Borrowers which would require the consent of the Bank,
including, without limitation, waivers of Events of Default which may exist
after giving effect hereto. Each of the Borrowers ratifies and confirms each
term, provision, condition and covenant set forth in the Loan Agreement and the
Loan Documents and acknowledges that the agreement set forth therein continue
to be legal, valid and binding agreements, and enforceable in accordance with
their respective terms.
9. Authority. Each of the Borrowers hereby represents and
warrants to the Bank that (a) such Borrower has legal power and authority to
execute and deliver the within Amendment; (b) the officer executing the within
Amendment on behalf of such Borrower has been duly authorized to execute and
deliver the same and bind such Borrower with respect to the provisions provided
for herein; (c) the execution and delivery hereof by such Borrower and the
performance and observance by such Borrower of the provisions hereof do not
violate or conflict with the articles of incorporation, regulations or by-laws
of such Borrower or any law applicable to such Borrower or result in the breach
of any provision of or constitute a default under any agreement, instrument or
document binding upon or enforceable against such Borrower; and (d) this
Amendment constitutes a valid and legally binding obligation upon such Borrower
in every respect.
-3-
<PAGE> 4
10. Counterparts. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties
had executed the same counterparts.
11. Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Ohio.
IN WITNESS WHEREOF, the Borrowers, the Guarantors and the Bank
have hereunto set their hands as of the date first set forth above.
THE BORROWERS:
MCINNES STEEL COMPANY
By Timothy M. Hunter
--------------------------------------
Its Vice President, Chief Financial
Officer, Treasurer/Secretary
-------------------------------------
EBALLOY GLASS PRODUCTS COMPANY
By Timothy M. Hunter
--------------------------------------
Its Treasurer/Secretary
-------------------------------------
ERIE BRONZE & ALUMINUM COMPANY
By Timothy M. Hunter
--------------------------------------
Its Treasurer/Secretary
-------------------------------------
MCINNES INTERNATIONAL, INC.
By Timothy M. Hunter
--------------------------------------
Its Treasurer/Secretary
-------------------------------------
THE GUARANTORS:
CENTRUM INDUSTRIES, INC.
By George H. Wells
--------------------------------------
Its President
-------------------------------------
-4-
<PAGE> 5
MCINNES SERVICES, INC.
By Timothy M. Hunter
--------------------------------------
Its Treasurer/Secretary
-------------------------------------
THE BANK:
THE HUNTINGTON NATIONAL BANK
By: Mark R. Matheson
-------------------------------------
Its: Assistant Vice President
------------------------------------
-5-
<PAGE> 6
SCHEDULE 6.11
Compensation of Officers
<TABLE>
<CAPTION>
Name Base Compensation Bonus Fringes (3) Comments
- ---- ----------------- ----- ----------- --------
<S> <C> <C> <C> <C>
Anthony A. Montani $ 140,000(1) Varies(2) $ 3,500 Executive Medical Reimbursement Plan.
2,600 Premium for $100,000 Whole-Life insurance
contract.
1,600(4) Country Club and Dinner Club dues and
assessments.
As incurred Personal tax return preparation.
2,000 Non-Qualified Deferred Compensation Plan
contribution.
(5) Stock Option Plan.
Timothy M. Hunter $ 108,000(1) Varies(2) $ 3,500 Executive Medical Reimbursement Plan.
1,000 Premium for $100,000 Whole-Life insurance
contract.
1,400(4) Country Club and Dinner Club dues and
assessments.
As incurred Personal tax return preparation.
(5) Stock Option Plan.
</TABLE>
(1) Adjusted annually at the lesser of the CPI or 4%. Refer to Section 3
of respective employment agreements.
(2) Bonus payable based upon a formula of 3.125% of profit (Profit defined
as pretax profit before intercompany administrative charges and bonus
payments) split between a maximum of 3 people. See Performance Award
Plan.
(3) Fringe benefits listed are those benefits in excess of the normal
employee benefit plans provided to the salaried employees. Refer to
Section 5 of employment agreements.
(4) Dues amount only. Total payments may vary based upon assessments,
etc. Refer to Section 5 of respective employment agreements.
(5) Refer to Centrum Industries' Stock Option Agreement, Stock Option
Agreement between Centrum Industries and Principal Shareholder, and
Performance Award Plan.
<PAGE> 1
Centrum Industries, Inc. Exhibit - 11
Computation of earnings per share
March 31, 1997
<TABLE>
<S> <C>
Net Income $ 2,450,278
Weighted average common and common equivalent shares outstanding 8,638,253
-----------
Net income per common share $ 0.28
===========
</TABLE>
<TABLE>
<CAPTION>
Net
Average Outstanding
Exercise Market Net Share Days Weighted
Number Price Proceeds Price Repurchase Increase Outstanding Average
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
120,913 0.37 44,980 2.25 19,991 100,922 241 66,636
40,304 0.37 14,993 2.25 6,664 33,640 232 21,382
40,304 0.37 14,993 2.25 6,664 33,640 239 22,028
800 1.00 800 2.25 356 444 201 245
1,000 1.00 1,000 2.25 444 556 326 496
1,000 1.00 1,000 2.25 444 556 341 519
20,000 1.00 20,000 2.25 8,889 11,111 256 7,793
20,000 1.00 20,000 2.25 8,889 11,111 361 10,989
110,333 0.64 70,613 2.25 31,384 78,949 365 78,949
333,334 0.75 250,000 2.25 111,111 222,223 365 222,223
350,000 1.00 350,000 2.25 155,556 194,444 365 194,444
170,000 1.50 255,000 2.25 113,333 56,667 120 18,630
251,568 2.00 503,136 2.25 223,616 27,952 120 9,190
275,000 1.50 412,500 2.25 183,333 91,667 365 91,667
490,600 1.00 490,600 2.25 218,044 272,556 365 272,556
1,250,000 2.00 2,500,000 2.25 1,111,111 138,889 365 138,889
---------
Weighted average common equivalent shares outstanding 1,156,636
Weighted average common shares outstanding 7,481,617
---------
Weighted average common and common equivalent shares outstanding 8,638,253
=========
</TABLE>
<PAGE> 1
Exhibit 21 - Subsidiaries of the Registrant
The direct and indirect subsidiaries of Centrum Industries, Inc. and their
state or territory of incorporation are as follows as of June 5, 1997:
<TABLE>
<CAPTION>
Name of Subsidiary State or Territory of Incorporation
<S> <C>
McInnes Steel Company Pennsylvania
McInnes Services, Inc. Delaware
Erie Bronze & Aluminum Company Pennsylvania
Eballoy Glass Products Company Pennsylvania
McInnes International, Inc. U.S. Virgin Islands
Taylor Forge Company Tennessee
American Handling, Inc. Ohio
Micafil, Inc. Delaware
LaSalle Exploration, Inc. Ohio
Micafil - Axis, LLC (50% equity ownership) Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,758,219
<SECURITIES> 0
<RECEIVABLES> 11,080,819
<ALLOWANCES> 78,161
<INVENTORY> 9,897,925
<CURRENT-ASSETS> 25,768,427
<PP&E> 12,286,864
<DEPRECIATION> 1,659,100
<TOTAL-ASSETS> 43,000,647
<CURRENT-LIABILITIES> 22,640,435
<BONDS> 0
0
3,500
<COMMON> 418,445
<OTHER-SE> 8,320,693
<TOTAL-LIABILITY-AND-EQUITY> 43,000,647
<SALES> 71,154,726
<TOTAL-REVENUES> 71,429,518
<CGS> 54,925,216
<TOTAL-COSTS> 67,002,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,750,203
<INCOME-PRETAX> 1,676,603
<INCOME-TAX> (773,675)
<INCOME-CONTINUING> 2,450,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,450,278
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
