<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8
AMENDMENT AND SUPPLEMENT TO FORM 8-K
(Dated August 11, 1996)
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 8, 1996
Commission File Number: 0-9969
CENTURY INDUSTRIES, INC.
----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
District of Columbia 54-1100941
----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
45034 Underwood Lane
Sterling, Va. 20166
(Mail) P.O. Box 319
Sterling, Va. 20167
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 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
----- -----
Yes X No
----- -----
The undersigned Registrant hereby supplements its Form 8-K dated August 11,
1996, pursuant to Item 210.3-05 of Regulation S-X.
<PAGE> 2
Item 5. Other Events.
USIB's auditors have advised Registrant's management that the USIB June 30,
1996 financial statements will be restated, resulting in the changes to the
Registrant's consolidated restated financial statements outlined below:
(a) The USIB professional fees of $477,205 will be capitalized as
development expense, amortized over a five year period. This will
result in the following restated changes to the Registrant's
financials:
(i) Negative consolidated earnings of $($353,401) will be
adjusted by $437,438, resulting in restated consolidated
earnings of $84,037 at June 30, 1996.
(ii) Negative consolidated retained earnings in the amount of
($771,624) will be adjusted by $437,438, resulting in
restated consolidated retained earnings of ($334,186).
(iii) Additional paid in capital in the amount of $735,800 will
be adjusted by $920,000, resulting in restated additional
paid-in capital of $1,655,800. The adjustment is the result
of the "minority interest preferred stock of subsidiary"
being reclassified as additional paid-in capital and
included in the Stockholders Equity section of the balance
sheet.
(iv) Negative Stockholders equity in the amount of ($32,548)
will be adjusted by $437,438 and $920,000, resulting in
restated Stockholders Equity of $1,324,890.
(b) The DCP investment of $700,000, and the cash on hand of
approximately $500,000, will result in the Registrant's capital
increasing to approximately $2,524,890 at September 30, 1996.
ITEM 7. Financial Statements and Exhibits. (Amended to include the information
required by Item 210.3-05 of Regulation S-X. The Registrant has always
attempted to express its financial statements in accordance with Regulation
S-X, although regulation SB would be permitted, in order to adhere, as a matter
of practice, to the more stringent standards in contemplation of future
corporate expansion.)
Century Industries, Inc. filed an 8-K on August 11, 1996, regarding the
Agreement between U.S. Insurance Brokers, Inc. (USIB), a District of Columbia
corporation and a wholly owned subsidiary of the Registrant, to acquire,
pursuant to Phase I, forty nine percent (49%) of DC Partners, Ltd. (DCP), a New
Jersey corporation, for $700,000 in cash, to be purchased directly from DCP's
authorized but unissued share capital. At the time of the 8-K, the Registrant's
USIB subsidiary had paid $300,000 for 21% of DCP's equity, and had until
November 30, 1996 to pay the $400,000 balance of the 49%, in order to preserve
its right to purchase the balance of 51% of DCP by June 30, 1997, for
$3,000,000 cash and 750,000 shares of the Registrant's common stock.
-2-
<PAGE> 3
This 49% Phase I cash purchase has been completed as of 9-25-96, as a
3rd quarter 1996 event. Additionally, USIB has set aside an additional
$500,000 towards the 51% Phase II purchase. While the Acquisition/Merger
Agreement provides for USIB and the Registrant as USIB's parent company, in
Phase II, to acquire and merge the final 51% of DCP into USIB for an
additional $3,000,000 cash and 750,000 shares of registrant's common voting
shares, Phase II has not yet been completed at the date of this Form 8 filing.
Accordingly, based upon the Registrant's analysis of Section 210.3-05 of
Regulation S-X, DCP is not as yet a significant subsidiary of the Registrant,
nor has a business combination yet occurred. Management cannot predict with
total certainty that a subsequent pooling of interests will take place, nor
does the 49% purchase constitute the purchase of a significant subsidiary, as
USIB has only acquired 4.9% of DCP's voting rights at the 9-25-96 date.
USIB's investment in DCP is therefore treated at this date as an
acquisition of a minority (less than 50% owned) subsidiary, without treating
the Registrant's investment in DCP as an acquisition of sufficient voting
control or capability to consolidate a sufficient interest in DCP pursuant to a
pooling of interests.
At this date, the $700,000 cash invested in DCP by USIB will comprise
approximately 21% of the Registrant's own consolidated assets, but if DCP were
consolidated with the registrant, the $700,000 would comprise approximately 11%
of the Registrant's assets, as DCP has $3,578,253 in total assets at 7-30-96.
DCP was not formed in New jersey until 1996, having acquired 100% of
Scibal Associates, Inc. (New Jersey) in 1996, its predecessor. Scibal
Associates, Inc. is therefore the predecessor of DCP. The Scibal Associates,
Inc. fiscal year end 9-30-95 audited balance sheet is attached, as well as its
reviewed income statement, cash flows report, and footnotes.
Management is filing the attached audited balance sheet and reviewed
attachments acting in accordance with its interpretation of the S.E.C. Staff
Opinion refining the application of Regulation S-X, section 2.3-05, as
contained in the question and answer section, #49, of regulation D, Rules
Governing the Limited Offer and Sale of Securities Without Registration under
the Securities Act of 1933, published as SEC 1972-A (8-94) footnoting a no
action letter (See Re: Walnut Valley Special Cable TV Fund, May 23, 1982).
In 1996, DCP will be audited on a calendar year end basis, in
consolidation with its predecessor, consistent with the Registrant's calendar
year end.
The DCP unaudited financials at June 30, 1996 and for the 1996 year to
date were contained in the footnotes to Registrant's 6-30-96 2nd Quarter
10-QSB. The DCP unaudited financials for the 3rd Quarter and year to date will
also be included as part of the Registrant's 3rd Quarter financial statement
footnotes. USIB's investment of $700,000 cash will be carried on the
-3-
<PAGE> 4
Registrant's balance sheet in consolidation with USIB as an equity line
investment item.
When and if the Registrant completes Phase II of the Acquisition, a new
8-K will be filed, which will include the fully audited DCP financials, pro
forma information, and their impact on the Registrant in consolidation with the
Registrant.
Consistent with the pro forma projections required by section 310.3 (d) of
the SB regulations, and 210.11-02 of the S-X Regulations, the Registrant is
including herein DCP's 3 year go forward income projections for the years 1997,
1998, and 1999, in the spirit of attempted compliance with those sections. They
are illustrated in the following table:
<TABLE>
<CAPTION>
Revenues 1997 1998 1999
- -------- ---- ---- ----
<S> <C> <C> <C>
Claims handling services $ 12,092,607 14,003,520 18,264,772
Direct Costs:
- ------------
Adjuster salaries & benefits 3,484,633 3,452,527 3,555,135
TPA fees 2,286,072 3,478,272 6,471,602
Communications 255,000 255,000 255,000
--------- --------- ----------
Total Direct Costs 6,025,705 7,185,799 10,281,737
Gross Profit 6,066,901 6,817,720 7,983,035
% of Sales 50.17% 48.69% 43.71%
Indirect Costs:
- --------------
SG&A Salaries & benefits 2,353,684 2,312,605 2,407,440
Other SG&A 2,910,404 3,090,487 3,576,903
--------- --------- ---------
Total SG&A 5,264,088 5,403,092 5,984,342
Operating Income 802,813 1,414,628 1,998,692
Non operating revenue (expense) (75,392) (43,406) (24,612)
Net income before taxes 727,421 1,371,223 1,974,080
========= ========= =========
% of Sales 6.02% 9.79% 10.81%
</TABLE>
DCP also reports at July 30, 1996, operating figures for the 7 months
ended July 30, 1996 as follows:
<TABLE>
<S> <C>
Revenues $ 6,736,226
Direct costs 2,349,558
---------
Gross profit 4,386,668
Selling, general & administrative 3,895,332
---------
Operating income 491,336
Non operating revenue (expense) (113,206)
Net income 378,130
=======
</TABLE>
-4-
<PAGE> 5
The Registrant and USIB's management are in active negotiations to acquire the
balance of the 51% of DCP for cash and a promissory note, as a leveraged
buyout. The control shareholders of DCP and the Registrant's management are in
the process of drafting the closing documents with a view towards closing,
providing management and the DCP shareholders can reach agreement on the
amount of cash and debt required to amend the payment term of the original
acquisition/merger agreement.
The Registrant's capital now exceeds $2,000,000, by virtue of having invested
the $700,000 in cash in DCP at cost, and having over $500,000 consolidated cash
and liquid investment grade securities on hand at the date of this filing. (See
Item 5 above.)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Century Industries, Inc.
October 11, 1996
----------------------------------------------
Ted L. Schwartzbeck, Executive Vice President,
and Chief Executive Officer
-5-
<PAGE> 6
SCIBAL ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENT
SEPTEMBER 30, 1995
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 7
SCIBAL ASSOCIATES, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
I N D E X
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 1
Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Operations and Retained Earnings 3
Consolidated Statement of Cash Flows 4
Notes to Financial Statements 5 - 10
</TABLE>
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 8
[COHEN, FRIEDMAN, DORMAN, SPECTOR & CO. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Scibal Associates, Inc. and Subsidiary
Route 9 and Mays Landing Road
Somers Point, New Jersey
We have audited the accompanying consolidated balance sheet of Scibal
Associates, Inc. and Subsidiary (a New Jersey corporation) as of September 30,
1995. The financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
Except as discussed in the following paragraphs, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the balance sheet is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the balance sheet. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall balance sheet presentation. We believe that our audit provides a
reasonable basis for our opinion.
We were unable to apply procedures to determine whether the imprest cash
balances and the related liabilities discussed in Note 10 reflected a complete
and accurate accounting. Therefore, the scope of our work was not sufficient
to enable us to express, and we do not express, an opinion on the imprest cash
balances and the related liabilities.
In our opinion, except as discussed in the preceding paragraphs, the balance
sheet referred to in the first paragraph presents fairly, in all material
respects, the financial position of Scibal Associates, Inc. and Subsidiary as
of September 30, 1995, in conformity with generally accepted accounting
principles.
/s/ COHEN, FRIEDMAN, DORMAN & SPECTOR
--------------------------------------
COHEN, FRIEDMAN, DORMAN, SPECTOR & CO.
Certified Public Accountants
Union, New Jersey
September 25, 1996
1.
<PAGE> 9
SCIBAL ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 95,585
Accounts receivable 525,278
Work in process 195,350
Prepaid expenses 10,147
Current portion of mortgage receivable 1,165
-----------
Total Current Assets $ 827,525
PROPERTY AND EQUIPMENT
Land and building 404,638
Furniture and equipment 753,811
Vehicles 66,051
-----------
1,224,500
Less: Accumulated depreciation (419,458)
-----------
805,042
OTHER ASSETS
Investments 168,182
Due from related parties 118,373
Due from stockholders 174,220
Mortgage receivable, less current portion 127,701
Security deposits 34,488
Deferred tax asset 147,000
769,964
----------
$2,402,531
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Line of credit $ 493,000
Current portion of long term debt 8,856
Accounts payable 459,292
Accrued liabilities 528,111
-----------
$1,489,259
LONG TERM DEBT
Notes payable, less current portion 239,675
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, 95 shares authorized,
issued and outstanding 950
Additional paid in capital 99,168
Retained earnings 573,479
-----------
673,597
----------
$2,402,531
==========
</TABLE>
See auditors' report and notes to financial statements.
2.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 10
SCIBAL ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
REVENUES $10,253,410
COST OF SERVICES PROVIDED $5,127,634
OPERATING EXPENSES 5,000,650
------------
10,128,284
-----------
INCOME FROM OPERATIONS 125,126
OTHER INCOME (EXPENSE) (216,598)
-----------
LOSS BEFORE PROVISION FOR INCOME TAXES (91,472)
PROVISION FOR INCOME TAXES 16,700
-----------
NET LOSS (108,172)
RETAINED EARNINGS - BEGINNING OF YEAR $ 969,574
PRIOR PERIOD ADJUSTMENT (287,923)
---------
RETAINED EARNINGS - BEGINNING OF YEAR
AS ADJUSTED 681,651
-----------
RETAINED EARNINGS - END OF YEAR $ 573,479
===========
</TABLE>
See auditors' report and notes to financial statements.
3.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 11
SCIBAL ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
Net loss $(108,172)
Adjustment to Reconcile Net Loss to Net Cash
Used in Operations:
Depreciation and amortization $ 107,578
Decrease in deferred tax asset 16,700
Loss on sale of fixed assets 48,694
Decrease in accounts receivable 195,250
Increase in work in process (116,377)
Increase in prepaid expenses (3,496)
Decrease in security deposits 9,142
Decrease in accounts payable (301,505)
Increase in accrued liabilities 25,685
---------
Total adjustments (18,329)
----------
Net Cash Used in Operations (126,501)
INVESTING ACTIVITIES
Decrease in investments 186,577
Decrease in mortgage receivable 551
Proceeds from sale of property and equipment 271,600
Additions to property and equipment (217,042)
---------
Net Cash Provided by Investing Activities 241,686
FINANCING ACTIVITIES
Net increase in line of credit 343,000
Payments on notes payable (251,612)
Increase in due from stockholders (130,021)
Decrease in due from related parties 19,033
---------
Net Cash Used in Financing Activities (19,600)
----------
NET INCREASE IN CASH 95,585
CASH - BEGINNING OF YEAR -
----------
CASH - END OF YEAR $ 95,585
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for taxes $ -
=========
Cash paid for interest $ 58,365
=========
</TABLE>
See auditors' report and notes to financial statements.
4.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 12
SCIBAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
THE COMPANY
The Company operates as a third party claims administrator
processing a wide range of claim types including medical, workers
compensation, general liability, product liability, professional
malpractice and other insurance claims for its clients throughout
the United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiary after elimination of all
significant intercompany transactions.
CASH FLOWS
The Company generally considers all highly liquid investments
purchased with a maturity of three months or less to be cash
equivalents for purposes of the statements of cash flows.
ACCOUNTS RECEIVABLE
The Company has elected to use the direct write-off method of
accounting for bad debts and, accordingly, an allowance for doubtful
accounts has not been recorded. The difference between the two
methods has been deemed immaterial.
INCOME TAXES
The Company accounts for certain income and expense items
differently for financial reporting and income tax purposes.
Provisions for deferred taxes are made in recognition of these
temporary differences. The most significant difference results from
the net operating loss.
PROPERTY AND DEPRECIATION
The Company depreciates the cost of property and equipment over the
estimated useful lives of the related assets. The estimated useful
lives and depreciation methods for the principal property and
equipment classifications are as follows:
<TABLE>
<CAPTION>
ESTIMATED
CLASSIFICATION USEFUL LIVES METHOD
-------------- ------------ ------
<S> <C> <C>
Furniture and fixtures 7 Years Double-declining balance
Data processing equipment 5-7 Years Straight-line, double
declining balance
Automobiles 3-5 Years Straight-line
Building and improvements 27 Years Straight-line
</TABLE>
Maintenance and repairs are charged to expense as incurred.
Renewals and betterments are capitalized.
5.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 13
SCIBAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
REVENUE RECOGNITION
Scibal Associates contracts with its clients to process various
types of casualty claims. Generally, the contracts provide that for
an agreed upon annual fee, Scibal will administer up to a specified
number of claims. Scibal recognizes this revenue on a pro rata
basis throughout the billing year. If fewer than the estimated
number of claims are administered, Scibal is entitled to the full
amount of the billing. In the event more claims than estimated are
administered, the client will be billed on a predetermined amount
per file, per file type, per state basis. Additionally, if a file
remains open for more than two years, Scibal is entitled to an
additional billing for the file on a one-time basis. Both of these
situations are captured in "overage billings" from an analysis of
Work in Process. This analysis compares the total number of files
processed in a completed contract year with the total contracted
files to determine if an overage billing is appropriate.
MAJOR CUSTOMER
The Company derived approximately 18% of its total revenues for the
year ended September 30, 1995, from one customer.
NOTE 2. RETIREMENT PLAN
The Company has in effect a 401K plan covering substantially all
eligible employees. For the year ended September 30, 1995, the
Company elected not to match payment of certain "before tax
contributions" made by employees.
NOTE 3. INCOME TAXES
At September 30, 1995, the Company had available to it approximately
$360,000 of net operating loss carryforwards.
The provisions for income taxes consist of the following:
<TABLE>
<S> <C>
Currently payable $ -
Current deferred -
Noncurrent deferred 16,700
--------
$ 16,700
========
</TABLE>
Effective October 1, 1994, the Company adopted FAS No. 109,
"Accounting for Income Taxes," which changed the manner of
accounting for income taxes.
Deferred income taxes consisted of the following at September 30,
1995:
<TABLE>
<S> <C>
Deferred tax asset due to net
operating loss carryforward $147,000
========
</TABLE>
6.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 14
SCIBAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 4. MORTGAGE RECEIVABLE
<TABLE>
<S> <C>
Mortgage receivable due in 59 equal monthly
payments of $1,056 including interest at 9%
with a balloon payment due in September 1997
and secured by the related property $128,866
Less: Current portion 1,165
--------
Non-current $127,701
========
</TABLE>
Subsequent to the balance sheet date this mortgage receivable was
paid off.
NOTE 5. INVESTMENTS
The Company has interests in certain long term investments. These
investments are carried at cost. As of September 30, 1995, the
Company is attempting to liquidate these investments.
NOTE 6. RELATED PARTIES
The Company has non-interest bearing unsecured loans with various
related parties. As of September 30, 1995, the Company is
negotiating specific repayment terms with all related parties.
NOTE 7. DUE FROM STOCKHOLDERS
Included in due from stockholders at September 30, 1995, is $86,437
due from a minority stockholder. This amount is interest bearing
and is secured by the stockholder's five shares of Scibal
Associates, Inc. stock. All other amounts due from stockholders are
unsecured and non-interest bearing.
NOTE 8. LINE OF CREDIT
The Company maintains a $500,000 credit line with a bank in order to
meet seasonal working capital requirements and other financing needs
as they arise. At September 30, 1995, short term borrowings on this
line totaled $493,000 which is due on demand with interest at prime
(8.75 % at September 30, 1995).
Subsequent to the balance sheet date, the Company has entered into a
financing arrangement with a new bank to restructure their existing
debt and obtain additional financing for future growth. The total
amount of the facility is $950,000.
7.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 15
SCIBAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 9. NOTES PAYABLE
<TABLE>
<S> <C>
Mortgage payable bank, due in equal monthly
payments of $1,124 including interest at
10.13%. Secured by related property and
maturing February, 2020 $ 122,388
Mortgage payable bank, due in equal monthly
Payments of $637 plus interest at 10%.
Secured by related property and maturing
March 2012 126,143
---------
248,531
Less: Current portion 8,856
---------
Non-current portion $ 239,675
=========
Future minimum payments on these notes are as follows:
1996 $ 8,856
1997 8,964
1998 9,126
1999 9,283
2000 and thereafter 212,282
---------
$ 248,531
=========
</TABLE>
Subsequent to the balance sheet date, these mortgage payables were
paid off as the related proprerties were sold.
NOTE 10. COMMITMENTS AND CONTINGENCIES
GUARANTEE
In September, 1995 the Company entered into an agreement with a
minority stockholder of the company to purchase the four shares held
by that stockholder for a total of $48,000. This amount has been
guaranteed by the Company. Subsequent to the balance sheet date,
this Treasury Stock transaction has been paid off.
COMPUTER LEASE
In November 1986, the Company entered into a lease agreement with
XL/Datacomp (XLD), a computer consultant, for certain computer
equipment. At various times from November 1986 through March, 1994
additions and other changes were made to the equipment and lease.
Under the current terms of the lease, as of March, 1994, the company
is obligated to pay $14,215 per month for a sixty month term
commencing in March of 1994.
8.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 16
SCIBAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
COMPUTER LEASE (CONTINUED)
On August 17, 1995, the company filed suit in the Superior Court of
New Jersey against XL/Datacomp (XLD) and its assignees maintaining
that XLD knowingly leased them obsolete, substandard equipment which
XLD knew to be inadequate for the company's needs. In addition, the
company claims that XLD has knowingly and substantially overcharged
for this equipment. The company is seeking to recover damages and
costs related to this lease and to be relieved of any future
obligations under this lease. As of the date of these financial
statements, corporate counsel is not able to express an opinion as
to the possible outcome of the suit
BUILDING LEASES
The company and its subsidiary lease office space under various
operating leases expiring from June 1996 through January 2001.
Future minimum payments under these leases are as follows:
<TABLE>
<S> <C>
1996 $ 337,440
1997 314,275
1998 231,314
1999 197,420
2000 and thereafter 263,227
----------
$1,343,676
==========
</TABLE>
SUBCONTRACT
The Company contracts with other Third Party Administrators to
process certain claims in other states. In states with an unknown,
low volume of expected claims, these Associate offices are paid on a
per-claim basis as incurred. For states with an expected high
volume of claims, the Associate offices are paid a fixed monthly
amount for up to the estimated number of claims to be processed
annually.
IMPREST FUNDS
As a third party administrator, the Company's clients deposit funds
with the Company to administer the client claims. The Company
places these funds in various cash accounts set up solely for the
purpose of paying that client's claims. The Company reconciles
these cash accounts on an ongoing basis. For the year ended
September 30, 1995, approximately one-third of one percent (.3%) of
the $70 million which flowed through these accounts was attributable
to unresolved reconciliation differences. As of September 30, 1995
there was approximately $4,500,000 on hand in these imprest
accounts.
9.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 17
SCIBAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 12. SUBSEQUENT EVENTS
MORTGAGE RECEIVABLE - In February 1996, the mortgage receivable of
$128,866 was sold at a discount for a net amount of $109,780.
LAND, BUILDING AND RELATED MORTGAGES PAYABLE - In December 1995, the
Company sold its interest in real property located in Pennsylvania
for $123,000. In May 1996, the Company sold its interest in land
and building located in Wildwood, New Jersey for $196,000.
As described in Note 9, the related mortgages payable were paid off
when these assets were sold.
PLAN OF REORGANIZATION - As part of a plan of reorganization and
capitalization dated June 30, 1996, the controlling shareholder of
the Company tendered his shares to D.C. Partners Ltd., Inc. in
return for equity. Subsequent to that transaction D.C. Partners
Ltd., Inc. infused $700,000 in equity cash to the Company.
Concurrent with this transaction, D.C. Partners Ltd., Inc. will
surrender 49 percent of its common equity, representing 4.9 percent
of the voting shares to US Insurance Brokers, Inc. ("USIB"), a
wholly owned subsidiary of Century Industries, Inc.
Pursuant to the terms of the reorganization, once these transactions
are completed DC Partners Ltd., Inc. will be merged into "USIB" and
"USIB" will be the surviving company.
10.
Cohen, Friedman, Dorman, Spector and Co.
A PROFESSIONAL ASSOCIATION - CERTIFIED PUBLIC ACCOUNTANTS
