<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 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 or
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.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
At September 30, 1996, 3,026,000 shares of the Registrant's $.001 par value
common stock were issued and outstanding.
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheet:
September 30, 1996 and 1995
Consolidated Statement of Income:
For the three months periods
ended September 30, 1996 and 1995
and
Year to Date for the nine months
ended September 30, 1996 and 1995
Consolidated Statement of Cash Flows:
for the Year to date for the nine months
ended September 30, 1996 and 1995
Notes to Financial Statements
ITEM 2 Management's Analysis of Financial Condition
and results of operations
-2-
<PAGE> 3
FINANCIAL STATEMENTS
In the opinion of management of Century Industries, Inc. (the Company), the
accompanying unaudited interim consolidated financial statements contain all
adjustments necessary for a fair presentation of the Company's financial
condition as of September 30, 1996 and December 31, 1995, and the results of
its operations for the three-month and nine-month periods ended September 30,
1996 and 1995 and cash flows for the nine-month periods ended September 30,
1996 and 1995.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company's management believes that the
disclosures and information presented are adequate and not misleading.
Reference is made to the detailed financial statement disclosures which should
be read in conjunction with this report and are contained in the notes to
consolidated financial statements included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995. Certain items in prior
period consolidated financial statements have been reclassified, where
appropriate, to conform with the September 30, 1996 presentation.
F-1
<PAGE> 4
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
9/30/96 12/31/95
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 534,963 $ 24,471
Accounts Receivable-Trade (Net of allowance for
doubtful accounts of $35,000 and $20,000) 1,854,876 477,837
Marketable Securities 147,618 -
Employee Advances 38,840 1,200
Stockholder Advances 250,385 -
Other Current Assets 32,641 8,000
------------ ------------
Total Current Assets 2,859,323 511,508
------------ ------------
FIXED ASSETS
Software and Computer Equipment 1,453,651 7,938
Furniture and Fixtures 759,560 82,129
Machinery and Equipment 801,062 801,062
Transportation Equipment 177,190 89,139
Leasehold Improvements 169,535 84,835
------------ ------------
3,360,998 1,065,103
Less: Accumulated Depreciation (1,609,774) (1,022,255)
------------ ------------
Net Fixed Assets 1,751,224 42,848
------------ ------------
OTHER ASSETS
Investments 368,027 57,500
Goodwill (Net of accumulated amortization of $27,362 and $0) 5,400,937 547,244
Other Assets 171,241 5,630
------------ ------------
Total Other Assets 5,940,205 610,374
------------ ------------
$ 10,550,752 $ 1,164,730
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 5
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
09/30/96 12/31/95
-------------- --------------
<S> <C> <C>
Current Liabilities
Accounts Payable-Trade $ 1,483,444 $ 387,449
Accounts Payable-Affiliate 100,000 100,000
Notes Payable 666,605 288,561
Income Taxes Payable 3,631 8,800
Dividends Payable 50,950 1,950
Accrued Expenses 102,177 10,926
Other Deferred Credits 233,654 -
Due to Former Shareholders of D.C. Partners 3,000,000 -
Total Current Liabilities ------------ -----------
5,640,461 797,686
Note Payable, less current portion 733,945 -
------------ -----------
6,374,406 797,686
------------ -----------
Minority Interest, preferred stock of subsidiary 2,079,500 -
------------ -----------
Stockholders' Equity
Preferred Stock, convertible, $.001 par value,
1,000,000 shares authorized,
1,000,000 issued and outstanding 1,000 1,000
Common Stock, Class A, $.001 par value,
25,000,000 shares authorized,
3,026,000 and 1,326,000 issued and outstanding 3,026 1,326
Common Stock, Class B, $.001 par value,
25,000,000 shares authorized,
0 issued and outstanding - -
Additional Paid in Capital 2,985,050 591,750
Retained Earnings (Deficit) (892,230) (227,032)
Total Stockholders' Equity ------------ -----------
2,096,846 367,044
------------ -----------
$ 10,550,752 $ 1,164,730
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 6
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
STEEL PRODUCTS
Sales $ 611,925 $851,647 $2,080,570 $2,185,631
Cost of Sales 487,013 506,894 1,489,058 1,550,581
--------- -------- ---------- ----------
Gross Profit on Sales 124,912 344,753 591,512 635,050
--------- -------- ---------- ----------
Operating Costs
Payroll Expenses 98,484 87,643 297,564 251,413
Professional Fees 3,927 6,494 24,814 21,417
Auto, Travel and Entertainment 7,575 10,354 23,259 22,476
Amortization and Depreciation 2,145 2,972 6,361 9,612
Office and Miscellaneous Expense 36,910 32,964 104,181 84,636
--------- -------- ---------- ----------
Total Operating Costs 149,041 140,427 456,179 389,554
--------- -------- ---------- ----------
Other Income (Expense)
Other income - 1,050 1,463 1,050
Gain on Sale of Fixed Asset - - - 14,518
Interest Expense (6,724) (7,758) (27,606) (39,100)
--------- -------- ---------- ----------
Total Other Income (Expense) (6,724) (6,708) (26,143) (23,532)
--------- -------- ---------- ----------
Income (loss) before taxes (30,853) 197,618 109,190 221,964
--------- -------- ---------- ----------
DEVELOPMENT STAGE INSURANCE OPERATION
Operating Costs
Professional Fees 115,450 - 572,768 -
Auto, Travel and Entertainment 16,400 - 35,326 -
Amortization and Depreciation 29,388 - 30,989 -
Office and Miscellaneous Expense 76,390 - 112,618 -
--------- -------- ---------- ----------
Total Operating Costs 237,628 - 751,701 -
--------- -------- ---------- ----------
Other Income (Expense)
Interest Income 2,656 - 3,893 -
Interest Expense (472) - (567) -
--------- -------- ---------- ----------
Total Other Income (Expense) 2,184 - 3,326 -
--------- -------- ---------- ----------
Income (Loss) Before Taxes (235,444) - (748,375) -
--------- -------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (266,297) 197,618 (639,185) 221,964
Provision (Benefit) for Taxes (12,143) - (51,043) -
NET INCOME (LOSS) $(254,154) $197,618 $ (588,142) $ 221,964
--------- -------- ---------- ----------
Preferred Stock Dividends of Subsidiaries (49,000) (1,950) (76,420) (5,850)
--------- -------- ---------- ----------
Net Income (Loss) Available for Common
Stockholders $(303,154) $195,668 $ (664,562) $ 216,114
========= ======== ========== ==========
Earnings (Loss) per Share $ (0.13) $ 0.07 $ (0.35) $ 0.08
========= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 7
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE QUARTERS ENDED MARCH 31, JUNE 30 AND SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PREFERRED COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 $1,000 $1,326 $ 591,750 ($227,032) $ 367,044
Net loss for three months ended March 31, 1996 - - - (23,830) (23,830)
Less: Minority interest in net loss for the quarter ended
March 31, 1996 - - - 2,000 2,000
Unrealized loss on marketable securities - - - (306) (306)
Preferred dividends, USIB - - - (2,500) (2,500)
Preferred dividends, CSP - - - (1,950) (1,950)
-----------------------------------------------------------------
BALANCE MARCH 31, 1996 1,000 1,326 591,750 (253,618) 340,458
Net loss for the three months ended June 30, 1996 - - - (310,158) (310,158)
Adjustment to Minority Interest - - - (2,000) (2,000)
Issuance of 450,000 shares common stock - 450 144,550 - 145,000
Exercise of 500,000 common stock warrants, 1-for-1 - 500 (500) - -
Costs relating to issuance of 23,000 shares of USIB
preferred stock - - - (184,000) (184,000)
Unrealized loss on marketable securities - - - (2,985) (2,985)
Preferred dividends, USIB - - - (16,913) (16,913)
Preferred dividends, CSP - - - (1,950) (1,950)
-----------------------------------------------------------------
BALANCE JUNE 30, 1996 1,000 2,276 735,800 (771,624) (32,548)
Net loss for the three months ended September 30, 1996 - - - (254,154) (254,154)
Issuance of 750,000 shares of common stock - 750 2,249,250 - 2,250,000
Reclassification of costs relating to issuance of USIB
preferred stock - - - 184,000 184,000
Unrealized gain on marketable securities - - - 2,655 2,655
Preferred dividends, USIB - - - (51,157) (51,157)
Preferred dividends, CSP - - - (1,950) (1,950)
-----------------------------------------------------------------
BALANCE SEPTEMBER 30, 1996 $1,000 $3,026 $2,985,050 $(892,230) $2,096,846
=========================================================--------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 8
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
9/30/96 9/30/95
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,961,018 $ 1,904,664
Cash paid to suppliers and employees (2,539,400) (1,811,573)
Interest received 3,584 -
Interest paid (28,173) (39,090)
----------- -----------
Net cash provided (used) by operating activities (602,971) 54,001
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of fixed assets - 14,518
Cash acquired in acquisition of D.C. Partners, Ltd., Inc. 100,303 -
Purchase of fixed assets (52,555) -
Purchase of marketable securities (147,945) -
Investment in D.C. Partners, Ltd., Inc. (700,000) -
----------- -----------
Net cash provided (used) by investing activities (800,197) 14,518
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of USIB preferred stock 2,480,000 -
Payment of USIB stock issuance costs (400,500) -
Preferred dividends paid (27,420) -
Payments on notes (37,818) (40,090)
Advances (to)/from affiliates/stockholders (100,602) -
----------- -----------
Net cash provided (used) by financing activities 1,913,660 (40,090)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 510,492 28,429
Cash and Cash Equivalents - January 1 24,471 -
----------- -----------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $ 534,963 $ 28,429
=========== ===========
Reconciliation of net income (loss) to net cash used
by operating activities:
Net income (loss) $ (588,142) $ 221,964
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Issuance of common stock in exchange for consulting
services 100,000 -
Noncash dividend income (309) -
Amortization and depreciation 46,555 13,812
Gain on sale of assets - (14,518)
(Increase) decrease in accounts receivable (121,189) (286,080)
(Increase) decrease in deposits and prepaid expenses (4,639) (1,320)
(Increase) decrease in income tax refund receivable (4,261) -
(Increase) decrease in deferred taxes (current & noncurrent) (48,600) -
Increase (decrease) in accounts payable 23,163 105,995
Increase (decrease) in accrued expenses 3,251 14,148
Increase (decrease) in income taxes payable (8,800) -
----------- -----------
Net cash provided (used) by operating activities $ (602,971) $ 54,001
=========== ===========
</TABLE>
(continued)
See accompanying notes to financial statements.
F-6
<PAGE> 9
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NONCASH INVESTING AND FINANCING TRANSACTIONS:
During the quarter ended September 30, 1996, and for the nine months ended
September 30, 1996 the Company recognized an unrealized gain of $2,655 and an
unrealized loss of $636, respectively, on marketable securities available for
sale. In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, the
investment and retained earnings accounts were increased by $2,655 for the
quarter ended September 30, 1996, and reduced by $636 for the nine months ended
September 30, 1996.
Dividends of $53,107 were accrued and charged to retained earnings for the
quarter ended September 30, 1996. Dividends charged to retained earnings for
the nine months ended September 30, 1996 total $76,420.
250,000 shares of the Company's common stock were issued as payment for
previously accrued legal fees totaling $45,000. Therefore, accounts payable
was reduced by $45,000 and common stock and additional paid in capital accounts
were increased as a result of this noncash transaction.
Per the "Amendment to Plan and Agreement of Reorganization and Capitalization"
entered into between Century Industries, Inc. (the Company) and D.C. Partners,
Ltd., Inc. (D.C. Partners), 750,000 shares of the Company's common stock
was issued to D.C. Partners' former shareholders on September 30, 1996, along
with an agreement to pay an additional $3,000,000 in cash and/or stock by
September 30, 1997. The Company purchased D.C. Partners' net assets of
$1,218,382, including the cash acquired of $100,303.
See accompanying notes to financial statements.
F-7
<PAGE> 10
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Century Industries, Inc. (the Company) was incorporated in the District of
Columbia in 1993 and is the parent holding company for its subsidiaries,
Century Steel Products, Inc. and U.S. Auto Owners Coverage Association,
Inc.
Century Steel Products, Inc. (CSP), which was incorporated in Virginia in
1979 and acquired by the Company in 1993, manufactures and fabricates
steel products used in the construction industry. CSP sells its services
and products nationwide, primarily along the east coast from its sales and
manufacturing plant located in Sterling, Virginia. CSP grants credit to
customers in the construction industry. Consequently, CSP's ability to
collect the amounts due from customers is affected by economic
fluctuations in the construction industry.
U.S. Auto Owners Coverage Association, Inc. (USAOCA), which was
incorporated in the District of Columbia in 1994, provides insurance
products to national membership organizations through its subsidiary, U.S.
Insurance Brokers, Inc. (USIB). USAOCA owns 100% of the common stock of
USIB. USAOCA was acquired by the Company from a stockholder-officer of
the Company on December 31, 1995 in exchange for 1,000,000 shares of the
Company's convertible preferred stock.
USIB, which was incorporated in the District of Columbia on April 27,
1995, is a development stage life and casualty insurance agent which
markets full service association life, automobile, homeowner and health
insurance plans, and life insurance company-managed financial products to
various associations and other membership-based organizations.
Scibal Associates, Inc. (Scibal), which is owned by D.C. Partners, Ltd.,
Inc. (D.C. Partners), operates as a third party claims administrator (TPA)
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. D.C. Partners was acquired and merged into USIB effective
September 30, 1996. (See Note 2 below.)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Century
Industries, Inc. and its subsidiaries, CSP and USAOCA. The Company owns
approximately 80% of CSP's common stock and 100% of USAOCA's common stock.
All material intercompany accounts and transactions have been eliminated.
Minority interests in a subsidiary are recognized to the extent that the
minority interests in equity capital are positive. When losses applicable
to minority interests exceed minority interest in equity capital, the
excess is charged against the Company's interest. Subsequent minority
interest earnings are credited to the Company to the extent of minority
interest losses previously absorbed. In the year of acquisition, a
subsidiary's income and expenses are included in the consolidated
statement of operations only to the extent of post-acquisition activity.
Since USAOCA was acquired on the last day of 1995, none of its results of
operations or cash flows were included in the consolidated statements of
operations and cash flows during 1995. Its assets and liabilities as of
December 31, 1995 are included in the related balance sheet. USAOCA's
operations, cash flows and balance sheet accounts are included in the
Company's financial statements for the period ended September 30, 1996.
F-8
<PAGE> 11
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
PRINCIPLES OF CONSOLIDATION (continued)
D.C. Partners was acquired by USIB on September 30, 1996. Therefore none
of its results of operations or cash flows are included in the consolidated
statements of operations and cash flows for the nine months ended September
30, 1996. Its assets and liabilities as of September 30, 1996 are included
in the related balance sheet.
ACQUISITIONS AND GOODWILL
The consolidated financial statements include the net assets of businesses
purchased and recorded at cost, which was measured by the fair value of
consideration given or net assets received, whichever was more clearly
evident, at the acquisition date. The excess of acquisition costs over the
fair value of net assets acquired has been allocated to and is included in
goodwill. Goodwill is amortized on a straight-line basis over 15 years.
Management periodically reviews the business environment of its aquirees
for potential impairment writedowns.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost. For
financial reporting, depreciation and amortization are provided using
straight-line and double-declining balance methods and the following
estimated useful lives:
Software and computer equipment 5-7 YEARS
Furniture and fixtures 5-7 YEARS
Machinery and equipment 7-10 YEARS
Transportation equipment 3-7 YEARS
Leasehold improvements 10-27 YEARS
For income tax purposes, depreciation is computed using the accelerated
cost recovery system and the modified accelerated cost recovery system.
Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the bases of allowances for
doubtful accounts and fixed assets for financial and income tax reporting.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available
to offset future federal and state income taxes. The Company files
consolidated income tax returns.
REVENUE RECOGNITION
Steel Products
Revenue is recognized on steel products when the products are shipped to
customers. Revenue is recognized on fabrication projects as contract
line-item tasks are completed. Line-item tasks are generally short-term
in nature. Accordingly, expenses are recognized when incurred. Losses are
recognized when reasonable estimates of the amount of loss can be made.
The Company periodically reviews the credit, collection and sales
allowance history and status of its customers and provides for potential
losses.
Development Stage Insurance Operations
Commissions from insurance contracts generated by USAOCA's subsidiary are
recognized as insurance premiums are collected by the insurance carriers.
F-9
<PAGE> 12
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
REVENUE RECOGNITION (continued)
Claims Administration
Scibal 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 contract. In the event more claims
than estimated are administered, the client will be billed extra based on
a predetermined amount per file, per file type, per state. Additionally,
if a file remains open for more than two years, Scibal is entitled to an
additional fee for the file on a one-time basis. Revenue from these
situations is recognized when the contractual criteria are met.
Scibal derived approximately 18% of its total revenues for the nine months
ended September 30, 1996 from one customer.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
Earnings per share is computed using the treasury stock method. The
warrants to purchase shares of common stock are assumed to be outstanding
for all periods presented.
2) ACQUISITION OF D.C. PARTNERS, LTD., INC.
On June 30, 1996, the Company entered into a "Plan and Agreement of
Reorganization and Capitalization" (Agreement) through its wholly-owned
subsidiary U.S. Insurance Brokers (USIB), with D.C. Partners, Ltd., Inc.
(D.C. Partners). The Agreement called for the acquisition by USIB of D.C.
Partners in two phases. The first phase was the purchase for $700,000 of
49% of the equity in D.C. Partners as represented by its Series B Common
Stock. The Series B Common Stock, although representing 49% of the equity
in D.C. Partners, has only 4.9% of the total voting power.
In the second phase of the acquisition, which was originally to be
completed by June 30, 1997, the remaining equity and voting stock in D.C.
Partners were to be surrendered to the Company in exchange for 750,000
shares of the voting common stock of the Company plus a cash payment of
$3,000,000. On September 30, 1996, the Agreement was amended and the
remaining stock purchase was accelerated. The Company issued 750,000
shares of its Class A Common Stock and committed to escrowing $1,000,000
by January 15, 1997 and raising $2,000,000 more through USIB's preferred
stock offerring. The Company also issued "in blank" a warrant to be held
in escrow for the benefit of D.C. Partners' shareholders. If USIB is
unable to provide the D.C. Partners' shareholders with the additional
$2,000,000 by September 30, 1997, the shareholders may exercise the
warrants for shares of the Company's Class B Common Stock with demand
registration rights sufficient to yield not less than $2,000,000 to the
D.C. Partners shareholders.
The Agreement requires, among other things, the employment of one of the
Company's shareholder- directors as the president and chief operating
officer of D.C. Partners. This individual and the majority stockholder of
D.C. Partners shall act as co-chairmen of the Company and shall be
entitled to participate in a stock option plan to be established by the
Company. In addition, the majority stockholder of D.C. Partners shall
receive 70,000 shares of the Company's common stock and 50,000 options for
his efforts and costs incurred in completing this transaction.
F-10
<PAGE> 13
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
2) ACQUISITION OF D.C. PARTNERS, LTD., INC. (continued)
PRO FORMA INFORMATION
The following UNAUDITED pro forma information purports to show the effects
on financial position at September 30, 1996 and results of operations for
the nine months ended September 30, 1996 and the twelve months ended
December 31, 1995, had the acquisition of D.C. Partners (DCP) occurred at
the beginning of each period. This unaudited pro forma information is
based on historical financial position and results of operations, adjusted
for acquisition costs and amortization of goodwill, and is not necessarily
indicative of what results would have been had the Company operated DCP
since the beginning of each period.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED 9/30/96 Historical PRO FORMA
(UNAUDITED) ---------- ---------
Century DCP Adjustments COMBINED
---------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $2,080,570 $8,315,527 $ - $10,396,097
Cost of sales 1,489,058 3,035,594 - 4,524,652
---------- ------- ---------- -----------
Gross profit 591,512 5,279,933 - 5,871,445
Operating expenses 456,179 5,124,942 164,000 (a) 5,745,121
Other (income) expense 26,143 133,461 - 159,604
Development stage subsidiary loss 748,375 - - 748,375
---------- ------- ---------- -----------
Income before income taxes (639,185) 21,530 (164,000) (781,655)
Income tax provision (benefit) 51,043 - - 51,043
---------- ------- ---------- -----------
Net income (loss) $ (588,142) $21,530 $ (164,000) $ (730,612)
========== ======= ========== ===========
</TABLE>
(a) The adjustments to operating expenses include the following items:
<TABLE>
<S> <C>
Acquisition costs $(80,000)
Goodwill amortization 244,000
--------
$164,000
========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED 12/31/95 Historical PRO FORMA
(UNAUDITED) ---------- ---------
Century DCP (b) Adjustments COMBINED
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $2,707,901 $10,253,410 $ - $12,961,311
Cost of sales 2,112,305 5,127,634 - 7,239,939
---------- -------- --------- -----------
Gross profit 595,596 5,125,776 - 5,721,372
Operating expenses 561,266 5,000,650 325,300 (c) 5,887,216
Other (income) expense 26,593 216,598 - 243,191
Development stage subsidiary loss - - - -
---------- -------- --------- -----------
Income before income taxes 7,737 (91,472) (325,300) (409,035)
Income tax provision (benefit) 2,000 16,700 (18,700) -
---------- -------- --------- -----------
Income (loss) before extraordinary item $ 9,737 $(74,772) $(344,000) $ (409,035)
========== ======== ========= ===========
</TABLE>
(b) This column includes the accounts of Scibal Associates, Inc.
(Scibal), DCPs' sole and wholly-owned subsidiary, which DCP acquired in 1996.
Scibal's year-end is September 30. Accordingly, the amounts shown represent
the twelve months ended September 30, 1995.
(c) The adjustments to operating expenses include the following item:
Goodwill amortization $325,300
========
F-11
<PAGE> 14
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
2) ACQUISITION OF D.C. PARTNERS, LTD., INC. (CONTINUED)
At September 30, 1996, assuming the acquisition of DCP occurred at the
beginning of 1996, the Company's balance sheet would have $244,000 more
accumulated amortization of goodwill, total assets would be $244,000 less
and retained deficit would be $244,000 higher. Tax effects would be
minimal as the related increases in deferred tax assets would be offset by
a deferred tax asset valuation allowance.
3) D.C. PARTNERS DISCLOSURES
RETIREMENT PLAN
D.C. Partners has in effect a 401k plan covering substantially all
eligible employees. For the nine months ended September 30, 1996, D.C.
Partners has elected not to match certain "pre-tax contributions" made by
employees.
INVESTMENTS
D.C. Partners has interests in certain long-term investments, which are
carried at cost. Included in the balance of investments at September 30,
1996 is the following:
<TABLE>
<S> <C>
Partial ownership of office building $235,527
Investment in Third Party Administrative Company 45,000
Marketable securities investment fund 30,000
--------
$310,527
========
</TABLE>
A former D.C. Partners shareholder (before the merger with USIB) is a
partner in a partnership that owns an office building, which is currently
without a tenant. D.C. Partners is paying the monthly mortgage payment of
approximately $2,300 and quarterly real estate taxes, thereby establishing
its basis in the building. D.C. Partners is not liable for the building's
mortgage. The office building is currently for sale at a list price of
approximately $400,000. D.C. Partners expects to recover its basis upon
sale and payment of the mortgage balance of approximately $160,000.
STOCKHOLDER ADVANCES
All amounts due from stockholders are unsecured and non-interest bearing.
COMMITMENT AND CONTINGENCIES
Notes Payable
<TABLE>
<S> <C>
D.C. Partners has the following notes payable at September 30, 1996:
Note payable, maturing Sept. 2001, collateralized by accounts
receivable, interest rate at prime rate plus 1% adjusted
quarterly, principal payment of $8,333 per month $ 500,000
Guidance line payable, $250,000 maximum credit,
collateralized by computer equipment,
term of three years, interest rate at prime rate plus 1%
adjusted quarterly, principal payment of $5,963 per month 213,000
Capital lease obligation with a term of three years, imputed
interest rate of 5.5%, principal and interest payment of
$10,614 per month 267,100
Capital lease obligation with a term of three years, imputed
interest rate of 12.5%, principal and interest payment of
$2,987 per month 69,707
----------
1,049,807
Less: Current portion (315,862)
----------
$ 733,945
==========
</TABLE>
F-12
<PAGE> 15
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
3) D.C. PARTNERS DISCLOSURES (continued)
COMMITMENT AND CONTINGENCIES (CONTINUED)
Line of Credit
D.C. Partners maintains a $200,000 line of credit with a bank in order to
meet seasonal working capital requirements and other financing needs as
they arise. At September 30, 1996, the balance of short-term borrowings
on this line totaled $100,000, which is due on demand with interest at the
prime rate. The line is renewable annually, expires in September 1997,
and is secured by accounts receivable and other assets.
Computer Lease
On August 17, 1995, Scibal filed suit in the Superior Court of New Jersey
against a computer equipment vendor and its assignees maintaining that the
vendor knowingly leased them obsolete, substandard equipment which the
vendor knew to be inadequate for Scibal's needs. In addition, Scibal
claims that the vendor has knowingly and substantially overcharged for
this equipment. Scibal is seeking to recover damages and costs related to
this lease and to be relieved of any future obligations under the lease.
As of September 30, 1996, corporate counsel is not able to express an
opinion as to the possible outcome of the suit.
Building Leases
D.C. Partners and its subsidiary, Scibal, lease office space under
operating leases with terms expiring through January 2001.
Future minimum payments under these leases are as follows:
<TABLE>
<S> <C>
1997 $ 314,275
1998 231,314
1999 197,420
2000 and thereafter 263,227
----------
$1,006,236
==========
</TABLE>
Subcontract
Scibal contracts with other TPAs to process certain claims in other
states. In states with an unknown, or low volume of expected claims,
these Associate offices are paid on a per-claim basis as incurred. For
states with expected high volumes 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 TPA, Scibal maintains cash accounts, funded with clients' deposits,
in order to administer clients' claims. As of September 30, 1996, there
was approximately $4,300,000 on hand in these imprest accounts. Scibal
reconciles these cash accounts on an ongoing basis and has accrued a
liability of $233,654, which represents an unresolved reconciliation
difference at September 30, 1996.
4) SALE OF PREFERRED STOCK
During the three months ended March 31, 1996, USIB authorized 25,000
shares of 12.5% Series A cumulative preferred stock, convertible to Class
B Common Stock of the Company at the rate of 40 shares of the Company for
one preferred share of USIB. USIB authorized an additional 125,000 shares
of preferred stock on April 15,1996 which, upon completion of the
offering, will be automatically converted into Class B Common Stock of the
Company at the rate of $40 per share divided by the average quoted price
of the Company's common stock during the offering period (which is
currently estimated to be $2.25). Proceeds from the sale of USIB
preferred stock are being used for the acquisition of D.C. Partners, as
well as to support the development stage activities of USIB.
F-13
<PAGE> 16
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
5) INCOME TAXES
The provision (benefit) for taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------- ------------------------
1996 1995 1996 1995
-------- ------ --------- -------
<S> <C> <C> <C> <C>
Current
Federal $ 2,381 $ - $ (1,419) $ -
State 176 - (1,024) -
-------- ------ --------- -------
2,557 - (2,443) -
Deferred (14,700) - (48,600) -
-------- ------ --------- -------
$(12,143) $ - $ (51,043) $ -
======== ====== ========= =======
</TABLE>
Deferred tax assets resulted primarily from the Company's net operating
loss of approximately $614,000 for the period ending September 30, 1996,
which is available to offset future taxable income. The related deferred
tax asset of $233,200 has been reduced by a valuation allowance of
$185,600. Other deferred tax assets resulted from the tax bases of trade
accounts receivable exceeding their bases for financial reporting by the
amount of the allowance for doubtful accounts, the tax bases of fixed
assets exceeding their bases for financial reporting, and from
approximately $4,200 of charitable contributions available to offset future
taxable income. The net operating loss carryforward will expire in 2011,
and the charitable contributions carryforward will expire in 2000.
Net deferred tax assets consisted of the following at September 30, 1996
and December 31, 1995.
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Total deferred tax liabilities $ - $ -
Total deferred tax assets 244,300 54,600
Total valuation allowance (185,600) (44,500)
--------- --------
$ 58,700 $ 10,100
========= ========
</TABLE>
Of the net deferred tax assets at September 30, 1996 and December 31,
1995, $9,200 and $8,0000 were included in other current assets, and
$49,500 and $2,100 were included as other assets, respectively.
USAOCA had a net loss for the year ended December 31, 1995 in the amount
of $113,000. The Company may use the loss to offset future USAOCA taxable
income. Due to the uncertainty of being able to use the loss carryforward
of $113,000, the related deferred tax asset has been reserved in full.
At September 30, 1996, D.C. Partners had a current income tax liability of
$3,631.
6) RELATED PARTY TRANSACTIONS
During the quarter ended September 30, 1996, USIB and USAOCA advanced
approximately $53,300 to stockholder-officers of the Company and an
affiliated party, and received no payments. For the nine months ended
September 30, 1996, USIB and USAOCA advanced approximately $177,000 to
stockholder-officers of the Company and an affiliated party, and received
repayments totaling approximately $16,400.
For the nine months ended September 30, 1996, an officer of USIB received
$400,500 for services provided in issuing shares of preferred stock of
USIB. Minority Interest, Preferred Stock of USIB, was reduced by this
amount as a direct cost of issuing the stock.
F-14
<PAGE> 17
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
7) STOCKHOLDERS' EQUITY
CSP declared dividends to its preferred stockholders in the amounts of
$1,950 and $1,950 during the quarters ended September 30, 1996 and 1995,
respectively, and $5,850 and $5,850 for the nine months ended September
30, 1996 and 1995, respectively.
USIB declared dividends to its preferred stockholders in the amount of
$49,000 during the quarter ended September 30, 1996, and $70,570 for the
nine months ended September 30, 1996.
Shares of common stock were reserved at September 30, 1996 for the
following:
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Exercise of 807,333 outstanding warrants expiring
December 31, 2000, entitling holders to purchase
one share at $0.01 807,333 -
Conversion of 1,000,000 shares preferred stock, 1-for-1 1,000,000 -
Conversion of 24,500 shares CSP preferred stock, 4-for-1 98,000 -
Conversion of 25,000 shares USIB preferred stock, 40-for-1 - 1,000,000
Conversion of 37,000 shares USIB preferred stock at the rate
of $40 per share divided by the average quoted price of
the Company's common stock during the offering period - 657,778
Conversion of 88,000 shares USIB preferred stock at the rate
of $40 per share divided by the average quoted price of
the Company's common stock during the offering period - 1,564,444
Shares to issued pursuant to the "Plan and Agreement of
Reorganization and Capitalization" 70,000 -
Options to issued pursuant to the "Plan and Agreement of
Reorganization and Capitalization" 50,000 -
--------- ---------
2,025,333 3,222,222
========= =========
</TABLE>
For purposes of the above calculations, the average quoted price of the
Company's common stock during the offering period is estimated to be
$2.25.
8) RECLASSIFICATION OF STOCK ISSUANCE COSTS
Stock issuance costs of $184,000, incurred during the six months ended
June 30, 1996, have been reclassified from a reduction of Retained
Earnings to a reduction of Minority Interest, Preferred Stock of
Subsidiary to correctly reduce the proceeds from issuance of stock by the
related issuance costs when the issuer controls the redemption and
convertibility features of the stock issued. Additionally, stock issuance
costs of $216,500 for the three months ended September 30, 1996 have been
charged against Minority Interest, Preferred Stock of Subsidiary.
9) MINORITY INTEREST, PREFERRED STOCK OF SUBSIDIARY
The Company intends to convert the USIB preferred stock to Class B Common
Stock of the Company in accordance with, and upon completion of, USIB's
preferred stock offering. Class B Common Stock of the Company has
one-hundredth (1/100) vote per share, while Class A Common has one (1.00)
vote per share.
F-15
<PAGE> 18
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
EARNINGS PER SHARE
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Adjusted Net Income(Loss):
Net income(loss) $ (254,154) $ 197,618 $ (588,142) $ 25,396
Dividends on preferred stock (49,000) (1,950) (76,420) (5,850)
---------- ---------- ---------- ----------
Total adjusted net income(loss) (I) $ (303,154) $ 195,668 $ (664,562) $ 19,546
---------- ---------- ---------- ----------
Total adjusted weighted-average shares
outstanding (II) 2,276,000 2,633,275 1,906,556 2,633,275
---------- ---------- ---------- ----------
Earnings(loss) per share (I divided by II) $ (0.13) $ 0.07 $ (0.35) $ 0.01
========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 19
ITEM 2. Management's Discussion and Analysis
The major event for the Company during the 3rd Quarter was the completion of
the purchase of the first 49% and the final 51% of DC Partners, Ltd. (DCP),
detailed later in this report. The accounting consolidation of DCP has been
included herein.
The Company's CSP steel subsidiary's third quarter revenues were somewhat lower
than the 3rd quarter 1995, but this was due to the bulk of CSP's 3rd Quarter
business consisting of installation projects, which cannot be fully billed
until the fabrication and installation is complete. Requisitions may be made
during the interim while installation is partial, but the bulk of the billing
is realized when installation is completed. Warehouse sales were consistent
with prior years, and the Company has continued to increase its "fabricate and
install" business. Steel fabricators, such as CSP, have had to add the
installation of their products to their sales in order to compete successfully
in the marketplace.
The Company's development stage insurance broker subsidiary, U.S. Insurance
Brokers, Inc. (USIB), completed the purchase of 100% of DC Partners, Ltd. in
conjunction with the Company, in a go forward triangular merger. The funding
for the purchase was provided from the proceeds of USIB's Regulation D offering
and shares of the Company's restricted common voting stock.
The following is a discussion and analysis of each subsidiary's results of
operations:
Results of Operations
Century Steel Products, Inc.
Century Steel Products, Inc.'s (CSP's) sales of $611,925 for the third quarter
were 28% less than the third quarter of 1995 sales of $851,647 by $239,722.
This was due to the large amount of installation projects in progress which
cannot be completely billed until the installations are completed. While
requisitions have been billed, the requisitions are in portions that are
smaller than sections of work completed. These installation completions will be
billed in the 4th quarter.
CSP's third quarter operating loss of ($30,853) was less than the 1995 third
quarter's operating income of $197,618, a decrease of $228,471.
Labor and warehouse costs were $487,013, or 74% as opposed to 60% in the third
quarter of 1995. Salaries increased minimally in 1996 as a result of earlier
cost containment measures implemented in 1994.
Revenues year to date for the first 9 months were $2,080,570 for 1996, as
compared to $2,185,631 for 1995, a decrease of $105,061 or 5%. Year to date
operating income for 1996 was $109,190 as opposed to $221,964 in 1995, a
decrease of ($113,774) or 49%.
Trade debt remained approximately level at $370,181. Trade receivables were
subsequently increased to $617,389 at the end of the third quarter 1996.
-3-
<PAGE> 20
Sales are projected to increase substantially in the 4th quarter 1996 over 4th
quarter 1995, as several installation projects will be completed and billed.
Oftentimes the products are fabricated, but not yet ready for installation
until specific project specifications allowing for and requiring installation
are completed. CSP cannot final bill for these fabricated products until they
are installed.
In addition, CSP has bid and been awarded several projects for next year, which
could potentially increase sales volume to $6,000,000. CSP has added a detailed
drawings draftsman working full time on new project bid takeoffs in view of
CSP's efforts to substantially increase CSP's sales volume for 1997.
Raw materials prices have increased minimally from 1995 prices.
As a subsequent event, CSP received a contribution to its capital in the 4th
quarter of $90,000 from the parent company, and received a gain on a sale of
equipment that is no longer necessary for $150,000, with $75,000 of those funds
received from the buyer. The additional liquidity was not needed to capitalize
present operations, as operating capital was sufficient to continue present
operations. However, in view of CSP's plan to increase sales in 1997, the
additional capital will be used to purchase inventory, any additional equipment
needed to increase production, and to hire additional personnel.
U.S. Insurance Brokers, Inc. (USIB)
The USIB/DCP Acquisition/Merger
On June 30, 1996, The Company and USIB entered into an agreement to acquire and
merge with DC Partners, Ltd. (DCP), a 40 year old third party claims
administrator headquartered in New Jersey. Phase one of the acquisition
required USIB to purchase 49% of DCP for $700,000 directly from DCP, and the
June 30, 1996 agreement regarding Phase two was amended to require the Company,
in exchange for the final 51% of DCP, to exchange (1) 750,000 shares of
restricted common stock, for USIB (2) to exchange an annuity in the amount of
$1,000,000, and (3) the Company issued a warrant for a sufficient amount of
Class B shares, exerciseable at September 30, 1997, in the event that USIB's
Regulation D offering fails to provide sufficient proceeds to purchase a second
annuity in the amount of $2,000,000.
USIB completed the payment for Phase I on September 25, 1996. The Company, USIB
and the DCP shareholders subsequently completed the Phase II triangular merger
terms on September 30, 1996, whereby USIB deposited $700,000 in trust with
Counsel for the benefit of the DCP shareholders for the purchase of an annuity
which will be transferred and exchanged with the DCP shareholders for the
balance of the 51% of the DCP shares, in conjunction with the Company issuing
750,000 shares of common voting stock valued at $3.00 per share to the DCP
shareholders, or $2,250,000, completing the exchange. The Company also issued a
warrant to the DCP shareholders for a sufficient number of Class B shares to
equal an additional $2,000,000, in the event that USIB cannot purchase and
exchange an annuity in the amount of $2,000,000 by September 30, 1997. The
total cost of the exchange to the Company and USIB for Phase II totaled
$5,250,000 in assets and CNTI shares. In addition, the Phase I $700,000 paid in
by USIB will remain as a contribution to DCP's capital.
-4-
<PAGE> 21
DCP's book value at 9-30-96 was approximately $1,600,000. The Company and USIB
paid approximately 3 times DCP's book value for the final 51% of DCP. DCP had
operating income for the year to date through 9-30-96 of $415,000, and projects
operating income for the next 12 months of approximately $600,000. Should the
DCP projections materialize, that would equate to a 19% return on the purchase
price to the Company. On an annualized basis, DCP's operating income for 1996
is projected to be approximately $600,000.
The Company's Chairman, Richard Campanaro, is acting as DCP's Chief Operating
Officer, and has been in that position since March, 1996. At the Company's
annual meeting in December, DCP's President and CEO, David Scibal will be
nominated as Co-Chairman of the Company by the Directors. Mr. Scibal will also
be the Chairman and CEO of USIB upon the completion of USIB's statutory merger
with DCP in 1997, wherein DCP will be dissolved, and USIB will survive.
The Company's management entered into the DCP acquisition/merger transaction
based upon what the Company believes to be the synergy between the companies.
DCP has 185 employees, all of which are familiar with insurance claims
management, billing, adjustment and settlement. Claims underwriting does not
materially differ from insurance premium underwriting, billing, renewals, etc.
As USIB is producing premium through its Limited Partnership agreements with
the NLBMDA and AMSA, it either had to hire personnel to process the quotes and
administrate underwriting, billing and renewals, or acquire a company that
could accomplish those tasks.
In addition, the DCP management has entered into active negotiations, on USIB's
behalf, with various insurers, i.e. U.S. Healthcare, and the Zurich American
Insurance Group, for the placement of the NLBMDA and AMSA municipal lines
business projected by USIB, in order to offer the NLBMDA and AMSA members a
national program with respect to reduced insurance rates. DCP has also entered
into active negotiations with U.S. Healthcare and with CNA, on USIB's behalf,
to design a national major medical health program and auto program for the
NLBMDA members and their employees at reduced rates, with the NLBMDA as USIB's
Limited Partner.
USIB had expected to pay out an average of 5% of gross premium generated to
third party administrators, but the advent of the DCP acquisition/merger will
keep those outside costs in house at DCP, who will provide that administration.
USIB/DCP projects that their in house administrative costs will not exceed 2%
of gross premium, thereby providing approximately 3% of gross premium for the
USIB/DCP income statement's operating income upon the brokerage operations
becoming operational.
DCP administrates and services claims for more than 200 state, regional and
national clients through their offices in New Jersey, Michigan and Florida
offices. These clients include organizations who have self inured programs, and
insurers who prefer outside risk and claims management. DCP's major class of
insurance business administrated is workers compensation, managing and keeping
those claims in line.
-5-
<PAGE> 22
DCP had revenues of $8,316,527 and operating income of $415,133 for the 9
months year to date at September 30,1996, and DCP's management projects
operating income of approximately $600,000 for 1996. Net income for 1996 will
be contingent upon the balance of any extraordinary expense charged in the 4th
quarter, as DCP has substantially reduced its salaries and other operating
expenses through Mr. Campanaro's management realignment efforts and
reassignment of management responsibilities. The following table represents
DCP's prior four years revenues and operating income:
Year 1995 1994 1993 1992
- ---- ---- ---- ---- ----
Revenues $10,253,410 $9,305,519 $7,749,501 $6,691,467
Operating Income 73,579 347,546 239,138 497,010
The following table illustrates DCP management's financial projections for
the years 1997-1999:
Revenues 1997 1998 1999
- -------- ---- ---- ----
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%
U.S. Insurance Brokers, Inc. Development Progress
CIGNA's HMO has appointed the Joint Venture between USIB and Membership
Services, Inc. of Reston, VA to provide health coverage to NLBMDA members and
their employees in Georgia and Louisiana Lumber Dealers Federateds. Due to
Georgia's county licensing requirements, the President of the GLBMDA Federated
is awaiting CIGNA's advice as to which counties CIGNA has active licenses
approved. The coverage area will be increased as CIGNA realizes claims
experience on the insured risks in those states. The CIGNA HMO rate has been
established as a national program, substantially reducing NLBMDA health premium
costs. CIGNA will quote the first 8 select Lumber Dealers in November in order
to provide the GLBMDA with example's of CIGNA's rate competetiveness.
-6-
<PAGE> 23
USIB's consultant has received a go ahead from the Board of Trustees of the
Northeastern Lumber Dealers Federation to market US Healthcare products to the
Connecticut Dealers. The Marketing Plan, which is expected to be finalized on
11-21-96, includes US Healthcare personnel providing sponsored mailings,
billing, service and meeting attendance where necessary and sales being
implemented through US Healthcare field representatives. The commissions to
USIB for the NLBMDA endorsements is unknown at this time, but is expected to be
resolved on December 3 by Mr. Campanaro and Mr. Buckelew.
The Northeastern Lumber Dealers Federated was advised on 11-14 that CNN as
provided USIB with rate software so as to begin the individual auto insurance
program in that regional area with the Dealers. The final decision regarding
whether or not this coverage will be made available on a sponsored basis will
be made after the health program with US Healthcare in Connecticut is
evaluated.
The Northeastern Federated is the largest Federated in the NLBMDA. It is too
early to project the premium penetration amounts or the commissions thereon
until the 4th quarter.
CNA Insurance is in the process of appointing USIB to provide personal lines
auto and homeowners coverage though for the NLBMDA members and their employees
in nine states as a pilot program after which will be extended to all states
after a claims history in the first nine states is established.
Mr. Campanaro has successfully negotiated with Guaranteed Trust Life (Chicago)
to provide USIB with medicare supplement health products, long term healthcare
products, home health care and a Senior Citizen disability product. These plans
were requested by the Oklahoma Lumber Dealers Federated. The families of the
Oklahoma Federated is the potential market for USIB, as USIB has the NLBMDA
endorsement.
Effective December 15, USIB will begin quoting the CAN auto rates to the
Executives of the North Carolina, South Carolina and Tennessee Limber Dealers
Federated.
Effective November 15 the executives of the Eastern Lumber Dealers Federated in
Maryland are being quoted auto rates. The Wisconsin and Michigan Lumber Dealer
Federateds have requested USIB to secure individual auto program rates for
their Dealers. USIB expects to have the CNA rates available for them sometime
in December, as CNA has agreed to underwrite the Wisconsin and Michigan
programs.
USIB has entered into active negotiations with Travelers/Aetna at their
Association Headquarters in Connecticut, in order to provide coverage for
several associations other than the NLBMDA which have requested coverage
through USIB and have offered USIB their endorsements.
USAOCA was subsequently spun off in the 4th quarter, as it served no useful
purpose to USIB any longer. Its only asset was USIB, which is now wholly owned
by CNTI.
USIB Development Expense, Funding and Liquidity
USIB has had development costs of ($236,444) for the 3rd quarter 1996, and
($748,375) year to date for 1996. These funds were expended for rent,
telephone,
-7-
<PAGE> 24
travel, sponsorships at NLBMDA and State Federated conventions, NLBMDA and
State Federated memberships, telephone surveys, legal and accounting expense,
and various consulting fees inimical to obtaining the NLBMDA and AMSA Limited
Partnership Marketing/endorsement agreements, and various insurance carrier
appointments. USIB also obtained advice from consultants relating to the DCP
acquisition, including senior auditor "A Reorganization" tax advice. These
funds were expended from proceeds realized through USIB's Regulation D
offering.
USIB's management projects, based upon the earlier defined development
information, that operations will begin in the 4th quarter, and that operations
will be profitable in the first quarter 1997.
USIB has raised $2,480,000 year to date pursuant to its self underwritten New
York State registration and/or its Regulation D private offering through
September 30. Securities offering expense was approximately $400,000. The
balance of the proceeds funded USIB's development expenses, the $700,000
purchase of 49% of DCP, and the $700,000 set aside in trust for purchase of a
$1,000,000 annuity which was exchanged for the final 51% of DCP with the DCP
shareholders. Management expects to fund the final $300,000 of the annuity
purchase price by year end through offering proceeds.
The USIB convertible preferred shares being sold in the private offering will
be convertible to the Company's common stock at a conversion rate of the
average of the Company's market price per share during the course of the
offering, after the first $1,000,000 was raised at a fixed conversion price of
$1.00 per share. Subsequent USIB preferred shares will be converted at an
approximate average of $2.00 per share.
The Company expects to issue a maximum of 2,500,000 common shares to the
preferred shareholders upon the completion of the offering, if all shareholders
convert, increasing the number of common shares outstanding to 5,526,000, which
includes the 750,000 shares issued to the DCP shareholders.
USIB intends to file a Form 10 with the Securities and Exchange Commission, and
take whatever steps necessary to register the convertible preferred shares, no
later than the 1st Quarter of 1997, so that USIB can apply to the NASDAQ for
its preferred shares to trade separately on the NASDAQ market.
Such a registration would provide preferred USIB shareholders with liquidity
and retention of their dividends, which would also reduce the ultimate dilution
of the Company's common shares.
Century Industries, Inc.
The Company's acquisition of 100% of DCP has been consolidated in the balance
sheet, but DCP's income has not yet been consolidated at 9-30-96 due to time
constraints placed upon the Company's auditors. Management will file an 8-K as
soon as Management and the auditors have had sufficient time to discuss the
pooling issues and other issues which may be amended.
Year to date 9 months revenues and operating income for each subsidiary, with
DCP's earnings presented on the basis of the completed 100% acquisition/merger,
are as follows:
-8-
<PAGE> 25
Revenues:
CSP $ 2,080,570
DC Partners, Ltd. 8,316,627
USIB -0-
----------
Total 10,316,570
Operating Income:
CSP $ 109,190
DC Partners, Ltd. 21,530
USIB (748,375)
PART II - Other Information
ITEM 1. Legal Proceedings
None. The Company's subsidiary, CSP, continues to settle small amounts owed
trade creditors prior to the third quarter, totaling approximately $25,000.
This amount is normal in the course of the Company's business.
ITEM 2. Changes in Securities
The Company will issue 750,000 restricted shares of its Class A common voting
stock to the DCP shareholders, increasing its outstanding shares to 3,026,000
shares outstanding as a subsequent event at the 4th quarter.
ITEM 3. Defaults
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
USIB, the Company's subsidiary, registered an Initial Public Offering of
convertible preferred shares with New York State Department of Law in the
amount of $1,000,000 in May, 1996, and is in the process of subsequently
amending that registration to include an additional $4,000,000 in November,
1996, in order to raise sufficient proceeds to complete the financing of the
DCP acquisition and to complete the USIB development costs.
ITEM 6. Exhibits and Reports on Form 8-K.
The Registrant filed one 8-K and one Form 8 during the 3rd Quarter, covering
USIB's purchase of the 49% equity and 4.9% voting rights of DC Partners, Ltd.
-9-
<PAGE> 26
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
November 20, 1995
Century Industries, Inc.
_________________________________
Ted L. Schwartzbeck
Executive Vice President & CEO
-10-
<PAGE> 27
INDEX TO EXHIBITS
(l) Underwriting Agreement. Not applicable.
(2) Plan of acquisition. reorganization. arrangement, liquidation or
succession. Not applicable.
(3) Articles of Incorporation and Bylaws. Not applicable.
(4) Instruments defining the rights of security holders, including
indentures. Not applicable.
(5) Opinion: re: Legality. Not Applicable.
(6) Opinion: re: Liquidation Preference. Not Applicable.
(7) Opinion: re: Liquidation Preference. Not Applicable.
(8) Opinion: re: Tax Matters. Not Applicable.
(9) Voting Trust Agreement. Not Applicable.
(10) Material Contracts. Not Applicable.
(11) Statement re: Computation of Per Share Earnings. Not Applicable.
(12) Statement re: Computation of Ratios. Not Applicable.
(13) Annual Report to Securities Holders. etc. Not Applicable.
(14) Material Foreign Contracts. Not Applicable.
(15) Letter re: unaudited Interim, Financial Information. Not
Applicable.
(16) A Letter regarding change in certified accountant. Not
applicable.
(17) Letter re director resignation. Not applicable.
(18) Letter re: Change in Accounting principles. Not Applicable.
(l9) Previously Unfiled Documents. Not Applicable.
-11-
<PAGE> 28
INDEX TO EXHIBITS - CONT'D
(20) Report Furnished to Security Holders. Not Applicable.
(21) Other documents or statements to security holders.
Not applicable.
(22) Subsidiaries of the Registrant. Not Applicable.
(23) Published Report Regarding Matters Submitted to Securities
Holders. Not Applicable.
(24) Consents of experts and counsel. Not applicable
(25) Power of Attorney. Not applicable.
(26) Statement of Eligibility of Trustee. Not Applicable.
(27) Invitations far Competitive Bids. Not Applicable.
(28) Additional Exhibits. Not applicable.
(29) Information from Reports Furnished to State Insurance
Regulatory Authorities. Not Applicable.
-12-
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 534,963
<SECURITIES> 147,618
<RECEIVABLES> 1,889,876
<ALLOWANCES> 35,000
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<CURRENT-ASSETS> 2,859,323
<PP&E> 3,360,998
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<BONDS> 733,945
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<OTHER-SE> 2,092,820
<TOTAL-LIABILITY-AND-EQUITY> 10,550,752
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<INCOME-PRETAX> (266,297)
<INCOME-TAX> (12,143)
<INCOME-CONTINUING> (254,154)
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