<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 June 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 June 30, 1996, 2,276,000 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:
June 30, 1996 and December 31, 1995
Consolidated Statement of Income:
For the three months periods ended
June 30, 1996 and 1995, and for the
year to date ended June 30, 1996 and 1995
Consolidated Statement of Stockholders' Equity
For the three months ended March 31 and June 30, 1996
Consolidated Statement of Cash Flows:
For the year to date ended June 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 June 30, 1996 and December 31, 1995, and the results of its
operations and cash flows for the six-month periods ended June 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 fiscal year ended December 31, 1995. Certain items in
prior period consolidated financial statements have been reclassified, where
appropriate, to conform with the June 30, 1996 presentation.
F-1
<PAGE> 4
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
06/30/96 12/31/95
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 48,423 $ 24,471
Accounts Receivable-Trade (Net of allowance for
doubtful accounts of $20,000 and $20,000) 568,578 477,837
Marketable Securities 144,751 -
Employee Advances 3,659 1,200
Stockholder Advances 121,783 -
Deferred Taxes-Current 7,900 8,000
----------- -----------
Total Current Assets 895,094 511,508
----------- -----------
FIXED ASSETS
Software and Computer Equipment 23,921 7,938
Furniture and Fixtures 82,129 82,129
Machinery and Equipment 801,062 801,062
Transportation Equipment 89,139 89,139
Leasehold Improvements 84,835 84,835
----------- -----------
1,081,086 1,065,103
Less: Accumulated Depreciation (1,034,539) (1,022,255)
----------- -----------
Net Fixed Assets 46,547 42,848
----------- -----------
OTHER ASSETS
Investment 57,500 57,500
Goodwill 547,244 547,244
Deposits 3,531 3,530
Deferred Taxes 36,100 2,100
----------- -----------
Total Other Assets 644,375 610,374
----------- -----------
$ 1,586,016 $ 1,164,730
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 5
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
06/30/96 12/31/95
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable-Trade $ 302,741 $ 387,449
Accounts Payable-Affiliate 100,000 100,000
Notes Payable 263,219 288,561
Income Taxes Payable 3,800 8,800
Dividends Payable 18,813 1,950
Accrued Expenses 9,991 10,926
----------- -----------
Total Current Liabilities 698,564 797,686
NOTE PAYABLE, LESS CURRENT PORTION - -
----------- -----------
698,564 797,686
----------- -----------
MINORITY INTEREST, PREFERRED STOCK OF SUBSIDIARY 920,000 -
----------- -----------
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, $.001 par value,
25,000,000 shares authorized,
2,276,000 and 1,326,000 issued and outstanding 2,276 1,326
Additional Paid in Capital 735,800 591,750
Retained Earnings (Deficit) (771,624) (227,032)
----------- -----------
Total Stockholders' Equity (32,548) 367,044
----------- -----------
$ 1,586,016 $ 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 JUNE 30, 1996 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
=========================== ===========================
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 739,235 $ 716,738 $ 1,468,645 $ 1,333,985
Cost of Sales 537,449 564,259 1,000,582 1,043,688
----------- ----------- ----------- -----------
GROSS PROFIT ON SALES 201,786 152,479 468,063 290,297
----------- ----------- ----------- -----------
Operating Costs
Payroll Expenses 100,374 82,809 199,080 163,770
Professional Fees 334,440 10,976 477,205 14,952
Auto, Travel and Entertainment 23,704 5,292 34,610 12,123
Amortization and Depreciation 2,885 3,333 5,817 6,641
Office and Miscellaneous Expense 66,508 22,230 104,499 51,642
----------- ----------- ----------- -----------
Total Operating Costs 527,911 124,640 821,211 249,128
----------- ----------- ----------- -----------
NET INCOME (LOSS) FROM OPERATIONS (326,125) 27,839 (353,148) 41,169
----------- ----------- ----------- -----------
Other Income (Expense)
Gain on Disposition of Assets - - - 14,519
Miscellaneous Income - 1,050 - 1,050
Interest Expense (8,733) (16,080) (19,740) (31,342)
----------- ----------- ----------- -----------
Total Other Income (Expense) (8,733) (15,030) (19,740) (15,773)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (334,858) 12,809 (372,888) 25,396
Provision (Benefit) for Taxes (24,700) - (38,900) -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (310,158) $ 12,809 $ (333,988) $ 25,396
=========== =========== =========== ===========
Preferred Stock Dividends of Subsidiaries (16,913) (1,950) (19,413) (1,950)
----------- ----------- ----------- -----------
Net Income (Loss) Available for Common
Stockholders $ (327,071) $ 10,859 $ (353,401) $ 23,446
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ (0.15) $ 0.00 $ (0.21) $ 0.01
=========== =========== =========== ===========
</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 AND JUNE 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)
=====================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 8
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
6/30/96 6/30/95
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,377,905 $ 1,262,307
Cash paid to suppliers and employees (1,752,707) (1,179,601)
Interest received 1,140 -
Interest paid (20,882) (31,342)
------------ ------------
Net cash provided (used) by operating activities (394,544) 51,364
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (15,984) 14,519
Purchase of marketable securities (147,945) -
------------ ------------
Net cash provided (used) by investing activities (163,929) 14,519
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of USIB preferred stock 920,000 -
Payment of USIB stock issuance costs (184,000) -
Preferred dividends paid (6,450) -
Payments on notes (25,342) (38,820)
Advances (to)/from affiliates/stockholders (121,783) -
------------ ------------
Net cash provided (used) by financing activities 582,425 (38,820)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,952 27,063
Cash and Cash Equivalents - January 1 24,471 -
------------ ------------
CASH AND CASH EQUIVALENTS - JUNE 30 $ 48,423 $ 27,063
============ ============
Reconciliation of net income (loss) to net cash used by operating activities:
Net income (loss) $ (333,988) $ 25,396
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 (98) -
Amortization and depreciation 12,284 17,276
Gain on sale of assets - (14,519)
(Increase) decrease in accounts receivable (90,740) (73,628)
(Increase) decrease in deposits and prepaid expenses - (3,026)
(Increase) decrease in stockholder advances (2,459) -
(Increase) decrease in deferred taxes (current & noncurrent) (33,900) -
Increase (decrease) in accounts payable (39,708) 95,609
Increase (decrease) in accrued expenses (935) 4,256
Increase (decrease) in income taxes payable (5,000) -
------------ ------------
Net cash provided (used) by operating activities $ (394,544) $ 51,364
============ ============
</TABLE>
(continued)
See accompanying notes to financial statements.
F-6
<PAGE> 9
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
NONCASH INVESTING AND FINANCING TRANSACTIONS:
During the quarter ended June 30, 1996, and for the six months ended June 30,
1996, the Company incurred unrealized losses of $2,985 and $3,291, 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
reduced by $2,985 and $3,291, respectively.
Dividends of $18,863 were accrued and charged to retained earnings for the
quarter ended June 30, 1996 ($18,813 is the remaining balance of dividends
payable at June 30, 1996). Dividends charged to retained earnings for the six
months ended June 30, 1996 total $23,313.
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.
See accompanying notes to financial statements.
F-7
<PAGE> 10
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 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.
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 June 30, 1996.
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.
F-8
<PAGE> 11
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided using the straight-line method
for financial statements using the following estimated useful lives:
Software and computer equipment 5-7 YEARS
Furniture and fixtures 5-7 YEARS
Shop machinery and equipment 7-10 YEARS
Transportation equipment 3-7 YEARS
Leasehold improvements 10-15 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
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.
Commissions from insurance contracts generated by USAOCA's subsidiary are
recognized as insurance premiums are collected by the insurance carriers.
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) SALE OF PREFERRED STOCK
During the quarter ended March 31, 1996, USIB authorized 125,000 shares of
12.5% cumulative preferred stock, convertible to common stock of the Company
at the rate of 40 shares of the Company for one preferred share of USIB. At
June 30, 1996, USIB had sold 23,000 shares of the preferred stock at $40 per
share, for a total of $920,000 in new capital, which is included in Minority
Interest of the Company. These shares are redeemable at $40 per share at
the option of USIB or, under certain circumstances, are convertible to
common stock of the Company.
F-9
<PAGE> 12
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
3) INCOME TAXES
The provision (benefit) for taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
==================== ====================
1996 1995 1996 1995
========= ------- ========= -------
<S> <C> <C> <C> <C>
Current
Federal $ 2,700 $ - $ (3,800) $ -
State 1,100 - (1,200) -
--------- ------- --------- -------
3,800 - (5,000) -
Deferred (28,500) - (33,900) -
--------- ------- --------- -------
$ (24,700) $ - $ (38,900) $ -
========= ======= ========= =======
</TABLE>
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.
Additionally, at June 30, 1996 the Company has approximately $334,000 of net
operating losses available to offset future income. The related deferred
tax asset of $136,500 has been reduced by a valuation allowance of $102,300.
4) RELATED PARTY TRANSACTIONS
During the quarter ended June 30, 1996, USIB and USAOCA advanced
approximately $61,000 to stockholder-officers of the Company and an
affiliated party, and received repayment of approximately $16,400. For the
six months ended June 30, 1996, USIB and USAOCA advanced approximately
$138,200 to stockholder-officers of the Company and an affiliated party, and
received repayment of approximately $16,400.
For the six months ended June 30, 1996, an officer of USIB received $184,000
for services provided in issuing shares of preferred stock of USIB.
Retained Earnings was reduced by this amount as a stock issuance cost.
5) STOCKHOLDERS' EQUITY
CSP declared dividends to its preferred stockholders in the amounts of
$1,950 and $1,950 during the quarters ended June 30, 1996 and 1995,
respectively, and $3,900 and $1,950 for the six months ended June 30, 1996
and 1995, respectively.
USIB declared dividends to its preferred stockholders in the amount of
$16,913 during the quarter ended June 30, 1996, and $19,413 for the six
months ended June 30, 1996.
Shares of common stock were reserved at June 30, 1996 for the following:
<TABLE>
<S> <C>
Exercise of 807,300 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 23,000 shares USIB preferred stock, 40-for-1 920,000
----------
$2,825,333
==========
</TABLE>
F-10
<PAGE> 13
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
6) 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 is the purchase for $700,000 of 49%
of the equity as represented by Series B Common Stock. Series B Common
Stock, although representing 49% of the equity in D.C. Partners, has only
4.9% of the total votes. The shares are to be acquired as payments are made
to D.C. Partners. Between July 1 and August 14, 1996, $300,000 had been
paid by USIB to D.C. Partners.
In the second phase of the acquisition, the remaining equity and voting
stock in D.C. Partners will be surrendered to the Company in exchange for
750,000 shares of the voting common stock of the Company (representing
approximately 25% of the then total outstanding common stock) plus a cash
payment of $3,000,000. The surrender of the shares and the remittance of
the cash and stock shares shall occur within one year of June 30, 1996, per
the Agreement.
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.
Contingencies:
1. In the event the Company is unable, for any reason, to transfer the
shares or pay the cash consideration within the terms stated within the
Agreement, one of the following may occur:
i) D.C. Partners may repurchase the 49% equity and 4.9% voting interest
previously transferred to USIB for $600,000.
ii) The original shareholders of D.C. Partners can require the Company to
issue them sufficient shares which shall, in the aggregate, provide
them with a then market value, coupled with the Company's shares
already issued, of $5,500,000. This option contemplates that the full
100% purchase of D. C. Partners by the Company will be consummated.
iii) The original shareholders of D.C. Partners can block the merger and
require the Company to issue 750,000 shares of the Company's stock as a
penalty for failure to deliver the cash consideration. This option
contemplates the continued 49% ownership and 4.9% voting interest in
the merging corporation by the Company.
The original shareholders of D.C. Partners shall have sole responsibility to
elect, if any, one of the options presented above if the Company cannot
complete the purchase as described pursuant to the Agreement.
2. The Agreement is subject to shareholder approval at each company.
3. The Agreement is subject to approval by the Internal Revenue Service
(IRS) of the transaction as a Section 368 (a) (1) (A) transaction. Failure
to meet the IRS qualification could result in restructuring of the
Agreement, payment of additional monies by the Company to D.C. Partners,
and/or arbitration.
F-11
<PAGE> 14
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
6) ACQUISITION OF D.C. PARTNERS, LTD., INC. (CONTINUED)
The following UNAUDITED financial statements are presented for the period ended
June 30, 1996 for D.C. Partners.
D.C. PARTNERS, LTD., INC.
BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 200,000
Accounts Receivable 678,101
Employee Advances 28,373
Stockholder Advances 247,593
Other 8,488
-----------
Total Current Assets 1,162,555
-----------
FIXED ASSETS
Software and Computer Equipment 1,220,165
Furniture and Fixtures 673,325
Transportation Equipment 66,051
Leasehold Improvements 76,716
-----------
2,036,257
Less: Accumulated Depreciation (353,710)
-----------
Net Fixed Assets 1,682,547
-----------
OTHER ASSETS
Investments 230,099
Deposits 53,372
Deferred Taxes 147,000
Other 24,990
-----------
Total Other Assets 455,461
-----------
$ 3,300,563
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts Payable-Trade $ 742,927
Accrued Expenses 88,237
Other Accrued Liabilities 293,000
Income Taxes Payable 3,631
-----------
Total Current Liabilities 1,127,795
-----------
LONG-TERM LIABILITIES
Term Loan 484,783
Capital Lease Obligation 371,365
-----------
Total Long-Term Liabilities 856,148
-----------
STOCKHOLDERS' EQUITY
Common Stock, Series A,
2,500 shares issued AND
outstanding, $1.00 stated 2,500
Common Stock, Series B,
1,290 shares issued and
outstanding, 1.862 par 2,402
Additional Paid in Capital 747,216
Retained Earnings 564,502
-----------
Total Stockholders' Equity 1,316,620
-----------
$ 3,300,563
===========
</TABLE>
D.C. PARTNERS, LTD., INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED YEAR TO DATE
JUNE 30, 1996 JUNE 30, 1996
================= =================
<S> <C> <C>
Revenues $ 2,659,389 $ 5,577,164
Direct Costs 1,366,469 2,588,781
----------- -----------
Gross Profit 1,292,920 2,988,383
Selling, General & Administrative Expenses 1,370,308 2,879,250
----------- -----------
Operating Profit (Loss) (77,388) 109,133
Non-operating Revenue(Expense) (25,803) (73,232)
----------- -----------
Net Income (Loss) $ (103,191) $ 35,901
=========== ===========
</TABLE>
F-12
<PAGE> 15
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
6) ACQUISITION OF D.C. PARTNERS, LTD., INC. (CONTINUED)
The following PRO FORMA information is presented for the period ended June
30, 1996 for D.C. Partners and the Company as if the first phase of the
transaction contemplated by the Agreement had been completed as of January
1, 1996. The purchase of 49% of the equity and 4.9% of the voting stock of
D.C. Partners would be recorded in accordance with the equity method.
Pursuant to APB 18, the equity method may be applicable even if the
investor's voting interest is less than 20% when there is evidence that the
investor is able to exert significant influence. The Company will have
significant influence due to the position held by one of its shareholder-
directors as president and chief operating officer of D.C. Partners.
At June 30, 1996, on a pro forma basis, as if the first phase of the
Agreement had taken place on January 1, 1996, the Company's investment
account would have increased by approximately $718,000 ($700,000 purchase
price plus $18,000 from investee earnings); minority interest would have
increased by $700,000 (assuming that the cash for the investment would have
been raised from additional proceeds from the sale of USIB preferred stock):
and net income and retained earnings would have increased by $18,000 from
investee earnings.
F-13
<PAGE> 16
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
EARNINGS PER SHARE
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
============================= ==============================
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Adjusted Net Income (Loss):
Net income (loss) $ (310,158) $ 12,809 $ (333,988) $ 25,396
Dividends on preferred stock (16,913) (1,950) (19,413) (1,950)
---------- ---------- ---------- ----------
Total adjusted net income (loss) (I) $ (327,071) $ 10,859 (353,401) 23,446
========== ========== ========== ==========
Total adjusted weighted-average shares
outstanding (II) 2,117,666 2,633,275 1,721,833 2,633,275
========== ========== ========== ==========
Earnings (loss) per share (I divided by II) $ (0.15) $ 0.00 $ (0.21) $ 0.01
========== ========== ========== ==========
</TABLE>
F-14
<PAGE> 17
ITEM 2. Management's Discussion and Analysis
The Company's CSP steel subsidiary's second quarter revenues remained
normal and consistent with prior years. Warehouse sales were consistent
with prior years, and the Company has continued to increase its "fabricate and
install" business. Steel fabricators have had to add installation of their
products to their sales in order to compete successfully in the
marketplace. CSP expects to fabricate and install approximately $3,000,000 of
sales in 1996, consistent with 1995 sales.
Results of Operations
Century Steel Products, Inc.
Century Steel Products, Inc.'s (CSP's) sales of $ 739,627 for the second
quarter were 3% greater than the second quarter of 1995 sales of $716,738 by
$22,889.
CSP's second quarter operating profits of $36,903 were more than the 1995
second quarter's operating profits of $27,839, a increase of 30%.
This is attributed to the fact that while materials, labor and warehouse
costs were 71%, as opposed to 79% in the second quarter of 1995, salaries
increased minimally as a result of earlier cost containment measures in
1994.
The quarterly net earnings were $24,133 for 1996, and $12,809 for the same
1995 second quarter.
Revenues year to date for the first 6 months were $1,468,645 for 1996, as
compared to $1,333,985 for 1995, an increase of $134,660 or 9%. Year to
date operating income for 1996 was $170,981 as opposed to $41,169 in 1995, an
increase of $129,812 or more than 400%. Net income after provision for taxes
for year to date 1996 was $145,786 as compared to $25,396 year to date 1995,
an increase of $120,390 or more than 500%.
Trade debt decreased to $313,726 from $385,502 in the second quarter of
1996 over the second quarter 1995, and the trade receivables were
subsequently increased to $588,578 at the end of the second quarter 1996,
compared to $489,562 in 1995 due to increased sales.
Sales could increase substantially over projections should the Company find
itself able to purchase additional automation machinery and equipment which
would provide greater production without concomitant labor costs.
Raw materials prices have increased somewhat from 1995 prices.
U.S. Auto Owners Coverage Association, Inc. (USAOCA) and its wholly owned
subsidiary, U.S. Insurance Brokers, Inc. (USIB)
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 requires USIB to purchase 49% of DCP for $700,000 directly from
DCP, and Phase two requires the Company to pay 750,000 shares of common
stock and for USIB to pay an additional $3,000,000 to the DCP shareholders for
the remaining 51% of DCP.
-3-
<PAGE> 18
DCP will use the first $700,000 as capital for expansion. The
Company's Chairman, Richard Campanaro, is acting as DCP's Chief Operating
Officer, and has been in that position since March, 1996.
USIB is paying much less per share for the 49% position in DCP than it is
paying for the 51%, and the Company's common shares to be issued in Phase
two were valued at $2.40 per share for accounting purposes. DCP's equity at
June 30, 1996 was $1,316,620, and 49% was equal to $645,143. USIB is
therefore paying approximate book value for its 49%. The 51%,
representing $1,071,476 at book value, will cost $4,800,000 in cash and
stock. The entire purchase and merger cost to the Company in consolidation
will average out at a factor of 3.2 times book value of DCP. Once the 51% has
been purchased, USIB and DCP will merge, with USIB surviving. (See
footnotes to the Company's financial statements included herein.)
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. the Ranger Insurance Company in
Texas, and the Zurich Insurance Group, for the placement of the AMSA
municipal lines business being generated by USIB, in order to offer the
AMSA members a national program with respect to reduced insurance rates.
The Ranger began processing requests for more than $2,500,000 of gross
premium during the 2nd quarter. 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, 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. DCP projects that their in house administrative
costs will not exceed 3% of gross premium, thereby providing approximately 2%
of gross premium for the DCP's income statement's operating income.
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.
-4-
<PAGE> 19
DCP had revenues of $5,577,164 and operating income of $109,133 for the
6 months to date at June 30,1996, and DCP's management projects
operating earnings of $300,000 for 1996. The following table represents
DCP's prior four years revenues and operating income:
<TABLE>
<CAPTION>
Year 1995 1994 1993 1992
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $10,253,410 $9,305,519 $7,749,501 $6,691,467
Operating Income 73,579 347,546 239,138 497,010
</TABLE>
Additionally, CIGNA's HMO has appointed the Joint Venture between USIB and
Management Services, Inc. of Reston, VA to provide health coverage to NLBMDA
members and their employees in Georgia and Louisiana. 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. Kemper
Insurance has also appointed the Howard W. Phillips Agency in Washington,
DC to provide personal lines auto coverage though a Joint Venture between
USIB and Phillips 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 is established.
USIB has had substantial development costs during 1996. However,
USIB's management expects the 3rd quarter of 1996 to be profitable, with the
development cost being relegated to unamortized start up expense which will be
depreciated over several years, rather than being expensed quarterly
from income. The impact on USIB's quarterly income will then be substantially
lessened.
USIB has raised $920,000 year to date pursuant to its self
underwritten private offering through June 30. Securities sales and related
offering expense was approximately $200,000. Cash on hand was approximately
$130,000, advances receivable were approximately $121,000, and actual
development expense applied to its various insurance marketing limited
partnership agreements with the NLBMDA and AMSA was approximately $469,000
year to date.
$300,000 of the funds subsequently raised during the 3rd quarter were
expended towards the DCP acquisition/merger. USIB's pro forma ownership of the
first 49% of DCP are reflected in the foot notes to the financial
statements herein.
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 raised on a conversion
price of $1.00 per share.
The Company expects to issue a maximum of 2,300,000 common shares to the
preferred shareholders upon the completion of the offering, if all
shareholders convert, increasing the number of common shares outstanding to
4,576,000. The 750,000 shares to be issued to the DCP shareholders would
further increase the maximum outstanding common shares to 5,326,000, once the
DCP acquisition is completed.
USIB intends to file a Form 10 with the Securities and Exchange
Commission during the 3rd Quarter, effectively registering the USIB
convertible preferred shares so that if the registration becomes effective, the
USIB can apply to the NASDAQ for its preferred shares to trade
separately on the NASDAQ market.
-5-
<PAGE> 20
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 capital account in consolidation does not include the
equity reflected in the preferred stock issuance by USIB, as that entry is
presently being shown as a separate account as a minority preferred stock
interest of the USIB subsidiary. This capital will be returned to the
Company's capital account once the Company's common shares are issued to the
USIB preferred shareholders if and when the USIB private offering is
completed.
The Company's proforma ownership of the 49% equity interest in DCP is
reflected in the footnotes to its quarterly financials statements herein, is
shown without consideration of the issuance of the Company's common shares
for the USIB preferred shares.
Year to date 6 months operating income for each subsidiary, with DCP's
earnings presented on a pro forma basis until the 100% acquisition/merger is
completed, are as follows:
<TABLE>
<S> <C>
Century Steel Products, Inc. $ 170,981
USAOCA and USIB (469,000)*
DC Partners, Ltd. 109,133
----------
Actual Operating income (loss) (188,886)**
</TABLE>
* Development stage start up expenses
* * Before parent company expenses and consolidating entries.
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 second quarter, totaling approximately
$25,000. This amount is normal in the course of the Company's business.
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
-6-
<PAGE> 21
ITEM 5. Other Information
USIB, the Company's subsidiary, registered an Initial Private Offering of
convertible preferred shares with New York State Department of Law in the
amount of $1,000,000 in May, 1996, and will subsequently register an
additional $4,000,000 in September , 1996, in order to raise sufficient
proceeds to finance the DCP acquisition.
The Company also entered into an services for fees agreement with Marketing
Direct Concepts, Inc., an advertising firm, whereby MDC has featured the
Company in a full page color advertisement in the magazine Financial World in
August, and in the Robb Report magazine in September, as well as in all of the
major airlines In Flight magazines. In October the Company will have a full
page color advertisement in Smart Money magazine. In addition, MDC has
featured the Company on its Internet site, as one of the companies
recommended by the Blechman Report, a national financial news letter
published by Bruce Blechman, the author of the book "Guerrilla Investing".
The Blechman Report news letter will feature the Company in August, 1996, and
the Company will also be featured on the Blechman Report nationally
syndicated radio show in August as well.
ITEM 6. Exhibits and Reports on Form 8-K.
The Registrant filed one 8-K during the 2nd Quarter, on April 24, 1996
covering USIB's appointment by AMSA as its national insurance Broker of
Record for placing the commercial lines insurance coverage for its 165
municipal member agencies.
-7-
<PAGE> 22
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.
August 15, 1996
Century Industries, Inc.
----------------------------------------------
Ted L. Schwartzbeck, Exec. V.P. and CEO
-8-
<PAGE> 23
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.
-9-
<PAGE> 24
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) lnformation from Reports Furnished to State Insurance
Regulatory Authorities. Not Applicable.
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 2nd quarter
10-Q at June 30, 1996 and is qualified in its entirety by reference to such 10-Q
at 6/30/96.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 48,423
<SECURITIES> 144,751
<RECEIVABLES> 568,578
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 895,094
<PP&E> 1,081,086
<DEPRECIATION> (1,034,539)
<TOTAL-ASSETS> 1,586,016
<CURRENT-LIABILITIES> 698,564
<BONDS> 0
1,000
920,000
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,586,016
<SALES> 1,468,645
<TOTAL-REVENUES> 1,468,645
<CGS> 1,000,582
<TOTAL-COSTS> 1,000,582
<OTHER-EXPENSES> 19,740
<LOSS-PROVISION> (353,148)
<INTEREST-EXPENSE> 19,740
<INCOME-PRETAX> (372,888)
<INCOME-TAX> 38,900
<INCOME-CONTINUING> 333,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (333,988)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
