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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
10-KSB
(Dated April 15, 1997)
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Calendar Year Ended December 31, 1996
Commission File Number: 0-9969
CENTURY INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
District of Columbia 54-1100941
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
45034 Underwood Lane
Sterling, Va. 20166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Name of each exchange on
Title of each class which registered
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Class A Common Voting Stock NASDAQ Bulletin Board
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
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(2) Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B, and no disclosure will be contained in any amendment to
this Form 10-KSB. X
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Issuer's consolidated revenues for 1996 were $4,349,026.
The aggregate market value of the 1,024,625 common voting shares of stock
held by non-affiliates based upon sales of the Company's shares within the 60
days prior to December 31, 1996 at the average of the bid/asked of $3.00 was
$3,073,875. The total Class A common voting shares outstanding at December 31,
1996 were 3,096,000, and the total Class B common voting shares outstanding at
December 31 were 3,000,000. The Class B shares are not yet registered under
12(g).
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PART I
Item 1. Description of Business
Century Industries, Inc.
The application for incorporation of Century Industries, Inc. ("the Company")
was filed in the District of Columbia on a de facto basis in December, 1992,
and the certificate of incorporation was actually issued in March, 1993. The
company was formed to acquire Century Steel Products, Inc. ("CSP") as its
principal subsidiary, and it also subsequently acquired Alpha Energy & Gold,
Ltd., a 12(g) fully reporting company listed on the NASDAQ Bulletin Board.
On April 22, 1993 The Company completed a statutory merger with its subsidiary,
Alpha Energy & Gold, Ltd. ("Alpha"), a Securities and Exchange Commission fully
reporting 12(g) company listed on the NASDAQ Bulletin Board. This transaction
has been accounted for as a statutory merger, with the Company as the survivor.
The Company additionally acquired U.S. Insurance Brokers, Inc. (USIB) in 1995,
and DC Partners, Ltd. and its wholly owned subsidiary, Scibal Associates, Inc.
in 1996. The Company acquired USIB for 1,000,000 shares of convertible
preferred stock of the Company, and DCP for $1,700,000 cash, 820,000 shares of
Class A stock and a warrant for 777,273 shares of Class B stock. The cash for
the DCP acquisition was provided through a privately placed Regulation D
convertible preferred stock offering of the USIB subsidiary, convertible to
3,000,000 Class B common shares of the Company.
The Company essentially functions as a public holding company for its operating
subsidiaries, without any operations of its own, other than its legal,
accounting, stock transfer agent, acquisition and shareholders related record
keeping responsibilities and concomitant costs on behalf of its subsidiaries,
which are defrayed through management fees charged to its subsidiaries. These
functions and responsibilities are generally associated with the Company's
fully reporting and disclosure requirements.
A detailed description of the business of the subsidiaries is as follows:
Century Steel Products, Inc.
The Company's steel fabricating subsidiary was founded in Sterling, Va., at its
present address in 1979, in the vicinity of Dulles Airport. Additional
equipment was purchased over subsequent periods from the sale of privately
placed shares to four shareholders, and from profits. In 1989 CSP repurchased
all but 20% of CSP's shares, which are owned by one shareholder, a partner in
Superior Steel Co. Superior shares an industrial building with CSP and buys CSP
steel products.
In 1989 CSP had its largest sales year, when sales exceeded $7,000,000. The
Company had expanded operations to include a bridge division, which was
terminated in 1990 after the recession began affecting state revenues allocated
for bridge building and repairs. During 1991 the Company discontinued the
second shift, and successfully downsized in order to remain profitable.
In 1992 CSP began bidding on several "site installation fabrication projects",
and business again began to increase. Heretofore the Company was a supplier of
steel products to sub contractors who bid those projects. In this instance CSP
seized the opportunity to become the sub contractor as well as the fabricator,
to gain an additional profit margin. The demand for fabricated steel product
had remained strong. Many of the independent non fabricating sub contractors
had
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become casualties of the recession, and could no longer justify any credit
arrangements with fabricators.
Products and Markets
Century Steel Products, Inc. ("CSP") is primarily engaged in fabricating
(manufacturing) and selling various specialty steel products. CSP's steel
products are used in the public utilities, automotive, railway equipment,
commercial and residential building industries. U.S. Government contractors
also use CSP's products in the metro D.C. area. The Company numbers public
utilities and Fortune 500 General Contractors among its customer base. Those
products consist of pre engineered parts fabricated from design criteria
supplied by the Company's customers.
CSP's markets are the commercial and residential construction industries, and
"warehouse" miscellaneous industries such as EPA mandated products (under
ground steel tank accessories), military training devices (bomb shelters and
flight simulators), stadium bleachers, and concrete block pallets.
Sales and Distribution
CSP markets its products and services, both domestically and internationally,
through its own direct in house marketing sales department.
CSP's primary marketing area is east of the Mississippi River. Distribution is
facilitated via interstate trucking; therefore, markets west of the Mississippi
are not freight cost effective.
Warehouse steel products for the various industries are generally sold on
demand rather than through contractual arrangements.
Conversely, other steel products are sold to general contractors and installed
by CSP on construction projects, through contractual arrangements.
Competition and Economic Conditions
Much of the CSP's business is directly related to the commercial and
residential construction industry.
CSP's products are sold in highly competitive markets, and its sales and
earnings can be affected by changes in competitive prices, fluctuations in the
level of activity in major markets or economic conditions in general. CSP is in
a geographical region whose steel markets have not been as dramatically
affected during the recent recession as other regions.
CSP's competitors offer a wide range of specialty steel products. No single
competitor dominates the product line or market for the Company's products, and
customers consistently shop for price and delivery dates.
CSP is very competitive in price, service and has always been known for the
quality of its products.
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Raw Materials
The majority of raw materials used by CSP are manufactured by all of the large
producing domestic steel mills. The steel is purchased directly from mills,
stocking warehouses and/or brokers.
CSP has no principal supplier, per se, and is dependent on no one or few
suppliers, as standard grade steel is available through literally hundreds of
suppliers.
Management does not anticipate significant price increases for its raw
materials resulting from supply shortages or other causes. Cost increases
historically have been passed on in the form of higher prices. There can be no
assurance that such cost increases will always result in corresponding price
increases.
Customer Base
CSP is not dependent on any major or a few major customers; all purchase orders
received are the result of a bidding process. CSP's success in being the lowest
bidder on a consistent basis with several major contractors has created a
substantial repeat business. There has been no dependency as such on any major
supplier(s).
Government Regulations
Management believes that CSP is in compliance with all applicable federal state
or local laws and regulations. CSP is not engaged in the discharge of any
materials into the environment, and is not subject to any existing or probable
government regulations other than the normal OSHA in plant regulations. No
government approval is needed for its principal products or operations.
Research and Development
CSP has not spent any funds on R&D in the past two years, other than specific
research required in connection with the fabrication of a customer's order.
This is generally limited to detail drawings, or a search for a particular
grade, size or quality of steel raw material.
Manufacturing and Quality Control
Steel is purchased by weight, therefore CSP operates its own 100,000 lb. state
certified in ground truck scale which accords CSP precise control over the cost
of its purchases. CSP further operates a 60,000 lb. overhead crane, which
allows CSP to purchase steel coils directly from the mills. This enables large
single tonnages of steel to be purchased from mills at discount volume prices.
A central element of CSP's competitive strategy in fabricating steel
products is a highly integrated manufacturing operation. This process begins
with leveling steel coils, at weights in excess of 30 tons (60,000 lbs.) to
specific customer length requirements. This steel can then be relocated within
the plant by one of seven overhead cranes to the shearing stations. Here, steel
up to 3/4" of an inch thick can be precision cut to smaller component shapes,
within .0625" precision tolerances of a customer's requirements. The steel will
then move to one of the press stations, where operations vary from simple cold
forming at 90 degree angles, to the utilization of a 650 ton press for multi
hole locations and intricate forming to varying degrees. Finally, material can
be painted and loaded for delivery.
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Fabricated steel products which are to be produced for subcontracted projects
first require the making of detailed drawings which are extrapolated from the
general architectural blueprints. Once the detailed drawings are approved for
fabrication by the architect and Chief Engineer, CSP can begin fabrication.
CSP exercises quality control over each step of the fabrication process. Each
product undergoes numerous quality control checks during cutting, bending,
welding, drilling and painting. Finished products are subjected to further
testing.
Employees
CSP employs approximately 40 persons. CSP is a merit shop (non union), and as
such is not vulnerable to union demands or the possibility of strike. In an
industry plagued with high employee turnover, management is proud of the fact
that the average length of employment of CSP personnel is 10 years, and that
employee loyalty is so substantial.
Operating Risks and Insurance
CSP maintains public liability, property damage and occupational workmen's
compensation accident policies. Although in the opinion of management the
limits of its insurance coverage against the inherent risks of its business and
a catastrophic incident are in accordance with industry practice, such
insurance may not be adequate to protect CSP against liability or losses
accruing from all the consequences of any catastrophic incident. The occurrence
of an event not fully covered by insurance and a determination of liability
for the consequent loss of damage could result in substantial losses to CSP and
have a material adverse effect upon its financial condition and results of
operations.
Effects of Environmental Laws
The federal and state environmental laws have not affected CSP. CSP is however
regulated by OSHA, and CSP is in full compliance with all OSHA inspections.
U.S. Insurance Brokers, Inc. (USIB)
In 1995 the Company acquired U.S. Insurance Brokers, Inc. located in
Washington, DC (USIB). USIB plans to market all lines of insurance to members
and employees of national membership based associations, and has been appointed
by Golden Rule Insurance Co., Celtic Life, CIGNA, and American Medical Security
Insurance Co.'s as a national association agent.
Products and Markets
USIB is a full service insurance agent/broker formed in the District of
Columbia in 1995 to provide life, health, auto and homeowners insurance to
members of national associations. To date in 1996, USIB has been appointed by
the National Lumber and Building Material Dealers Association (270,000 members
and employees nationally), the Association of Metropolitan Sewerage Agencies
(165 municipal properties located nationwide) as their exclusive association
insurance broker, and the Korean American Grocers Association (KAGRO), located
in all 50 states and Canada.
USIB has been appointed by CIGNA, Golden Rule, American Medical Security and
Celtic Life Insurance Companies as agents to sell their products nationally.
These insurance carriers are rated A Excellent or better by the A.M. Best
rating service. National Association rates are more
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competitive than non national local rates due to lessening of risk through
lower claims when non peril geographic areas are averaged out with multi peril
areas.
USIB has formed Limited Partnerships with its national association partners, in
order that USIB as the General Partner can share the profits earned through
insurance sales with its association Limited partners on insurance sold to
their members.
USIB is still a development stage company. It has obtained its marketing
agreements, agency appointments by insurers, hardware and software, and has
retained operating personnel. It has generated a small amount of sales, and is
in the process of implementing its sales programs. The implementation for the
NLBMDA includes obtaining lower program rates for the members and employees
from national insurance carriers, and preparing competitive quotes for members
which request them. USIB also works with the 24 state federateds of the NLBMDA
and their implementation committees, in order to provide programs which fulfill
the needs of the federateds. USIB has also provided sample quotes for certain
AMSA members through Zurich American Insurance Company, which quotes are 17%
lower than the AMSA members' present commercial liability coverage.
Sales and Distribution
The associations advertise USIB's products to their members through newsletters
and direct mail. The members will call an "800" number at USIB to obtain
insurance quotes. When the member purchases insurance, the policies will be
issued by the insurance carriers, and all direct billing is performed by the
carriers. The carriers then pay USIB a pre arranged commission.
USIB is in the process of outsourcing certain of its life and health insurance
marketing and administration functions through third party administrators.
Third party administrators process claims for insurance carriers as well.
Customer Base
USIB's present potential customer base through KAGRO and the NLBMDA is 375,000
members and their employees.
Business Regulation
The insurance industry is highly regulated. All agencies must be licensed in
every state where they solicit insurance sales, and each agent soliciting for
the agency must be licensed in each state where he or she solicits on behalf of
the agency. On association group term life insurance sales master policies are
utilized and certificates of insurance are issued to members. Health insurance
is sold by licensed life agents. Many states require the posting of a bond by
casualty agents. USIB is a licensed life and casualty broker in the District of
Columbia, and its agents are licensed in the District of Columbia and several
other states.
Employees
USIB hires its agents as independent contractors on a commission basis, as is
standard in the insurance agency industry. Underwriting, bookkeeping, legal
and accounting and other services are performed by consultants and outside
professionals. USIB has no statutory employees.
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Quality Control
Once a customer receives an acceptable quote, the customer sends in his or her
premium, and the coverage is bound through the issuance of a binder. The
premium is remitted to the insurance carrier. Both the agent and carrier keep
comparable records. There is very little margin for error, due to each agent
being licensed and bonded.
Operating Risks
USIB's marketing agreements with its Limited Partner associations are effective
initially for 5 year periods, and are renewable upon agreement by the parties.
Errors and Omissions policies are in place, covering fraud, inadvertent
mistakes, and potential liability from customer lawsuits. No assurance is ever
given with respect to premium sales, which are based on the rates and benefits
provided by the various insurance carriers. Carriers traditionally raise rates
when claims exceed acceptable standards. If risk management practices did not
effectively minimize claims, and the carriers raised rates beyond competitive
marketplace levels, business would inevitably dwindle.
General
USIB is a general insurance agent. As part of its ordinary course of business,
USIB enters into agency agreements with life, health, and property and casualty
insurance companies to sell insurance policies. Under the agency agreements,
the unaffiliated insurance companies pay USIB commissions for policies sold.
These agency agreements allow USIB to initiate and maintain relationships with
customers and to continue these relationships following termination of the
agency agreements. USIB is a licensed and regulated insurance agent in the
District of Columbia, and is in the application process of being licensed and
regulated as an insurance agent and broker in 46 other states.
USIB was formed to sell, as an insurance agent, all lines of life, health and
casualty insurance products to members of various trade associations, credit
unions and other membership based organizations (the "Associations"). USIB's
business plan is to make all consumer lines of insurance coverage available to
National Association members at the lowest rates available in the country on a
nationwide basis.
USIB will market its insurance products to Association members through a unique
relationship which USIB develops and arranges with each Association. This
unique relationship, which involves USIB forming partnerships, both general and
limited, with targeted Associations, provides a method whereby the Associations
can share in the profits generated by USIB from the sales of insurance products
to a particular Association's members. The Company believes that the
partnership arrangements established with Associations will provide the
Associations themselves with significant incentives to allow USIB to be the
only insurance agent with access to a particular Association's proprietary
information and data for the purpose of soliciting Association members, as well
as providing incentives for the Association to recommend and endorse USIB's
insurance products to its members through the use of such mediums as
Association newsletters and the like.
USIB's strategy is to expand its business by increasing the number of
Associations that it has as limited partners, and to provide its customers with
the broadest range of insurance products available in the insurance market. In
this regard, USIB is headquartered among the largest concentration of
Associations in the nation, Washington, D.C.
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USIB, organized in April 1995 under the laws of the District of Columbia, has
its principal executive offices at 1155 Connecticut Ave., N.W., Suite 300,
Washington, D.C., 20036 and its telephone number is (202)965-6555. It has
administrative offices at 8500 Leesburg Pike, Suite 210, Vienna, VA 22182.
Market Overview
Historically, Associations have purchased insurance benefits for their members
directly from various insurance companies product by product. As a result, the
insurance companies by law can only pay the Associations an
endorsement/advertising fee of no more than three percent (3%) of gross premium
amounts for the Associations' participation in the marketing of the insurance
companies products to the Associations' members. In addition, the Associations
are traditionally required to provide the insurance companies with a copy of
their membership lists for marketing purposes, and therefore have had little
sales accountability control.
USIB, as an insurance broker and agent rather than an insurance company, and as
a domiciliary of the District of Columbia, has utilized decisional law in the
District of Columbia to avail itself of structuring partnership arrangements
with Associations, thereby permitting USIB to (i) share greater fees with the
Associations than allowed under traditional "endorsement fee" arrangements,
(ii) provide Associations with a "supermarket" of life, health and casualty
insurance products simultaneously as benefits for their members and (iii)
provide Associations with sales accountability controls.
The foregoing referenced factors should enable USIB to market its insurance
products to Associations without what the Company believes is significant
competition since no other insurance agency known to the Company specifically
targets Associations as partners. Further, USIB believes that its market of
Associations is enhanced further by the fact that no other insurance agency
known to the Company has been appointed by the large, well rated, high profile
insurance companies which have appointed USIB as their agents, and which have
developed such competitive group rates for Association members. Therefore, the
Company believes that there exists a large and viable market for USIB's
insurance products and partnership arrangements, although absolutely no
assurance to this effect can be given.
Business Operations
Since its inception, USIB's primary business operations have consisted of
negotiations with various insurance companies for the purpose of establishing
agency relationships with such insurance companies, and have also consisted of
negotiations with various Associations for the purpose of establishing and
entering into partnership arrangements with such Associations. Of necessity,
the Associations must review the partnership documents, and the Associations'
membership demographics must be presented to the various insurance carriers for
loss projection actuarial workups. In many instances, insurers file various
rate reductions on an ad hoc basis for various Associations, a process which is
permitted in most states only for Association members.
USIB has been appointed as a general insurance agent for Cigna Group Insurance
(rated A+ Superior by A.M. Best Insurance Rating Service ("A.M. Best")), Golden
Rule Insurance Co. (rated A+ Superior by A.M. Best), Celtic Life Insurance Co.,
Guaranteed Trust Life and American Medical Security (rated A Excellent by A.M.
Best). USIB has been appointed by American Medical Security (the Wisconsin
Insurance Group) as a general agent to sell Preferred Provider Plans offered by
American Medical Security. The Company has been appointed by CIGNA's HMO, and
expects to be appointed by the Firemen's Fund Insurance Group (all rated A
Excellent - A+ Superior by A.M. Best) in May, 1997.
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USIB has completed its Limited Partnership Marketing Agreements with the
National Association of Lumber and Building Materials Dealers (270,000 members
and employees), and has been appointed Broker of Record by the Association of
Metropolitan Water & Sewerage Treatment Agencies (165 municipal government
agencies), and the National Korean Grocers Association (23,000 member
businesses), and is in active negotiations with STPP, an environmental
association of associations which numbers the Sierra Club and the National
Wildlife Federation among its members.
The Company purchased a computer software system, which is designed to handle
the processing/underwriting of up to 500 daily insurance quote and binding
requests, with the rates in 35 Acord states available. The computer equipment
is set up and programmed to utilize the Delphi Smartsystem integrated insurance
agency software, the Equifax Systems for Motor Vehicle Reports and Accident
("Clue") Reports, and to access the insurers' mainframe computer for
underwriting purposes, through the IVANS Insurance Protocol System.
The NLBMDA has supplied USIB with a list of their 11,000 dealer members, also
belonging to the 24 state lumber dealer federated state associations, which
encompass all 50 states. Various "state federateds" have endorsed USIB's
insurance products, and USIB has arranged for various insurance carriers to
provide the coverage; Fireman's Fund has agreed to provide commercial lines
Lumbermens' liability and workers compensation, CIGNA's HMO, Golden Rule and
Celtic Life are providing major medical health coverage in the Northeast,
CIGNA's HMO is providing health maintenance health coverage Georgia and
Louisiana, and Golden Rule Insurance Co. is providing major medical health
coverage in 30 states. The Company is in active negotiations with the Zurich
Insurance Group to supplement and provide commercial coverage for classes and
in states which coverage may not be available from USIB's present insurance
carriers.
Although USIB's partnership arrangements with the Associations are of both a
general and limited nature, the Company expects that the majority of the
partnership arrangements that USIB will enter into with the Associations will
be of a limited nature. USIB's standard limited partnership arrangement with
Associations is formed with USIB acting as a general partner and the
Association acting as a limited partner. In its capacity as general partner,
USIB is solely responsible for the overall operations and management of each
limited partnership. The investment made by the Association into the limited
partnership generally includes the Associations' proprietary ownership of its
membership lists and certain advertising costs. The investment made by USIB
into the limited partnership is the costs involved in obtaining group coverage
for the Associations' members with various highly rated insurance carriers, as
well as the costs of marketing the various insurance products to the
Associations' members.
In the standard limited partnership arrangement, USIB assigns approximately 50%
of the limited partnership's profits to the Association as a limited partner
distribution, and the remaining 50% of the limited partnership's profits are
distributed to USIB as general partner distributions.
USIB believes that the above described allocation and distribution method
results in a typical Association limited partner earning the average equivalent
of four percent (4%) of gross premiums on all lines of life, health and
casualty products, and results in the Company earning the equivalent of an
average of 5% of gross premiums on all insurance product lines, although no
assurance to this effect can be given, as casualty commissions are lower than
life and health commissions.
USIB expects to continue to add Association limited partners. The Company's
expectation that it will add more Association limited partners is based upon
its belief that the compensation to be derived by an Association from its
relationship with USIB, as well as lower rates and the level of accountability
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that USIB has to each Association through which its sells its insurance
products, will make entering into a limited partner arrangement with the
Company extremely attractive to an Association.
Products/Services Provided
In its role as an insurance agency, USIB provides the following insurance
products to Association members:
- -Group Term Life (CIGNA)
- -Individually Underwritten Whole and Universal Life (Celtic Life)
- -Traditional Major Medical Health Plans (Golden Rule)
- -Preferred Provider Health Plans (Golden Rule, CIGNA, American Medical Security)
- -Long Term Health Plans (Guaranteed Trust Life)
- -Medical Savings Accounts (Golden Rule)
- -Supplemental Health Plans (CIGNA, Guaranteed Trust Life)
- -Commercial Lines (NLBMDA) CNA
- -Health Maintenance Organization Coverage (NLBMDA) CIGNA's HMO
Competition
USIB believes that its competition is from insurance carriers rather than other
insurance agents. Insurance companies have historically reserved the right,
with their agents, to write Association insurance business on a direct basis.
The insurance companies market the coverage to Association members themselves
through telephone and direct mail campaigns, with very little interaction from
the Associations. USIB believes that few insurers have well organized
Association marketing programs. USIB further believes that one of the few
insurers which has a large, well organized Association department is CIGNA. In
this regard, CIGNA has appointed the Company as an Association agent.
Individual insurers can only market their own individual life, health or
automobile/homeowner products one at a time, rather than providing a
"supermarket" of life/health/casualty products. Life insurance companies are
chartered and licensed to write life and health insurance products;; and
casualty companies are chartered and licensed to write automobile/homeowners
insurance products. Life insurers do not write automobile insurance policies,
nor do automobile companies write life insurance policies. These insurers
seldom cooperate with one another.
Many Associations domiciled in the District of Columbia, as well as
Associations domiciled elsewhere, operate legislative offices in the District
of Columbia. These offices lobby for their members on Capitol Hill in order to
influence federal government and congressional policy with respect to
Association members. USIB believes that its management is well acquainted with
many Association lobbyists and it is uniquely in a position to make
presentations of the Company's insurance products to persons that insurers
normally do not have direct access to. In this regard, USIB has entered into a
Finders relationship with a prominent public relations firm with knowledge of
various Associations in the District of Columbia, for the purpose of referring
Associations to USIB with the idea that USIB will ultimately enter into
partnership arrangements with the referred Associations.
Facilities
USIB's downtown corporate service offices are located in a facility leased by
the Company in Washington, D.C. The Company further has leased administrative
space at 8500 Leesburg Pike,
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Vienna, VA. The Company believes that its current corporate offices and
administrative space are sufficient for its present needs, as it will provide
space for 10 agents and administrative personnel.
The insurance departments also require that the various insurance carriers
represented by USIB appoint USIB with the various state insurance departments.
All insurance agents are regulated by the states, rather than the federal
government. State regulation provides for licensing of insurance agents, the
setting of rates and commissions, and insurance company and agency/agent
conduct and practices.
Property/casualty Industry Overview
The property/casualty insurance business is comprised of about 3,900 individual
insurance companies operating in a highly competitive environment. Although
about 900 of those companies write most of the business, no single company or
group has more than 15% of the market, and the 10 largest companies account for
less than 45% of the market. The industry employs over 600,000 persons in
company headquarters, and also over 650,000 persons are engaged in agency or
brokerage operations. USIB is part of this latter group. As such, it is a
member of a very large industry sector offering almost unlimited growth
potential.
The Insurance Services Office, Inc. ("ISO"), an industry research organization,
through its Fast Track Monitoring System and other analysis operations, has
demonstrated that a given year's premium production is primarily a function of
two trends; the rate of increase in the Gross National Product (ISO Report; As
Gross National Product (GNP) increased, premiums increased at a greater rate")
and the impact of the current underwriting cycle.
Over the past twenty five years the findings of the ISO have generally held
true. In particular, in periods of strong economic activity the growth in
premium production has greatly exceeded the growth in GNP. In weaker economies
its has even lagged the GNP growth rate. Focusing on the mid-1970's and
mid-1980's, when there was strong economic climates, this tendency is
illustrated as follows:
<TABLE>
<CAPTION>
YEAR PREMIUM % INCREASE GNP % INCREASE
($ MIL) ($ BIL)
<S> <C> <C> <C> <C>
1970 $ 32,578 12.3% $ 1,107 5.2%
1975 49,605 11.0% 1,599 8.5%
1980 95,702 6.1% 2,742 8.8%
1985 144,860 22.2% 4,054 6.6%
1990 218,100 4.4% 5,524 5.3%
1993 241,691 5.9%
</TABLE>
The concept of the existence and impact of underwriting cycles in the
property/casualty business is firmly accepted after many decades of experience.
The cycles generally last somewhere between 5 and 10 years. They are measured
by the industry's combined loss ratios (claims plus expenses, as a percent of
premiums). Briefly, in a competitive industry: prices tend to drop as
individual companies fill their appetites for market share; companies then
generate insufficient net income as prices reach a "trough"; prices tend to
rise until a "peak" is reached; at this point market share drops for those
companies having the higher prices; in order to restore market share prices are
reduced and another cycle is triggered.
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The industry entered a trough in 1987, which became a peak in 1992 which is
still persisting mid way between a peak and a trough. This is a favorable
condition for USIB, as it can offer reduced rates to its client association
members, through its major insurance carriers. The peak factor, combined with
the "mainstream" geographical demographics of the Association members which are
not located in or near inner cities in 46 states, should produce low combined
ratios for casualty insurers There is no concentration of members in "multi
peril" states, nor in coastal areas where earthquakes and hurricanes are
potentially prevalent.
Insurance Agency/Brokerage Revenue
The top ten publicly traded insurance brokerage organizations are listed below,
as information about them is readily obtainable. Their statistics clarify the
large volume numbers associated with Program Insurance Contracts, and are
indicative of the state of the industry.
<TABLE>
<CAPTION>
Market
Revenue Value P/E P/B ROE
Company 1993 (1993) 1993 1993 1993
- ------- ---- ------ ---- ---- ----
($mil)
<S> <C> <C> <C> <C> <C>
Accordia $ 258 $ 364 12.8 1.98 17.8%
Alexander &
Alexander 1,300 892 NK 3.23 8.7%
Blanch, E.W. 62 318 20.2 4.95 25.5%
A.J. Gallagher 318 494 19.5 5.05 28.6%
Hilb, Regal &
Hamilton 135 172 20.7 2.54 15.7%
Marsh &
McLennan 3,200 6,291 18.0 4.42 27.0%
Willis Coroon 1,500 959 25.7 .98 NA
</TABLE>
Outlook
Net premiums written by the property/casualty insurance industry in 1993 were
$242 billion. Of that total about 50% was personal lines coverage. Of that $120
billion, $85 billion (over 70%) was written by agencies, as opposed to direct
writers i.e. GEICO.
DC Partners, Ltd. and its wholly owned subsidiary,
Scibal Associates, Inc.
In 1996 the Company acquired DC Partners, Ltd. (DCP), in Somers Point, NJ.
Scibal Associates, Inc., (Scibal) the wholly owned subsidiary of DC Partners,
Ltd., is a third party claims administrator (TPA) , adjusting and settling
claims for both insurance companies and self insured companies and
institutions. Scibal adjusts in excess of $80,000,000 of claims annually.
12
<PAGE> 13
Products and Markets
Scibal has been in business for 44 years, and specializes in workers
compensation and all phases of commercial liability claims administration. In
administering these programs, DCP offers its customers a full range of
services, including claims adjusting and administration, risk management as
well as the full complement of reporting required for both program management
by the customer as well as for regulatory compliance.
Workers Compensation and liability payments total in the tens of billions each
year, and the number of entities which are self insuring and administering this
aspect of their operations continues to grow. With its dual IBM AS 400 computer
systems running internally developed proprietary claims administration and
reporting software, DCP is well positioned to add new customers.
Customer Base
The customer base of DCP consists of municipal and other government-related
entities, primarily in New Jersey, as well as an expanding base of national and
regional industrial, retail and service corporations. A representative list of
DCP's clients includes Rutgers University, Masco Corporation, Sequa
Corporation, Burlington Coat Factory Warehouse Corporation, Wawa Food Stores,
Sentinel Real Estate and the Jacksonville Jaguars football team organization.
DCP has one customer whose billings comprise approximately 27% of total
revenue. The balance of DCP's customers are comprised of clients of long
standing, no one of which is significant to the company. Being a service
provider, there is no dependence on any major supplier.
Sales and Distribution
Sales are conducted primarily through its CEO, David Scibal. Mr. Scibal
generates sales through both personal contact and referrals from existing
customers, as well as through extensive contacts with both insurance companies
and brokers.
Competition and Economic Conditions
While competition in the claims administration industry is substantial, it has
evolved in the 90's into an industry where the administrator must be intensely
hardware and software intensive, and the software, of necessity must be
developed internally and becomes extremely proprietary. DCP has this capacity
and is very competitive. Additionally, it has its 44 year track record of
performance and integrity in its operations and results on behalf of its
clients, and is approved to handle imprest funds for its clients.
Claims administration fees currently mirror the "soft" market in the entire
insurance industry. Rates are presently so competitive that they are basically
stagnant and have been for the last 4 years. Profit margins are slimmer in soft
markets, but markets are cyclical, and have historically upturned and rates
become "hard" for an undetermined cycle after they have remained soft for an
undetermined cycle. Elsewhere herein in the U.S. Insurance Brokers, Inc.
section there are statistics republished from insurance industry authorities
which help to explain these national rate cycles.
13
<PAGE> 14
Business Regulations
Management believes that DCP is in compliance with all applicable federal and
local laws and regulations. No federal government approval is needed for its
principal services, although various states require registration and licensing
of insurance services providers. DCP is in compliance with all such local
requirements.
Research and Development
DCP has an experienced staff of computer programmers. These programmers are
continuously improving and enhancing the proprietary claims handling software.
Additionally, there is an effort underway at the company to write the "next
generation" of software, which will take advantage of Internet access,
electronic claims reporting, and data warehousing for its customers. The new
system will enable the company to better leverage its adjusters against case
loads, which will lead to higher profit margins while maintaining competitive
pricing. The features and functionality offered are singular, which should
provide DCP with a substantial sales advantage in the near future.
Employees
DCP employs approximately 160 persons. None of the employees are represented by
labor unions so the company is not vulnerable to union demands or the threat of
a strike. Employee turnover is at a rate consistent with or lower than the
industry average, with a majority of the employees having been with the company
for more than three years.
Operating Risks and Insurance
DCP maintains substantial public liability, property damage, workers'
compensation, employee fidelity and errors and omissions insurance. Insurance
levels are not only maintained at the levels deemed prudent by management, but
also meet the conservative requirements of its customers.
ITEM 2. DESCRIPTION OF PROPERTY
CSP Plant Facility
CSP operates a reasonably new, clean 50,000 sq. ft. facility at Sterling
Industrial Park in Sterling, Va. The premises are leased from the BMH&G Limited
Partnership. There is substantial parking, and the facility is in a somewhat
rural area adjacent to the Town of Sterling, providing a pleasant working area.
Management believes that CSP's plant facility, including its manufacturing
machinery and equipment, are adequately maintained and suitable for their
intended uses.
USIB and DCP Office Facilities
USIB operates its offices at 1155 Connecticut Ave. N.W. Suite 300, Washington,
DC, 20036, and 8500 Leesburg Pike, Suite 210, Vienna, VA 22182. Management
believes that USIB's facilities are suitable and adequate for their intended
uses.
DCP operates its leased headquarters offices at 23 Mays Landing Road, Somers
Point, NJ. DCP also has leased field offices in Edison, NJ, Philadelphia, PA,
Detroit, MI, Richmond, VA and Jacksonville, FL. Management believes that DCP's
facilities are suitable and adequate for their intended uses.
14
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
CSP has no pending litigation. CSP is making payments as agreed in litigation
settlements with a balance totaling approximately $15,000 in six (6) separate
cases involving small claims from its suppliers. This a sum which is considered
normal in the course of its business. USIB has recently settled a dispute of
its lease arrangements with its former landlord in the Superior Court of the
District of Columbia. The credit balance payable amounts to a lump sum payment
of $22,500, and $20,000 payable over a two year period. USIB has no other
litigation threatened or pending.
DCP is currently the plaintiff in a lawsuit involving a lease with XL/Datacomp
for computer equipment. DCP initiated the suit, charging breach of fiduciary
duty. AT&T, the assignee of the lease, has counterclaimed for the balance of
its monies due under the leasing contract on its side of the dispute. Although
it is unknown at this time what the result of these proceedings will be, DCP
has and continues to reserve for any losses which might stem from a potential
finding against DCP. Management believes that any ultimate loss incurred by DCP
would not materially exceed $200,000, which would be paid out over time in any
event. DCP's corporate counsel is not able to express an opinion as to the
possible outcome of the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
The Company held its annual meeting on December 28, 1996, and its present
directors, Ted L. Schwartzbeck, Joel Gundersheimer and Richard Campanaro were
elected for another year. In addition, Andres Romero and Jan McDaniel were
elected to the Board of Directors.
The shareholders also ratified and approved a) the acquisition of DCP, b) the
amendment to the Company's Charter providing for the authorization of Class B
shares and further ratification of the issuance of up to 4,000,000 Class B
shares held in trust for the conversion of any convertible preferred
shareholders of the subsidiaries. There were 1,906,000 affirmative votes in
favor of the acquisition out of 3,096,000 Class A voting shares outstanding at
that date. No negative votes were cast.
Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's shares trade on the NASDAQ Bulletin Board under symbol
"CNTI". The range of bid/asked information for the Company's common voting
shares for each quarter of the last two years, as reported by the NASDAQ is as
follows:
<TABLE>
<CAPTION>
BID ASKED BID ASKED
----------- ------------
<S> <C> <C> <C> <C> <C>
1ST QTR 1996 .50 .65 1ST QTR 1995 .25 .50
2ND QTR 1996 1.00 1.25 2ND QTR 1995 .25 .50
3RD QTR 1996 1.75 2.00 3RD QTR 1995 .25 .50
4TH QTR 1996 3.00 3.25 4TH QTR 1995 .25 .50
</TABLE>
There are approximately 1187 stockholders which own the Class A shares, and
There are approximately 380 stockholders which own the Class B shares.
15
<PAGE> 16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.
PLAN OF OPERATION
The Company has sufficient cash to sustain its operations for the next 12
months. Its operating subsidiaries, CSP and DCP are profitable; its USIB
development stage operation is expected to begin producing income in the 2nd
quarter 1997, and expects to become profitable during 1997. In addition,
Management can report herein that the steel division has already substantially
exceeded its revenues and profits in the 1st quarter 1997 over the 1st quarter
1996, and expects DCP's profit margins to increase, due to its implementation
of cost containment programs.
The Company plans to apply for an upgraded listing of its shares in the 2nd
quarter of 1997, and if that application is successful, the Company plans to
enter into active acquisition negotiations with two stable, profitable
insurance related companies in the 2nd quarter of 1997. An upgraded listing
should make the company's shares attractive to various sellers of privately
owned companies.
CSP's and DCP's management teams expect to increase their revenues and earnings
substantially in 1997; USIB will be able to reverse its development stage
losses through revenues and earnings in 1997. Management continues to believe
that the relatively small amount of its development stage investment in USIB
compared to the potential earnings available is a sound one.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Century Industries, Inc. in Consolidation
Historically the Company has grown by acquisition. Its consolidated assets have
increased from $1,164,730 in 1995 to $8,001,248 in 1996, a 600% increase.
Consolidated Capital has increased from $367,044 in 1995 to $3,597,924 in 1996,
a 900% increase. Its revenues on an unaudited proforma basis for 1996 have
increased from $2,676,306 to $13,394,469 (based upon the ownership of DCP for
the entire year of 1996), which is a 400% increase (the audited numbers
contained herein only include 47 days of revenue, expense and earnings, as the
acquisition was completed on 11-13-96.). The operating subsidiaries, CSP and
DCP were profitable, as discussed below, and the consolidated operating losses
were attributable to USIB's development stage losses, and the maintenance costs
of the Parent Company. The substantial increases in assets, capital and
revenues shown herein have resulted from the acquisition of DCP. The unaudited
operating income (loss) for each subsidiary is broken down as follows:
<TABLE>
<CAPTION>
USIB
STEEL PRODUCTS (DEV. STAGE) DCP PARENT TOTAL
-------------- ---------- --- ------ -----
<S> <C> <C> <C>
REVENUES $ 2,676,306 $ 11,016,729 $ 13,693,035
COST OF SALES 1,964,963 5,654,685 7,619,648
--------- --------- ----------
GROSS PROFIT 711,343 5,362,044 6,073,387
OPERATING COSTS 473,188 397,885 5,172,888 155,339 6,199,300
NET INCOME (LOSS)
BEFORE TAX $ 238,155 $ (397,885) $ 189,156 ($155,339) ($125,913)
</TABLE>
It should be noted that CSP and DCP jointly earned $427,311, whereas USIB lost
($397,885) in its development stage.
16
<PAGE> 17
Audited consolidated sales were $4,349,026 in 1996 (including the 47 days of
DCP's sales), an increase from sales of $2,707,901 in 1995. Gross profit
increased from $595,596 in 1995 to $1,466,077 in 1996. Consolidated operating
costs increased from $561,266 in 1995 to $2,013,362 in 1996. The consolidated
loss from operations before taxes and extraordinary items was ($125,913) in
1996 on a proforma basis as outlined in the graph above, as opposed to a
consolidated operating profit of $7,737 in 1995. The loss per share was ($.12)
in 1996, a decrease from the positive $.01 in 1995. Since DCP's revenues and
earnings were only counted for the last 47 days of 1996, a clearer picture
emerges from the preceding graph, which is based upon DCP's entire 1996
calendar year.
The consolidated income statement included in the financials statements herein
reflects a consolidation with DCP for 47 days of the 4th quarter 1996 only, as
the Company did not complete the acquisition until that date. The pro forma
results of a consolidation with DCP for the entire year 1996 are included in
the notes to the financial statements contained herein.
The Company and its subsidiaries have more than sufficient cash on hand, and
liquidity from the cash flow of their accounts receivable, to continue to grow
their operations. The Company has provided Century Steel Products with in
excess of $250,000 to purchase additional raw materials during the 1st quarter
1997, so as to increase its revenues to over $1,000,000 for the 1st quarter.
Century Steel Products, Inc.
CSP's cost of goods decreased from $2,112,305 at year end 1995 to $1,964,963 at
year end 1996, and the open account debt to suppliers increased from $ 367,449
at year end 1995 to $431,959 year end 1996.
Sales decreased 1% from 1995 sales of $2,707,901, as 1996 sales were
$2,671,176.
Gross profits before administrative costs increased from $595,596 in 1995, to
$711,343 in 1996. Administrative costs remained approximately the same, and
were $532,627 in 1995, and $590,177 in 1996.
Net income from operations of CSP in 1995 were $62,969, and in 1996 were
$89,782, and income before taxes in 1995 was $77,044, and $233,025 in 1996.
The following Management's Discussion of Financial Condition and Results of
operations of Century Steel Products, Inc. is a comparison of the three months
ended December 31, 1996 to the three months ended December 31, 1995.
CENTURY STEEL PRODUCTS HISTORICAL DATA FOR THREE MONTHS ENDED DECEMBER 31,
1996.
CSP's sales of $590,606 for the fourth quarter of 1996 were $68,336 more than
the fourth quarter sales of $522,270 in 1995.
Operating expenses for the last three months of 1996 totaled $133,998,
representing a small decrease, from the $142,973 of expenses for the three
months ended December 31, 1995.
CSP's current assets to current liabilities ratio is 1.4 to 1 at year end, with
current liabilities being $234,895 less than current assets.
17
<PAGE> 18
Results of Operations
CSP's increased fourth quarter revenues reflected CSP's ability to purchase
steel in sufficient quantities and at competitive prices so as to fill all
sales orders, at a reasonable profit.
Raw material steel and labor costs were 4% less for 1996 on an annualized basis
than the year of 1995. In 1996 Material and labor costs amounted to 74% of the
annual revenues. In 1995 this factor was 78%. This factor contributed
substantially to the Company's larger annual earnings than 1995.
Forward Looking Information
The following graph indicates Management's projections of the growth of steel
division operations since sufficient capital for the purchase of raw materials
has been made available by the parent company:
<TABLE>
<CAPTION>
YEAR REVENUES PROJECTED EARNINGS
------ ------------- ------------------
<S> <C> <C>
1997 $ 4,200,000 $ 400,000
1998 6,720,000 675,000
1999 10,752,000 1,000,000
2000 12,000,000 1,200,000
2001 15,000,000 1,500,000
</TABLE>
U.S. Insurance Brokers, Inc.
(Development Stage)
USIB's operations are still at the developmental stage. However, USIB acquired
DC Partners, Ltd. (DCP) on 9-30-96, in conjunction with Century Industries,
Inc., and USIB now functions as the parent company of DCP. USIB raised
sufficient capital through its Regulation D offering in 1996 to fund its
purchase of DCP, in conjunction with the Company issuing its shares and
warrants for the completion of the acquisition. The plan calls for USIB to
merge with DCP pursuant to the A Reorganization under the Internal Revenue
Code, with USIB being the survivor, during 1997.
USIB lost ($397,885) for the year 1996, as development stage losses.
DC Partners, Ltd. and its wholly owned subsidiary,
Scibal Associates, Inc.
The following audited income statement comparisons are based upon audited
fiscal years ending September 30 1995 and 1996. Since the Company acquired DCP
effective 11-13-96, The Company only consolidated DCP's audited income
statement for the final 47 days of 1996 in the financial statements included
herein.
DCP's cost of services provided increased from $5,127,634 at year end 1995 to
$5,414,967 at year end 1996, and the open account debt to suppliers increased
from $ 576,448 at year end 1995 to $1,201,641 at year end 1996.
Revenues increased from 1995 revenues of $10,243,410, as 1996 revenues were
$10,718,163.
Gross profits before administrative costs increased from $5,125,776 in 1995, to
$5,303,196 in 1996. Administrative costs decreased from $5,000,650 in 1995, to
$4,686,316 in 1996.
18
<PAGE> 19
Net loss from operations of DCP in fiscal 1995 was ($108,172), and net income
in fiscal 1996 was $26,538. For the calendar year, DCP had calendar year net
income before taxes from operations for 1996 of $189,156.
The following Management's Discussion of Financial Condition and Results of
operations of DC Partners, Ltd. is a comparison of the three months ended
fiscal September 30, 1996 to the three months ended September 30, 1995.
DC PARTNERS, LTD. HISTORICAL DATA FOR THREE MONTHS ENDED SEPTEMBER 30, 1996.
DCP's sales of $2,509,080 for the fourth quarter of 1996 were $298,566 more
than the fourth quarter sales of $2,210,514 in 1995.
Operating expenses for the last three months of 1996 totaled $1,295,860,
representing a small decrease, from the $1,369,208 of expenses for the three
months ended December 31, 1995.
DCP's current assets to current liabilities ratio is .7 to 1 at September 30,
1996, with current liabilities being $826,199 more than current assets.
Results of Operations
DCP's increased fiscal year September 30 fourth quarter revenues reflected
DCP's ability to increase prices and add new customers.
Labor costs were 4 % more for 1996 on an annualized basis than the year of
1995. In 1996 labor costs amounted to 54 % of the annual revenues. In 1995 this
factor was 55 %. This factor contributed substantially to the Company's larger
annual earnings than 1995.
Forward Looking Information
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 125,126 347,546 239,138 497,010
</TABLE>
19
<PAGE> 20
THE FOLLOWING TABLE ILLUSTRATES DCP MANAGEMENT'S FINANCIAL PROJECTIONS FOR
THE YEARS 1997-1999:
<TABLE>
<CAPTION>
REVENUES 1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
CLAIMS HANDLING SERVICES $ 12,092,607 14,003,520 18,264,772
DIRECT COSTS:
ADJUSTER SALARIES & BENEFITS 3,484,633 3,452,527 3,555,135
TPA FEES 2,286,072 3,478,272 6,471,602
COMMUNICATIONS 255,000 255,000 255,000
--------- --------- ---------
TOTAL DIRECT COSTS 6,025,705 7,185,799 10,281,737
GROSS PROFIT 6,066,901 6,817,720 7,983,035
% OF SALES 50.17% 48.69% 43.71%
INDIRECT COSTS:
- --------------
SG&A SALARIES & BENEFITS 2,353,684 2,312,605 2,407,440
OTHER SG&A 2,910,404 3,090,487 3,576,903
--------- --------- ---------
TOTAL SG&A 5,264,088 5,403,092 5,984,342
OPERATING INCOME 802,813 1,414,628 1,998,692
NON OPERATING REVENUE (EXPENSE) (75,392) (43,406) (24,612)
NET INCOME BEFORE TAXES 727,421 1,371,223 1,974,080
======= ========= =========
% OF SALES 6.02% 9.79% 10.81%
</TABLE>
20
<PAGE> 21
ITEM 7. (A) CONSOLIDATED FINANCIAL STATEMENTS.
COVER PAGE F1
INDEPENDENT AUDITOR'S REPORT F2
FORMER AUDITOR'S REPORT F3
BALANCE SHEET F4, F5
STATEMENT OF OPERATIONS F6
STATEMENT OF STOCKHOLDERS EQUITY F7
STATEMENT OF CASH FLOWS F8, F9
NOTES TO FINANCIAL STATEMENTS F10 THROUGH F20
21
<PAGE> 22
PART II
ITEM 7. FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Consolidated Financial Statements
For The Years Ended December 31, 1996 and 1995
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report of Correa Berger & Associates F-2
Independent Auditor's Report of Donna Miller & Associates F-3
Consolidated Balance Sheets - December 31, 1996 and 1995 F-4 - F-5
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-6
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996 and 1995 F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 F-8 - F-9
Notes to Financial Statements F10 - F-20
</TABLE>
F-1
<PAGE> 23
Board of Directors
Century Industries, Inc.
Sterling, Virginia
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of Century
Industries, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Century Industries, Inc. and subsidiaries as of December 31, 1996, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
CORREA BERGER & ASSOCIATES
New York, New York
April 14, 1997
F-2
<PAGE> 24
[DONNA MILLER AND ASSOCIATES LETTERHEAD]
Board of Directors
Century Industries, Inc.
Sterling, Virginia
Independent Auditor's Report
We have audited the accompanying consolidated balance sheet of Century
Industries, Inc. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Century
Industries, Inc. and Subsidiaries as of December 31, 1995, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ DONNA MILLER & ASSOCIATES
DONNA MILLER & ASSOCIATES
Certified Public Accountants
April 9, 1996
F-3
<PAGE> 25
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Cash and Cash Equivalents $ 382,548 $ 24,471
Account Receivable-Trade (Net of allowance for doubtful 1,263,910 477,837
accounts of $43,000 in 1996 and $20,000 in 1995)
Inventory 138,955 --
Marketable Securities 571,980 --
Other Current Assets 476,588 9,200
----------- -----------
TOTAL CURRENT ASSETS 2,833,981 511,508
----------- -----------
LONG TERM ASSETS
Software and Computer Equipment 1,329,710 7,938
Furniture and Fixtures 1,009,376 82,129
Machinery and Equipment 548,230 801,062
Transportation Equipment 192,190 89,139
Leasehold Improvements 139,296 84,835
----------- -----------
3,218,802 1,065,103
Less: Accumulated Depreciation (1,400,022) (1,022,255)
----------- -----------
NET LONG TERM ASSETS 1,818,780 42,848
----------- -----------
OTHER ASSETS
Investments 170,000 57,500
Deferred Offering Costs 160,262 --
Deferred Acquisition Costs 305,000 --
Security Deposits 56,144 3,530
Goodwill (Net of accumulated amortization of $31,605 in 2,038,139 547,244
1996 and none in 1995)
Due from Related Parties 421,633 --
Other Assets 197,309 2,100
----------- -----------
TOTAL OTHER ASSETS 3,348,487 610,374
----------- -----------
TOTAL ASSETS $ 8,001,248 $ 1,164,730
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 26
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable- Trade $ 1,650,270 $ 387,449
Accounts Payable- Affiliate -- 100,000
Current Maturities- Long Term Debt 243,569 288,561
Capital Lease Obligations 146,806 --
Notes Payable 200,000 --
Income Taxes Payable-Current Portion -- 8,800
Advances from Stockholders 200,000 --
Accrued Expenses 920,616 10,926
Dividends Payable 97,950 1,950
----------- -----------
Total Current Liabilities 3,459,211 797,686
LONG TERM NOTES PAYABLE, LESS CURRENT PORTION 763,452 --
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 154,850 --
----------- -----------
TOTAL LIABILITIES 4,377,513 797,686
----------- -----------
MINORITY INTEREST 25,811 --
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, Convertible, $.001 par value, 1,200,000 shares
authorized, 1,000,000 issued and outstanding 1,000 1,000
Common Stock, Class A, $.001 par value, 25,000,000 shares
authorized, 3,096,000 and 1,326,000 issued and outstanding 3,096 1,326
Common Stock, Class B, $.001 par value, 25,000,000 shares
authorized, 3,000,000 and none issued and outstanding 3,000 --
Additional Paid in Capital 4,388,099 591,750
Retained Deficit (797,271) (227,032)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,597,924 367,044
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,001,248 $ 1,164,730
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 27
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Sales $ 4,349,026 $ 2,707,901
Cost of sales 2,882,949 2,112,305
----------- -----------
GROSS PROFIT ON SALES 1,466,077 595,596
----------- -----------
Operating Costs
Payroll Expenses 830,587 350,373
Professional Fees 406,683 43,629
Auto, Travel and Entertainment 133,570 28,163
Bad Debts 37,253 31,077
Amortization and Depreciation 80,020 11,862
Other 525,249 96,162
----------- -----------
Total Operating Costs 2,013,362 561,266
----------- -----------
NET INCOME (LOSS) FROM OPERATIONS (547,285) 34,330
----------- -----------
Other Income (Expense)
Gain on Disposition of Assets 150,000 14,519
Interest Expense (39,102) (41,112)
Minority Interest (25,811) --
Other Income (Expense) - Net (59,548) --
----------- -----------
Total Other Income(Expense) - Net 25,539 (26,593)
----------- -----------
INCOME(LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (521,746) 7,737
Provision(Benefit) for Taxes (41,700) 2,000
----------- -----------
Income(Loss) Before Extraordinary Item (480,046) 5,737
Extraordinary Item
Debt Restructuring (Net of Income Taxes of $22,500 and $10,100) 77,500 29,483
----------- -----------
NET INCOME (LOSS) $ (402,546) $ 35,220
----------- -----------
Preferred Stock Dividends of Subsidiaries (169,043) (7,800)
----------- -----------
Net Income(Loss) Available for Common Stockholders $ (571,589) $ 27,420
----------- -----------
Earnings (Loss) Per Share: Before Extraordinary Item $ (0.13) $ 0.00
----------- -----------
Net Income (Loss)
$ (0.12) $ 0.01
----------- -----------
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 28
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL RETAINED TOTAL
PREFERRED STOCK STOCK PAID-IN EARNINGS STOCKHOLDERS'
STOCK CLASS A CLASS B CAPITAL (DEFICIT) EQUITY
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ -- $ 1,300 $ -- $ 29,776 $ (254,452) $ (223,376)
1,000,000 preferred shares issued 1,000 -- -- 562,000 -- 563,000
26,000 warrants exercised for common stock -- 26 -- (26) -- --
Net income for 1995 -- -- -- -- 35,220 35,220
Preferred dividends, CSP -- -- -- -- (7,800) (7,800)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1995 1,000 1,326 -- 591,750 (227,032) 367,044
Issuance of 3,000,000 shares of common stock -- -- 3,000 2,129,799 -- 2,132,799
Issuance of 450,000 shares of common stock -- 450 -- 144,550 -- 145,000
Exercise of 500,000 common stock warrants,
1 for 1 -- 500 -- (500) -- --
Issuance of 820,000 shares of common stock
related to D.C. Partners acquisition -- 820 -- 1,522,500 -- 1,523,320
Unrealized gain on marketable securities -- -- -- -- 1,350 1,350
Net loss for 1996 -- -- -- -- (402,546) (402,546)
Preferred dividends, CSP and USIB -- -- -- -- (169,043) (169,043)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1996 $ 1,000 $ 3,096 $ 3,000 $ 4,388,099 $ (797,271) $ 3,597,924
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 29
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 4,355,695 $ 2,624,884
Cash paid to suppliers and employees (4,961,716) (2,502,282)
Interest received 6,223 --
Interest paid (39,102) (41,112)
Income taxes paid (8,700) --
----------- -----------
Net cash provided (used) by operating activities (647,600) 81,490
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of fixed assets 150,000 14,519
Cash acquired in acquisition 199,259 304
Purchase of fixed assets (170,375) --
Purchase of marketable securities and investments (273,259) --
Investment in D.C. Partners, Ltd., Inc. (2,120,786) --
----------- -----------
Net cash provided (used) by investing activities (2,215,161) 14,823
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of USIB preferred stock 2,953,739 --
Preferred dividends paid (73,043) (7,800)
Receipts of (payments on) notes 42,808 (64,042)
Net advances from affiliates-stockholders 297,334 --
----------- -----------
Net cash provided (used) by financing activities 3,220,838 (71,842)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 358,077 24,471
Cash and Cash Equivalents - January 1 24,471 --
----------- -----------
CASH AND CASH EQUIVALENTS - DECEMBER 31 $ 382,548 $ 24,471
=========== ===========
Net income (loss) $ (402,546) $ 35,220
Issuance of common stock in exchange for consulting services 100,000 --
Bad debts 37,253 31,077
Amortization and depreciation 87,900 31,893
Gain on sale of assets (150,000) (14,519)
Minority Interest 25,811 --
(Increase) decrease in accounts receivable 12,892 (83,277)
(Increase) decrease in inventory 49,531 --
(Increase) decrease in other current assets and other assets (427,482) 85
(Increase) decrease in deferred taxes (current and non-current) (19,100) 3,300
Increase (decrease) in accounts payable 61,180 67,808
Increase (decrease) in dividends payable -- 1,950
Increase (decrease) in accounts payable-affiliate (100,000) --
Increase (decrease) in accrued expenses 85,761 (847)
Increase (decrease) in income taxes payable (8,800) 8,800
----------- -----------
Net cash provided (used) by operating activities $ (647,600) $ 81,490
=========== ===========
</TABLE>
(Continued)
See accompanying notes to financial statements
F-8
<PAGE> 30
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(continued)
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Non-cash investing and financing activities:
During the year ended December 31, 1996, the Company recognized an unrealized
gain of $1,350 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 $1,350 for the year ended December 31, 1996.
Dividends of $169,043 and $7,800 were accrued and charged to retained earnings
for the years ended December 31, 1996 and 1995, respectively.
During 1996, 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 non-cash transaction. Also, during
1996, 200,000 shares were issued as payment for consulting services totaling
$100,000. Therefore, consulting expenses were increased by $100,000 and common
stock and additional paid in capital accounts were increased as a result of
this non-cash transaction.
Per the November 13, 1996 "Addendum to Plan Agreement of Reorganization and
Capitalization" entered into between Century Industries, Inc. (the Company) and
D.C. Partners, Ltd., Inc. (D.C. Partners), 820,000 shares of the Company's
common stock were issued to D.C. Partners' former shareholders. The Agreement
was further amended to replace the unpaid $2,000,000 remaining with a warrant
for 727,273 shares of the Company's Class B common stock, valued at $2.75 per
share with demand registration rights attached thereto, beginning December 31,
1997. In addition, the majority stockholder received 50,000 options for his
efforts and costs incurred in completing this transaction. The Company
purchased D.C. Partners' net assets of approximately $900,000, including the
cash acquired of approximately $200,000.
The Company acquired the following net assets during 1996 for cash and stock
and during 1995 for convertible preferred stock:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accounts Receivable $ 926,000 $ 10,000
Marketable Securities 307,000 --
Equipment 1,662,000 6,000
Deposits and Other Assets 1,078,000 3,000
Goodwill 1,510,000 546,000
Accounts Payable and Accrued Expenses (2,446,000) (2,000)
Long Term Debt (756,000) --
----------- -----------
$ 2,281,000 $ 563,000
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 31
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Century Industries, Inc. (the Company) (CNTI) was incorporated in the District
of Columbia in 1993 and is the parent holding company for its subsidiaries,
Century Steel Products, Inc., D.C.Partners Ltd, Inc. and U.S. Insurance
Brokers, 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 (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. In May, 1996,
the Board ratified an addendum whereby the acquisition agreement was
restructured and the Company acquired USAOCA through USIB.
U.S. Insurance Brokers, Inc. (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 by USIB during 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 for 1996 include the accounts of Century
Industries, Inc. and its subsidiaries, CSP, USIB, and D.C Partners in 1996 and
CSP, USIB and USAOCA in 1995 the balance sheet of USAOCA. The Company owns
approximately 80% of CSP's common stock and 100% of USIB's and D.C. Partners'
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 the post- acquisition activity.
SINCE USAOCA WAS ACQUIRED ON THE LAST DAY OF 1995, NONE OF ITS RESULTS OF
OPERATIONS OR CASH FLOWS ARE INCLUDED IN THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR 1995. ITS ASSETS AND LIABILITIES AS OF DECEMBER
31, 1995 ARE INCLUDED IN THE RELATED BALANCE SHEET.
F-10
<PAGE> 32
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
PRINCIPLES OF CONSOLIDATION (continued)
Since D.C. Partners was acquired by USIB on November 13, 1996 their results of
operations are included in the consolidated statements of operations for the
year ended December 31, 1996 to the extent of the post acquisition activity.
D.C. Partners' assets and liabilities as of December 31, 1996 are included in
the related balance sheet. See Note 2 below for selected financial statement
disclosures related to the D.C. Partners acquisition.
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 30 years. Management periodically
reviews the business environment of its aquirees for potential impairment
writedowns.
INVENTORY
Inventory consists primarily of raw steel products and is recorded at cost, on
the first- in, first- out basis.
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:
<TABLE>
<S> <C>
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 10-15 YEARS
</TABLE>
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. The cost of property retired or sold and the related
accumulated depreciation are removed from the applicable accounts, and the
resulting gains and losses are reflected in the consolidated statements of
operations.
SOFTWARE COSTS
Pursuant to Statement of Financial Accounting Standards No.86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" issued
by the Financial Accounting Standards Board, D.C. Partners capitalized certain
software development and production costs once technological feasibility had
been achieved. The cost of purchased software is capitalized when related to a
product which has achieved technological feasibility or that has an alternative
future use. D.C. Partners capitalized internal software development costs,
related to new products reaching technological feasibility. At December 31,
1996 D.C. Partners capitalized software amounting to approximately $780,000.
Capitalized software development and purchased software costs are reported at
the lower of unamortized costs or net realizable value. Commencing upon initial
product release, these costs will be amortized based on the straight-line
method over the estimated life.
F-11
<PAGE> 33
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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 provide for potential losses.
Development Stage Insurance Operations
Commissions from insurance contracts generated by USIB are recognized as
insurance premiums when collected by the insurance carriers.
Claims Administration
D.C. Partners contracts with its clients to process various types of casualty
claims. Generally, the contracts provide that for an agreed upon annual fee,
D.C. Partners will administer up to a specified number of claims. D.C. Partners
recognizes this revenue on a pro rata basis throughout the billing year. If
less than the estimated number of claims is administered, D.C. Partners 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, D.C. Partners 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. Included in other current
assets is approximately $408,000 related to "average billings" captured from an
analysis of claims' work in process.
IMPREST FUNDS
As a third party administrator, D.C. Partners' clients deposit funds with D.C
Partners to administer the clients' claims. D.C. Partners places these funds in
various cash accounts set up solely for the purpose of paying that client's
claims.
CASH
From time to time during the years ended December 31, 1996 and 1995, the
Company maintained cash balances in excess of federally insured limits.
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 weighted average number
of shares used for the computations of earnings per share approximated
4,820,000 and 2,630,000 for the years ended December 31, 1996 and 1995,
respectively.
RECLASSIFICATIONS
Certain items in the December 31, 1995 consolidated financial statements have
been reclassified, where appropriate, to conform with the December 31, 1996
presentation.
F-12
<PAGE> 34
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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, which was completed by September 30, 1996, 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, had 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 820,000 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 purchased was
accelerated. On November 13,1996 the Agreement was further amended to replace
the unpaid $ 2,000,000 remaining with a warrant for 727,273 shares of the
Company's Class B Common Stock, valued at $ 2.75 per share, with demand
registration rights attached thereto, beginning December 31, 1997. In addition,
the majority stockholder of D.C. Partners received 50,000 options for his
efforts and costs incurred in completing this transaction.
PRO FORMA INFORMATION
The following unaudited pro forma information purports to show the effects on
financial position at December 31, 1996 and results of operations for the years
ended December 31, 1996 and 1995, had the acquisition of D.C. Partners 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 the results would have been had the Company operated D.C.
Partners since the beginning of each period.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED 12/31/96 Historical PRO FORMA
(UNAUDITED) Century DCP(b) Adjustments COMBINED
--------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 2,676,306 $ 10,718,163 $ -- $ 13,394,469
Cost of sales 1,964,963 5,414,967 -- 7,379,930
------------ ------------ ------------ ------------
Gross Profit 711,343 5,303,196 -- 6,014,539
Operating expenses 1,149,456 4,686,316 133,750 (a) 5,969,522
Other (income) expense (123,044) 575,342 -- 452,298
------------ ------------ ------------ ------------
Income (loss) before income taxes (315,069) 41,538 (133,750) (407,281)
Income tax provision (benefit) (41,700) 15,000 -- (26,700)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item $ (273,369) $ 26,538 $ (133,750) $ (380,581)
============ ============ ============ ============
</TABLE>
(a) The adjustments to operating expenses include the following items:
<TABLE>
<S> <C>
Acquisition costs $ 80,000
Goodwill amortization 53,750
---------
$ 133,750
=========
</TABLE>
F-13
<PAGE> 35
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
2) ACQUISITION OF D.C. PARTNERS, LTD., INC. (continued)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR 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 53,750 (c) 5,615,666
Other (income) expense - net 26,593 216,598 -- 243,191
------------ ------------ ------------ ------------
Income (loss) before income taxes 7,737 (91,472) (53,750) (137,485)
Income tax provision (benefit) 2,000 16,700 -- 18,700
------------ ------------ ------------ ------------
Income (loss) before extraordinary item $ 5,737 $ (108,172) $ (53,750) $ (156,185)
============ ============ =========== ============
</TABLE>
(b) This column includes the accounts of Scibal Associates, Inc. (Scibal),
D.C. Partners' sole and wholly owned subsidiary, which D.C. Partners
acquired in 1996. Scibal's fiscal year-end is September 30th. Accordingly,
the amounts shown represent the year ended September 30, 1996 or 1995
taken from D.C. Partners and subsidiary audited financial statements.
(c) The adjustments to operating expenses include the following item:
<TABLE>
<S> <C>
Goodwill amortization 53,750
</TABLE>
At December 31, 1996, assuming the acquisition of D.C. Partners occurred at the
beginning of 1996, the Company's balance sheet would have $44,800 more
accumulated amortization of goodwill, total assets would be $44,800 less and
retained deficit would be $44,800 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) SALE OF PREFERRED STOCK
In 1996, USIB authorized an additional 125,000 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. The
Company, simultaneously therewith, constructively issued 3,000,000 Class B
common stock to the Trustee, for the ultimate conversion of USIB convertible
preferred shares 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. USIB has recorded as deferred offering costs, the expenses
incurred in connection with this stock offering. Such costs will be charged
against the proceeds of the offering when it is completed.
USIB preferred stock was converted 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 stock has one (1.00) vote per share.
F-14
<PAGE> 36
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
4) INCOME TAXES
The provision (benefit) for taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current
Federal $ -- $ 1,025
State -- 425
--------
-- 1,450
Deferred (41,700) 550
-------- --------
$(41,700) $ 2,000
======== ========
</TABLE>
Deferred tax assets resulted primarily from the Company's net operating loss of
approximately $670,000 at December 31, 1996 and $113,000 at December 31, 1995.
Such net operating loss for 1996 is comprised of the current year's loss plus
the net operating loss acquired from D.C. Partners. This net operating loss is
available to offset future taxable income. The related deferred tax asset of
$262,000 has been reduced by a valuation allowance of $100,800. 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 contribution carryforward will expire in
2000.
Net deferred tax assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Total deferred tax liabilities $ -- $ --
Total deferred tax assets 262,000 54,600
Total valuation allowance (100,800) (44,500)
--------- ---------
$ 161,200 $ 10,100
========= =========
</TABLE>
Of the net deferred tax assets at December 31, 1996 and 1995, $9,000 and $8,000
were included in other current assets, and $152,200 and $2,100 were included as
other assets, respectively.
5) RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996, USIB advanced approximately $190,000
to stockholders-officers of the Company and an affiliated party, and received
repayments totaling approximately $102,000. Such advances are non-interest
bearing.
For the year ended December 31, 1996 an officer of USIB received approximately
$700,000 for services provided as selling expenses in issuing shares of
preferred stock of USIB. Equity was reduced by this amount as a direct cost of
issuing the stock.
On October 29, 1996, USAOCA was merged into a corporation that is an affiliate
of a stockholder-officer of the Company. Such merger included the transfer of
USAOCA's net loss carryforwards of approximately $113,000.
There was no consideration received by the Company in this transaction.
D.C. Partners has a minority stock position in a corporation, which owns an
office building. For a portion of both 1996 and 1995 the office building was
vacant, during which time D.C. Partners funded the debt service and maintenance
costs of the property, which has been recorded as a receivable. The property is
for sale, and D.C. Partners feels that its receivable will be collected when it
is sold.
The Company incurred $100,000 of consulting fees from an affiliated company in
1994. The fees pertained to an unsuccessful business acquisition attempt and
were included in accounts payable at December 31, 1995. Such debt was forgiven
and cancelled effective December 31, 1996. This item is shown on the
consolidated statements of operations as an extraordinary item related to debt
restructuring.
F-15
<PAGE> 37
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
5) RELATED PARTY TRANSACTIONS (continued)
In 1995, the Company issued 1,000,000 shares of convertible preferred stock for
the benefit of control- stockholders in exchange for all the stock of USAOCA as
discussed in Note 1 to the financial statements.
6) LINE OF CREDIT
D.C. Partners maintains a $200,000 credit line with a bank in order to meet
seasonal working capital requirements and other financing needs as they arise.
Short-term borrowings on this line at December 31, 1996 totaled $200,000, which
is due on demand with interest at prime plus 1%.
7) LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
$500,000 note payable, due in equal monthly
payments of $8,333 plus interest at prime plus 1%
for sixty (60) months due through August 2001,
secured by all assets of D.C. Partners $ 483,333 $ --
$250,000 guidance note to finance new capital
expenditures, due in equal monthly installments
plus interest at prime plus 1% for thirty-six (36)
months, secured by all assets of D.C. Partners 255,783 --
D.C. Partners has a $27,500 note payable due in
monthly installments of $691 including interest at
a rate of 9.5% per annum for forty-eight (48)
months through August 2000 25,905 --
CSP has a note dated July 1995, maturing December
2001. Monthly payments are required consisting of
principal of $4,000 plus accrued interest at 1.5%
over prime. The note is secured by all of CSP's
assets and is guaranteed by a stockholder-
officer 242,000 288,561
---------- ----------
1,007,021 288,561
Less: Current portion 243,569 288,561
---------- ----------
Long term portion $ 763,452 $ --
========== ==========
</TABLE>
Future minimum payments on long-term debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997 $ 243,569
1998 240,159
1999 240,806
2000 170,518
2001 and thereafter 111,969
----------
$1,007,021
==========
</TABLE>
Interest cost, none of which was capitalized, was approximately $39,100 and
$41,100 for the years ended December 31, 1996 and 1995, respectively,
F-16
<PAGE> 38
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
8) COMMITMENTS AND CONTINGENCIES
Computer Lease
In November 1986, D.C. Partners entered into a lease agreement with XL/Datacomp
(XLD) a computer consultant, for certain computer equipment. At various times
from November 1986 through March 1994 additions and other changes were made to
the equipment and lease. Under the current terms of the lease, as of March
1994, the company is obligated to pay $14,215 per month for a sixty-month term
commencing in March 1994.
On August 17, 1996 D.C. Partners filed suit in the Superior Court of New Jersey
against XLD and its assignees maintaining that XLD knowingly leased them
obsolete, substandard equipment which XLD knew to be inadequate for their
needs. In addition, D.C. Partners claims that XLD has knowingly and
substantially overcharged for this equipment. D.C. Partners are seeking to
recover damages and costs related to this lease and to be relieved of any
future obligations under this lease. As of the date of these financial
statements, corporate counsel is not able to express an opinion as to the
possible outcome of the suit.
Building Leases
The company and its subsidiaries lease office space and transportation vehicles
under various operating leases expiring through January 2001.
Future minimum payments under these leases are as follows:
<TABLE>
<S> <C>
1997 $ 445,237
1998 355,299
1999 297,728
2000 252,796
2001 26,322
----------
$1,377,382
==========
</TABLE>
Net rent expense was approximately $204,100 and $58,750 for the years ended
December 31, 1996 and 1995, respectively.
Obligations Under Capital Leases
The Company is the lessee of computer equipment under capital leases expiring
in 1998. The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset.
Following is a summary of property held under capital leases:
<TABLE>
<S> <C>
Computer equipment $ 438,739
Less: Accumulated depreciation (76,779)
---------
$ 361,960
=========
</TABLE>
Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:
<TABLE>
<S> <C>
1997 $ 163,212
1998 160,724
---------
Total minimum lease payments 323,936
Less: Amount representing interest (22,280)
---------
Present value of net minimum lease payments $ 301,656
=========
</TABLE>
F-17
<PAGE> 39
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
8) COMMITMENTS AND CONTINGENCIES (continued)
The interest rate on capitalized leases range from 5.5% to 12.5% and is imputed
based on the lower of the incremental borrowing rate at the inception of each
lease or the lessor's implicit rate of return.
Effective January 1, 1997, the Company adopted a key Employee Stock Option
Plan.
9) MARKETABLE SECURITIES AND OTHER FINANCIAL INSTRUMENTS
All marketable securities are classified as available for sale and are
available to support current operations or to take advantage of other
investment opportunities. These securities are stated at estimated fair value
based upon market quotes. Unrealized gains and losses, net of income taxes, are
included in retained earnings. Realized gains, realized losses and declines in
value, judged to be other than temporary, are included in other income
(expense).
The Company's financial instruments include cash, accounts receivable,
marketable securities, accounts payable, accrued expenses and other current
liabilities and long-term debt. The book values of cash, accounts receivable,
marketable securities, accounts payable and accrued expenses and other current
liabilities are representative of their fair values due to the short-term
maturity of these instruments. The book value of the Company's long-term debt
is considered to approximate its fair value, based on current market rates and
conditions.
10) INVESTMENTS
The Company has interests in certain long-term investments, which are carried
at cost. Included in the balance of investments at December 31st is the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Investment in third party administrative company $ 45,000 $ --
Marketable securities investment funds 67,500 --
Investment in an insurance
related corporation by CSP 57,500 57,500
-------- --------
$170,000 $ 57,500
======== ========
</TABLE>
11) DUE FROM RELATED PARTIES
This represents advances made to various related parties. These advances are
non-interest bearing and have no specific repayment terms.
12) ADVANCES FROM STOCKHOLDERS
At December 31, 1996, $200,000 was advanced from a stockholder to D.C. Partners
as a loan for working capital purposes with no specific repayment terms. Such
advance is non-interest bearing.
13) MAJOR CUSTOMERS
During 1996, two customers accounted for approximately 20% of sales. During
1995, approximately 18% of sales were to a single contractor, primarily due to
a single contract.
F-18
<PAGE> 40
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
14) STOCKHOLDERS' EQUITY
CSP declared dividends to its preferred stockholders in the amount of $7,800
for the years ended December 31, 1996 and 1995, respectively. At December 31,
1996 and 1995, dividends of $1,950 were accrued but unpaid.
USIB declared dividends to its preferred stockholders in the amount of $161,243
for the year ended December 31, 1996. At December 31, 1996, dividends of
$96,000 were accrued but unpaid.
Shares of common stock were reserved at December 31, 1996 for the
following:
<TABLE>
<CAPTION>
Class A Class B
--------- ---------
<S> <C> <C>
Conversion of a warrant for 1,000,000
shares CNTI preferred stock into CNTI
Class A common Stock 1,000,000 --
Exercise of 777,273 outstanding warrants
exercisable subsequent to December 31,
1997 in conjunction with D.C. Partners
acquisition -- 777,273
Conversion of 500,000 warrants into CNTI
Class B common shares -- 500,000
Conversion of 300,000 warrants into CNTI
Class B common shares -- 300,000
Conversion of 25,000 warrants into CNTI
Class A common shares 25,000 --
Conversion of 250,000 warrants into CNTI
Class A common shares 250,000 --
Conversion of 250,000 warrants into CNTI
Class A common shares 250,000 --
Conversion of 270,834 warrants into CNTI
Class A common shares 270,834 --
--------- ---------
1,795,834 1,577,273
========= =========
</TABLE>
F-19
<PAGE> 41
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
14) STOCKHOLDERS' EQUITY (continued)
Shares of common stock were reserved at December 31, 1995 for the
following:
<TABLE>
<CAPTION>
Class A
---------
<S> <C>
Exercise of 1,307,300 outstanding warrants
expiring December 31, 2000, entitling
holders to purchase one share at $0.01 1,307,333
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
---------
2,405,333
=========
</TABLE>
During 1995, 26,000 warrants were exercised for common stock at $0.01 per
share. The Company issued 1,000,000 shares of restricted, convertible preferred
stock to an officer-stockholder in exchange for all the common stock of USAOCA.
The transaction was recorded at $560,000 based on average trading prices of the
Company's common stock immediately prior to the acquisition date. The preferred
shares are restricted as to convertibility during 1996-1998 based on earnings
and other factors. The shares may be freely converted after 1998 or in the
event of a hostile takeover attempt. The preferred stock is non-dividend
bearing.
F-20
<PAGE> 42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with the Company's presently engaged accountants,
Correa, Berger & Associates, CPA's, 67 Wall St., 2nd Floor, New York. NY 10005
who have audited the Registrant, Century Steel Products, Inc. (CSP) and U.S.
Insurance Brokers, Inc. (USIB).
There were Changes in and Disagreements with Former Accountants on Accounting
and Financial Disclosure, as follows:
(a) (1)
(i) In early February, 1997, Registrant's General Counsel recommended
to the Board the dismissal of its Auditor, Donna Miller & Associates. The Board
approved the recommendation, and, subsequently, on February 24, 1997, the
Auditor resigned by letter of that date. Former Auditor has been re-engaged
for a limited purpose as of April 11, 1997.
(ii) Auditor's report on the Registrant's financial statements for
either of the past two years contained no adverse opinion or disclaimer of
opinion, nor was any such financial statement modified as to uncertainty, audit
scope, or accounting principles.
(iii) As seen, supra, the decision to change Auditors was approved by
the Board of Directors.
(iv) (A) To Registrant's knowledge, there was never any
disagreement with former Auditor on matters of accounting principles, financial
statement disclosure, or auditing scope and procedure which would have caused
former Auditor to make reference to such disagreements in connection with its
report. Subsequent to the described events, former Auditor was re-engaged by
Registrant for specific purposes on or about April 11, 1997, as seen, infra.
(B)(1) The former Auditor did advise Registrant, by letter
dated January 30, 1997, that it considered the books, records and internal
controls of one of the Registrant's subsidiaries, U.S. Insurance Brokers, Inc.,
to be inadequate on the issues of a) written contracts and/or invoices from
consultants supporting payments made, b) inadequate wire transfer
documentation, c) inappropriate expense volume paid by U.S. Insurance Brokers
from preferred stock proceeds, and d) lack of response upon check writing
activities and inappropriate check signatory - directing that the signatory
should be an officer or director of the Registrant's subsidiary.
The Registrant had no objection to its former Auditor's identifying
these issues and has taken the advice under advisement and has since
implemented all procedures recommended by the new Auditors.
(2) The former Auditor never advised the Registrant it was no
longer able to rely on management's representations, or that it was unwilling
to be associated with Registrant's financial statements.
(3) The former Auditor never advised the Registrant of any
need to expand the scope of the audit, nor did it ever state it had covered
information that, if further investigated, may
(i) materially impact the fairness or
reliability of either: a previously issued audit report or underlying financial
statements; or financial statements issued or to be issued covering fiscal
periods subsequent to the date of most recent financial statements covered by
audit, or
(ii) cause the Auditor to be unwilling to
rely on management's statements or be associated with its financial statements.
(C) There were, in substance, no disagreements covered by
(a)(1)(iv) above.
(D) The Board of Directors did not discuss these issues with
former Auditor, instead making a termination decision which was pre-empted by
former Auditor's resignation.
(E) Registrant has authorized former Auditor to respond fully
to inquiries of successor Auditor, and, in fact, has re-engaged former Auditor
for this limited purpose as of April 11, 1997.
22
<PAGE> 43
(a) (2) The new Auditor the Registrant has engaged is Correa, Berger &
Associates, such engagement taking place on 2- 14-97.
(A) New Auditor is conferring with former Auditor regarding
all issues which would, or could, impact former Auditor's republication of its
already completed 1995 audit, and the degree to which the forthcoming (1996)
10- KSB may impact or relate to the same.
(B) In view of the narrow time frame (from April 11, 1997 to
April 14, 1997) for both new Auditor and former Auditor to consult, Registrant
can only state that new Auditor has advised Registrant that no problems or
controversies are apparent at present. Registrant shall file an exhibit in
this regard when such report as is anticipated from new Auditor becomes final
on this specific issue.
(C) Former Auditor has been re-engaged, as of April 11, 1997,
to deal with any and all issues which would relate to re-issue of the completed
1995 audit by former Auditor, and to deal with, in coordination with the new
Auditor, the fashion in which any issues in the 1996 10-KSB filing could impact
thereupon.
(D) In view of the short time frame (April 11, 1997 to
present) during which former Auditor and new Auditor have had to confer, no
such written report has been formulated. Upon its completion, it shall be filed
immediately as an exhibit.
(a) (3) At present, again in view of the short time frame, no letter has been
prepared by former Auditor indicating its agreements or disagreements with
Registrant's statements. Registrant shall, as of April 15, 1997, request such
a letter to be tendered within the ten business day time period provided for by
this Item.
It is anticipated that such comments will likely be filed as an 8-K,
pursuant to the Instructions to Item 304 as reviewed by Registrant.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's Directors, Executive Officers, and their ages are:
Name Position Age
- ------------------- -------------- ---
Richard Campanaro Director 55
Mr. Campanaro was formerly the CEO of Tandem financial Group, which was
acquired by Merrill Lynch Insurance Group in 1990. Mr. Campanaro also serves as
the Chief Operating Officer of DC Partners, Ltd., the Company's insurance
claims subsidiary.
Joel M. Gundersheimer Director 52
Mr. Gundersheimer was the founder of Century Steel Products, Inc., the
Company's subsidiary, and functioned as its President since 1979 until 1996. He
still functions as the President of Century Steel Products, Inc., the Company's
subsidiary.
Theodore L. Schwartzbeck Director, President, Treasurer 34
Mr. Schwartzbeck became President of the Company in 1996. He has served as
a Director since its inception. He has further served as the Executive Vice
President of Century Steel Products, Inc, since 1986, and became its CEO in
1996.
23
<PAGE> 44
Andres R. Romero Director 52
Mr. Romero was elected to the Board in 1996. Mr. Romero is the President
of Romexx Capital Corporation in New York City, which acts as a reinsurance
intermediary and a holding company for other insurance related operations.
Jan McDaniel Director, Secretary 50
Ms. McDaniel was elected to the Board in 1996. She is the mother of Ted L.
Schwartzbeck. Ms. McDaniel has been active as an investor in the cosmetics and
beauty products industries all of her life.
The above Directors are all elected annually, and Messrs. Schwartzbeck, and
Gundersheimer have served since the inception of the Company in December of
1992. Mr. Campanaro has served since 1993. All of the Directors were appointed
to serve for the calendar year of 1997 at the annual meeting. Ted Schwartzbeck
has also served as Vice President of CSP since 1985, and President of USIB
since 1995.
ITEM 10. EXECUTIVE COMPENSATION.
There are only two Executive Officers, who also serve as Directors of the
Company, Mr. Campanaro and Mr. Schwartzbeck. Mr. Schwartzbeck receives his
compensation as Executive V.P. and CEO of Century Steel Products, Inc. Mr.
Campanaro receives his compensation as Chief Operating Officer of Scibal
Associates, Inc. They do not receive any compensation as Officers or Directors
of the Company. Mr. Campanaro has received a warrant for 500,000 shares of
Class B stock in the Company through an affiliated entity, which is described
in more detail in Item 12 herein.
In the following tables names have been abbreviated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CENTURY INDUSTRIES, INC.
NAME AND RESTRICTED ALL
POSITION YEAR SALARY($) BONUS OTHER($) STOCK AWARDS OTHER
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R.W. CAMPANARO 1996 -0- -0- -0- -0- -0-
J.M. GUNDER 1996 -0- -0- -0- -0- -0-
TED BECK 1996 -0- -0- -0- -0- -0-
- -----------------------------------------------------------------------------------------
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
All 5% persons:
Name of Amount of
Beneficial Beneficial
Title of Class Owner Owner Percent of Class
--------------------------------------------------------------------------
Class A Common Voting
<S> <C> <C>
" " J.M. Gunder 349,501 10 %
" " Ted L. Schwartzbeck 347,167 10 %
" " Richard Campanaro 58,000 02 %
" " David Scibal 760,000 21 %
" " Steven Scibal 60,000 02 %
- ----------------------------------------------------------------------------
</TABLE>
24
<PAGE> 45
- ----------------------------------------------------------------------------
Management 5% persons:
<TABLE>
<CAPTION>
Name of Amount of
Beneficial Beneficial
Title of Class Owner Owner Percent of Class
- ----------------------------------------------------------------------------
Class A Common Voting
" " <S> <C> <C>
" " J.M. Gunder 349,501 10 %
" " Ted L. Schwartzbeck 347,167 10 %
" " Richard Campanaro 58,000 02 %
" " David Scibal 760,000 21 %
" " Steven Scibal 60,000 02 %
- ----------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------------
Management Class A warrants:
If the 992,502 outstanding Class A common stock warrants owned by the
Executive Officers and their affiliates were exercised at $.01 per share, the
Company would have 4,088,502 shares outstanding, on a fully diluted basis. The
following share amounts and percentages would then apply:
<TABLE>
<CAPTION>
Name of Amount of
Beneficial Beneficial Common Stock
Title of Class Owner Owner Percent of Class
Class A Common
<S> <C> <C>
" " " J.M. Gunder 484,918 12 %
" " " Ted Beck 482,584 12 %
" " " David Scibal 785,000 19 %
- ----------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------------
Class B Warrants:*
If the 1,577,273 outstanding Class B common stock warrants were issued
to affiliates, (1 vote for each 100 shares) convertible on a 1 for 1 basis,
the Company would have 5,665,775 shares outstanding, on a fully diluted
basis. The following additional share amounts and percentages would apply:
<TABLE>
<CAPTION>
Name of Amount of
Beneficial Beneficial Common Stock
Title of Class Owner Owner Percentage
Class B Common
<S> <C> <C>
" " " Sonimari, Inc. 500,000 09 %
" " " EDA Fin. Group 300,000 05 %
" " " David Scibal 777,273 14 %
</TABLE>
* The Class B shares have not yet been registered with the SEC. Management
plans to file a Form 10 in April, 1997 to register Class B as a class.
- ----------------------------------------------------------------------------
The 300,000 restricted Class B warrants issued to EDA Financial Group are
exercisable at prices ranging from $1.25 to $2.00.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
On June 30, 1996 the Company signed an agreement to acquire 49% of DC Partners,
Ltd. (DCP) through an "A Type Reorganization" pursuant to the Internal Revenue
Code for $700,000. That acquisition agreement provided that the Company would
have the right to purchase the final 51% of DCP for $3,000,000 and 750,000
shares of the Company's Class A common stock.
25
<PAGE> 46
On September 30, 1996, after the $700,000 was paid, the acquisition/merger
agreement was amended wherein the DCP shareholders agreed to accept 820,000
Class A common shares, $1,000,000 in cash and a warrant for 777,273 Class B
shares in lieu of the $3,000,000 cash. The cash was paid into trust on the
original shareholders' behalf on November 13, 1996, and the Class A shares and
the Class B warrant were constructively issued.
The agreement provided for a warrant for 500,000 Class B shares to be issued to
Sonimari, Inc. in consideration for its assistance in negotiating the original
purchase of DCP, and renegotiating the amendment to the acquisition agreement
wherein the original DCP shareholders reduced their cash requirement to
$1,000,000 instead of $3,000,000. The Sonimari, Inc. shares will be effectively
aggregated with shares owned by Richard Campanaro, a Director of the Company
and the Chief Operating Officer of DCP, as a related party transaction.
The Class B shares which underlie the Class B warrant will therefore be treated
as shares owned by an affiliate/control person, and will be subject to the
restrictions upon resale by an affiliate and/or a control person.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The Registrant did not file any reports on Form 8-K during the last quarter of
the period covered by this Report.
26
<PAGE> 47
The following Exhibits are attached as required by Small Business Issuers:
(1) Underwriting Agreement. Not applicable.
(2) Plan of acquisition, reorganization, arrangement, liquidation or___
succession. Not applicable.
(3) Articles of incorporation and by-laws. Incorporated by reference through
previously filed 10-K's.
(4) Instruments defining rights of holders. Incorporated by reference through
previously filed 10-K's.
(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 - Filed as 1996 8-K's.
(11) Statement re computation of per share earnings - see Profit & Loss
Income Statement Page 4 audited financials herein.
(12) Statement re: Computation of Ratios. Not Applicable.
(13) Annual or quarterly reports, Form 10-Q - Not Applicable.
(14) Material Foreign Contracts. Not Applicable.
(15) Letter re: unaudited Interim, Financial Information. Not
Applicable.
(16) Letter or change in certifying accountant. Not Applicable.
(17) Letter re director resignation. Not Applicable.
(18) Letter or change in accounting principles - Not Applicable.
(19) Previously unfiled documents. - Not Applicable.
(20) Report Furnished to Security Holders. Not Applicable.
(21) Other documents or statements to security holders.
Not Applicable.
(22) Subsidiaries of the registrant. Attached as Exhibit (c).
27
<PAGE> 48
(23) Published report regarding matters submitted to vote of
security holders. Not Applicable.
(24) Consent of experts and counsel - Not Applicable.
(25) Power of attorney - Not Applicable.
(28) Additional exhibits. - Not Applicable.
(29) Info from reports furnished to State Insurance Authorities. - Not
Applicable.
28
<PAGE> 49
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Century Industries, Inc.
(Registrant)
Date: April 15, 1997 BY: /s/ TED L. SCHWARTZBECK
-----------------------------------
Ted L. Schwartzbeck
President/CEO/Director/Treasurer
Date: April 15, 1997 BY: /s/ RICHARD CAMPANARO
-----------------------------------
Richard Campanaro
Chairman
Date: April 15, 1997 BY: /s/ JAN K. MCDANIEL
-----------------------------------
Jan K. McDaniel
Secretary, Director
29
<PAGE> 1
EXHIBIT (C).
22. A list of all subsidiaries, the State or other jurisdiction of
incorporation or organization of each, and the names under which the
subsidiaries do business.
Name of State of
Subsidiary Incorporation Does Business as
- -------------------------------------------------------------------------
Century Steel
Products, Inc. Virginia Century Steel Products, Inc.
U.S. Insurance Brokers, District of U.S. Insurance Brokers, Inc.
Inc. Columbia
DC Partners, Ltd. New Jersey DC Partners, Ltd.
Scibal Associates, Inc. New Jersey Scibal Associates, Inc.
30
