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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
March 20, 1997
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
(Mail) P.O. Box 319
Sterling, Va. 20167
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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: Common
Stock, par value $.001 per share
Name of each exchange on
Title of each class which registered
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Common Voting Stock NASDAQ Bulletin Board
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par Value $.001 per share)
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(Title of Stock)
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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ITEM 4. Changes in Certifying Accountants
Registrant received extensive advice from its former auditor during 1996,
and subsequent to its 8 K/A filing on February 28, 1997, has received a letter
from the former auditor which is appended hereto as Exhibit "A".
The letter addresses the following issues seriatim:
1. Item 304(a)(1)(i) merely deals with auditor's dismissal for non-accounting
related matters.
2. Item 304(a)(1)(ii): reflects a statement from former auditor that its reports
on Registrant financial statements for either of the past two years did not
contain any adverse opinion or disclaimer and were not modified as to
uncertainty, audit scope, or accounting principles.
3. Item 304(a)(1)(iv)(A): indicates former auditor's opinion of
disagreements, resolved or not, as to accounting matters.
(a) the write-down of Underwriters' Insurance Group, PLC from $1,000,000 to
$57,000.
(b) minority interest classification of the subsidiary's preferred shares -
treated as a "mezzanine" level entry.
(c) development stage consulting costs treated as expenses.
(d) inadequate internal controls of subsidiary.
(e) internal controls relating to the Foreign Corrupt Practices Act.
(f) potential illegal acts disclosure under Section 10 A of the 1934
Exchange Act and Private Securities Litigation Reform Act of 1995.
(g) an issue concerning the independence of subsidiary auditor's
independence in terms of use of the term "auditor".
4. Item 304(a)(1)(iv)(B)(1): advise given to the Registrant by former auditor
was as follows:
(a) internal controls of the subsidiary needed to be upgraded under the
Foreign Corrupt Practices Act.
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5. Item 304(a)(1)(iv)(B)(3): former auditor claims to have advised the
Registrant that "information" had come to it that "if further investigated"
might preclude the completion of the audit.
7. Item 304(a)(1)(iv)(D): former auditor claims they have discussed this
"information" with the Registrant's President and general counsel.
8. Item 304(a)(1)(iv)(E): the claim is made that the Registrant has not
authorized discussion of the aforementioned disagreements with its successor
auditor.
9. Section 10 A Report: the former auditor states that because of its dismissal
it could not arrive at appropriate legal conclusions about whether or not it was
likely that an "illegal act" took place and impaired its reporting requirements
as a result.
The Registrant's analysis of these issues, seriatim, is as follows:
1. Item 304(a)(1)(i): Former auditor resigned on February 24, 1997, after
Registrant's general counsel determined former auditor would not cooperate in
providing information to him regarding his investigation of matters auditor had
raised. The Board accepted both general counsel's recommendation and auditor's
resignation.
2. Item 304(a)(1)(ii): The Registrant agrees with former auditor's statement.
3. Item 304(a)(1)(iv)(A): In terms of that described as disagreements by former
auditor, the Registrant states as follows:
(a) To the Registrant's knowledge, no dispute over the "write-down" of
Underwriters' Insurance Group, PLC, from $1,000,000 to $57,000 in terms ever
took place. This was written down for the 1995 audit and no dispute was
referenced by the former auditor. The Registrant feels to carry this amount
higher than $57,000 would be misleading and wrongfully inflate Underwriters'
Insurance Group, PLC's value. The Registrant shall, however, raise this issue
with the new auditor in conjunction with Registrant's general counsel. At
present, however, former auditor's counsel has, in ethical propriety, prohibited
direct contact between Registrant and former auditor.
(b) Preferred stock minority interest as "mezzanine" level balance sheet
item: The Registrant and its general counsel are also willing to discuss this
with former auditor, but can not do so at present due to former auditor's
counsel's ethically correct prohibition against direct contact. As Registrant
had previously indicated, it will comply with accounting principles on this
issue.
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(c) Development Stage Consulting Fee Issue: The Registrant's position here
is the same as that set forth directly above.
(d) Inadequate System of Subsidiary Controls: The Registrant's response is
the same as above.
(e) Former Corrupt Practices Act Issue: The Registrant, which does no
foreign business, and is not licensed to do so, responds, nevertheless, in the
same fashion as above.
(f) Section 10 A and Private Securities Litigation Reform Act of 1995
Issues: Former auditor made allegations amounting to possible "insider trading"
allegations and claims possible 13-D violations, bypassing general counsel and
making such allegations directly to the Registrant's President, who charged the
general counsel with the responsibility to investigate the same. Such
investigation was completed, reflecting no Registrant wrongdoing. By letter on
January 30, 1997, former auditor reiterated these issues. Accordingly, general
counsel re-opened the investigation and requested detailed information from
former auditor who refused, and refuses to this day, to provide the information
requested by general counsel, notwithstanding the fact that general counsel has
written both the Secretary of the Commission and the Honorable Eric Holder, Jr.,
United States Attorney for the District of Columbia, to make a record of former
auditor's obstruction of his attempt to re-open this investigation.
(g) "Auditor Term" Issue: To the Registrant's knowledge, the auditors of
its subsidiaries, D.C. Partners, Inc., and U.S. Insurance Brokers, Inc., are
independent; that is the information they provide to the Registrant. In this
regard, the following events should be noted: 1) former auditor contacted D.C.
Partners' Chief Financial Officer Reynolds Dods, CPA, and wrongfully advised
that the auditing engagement belonged to the former auditor. The Registrant
never intended this. 2) Klipfel & Associates, engaged as auditor for U.S.
Insurance Brokers, Inc., and equally outside auditors Cohen, Friedman, Dorman,
Spector & Associates, have stated, in terms of the purpose of their engagement,
that the controls of those subsidiaries are sufficient and accurate. 3) To the
Registrant's knowledge, in terms of its engagement, former auditor had no
authority to override either Klipfel & Associates or Cohen, Friedman, Dorman,
Spector & Associates, each of whom screened and reported accounting issues of
their respective subsidiary clients to management and the former auditor.
4. Item 304(a)(1)(iv)(B)(1): In terms of the adequacy of U.S. Insurance Brokers'
controls regarding the Foreign Corrupt Practices Act, notwithstanding the
contradicting statements of Klipfel & Associates, the Registrant, its general
counsel, and its new
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auditors are willing to entertain any and all suggestions of former auditor, but
can not now do so in view of former auditor's counsel's correct ethical
admonition prohibiting direct contact.
5. Item 304(a)(1)(iv)(B)(3): The response hereto is treated more fully in # 9
below.
7. Discussion with President and General Counsel: The Registrant's general
counsel takes umbrage at this statement for the simple reason that former
auditor never discussed any of these critical issues with him, nor has former
auditor ever been willing to provide, to this date, critical information needed
by general counsel. This conduct has been requested for review as possible
obstruction of justice by the Office of the United States Attorney for the
District of Columbia.
8. Successor Discussion: The Registrant does not seek to prohibit such contact,
but, because of former auditor's counsel's correct advice in prohibiting direct
contact between general counsel and former auditor, such discussions can not
take place.
9. Section 10 A Report: Former auditor remains steadfast in his refusal to
provide general counsel with the information needed to re-open and conclude his
investigation, thus possibly obstructing justice. If former auditor seeks
"informal advice" of the Commission, it is the Registrant's aspiration the
Commission will direct them to cease this wrongful withholding of evidence.
Supplemental Registrant Statements under Item 304(a)(1)(v)(A):
The Registrant observes former auditor noted that "control procedures at
USIB (U.S. Insurance Brokers, Inc.) are inadequate to accurately and fairly
reflect the transactions and disposition of USIB's assets and to provide
reasonable assurance that transactions are properly safeguarded in accordance
with management's authorization." In specific, former auditor complained that
the person with check writing authority was not "an employee, officer or
director of USIB."
Former auditor also claims that the U.S. Insurance Brokers, Inc. Board
Minutes are inadequate to support significant transactions, especially in terms
of the Foreign Corrupt Practices Act. However, the former auditor has never
requested an examination of these minutes.
The Registrant has been advised by U.S. Insurance Brokers, Inc.'s auditor
that these inadequacies do not exist, and, subsequently, has further determined
that former auditor's actions may require an amendment of the Registrant's 1995
corporate tax return.
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The Registrant's position is that, notwithstanding a contrary view by its
U.S. Insurance Brokers' auditor, is that no specific detailed objections were
made by former auditor, but for the cited conclusory allegations.
The Registrant notes that many public companies delegate check signing
authority to persons other than officers and/or directors, i.e. general
managers.
Aside from the above, former auditor noted only the following specific
issues: a) lack of written contracts for consultants, b) inadequate wire
transfer documentation, and c) a claim of personal expenses seeming to be paid
from preferred stock proceeds. The Registrant observes: 1) a review of the
consulting agreements was never requested by former auditor, 2) the wire
transfer documentation was determined to be more than adequate by U.S. Insurance
Broker's auditor, and 3) the personal expense paid amounted to one payment to
house a vessel owned by the general manager, but used for Registrant
entertainment in the amount of $212.50.
The Registrant would concede that internal control issues in reference to
the Registrant's subsidiary, U.S. Insurance Brokers, could have an accounting
effect, but upon advice from U.S. Insurance Broker's auditor that controls are
sufficient for accounting purposes, is reticent to concede an accounting impact.
In terms of the legal issues at hand, former auditor apparently conducted
its own investigation involving a legal analysis where it concluded: a) funds
were advanced to a U.S. Insurance Brokers employee to make "an active market" in
the Registrant's shares, and b) that an overseas entity was an affiliate of the
Registrant and was purchasing the Registrant's shares.
The Registrant's general counsel investigated these matters as the
President's request (in spite of the fact that former auditor never provided him
with this information).
General counsel concluded there was no possible merit to former auditor's
legal conclusions, and, further, that no violations by the Registrant had taken
place.
After concluding this investigation and making a confidential report to the
President (which was most derogatory in reference to former auditor's
allegations and analysis), general counsel received a January 30, 1997, letter
written by former auditor resurrecting these issues.
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Willing to re-open this already closed investigation, general counsel wrote
former auditor requesting specific factual information concerning the renewed
allegations. Former auditor did not respond, and when pressed to do so by the
Registrant's President, expressed a willingness to do so only if its counsel
fees were paid by the Registrant.
General counsel wrote a demand letter to former auditor demanding this
information and raising the spectre of obstruction. In addition, general counsel
brought the matter of former auditor's refusal to provide this information to
both the Commission (through its Secretary) and the United States Attorney for
the District of Columbia. To date, former auditors have not provided this
information and general counsel's intended investigation remains obstructed.
Registrant also included in its determination to terminate the former
auditors two salient factors:
1) The former auditor insisted their engagement would only be continued by
Registrant had an attorney appointed for the Registrant by the former auditor,
and
2) The former auditor had concealed from Registrant a pending legal action
against it which could impinge on their objective practice of the accounting
profession.
The Registrant hopes former auditor will provide this detailed factual
information to general counsel with all deliberate speed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
March 22, 1997
Century Industries, Inc.
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Theodore L. Schwartzbeck, President & CEO
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MAR-14-1997 16:30 DONNA MILLER & ASSOCIATES 703 437 8937 P.02/04
EXHIBIT A
[DONNA MILLER AND ASSOCIATES LETTERHEAD]
March 13, 1997
VIA TELECOPY TO COUNSEL FOR
CENTURY INDUSTRIES, INC.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Century Industries, Inc. (File No. 0-9969)
Gentlemen:
We were previously the independent accountants for Century Industries,
Inc., a District of Columbia corporation (the "Company"), and a small business
issuer reporting company with the Securities and Exchange Commission (the
"Commission" or "SEC"). The Company has a class of common stock registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We reported on the financial statements of the Company as of and for the
years ended December 31, 1995 and 1994, in filings made with the Commission. We
were dismissed as the Company's principal accountants by letter dated February
12, 1997, from the Company's president shortly after we had commenced our field
work relating to the Company's 1996 year-end audit. This letter is in response
to the Company's Current Report on Form 8-K filed on March 3, 1997, with the
Commission (the "Form 8-K"), reporting a change in the Company's certifying
accountants.(1)
We have reviewed the Form 8-K. Pursuant to Item 304 of Regulation S-B(2)
the following sets forth the respects in which we do not agree with the Form
8-K:
1. Item 304(a)(1)(i). We were dismissed by letter dated February 12, 1997
from the president of the Company, which we
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(1) The Form 8-K appears to report the change in the Company's certifying
accountants as an Item 5 event (Other Events) rather than as an Item 4 events
(Changes in Registrant's Certifying Accountants).
(2) The Form 8-K appears to have completed in accordance with Item 304 of
Regulation S-K rather than Regulation S-B.
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MAR-14-1997 16:30 DONNA MILLER & ASSOCIATES 703 437 8937 P.03/04
Securities and Exchange Commission
March 13, 1997
Page 2
received on February 18, 1997.(3) In accordance with the rules of the AICPA's
SEC Practice Section, by a letter dated February 24, 1997 to the Company, we
confirmed our understanding that the client-auditor relationship had ceased.
2. Item 304(a)(1)(ii). Our reports on the financial statements of the
Company for either of the past two years did not contain an adverse opinion or
disclaimer of opinion, nor were they modified as to uncertainty, audit scope, or
accounting principles.
3. Item 304(a)(1)(iv)(A). We have had the following disagreements with the
Company, whether or not resolved, as to matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure:
(a) Write-down of investment in Underwriters Insurance Group PLC from $1
million to $57,500;
(b) Classification of minority interest in preferred stock of subsidiary
as a "mezzanine" level balance sheet item;
(c) Classification of development stage consulting costs as expenses;
(d) Inadequate system of internal accounting controls at a Company
subsidiary, U.S. Insurance Brokers, Inc. ("USIB");
(e) The requirement under the Foreign Corrupt Practices Act of 1977 (the
"FCPA") that every SEC-reporting issuer shall devise and maintain an adequate
system of internal accounting controls;
(f) The requirement under the Private Securities Litigation Reform Act
of 1995 and Section 10A of the Exchange Act providing for auditor detection and
disclosure of potential illegal acts; and
(g) The use of the term "auditor" to refer to an accountant other than
the independent accountant who is performing or has performed an audit of a
company's financial statements and whose audit report has or will be filed with
the Commission in accordance with sections 12(b)(1)(J) and (K),
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(3) As early as February 6, 1997, however, we were advised by letter from
the Company's general counsel that we "no longer maintain any involvement with
the Company" and that our concerns and input would be "headed by the Company's
new auditor."
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MAR-14-1997 16:30 DONNA MILLER & ASSOCIATES 703 437 8937 P.04/04
Securities and Exchange Commission
March 13, 1997
Page 3
13(a)(2) and 17(e) of the Exchange Act and the Commission's Regulation S-X.
4. Item 304 (a)(1)(iv)(B)(1). We advised the Company with respect to the
following matter:
(a) The internal controls necessary to develop reliable financial
statements did not exist at the Company's USIB subsidiary, as required by the
FCPA.
5. Item 304 (a)(1)(iv)(B)(3). We advised the Company that information had
come to our attention that we concluded will, or if further investigated might,
preclude us from completing the Company's audit covering the fiscal period
subsequent to the date of the most recent audited financial statements. The
matter was not resolved to our satisfaction prior to our dismissal.
7. Item 304(a)(1)(iv)(D). The president and/or general counsel of the
Company have discussed the subject matter of the aforementioned disagreements
with us from time to time in writing and orally.
8. Item 304 (a)(1)(iv)(E). The Company has not authorized us to discuss the
subject matter of the aforementioned disagreements with its successor
accountant.
9. Section 10A Report. As a result of our abrupt dismissal as the Company's
certifying accountant, we are unable to conclude whether it is or was likely
that an illegal act has or had occurred (whether or not perceived to have a
material effect on the financial statements of the Company) and to report the
same to the Company's board of directors and to the Commission if necessary. We
shall seek the informal advice of the staff of the Commission in this regard as
appropriate.
Please feel free to contact the undersigned with respect to the foregoing.
Thank you very much.
Very truly yours,
DONNA MILLER & ASSOCIATES, PC
/s/ DONNA MILLER & ASSOCIATES, P.C.
