<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997
Commission File Number: 0-9969
CENTURY INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
District of Columbia 54-1100941
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
45034 Underwood Lane
Sterling, Va. 20166
(Mail) P.O. Box 319
Sterling, Va. 20167
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
----- ----
(2) Yes X No
----- ----
At June 30, 1997, 3,096,000 shares of the Registrant's $.001 par value Class A
common stock were issued and outstanding, and 3,000,000 shares of the
Registrant's Class B common stock were issued and outstanding. The Class B
shares are as yet unregistered pursuant to Section 12(g).
<PAGE> 2
ITEM 2. Management's Discussion and Analysis
Century Industries, Inc. In Consolidation
with its Subsidiaries
The Company has grown by acquisition since 1995. The second quarter results
reflect the continuing efforts of the Company's acquisition and management
strategies, resulting in substantial earnings when compared with past years. In
addition, the major costs connected with the recent acquisitions have been
absorbed. Management also substantially reduced the US Insurance Brokers, Inc.
(USIB) subsidiary's operating costs.
The Company's consolidated second quarter 1997 revenues totaled $4,045,466,
compared to the same quarter 1996 of $739,235, for an increase of $3,306,231,
or 447%. Consolidated gross profit in the second quarter increased from
$201,786 in 1996 to $1,689,753 in 1997. Consolidated operating costs in the
second quarter increased from $527,911 in 1996 to $1,393,046 in 1997.
Consolidated operating income for the second quarter 1997 was $296,707, an
increase of $622,832, or 191%, from the same quarter 1996, which was
($326,125). Consolidated income before taxes increased from ($334,858) in the
second quarter 1996 to $390,350 in the same period of 1997, an increase of
$725,208 or 217%.
Year to date 1997 revenues have increased from $1,468,645 at June 30, 1996 to
$7,850,284 at June 30, 1997, which is a 435% increase. The Company's year to
date consolidated assets have increased from $8,001,248 at December 31, 1996,
to $10,286,709 in 1997, an increase of $2,285,461, or 29%. Consolidated
capital has increased from $3,597,924 at December 31, 1996 to $6,329,762 for
the second quarter of 1997, for an increase of $2,731,838, or 76%.
The operating subsidiaries, CSP and DCP were profitable, as discussed below,
and were not adversely affected in consolidation due to other income
attributable to USIB, and the reasonable maintenance costs of the Parent
Company. The operating income for each subsidiary is shown as follows, with
related deductions for other income (expense), and provision for taxes and
preferred stock dividends of subsidiaries and in consolidation at June 30,
1997:
<TABLE>
<CAPTION>
Century USIB DCP/Scibal CNTI
Steel Products Brokerage Claims Parent Total
-------------- --------- ---------- ------ ---------
<S> <C>
Revenues $ 2,226,826 $ -0- $5,623,458 $ -0- $ 7,850,284
Operating Income 245,273 (153,199) 609,233 (83,409) 617,898
Other
income (expense) (65,328) 201,307 (148,586) -0- (12,607)
------
Income before taxes 605,291
Provision for taxes 70,200
-------
Net Income before Preferred Stock Dividends earnings adjustment 535,091
Less: Preferred stock dividends (167,700)
-------
Net Income Available for Common Shareholders $ 367,391
</TABLE>
2
<PAGE> 3
It should be noted that CSP and DCP jointly had year to date operating income
of $854,506 on revenues of $7,850,284, which is a 11% return on revenues for
those subsidiaries, whereas the Parent Company had operating loss of ($83,409),
and USIB had operating loss of ($153,199) for the second quarter 1997,
resulting in consolidated operating income of $617,898. Earnings per common
share were $.06 per share for the year to date. This is an increase from the
($.21) for the same period in 1996, which includes the $.01 for the first
quarter of 1997. However, outstanding shares increased from 2,276,000 at second
quarter 1996 to 6,096,000 in the second quarter 1997. The share increase
includes the Class B exchange shares which will retire the preferred shares of
the subsidiaries and subsequently extinguish preferred share dividends.
Preferred share dividends will be transferred to all common shares equally,
both Class A and Class B.
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
the profitability of their operations.
Results of Operations
Century Steel Products, Inc.
Century Steel Products, Inc.'s (CSP's) sales of $1,221,527 for the second
quarter were 65% greater than the second quarter of 1996 sales of $739,235 by
$482,292.
CSP's second quarter 1997 operating profits of $35,361 were greater than the
second quarter 1996 operating profits of $33,673 by $1,688, an increase of 5%.
This increase is attributed to the increase in total sales and the maintenance
of the cost of materials, labor and warehouse costs, which totaled 84% of gross
profit in the second quarter of 1997 and 73% of second quarter of 1996. CSP's
year to date 1997 operating profits were $245,273, an increase of $77,195
(145%) over the 1996 operating profits of $168,078.
The quarterly net earnings before taxes were $21,206 for 1997, and $29,431 for
the second quarter of 1996. The year to date net earnings before taxes for
1997 totaled $179,945, a $29,195 increase over the $150,750 in 1996.
CSP's revenues year to date for the first six months of 1997 were $2,226,826,
as compared to $1,468,645 for 1996, an increase of $758,181, or 52%. Year to
date operating income for 1997 was $245,273, an increase of 46% when compared
to operating income for 1996 of $168,078. Net income before provision for
taxes for year to date 1997 was $179,945, as compared to $150,750 year to date
1996, an increase of $29,195.
The trade debt for CSP at June 30, 1997 was $428,091, as opposed to the
$311,776 at June 30, 1996. CSP trade receivables at June 30, 1997 were
$897,952, an increase of 53% over the $588,578 at June 30, 1996.
Management notes that CSP spent approximately $30,000 in equipment repairs
during the second quarter and hired additional personnel to manage the
increased sales volume. The increased sales volume will absorb this additional
overhead in the third quarter.
3
<PAGE> 4
Raw materials prices have increased slightly in 1997 from 1996 prices.
U.S. Insurance Brokers, Inc.
The Company acquired U.S. Insurance Brokers, Inc. (USIB) in Washington, DC on
December 18, 1995, from Ted L. Schwartzbeck. At that time Mr. Schwartzbeck was
Executive V.P. of the Registrant. USIB has been in its development stage since
September, 1995.
USIB was formed to service the members of major national associations in the
D.C. area, which is home to over 4200 such associations. The laws in DC permit
insurance agencies to share after expense profits with non licensed entities,
whereas all other state laws prohibit commission sharing with non licensed
entities, such as associations, and do not provide a clear cut path to share
profits.
This business plan allows USIB to share profits with the major associations
through Limited Partnership arrangements, in exchange for marketing rights, and
national association news letter and magazine advertising to their members.
USIB entered into its first major national association Limited Partnership
agreements on March 8, 1996, with the National Lumber and Building Material
Dealers Association (NLBMDA) in Washington, DC, an association formed in 1910
with 11,000 lumber dealer members and 270,000 employees in all 50 states. In
the 4th quarter of 1996 USIB was also appointed as Broker of Record by the
Korean American Grocers Association (KAGRO) in Los Angeles, CA. The agreements
provide for USIB to market group health, commercial lines and personal lines
auto insurance to the NLBMDA and KAGRO members and their employees on a
national basis.
USIB has been appointed by Golden Rule Insurance Co., an Indianapolis based
carrier admitted in 30 states. Golden Rule's group health plans are amongst the
most competitive plans in the nation with respect to rates and benefits. USIB's
commissions are established at 10%, with USIB retaining 4% of annual gross
premium after commissions and Limited Partnership profit sharing plans, as its
revenue stream.
USIB has been negotiating with Firemen's Fund to provide coverage for the
NLBMDA commercial lines business in exchange for the lowest competitive rates
available in the insurance marketplace. USIB is already an approved agent for
association program business with Fireman's Fund. The NLBMDA-USIB commercial
lines program should be accepting insurance applications from NLBMDA members by
October 1, 1997.
USIB is expected to begin accepting premium and earning commissions from NLBMDA
members and their employees during the third quarter. Commercial coverage and
personal lines health sales should also begin income generation in the third
quarter.
4
<PAGE> 5
In order to obtain sufficient capital to continue operations beyond the start
up development phase, and to acquire DCP, USIB began a New York State and
Regulation D registered offering of its Series A 12.5% cumulative coupon
convertible preferred shares in 1996, and completed the offering in the first
quarter of 1997. The funds provided were utilized to purchase DCP, and to fund
the USIB development stage costs. The Company anticipates exchanging these
subsidiary shares for Class B common shares of the Parent Company during the
third quarter of 1997. The Company has been awaiting an upgraded listing of
its common shares to the NASDAQ Small Caps and/or a Regional Exchange.
In conjunction with the parent company, USIB acquired 100% of DC Partners, Ltd.
(DCP) in the 4th quarter of 1996, with funds raised from the registered New
York State convertible preferred share offering. The USIB convertible preferred
shares are convertible to Century Industries Class B common shares. USIB paid
$1,700,000 in cash and Century Industries issued 820,000 shares of Class A
common stock and a warrant for 727,273 shares of Class B common stock in
payment for DCP.
Results of Operations
USIB's second quarter 1997 income before taxes was $117,975, from a loss of
($253,896) for the same period of 1996. USIB's year to date 1997 income before
taxes was $48,108, a marked increase from the ($410,153) USIB posted in the
same period of 1996. This increase can be attributed to consulting income from
the design of pension benefit plans (KEOGHS).
USIB has several million of dollars of commercial lines insurance quotes
provided by Fireman's Fund to several Lumber Dealers which are pending the
final appointment of USIB as a national commercial lines national insurance
program agent by Fireman's Fund. The rates quoted are extremely competitive
with the Lumber Dealers' present commercial lines coverage.
USIB is also developing Colorado as the pilot project for health insurance
coverage for the Korean American Grocers Association (KAGRO). Premium income
for these national associations is expected to begin in the 3rd quarter.
Management is unable to project the amounts of premium expected as there are so
many variables involved, such as State Insurance Rating Commission approvals on
lower program rates and coverage, insurance coverage renewal dates, and various
State NLBMDA federated endorsements based upon program rates.
DC Partners, Ltd. and its wholly owned subsidiary,
Scibal Associates, Inc.
In 1996, the Company acquired DC Partners, Ltd. (DCP), of 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.
5
<PAGE> 6
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.
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 20% 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.
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.
While competition in the claims administration industry is substantial, it has
evolved in the 90's into an industry where the administrator must be hardware
and software intensive. The software must be developed internally and becomes
extremely proprietary. DCP has this capacity and is very competitive with
other TPAs. 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.
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.
6
<PAGE> 7
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.
Results of Operations
DC Partners, Ltd.'s (DCP's) sales for the 1997 second quarter were $2,823,939.
DCP's year to date sales through the second quarter 1997 totaled $5,623,458.
The trade debt for DCP at June 30, 1997, totaled $860,051. DCP's trade
receivables at June 30, 1997 were $734,743. DCP's 1996 and 1995 annual audits
were filed on EDGAR as 8-Ks by the Company and quarterly figures for 1996 were
not broken out for comparison.
DCP's second quarter 1997 operating income was $418,712, and the year to date
1997 operating income for DCP was $609,233.
DCP's net earnings for the second quarter 1997 totaled $324,762. Net earnings
for the six months ending June 30, 1997 for DCP totaled $460,647.
PART II - Other Information
ITEM 1. Legal Proceedings
NONE
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
The Registrant is in the process of filing a Form 10SB with the S.E.C. to
register its Class B common voting shares as a Class pursuant to Section 12(g).
The Class B shares were issued in trust in 1996 and will be exchanged with the
USIB subsidiary's convertible preferred shareholders for their preferred
shares.
7
<PAGE> 8
ITEM 6. Exhibits and Reports on Form 8-K.
The Registrant filed one (1) 8-K during the 2nd Quarter:
1. On July 16, 1997, the Registrant filed an 8-K/A including the DCP
subsidiary's audited consolidated financial statements at September 30, 1996.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
August 13, 1997
Century Industries, Inc.
\S\ Ted L. Schwartzbeck
- ------------------------------------------
Ted L. Schwartzbeck, President and CEO
8
<PAGE> 9
INDEX TO EXHIBITS
(l) Underwriting Agreement. Not applicable.
(2) Plan of acquisition. reorganization. arrangement, liquidation or
succession. Not applicable.
(3) Articles of Incorporation and Bylaws. Not applicable.
(4) Instruments defining the rights of security holders, including
indentures. Not applicable.
(5) Opinion: re: Legality. Not Applicable.
(6) Opinion: re: Liquidation Preference. Not Applicable.
(7) Opinion: re: Liquidation Preference. Not Applicable.
(8) Opinion: re: Tax Matters. Not Applicable.
(9) Voting Trust Agreement. Not Applicable.
(10) Material Contracts. Not Applicable.
(11) Statement re: Computation of Per Share Earnings. Not Applicable.
(12) Statement re: Computation of Ratios. Not Applicable.
(13) Annual Report to Securities Holders. etc. Not Applicable.
(14) Material Foreign Contracts. Not Applicable.
(15) Letter re: unaudited Interim, Financial Information. Not applicable.
(16) Letter regarding change in certified accountant. Not applicable.
(17) Letter re director resignation. Not applicable.~U
(18) Letter re: Change in Accounting principles. Not Applicable.
(l9) 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. Not Applicable.
9
<PAGE> 10
INDEX TO EXHIBITS (cont.)
(23) Published Report Regarding Matters Submitted to Securities
Holders. Not Applicable.
(24) Consents of experts and counsel. Not applicable
(25) Power of Attorney. Not applicable.
(26) Statement of Eligibility of Trustee. Not Applicable.
(27) Invitations for Competitive Bids. Not Applicable.
(28) Additional Exhibits. Not applicable.
(29) Information from Reports Furnished to State Insurance
Regulatory Authorities. Not Applicable.
10
<PAGE> 11
INDEX
PART I FINANCIAL INFORMATION
ITEM I Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
Consolidated Statements of Operations
for the six month periods
ended June 30, 1997 and 1996
and for the three months
ended June 30, 1997 and 1996
Consolidated Statement of Stockholders' Equity
for the three months period
ended March 31 and June 30, 1997
Consolidated Statements of Cash Flows
for the six month periods
ended June 30, 1997 and 1996
Notes to Financial Statements
ITEM 2 Management's Analysis of Financial Condition
and Results of Operations
<PAGE> 12
FINANCIAL STATEMENTS
In the opinion of management of Century Industries, Inc. and subsidiaries (the
Company), the accompanying unaudited interim consolidated financial statements
contain all adjustments necessary for a fair presentation of the Company's
financial condition as of June 30, 1997 and December 31, 1996, and the results
of its operations and cash flows for the six month periods ended June 30, 1997
and 1996.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company's management believes that disclosures
and information presented are adequate and not misleading. Reference is made
to the detailed financial statement disclosures which should be read in
conjunction with this report and are contained in the notes to consolidated
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996. Certain items in prior period consolidated
financial statements have been reclassified, where appropriate, to conform with
the June 30, 1997 presentation.
F-1
<PAGE> 13
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS 6/30/97 12/31/96
- -------------- ------- --------
<S> <C> <C>
Cash and Cash Equivalents $ 187,856 $ 382,548
Account Receivable-Trade (Net of allowance for doubtful 1,882,195 1,263,910
accounts of $43,000 in 1997 and 1996 )
Inventory 160,423 138,955
Marketable Securities 720,085 571,980
Other Current Assets 913,099 476,588
--------------- -------------
TOTAL CURRENT ASSETS 3,863,658 2,833,981
--------------- -------------
LONG TERM ASSETS
- ----------------
Software and Computer Equipment 1,814,800 1,329,710
Furniture and Fixtures 786,444 1,009,376
Machinery and Equipment 3,166 548,230
Transportation Equipment 198,708 192,190
Leasehold Improvements 148,462 139,296
--------------- -------------
2,951,580 3,218,802
Less: Accumulated Depreciation (970,159) (1,400,022)
--------------- -------------
NET LONG TERM ASSETS 1,981,421 1,818,780
--------------- -------------
OTHER ASSETS
- ------------
Investments 700,892 170,000
Deferred Offering Costs 290,721 160,262
Deferred Acquisition Costs 349,980 305,000
Security Deposits 109,041 56,144
Goodwill (Net of accumulated amortization of $17,219 in 2,005,695 2,038,139
1997 and $31,605 in 1996)
Due from Related Parties 427,968 421,633
Other Assets 557,333 197,309
--------------- -------------
TOTAL OTHER ASSETS 4,441,630 3,348,487
--------------- -------------
TOTAL ASSETS $10,286,709 $8,001,248
=============== =============
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 14
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
6/30/97 12/31/96
------- --------
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Accounts Payable- Trade $ 1,297,587 $1,650,270
Current Maturities- Long Term Debt 240,959 243,569
Capital Lease Obligations 151,967 146,806
Notes Payable 200,000 200,000
Advances from Stockholders ---- 200,000
Accrued Expenses 1,139,011 920,616
Dividends Payable 36,454 97,950
------------- -------------
Total Current Liabilities 3,065,978 3,459,211
LONG TERM NOTES PAYABLE, LESS CURRENT PORTION 624,850 763,452
- ---------------------------------------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 151,967 154,850
- ----------------------------------------------- ------------- -------------
TOTAL LIABILITIES 3,842,795 4,377,513
------------- -------------
MINORITY INTEREST 114,152 25,811
------------- -------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock, Convertible, $.001 par value, 1,200,000 shares
authorized, 1,010,875 and 1,000,000 issued and outstanding 1,013 1,000
Common Stock, Class A, $.001 par value, 25,000,000 shares authorized,
3,096,000 issued and outstanding 3,096 3,096
Common Stock, Class B, $.001 par value, 25,000,000 shares authorized,
3,000,000 issued and outstanding 3,000 3,000
Additional Paid in Capital 6,748,685 4,388,099
Retained Deficit (426,032) (797,271)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 6,329,762 3,597,924
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,286,709 $8,001,248
============= =============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 15
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
-----------------------------------------------------------------------------
Steel Products Insurance Claims Parent Total
(Development Processing Holding Co.
Stage)
<S> <C> <C> <C> <C> <C>
Revenues $2,226,826 $5,623,458 $ 7,850,284
Cost of Sales 1,665,561 2,683,750 4,349,311
Gross Profit 561,265 2,939,708 3,500,973
Operating Costs
Payroll Expenses 201,477 1,147,849 1,349,326
Professional Fees 4,504 $32,936 54,409 $47,509 139,358
Auto, Travel and
Entertainment 19,685 14,157 138,000 3,121 174,963
Amortization and
Depreciation 4,062 44,265 93,690 14,290 156,307
Other 86,264 61,841 896,527 18,489 1,063,121
Total Operating Costs 315,992 153,199 2,330,475 83,409 2,883,075
Operating Income (Loss) 245,273 (153,199) 609,233 (83,409) 617,898
Other Income Expenses
Other Income (Expenses) 201,307 (87,685) 113,622
Interest Expense (19,172) (60,901) (80,073)
Minority Interest (46,156) (46,156)
Total Other Income (65,328) 201,307 (148,586) (12,607)
(Expense)
Income (Loss) Before
Taxes $179,945 $ 48,108 $ 460,647 $ (83,409) $ 605,291
<CAPTION>
Six Months Ended June 30, 1996
-----------------------------------------------------------------------------
Steel Products Insurance Claims Parent Total
(Development Processing Holding Co.
Stage)
<S> <C> <C> <C> <C> <C>
Revenues $ 1,468,645 $1,468,645
Cost of Sales 1,000,582 1,000,582
Gross Profit 468,063 468,063
Operating Costs
Payroll Expenses 199,080 199,080
Professional Fees 15,235 $348,667 $ 113,303 477,205
Auto, Travel and
Entertainment 16,006 18,604 34,610
Amortization and
Depreciation 4,215 1,602 5,817
Other 65,449 38,868 182 104,499
Total Operating Costs 299,985 407,741 113,485 821,211
Operating Income (Loss) 168,078 (407,741) (113,485) (353,148)
Other Income Expenses
Other Income (Expenses)
Interest Expense (17,328) (2,412) (19,740)
Minority Interest
Total Other Income (17,328) (2,412) (19,740)
(Expense)
Income (Loss) Before
Taxes $150,750 $(410,153) $- $(113,485) $(372,888)
</TABLE>
(Continued)
See accompanying notes to financial statements
F-4
<PAGE> 16
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Total Income (Loss) Before Taxes $ 605,291 $ (372,888)
Provision (Benefit) For Taxes 70,200 (38,900)
--------------- ------------------
Net Income (Loss) $ 535,091 $ (333,988)
Preferred Stock Dividends of Subsidiaries (167,700) (19,413)
---------------- -------------------
Net Income (Loss) Available for Common Stockholders $ 367,391 $ (353,401)
Earnings (Loss) Per Share $ 0.06 $ (0.21)
--------------- ------------------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 17
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
-----------------------------------------------------------------------------
Steel Products Insurance Claims Parent Total
(Development Processing Holding Co.
Stage)
<S> <C> <C> <C> <C> <C>
Revenues $1,221,527 $2,823,939 $4,045,466
Cost of Sales 1,024,000 1,331,713 2,355,713
Gross Profit 197,527 1,492,226 1,689,753
Operating Costs
Payroll Expenses 103,156 521,782 624,938
Professional Fees 2,197 $ 21,140 21,636 $46,379 91,352
Auto, Travel and 9,799 6,403 64,459 1,580 82,241
Entertainment
Amortization and 2,129 26,208 46,845 7,145 82,327
Depreciation
Other 46,685 28,222 418,792 18,489 512,188
Total Operating Costs 163,966 81,973 1,073,514 73,593 1,393,046
Operating Income (Loss) 35,361 (81,973) 418,712 (73,593) 296,707
Other Income Expenses
Other Income (Expenses) 1,609 199,948 (67,330) 134,227
Interest Expense (9,993) (26,620) (36,613)
Minority Interest (3,971) (3,971)
Total Other Income (Expense) (12,355) 199,948 (93,950) 93,643
Income (Loss) Before Taxes $ 21,206 $117,975 $ 324,762 $ (73,593) $ 390,350
<CAPTION>
Three Months Ended June 30, 1996
-----------------------------------------------------------------------------
Steel Products Insurance Claims Parent Total
(Development Processing Holding Co.
Stage)
<S> <C> <C> <C> <C> <C>
Revenues $ 739,235 $739,235
Cost of Sales 537,449 537,449
Gross Profit 201,786 201,786
Operating Costs
Payroll Expenses 100,374 100,374
Professional Fees 13,673 $ 210,376 $ 110,391 334,440
Auto, Travel and 8,352 15,352 23,704
Entertainment
Amortization and 2,085 800 2,885
Depreciation
Other 43,629 22,879 66,508
Total Operating Costs 168,113 249,407 110,391 527,911
Operating Income (Loss) 33,673 (249,407) (110,391) (326,125)
Other Income Expenses
Other Income (Expenses)
Interest Expense (4,242) (4,491) (8,733)
Minority Interest
Total Other Income (Expense) (4,242) (4,491) (8,733)
$ 29,431 $ (253,898) $ - $ (110,391) $ (334,858)
Income (Loss) Before Taxes
</TABLE>
(continued)
See accompanying notes to financial statements
F-6
<PAGE> 18
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Total Income (Loss) Before Taxes $ 390,350 $ (334,858)
Provision (Benefit) For Taxes 58,200 (24,700)
------------- ----------------
Net Income (Loss) $ 332,150 $ (310,158)
Preferred Stock Dividends of Subsidiaries (25,750) (16,913)
------------- ----------------
Net Income (Loss) Available for Common Stockholders $ 306,400 $ (327,071)
Earnings (Loss) Per Share $ 0.05 $ (0.15)
------------- ----------------
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 19
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31 AND JUNE 30, 1997
(UNAUDITED)
<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, 1996 $ 1,000 $ 3,096 $ 3,000 $4,388,099 $(797,271) $3,597,924
Issuance of 10,875 shares of preferred stock 10 - 1,664,270 - 1,664,280
Unrealized loss on marketable securities - - - - (1,061) (1,061)
Net Income for three months ended 3/31/97 - - - - 202,941 202,941
Preferred dividends - - - - (141,950) (141,950)
-------- -------- ------- ---------- --------- ----------
BALANCE MARCH 31, 1997 $ 1,010 $ 3,096 $ 3,000 $6,052,369 $(737,341) $5,322,134
======== ======== ======= ========== ========= ==========
Issuance of 2,175 shares of preferred stock 3 - - 696,316 - 696,319
Unrealized gain on marketable securities - - - - 4,909 4,909
Net Income for three months ended 6/30/97 - - - 332,150 332,150
Preferred dividends - - - - (25,750) (25,750)
-------- -------- ------- ---------- --------- ----------
BALANCE JUNE 30, 1997 $ 1,013 $ 3,096 $ 3,000 $6,748,685 $(426,032) $6,329,762
======== ======== ======= ========== =========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 20
CENTURYINDUSTRIES,INC.ANDSUBSIDIARIES
CONSOLIDATEDSTATEMENTOFSTOCKHOLDERS'EQUITY
FORTHETHREEMONTHSENDEDMARCH31ANDJUNE30,1997
(UNAUDITED)
<TABLE>
<CAPTION>
6/30/97 6/30/96
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash received from customers $ 7,431,999 $ 1,377,905
Cash paid to suppliers and employees (8,167,645) (1,752,707)
Interest paid (80,073) (19,742)
Income taxes paid (70,200) -
---------------- --------------
Net cash provided (used) by operating activities (885,919) (394,544)
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of fixed assets (162,641) (15,984)
Purchase of marketable securities and investments (680,058) (147,945)
---------------- --------------
Net cash provided (used) by investing activities (842,699) (163,929)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from sale of CNTI and USIB preferred stock 2,130,241 736,000
Preferred dividends paid (251,046) (6,450)
Receipts of (payments on) notes (138,934) (25,342)
Net advances from (to) affiliates-stockholders (206,335) (121,783)
---------------- --------------
Net cash provided (used) by financing activities 1,533,926 582,425
---------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (194,692) 23,952
- -----------------------------------------
Cash and Cash Equivalents - January 1 382,548 24,471
- ------------------------------------- ---------------- --------------
CASH AND CASH EQUIVALENTS - MARCH 31 $ 187,856 $ 48,423
- ------------------------------------ ================ ==============
Net income (loss) $ 535,091 $ (333,988)
Issuance of common stock in exchange for consulting services - 100,000
Amortization and depreciation 156,307 12,284
Minority Interest 46,156 -
(Increase) decrease in accounts receivable (618,285) (90,740)
(Increase) decrease in inventory (21,468) -
(Increase) decrease in other current assets and other assets (849,432) (36,457)
Increase (decrease) in accounts payable (352,683) (39,708)
Increase (decrease) in accrued expenses 218,395 (5,935)
---------------- --------------
Net cash provided (used) by operating activities $ (885,919) $ (394,544)
================ ==============
</TABLE>
(continued)
See accompanying notes to financial statements
F-9
<PAGE> 21
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(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 quarter ended June 30, 1997 and for the six months ended June
30,1997, the Company recognized unrealized gains of $4,909 and $3,848,
respectively, on marketable securities available for sale. In accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the investment and retained earnings
accounts were increased by $4,909 and $3,848, respectively.
Dividends of $167,700 and $18,863 were accrued and charged to retained earnings
for the six months ended June 30, 1997 and 1996, respectively.
Minority interest was increased and retained earnings decreased by $46,156, the
minority interest in CSP's stockholder's equity at June 30, 1997.
See accompanying notes to financial statements
F-10
<PAGE> 22
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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. Insurance Brokers, Inc. (USIB), previously referred to as USAOCA, 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 1997 include the accounts of Century
Industries, Inc. and its subsidiaries, CSP, USIB, and D.C Partners and CSP and
USIB in 1996. 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 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
six months and quarter ended June 30, 1997. D.C. Partners' assets and
liabilities as of June 30, 1997 and December 31, 1996 are included in the
related balance sheets. 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
F-11
<PAGE> 23
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
ACQUISITIONS AND GOODWILL (CONTINUED)
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 June 30, 1997
and December 31, 1996, D.C. Partners capitalized software amounting to
approximately $974,000 and $780,000, respectively. 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.
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
F-12
<PAGE> 24
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
REVENUE RECOGNITION (CONTINUED)
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 $489,000 at June 30, 1997 and $408,000 at December 31,
1996 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 periods presented, 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
5,800,000 and 2,120,000 for the quarters ended June 30, 1997 and 1996,
respectively.
RECLASSIFICATIONS
Certain items in prior period consolidated financial statements have been
reclassified, where appropriate, to conform with the June 30, 1997
presentation.
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
F-13
<PAGE> 25
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
ACQUISITION OF D.C. PARTNERS, LTD., INC. (CONTINUED)
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 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 year
ended December 31, 1996 , had the acquisition of D.C. Partners occurred at the
beginning of the year. 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 the year.
<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>
(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 taken from D.C. Partners and
subsidiary audited financial statements.
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.
F-14
<PAGE> 26
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
SALE OF PREFERRED STOCK (CONTINUED)
The USIB preferred stock will be converted to Class B common stock of the
company, when the company's listing has been upgraded to the NASDAQ small caps
and or a Regional Exchange, or during the second half of 1997 in the event no
upgrade is forthcoming.
The USIB offering was replaced during the second quarter by an offering of the
convertible preferred shares of the Company on the same terms and conditions as
the USIB offering.
4) INCOME TAXES
The provision (benefit) for taxes consists of the following:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
------------------------ ------------------------
1997 1996 1997 1996
---- --- ---- ----
<S> <C> <C> <C> <C>
Current
Federal $ 49,000 $ 2,700 $ 59,100 $ (3,800)
State 9,200 1,100 11,100 (1,200)
---------- ---------- ---------- ----------
58,000 3,800 70,200 (5,000)
Deferred - (28,500) - (33,900)
---------- ---------- ---------- ----------
$ 58,200 $ (24,700) $ 70,200 $ (39,900)
========== ========== ========== ==========
</TABLE>
Deferred tax assets resulted primarily from the Company's net operating loss of
approximately $730,000 at June 30, 1997 and $334,000 at June 30, 1996. Such
net operating loss is comprised of last 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 $290,000 has been
reduced by a valuation allowance of $140,000. 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 carry forward will expire in
2011, and the charitable contribution carry forward will expire in 2000.
Net deferred tax assets consisted of the following at June 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total deferred tax liabilities $ - $ -
Total deferred tax assets 293,200 262,000
Total valuation allowance (140,000) (100,800)
---------- ---------
$153,200 $161,200
========= ========
</TABLE>
Of the net deferred tax assets at June 30, 1997 and December 31, 1996, $4,100
and $9,000 were included in other current assets, and $149,100 and $152,200
were included as other assets, respectively.
5) RELATED PARTY TRANSACTIONS
During the quarter ended June 30, 1997, USIB advanced approximately $110,000 to
stockholders-officers of the Company and an affiliated party. For the six
months ended June 30, 1997, USIB advanced approximately $260,000 to
stockholders-officers of the Company and an affiliated party. Such advances are
non-interest bearing.
For the six months ended June 30, 1997 an officer of USIB received
approximately $390,000 for services provided as selling expenses in issuing
shares of preferred stock. Equity and cash proceeds were reduced by this amount
as a direct cost of issuing the preferred stock.
F-15
<PAGE> 27
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
D.C. Partners has a minority stock position in a corporation, which owns an
office building. The office building was vacant for a portion of time, 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.
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 June 30, 1997and 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 June 30, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<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 $427,589 $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 201,253 255,783
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 22,967 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 214,000 242,000
------- -------
865,809 1,007,021
Less: Current portion 240,959 243,569
------- ---------
Long term portion $624,850 $ 763,452
======== =========
</TABLE>
Future minimum payments on long-term debt as of June 30, 1997 and December 31,
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
1997 $102,357 $ 243,569
1998 240,159 240,159
1999 240,806 240,806
2000 170,518 170,518
2001 and thereafter 111,969 111,969
-------- -----------
$865,809 $1,007,021
======== ==========
</TABLE>
F-16
<PAGE> 28
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
Interest cost, none of which was capitalized, was approximately $80,073 and
$19,740 for the six months ended June 30, 1997 and 1996, respectively.
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 were seeking to
recover damages and costs related to this lease and to be relieved of any
future obligations under this lease. As of July 11, 1997 the lawsuit was
settled for $200,000 to be paid by D.C. Partners by July 1998. D.C Partners has
already accrued $137,500, and has paid $75,000 in July 1997. The balance will
be paid as follows: January 1, 1998 $75,000, and July 1, 1998 $50,000.
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 $323,900 and $20,100 for the six months
ended June 30, 1997 and 1996, 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 $ 84,968
1998 160,724
--------
Total minimum lease payments 245,692
Less: Amount representing interest (22,280)
----------
Present value of net minimum lease payments $223,412
========
</TABLE>
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.
F-17
<PAGE> 29
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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. Included in the
balance of investments at June 30 is the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Investment in third party administrative company $40,000 $ 45,000
Marketable securities investment funds 67,500 67,500
Investment in an insurance related corporation by CSP 57,500 57,500
Investment in CNTI common stock by CSP 12,307 --
Investment in construction joint venture by CSP 523,585 --
------- -------
$700,892 $170,000
======== ========
</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) MAJOR CUSTOMERS
During the six month period ended June 30, 1997, two customers accounted for
approximately 20% of sales. During the six month period ended June 30, 1996,
approximately 18% of sales were to a single contractor, primarily due to a
single contract.
13) STOCKHOLDERS' EQUITY
CSP declared dividends to its preferred stockholders in the amount of $1,950
for the quarters ended June 30, 1997 and 1996, respectively. At June 30, 1997
and December 31, 1996, dividends of $1,950 were accrued but unpaid.
USIB declared dividends to its preferred stockholders in the amount of $23,800
for the quarter ended June 30, 1997. At June 30, 1997 and December 31, 1996
dividends of $36,500 and $96,000, respectively, were accrued but unpaid.
F-18
<PAGE> 30
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
Shares of common stock were reserved at June 30, 1997 and 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> 31
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED 6/30/97 ENDED 6/30/96
---------------------- --------------------
<S> <C> <C>
EARNINGS PER SHARE
- ------------------
Adjusted Net Income:
Net Income (Loss) $ 535,091 $ (333,988)
---------------------- --------------------
Dividends on preferred stock (167,700) (19,413)
---------------------- --------------------
Total adjusted net income ( l ) $ 367,391 $ (353,401)
---------------------- --------------------
Total adjusted weighted - average shares outstanding ( ll ) 5,800,000 1,721,833
---------------------- --------------------
---------------------- --------------------
Earnings (Loss) Per Share (I divided by II) $ 0.06 $ (0.21)
---------------------- --------------------
</TABLE>
F-20
<PAGE> 32
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE
ENDED 6/30/97 MONTHS ENDED 6/30/96
---------------------- --------------------
<S> <C> <C>
EARNINGS PER SHARE
- ------------------
Adjusted Net Income:
Net Income (Loss) $ 332,150 $ (310,158)
---------------------- --------------------
---------------------- --------------------
Dividends on preferred stock (25,750) (16,913)
---------------------- --------------------
---------------------- --------------------
Total adjusted net income ( l ) $ 306,400 $ (327,071)
---------------------- --------------------
Total adjusted weighted - average shares outstanding ( ll ) 5,800,000 2,117,666
---------------------- --------------------
---------------------- --------------------
Earnings (Loss) Per Share (I divided by II) $ 0.05 $ (0.15)
---------------------- --------------------
</TABLE>
F-21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 187,856
<SECURITIES> 720,085
<RECEIVABLES> 1,882,195
<ALLOWANCES> 43,000
<INVENTORY> 160,423
<CURRENT-ASSETS> 3,863,658
<PP&E> 2,951,580
<DEPRECIATION> (970,159)
<TOTAL-ASSETS> 10,286,709
<CURRENT-LIABILITIES> 3,842,795
<BONDS> 151,967
0
1,013
<COMMON> 6,096,000
<OTHER-SE> 6,748,685
<TOTAL-LIABILITY-AND-EQUITY> 10,286,709
<SALES> 7,850,284
<TOTAL-REVENUES> 7,850,284
<CGS> 4,349,311
<TOTAL-COSTS> 4,349,311
<OTHER-EXPENSES> 1,063,121
<LOSS-PROVISION> 43,000
<INTEREST-EXPENSE> 5,817
<INCOME-PRETAX> 605,291
<INCOME-TAX> 702,000
<INCOME-CONTINUING> 617,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 535,091
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
