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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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 or
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 to be registered under Section 12(b) of the Act:
3,000,000 Century Industries Class B
par value $.001 common voting shares Philadelphia Stock Exchange (PHLX)
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Securities to be registered under Section 12(g) of the Act:
NONE
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Item 1. Description of Business
CENTURY INDUSTRIES, INC.
Century Industries, Inc. ("Century" or "the Company") is a holding company
whose insurance subsidiaries function in divergent areas of the insurance
field. Its subsidiary, DC Partners, Inc., a New Jersey corporation, is an
active "third party administrator" in Somers Point, New Jersey, and its
Washington, DC subsidiary, US Insurance Brokers, Inc. ("USIB") is a District of
Columbia development stage company specializing in the joint venturing of
selected association insurance programs for its joint venture partner national
associations. Century's third subsidiary is Century Steel Products, Inc.
("CSP"), a Commonwealth of Virginia corporation engaged in the production of
specialty steel products and the steel fabricating business. At its present
stage, the Company intends to focus its principal attention on these two
markets.
The application for incorporation of Century Industries, Inc. was filed in the
District of Columbia on a de facto basis in December, 1992, and the certificate
of incorporation was actually issued to the Company in March, 1993. The company
was formed initially to acquire Century Steel Products, Inc. ("CSP") as its
principal subsidiary, and it also subsequently acquired Alpha Energy & Gold,
Ltd.
On April 22, 1993 the Company completed a statutory merger with its subsidiary,
Alpha Energy & Gold, Ltd. ("Alpha"), a company reporting under Securities and
Exchange Commission Section 12 (g) and listed on the NASDAQ Bulletin Board.
This transaction has been accounted for as a statutory merger, with the Company
designated as the survivor.
The Company additionally acquired U.S. Insurance Brokers, Inc. (USIB), a
development stage company 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 its convertible preferred stock, and acquired DCP for
$1,700,000 cash, 820,000 shares of its 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 shareholder 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:
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CENTURY STEEL PRODUCTS, INC. (CSP)
The Company's steel fabricating subsidiary, CSP, was founded in Sterling,
Virginia, 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 16% of its shares, such 16% owned by one shareholder, a
partner in Superior Steel Co. Superior shares an industrial building with CSP
as CSP's landlord, and buys CSP steel products.
In 1989 CSP enjoyed its most impactive sales year in which 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 CSP was a supplier of steel
products to subcontractors who bid those projects. In this instance CSP seized
the opportunity to become the subcontractor 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 subcontractors had
become casualties of the recession, and could no longer justify any credit
arrangements with fabricators.
Products and Markets
CSP is primarily engaged in fabricating (manufacturing) and selling various
specialty steel products. CSP's steel products are used in the public
utilities, railway equipment, commercial and residential building industries.
U.S. Government contractors also use CSP's products in the metropolitan
Washington, DC area. The Company numbers public utilities and Fortune 500
General Contractors among its customer base. The products consist of
pre-engineered parts fabricated from design criteria supplied by the Company's
customers.
CSP's "warehouse markets" are the commercial and residential construction
industries, and "warehouse" miscellaneous industries such as stair and window
frames, military training devices (bomb shelters and flight simulators),
stadium bleachers, and concrete block pallets.
Its installation markets include products for both state and local
municipalities, and commercial construction projects. These projects include
installation and erection as well as fabrication.
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Sales and Distribution
CSP markets its products and services 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; markets west of the Mississippi are not
freight cost effective to the Company.
Warehouse steel products for the various industries are generally sold on
demand rather than through contractual arrangements. Fabrication and
installation projects are sometimes sold through contractual arrangements on a
case by case basis.
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 where steel markets have not been as dramatically
affected during the recession of the early 90's as have 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
contractor 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 and their timely delivery.
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, since 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 for CSP's products, but competitive bids are driven by
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material costs for all fabricators, and ordinarily remain competitive
regardless of raw material costs.
Customer Base
CSP is not dependent on any one major or any few select customers; all purchase
orders received are the result of a bidding process. CSP's success in
achieving the lowest bid on a consistent basis with several major contractors
has created a substantial repeat business. There has been no dependency on any
major supplier or suppliers.
Government Regulations
Management believes that CSP is in compliance with all applicable federal state
and 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 Occupational Safety and Health
Administration in plant regulations. No government approval is needed for its
principal products or operations.
Research and Development
CSP has not spent any funds on research and development in the past five
years, other than specific research required in connection with the fabrication
of a customer's order. Since research and development is generally limited to
detailed drawings, or a search for a particular grade, size, or quality of
steel raw material, research and development is not a critical factor.
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 in 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
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intricate forming to varying degrees. Finally, material can be painted and
loaded for delivery.
Fabricated steel products which are to be produced for subcontracted projects
first require the creation 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 then 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 and 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 any 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. However, no such loss has ever transpired in the past 19 years of
CSP's operations.
Effects of Environmental Laws
The federal and state environmental laws have not affected CSP. CSP is however
regulated by OSHA, and is in full compliance with all OSHA inspections.
U.S. INSURANCE BROKERS, INC. (USIB)
In 1995 the Company acquired U.S. Insurance Brokers, Inc. ("USIB") located in
Washington, DC. USIB plans to market all lines of insurance to members and
employees of national membership based associations, and has been appointed by
the following companies as a national association agent:
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Golden Rule Insurance Co., Celtic Life, and Maryland Casualty Insurance
Company.
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. As of 1996, USIB has been appointed by the
National Lumber and Building Material Dealers Association (270,000 members and
employees nationally), as their exclusive association insurance broker, and the
Korean American Grocers Association (KAGRO), located in all 50 states and
Canada.
The insurance carriers with whom USIB deals are rated "A Excellent" or better
by the A.M. Best rating service. National Association rates are more
competitive than non national local rates due to both a lessening of risk
through lower claims when non peril geographic areas are averaged out with
multi peril areas, and a substantial sales volume.
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 its operating personnel. It has generated a minimal 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.
Sales and Distribution
The joint ventured associations advertise USIB's products to their members
through newsletters and direct mail. The associations' members will call an
"800 number" at USIB to obtain insurance quotes. When the association member
purchases insurance, the policies are then issued by the insurance carriers,
and all direct billing is performed by the carriers. The carriers then pay a
pre-arranged commission to USIB as has been agreed.
USIB intends in the future to assign the administration functions to DCP, its
wholly owned subsidiary, and confine its operations to marketing.
Customer Base
USIB's present potential customer base through KAGRO and the NLBMDA is 375,000
members and their employees.
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Business Regulation
The insurance industry is highly regulated. All agencies must be licensed in
every state in which they solicit insurance sales, and each agent soliciting
for the involved 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.
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, since to each agent
is 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, and in some cases will act as a managing
general agent on commercial lines coverages. 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
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relationships following termination of the agency agreements. USIB is a
licensed and regulated insurance agent in the District of Columbia and
additional states, and is in the application process of applying to become
licensed and regulated as an insurance agent and broker in all of the other
states pertinent to its business.
USIB was formed to market , 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 program 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 unique 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 informational
channels.
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 in Washington, D.C.
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, Virginia
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,
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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 it 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 such large, well rated, high profile
insurance companies as have appointed USIB their agent, and as 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. 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 completed its limited partnership marketing agreements with the
National Association of Lumber and Building Materials Dealers (270,000 members
and employees), 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, designed to handle the
processing/underwriting of up to 500 daily insurance quote and binding
requests, thus making the rates in 35 Acord states available. The computer
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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.
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 contemplates 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 comprises 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 an average of all lines of life,
health and casualty products, and results in USIB 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 and expects that
it will add more association limited partners 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 that USIB has to each
association through which its sells its insurance products. All of these
conjoined factors will make a limited partner arrangement with USIB an
extremely attractive proposal.
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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.
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 those
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
USIB's insurance products to persons that insurers normally do not have direct
access to. In this regard, USIB has entered into finders' relationships with
several prominent public relations firms with knowledge of various associations
in the District of Columbia, for the purpose of referring associations to USIB
with the objective 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, Vienna, Virginia. 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.
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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 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 % GNP %
($ mil) Increase ($ bil) Increase
- ---------------------------------------------------
<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 has become firmly accepted after many decades of
experience. The cycles generally last somewhere between 5 and 10 years and 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.
The industry entered a trough in 1987, which became a peak in 1992 which still
persists mid way between a peak and a trough. This is a favorable
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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.
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DC PARTNERS, LTD. AND ITS WHOLLY OWNED SUBSIDIARY,
SCIBAL ASSOCIATES, INC.
In 1996 the Company acquired DC Partners, Ltd. (DCP), in Somers Point, NJ, as a
Company subsidiary. 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.
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 nationally, and the number of entities which are self insured and
administer 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, at present, 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. Since DCP is 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 by referrals from existing
customers, as well as through his extensive contacts with both insurance
companies and brokers. Mr. Scibal also serves as Chairman of Century
Industries.
15
<PAGE> 16
Competition and Economic Conditions
While competition in the claims administration industry is substantial, it has
evolved in this decade into an industry where the particular administrator must
be hardware and software intensive. The software must be developed internally
and becomes, accordingly, extremely proprietary. DCP enjoys this capacity and
is therefore 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 (see USIB section) there are statistics
republished from insurance industry authorities which help to explain these
national rate cycles.
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 is armed with an experienced staff of computer programmers. These
programmers are continuously improving and enhancing DCP's proprietary claims
handling software. Additionally, there is an effort underway at DCP to write
the "next generation" of software, which will take advantage of Internet
access, electronic claims reporting, and data warehousing for its customers.
This new system will enable the company to better leverage its adjusters
against case loads, thus leading 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 these 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 three years tenure.
16
<PAGE> 17
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. Management's Discussion and Analysis
Century Industries, Inc. In Consolidation
with its Subsidiaries
Century Industries has grown by acquisition since 1995. The second quarter 1997
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 Company's 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 Century
Industries. 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:
17
<PAGE> 18
<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>
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 applied to all common shares equally,
whether 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.
18
<PAGE> 19
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.
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
Washington, D.C. area, which is home to over 4200 such associations. The laws
in the District of Columbia 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.
The USIB business plan allows for profit sharing with the major associations
through limited partnership arrangements, in exchange for marketing rights, and
national association news letter and magazine advertising services provided to
their members.
USIB entered into its first major national association limited partnership
agreement 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 fourth quarter of 1996 USIB was also appointed as Broker of Record by the
Korean American Grocers Association (KAGRO) in Los Angeles, California. The
aforedescribed agreements provide for USIB to market group
19
<PAGE> 20
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 the requirement that USIB retain as
its revenue stream 4% of annual gross premium after commissions and Limited
Partnership profit sharing plans have been paid.
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.
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, later registered in New York State, 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 Century Industries during the third quarter of 1997. The Company has
been awaiting listing of its common shares on the Philadelphia Stock Exchange
and has received listing approval.
In conjunction with the parent company, USIB acquired 100% of DC Partners, Ltd.
(DCP) in the fourth quarter of 1996, with funds raised from the aforedescribed
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's acquisition.
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).
20
<PAGE> 21
USIB has several million of dollars of commercial lines insurance quotes
provided by Fireman's Fund and Maryland Casualty 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 third 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.
As stated, 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 does, in fact, adjust in excess of $80,000,000 of claims
annually.
Scibal has been in business for 44 years specializing in workers' compensation
and all phases of commercial liability claims administration. In administering
these programs, DCP provides its customers a full range of services, including
claims adjusting and administration, risk management and 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 insured and administering this
aspect of their operations continues to expand. 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 is comprised 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.
21
<PAGE> 22
DCP services one customer whose billings comprise approximately 20% of total
revenue. The balance of DCP's customers consist of clients of long standing, no
one of which is critically significant to the company. Since DCP is 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 become
stagnant and have been so for the last four years. Profit margins slim down 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 (see USIB section) there are statistics
republished from insurance industry authorities which help to explain these
detailed national rate fluctuations.
While competition in the claims administration industry is substantial, it has
evolved in this decade into an industry where the administrator must be
hardware and software intensive. This software must be developed internally
evolves to become extremely proprietary. DCP enjoys this capacity and is
therefore very competitive with other TPAs. Additionally, it boasts a 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 on their behalf.
DCP enjoys an experienced staff of computer programmers who continuously
improve and enhance the proprietary claims handling software. There is an
effort underway at DCP to develop the "next generation" of software, to take
advantage of Internet access, electronic claims reporting, and data warehousing
for its customers. This new system will enable the company to better leverage
its adjusters against case loads, thus leading to greater profit margins and
maintenance of competitive pricing. The features and functionality offered are
singular, which should is anticipated to provide DCP with a substantial sales
advantage in the near future.
DCP's work force consists of approximately 160 persons. None are represented by
labor unions so the company is neither vulnerable to union demands nor the
threat of a strike. Employee turnover is consistent with or lower than the
industry average. A majority of the employees have been in place 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
22
<PAGE> 23
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.
ITEM 3. DESCRIPTION OF PROPERTY
CSP Plant Facility
CSP operates a reasonably new, clean 50,000 sq. ft. facility at Sterling
Industrial Park in Sterling, Virginia. The premises are leased from the BMH&G
Limited Partnership. There is substantial parking, and the facility is in a
rural area adjacent to the Town of Sterling, Virginia, 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 leased offices at 1155 Connecticut Ave. N.W. Suite 300,
Washington, DC, 20036, and 8500 Leesburg Pike, Suite 210, Vienna, Virignia
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, New Jersey. DCP also has leased field offices in Edison, New Jersey,
Philadelphia, Pennsylvania, Detroit, Michigan, Richmond, Virginia and
Jacksonville, Florida. Management believes that DCP's facilities are suitable
and adequate for their intended uses.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables are intended as a visual description:
<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> <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>
23
<PAGE> 24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Management 5% persons:
Name of Amount of
Beneficial Beneficial
Title of Class Owner Owner Percent of Class
- ----------------------------------------------------------------------------
Class A Common Voting
<S> <C> <C> <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> <C> <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> <C> <C> <C>
" " " Sonimari, Inc. 500,000 09 %
" " " EDA Fin. Group 300,000 05 %
" " " David Scibal 777,273 14 %
- ----------------------------------------------------------------------------
</TABLE>
The 300,000 restricted Class B warrants issued to EDA Financial Group are
exercisable at prices ranging from $1.25 to $2.00.
24
<PAGE> 25
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's Directors, Executive Officers, and their ages are:
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C> <C>
DAVID SCIBAL Director 44
</TABLE>
Mr. Scibal also serves as the Chief Executive Officer of DC Partners, Ltd.,
the Company's insurance claims administration subsidiary.
ERIC ARLT Vice-President 28
Mr. Arlt became Vice-President of the Company in 1996. Mr. Arlt
graduated from Ferris State University in Michigan with a B.S. in Business
Administration. He is the manager of both USIB's and Century's shareholder
relations departments.
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.
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 for more than twenty five years.
The above Directors are all elected annually, and Mr. Schwartzbeck has served
since the inception of the Company in December of 1992. Mr. Scibal has served
since 1997. 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, is currently President and CEO of CSP, and
President of USIB since 1995.
ITEM 6. EXECUTIVE COMPENSATION.
There are only two Executive Officers, who also serve as Directors of the
Company, Mr. Scibal and Mr. Schwartzbeck. Mr. Schwartzbeck receives his
25
<PAGE> 26
compensation as President and CEO of Century Steel Products, Inc. Mr. Scibal
receives his compensation as Chief Executive Officer of Scibal Associates, Inc.
They do not receive any compensation as Officers or Directors of the Company.
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 7. 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.
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 8. LEGAL PROCEEDINGS
There are, at present, no legal proceedings in which the Company is involved,
either as plaintiff or defendant.
26
<PAGE> 27
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Class A shares trade on the NASDAQ Bulletin Board under
symbol "CNTI". The Company has also been extended listing privileges on the
Philadelphia Stock Exchange for both its Class A and Class B shares. The range
of bid/asked information for the Company's common voting Class A 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
1st Qtr 1997 3.00 3.25
2nd Qtr 1997 3.25 3.50
</TABLE>
There are approximately 1187 stockholders which own the Class A shares, and
There are approximately 500 stockholders which own the Class B shares.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Company has undertaken the following sales of
securities under the Securities Act:
1. In January, 1996, the Company's US Insurance Brokers, Inc. subsidiary sold
125,000 shares of US Insurance Brokers convertible preferred stock under
Regulation D. There was no underwriter involved. The buyers of the preferred
stock were accredited individuals who purchased the stock either in the State
of New York or Washington, DC. The total offering price was $5,000,000 and
commissions were 17%, with a 3% one time non accountable expense allowance. A
Form D was filed with the Securities and Exchange Commission on October 11,
1996 and was updated on May 13, 1997. A registration statement was filed with
the New York State Department of Law, Department of Securities and Investor
Protection, in July, 1996, and amended in December, 1996. The exemption from
registration was based upon the Regulation D exemption enacted by the
Securities and Exchange Commission in 1982.
2. Beginning in April, 1997, the Company has sold 33,750 shares of Century
Industries, Inc. convertible preferred stock, subsequently convertible to Class
B common shares, under Regulation D. There is no underwriter involved. The
buyers of the preferred stock are accredited individuals who purchased the
stock in accordance with the subscription agreement. The total offering price
is $7,500,000 and commissions are 17%, with a 3% one time non accountable
expense allowance . The sales are self underwritten by Officers of the Company.
A registration statement was filed with the New York State Department of Law,
Department of Securities and Investor
27
<PAGE> 28
Protection, in April, 1997, and was declared effective June 6, 1997. The
exemption from registration is based upon the Regulation D exemption enacted in
1982.
ITEM 11. DESCRIPTION OF SECURITIES
When the Company completed its statutory merger with Alpha Energy & Gold, Ltd.,
on April 22, 1993, it was authorized to issue 25,000,000 shares, and had, in
fact 1,275,000 registered shares issued and outstanding, such shares later
reverse split 1 for 3 totaling 425,000 registered shares.
At the second phase of the DCP acquisition, the Company determined to create a
class of common shares (to be denominated as Class B shares) equal in all
respects to the Company's existing shares (to then be denominated as Class A
shares) but for the fact that such Class B shares would enjoy 1/100th of the
voting rights of the Company's original (now to be called Class A) shares.
The shares existant at the second phase of the DCP acquisition were the
Company's original shares and became denominated as the Company's Class "A"
shares which were the earlier subject of a "Form 10" filing made by Alpha
Energy and Gold, Ltd. on September 28, 1981, with the Securities and Exchange
Commission ("SEC"). By virtue of this Form 10 filed by Alpha Energy and Gold,
Ltd. prior to Alpha's statutory merger with Century, these shares (now called
Century's Class A common shares) became registered pursuant to Section 12(g) of
the Securities and Exchange Act of 1934.
On October 22, 1996, Century Industries amendment to its Articles of
Incorporation was approved by the Corporations Division of the District of
Columbia, and Century Industries was, as a result thereof, authorized to issue
25,000,000 shares of Class B common voting shares, such shares equal and
equivalent, in all respects, to its Class A shares covered by the
aforedescribed Form 10 (and thus registered under 12(g)) but for the fact that
such Class B common voting (par $.001) shares enjoy 1/100th of the voting power
per share as do the Company's Class A common voting (par $.001) shares.
As of June 30, 1997, as to Century's Class A common voting (par $.001) shares,
there exist 3,096,000 shares thereof registered under Section 12(g) by virtue
of the aforedescribed Form 10.
The Company has received listing approval for its Class A common voting (par
$.001) shares on the Philadelphia Stock Exchange (PHLX), and, accordingly,
seeks to register such shares for Philadelphia Stock Exchange (PHLX) trading
under 12(b) by the filing of a Form 8-A.
The Company also seeks to register its Class B (par $.001) common voting shares
by the filing of this Form 10, thus seeking to register such shares under
Section 12(b).
28
<PAGE> 29
Should such registration by the Form 10 filed by Century in reference to its
Class B (par $.001) common voting shares become effective, the Company then
intends to seek to register such shares for trading on the Philadelphia Stock
Exchange (PHLX) under Section 12(b) by the filing of a Form 8-A.
But for the 1/100th voting power of the Class B (par $.001) common voting
shares of the Company vis a vis the Company's Class A (par $.001) common voting
shares, the shareholders of each class are entitled to: a) in either 1:1 or
1:100 (depending of whether Class A or Class B common voting shares) ratio a
non-cumulative vote for each shareholder of record on all matters submitted to
a vote of the shareholders, b) full and equal rights, regardless of whether
Class A or Class B common voting shares, to participate equally in and to
receive common stock dividends (if any) as may be declared by the Board of
Directors out of legally available funds, and c) to participate equally and
pro-rata, regardless of whether Class A or Class B common voting shares, in the
distribution of any and all assets available for distribution upon liquidation
of the Company.
All shareholders, regardless of whether Class A or Class B common voting shares
have no pre-emptive rights to acquire additional shares of the Company's common
stock or any other of its securities, and all outstanding shares of common
stock are non-assessable.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There exists no statute, provision in the charter, by-laws, contract or other
arrangements that insures or indemnifies a controlling person, director or
officer of the Company which effects his or her liability in his or her
capacity as a controlling person, director or officer of the Company.
29
<PAGE> 30
ITEM 13. Financial Statements
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-19
</TABLE>
F-1
<PAGE> 31
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> 32
[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> 33
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> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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-10
<PAGE> 40
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-11
<PAGE> 41
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-12
<PAGE> 42
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-13
<PAGE> 43
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-14
<PAGE> 44
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-15
<PAGE> 45
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-16
<PAGE> 46
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-17
<PAGE> 47
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-18
<PAGE> 48
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-19
<PAGE> 49
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are not now, nor have there been, 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).
30
<PAGE> 50
FINANCIAL INFORMATION
ITEM 15 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
Management's Analysis of Financial Condition
and Results of Operations
<PAGE> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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
<PAGE> 72
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statements to be signed on its behalf
by the undersigned, thereunto duly authorized.
September 5, 1997
Century Industries, Inc.
/s/ Ted L. Schwartzbeck
- ------------------------------------------
Ted L. Schwartzbeck, President and CEO
31
<PAGE> 73
The following Exhibits are attached as required by Small Business Issuers:
(l) 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 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) Report Furnished to Security Holders. Not applicable.
(20) Other documents or statements to security holders. Not applicable.
(21) Subsidiaries of the registrant - Attached.
(22) Published report regarding matters submitted to vote of security holders.
Not applicable.
32
<PAGE> 74
(23) Consent of experts and counsel - Not applicable.
(24) Power of attorney - Not applicable.
(25) Statement of eligibility of trustee - Not applicable.
(26) Invitations for competitive bids - Not applicable.
(27) Financial Data Schedule - Attached.
(28) Additional Exhibits. - Not applicable.
(29) Info from reports furnished to State Insurance Authorities. Not
applicable.
33
<PAGE> 1
Exhibit 21.
21. 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.
<TABLE>
<CAPTION>
Name of State of
subsidiary Incorporation Does business as
- ----------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
34
<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>
