<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998
Commission File Number: 0-9969
May 20, 1998
CENTURY INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
District of Columbia 54-1666769
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45034 Underwood Lane
Sterling, Va. 20166
(Mail) P.O. Box 319
Sterling, Va. 20167
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
--- ----
(2) Yes X No
--- ----
At March 31, 1998, 3,103,798 shares of the Registrant's $.001 par value Class A
common stock were issued and outstanding after deducting 269,202 Class A shares
classified as treasury stock, and 4,310,428 shares of the Registrant's $.001
par value Class B common stock were issued and outstanding.
<PAGE> 2
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements F1
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 F2-3
Consolidated Statements of Operations for the three
months ended March 31, 1998 and December 31, 1997 F4
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended March 31, 1998 F5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 F6-7
Notes to Consolidated Financial Statements F8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
</TABLE>
<PAGE> 3
FINANCIAL STATEMENTS
In the opinion of the management of Century Industries, Inc. and
subsidiaries (the Company), the accompanying unaudited interim
consolidated financial statements contain all adjustments necessary of
a fair presentation of the Company's financial condition as of March
31, 1998 and December 31, 1997, and the results of its operations and
cash flows for the three month periods ended March 31, 1998 and 1997.
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations, although
the Company's management believes that the disclosures and information
presented are adequate and not misleading. Reference is made to the
detailed financial statement disclosures which should be read in
conjunction with this report and are contained in the notes to
consolidated financial statements included in the Company's Annual
Report Form 10-KSB/A for the year ended December 31, 1997. Certain
items in prior period consolidated financial statements have been
reclassified, where appropriate, to conform with the March 31, 1998
presentation.
F-1
<PAGE> 4
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS 3/31/98 12/31/97
-------------- ------- --------
<S> <C> <C>
Cash and Cash Equivalents $ 119,230 $ 282,009
Accounts Receivable-Trade (Net of allowance
for doubtful accounts of
$120,000 in 1998 and 1997) 2,021,745 1,907,446
Inventory 234,207 256,695
Marketable Securities 130,059 106,952
Other Current Assets 442,193 572,462
----------- ---------
Total Current Assets 2,947,434 3,125,564
----------- ---------
Property and Equipment
----------------------
Land and Building 361,475 -------
Software and Computer Equipment 2,031,253 1,997,743
Furniture and Fixtures 806,744 779,941
Machinery and Equipment 44,326 15,875
Transportation Equipment 215,429 215,429
Leasehold Improvements 159,251 151,878
----------
3,618,478 3,160,866
Less: Accumulated Depreciation (1,136,966) (1,083,443)
----------- -----------
Net Property and Equipment 2,481,512 2,077,423
---------- ----------
Other Assets
------------
Investments 1,126,950 991,842
Deferred Costs 891,791 726,666
Security Deposits 99,413 106,779
Goodwill, Net 1,946,915 1,949,035
Due from Related Parties 68,422 128,422
Other Assets 482,662 337,316
------------ ---------
Total Other Assets 4,616,153 4,240,060
------------ ----------
Total Assets $ 10,045,099 $9,443,047
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 5
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
<S> <C> <C>
Current Liabilities
- -------------------
Accounts Payable - Trade $ 1,389,481 $ 1,732,486
Current Maturities - Long Term Debt and Mortgages 273,443 260,267
Capital Lease Obligations 90,385 90,385
Notes Payable 200,000 125,000
Advances from Stockholders -------- 179,601
Accrued Expenses 1,669,935 1,442,004
Dividends Payable 16,389 16,389
------------ -----------
Total Current Liabilities 3,639,633 3,846,132
Long Term Notes and Mortgages Payable, Less Current Portion 899,723 555,926
- -----------------------------------------------------------
Capital Lease Obligations, Less Current Portion 133,338 155,848
- ----------------------------------------------- ------------ -----------
Total Liabilities 4,672,694 4,557,906
------------ -----------
Minority Interest 31,250 38,250
------------ -----------
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, 3,373,000 issued 3,373 3,373
Common Stock, Class B, $.001 par value, 25,000,000 shares
authorized, 4,310,000 and 4,173,000 issued and outstanding 4,310 4,173
Additional Paid in Capital 7,561,496 6,917,089
Retained Deficit (1,366,469) (1,216,189)
------------- ------------
6,203,710 5,709,446
Less: Class A common stock in treasury, 269,202
shares in 1998 and 1997 (862,555) (862,555)
------------ -----------
Total Stockholders' Equity 5,341,155 4,846,891
------------ -----------
Total Liabilities and Stockholders' Equity $ 10,045,099 $ 9,443,047
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 6
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $ 3,070,052 $3,804,818
Cost of Sales 1,934,499 1,993,598
----------- ---------
Gross Profit on Sales 1,135,553 1,811,220
----------- -----------
Operating Costs
- ---------------
Payroll Expense 543,180 724,388
Professional Fees 86,444 48,006
Auto, Travel and Entertainment 49,622 92,722
Amortization and Depreciation 138,957 73,980
Other 451,408 550,933
----------- --------
Total Operating Costs 1,269,611 1,490,029
----------- -----------
Income (Loss) From Operations (134,058) 321,191
------------ -----------
Other Income (Expense)
- ----------------------
Interest Expense (35,977) (43,460)
Minority Interest ------- (42,185)
Other Income (Expense)-Net (5,567) (20,605)
------------ --------
Total Other Income (Expense) - Net (41,544) (106,250)
------------ ------------
Income (Loss) Before Taxes (175,602) 214,941
Income Tax Provision (Benefit) (14,520) 12,000
------------ -----------
Net Income (Loss) $ (161,082) $ 202,941
Preferred Stock Dividends of Subsidiaries --------- (141,950)
----------- ------------
Net Income (Loss) Available for Common Stockholders $ (161,082) $ 60,991
============= ============
Earnings (Loss) Per Share:
Basic and Diluted Earnings (Loss) Per Share $(0.02) $0.01
======= =====
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 7
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL RETAINED
PREFERRED STOCK STOCK PAID-IN EARNINGS
STOCK CLASS A CLASS B CAPITAL (DEFICIT)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 $ 1,000 $ 3,373 $ 4,173 $ 6,917,089 $ (1,216,189)
- -------------------------
Issuance of common stock and limited 137 644,407
partnership units
Unrealized gain on marketable securities 10,802
Net loss for three months ended 3/31/98 (161,082)
------- -------- -------- ------------ --------------
Balance March 31,1998 $ 1,000 $ 3,373 $ 4,310 $ 7,561,496 $ (1,366,469)
======= ======= ======= =========== =============
<CAPTION>
TOTAL
TREASURY STOCKHOLDERS'
STOCK EQUITY
------------------------------------------
<S> <C> <C>
Balance December 31, 1997 $ (862,555) $ 4,846,891
- -------------------------
Issuance of common stock and limited 644,544
partnership units
Unrealized gain on marketable securities 10,802
Net loss for three months ended 3/31/98 (161,082)
----------- --------------
Balance March 31,1998 $ (862,555) $ 5,341,155
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 8
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
3/31/98 3/31/97
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Cash received from customers $ 2,955,753 $ 3,412,961
Cash paid to suppliers and employees (3,127,547) (3,652,165)
Interest received 943 -------
Interest paid (35,977) (43,460)
Income taxes paid ------ (12,000)
----------- ------------
Net cash used for operating activities (206,828) (294,664)
------------ ------------
Cash Flows from Investing Activities:
- -------------------------------------
Purchases of fixed assets (457,612) (76,709)
Purchases of marketable securities and investments (158,215) (113,302)
------------ ------------
Net cash used for investing activities (615,827) (190,011)
------------ ------------
Cash Flows from Financing Activities:
- -------------------------------------
Proceeds from stock and limited partnership units 430,014 1,534,579
Preferred dividends paid ------ (92,368)
Receipts of (payments on) notes 409,463 (105,926)
Net advances from affiliates-stockholders (179,601) (11,933)
------------ ------------
Net cash provided by financing activities 659,876 1,324,352
----------- -----------
Net (Decrease) Increase In Cash and Cash Equivalents (162,779) 839,677
- ----------------------------------------------------
Cash and Cash Equivalents - January 1 $ 282,009 $ 382,548
- ------------------------------------- ----------- -----------
Cash and Cash Equivalents - March 31 $ 119,230 $ 1,222,225
- ------------------------------------ ============ ===========
Net (Loss) Income $ (161,082) 202,941
Amortization and depreciation 138,957 73,980
Minority interest (7,000) 42,185
Increase in accounts receivable (114,299) (391,857)
(Increase) decrease in inventory 22,488 (5,393)
(Increase) decrease in other current assets and other assets 29,182 (361,760)
Decrease in accounts payable (343,005) (141,369)
Increase in accrued expenses 227,931 286,609
----------- -------
Net cash used for operating activities $ (206,828) $ (294,664)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 9
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
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 quarters ended March 31, 1998 and 1997, the Company recognized an
unrealized gain of $10,802 and an unrealized loss of $1,061, 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 $10,802 and decreased by $1,061 for the quarters ended March 31,
1998 and 1997, respectively.
Dividends of $141,950 were accrued and charged to retained earnings for the
quarter ended March 31, 1997.
See accompanying notes to consolidated financial statements
F-7
<PAGE> 10
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Century
Industries, Inc. and Subsidiaries (the Company) 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/A for the year ended
December 31, 1997. Certain items in prior period consolidated financial
statements have been reclassified, where appropriate, to conform with the March
31, 1998 presentation. The December 31, 1997 balance sheet was derived from
audited consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2- INTERIM PERIODS
In the opinion of the management of the Company, the accompanying unaudited
interim consolidated financial statements contain all adjustments (which are of
a normal recurring nature) necessary for a fair presentation of the Company's
financial condition as of a March 31, 1998 and December 31, 1997, and the
results of its operations and cash flows for the three month periods ended
March 31, 1998 and 1997. The results of operations for the three months ended
March 31,1998 are not necessarily indicative of the results to be expected for
the full year.
NOTE 3-PER SHARE DATA
Per share data was computed by dividing net income (loss) as adjusted by the
preferred dividends by the weighted average number of shares outstanding during
the period.
NOTE 4- BUILDING AND RELATED MORTGAGES
The Company closed on an office condo building located in Reston, Virginia
during the first quarter of 1998. This facility, which cost approximately
$360,000, will house the Company's corporate office and USIB and USIB Holdings
insurance operations.
The facility was financed with a $281,250 first trust mortgage loan from a
bank. The first trust mortgage loan bears a 9% interest rate and has a three
year maturity with monthly principal and interest payments based on a fifteen
year amortization. Additional financing of $37,500 was provided through a
second trust mortgage loan from a financial institution. The second trust
mortgage bears interest at 13% and has a term of three years. The second trust
loan carries monthly interest payments only until the loan is paid in full.
Monthly interest will be adjusted accordingly for any partial repayments of
principal.
F-8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Century Industries, Inc. in Consolidation
with its Subsidiaries
The Company has grown by acquisition since late 1995. The first quarter 1998
results reflect the Company's continuing growth in assets and capital over the
prior year's first quarter, but reflect a relatively small consolidated net
loss due to the costs of financing the continuing growth of its subsidiaries
(described elsewhere herein).
Its consolidated assets increased to $10,045,099 at first quarter 1998 from
$9,443,047 at 12-31-97, a 6% increase. Consolidated capital has increased from
$4,846,891 at 12-31-97 to $5,341,155 in 1998, a 10% increase.
With respect to the operating subsidiaries, Scibal Associates was profitable,
and Century Steel Products had a small loss as discussed below, but overall,
the operating subsidiaries were profitable. Additional operating losses were
experienced by USIB attributable to USIB's and USIB Holdings LP's costs
associated with the go forward plan described elsewhere herein, and the
maintenance costs of the Parent Company. The operating income for each
subsidiary and the parent company, and in consolidation is shown as follows:
<TABLE>
<CAPTION>
Century USIB Scibal CNTI
Steel Products & Holdings Claims Parent Total
-------------- ---------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,104,575 -0- 1,965,477 -0- 3,070,052
Operating Income (63,527) (193,456) 144,112 (21,187) (134,058)
Income (Loss)
before taxes (70,398) (193,720) 109,703 (21,187) (175,602)
Provision for taxes 14,520
Net Income Available for Common Stockholders (161,082)
</TABLE>
It should be noted that CSP and Scibal jointly had operating income of $80,585
on revenues of $3,070,052, USIB and USIB Holdings LP lost ($193,456) as
development stage subsidiaries, and maintenance costs for the Registrant were
($21,187), resulting in a consolidated income (loss) before taxes of
($175,602). Operating earnings (loss) per common share were ($.02) per share
for the quarter.
Consolidated first quarter sales were $3,070,052, a decrease of $734,766 from
first quarter sales of $3,804,818 in 1997. Consolidated gross profit decreased
from $1,811,220 in 1997 to $1,135,553 in 1998. Consolidated operating costs
decreased concomitantly from $1,490,029 in 1997 to $1,269,611 in 1998. The
consolidated operating income from operations was ($134,058) in 1998, a
decrease from the $321,191 for the same period in 1997.
The earnings (loss) per share was ($.02) for the first quarter of 1998, a $.03
decrease over the $.01 earned in the first quarter 1997. Outstanding shares
increased from 6,096,000 in first quarter 1997, to 7,414,226, after deducting
269,202 Class A shares classified as treasury stock, in the first quarter 1998,
due to final preferred stock conversions and Class B quarterly stock dividends
being paid to former USIB preferred shareholders at the rate of 8% per annum,
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<PAGE> 12
to those preferred investors who have been unable to liquidate their Class B
shares received after converting from USIB preferred stock to Class B stock of
the Company.
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.
FUTURE PROSPECTS: TRENDS AND EVENTS LIKELY TO MATERIALLY IMPACT REGISTRANT'S
SHORT AND LONG TERM LIQUIDITY, REVENUES AND INCOME FROM CONTINUING OPERATIONS
CSP's, USIB's and Scibal's management teams expect to increase their respective
revenues and earnings substantially in 1998 through the Company's go forward
business plan described elsewhere herein, and Management continues to believe
that its investment in that program will provide a substantial return on that
investment. The Company's focus for 1998 is its formation and capitalization of
a new Florida insurance company to take advantage of the State of Florida JUA
Homeowners Insurance TakeOut Program.
USIB Holdings, LP, whose general partner is USIB, has expended funds to cover
legal, auditing and compliance expenses, as well as the go forward expense
associated with the underwriting of the offering which is planned to finance
the Florida insurance JUA Program.
On March 5, 1998, the Company entered into two Letters of Intent with an NASD
member firm. The first letter of intent covers a $7,000,000 private placement
of Senior Callable Convertible Preferred shares, the proceeds of which are to
fund the formation and capitalization of the proposed new Florida insurance
company. The second letter of intent covers a public offering of an additional
$12,000,000 to $15,000,000 of Senior Callable Convertible Preferred shares, the
proceeds of which are generally to be used for further insurance related
acquisitions. In addition, the proposed registered offering will include the
registration of the privately placed shares.
Management projects that the proposed Florida insurance company will earn
substantial revenues of its own, while providing Scibal Associates with
additional claims adjustment revenues, and USIB with service fees as the
insurance company's Managing General Agent.
The proposed Florida insurance company is projected to have first year revenues
of $40,000,000, and first year's earnings are projected at $3,800,000,
exclusive of the revenues and profits it is expected to generate for both
Scibal Associates and USIB. Sixteen insurance companies have participated in
the Florida JUA Program to date and claims have averaged 25% of net premiums
after reinsurance costs.
The Company intends to organize Century Property and Casualty Insurance Company
(the "Insurance Company") under Florida law as a multiple line property and
casualty insurer licensed in the State of Florida. The Company will use
approximately $5.3 million of the proceeds of this Private Offering to provide
the capital and surplus which the Insurance Company will need in order to be
able to participate in the Market TakeOut Program of the Florida Residential
Property and Casualty Joint Underwriting Association (the "JUA").
-3-
<PAGE> 13
The JUA was established by the Florida Legislature in 1992 as a temporary
measure to provide homeowners' insurance coverage for individuals who could not
obtain such coverage from private carriers by reason of the impact that
Hurricane Andrew had on the private insurance market. However, instead of
serving as a temporary source of emergency insurance coverage, as originally
intended, the JUA has become a significant provider of original and renewal
insurance coverage for Florida homeowners.
The proposed Florida insurance company's initial business operations will
consist of providing property and casualty insurance coverage through
homeowners insurance policies that are acquired from the JUA. The Company
anticipates that the proposed Florida insurance company will acquire between
30,000 and 60,000 policies from the JUA within the first year of the proposed
Florida insurance company's operations, representing approximately $40,000,000
in annual renewal premiums. The Company further anticipates that the proposed
Florida insurance company will offer homeowners property and casualty insurance
in Florida in the voluntary insurance market through independent agents. The
earnings of the proposed Florida insurance company from policy premiums will be
supplemented by the generation of investment income from investment policies
adopted by the proposed Florida insurance company's Board of Directors.
Principal investment goals will be to maintain safety and liquidity, enhance
equity values and achieve an increased rate of return consistent with Florida's
regulatory requirements.
The Company expects to rely on the use of reinsurance to limit the amount of
risk retained under its policies and to increase its ability to write
additional risk. The Company's intention is to limit the exposure and
therefore protect its capital, even in the event of catastrophic occurrences,
through reinsurance agreements that transfer the risk of loss in excess of
$1,000,000.
The property and casualty reinsurance industry is subject to the same market
conditions as the direct property and casualty insurance market. Today there is
an over capacity of limits, with very competitive rates. The required
(catastrophe) limits would probably be $75,000,000 excess of $1,000,000
retention, with individual policies written on a fifty-fifty quota share basis.
The Company's research has revealed that, in the absence of a major
catastrophe, homeowners' insurance claims in Florida have been averaging
approximately 22% of net premium annually, or approximately $4,400,000 on
$20,000,000 of net premium. Prior to the occurrence of hurricane Andrew in
1994, many insurance companies maintained very concentrated coverage exposures
in Monroe, Dade, Broward and Palm Beach Counties in Florida. After Hurricane
Andrew, many insurers chose not to write homeowners insurance in Florida.
Florida ultimately implemented the JUA program to cover the resulting shortfall
in coverage availability. The JUA is now providing to all insurers who qualify
an opportunity to "depopulate" the JUA pool through assumption of a pro rata
cross section of state-wide risks in all zip codes, so that no insurer will
have a concentration in the above-mentioned counties.
The Company's actuarial projections indicate that, if another Andrew-force
hurricane occurs, the proposed Florida insurance company's losses will be
capped at $5,000,000 on each
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<PAGE> 14
tranche of $40,000,000 in premium. By reason of the fact that the proposed
Florida insurance company will have initial capital and surplus of
approximately $5,300,000, it will receive, pursuant to the regulations which
govern the JUA program, a "Surplus Bonus" of $3,700,000. Accordingly, the
proposed Florida insurance company will have aggregate beginning capital and
surplus of approximately $9,000,000.
The proposed Florida insurance company expects to receive a minimum bonus
payment of approximately $3,700,000 based on a portfolio of approximately
30,000 to 60,000 policies. Bonus payments must be held in escrow for three
years, during which time the funds can be utilized for statutory reserves, but
may otherwise only be used for certain prescribed purposes, such as payment of
claims. After the three-year period, the Insurance Company will have
unrestricted use of the bonus payment funds. Additionally, the Insurance
Company will have investment income from the bonus payments, which will be made
available at the end of the three years.
The proposed Florida insurance company's initial business operations will
consist of providing property and casualty insurance coverage through
homeowners insurance policies that are acquired from the JUA. The Company
anticipates that the proposed Florida insurance company will acquire between
30,000 and 60,000 policies from the JUA within the first year of the proposed
Florida insurance company's operations. The Company further anticipates that
the insurance company will offer homeowners' property and casualty insurance in
Florida in the voluntary insurance market through independent agents. The
earnings of the proposed Florida insurance company from policy premiums will be
supplemented by the generation of investment income from investment policies
adopted by the proposed Florida insurance company's Board of Directors.
Principal investment goals will be to maintain safety and liquidity, enhance
equity values and achieve an increased rate of return consistent with Florida's
regulatory requirements.
The Company has entered into an agreement with Joseph P. DeAlessandro, a
Director of the Company, to manage the new Florida insurance company as a full
service manager. Mr. DeAlessandro is presently the CEO of European American
Group, and its subsidiaries, Rutgers Insurance Co., and Kentucky National
Insurance Co. He was formerly a Senior Executive with Gulf Insurance Co.,
Travelers Insurance Co., and American International Group (AIG). He serves on
the Board of Directors of Smith Barney Trust Co., and the New Jersey Insurance
Advisory Board.
SUBSIDIARIES' FIRST QUARTER RESULTS OF OPERATIONS
Century Steel Products, Inc. (CSP)
CSP's first quarter manufacturing revenues always reflect the nation's winter
weather in the steel subsidiary's marketing area, and manufacturing revenues
reflect winter conditions in general. In spite of the weather, CSP's sales were
10% greater than first quarter 1997, even though commercial and residential
construction volumes were generally consistent with 1997 in the region.
-5-
<PAGE> 15
CSP's sales of $1,104,575 for the first quarter 1998 were $99,276 or 10%
greater than $1,005,299 for the 1997 first quarter.
CSP's trade debt was $731,169 as compared to $451,120 in the first quarter of
1997.
CSP's first quarter 1998 operating loss was ($63,527), this being considerably
lower than the 1997 first quarter's 1997 operating profits of $211,712.
This earnings decrease is attributed to CSP's increasing dependence on
fabrication and installation projects (which have contributed to its increased
revenues), as CSP must substantially complete those projects before the revenue
recognition therefrom can be recognized. CSP anticipates implementing a work in
process account during the 2nd quarter 1998 to properly reflect its expenses on
those projects while they are in the process of completion.
U.S. Insurance Brokers, Inc.
The $40,000,000 first year revenue projections for the new Florida insurance
subsidiary provide for a $2,000,000 service fee for USIB as the MGA. USIB will
facilitate the liaison and agency plant supervision for the Florida insurance
agents providing the sales for the Florida insurance subsidiary. USIB will also
be responsible for cross marketing the sale of other insurance products to the
Florida homeowners it will already be writing. These products will include
automobile, accident and health insurance.
USIB will be the managing general agency for Century Property & Casualty. Its
primary function will be the marketing of insurance products for Century
Property & Casualty, and acting as a licensed agency liaison, coordinating
Century Property & Casualty functions between Century Industries, Century
Property & Casualty and Century Insurance Management, Inc.
USIB, organized in April 1995 under the laws of the District of Columbia, has
its domiciliary 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 11708 Bowman Green Drive, Reston, VA 20190.
Results of Operations
USIB's first quarter 1998 operating loss was ($40,554), a decrease of 43% from
the operating loss of ($71,226) in 1997. This loss resulted from continued
operating and development costs related to its national association marketing
programs and its plan to act as the MGA for the proposed Florida insurance
subsidiary.
Scibal Associates, Inc.
In 1996 the Company acquired DC Partners, Ltd. (DCP), in Somers Point, NJ.
Scibal Associates, Inc., (Scibal), formerly the wholly owned subsidiary of DC
Partners, Ltd., is a third party claims administrator (TPA) , adjusting and
settling claims for both insurance companies
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<PAGE> 16
and self insured companies and institutions. Scibal adjusts in excess of
$80,000,000 of claims annually. Scibal is now a wholly owned subsidiary of
USIB, as DCP and USIB merged with USIB surviving the merger.
Scibal has been in business for 45 years, and specializes in workers
compensation and all phases of commercial liability claims administration. In
administering these programs, Scibal offers its customers a full range of
services, including claims adjusting and administration, risk management as
well as the full complement of reporting required for both program management
by the customer as well as for regulatory compliance.
Workers compensation and liability payments total in the tens of billions each
year, and the number of entities which are self insuring and administering this
aspect of their operations continues to grow. With its dual IBM AS 400 computer
systems running internally developed proprietary claims administration and
reporting software, Scibal is well positioned to add new customers.
The customer base of Scibal consists of municipal and other government-related
entities, primarily in New Jersey, as well as an expanding base of national and
regional industrial, retail and service corporations. A representative list of
Scibal's clients includes Temple University, Princeton University, Masco
Corporation, Sequa Corporation, Burlington Coat Factory Warehouse Corporation,
Sentinel Real Estate, the City of Jacksonville, the Jacksonville Electric
Authority and the Jacksonville Jaguars football team organization.
Scibal's customers are comprised of clients of long standing, no one of which
is significant to the company. Being a service provider, there is no dependence
on any major supplier.
While competition in the claims administration industry is substantial, it has
evolved in the 90's into an industry where the administrator must be hardware
and software intensive, and the software must be developed internally and is
therefore proprietary. Scibal has the capacity to create, maintain and utilize
this software and is very competitive in the claims administration software
industry. Additionally, it has its 45 year track record of performance and
integrity in its operations and results on behalf of its clients, and handles
claims administration deposits for its clients.
Scibal has an experienced staff of computer programmers. These programmers are
continuously improving and enhancing the proprietary claims handling software.
Additionally, there is an effort underway at the company to write the "next
generation" of software, which will take advantage of Internet access,
electronic claims reporting, and data warehousing for its customers. The new
system will enable the company to better leverage its adjusters against case
loads, which will lead to higher profit margins while maintaining competitive
pricing. The features and functionality offered are singular, which should
provide Scibal with a substantial sales advantage in the near future.
Claims administration fees currently mirror the "soft" market in the entire
insurance industry. Rates are presently so competitive that they are stagnant
or reducing and have been for the last 4 years. Profit margins are slimmer in
soft markets, but markets are cyclical, and have
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<PAGE> 17
historically upturned and rates become "hard" for an undetermined cycle after
they have remained soft for an undetermined cycle.
Scibal presently employs approximately 120 persons. None of the employees are
represented by labor unions so the company is not vulnerable to union demands
or the threat of a strike. Employee turnover is at a rate consistent with or
lower than the industry average, with a majority of the employees having been
with the company for more than three years.
Results of Operations
Scibal's revenues of $1,965,477 for the 1998 first quarter were $834,042 lower
than the first quarter of 1997 revenues of $2,799,519, a reduction of 30%. This
reduction was due to management's continued objective of replacing less
profitable accounts with accounts where profit margins are greater.
Scibal's trade debt was $642,174 in 1998 as compared to $1,037,654 in the first
quarter of 1997, a concomitant reduction of 38%.
Scibal's first quarter 1998 operating income of $144,112 was $46,409 lower than
the 1997 first quarter's operating income of $190,521, a reduction of 24%.
However, Scibal's operating income for first quarter 1998 was 7.3% of revenues,
and operating income for first quarter 1997 was 6.8% of revenues. Operating
income therefore has increased as a percentage of revenues over the previous
year.
USIB Holdings Limited Partnership
USIB Holdings LP was formed in 1997 for the purpose of acting as an acquisition
entity for the proposed acquisition of Reinsurance Corporation of America,
which management has been in active negotiations to purchase for approximately
one year.
This entity was formed as a Limited Partnership, with USIB as its General
Partner, in order that the Company could utilize David Scibal's 727,273 Class B
warrants, which he contributed as capital to the LP, as consideration for the
go forward business plan as capital. This reduced the potential dilution of the
Company's shares after the securities underwriting which is planned for
financing the new Florida insurance subsidiary. Mr. Scibal, in effect, was
willing to participate in the go forward profits as a 20% investor rather than
exercise and sell the Class B shares underlying his warrant based upon his
demand registration rights which originally attached to his warrants.
The limited partnership will also provide favorable tax advantages to the
Company in that earnings upstreamed to the holding entity by any newly acquired
company can be upstreamed to the Company without being taxed in the holding
entity (USIB Holdings, LP) prior to being recognized as consolidated income by
the parent holding company, Century Industries, Inc.
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<PAGE> 18
The USIB Holdings, LP is being managed and operated by USIB as its General
Partner, and thus the information regarding USIB as explained herein will again
satisfy most of the informational requirements of the USIB Holdings, LP.
Results of Operations
USIB Holdings, LP had a first quarter 1998 development stage operating loss of
($152,902).
This operating earnings loss is attributed to the go forward expenses connected
with the acquisition of Reinsurance Corporation of America and the formation of
the proposed Florida property & casualty insurance company.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
The Company's and its subsidiaries' primary sources of capital are their
accounts receivable, their bank credit lines, and their private placement of
convertible securities from time to time.
Consolidated accounts receivable were $2,021,745 at March 31, 1998, an
increase of $365,978 over its accounts receivable of $1,655,767 at March
31, 1997, a 22% increase.
The Company has entered into two Letters of Intent with an NASD member firm in
New York City. The Company has agreed to pay the underwriter's legal and due
diligence fees associated with the offering, which are anticipated to be
approximately $85,000.
Consistent with the relationship with its underwriter, the Company has further
retained insurance counsel to represent the Company in the application process
for the proposed Florida insurance subsidiary, and other professionals who have
assisted with the insurance business plan, proposed reinsurance matters,
management considerations, etc. The Company believes that the proceeds of the
underwriting will be sufficient to capitalize the proposed Florida insurance
company and to provide its operations with sufficient working capital and
surplus to finance its future operations.
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<PAGE> 19
PART II - Other Information
ITEM 1. Legal Proceedings
NONE
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits and Reports on Form 8-K
NONE
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
May 20, 1998
Century Industries, Inc.
\S\ Ted L. Schwartzbeck
---------------------------------------------
Ted L. Schwartzbeck, President and CEO
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<PAGE> 20
INDEX TO EXHIBITS
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. Attached hereto.
(12) Statement re computation of ratios. Not applicable.
(13) Annual or quarterly reports, Form 10-Q or quarterly report to security
holders. 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 re 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 as Exhibit (21).
(22) Published report regarding matters submitted to vote of
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<PAGE> 21
security holders. Not applicable.
(23) Consents 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. Not applicable.
(28) Information from reports furnished to State Insurance Authorities. Not
applicable.
(29) Additional Exhibits. Not applicable.
-12-
<PAGE> 1
EXHIBIT 11
CENTURY INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended March 31, Ended March 31,
1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares Outstanding......................................... 7,683,000 6,096,000
Weighted average shares outstanding................ 7,500,000 5,500,000
Net Income (Loss)........................................... $ (161,082) $ 202,941
Preferred Dividends ---------- (141,950)
---------- -----------
Total Net Income (Loss) Available for Common Stockholders' $ (161,082) $ 60,991
=========== ==========
Basic and Diluted Earnings (Loss) Per Share:
Earnings (Loss) Per Share $(0.02) $0.01
------ -----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 119,230
<SECURITIES> 130,059
<RECEIVABLES> 2,021,745
<ALLOWANCES> 120,000
<INVENTORY> 234,207
<CURRENT-ASSETS> 2,947,434
<PP&E> 2,481,512
<DEPRECIATION> (1,136,966)
<TOTAL-ASSETS> 10,045,099
<CURRENT-LIABILITIES> 3,639,633
<BONDS> 473,443
0
1,000,000
<COMMON> 7,414,226
<OTHER-SE> 6,203,710
<TOTAL-LIABILITY-AND-EQUITY> 10,045,099
<SALES> 3,070,052
<TOTAL-REVENUES> 3,070,052
<CGS> 1,934,499
<TOTAL-COSTS> 1,269,611
<OTHER-EXPENSES> (41,544)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,957
<INCOME-PRETAX> (175,602)
<INCOME-TAX> 14,520
<INCOME-CONTINUING> (161,082)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,082)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
