<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
Commission File Number: 0-9969
August 14, 1998
CENTURY INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
District of Columbia 54-1666769
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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.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
At June 30, 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 4,430,428 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 June 30, 1998
and December 31, 1997 F2-3
Consolidated Statements of Operations for the six
months ended June 30, 1998 and 1997 and for the three
months ended June 30, 1998 and 1997 F4 -5
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended March 31, 1998 and
June 30, 1998 F6
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 F7-8
Notes to Consolidated Financial Statements F9-10
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 June 30, 1998 and December 31, 1997, and the
results of its operations and cash flows for the six month periods ended June
30, 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 June 30, 1998 presentation.
F-1
<PAGE> 4
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS 6/30/98 12/31/97
- -------------- ------- --------
<S> <C> <C>
Cash and Cash Equivalents $ 181,658 $ 282,009
Accounts Receivable-Trade (Net of allowance
for doubtful accounts of
$120,000 in 1998 and 1997) 2,005,256 1,907,446
Inventory 236,729 256,695
Marketable Securities 128,362 106,952
Other Current Assets 562,484 572,462
----------- -----------
Total Current Assets 3,114,489 3,125,564
----------- -----------
Property and Equipment
- ----------------------
Land and Building 361,475 --------
Software and Computer Equipment 2,057,190 1,997,743
Furniture and Fixtures 829,441 779,941
Machinery and Equipment 50,508 15,875
Transportation Equipment 215,429 215,429
Leasehold Improvements 159,250 151,878
----------- -----------
3,673,293 3,160,866
Less: Accumulated Depreciation (1,243,496) (1,083,443)
----------- -----------
Net Property and Equipment 2,429,797 2,077,423
----------- -----------
Other Assets
- ------------
Investments 1,134,278 991,842
Deferred Costs 846,347 726,666
Security Deposits 104,463 106,779
Goodwill, Net 1,931,690 1,949,035
Due from Related Parties 86,346 128,422
Other Assets 377,535 337,316
----------- -----------
Total Other Assets 4,480,659 4,240,060
----------- -----------
Total Assets $10,024,945 $ 9,443,047
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 5
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
6/30/98 12/31/97
------- --------
Current Liabilities
- -------------------
<S> <C> <C>
Accounts Payable - Trade $ 1,314,703 $ 1,732,486
Current Maturities - Long Term Debt and Mortgages 315,434 260,267
Capital Lease Obligations 96,941 90,385
Notes Payable 200,000 125,000
Advances from Stockholders --------- 179,601
Accrued Expenses 1,740,448 1,442,004
Dividends Payable 16,389 16,389
----------- -----------
Total Current Liabilities 3,683,915 3,846,132
Long Term Notes and Mortgages Payable, Less Current Portion 810,934 555,926
- -----------------------------------------------------------
Capital Lease Obligations, Less Current Portion 103,796 155,848
- ----------------------------------------------- ----------- -----------
Total Liabilities 4,598,645 4,557,906
----------- -----------
Minority Interest 44,550 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, 4,430,000 and 4,173,000 issued and outstanding 4,430 4,173
Additional Paid in Capital 7,798,793 6,917,089
Retained Deficit (1,563,291) (1,216,189)
----------- -----------
6,244,305 5,709,446
Less: Class A common stock in treasury, 269,202
shares in 1998 and 1997 (862,555) (862,555)
----------- -----------
Total Stockholders' Equity 5,381,750 4,846,891
----------- -----------
Total Liabilities and Stockholders' Equity $10,024,945 $ 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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $6,436,813 $7,850,284
Cost of Sales 3,994,381 4,349,311
---------- ----------
Gross Profit on Sales 2,442,432 3,500,973
---------- ----------
Operating Costs
- ---------------
Payroll Expense 1,065,561 1,349,326
Professional Fees 320,268 139,358
Auto, Travel and Entertainment 103,964 174,963
Amortization and Depreciation 287,014 156,307
Other 929,159 1,063,121
---------- ----------
Total Operating Costs 2,705,966 2,883,075
---------- ----------
Income (Loss) From Operations (263,534) 617,898
---------- ----------
Other Income (Expense)
- ----------------------
Interest Expense (76,131) (80,073)
Minority Interest ( 6,300) (46,156)
Other Income (Expense)-Net (40,989) 113,622
---------- ----------
Total Other Income (Expense) - Net (123,420) (12,607)
---------- ----------
Income (Loss) Before Taxes (386,954) 605,291
Income Tax Provision (Benefit) (14,520) 70,200
---------- ----------
Net Income (Loss) $ (372,434) $ 535,091
Preferred Stock Dividends of Subsidiaries ------ (167,700)
---------- ----------
Net Income (Loss) Available for Common Stockholders $ (372,434) $ 367,391
========== ==========
Earnings (Loss) Per Share:
Basic and Diluted Earnings (Loss) Per Share $(0.05) $0.06
======= =====
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 7
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $3,366,761 $4,045,466
Cost of Sales 2,059,882 2,355,713
---------- ----------
Gross Profit on Sales 1,306,879 1,689,753
---------- ----------
Operating Costs
- ---------------
Payroll Expense 522,381 624,938
Professional Fees 233,824 91,352
Auto, Travel and Entertainment 54,342 82,241
Amortization and Depreciation 148,057 82,327
Other 477,751 512,188
---------- ----------
Total Operating Costs 1,436,355 1,393,046
---------- ----------
Income (Loss) From Operations (129,476) 296,707
---------- ----------
Other Income (Expense)
- ----------------------
Interest Expense (40,154) (36,613)
Minority Interest (6,300) (3,971)
Other Income (Expense)-Net (35,422) 134,227
---------- ----------
Total Other Income (Expense) - Net (81,876) 93,643
---------- ----------
Income (Loss) Before Taxes (211,352) 390,350
Income Tax Provision (Benefit) ------ 58,200
---------- ----------
Net Income (Loss) $ (211,352) $ 332,150
Preferred Stock Dividends of Subsidiaries ------ (25,750)
---------- ----------
Net Income (Loss) Available for Common Stockholders $ (211,352) $ 306,400
========== ==========
Earnings (Loss) Per Share:
Basic and Diluted Earnings (Loss) Per Share $(0.03) $0.05
======= =====
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 8
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30,1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
PREFERRED STOCK STOCK PAID-IN
STOCK CLASS A CLASS B CAPITAL
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1997 $1,000 $3,373 $4,173 $6,917,089
- -------------------------
Issuance of common stock and limited 137 644,407
partnership units
Unrealized gain on marketable securities
Net loss for three months ended 3/31/98
------ ------ ------ ----------
Balance March 31,1998 $1,000 $3,373 $4,310 $7,561,496
Issuance of common stock and limited
partnership units 120 237,297
Unrealized gain on marketable securities
Net loss for three months ended 6/30/98
Balance June 30, 1998 ------ ------ ------ ----------
$1,000 $3,373 $4,430 $7,798,793
====== ====== ====== ==========
<CAPTION>
RETAINED TOTAL
EARNINGS TREASURY STOCKHOLDERS'
(DEFICIT) STOCK EQUITY
--------------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1997 $(1,216,189) $(862,555) $4,846,891
- -------------------------
Issuance of common stock and limited 644,544
partnership units
Unrealized gain on marketable securities 10,802 10,802
Net loss for three months ended 3/31/98 (161,082) (161,082)
----------- --------- ----------
Balance March 31,1998 $(1,366,469) $(862,555) $5,341,155
Issuance of common stock and limited
partnership units 237,417
Unrealized gain on marketable securities 14,530 14,530
Net loss for three months ended 6/30/98 (211,352) (211,352)
Balance June 30, 1998 ----------- --------- ----------
$(1,563,291) $(862,555) $5,381,750
=========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 9
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
6/30/98 6/30/97
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Cash received from customers $ 6,339,003 $ 7,431,999
Cash paid to suppliers and employees (7,132,505) (8,167,645)
Interest paid (76,131) (80,073)
Income taxes paid ------- (70,200)
----------- -----------
Net cash used for operating activities (869,633) (885,919)
----------- -----------
Cash Flows from Investing Activities:
- -------------------------------------
Purchases of fixed assets (512,427) (162,641)
Purchases of marketable securities and investments (163,846) (680,058)
----------- -----------
Net cash used for investing activities (676,273) (842,699)
----------- -----------
Cash Flows from Financing Activities:
- -------------------------------------
Proceeds from stock and limited partnership units 1,285,477 2,130,241
Preferred dividends paid ------ (251,046)
Receipts of (payments on) notes 339,679 (138,934)
Net advances from affiliates-stockholders (179,601) (206,335)
----------- -----------
Net cash provided by financing activities 1,445,555 1,533,926
----------- -----------
Net Decrease In Cash and Cash Equivalents (100,351) (194,692)
- -----------------------------------------
Cash and Cash Equivalents - January 1 $ 282,009 $ 382,548
- ------------------------------------- ----------- -----------
Cash and Cash Equivalents - June 30 $ 181,658 $ 187,856
- ----------------------------------- =========== ===========
Net (Loss) Income $ (372,434) $ 535,091
Amortization and depreciation 287,014 156,307
Minority interest 6,300 46,156
Increase in accounts receivable (97,810) (618,285)
(Increase) decrease in inventory 19,966 (21,468)
(Increase) decrease in other current assets and other assets (593,330) (849,432)
Decrease in accounts payable (417,783) (352,683)
Increase in accrued expenses 298,444 218,395
----------- -----------
Net cash used for operating activities $ (869,633) $ (885,919)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 10
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 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 and for the six months ended June 30, 1998 and 1997,
the Company recognized unrealized gains of $14,530 and $4,909 and $25,332 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 for the quarters ended and for the six months ended
June 30, 1998 and 1997.
Dividends of $141,950 were accrued and charged to retained earnings for the
quarter ended June 30, 1997.
See accompanying notes to consolidated financial statements
F-8
<PAGE> 11
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 June 30, 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 June 30, 1998 and December 31, 1997,
and the results of its operations and cash flows for the six month periods
ended June 30, 1998 and 1997. The results of operations for the three and
six months ended June 30,1998 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-9
<PAGE> 12
NOTE 5 - SALE OF STOCK
On July 2, 1998 the Company announced that its placement agent, Security
Capital Trading, Inc., has commenced a Private Placement of $10 million of
Senior Callable Convertible Preferred Stock, the proceeds of which will be
utilized to capitalize the Company's proposed property and casualty insurance
subsidiary in Florida. The insurance company subsidiary will participate in
the State of Florida's Joint Underwriting Association (JUA) depopulation of
its homeowners program.
F-10
<PAGE> 13
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 second quarter 1998
results reflect the Company's continuing growth in assets and capital over the
prior year's second quarter, but reflect a consolidated net loss due to the
costs of financing the continuing growth of its subsidiaries (described
elsewhere herein) and the continuing overhead costs from the formation and
underwriting for the Registrant's proposed Florida property and casualty
insurance company subsidiary.
The Registrant's consolidated assets increased to $10,024,945 at second 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 $5,381,750 in second quarter 1998, an
11% increase.
For the second quarter, with respect to the operating subsidiaries, Scibal
Associates and Century Steel Products, were profitable. Additional operating
losses were experienced by USIB and 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 the second
quarter and 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 $ 1,460,811 -0- 1,905,950 -0- 3,366,761
Operating Income 140,472 (379,311) 128,097 (18,734) (129,476)
Income (Loss)
before taxes 113,938 (379,311) 72,755 (18,734) (211,352)
Provision for taxes -----
Net Income Available for Common Stockholders (211,352)
</TABLE>
It should be noted that CSP and Scibal jointly had operating income of $268,569
on revenues of $3,366,761, USIB and USIB Holdings LP lost ($379,311) as
development stage subsidiaries, and maintenance costs for the Registrant were
($18,734), resulting in a consolidated loss before taxes of ($211,352).
Operating earnings (loss) per common share were ($.03) per share for the
quarter.
Consolidated second quarter sales were $3,366,761, a decrease of $678,705 from
second quarter sales of $4,045,466 in 1997. Consolidated gross profit decreased
from $1,689,753 in 1997 to $1,306,879 in 1998. Consolidated operating costs
increased slightly from $1,393,046 in 1997 to $1,436,355 in 1998. The
consolidated operating income (loss) from operations was ($129,476) in 1998, a
decrease from the $296,707 for the same period in 1997.
-2-
<PAGE> 14
The Registrant's year to date 1998 revenues have decreased from $7,850,284 at
June 30, 1997 to $6,436,813, a decrease of $1,413,471 or 18%. Year to date
consolidated gross profit decreased from $3,500,973 at June 30, 1997 to
$2,442,432 in 1998. Year to date consolidated operating costs decreased from
$2,883,075 in 1997 to $2,705,966 in 1998. Year to date consolidated operating
income (loss) from operations was ($263,534) in 1998, a decrease of $881,432
from the $617,898 for the same period in 1997.
The earnings (loss) per share was ($. 03) for the second quarter of 1998, a $.08
decrease over the $.05 earned in the second quarter 1997. Outstanding shares
increased from 6,096,000 in second quarter 1997, to 7,534,226, after deducting
269,202 Class A shares classified as treasury stock, in the second 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, 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 the subsidiary accounts receivable to continue
to maintain 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
USIB and Scibal's management teams expect to increase their respective revenues
and earnings 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 ongoing through
Security Capital Trading, Inc., an NASD member firm, to finance the Florida
insurance JUA Program.
In the first quarter of 1998, the Company entered into two Letters of Intent
with Security Capital Trading, Inc., an NASD member firm. The first letter of
intent covers a $10,000,000 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.
-3-
<PAGE> 15
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").
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.
-4-
<PAGE> 16
The Company's research has revealed that, in the absence of a major
catastrophe, homeowners' insurance claims in Florida have been averaging
approximately 25% of net premium annually, or approximately $5,000,000 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 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
-5-
<PAGE> 17
on the Board of Directors of Smith Barney Trust Co., and the New Jersey
Insurance Advisory Board.
Mr. DeAlessandro was also appointed Chairman and Executive Counselor of the
Registrant during July, 1998, in a restructuring of the Company's Board. The
Board believes that Mr. DeAlessandro is the best qualified Director to lead the
Company as it begins to operate as an insurance holding company. Ted
Schwartzbeck and David Scibal, the former President and Chairman, respectively,
have assumed duties as Executive Vice Presidents of the Company, but remain as
President and CEO of their respective divisions.
SUBSIDIARIES' SECOND QUARTER RESULTS OF OPERATIONS
Century Steel Products, Inc. (CSP)
CSP's second 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
20% greater than second quarter 1997, even though commercial and residential
construction volumes were generally consistent with 1997 in the region.
CSP's sales of $1,460,811 for the second quarter 1998 were $239,284 or 20%
greater than $1,221,527 for the second quarter 1997. CSP's trade debt was
$753,030 as compared to $428,091 in the second quarter of 1997. CSP's trade
receivables for the second quarter were $1,466,660, a 63% increase over the
$897,952 for the second quarter 1997. CSP's second quarter 1998 operating
profit was $140,472, this being higher than the second quarter 1997 operating
profits of $35,361.
CSP's year to date sales of $2,565,386 through the second quarter 1998 were
$338,560 or 15% greater than $2,226,826 for the same period of 1997. CSP's year
to date 1998 operating profit was $76,945, this being lower than the operating
profits for the same period of 1997 of $245,273.
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.
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.
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<PAGE> 18
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.
In the third quarter, 1998, USIB, working in conjunction with Scibal
Associates, placed the excess workers compensation and corresponding bond
insurance for Temple University and its affiliated health care operations. USIB
was able to negotiate a 30% reduction in premium and a 50% reduction in the
deductible for Temple University and its affiliated health care operations. In
addition, several key coverage conditions were broadened.
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 second quarter 1998 operating loss was ($31,942), a decrease of 79% from
the operating loss of ($153,199) 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.
USIB's year to date 1998 operating loss was ($72,496), an increase of $120,604
over the $48,108 operating profit for the same period 1997.
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 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.
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<PAGE> 19
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 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 Scibal 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.
Additionally, Scibal has signed new customers to contracts which will increase
Scibal's revenues, on an annualized basis, by $680,000. All contracts which
expired during the second quarter 1998 have been renewed and adjusted, which
should add an additional $200,000 in annualized revenues.
Payroll expenses were reduced in the second quarter 1998 by $177,000
(annualized) from the first quarter, through operating efficiencies. These
staff reductions will also realize savings in
-8-
<PAGE> 20
other expenses, such as benefits, telephone and fax costs, and office supplies,
on a go forward basis.
Results of Operations
Scibal's revenues of $1,905,950 for the 1998 second quarter were $917,989 lower
than the second quarter of 1997 revenues of $2,823,939, a reduction of 33%.
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 $537,612 in 1998 as compared to $860,051 in the second
quarter of 1997, a decrease of 37%. Scibal's trade receivables at June 30, 1998
were $538,596, a 27% decrease over the $734,743 at June 30, 1997.
Scibal's second quarter 1998 operating income of $128,097 was $290,615 lower
than the 1997 second quarter's operating income of $418,712, a decrease of 69%.
Year to date Scibal's sales of $3,871,427 for 1998 were $1,752,031 lower than
the six months of 1997 revenues of $5,623,458, a reduction of 31%. This
reduction was due to management's continued objective of replacing less
profitable accounts with accounts where profit margins are greater.
Scibal's year to date 1998 operating income of $272,211 was $337,022 lower than
the 1997 year to date operating income $609,233, a reduction of 55%.
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.
-9-
<PAGE> 21
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 second quarter 1998 development stage operating loss of
($347,369).
This operating earnings loss is attributed to the go forward expenses connected
with the formation of the proposed Florida property and casualty insurance
company and associated underwriter's fees.
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 $2,005,256 at June 30, 1998, an increase
of $123,061 over its accounts receivable of $1,882,195 at June 30, 1997, a 7%
increase.
The Company has entered into two Letters of Intent with Security Capital
Trading, Inc., an NASD member firm located 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.
As of the date of this filing, the Company is moving into one of the final
stages of completing its Form A license application with the State of Florida,
in order to utilize the proceeds of the private offering of Senior Callable
Preferred stock.
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, and
management considerations. 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.
-10-
<PAGE> 22
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
On July 24, 1998, the Registrant announced the restructuring of its Board of
Directors. Joseph P. DeAlessandro replaced David Scibal as Chairman, and Mr.
DeAlessandro also was named to a new position as Executive Counselor. The
Registrant attributed the restructuring of its Board to its new focus as an
insurance holding company and Mr. DeAlessandro's experience. Ted Schwartzbeck
and David Scibal, the former President and Chairman, respectively, have assumed
duties as Executive Vice Presidents of the Company, but remain as President and
CEO of their respective divisions.
ITEM 6. Exhibits and Reports on Form 8-K
On April 20, 1998, the Registrant filed a Form 8-K regarding the mutual
decision to file an amended Form 10-KSB to further clarify the audited
financial statements.
On May 20, 1998, the Registrant filed a Form 8-K regarding the decision by the
Registrant to not re-engage Correa, Berger & Associate, CPA's, PLLC and to
engage Sobel & Co., LLC as the independent auditors for the Registrant.
On June 17, 1998, the Registrant filed a Form 8-K/A further clarifying the May
20, 1998 Form 8-K. This Form 8-K/A clarified that Correa, Berger & Associate,
CPA's, PLLC had provided a completed and unqualified audit and that any
previous difference of opinion had been resolved to the satisfaction of Correa,
Berger & Associate, CPA's, PLLC.
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<PAGE> 23
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
August 14, 1998
Century Industries, Inc.
\S\ Ted L. Schwartzbeck
--------------------------------------
Ted L. Schwartzbeck
Executive Vice President and Treasurer
-12-
<PAGE> 24
INDEX TO EXHIBITS
(l) Underwriting Agreement. Not applicable.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession. Not applicable.
(3) Articles of Incorporation and Bylaws. Incorporated by reference through
previously filed 10-K's.
(4) Instruments Defining the Rights of Security Holders, Including Indentures.
Incorporated by reference through previously filed 10-K's.
(5) Opinion: re: Legality. Not applicable.
(6) No Exhibit Required.
(7) Opinion: re: Liquidation Preference. Not applicable.
(8) Opinion: re: Tax Matters. Not applicable.
(9) Voting Trust Agreement and Amendments. Not applicable.
(10) Material Contracts. Not applicable.
(11) Statement re: Computation of Per Share Earnings. Not applicable.
(12) No Exhibit Required.
(13) Annual Report to Securities Holders. Not applicable.
(14) Material Foreign Patents. Not applicable.
(15) Letter re: Unaudited Interim, Financial Information. Not applicable.
(16) Letter on Change in Certifying Accountant. Not applicable.
(17) Letter re Director Resignation. Not applicable.
(18) Letter re: Change in Accounting Principles. Not applicable.
(l9) Report Furnished to Security Holders. Not applicable.
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<PAGE> 25
INDEX TO EXHIBITS - CONT'D
(20) Other Documents Furnished to Security Holders. Not applicable.
(21) Subsidiaries of the Registrant. Incorporated by reference in previously
filed Form 10-QSB and Form 10-KSB.
(22) Published Report Regarding Matters Submitted to Securities 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. See attached Exhibit 27.
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities. Not applicable.
(29) Additional Exhibits. Not applicable.
-14-
<PAGE> 1
EXHIBIT 11
CENTURY INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Six Months Six Months
Ended June 30, Ended June 30,
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Shares Outstanding.......................... 7,803,000 6,096,000
Weighted average shares outstanding......... 7,600,000 5,800,000
Net Income (Loss)........................... $ (372,434) $ 535,091
Preferred Dividends ------- (167,700)
---------- ----------
Total Net Income (Loss) Available
for Common Stockholders' $ (372,434) $ 367,391
========== ==========
Basic and Diluted Earnings (Loss) Per Share:
Earnings (Loss) Per Share $(0.05) $0.06
------- -----
</TABLE>
<PAGE> 2
EXHIBIT 11
CENTURY INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Three Months
Ended June30, Ended June 30,
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Shares Outstanding........................... 7,803,000 6,096,000
Weighted average shares outstanding.......... 7,600,000 5,800,000
Net Income (Loss)............................ $ (211,352) $ 332,150
Preferred Dividends ------- (25,750)
---------- ----------
Total Net Income (Loss) Available
for Common Stockholders' $ (211,352) $ 306,400
=========== =========
Basic and Diluted Earnings (Loss) Per Share:
Earnings (Loss) Per Share $(0.03) $0.05
------- -----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 181,658
<SECURITIES> 128,362
<RECEIVABLES> 2,005,256
<ALLOWANCES> 120,000
<INVENTORY> 236,729
<CURRENT-ASSETS> 3,114,489
<PP&E> 3,673,293
<DEPRECIATION> (1,243,496)
<TOTAL-ASSETS> 10,024,945
<CURRENT-LIABILITIES> 4,589,645
<BONDS> 315,434
0
1,000,000
<COMMON> 7,803,000
<OTHER-SE> 7,798,793
<TOTAL-LIABILITY-AND-EQUITY> 10,024,945
<SALES> 1,306,879
<TOTAL-REVENUES> 3,366,761
<CGS> 2,059,882
<TOTAL-COSTS> 1,436,355
<OTHER-EXPENSES> 477,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (40,154)
<INCOME-PRETAX> (211,352)
<INCOME-TAX> 0
<INCOME-CONTINUING> (211,352)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,352)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
