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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
10-KSB
(Dated April 24, 1999)
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Calendar Year Ended December 31, 1998
Commission File Number: 1-13327
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 of organization) Identification No.)
45034 Underwood Lane
Sterling, VA 20166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Securities registered pursuant to Section 12 (b) of the Act: Common Stock, par
value $.001 per share
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
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<S> <C>
Century Industries, Inc. Class A common voting Philadelphia Stock Exchange-PHLX
Century Industries, Inc. Class B common voting Philadelphia Stock Exchange-PHLX
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act: Common
Stock, par value $.001 per share
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
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<S> <C>
Century Industries, Inc. Class A Common Voting NASDAQ Bulletin Board
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B, and no disclosure will be contained in any amendment to
this Form 10-KSB. X
---
Issuer's consolidated revenues for 1998 were $ 12,008,896.
The aggregate market value of the 8,949,678 common voting shares of Class
A common voting and Class B common voting stock held by non-affiliates based
upon sales of the Company's shares within the 60 days prior to December 31, 1998
at the average of the bid/asked of $0.75 was $6,712,259. The total Class A
common voting shares outstanding at December 31, 1998 were 3,782,680 and the
total Class B common voting shares outstanding at December 31, 1998 were
5,166,998 for a total outstanding of all classes of 8,949,678 shares
outstanding.
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PART I
Item 1. Description of Business
Century Industries, Inc. (Holding Company)
Century Industries, Inc. was incorporated in the District of Columbia in 1993 to
function as the holding company for Century Steel Products, Inc. ("CSP"), a
steel fabricating company incorporated in the Commonwealth of Virginia in 1979.
In 1993, Century Industries acquired more than four fifths of the outstanding
shares of Century Steel Products.
On April 22, 1993 the Company completed a statutory merger with its subsidiary,
Alpha Energy & Gold, Ltd. ("Alpha"). At the time of the merger, April 22, 1993,
Alpha Energy & Gold ("Alpha") was not a fully reporting 12(g) company, but was a
"shell" public company having no assets or liabilities. As a result of the
merger, Registrant became a publicly held company.
Theodore L. Schwartzbeck controlled a District of Columbia auto owners coverage
association incorporated as US Auto Owners Coverage Association, Inc.
("USAOCA"), which, as a corporate entity, owned a District of Columbia insurance
broker, US Insurance Brokers ("USIB"). As a result of USAOCA's inability to
fulfill its corporate function, USIB took control of USAOCA in December, 1995,
and merged the remnant and asset-less entity known as USAOCA to Sonimari, Inc.
in October, 1996. At that time, the only real value of USAOCA was the $113,000
tax loss it brought to Sonimari. Sonimari was, at that time, an affiliate of
Century Industries by virtue of its represented control by one of Century
Industries Board members, Richard Campanaro. From December, 1995 forward, all of
the business intended to be done by USAOCA was carried on by USIB as its
successor.
USIB is a development stage company, incorporated in the District of Columbia on
April 27, 1995, which, since its inception, functioned as a life and casualty
agent which markets full service association life, auto, homeowner and health
insurance plans, and marketed life insurance company managed financial products
to certain associations and other membership based organizations. After
December, 1995, it became a wholly owned subsidiary of Century Industries, Inc.
By virtue of a two phase contractual arrangement initiated in 1996 and brought
to conclusion in 1997, Century Industries, through its USIB subsidiary, acquired
Scibal Associates, a third party claims administrator (TPA) which processes
medical, workers' compensation, general and product liability, professional
malpractice, and other claims nationwide for its clients. By 1997, Century
Industries had completed its acquisition of Scibal Associates, a New Jersey
corporation with its principal office at Somers Point, New Jersey.
During 1997, Century Industries determined to attempt a selected acquisition or
to initiate plans leading to the formation of an intended Florida property and
casualty insurance company, created to participate, in conjunction with its
Scibal and USIB subsidiaries, in the Florida Joint Underwriting Association
Takeout Program ("JUA"). To this end, in 1997, Century caused the formation of
the USIB Holdings limited partnership to act as the entity holding the proposed
Florida property and casualty insurance company. Also, in 1997, to effectuate
the construction of the Accotink School, Century Steel Products, in conjunction
with Bainbridge Construction Company, formed a limited partnership with
Bainbridge as the General Partner, and CSP remaining as the limited partner.
This partnership with Bainbridge had no activity during the second quarter of
1998.
Finally, the Company entered into a limited partnership agreement with Roc
Shores Investments, with Roc Shores as the General Partner and Century as the
limited partner. This limited partnership created Century Overseas Insurance
Company, a captive insurer.
As of December 31, 1998, the Company has continued to make steps to ameliorate
its potential Year 2000 problems. The Company will plan, during the first and
second quarter of 1999, to finalize its Year 2000 compliance. At this time, the
Company believes that its Scibal Associates subsidiary will be the only
subsidiary with any significant Year 2000 issues, and that Scibal Associates,
with a significant number of computer programmers on staff, will be able to
effectuate the changes necessary for Year 2000 compliance.
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Other Equity Line Limited Partnership Investments in Non Consolidated Limited
Partnerships
The Company has an investment in the Roc Shores/Century Industries Limited
Partnership, a District of Columbia Limited Partnership, wherein the Company's
interest is 45%. The partnership was formed to purchase and own Century
(Overseas) Insurance Co., S.A., a Dominican Republic captive insurance company,
which purchase has been effected. The insurance captive has appointed US
Insurance Brokers, Inc. as its Managing General Agent for the USA. The General
Partner is Roc Shores Investments, Ltd. The captive insurance company is
presently in its development stage. This Limited Partnership was formed in
September 1997. Century Industries paid $683,285 for its 45% interest in the
partnership, as further reflected in Note 10 - Investments, page F-17 to the
Notes to Financial Statements, found later in this filing. The relationship
between the parties in this Limited Partnership is that Century Industries is
the limited partner and Roc Shores Investments, Inc. is the General Partner. In
related party transaction parlance there exists no relationship between the
parties other than that described herein. There was no activity in this
partnership in the year ending December 31, 1998.
A captive insurance company is a insurance company generally formed to write and
reinsure the risks of its parent and/or affiliated companies. A "normal" or
traditional insurance company generally writes and reinsures risk for outside,
non affiliated entities. In this instance, Century Overseas Insurance Co., as
the entity controlled by the limited partnership, is not controlled by Century
Industries in that Century Industries owns only 45% of the limited partnership.
However, after review of the partnership agreement, Century does have the first
option to place its own and affiliates' risks against the captive's capital and
surplus as if it were actually a captive controlled by Century.
COIC can also be operated as a "rent-a-captive", which would allow 3rd party non
affiliated entities a relationship where they could place their own and
affiliates' risks through COIC on a strategic relationship basis and save agency
commissions, and a save a portion of normally charged administrative,
underwriting and claims costs built into premiums in arms length non captive
relationships. As Century's USIB subsidiary has been appointed as the exclusive
agent for COIC, it could generate commissions through arranging for 3rd party
entities wanting to rent a captive as described herein.
The Company's subsidiary, Century Steel Products, Inc., has a 45% interest in
the Partnership Management Corporation/Century Steel Products Limited
Partnership, formed between Century Steel Products and Bainbridge Construction
Co., a Class A licensed Virginia general contractor. Partnership Management
Corp. is the General Partner. The partnership is constructing a private School
in Springfield, Virginia, using Century Steel's products. The partnership has
leased office and warehouse space from Century Steel in 1998. The partnership
has been inactive since the second quarter of 1998 and will file its final tax
return in 1999 for year ending December 31, 1998.
This partnership was formed in October 1997. Century Steel paid $38,709 for its
45% interest in the partnership, as further reflected in Note 11 - Investments
to the Notes to Financial Statements, found later in this filing. The
relationship between the parties in this Limited Partnership is that Century
Steel is the limited partner and Partnership Management Corp. is the General
Partner. In related party transaction parlance there exists no relationship
between the parties other than that described herein.
The Registrant believes that, upon review of both its limited partnership
agreements (Partnership Management/Century Steel limited partnership and the Roc
Shores/Century Industries limited partnership) that the Company has no liability
with respect to its investment. All the parties to the limited partnerships are
either the Limited Partner or the General Partner. There exist no other parties
to these limited partnerships.
Investments in 20% to 50% owned partnerships, affiliates, and other entities are
accounted for on the equity method and investments in less than 20% owned
affiliates are accounted for on the cost method.
The Registrant believes that these investments are not significant in that they
represent less than 10% of the Company's and its subsidiaries' assets and any
share of the limited partnership income therefrom presently represents less than
10% of the Company's revenues. There was no activity in 1998 in the Roc
Shores/Century Industries limited partnership, except for a small partnership
loss distribution made to the Registrant totaling approximately $34,000.
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A detailed description of the business of the subsidiaries is as follows:
Century Steel Products, Inc.
Form and Organization
The Company's steel fabricating subsidiary was founded in Sterling, Va., at its
present address in 1979, in the vicinity of Dulles Airport. Additional equipment
was purchased over subsequent periods from the sale of privately placed shares
to four shareholders and from profits. In 1989 CSP repurchased all but 16% of
CSP's shares, which are owned by one shareholder, a partner in Superior Steel
Co., which shares an industrial building with CSP and buys CSP steel products.
In 1992 CSP began bidding on several "site installation fabrication projects",
and business again began to increase. Heretofore CSP was a supplier of steel
products to subcontractors who bid those projects. In this instance CSP seized
the opportunity to become the subcontractor as well as the fabricator, to gain
an additional profit margin. The demand for fabricated steel product has
remained strong.
Products and Markets
Century Steel Products, Inc. ("CSP") is primarily engaged in fabricating
(manufacturing) and selling various specialty steel products. CSP's steel
products are used in the public utilities, automotive, railway equipment,
commercial and residential building industries. U.S. Government contractors also
use CSP's products in the metro D.C. area. The Company numbers public utilities
and Fortune 500 General Contractors among its customer base. Those products
consist of pre engineered parts fabricated from design criteria supplied by the
CSP's customers.
CSP's markets are the commercial and residential construction industries, and
"warehouse" miscellaneous industries such as EPA mandated products (under ground
steel tank accessories), military training devices (bomb shelters and flight
simulators), stadium bleachers, and concrete block pallets.
Sales and Distribution
The percentage of Century Steel Products total revenue generated by subcontracts
for 1998 was 59%. CSP uses, in all instances, an industry standard AIA
subcontractors agreement with slight modifications particular to each project.
These modifications address requisition dates, total retention held, length of
retention held before final payment and other date specific criteria not
considered material to the scope of work to be performed, or the amount of
payment due for such work.
CSP markets its products and services, both domestically and internationally,
through its own direct in house marketing sales department. CSP's primary
marketing area is east of the Mississippi River. Distribution is facilitated via
interstate trucking; therefore, markets west of the Mississippi are not freight
cost effective.
Warehouse steel products for the various industries are generally sold on demand
rather than through contractual arrangements. Fabricated "fabricate and install"
products are sold through contracts executed after CSP 's bid has been accepted.
Other steel products are sold to general contractors and installed by CSP on
construction projects, through contractual arrangements.
Status of New Products or Services
CSP did not announce any new products or services in 1998.
Competition and Industry Position
Much of the CSP's business is directly related to the commercial and residential
construction industry. CSP's products are sold in highly competitive markets,
and its sales and earnings can be affected by changes in competitive prices,
fluctuations in the level of activity in major markets or economic conditions in
general. CSP is in a geographical region where steel markets have not been as
dramatically affected during the recent recession as other regions.
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CSP's competitors offer a wide range of specialty steel products. No single
competitor dominates the product line or market for the Company's products, and
customers consistently shop for price and delivery dates. CSP is very
competitive in price, service and has always been known for the quality of its
products.
A central element of CSP's competitive strategy in fabricating steel products is
a highly integrated manufacturing operation. This process begins with leveling
steel coils, at weights in excess of 30 tons (60,000 lbs.) to specific customer
length requirements. This steel can then be relocated within the plant by one of
seven overhead cranes to the shearing stations. At CSP's facility, steel up to
3/4" of an inch thick can be precision cut to smaller component shapes, within
.0625" precision tolerances of a customer's requirements. The steel will then be
moved to one of the press stations, where operations vary from simple cold
forming at 90 degree angles, to the utilization of a 650 ton press for multi
hole locations and intricate forming to varying degrees. Finally, material can
be painted and loaded for delivery.
Raw Materials
The majority of raw materials used by CSP are manufactured by large producing
domestic steel mills. The steel is purchased directly from mills, stocking
warehouses and/or brokers.
CSP has no principal supplier and is not dependent on one or few suppliers,
since standard grade steel is available through hundreds of suppliers. There has
been no dependency as such on any major supplier(s).
Management does not anticipate significant price increases for its raw materials
resulting from supply shortages or other causes. Cost increases historically
have been passed on in the form of higher prices. There can be no assurance that
such cost increases will always result in corresponding price increases.
Customer Base - Dependence on Major Customers
CSP is not dependent on any major or a few major customers; all purchase orders
received are the result of a bidding process. CSP's success in being the lowest
bidder on a consistent basis with several major contractors has created a
substantial repeat business. CSP bids new jobs continually throughout the year;
however, the number of bids issued is in no way indicative of how many purchase
orders will be finally effectuated.
Patents, Trademarks, Licenses, Franchises
CSP has all applicable business licenses necessary to conduct its day to day
business operations. Some jobs may require additional insurance and local
government approval, and no problems existed in 1998 in these types of
situations.
Government Approval
CSP did not need government approval for any work conducted in 1998. No
government approval is needed for its principal products or operations.
Effect of Existing or Probable Government Regulations
Management believes that CSP is in compliance with all applicable federal, state
and local laws and regulations. CSP is not engaged in the discharge of any
materials into the environment, and management believes that CSP is not subject
to any existing or probable government regulations other than the normal OSHA in
plant regulations.
Research and Development
CSP has not spent any funds on research and development in the past two years,
other than specific research required in connection with the fabrication of a
customer's order. This is generally limited to detailed drawings, or a search
for a particular grade, size or quality of steel raw material.
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Costs and Effects of Compliance with Environmental Laws
Management believes that CSP is in compliance with all applicable federal, state
and local laws and regulations. CSP is not engaged in the discharge of any
materials into the environment, and management believes that CSP is not subject
to any existing or probable government regulations other than the normal OSHA in
plant regulations. The costs of this compliance have been, and will continue to
be, minor and inconsequential to the functions of the Company.
Employees
CSP employs approximately 40 persons. CSP is a merit shop (non union), and as
such is not vulnerable to union demands or the possibility of strike. In an
industry plagued with high employee turnover, management is proud of the fact
that the average length of employment of CSP personnel is 10 years, and that
employee loyalty is substantial.
Operating Risks and Insurance
CSP maintains public liability, property damage and occupational workmen's
compensation accident policies. Although in the opinion of management the limits
of its insurance coverage against the inherent risks of its business and a
catastrophic incident are in accordance with industry practice, such insurance
may not be adequate to protect CSP against liability or losses accruing from all
the consequences of any catastrophic incident. The occurrence of an event not
fully covered by insurance and a determination of liability for the consequent
loss of damage could result in substantial losses to CSP and have a material
adverse effect upon its financial condition and results of operations.
Limited Partnership Investment
In 1997 CSP acquired a 45% profit sharing interest in the Partnership Management
Corporation/Century Steel Products Limited Partnership in the District of
Columbia. Partnership Management Corporation is the General Partner, and its
affiliate, Bainbridge Construction Co., Inc., a Class A licensed Virginia
General Contractor is the other Limited Partner. The LP commenced the
construction of the Accotink School in the 3rd quarter 1997, and realized
revenues exceeding $200,000 during the 4th quarter of 1997. CSP leases office
and warehouse space to the Partnership Management/Century Steel, LP at its
premises, and CSP has sold its equity in its fabrication equipment to this
limited partnership and leased it back for its own production runs. CSP's
investment is less than 10% of its assets, and is therefore insignificant.
The source of revenues from this start up limited partnership in 1997 was
limited to its construction contract for the Accotink School in Springfield, VA.
The amount of profit sharing interest to which Century Steel is entitled under
the limited partnership agreement is 45% of net income, and no net income was
generated for the year ended December 31, 1997. Net income would not be
determined until the job was closer to completion. Any net income realized was
placed on Century Steel Products books in the first quarter of 1998.
U.S. Insurance Brokers, Inc. (USIB)
In 1995 the Company acquired U.S. Insurance Brokers, Inc. ("USIB") located in
Washington, DC. USIB merged with DC Partners, Ltd. (DCP) In the 4th quarter of
1997, with USIB surviving as the owner of Scibal Associates, Inc., DCP's
subsidiary.
As Scibal's parent, USIB intends to supervise the services rendered to, and to
expand the customer base of, Scibal's existing clients by virtue of USIB's
"association marketing" concept, attempting to obtain clients for the Scibal
operation from the vast pool of associations found in the District of Columbia.
In doing so, USIB intends to rely, for marketing purposes, on Scibal's existing
base of customers, sales and distribution techniques, employees, and research
and development.
The proposed principal focus of USIB's operations is intended to concentrate on
the proposed Florida property and casualty company to be formed to participate
in the Joint Underwriting Association TakeOut Program. To this end, the USIB
Holdings limited partnership was formed with David Scibal, CEO of the Company.
Mr. Scibal contributed 727,273 warrants for Class B common shares, valued for
the purpose of the transaction at
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$1,192,000. To assist USIB in the this limited partnership formation, Century
Industries contributed $808,000 to this effort. As to the USIB Holdings, LP, Mr.
Scibal is to receive 20% of any future limited partnership profits thereof, and
Century, through USIB, the General Partner, is to receive 80% of any such
profits. For more information, please see "USIB Holdings, Limited Partnership"
on page 8 herein.
USIB is, on its own, a development stage company which (I) plans to market all
lines of insurance to members and employees of national membership based
associations, and (2) plans to act as the Managing General Agency for a new
casualty insurance company to be owned by the Company and formed in the State of
Florida to participate in the Florida Joint Underwriting Association ("JUA")
homeowner TakeOut Program.
As of December 31, 1998, neither the insurance marketing program nor the Florida
JUA program provided any income to USIB. USIB did, however, expend funds through
its limited partnership to attempt to create these business opportunities.
Form and Year of Organization
USIB, organized in April 1995 under the laws of the District of Columbia, has
its principal executive offices at 700 13th Street, NW, Suite 950, Washington,
D.C., 20005. It has administrative offices at 11708 Bowman Green Drive, Reston,
Virginia 20190.
USIB is a general full service insurance agency/brokerage formed as a District
of Columbia corporation. It plans to enter into agency agreements with auto,
life, health and property and casualty insurance companies to, in conjunction
with licensed carriers, sell insurance policies in these defined categories to
selected associations and other membership based organizations. To date, no such
agreements have been concluded.
As a secondary part of USIB's development stage, USIB is anticipated to
participate in Century's planed Florida property and casualty insurance company
as the managing general agent. To date, this remains a development stage plan
and has not produced any revenues.
Bankruptcy
USIB has not been involved in any bankruptcy, receivership or similar proceeding
in 1998.
Material Reclassifications, Merger, Consolidation, or Purchase of Assets
USIB was not involved in any material reclassification, merger, consolidation or
purchase of assets in 1998.
Sales and Distribution
USIB's proposed association limited partners will advertise USIB's products to
their members through newsletters and direct mail. The members will call an
"800" number at USIB to obtain insurance quotes. When the member purchases
insurance, the policies will be issued by the insurance carriers, and all direct
billing is performed by the carriers. The carriers then pay USIB a pre arranged
commission.
Customer Base
USIB's present potential customer base is with various embassies within the
District of Columbia, whereas USIB will market policies for visitors to the US
from foreign nations, as represented by their embassies. To date, no embassy has
been identified as a customer.
Business Regulation
The insurance industry is highly regulated. All agencies must be licensed in
every state where they solicit insurance sales, and each agent soliciting for
the agency must be licensed in each state where he or she solicits on behalf of
the agency. On association group term life insurance sales, master policies are
utilized and certificates of insurance are issued to members. Health insurance
is sold by licensed life agents. Many states require the posting of a bond by
casualty agents. USIB is a licensed life and casualty broker in the District of
Columbia, and its agents are licensed in the District of Columbia and several
other states.
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Employees
USIB hires its agents as independent contractors on a commission basis, as is
standard in the insurance agency industry. Underwriting, bookkeeping, legal and
accounting and other services are performed by consultants and outside
professionals. USIB has no statutory employees at this time.
Operating Risks
USIB's marketing agreements with its limited partner associations are effective
initially for 5 year periods, and are renewable upon agreement by the parties.
Errors and Omissions policies are in place, covering fraud, inadvertent
mistakes, and potential liability from customer lawsuits. No assurance is ever
given with respect to premium sales, which are based on the rates and benefits
provided by the various insurance carriers. Carriers traditionally raise rates
when claims exceed acceptable standards. If risk management practices did not
effectively minimize claims, and the carriers raised rates beyond competitive
marketplace levels, business would inevitably dwindle.
Management has no assurances that these levels of performance will be achieved,
nor that its operations will materialize as planned.
Competition
USIB believes that its competition is from insurance carriers rather than other
insurance agents. Insurance companies have historically reserved the right, with
their agents, to write Association insurance business on a direct basis. The
insurance companies market the coverage to Association members themselves
through telephone and direct mail campaigns, with very little interaction from
the Associations. USIB believes that few insurers have well organized
Association marketing programs.
Individual insurers can only market their own individual life, health or
automobile/homeowner products one at a time, rather than providing a
"supermarket" of life/health/casualty products. Life insurance companies are
chartered and licensed to write life and health insurance products; and casualty
companies are chartered and licensed to write automobile/homeowners insurance
products. Life insurers do not write automobile insurance policies, nor do
automobile companies write life insurance policies. These insurers seldom
cooperate with one another.
Licenses
To date, USIB is corporately and individually licensed to do business in
Virginia, West Virginia, New Jersey, Maryland, North Carolina, Wisconsin and
Tennessee.
USIB Holdings, LP
USIB Holdings LP was formed in 1997 for the purpose of acting as an insurance
holding entity for the acquisition of Reinsurance Corporation of America (RCA)
and/or the formation of the new proposed Florida insurance subsidiary which
management planned in 1998 to have participate in the State's JUA Homeowners
TakeOut Program.
Through December 31, 1998, neither Century Industries, in conjunction with its
subsidiaries, nor any of its subsidiaries, were able to effectuate the 1997-1998
business plan with Reinsurance Corporation of America or the Florida JUA
Homeowners TakeOut Program.
This entity was formed as a Limited Partnership, with USIB as its General
Partner, in order that the Company could, through this entity, 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. 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.
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It is standard practice in the insurance industry today to operate an insurance
holding entity when owning an insurance company subsidiary, as legislation
enacted through various states and codified through the administrative
regulations of the NAIC (National Association of Insurance Commissioners) has
provided for such formations and the application of those rules in practice has
proven favorable to the industry.
The limited partnership was projected to provide favorable tax advantages to the
Company in that earnings upstreamed to the holding entity by the proposed
insurance company can be upstreamed to the Company without being taxed in the
holding entity (USIB Holdings, LP) prior to being booked as consolidated income
by the parent holding company, Century Industries, Inc. These suggested tax
advantages concern partnership tax treatment. USIB Holdings, LP lost
approximately $600,000 in 1998, and these losses were passed through to USIB
Holdings, LP unit holders as a one time special loss allocation reflecting these
losses for 1998 as reflected in the amended Form 10-KSB.
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.
USIB Holdings, L.P, subsumed a registration of the Company's convertible
preferred stock registered with the New York State Department of Law, nunc pro
tunc, ab initio, dated from the original registration effective date. This
subsumation replaces the Company's registration with a registration of USIB
Holdings LP Convertible Units to the Company's Class B common stock at the same
conversion rate. A total of $1,240,000 was raised in 1998 under this offering.
U.S. Insurance Brokers, Inc. and its wholly owned subsidiary,
Scibal Associates, Inc.
In 1996 USIB acquired DC Partners, Ltd. (DCP), in Somers Point, NJ. Scibal
Associates, Inc., (Scibal) the wholly owned subsidiary, is a third party
insurance claims administrator (TPA) , adjusting and settling claims for both
insurance companies and self insured companies and institutions. Scibal adjusts
in excess of $870,000,000 of claims annually. USIB merged with DCP in 1997, with
USIB surviving as Scibal's parent company.
Products and Markets
Scibal has been in business since 1953, 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, although the number of entities which are self insuring and administering
this aspect of their operations has been shrinking during the past two years.
The majority of Scibal's business is administering self insured or loss
sensitive programs. The market reduction is a function of the strong equity
markets bolstering the earnings of the larger insurance carriers, enabling them
to offer fixed-cost programs at or below cost. This has resulted in both lost
customers for Scibal, as well as tightening margins on those customers who
continue to utilize their services. However, in late 1998 and early 1999,
management has detected a slight turning in this soft market, as the requests
for proposal have slightly increased, and the emphasis on service over pricing
seems to be growing. This trend, should it continue, is viewed as favorable by
Scibal Associates.
Customer Base
The customer base of Scibal Associates 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.
Scibal has no customer which exceeds 7% of revenue. The majority of Scibal's
customers are comprised of clients of long standing, no one of which is
significant to the company. During 1998, Scibal's then largest customer moved
another large portion of its contract to a fixed cost workers' compensation
program, resulting in lost revenues of approximately $2.2 million. Although
operating costs were reduced, this loss of business negatively impacted income.
Being a service provider, there is no dependence on any major supplier.
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Sales and Distribution
Sales are conducted primarily through brokers as well as through extensive
contacts with both insurance companies and referrals from existing customers.
Competition and Economic Conditions
While competition in the claims administration industry is substantial, it has
evolved in the 90's into an industry where the administrator must be hardware
and software intensive. The software can be purchased or developed internally.
Scibal utilizes internally developed proprietary software. Scibal has the
reputation for producing excellent claims administration software and is very
competitive with other TPAs. Additionally, it has its 45 year track record of
performance and integrity in its operations and results on behalf of 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.
Year 2000 (Y2K)
Management has determined that failure to correct internal computer systems,
particularly in its proprietary claims software, would have materially adverse
affects upon the Company's business, operations and financial condition.
Additionally, failure of two key service providers to be compliant was also
determined to be materially detrimental to the Company. Therefore, in early 1998
steps were taken to ensure that the Company's internal systems and the systems
of material third parties would be compliant prior to the failure of compliance
of such systems having an impact on the Company.
Two internal information technology systems were determined to be "at risk" by
the year 2000 issue; (1) the proprietary software and underlying operating
system of the computers on which it runs and (2) the software within the
telephone system (PBX) used at the main office of the Company.
The two external systems of outside service providers whose failure to be
compliant would put the Company at risk are the systems of the two banks
predominantly used by the Company. The Company issues thousands of checks each
month in providing its services, hence the failure of the systems at these banks
would result in operational problems for the Company.
The Company has been notified by both of these key banks that their systems are
fully compliant. The Company has been notified by AT&T that the software which
operates the telephone system was Y2K compliant when it was originally
installed.
The Company has been aware of the year 2000 issue for the past several years.
However, in preliminary assessments, it was determined that the issues raised by
Y2K for the proprietary software were well understood and well within the
capabilities of the in-house programming staff to correct. The operating system
for the computers used by the Company are already Y2K compliant. Based on these
assessments, it was decided that the corrections to the proprietary software
would begin in the fourth quarter of 1998, with a completion date of April and
testing to be completed by June 1, 1999. Upon completion of the testing, the
corrected system will be implemented, providing for another six months of
problem identification and correction prior to the end of the year. As of the
date of this report, the Company is maintaining this timeline, and foresees no
problem with having the program corrections completed and tested by the budgeted
dates.
The cost to the Company for the renovation of the proprietary software required
for Y2K is estimated at $125,000. This cost represents payroll and benefits as
well as estimated consulting fees. No material expenditures for hardware or
third-party software are expected. The dedication of the in-house programming
staff to Y2K has necessitated the deferment of previously ongoing projects.
However, these projects were long-
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<PAGE> 11
term in nature, and their deferment will not have a known adverse impact on the
Company's operations or financial condition.
The most likely risk regarding Y2K is that minor corrections to the software
will not be completely fixed by the target date of June 1, which will become
evident during the use of the software as the corrected program goes "live".
However, since these problems will only be small glitches, they will easily be
corrected prior to their impacting the operations or financial condition of the
Company. The testing on the most difficult, pervasive Y2K corrections have
already been completed.
Business Regulations
Management believes that Scibal is in compliance with all applicable federal,
state and local laws and regulations. No federal government approval is needed
for its principal services, although various states require registration and
licensing of insurance services providers. Scibal is in compliance with all such
local requirements.
Research and Development
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. As
discussed above, this project has been deferred until completion of the Year
2000 corrections to the proprietary software already in-use.
Employees
Scibal employs approximately 115 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.
Operating Risks and Insurance
Scibal maintains substantial public liability, property damage, workers'
compensation, employee fidelity and errors and omissions insurance. Insurance
levels are not only maintained at the levels deemed prudent by management, but
also meet the conservative requirements of its customers.
ITEM 2. DESCRIPTION OF PROPERTY
CSP Plant Facility
CSP operates a reasonably new, clean 50,000 sq. ft. facility at Sterling
Industrial Park in Sterling, Va. The premises are leased from the BMH&G Limited
Partnership. There is substantial parking, and the facility is in a somewhat
rural area adjacent to the Town of Sterling, providing a pleasant working area.
Management believes that CSP's plant facility, including its manufacturing
machinery and equipment, are adequately maintained and suitable for their
intended uses.
USIB Office Facilities
USIB operates its offices at 700 13th Street, NW, Suite 950, Washington, DC
20005, and 11708 Bowman Green Drive, Reston, VA 20190. Management believes that
USIB's facilities are suitable and adequate for their intended uses.
-11-
<PAGE> 12
Scibal operates its leased headquarters offices at 23 Mays Landing Road, Somers
Point, NJ. DCP also has leased field offices in Edison, NJ, Philadelphia, PA,
Detroit, MI, Richmond, VA and Jacksonville, FL. Management believes that DCP's
facilities are suitable and adequate for their intended uses.
Investment in Real Estate
CSP, in the first quarter of 1998, purchased a small office building in Reston,
Virginia, for $375,000. The first mortgage is with First Virginia Bank, totaling
$270,000, and the second mortgage is with GW Investments for $33,500. CSP will
pay for this property from its operations.
ITEM 3. LEGAL PROCEEDINGS
Century Industries has no pending litigation.
CSP has no pending litigation.
USIB has no pending litigation.
USIB Holdings LP has no pending litigation.
Scibal Associates, Inc. has no pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company timely mailed its information statement to all shareholders of
record through its transfer agent, advising them of the date and place for the
annual meeting.
The Company held its annual meeting on December 28, 1998, and the directors, Ted
L. Schwartzbeck, Joel Gundersheimer, Jay Pignatello, Robert Kelly and William
Balla were elected for the coming year. Messrs. Schwartzbeck, Gundersheimer and
Pignatello continued their terms of office.
The shareholders also ratified and approved a) the conversion of USIB Holdings,
LP unit holders to the common voting stock of Century Industries during 1999 and
b) the approval of engagement of the Company's auditor. There were 2,840,000
affirmative votes in favor of the proposals out of 3,782,680 Class A common
voting shares outstanding at that date. No negative votes were cast.
Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Class A common voting stock, par value $.001, trades on the Philadelphia
Stock Exchange under the symbol CII.A, and also on the NASDAQ OTC Bulletin Board
under the symbol CNTI. The Class B common voting stock, par value $.001, trades
solely on the Philadelphia Stock Exchange under the symbol CII.B.
The range of bid/asked information for the Company's common voting shares for
each quarter of the last year, as reported by the Philadelphia Stock Exchange
and the NASDAQ OTC:BB are as follows:
<TABLE>
<CAPTION>
Class A Common Voting (NASDAQ )OTC:BB Class B Common Voting (PHLX)
Bid Asked Bid Asked
----------- ------------
<S> <C> <C> <C> <C> <C>
1st Qtr 1998 2.00 2.75 1st Qtr 1998 2.00 2.75
2nd Qtr 1998 1.75 2.25 2nd Qtr 1998 1.50 2.00
3rd Qtr 1998 1.50 2.00 3rd Qtr 1998 1.00 1.25
4th Qtr 1998 .50 1.25 4th Qtr 1998 .50 1.00
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
Bid Asked Bid Asked
------------ ------------
<S> <C> <C> <C> <C> <C>
1st Qtr 1997 2.75 3.25 1st Qtr 1997 N/A
2nd Qtr 1997 2.75 3.35 2nd Qtr 1997 N/A
3rd Qtr 1997 2.75 3.25 3rd Qtr 1997 N/A
4th Qtr 1997 1.75 3.00 4th Qtr 1997 3.00 3.25
</TABLE>
Over the counter (OTC) market quotations reflect inter dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
At December 31, 1997, there are approximately 1,120 stockholders of the par
value $.001 Class A common voting stock, and there are approximately 498
stockholders of the par value $.001 Class B common voting stock. No dividends
have been declared on any class of common equity for the last two fiscal years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.
Plan of Operation for 1999
(i) The Company has sufficient cash to sustain its operations for the next 12
months. Its operating subsidiaries, CSP and USIB/Scibal had losses due to
unusual circumstances. Management expects both CSP and Scibal to be profitable
in 1999. At December 31, 1998, there are no plans to raise additional funds, and
the Company has already instituted pay decreases for its executives, and has not
renewed consulting agreements with a company who provided investor relations
services. These reductions in parent (Century) overhead costs are anticipated to
help cash requirements for 1999.
(ii) Research and development is not applicable to any of the Registrant's
operations except for those of Scibal Associates. There is an effort underway at
Scibal Associates 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. As discussed above, this project has been deferred until completion
of the Year 2000 corrections to the proprietary software already in-use.
(iii) The Registrant does not anticipate and does not have any contracts for the
expected purchase or sale of plant and significant equipment.
(iv) The Registrant, as detailed in i) above, has made steps to reduce its
overhead parent company (Century) costs. This does not, however, signify any
major change in the number of employees.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's consolidated assets have increased from $8,807,922 in 1997 to
$9,696,583 in 1998, a 10% increase. The Company elected to write down previously
capitalized deferred offering and acquisition expenses, and these expenses,
totaling approximately $725,000, are included in the Company's audited 1997
income statement under Professional Fees. These previously capitalized deferred
offering and acquisition costs are considered to be one time, non-recurring
expenses which the Company will not experience again. The resulting figure of
Income (Loss) from Operations, when taking into consideration this write down,
reduces the Company's net loss from ($1,105,252) to ($269,172). The operating
losses were attributable to the maintenance costs of USIB and Century
Industries, as the reporting public parent, as well as expenses associated with
the Registrant's efforts to create a Florida property and casualty insurance
company.
Gross profit decreased from $6,270,517 in 1997 to $4,445,471 in 1998, a decrease
of 29%. Consolidated operating costs decreased from $5,909,126 in 1997 to
$5,856,142 in 1998. Consolidated operating income from operations decreased from
$361,391 in 1997to ($1,410,671) in 1998. Earnings per share was a loss of ($.14)
in 1998, as opposed to the loss per share of ($.05) in 1997.
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<PAGE> 14
Consolidated capital has increased from $4,363,087in 1997 to $5,060,413 in 1998.
Consolidated net cash used for operating activities increased from ($146,655) to
($1,161,285). Net cash provided by financing activities increased from
$1,770,056 in 1997 to $2,209,689 in 1998.
On March 5, 1998, the Company entered into two Letters of Intent with Security
Capital Trading, an NASD member firm. The first letter of intent covered a
$7,000,000 private placement of Senior Callable Convertible Preferred shares,
the proceeds of which were earmarked to fund the formation and capitalization of
the proposed new Florida insurance company. The second letter of intent covered
a public offering of an additional $12,000,000 to $15,000,000 of Senior Callable
Convertible Preferred shares, the proceeds of which were generally to be used
for further insurance related acquisitions. As of December 31, 1998, no funds
were raised by the NASD member firm, Security Capital Trading, for either of the
two aforementioned offerings. The Company does not anticipate that Security
Capital Trading will complete either of the two aforementioned offerings.
(i) The Registrant does not believe any trends, events, or uncertainties have or
will be reasonably likely to have a material impact on the Registrant's short
term or long term liquidity. The only known trend to be a positive one for the
Company is found in its Scibal Associates subsidiary, where management has
detected a slight turning in this soft market, as the requests for proposal have
slightly increased, and the emphasis on service over pricing seems to be
growing. This trend, should it continue, is viewed as favorable by Scibal
Associates.
(ii) The Registrant, with two operating subsidiaries, has a source for internal
liquidity. To the extent it may be needed in 1999, the Company may seek external
sources of liquidity; however, none is anticipated as of the time of this
filing.
(iii) The Registrant does not have any material commitments for capital
expenditures as of December 31, 1998.
(iv) The Registrant does not believe any trends, events, or uncertainties have
or will be reasonably likely to have a material impact on the Registrant's net
sales or revenues or income from continuing operations. The only known trend to
be positive for the Company is found in its Scibal Associates subsidiary, where
management has detected a slight turning in this soft market, as the requests
for proposal have slightly increased, and the emphasis on service over pricing
seems to be growing. This trend, should it continue, is viewed as favorable by
Scibal Associates.
(v) The Registrant has significant elements of income or loss that arise from
the write off of deferred offering costs which have been carried on the
Company's books since the acquisition of DCP/Scibal in late 1996.
(vi) The causes for material changes from period to period in one or more items
of the Issuer's financial statements can be found in the description of each
subsidiary hereinbelow.
(vii) The Registrant believes that seasonal aspects have an effect on the
financial condition and operations of Century Steel Products, but not any other
subsidiary of the Company. The seasonal aspects which generally effect CSP are
long, harsh winter seasons. As of December 31, 1998, the Registrant does not
believe that CSP has been materially impacted in any way by seasonal aspects.
Century Steel Products, Inc.
Year to Date
CSP's cost of goods percentage increased from 81% of revenues in 1997 to 84% of
revenues in 1998, and the open account debt to suppliers decreased from $772,219
at year end 1997 to $688,278 in 1998. These were caused by a tougher marketplace
for CSP products and operating inefficiencies which CSP has, as a subsequent
event, rectified.
Sales decreased from $4,572,796 in 1997 to $4,312,594 in 1998. Administrative
costs increased from $693,948 in 1997 to $795,079 in 1998.
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<PAGE> 15
Net income from operations of CSP in 1997 was $159,879 and in 1998 was
($150,131). Operating income was $175,207 in 1997and was ($83,059) in 1998. CSP
had trade receivables of $1,221,895 in 1998, in comparison to $982,667 in 1997.
For Three Months Ended December 31, 1998
CSP's sales for the fourth quarter of 1997were $1,261,697 and were $729,886 for
the fourth quarter of 1998. CSP does not believe this difference in sales is
indicative of any long term problems in the company, only that this drop in
sales is indicative of ongoing competitiveness in the industry. Operating income
in the fourth quarter of 1997 was $52,193, and for 1998 it was ($47,500).
CSP's current assets to current liabilities ratio is 1.05 to 1.00 at year end,
with current liabilities being $72,460 less than current assets.
CSP's increased fourth quarter revenues reflected CSP's difficulties in
purchasing steel in sufficient quantities and at competitive prices so as to
fill all sales orders, at any reasonable profit.
Raw material steel and labor costs were 2.3% less for 1998 on an annualized
basis than the year of 1997. In 1998 material and labor costs amounted to 58.8%
of the annual revenues. In 1997 this factor was 61%. This factor contributed to
the Company's fourth quarter losses in 1998.
Contractual "terms" of steel fabrication contracts are not what is unique to
each contract; what is unique to each contract is the material used for each
job, according to its own independent contract. Normally, these contracts
require specific types of steel with specific designs from architects. CSP does
not sell this material from inventory but orders the required type of steel for
each project, and then perfects the order by following the architectural
drawings for each contract.
All fabrication projects are performed under contracts that are very specific
and have provisions covering termination for non-compliance with clear and
specific terms for payments on work performed. CSP undertook only one job in
1998 which was not under such a detailed contract was less than $25,000 and is
not considered material.
U.S. Insurance Brokers, Inc.
(Development Stage)
USIB's operations are still at the developmental stage. However, USIB acquired
DC Partners, Ltd. (DCP) during 1996 in conjunction with Century Industries, Inc.
USIB has now merged with DCP, and now functions as the parent company of Scibal
Associates. USIB has the potential of acting as a full service Managing General
Agent with its own claims administration division.
USIB had net operating loss of ($1,535,030) in 1998, due to the USIB Holdings,
LP. USIB had operating income of ($355,674) in 1997, before consolidation with
Scibal Associates, its wholly owned subsidiary. These were costs in the
continued effort to effectuate USIB's association marketing and insurance
program, as well as the expenses associated with the Company's effort to create
a Florida property and casualty insurance company. These costs included
professional fees, licensing costs, telephone expenses and marketing expenses.
USIB's wholly owned subsidiary,
Scibal Associates, Inc.
The following audited income statement comparisons are based upon audited fiscal
years ending December 31, 1998 and 1997.
The claims administration industry continues to be a very competitive market. To
remain competitive, Scibal Associates, Inc. ("Scibal") has been forced to become
more efficient in its operations and reduce costs. Fiscal year 1999's outlook
continues with no anticipated revenue growth. Scibal Associates will meet its
cash needs through operations. Additionally, with the completion of the Y2K
compliance programming, resources will again be devoted to completing the "next
generation" software which should increase productivity and functionality
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<PAGE> 16
even further. This should position Scibal properly, as through this tight
market, customers are looking more toward a higher quality of service. Thus,
when the market "turns", which management believes may be happening now, Scibal
will be situated to provide the service levels required.
There are no expected sales of significant equipment. No significant changes in
the number of employees is anticipated. The following audited income statement
comparisons are based upon fiscal years ending December 31, 1998 and 1997.
Scibal's revenues decreased from $9,989,570 in 1997 to $7,671,707 in 1998 due to
the loss of the workers' compensation program for Scibal's largest customer. The
concomitant reductions in operating costs from the loss of this program have
reduced cost of service from $4,888,208 in 1997 to $3,786,591 in 1998.
Trade debt levels have been reduced, from $919,817 at year end 1997 to $819,306
in 1998. This has been done despite the lost revenue due to cost reduction
policies and greater efficiency. For example, payroll has been reduced from 1997
to 1998 by approximately $1,250,000 on an annualized basis, with no reduction in
service levels. The open account debt to suppliers decreased from $919,817 at
year end 1997 to $819,306 at year end 1998. Gross profits before administrative
costs decreased from $5,101,362 in 1997 to $3,904,893 in 1998. Administrative
costs decreased from $4,381,481 in 1997 to $3,467,959 in 1998. Scibal was able
to adjust overheads to the loss of customers and continues to look to adjust its
work force according to customer demand and company profitability.
Net income in fiscal 1997 was $215,606 and the net loss for 1998 was $76,523.
Operating income decreased from $719,880 in 1997 to $357,844 in 1998. This is a
direct result of the large program discussed above, with its strong profit
margin. Since this loss, Scibal has been able to sign smaller accounts to begin
replacing these earnings.
Through greater operating efficiencies, Scibal has been able to lower its
payroll to revenue ratio from 62% in 1997 to 57% in 1998. It is anticipated that
Scibal will be able to drive this ratio even lower in 1999.
The cash needs of Scibal will be satisfied through operations as well as the use
of a line of credit in place with a bank.
SCIBAL ASSOCIATES' HISTORICAL DATA FOR THREE MONTHS ENDED DECEMBER 31, 1997.
Scibal's sales of $1,797,742 for the fourth quarter of 1998 were $276,088 less
than the fourth quarter sales of $2,073,830 in 1997.
Operating expenses for the last three months of 1998 totaled $927,715
representing a decrease of $117,111 from the $1,044,826 of expenses for the
three months ended December 31, 1997.
Scibal's current assets to current liabilities ratio is .4 to 1 at December 31,
1998, with current liabilities being $1,694,786 more than current assets.
Results of Operations
In 1997 labor costs amounted to 53% of the annual revenues. In 1998 this factor
was 53%. This factor had no effect on annual operating income. Labor costs
remained essentially unchanged from 1997 to 1998, expressed as a percentage of
revenues.
Year 2000 - State of Readiness
The Company has determined that while its assessment of the Year 2000 issue is
continuing, that the Year 2000 issues would not have a material effect on the
business of the Company. Information regarding the Registrant's main subsidiary
to be affected by Year 2000, Scibal Associates, is as follows:
Scibal Associates is highly dependent upon its proprietary software for
providing the services which it sells to generate revenues. Since dealing with
insurance information in which dates of loss, report dates of claims, policy
dates and dates of service for employees (since a significant portion of
Scibal's business is adjusting
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<PAGE> 17
workers' compensation claims) is critical, in fact, foundational, the resolution
and prevention of any problems related to Y2K is essential. Recognizing this,
Scibal management began the remediation process for Y2K in early 1998. This
first step involved establishing a committee, who was to identify those areas of
the business representing significant and/or controllable exposure on this
issue. After identifying these "projects", senior managers were assigned the
responsibility of eliminating or mitigating any inherent risks.
To date, the Company has sent out to vendors, suppliers and customers a "third
party assessment" letters to identify and resolve any Year 2000 problems before
they arise. Despite its efforts and given the worldwide effect of Year 2000
problems, it is likely that some disruption in relationship with vendors,
suppliers and customers will occur, even if they are Year 2000 compliant. At
present, given the ongoing nature of its assessment, the Company does not feel
that the Year 2000 problem will be material to business, results of operations
and financial condition. Again, information regarding the Registrant's main
subsidiary to be affected by Year 2000, Scibal Associates, is as follows:
Scibal has only a few third-parties whose failure to be Y2K compliant would be
materially disruptive. These third parties include managed care vendors and
banks. Please note that although failure of these third-parties to be compliant
would be disruptive, it would not have a material adverse financial impact on
Scibal Associates. At worst, such a failure would temporarily lower service
levels until compliance was achieved or new vendors were identified to replace
those which are problematic. Please note, that the scope of this evaluation was
more "local" than "global" in nature. Scibal made no efforts to determine if
basic agents of the U.S. economic infrastructure will be compliant, for example,
the Federal Reserve system, the power grid or the national telephone system.
Clearly, failure in these systems would have a material adverse affect on
Scibal, but since these are "monopoly" providers, they are quite beyond the
control and remediation reach of Scibal Associates.
The Company anticipates being Year 2000 compliant by June, 1999 and anticipates,
through this anticipated state of readiness, to avoid third party liability.
Again, information regarding the Registrant's main subsidiary to be affected by
Year 2000, Scibal Associates, is as follows:
Scibal Associates has been notified that if it is not demonstrably Y2K compliant
by June 30, 1999, that many of the service contracts with its customers will not
be renewed. Due to the nature of its service, Scibal believes that the exposure
to lawsuits for such failure would be minimal, however the revenue impact would
be materially adverse.
Century Industries, the Parent company, while still assessing its computer
system and soliciting responses by mail and telephone in regards to its third
party Year 2000 issues, does not anticipate any Year 2000 problems which could
materially affect its business as the parent holding company. The computer
system utilized is, a series of stand alone computers operating Windows 95 as an
operating system. Embedded technology and microcontrollers are not a part of the
parent company's daily business. This parent company will be fully Year 2000
compliant before the end of the first quarter of 1999.
US Insurance Brokers, as a development stage company that has never conducted
any significant business to date, does not anticipate any Year 2000 problems
which could materially affect its business. USIB utilizes the same computer
system as the parent company, which is a series of stand alone computers
operating Windows 95 as an operating system. Embedded technology and
microcontrollers are not a part of USIB's daily business. This company will be
fully Year 2000 compliant before the end of the first quarter of 1999.
Century Steel Products does not believe, as a result of its ongoing assessment
of potential third party Year 2000 issues, that it will experience any
significant Year 2000 problems. It continues to await responses from its
inquiries to suppliers, customers and vendors. CSP has notified the parent
company that should all of its systems fail in the Year 2000 for any reason,
that it would be able to conduct "business as usual" without any hindrance
whatsoever.
The primary area of risk to Scibal Associates is with its proprietary software.
However, since it is proprietary, it is also the area of greatest control for
the Company. Identifying this area of risk, the in-house programmers have
established, with oversight by the Management Committee of the company, a
schedule of tasks to be accomplished and a timeline. This detailed program
includes the correction of all sub-routines as well as a three month testing
phase, all of which are to be completed by June 30, 1999. As of the date of this
writing, the expected implementation date of the modified program code to be Y2K
compliant is mid-May, 1999.
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<PAGE> 18
CHART OF Y2K COMPLIANCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
COMPANY IT NON - IT PHASE 1 PHASE 2 FINALIZATION
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Century - YES NO COMPLETE ONGOING- complete by April to May 1999
parent April 15, 1999
- --------------------------------------------------------------------------------------------------------
USIB - YES NO COMPLETE ONGOING- complete by April to May 1999
subsidiary April 15, 1999
- --------------------------------------------------------------------------------------------------------
CSP - YES No COMPLETE (A) ONGOING- complete by April to May 1999
subsidiary April 15, 1999
- --------------------------------------------------------------------------------------------------------
SCIBAL - YES No See chart See chart See chart
subsidiary
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(Scibal chart of Y2K compliance is attached herewith as Exhibit 99.1)
Phase 1 is the testing of the stand alone computer systems running Windows 95
operating systems. The test for Year 2000 compliance necessitates accelerating
the date on the computer system and turning the system off while operating under
this accelerated date. The current operating computer systems of the Company, to
date, have complete this test in a satisfactory manner, with no significant loss
of data or operating capacity.
Phase 2 is the Company's assessment of its material relationships with third
party vendors, suppliers and customers. Responses from said third parties
continue to arrive to the Company, and, to date, no significant material
supplier, vendor or customer has advised the Company of any major Year 2000
concerns or problems to be anticipated.
(A) Other than its several stand alone computer systems running Windows 95
operating system, CSP had to additionally test its "AutoCad" software, a
blueprint design drawing software utilized only on a single use (not multi-task,
basis). This program tested successfully.
The third party relationships which involve the Registrant are, at the parent
company level, from large vendors who provide banking service, insurance,
telephone service, duplicating service machines, EDGAR filing support,
bookkeeping service, temporary service agencies, office space rental agencies
and mortgage companies. The status of assessing third party risk remains
ongoing; however, the Company has not been notified by any material third party
relationship that it will experience significant Year 2000 problems.
The third party relationships which involve the Registrant's USIB subsidiary are
from large vendors who provide telephone service, temporary service agencies,
office space rental agencies and insurance licensing companies and insurance
carriers who provide the products and services which USIB has available for
sale. USIB, as a development stage company that has never conducted any
significant business to date. The status of assessing third party risk remains
ongoing; however, to date, USIB has not been notified by any material third
party relationship that it will experience significant Year 2000 problems.
CSP anticipates that despite any third party relationship problems, that CSP
will be able to fully function on a manual basis without any material effect on
operations.
Scibal Associates has only a few third-parties whose failure to be Y2K compliant
would be materially disruptive. These third parties include managed care vendors
and banks. Please note that although failure of these third-parties to be
compliant would be disruptive, it would not have a material adverse financial
impact on Scibal Associates. At worst, such a failure would temporarily lower
service levels until compliance was achieved or new vendors were identified to
replace those which are problematic. Please note, that the scope of this
evaluation was more "local" than "global" in nature. Scibal Associates made no
efforts to determine if basic agents of the U.S. economic infrastructure will be
compliant, for example, the Federal Reserve system, the power grid or the
national telephone system. Clearly, failure in these systems would have a
material adverse
-18-
<PAGE> 19
affect on Scibal Associates, but since these are "monopoly" providers, they are
quite beyond the control and remediation reach of Scibal Associates."
The Company, nor any of its subsidiaries, have utilized any independent
verification and validation processes to assure reliability of their risk and
cost estimates.
The Costs to Address the Company's Year 2000 Issues
The historical and estimated costs of remediation directly related to fixing
Year 2000 issues can be found in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
COMPANY HISTORICAL ESTIMATED
- -----------------------------------------------------------
- -----------------------------------------------------------
<S> <C> <C>
Century - $2000 $3000
parent
- -----------------------------------------------------------
USIB - $1500 (A) $2000 (A)
subsidiary
- -----------------------------------------------------------
CSP - $5000 $5000
subsidiary
- -----------------------------------------------------------
SCIBAL - $10,000 $75,000
subsidiary
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
(A) This cost is covered under the Century - parent expense.
The context for these expenses are management hours spent working on Year 2000
issues, as well as costs of requesting Year 2000 information from material third
party suppliers, customers and vendors. Scibal Associates, as the main
subsidiary with Year 2000 issues, advised the Company that remediation for
Scibal Associates is the use of time by senior management, as well as the
dedication of the internal programming staff. In both cases there is no material
incremental cost, there is only the opportunity cost of this time being diverted
away from other projects.
The source of funds for Year 2000 costs is the decrease in overhead parent
Company (Century) expenses due to the reduction in salaries for all parent level
employees and consultants. The Company's IT budget used for remediation,
excluding Scibal Associates, is $25,000. Such expenditures shall be deducted
from income provided to the Company by its CSP subsidiary.
The Company and its subsidiaries believe that these Year 2000 costs are normal
costs of doing business, and that substantial costs of replacement systems and
equipment, or to repair software, will not be substantial.
The Risks of the Company's Year 2000 Issues
The "worst case" scenario for Year 2000 problems in the Company are generally
uncertain. The Company continues to inquire to its third party contacts to their
Year 2000 readiness, and continues to test, at all levels, parent and
subsidiary, its computer business systems, both network and stand alone, and all
internal tests, to date, have provided no definite or obvious problems. Century
Steel Products, USIB and the parent company believe that their operations, in a
worst case scenario, can be done manually without significant loss of business.
However, should the Scibal Associates subsidiary fail to be compliant, then
contracts representing about $3,000,000 in revenue shall not be renewed. Scibal
Associates does feel, however, that is plan for Year 2000 issues will be
effectuated and, if for any reason is not, that its long term relationship with
its clients will help it seek extensions from its clients.
At this time, neither the Company nor its subsidiaries feel that the Year 2000
efforts have substantially or materially deferred its ability to conduct other
IT projects, except with respect to Scibal Associates, as can be found
hereinabove on page 12 - "Research and Development".
-19-
<PAGE> 20
PART II
ITEM 7. FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Consolidated Financial Statements
For The Years Ended December 31, 1998 and 1997
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report of Correa Berger & Associate, CPA's, P.L.L.C F-2
Consolidated Balance Sheets - December 31, 1998 and 1997 F-3 - F-4
Consolidated Statements of Operations for the Years Ended F-5
December 31, 1998 and 1997
Consolidated Statements of Changes in Stockholders' F-6
Equity for the Years Ended December 31, 1998 and
1997
Consolidated Statements of Cash Flows for the Years F-7
Ended December 31, 1998 and 1997
Notes to Financial Statements F-8 - F-18
</TABLE>
F-1
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
Board of Directors
Century Industries, Inc.
Sterling, Virginia
We have audited the accompanying consolidated balance sheets of Century
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Century
Industries, Inc., and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
CORREA BERGER & ASSOCIATE, CPA'S, P.L.L.C
New York, New York
April 23, 1999
F-2
<PAGE> 22
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS 1998 1997
- -------------- ---- ----
<S> <C> <C>
Cash and Cash Equivalents $ 497,341 $ 282,009
Accounts Receivable-Trade (Net of allowance for doubtful 1,923,084 1,907,446
accounts of $283,000 in 1998 and $163,000 in 1997)
Inventory 154,798 256,695
Marketable Securities 116,925 106,952
Other Current Assets 44,888 572,462
--------------- ----------------
TOTAL CURRENT ASSETS 2,737,036 3,125,564
--------------- ----------------
PROPERTY AND EQUIPMENT
- ----------------------
Land and Buildings 378,270 -
Software and Computer Equipment 2,245,067 1,997,743
Furniture and Fixtures 824,186 779,941
Machinery and Equipment 65,139 15,875
Transportation Equipment 215,429 215,429
Leasehold Improvements 159,251 151,878
--------------- ----------------
3,887,342 3,160,866
Less: Accumulated Depreciation (1,382,951) (1,083,443)
--------------- ----------------
NET PROPERTY AND EQUIPMENT 2,504,391 2,077,423
--------------- ----------------
OTHER ASSETS
Investments 707,666 991,842
Security Deposits 105,653 106,779
Goodwill (Net of accumulated amortization of $273,073 1,828,326 1,949,035
in 1998 and $152,314 in 1997)
Due from Related Parties 496,171 128,422
Other Assets 1,317,340 428,857
--------------- ----------------
TOTAL OTHER ASSETS 4,445,156 3,604,935
- ------------------
--------------- ----------------
TOTAL ASSETS $9,696,583 $8,807,922
- ------------ =============== ================
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 23
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---- ----
CURRENT LIABILITIES
- -------------------
<S> <C> <C>
Accounts Payable- Trade $1,521,587 $1,732,486
Current Maturities- Long Term Debt 878,149 260,267
Capital Lease Obligations 104,349 90,385
Notes Payable 200,000 125,000
Advances from Stockholders 58,524 179,601
Accrued Expenses 1,485,883 1,442,004
Dividends Payable 16,389 16,389
--------------- --------------
TOTAL CURRENT LIABILITIES 4,264,881 3,846,132
LONG TERM NOTES PAYABLE, LESS CURRENT PORTION 749,066 555,926
- ---------------------------------------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 59,195 155,848
- ----------------------------------------------- --------------- --------------
TOTAL LIABILITIES 5,073,142 4,557,906
--------------- --------------
MINORITY INTEREST 12,719 38,250
--------------- --------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock, Convertible, $.001 par value, 1,200,000 shares 1,000 1,000
authorized, 1,000,000 issued and outstanding
Common Stock, Class A, $.001 par value, 25,000,000 shares 3,783 3,373
authorized, 3,783,000 and 3,373,000 issued and outstanding
Common Stock, Class B, $.001 par value, 25,000,000 shares 5,167 4,173
authorized, 5,167,000 and 4,173,000 issued and outstanding
Additional Paid in Capital 8,080,396 6,540,403
Retained Deficit (2,130,189) (1,323,307)
--------------- --------------
5,960,157 5,225,642
Less: Class A common stock in treasury, 399,202 and 269,202
shares in 1998 and 1997, respectively (899,744) (862,555)
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 5,060,413 4,363,087
--------------- --------------
Other Comprehensive Income (Loss) (449,691) (151,321)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,696,583 $8,807,922
=============== ==============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 24
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales $ 12,008,896 $ 14,862,366
Cost of sales 7,563,425 8,591,849
-------------- ---------------
GROSS PROFIT ON SALES 4,445,471 6,270,517
-------------- ---------------
Operating Costs
- ---------------
Payroll Expenses 1,593,926 2,437,512
Professional Fees 802,775 509,736
Auto, Travel and Entertainment 281,192 276,680
Bad Debts 168,685 109,761
Amortization and Depreciation 420,217 323,057
General & Administrative 2,589,347 2,252,380
-------------- ---------------
Total Operating Costs 5,856,142 5,909,126
-------------- ---------------
INCOME (LOSS) FROM OPERATIONS (1,410,671) 361,391
Other Income (Expense)
- ----------------------
Loss on Disposition of Asset (82,429) -
Interest Expense (154,832) (112,974)
Minority Interest 25,531 (12,439)
Other Income (Expense) - Net (337,651) (384,221)
-------------- ---------------
Total Other Income(Expense) - Net (549,381) (509,634)
-------------- ---------------
LOSS BEFORE INCOME TAXES (1,960,052) (148,243)
Income Tax Benefit 854,800 64,826
-------------- ---------------
NET LOSS $ (1,105,252) $ (83,417)
============== ===============
Preferred Stock Dividends of Subsidiaries - (201,980)
-------------- ---------------
Net Loss Available for Common Stockholders $ (1,105,252) $ (285,397)
-------------- ---------------
Basic and Diluted Earnings (Loss) Per Share:
Net Loss $ (0.14) $ (0.05)
-------------- ---------------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 25
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON COMMON ADDITIONAL
STOCK STOCK STOCK PAID-IN
CLASS A CLASS B CAPITAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 1,000 3,096 3,000 4,555,099
- -------------------------
- - - -
Issuance of 277,000 shares of common stock - 277 - 451,221
Issuance of 1,173,000 shares of common stock - - 1,173 1,910,769
Treasury stock, 137,237 shares during 1997 - - - -
Write Off of Deferred Costs - - - (376,686)
Unrealized gain on marketable securities - - - -
Net loss for 1997 - - - -
Preferred dividends - - - -
----------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 1,000 3,373 4,173 6,540,403
- -------------------------
Issuance of 410,000 shares of common stock - 410 - 446,598
Issuance of 993,648 shares of common stock - - 994 1,093,395
Treasury Stock, 130,000 shares during 1998 - - - -
Adjustment for other comprehensive loss - - - -
----------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $ 1,000 $ 3,783 $ 5,167 $ 8,080,396
- ------------------------- ================== ================= ================== ====================
<CAPTION>
RETAINED TREASURY TOTAL
EARNINGS STOCK STOCKHOLDERS'
(DEFICIT) EQUITY
----------------------------------------------------------------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1996 (1,205,456) (472,800) 2,883,939
- -------------------------
- -
Issuance of 277,000 shares of common stock - - 451,498
Issuance of 1,173,000 shares of common stock - - 1,911,942
Treasury stock, 137,237 shares during 1997 - (389,755) (389,755)
Write Off of Deferred Costs - - (376,686)
Unrealized gain on marketable securities 16,225 - 16,225
Net loss for 1997 (83,417) - (83,417)
Preferred dividends (201,980) - (201,980)
----------------------------------------------------------------
BALANCE DECEMBER 31, 1997 (1,474,628) (862,555) 4,211,766
- -------------------------
Issuance of 410,000 shares of common stock - - 447,008
Issuance of 993,648 shares of common stock - - 1,094,389
Treasury Stock, 130,000 shares during 1998 - (37,189) (37,189)
Adjustment for other comprehensive loss (655,561) - (655,561)
----------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $(2,130,189) $ (899,744) $ 5,060,413
- ------------------------- ===================== =================== ==================
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 26
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash received from customers $ 11,993,258 $ 14,212,604
Cash paid to suppliers and employees (13,018,398) (14,252,511)
Interest received 6,100 6,226
Interest paid (142,245) (112,974)
----------------- --------------
Net cash used for operating activities (1,161,285) (146,655)
----------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Sale of fixed assets 98,338 -
Purchase of fixed assets (726,476) (693,248)
Purchase of marketable securities and investments (204,934) (829,614)
----------------- --------------
Net cash used for investing activities (833,072) (1,522,862)
----------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from sale of limited partnership units 1,541,397 2,102,036
Preferred dividends paid - (283,541)
Receipts of (payments on) notes 789,369 (321,251)
Net advances from affiliates-stockholders (121,077) 272,812
----------------- --------------
Net cash provided by financing activities 2,209,689 1,770,056
----------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 215,332 (100,539)
- ----------------------------------------------------
Cash and Cash Equivalents - January 1 $ 282,009 $ 382,548
- ------------------------------------- ----------------- --------------
CASH AND CASH EQUIVALENTS - DECEMBER 31 $ 497,341 $ 282,009
- --------------------------------------- ================= ==============
Net loss $ (1,105,252) $ (83,417)
Bad debts 168,685 109,761
Amortization and depreciation 420,217 323,057
Write Off of Deferred Acquisition Costs - 44,780
Loss on sale of assets 82,429 -
Minority Interest (25,531) 12,439
(Increase) decrease in accounts receivable (184,323) (643,536)
(Increase) decrease in inventory 101,897 (117,740)
(Increase) decrease in other current assets and other assets (466,351) (314,242)
Increase (decrease) in accounts payable (210,899) 82,216)
Increase (decrease) in dividends payable - (81,561)
Increase (decrease) in accrued expenses 57,843 521,388
----------------- -------------
Net cash used for operating activities $ (1,161,285) $ (146,655)
================= ==============
</TABLE>
(continued)
See accompanying notes to financial statements
F-7
<PAGE> 27
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Century Industries, Inc. (the Company) (CNTI) was incorporated in the District
of Columbia in 1993 and is the parent holding company for its subsidiaries,
Century Steel Products, Inc., Scibal Associates, Inc., U.S. Insurance Brokers,
Inc., and USIB Holdings Limited Partnership.
Century Steel Products, Inc. (CSP), which was incorporated in Virginia in 1979,
and 85% of the stock acquired by the Company in 1993, manufactures and
fabricates steel products used in the construction industry. CSP sells its
services and products nationwide, primarily along the East Coast from its sales
and manufacturing plant located in Sterling, Virginia. CSP grants credit to
customers in the construction industry. Consequently, CSP's ability to collect
the amounts due from customers is affected by economic fluctuations in the
construction industry.
U.S. Insurance Brokers, Inc. (USIB), which was incorporated in the District of
Columbia on April 27, 1995, is a development stage life and casualty insurance
agent which markets full service association life, automobile, homeowner and
health insurance plans, and life insurance company-managed financial products to
various associations and other membership-based organizations.
Scibal Associates, Inc. (Scibal), which is owned by USIB, operates as a third
party claims administrator (TPA) processing a wide range of claim types
including medical, workers' compensation, general liability, product liability,
professional malpractice and other insurance claims for its clients throughout
the United States.
USIB Holdings Limited Partnership (Holdings), was formed in late 1997 to act as
an insurance holding limited partnership for the acquisition of Reinsurance
Corporation of America, and/or to form a new Florida casualty insurance company
so as to participate in the state of Florida Joint Underwriting Association
Homeowners's Takeout Program. USIB is the General Partner, and David Scibal,
President of Scibal Associates, is a Limited Partner. Holdings was capitalized
through the capital contribution of David Scibal's 727,273 Class B warrants,
valued at $1,192,000, received as consideration from the sale of Scibal
Associates to the Company, and a capital contribution of $808,000 by the
Company. David Scibal will participate to the extent of 20% of any future
profits, and the Company will receive 80%. However, his equity ownership is
limited to 1% and the Company retains 99%.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, CSP, USIB, Scibal and USIB Holdings, LP in 1998. The Company
owns approximately 85% of CSP's common stock and 100% of USIB's and Scibal's
common stock. All material intercompany accounts and transactions have been
eliminated. Minority interests in a subsidiary are recognized to the extent that
the minority interests in equity capital are positive. When losses applicable to
minority interests exceed minority interest in equity capital, the excess is
charged against the Company's interest. Subsequent minority interest earnings
are credited to the Company to the extent of minority interest losses previously
absorbed. In the year of acquisition, a subsidiary's income and expenses are
included in the consolidated statement of operations only to the extent of the
post-acquisition activity.
ACQUISITIONS AND GOODWILL
The consolidated financial statements include the net assets of businesses
purchased and recorded at cost, which was measured by the fair value of
consideration given or net assets received, whichever was more clearly evident,
at the acquisition date. The excess of acquisition costs over the fair value of
net assets acquired has been allocated to and is included in goodwill. Goodwill
is amortized on a straight-line basis over 30 years. Management periodically
reviews the business environment of its acquirees for
F-8
<PAGE> 28
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
potential impairment write downs through evaluations based on fair values and in
relation to the expected operating performance and future expectations of non
discounted cash flows of the related businesses. The carrying value of the
long-lived assets (including goodwill) is reviewed if the facts and
circumstances suggest that such assets may be permanently impaired. If the
expected future operating cash flows derived from such assets are less than
their carrying value, such value would be reduced accordingly. After review,
there appears to be no potential impairment write downs.
INVENTORY
Inventory consists of raw steel products and is recorded at the lower of cost or
market, using the average cost method.
PROPERTY AND EQUIPMENT
Furniture, equipment and leasehold improvements are stated at cost. For
financial reporting, depreciation and amortization are provided using
straight-line and double-declining balance methods and the following estimated
useful lives:
<TABLE>
<S> <C>
Non Residential Buildings 39 years
Software and computer equipment 5-7 years
Furniture and fixtures 5-7 years
Machinery and equipment 7-10 years
Transportation equipment 3-7 years
Leasehold improvements 10-15 years
</TABLE>
For income tax purposes, depreciation is computed using the accelerated cost
recovery system and the modified accelerated cost recovery system. Expenditures
for major renewals and betterment that extend the useful lives of property and
equipment are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred. The cost of property retired or sold and the related
accumulated depreciation are removed from the applicable accounts, and the
resulting gains and losses are reflected in the consolidated statements of
operations.
SOFTWARE COSTS
Pursuant to Statement of Financial Accounting Standards No.86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" issued
by the Financial Accounting Standards Board, Scibal capitalized certain software
development and production costs once technological feasibility had been
achieved. The cost of purchased software is capitalized when related to a
product which has achieved technological feasibility or that has an alternative
future use. Scibal capitalized internal software development costs, related to
new products reaching technological feasibility. At December 31, 1998 and 1997
Scibal capitalized software amounting to approximately $1,094,000 and $247,324
respectively. Capitalized software development and purchased software costs are
reported at the lower of unamortized costs or net realizable value. Commencing
upon initial product release, these costs will be amortized based on the
straight-line method over the estimated life.
Scibal Associates utilizes internally developed proprietary software in the
provision of its claims services. Scibal capitalizes the development costs of
such software as called for in FASB 86 and further supported by Statement of
Position 98-1 as issued by the Accounting Standards Executive Committee.
Scibal Associates is a claims adjudicator for self insured entities and
insurance carriers. As an integral part of the service, Scibal uses the
proprietary software and a computer network to track claims activity, history,
make payments, create and issue reports to customers and regulatory bodies, and
otherwise perform and document all steps necessary in the performance of its
services. Without this proprietary or similar third party software, Scibal would
not be able to generate revenue, although the software itself is not what is
sold.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of
F-9
<PAGE> 29
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
allowances for doubtful accounts and accumulated depreciation for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences which will either be taxable
or deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses that are available to offset
future federal and state income taxes. The Company files consolidated income tax
returns.
2) REVENUE RECOGNITION
Steel Products
Revenue is recognized on steel products when the products are shipped to
customers. Revenue is recognized on steel fabrication projects as contract
line-item tasks are completed. Essentially, revenue and profit are recognized as
fabrication on production in progressing to completion. Line item tasks are
generally short-term in nature. Accordingly, expenses are recognized when
incurred. Losses are recognized when reasonable estimates of the amount of loss
can be made. The majority of sales are performed under contracts which are very
specific and have provisions covering termination for non compliance with clear
and specific terms for payments on work performed. No significant cancellations
have ever occurred. The Company periodically reviews the credit, collection and
sales allowance history and status of its customers and provides for potential
losses.
CSP's usual operating policy is to complete jobs before year end and generally
not to begin new jobs in late December, which facilitates accounting and reduces
time needed for inventory observation. This operating pattern, which constitutes
the application of SOP 81-1, is actually the way CSP operates, and is a policy
which is followed at the end of each quarter.
Claims Administration
Scibal contracts with its clients to process various types of casualty claims.
Generally, the contracts provide that for an agreed upon annual fee, Scibal will
administer up to a specified number of claims. Scibal recognizes this revenue on
a pro rata basis throughout the billing year. If less than the estimated number
of claims is administered, Scibal is entitled to the full amount of the
contract. In the event more claims than estimated are administered, the client
will be billed extra based on a predetermined amount per file, per file type,
per state. Additionally, if a file remains open for more than two years, Scibal
is entitled to an additional fee for the file on a one-time basis. Revenue from
these situations is recognized when the contractual criteria are met. Included
in other current assets is approximately $94,000 and $393,000 at December 31,
1998 and 1997, respectively, related to such "overage billings" captured from an
analysis of claims' work in process. With respect to the earnings process and
the recognition of revenue, the Company has actually processed this overage
claims, however, billing could not be initiated until the end of the contract.
Claims Administration Deposits
As a third party administrator, Scibal clients deposit funds with Scibal to
administer the clients' claims. Scibal places these funds in various cash
accounts set up solely for the purpose of paying that client's claims. The
claims administration deposits are not held in trust and there is no management
of the deposits for income. The claims administration deposits approximating
$3,000,000 and $4,000,000 at December 31, 1998 and 1997, respectively, are not
included as assets in Scibal's financial statements.
Deferred Acquisition Costs
Deferred acquisition costs incurred in connection with the development stage
insurance operations are being expensed as incurred with early application of
SOP 98-5 - "Reporting on the Cost of Start Up Activities."
Cash and Consolidated Statements of Cash Flows
From time to time during the years ended December 31, 1998 and 1997, the Company
maintained cash balances in excess of federally insured limits.
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.
F-10
<PAGE> 30
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
During the years ended December 31, 1998 and 1997, other comprehensive income
included unrealized holding losses on available for sale securities of $449,691
and $151,321, respectively.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding during each period. Earnings per
share are computed using the treasury stock method. The weighted average number
of shares used for the computations of earnings per share approximated 8,200,000
and 6,200,000 for the years ended December 31, 1998 and 1997, respectively.
RECLASSIFICATIONS
Certain items in the December 31, 1997 consolidated financial statements have
been reclassified, where appropriate, to conform with the December 31, 1998
presentation.
3) TREASURY STOCK TRANSACTIONS
During 1998 and 1997, Scibal and USIB acquired Class A common stock of the
Company. During 1996, Scibal acquired Class A common stock of the Company. Such
shares of CNTI common stock held by the subsidiaries are recorded in
consolidation as treasury stock and result in a reduction of stockholders'
equity. The Company acquired 130,000 shares of its Class A common voting stock
at the beginning of 1998. These shares were acquired due to cancellation of a
loan to one of the Company's directors.
In 1998, the Company issued 993,648 Class B common voting shares and 410,000
Class A common voting shares. In 1997, the Company issued an additional
1,173,350 Class B common voting shares.
4) INCOME TAXES
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
Current 1998 1997
---- ----
<S> <C> <C>
Federal $ - $(28,900)
State - -
Deferred (854,800) (27,726)
----------- ---------
$(854,800) $(56,626)
=========== =========
</TABLE>
Deferred tax assets resulted primarily from the Company's net operating tax
losses of approximately $2,232,000 and $585,000 at December 31, 1998 and 1997,
respectively. The net operating losses are available to offset future taxable
income. The related deferred tax asset of has been reduced by a valuation
allowance. Other deferred tax assets resulted from the tax bases of trade
accounts receivable exceeding their bases for financial reporting by the amount
of the allowance for doubtful accounts, the tax bases of fixed assets exceeding
their bases for financial reporting, and from charitable contributions available
to offset future taxable income. The net operating loss carryforwards will
expire in 2013, and the charitable contribution carry forward will expire in
2000.
Net deferred tax assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Total Deferred Tax Liabilities $ - $ -
Total Deferred Tax Assets 1,097,000 339,193
Total Valuation Allowance (100,000) (91,267)
------------ ------------
$ 997,000 $ 247,926
============ ============
</TABLE>
Of the net deferred tax assets at December 31, 1998 and 1997, $65,671 and
$45,600 were included in other current assets, and $882,129 and $151,526 were
included as other assets, respectively.
F-11
<PAGE> 31
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
6) RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1997, the subsidiaries advanced
funds to stockholders-officers of the Company and affiliated parties, and
received related repayments. Such advances are non-interest bearing and have no
specific repayment terms.
For the year ended December 31, 1998 and 1997 an officer of USIB received
approximately $250,000 and $1,200,000, respectively, for services provided as
selling expenses in issuing shares of preferred stock of USIB. Equity was
reduced by this amount as a direct cost of issuing the stock.
Scibal has a minority stock position in a corporation, which owns an office
building. For a portion of both 1998 and 1997 the office building was vacant,
during which time Scibal funded the debt service and maintenance costs of the
property, which has been recorded as a receivable. The property is for sale, and
Scibal feels that its receivable will be collected when it is sold. In 1998 the
building representing the primary asset of a corporation in which Scibal had an
investment was sold. As part of the sale, a $50,000 mortgage note was received,
which was assigned to Scibal. This mortgage is for 60 months, beginning October,
1998, at 9.5% interest, with a fifteen year amortization and a balloon payment.
Scibal sustained a loss on this investment totaling $82,429.
7) LINE OF CREDIT
Scibal maintains a $200,000 credit line with a bank in order to meet seasonal
working capital requirements and other financing needs as they arise. Short-term
borrowings on this line at December 31, 1998 and 1997 totaled $200,00 and
$125,000 respectively, which is due on demand with interest at prime plus 1%.
This line of credit is guaranteed by David Scibal.
8) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
$500,000 note payable, due in equal monthly payments
of $8,333 plus interest at prime plus 1% for sixty (60)
months due through November 2001, secured by all assets of
Scibal. $283,362 $ 383,362
$346,837 guidance notes to finance new capital
expenditures, due in equal monthly installments through
December 2000, plus interest at prime plus 1%for
thirty-six (36) months, secured by all assets of Scibal. 142,040 203,927
Scibal has a $27,500 note payable due in monthly
installments of $691 including interest at a rate of 9.5%
per annum for forty-eight (48) months through August 2000. 13,319 19,912
CSP has a note dated July 1995, maturing December
2001. Monthly payments are required consisting of
principal of $4,000 plus accrued interest at 1.5% over
prime. The note is secured by all of CSP's assets and is
guaranteed by a stockholder-officer. 142,000 194,000
CSP has a note dated December 1997, maturing November
2000. Monthly payments are required consisting of $512
including interest at 11.65%. The note is secured by a
transportation vehicle. 9,852 14,992
$281,250 note payable, due in equal monthly payments
of $2,853 including interest at 9% per annum for 180
</TABLE>
F-12
<PAGE> 32
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C>
months through January 2013. The note is secured by CSP's
building 273,403 -
$37,500 note payable, with interest payments due on the
unpaid
principal balance at the rate of 13% per annum for 36
months through January 2001. The note is secured by
CSP's building 37,500 -
CNTI has a $600,000 note dated August, 1998, due
January 1, 1999, bearing interest at 7% per annum. The
note is secured by accounts receivable at CSP and Scibal
Associates 600,000 -
USIB has a $70,900 note due in 2000 70,900 -
Scibal has a $54,839 life policy loan 54,839 -
----------- -----------
1,627,215 816,193
Less: Current Portion 78,149 260,267
---------- ----------
Long Term Portion $ 623,327 $ 555,926
========== ==========
</TABLE>
Future minimum payments on long-term debt as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 $ 878,149
2000 327,723
2001 181,146
2002 13,208
2003 & thereafter 226,989
----------
$1,627,215
==========
</TABLE>
Interest cost, none of which was capitalized, was approximately $155,000 and
$113,000 for the years ended December 31, 1998 and 1997, respectively.
9) COMMITMENTS AND CONTINGENCIES
Building Leases
The company and its subsidiaries lease office space and transportation vehicles
under various operating leases expiring through October 2002.
Future minimum payments under these leases are as follows:
<TABLE>
<S> <C>
1999 $ 89,258
2000 514,407
2001 232,685
2002 109,810
-----------
$1,346,160
===========
</TABLE>
Net rent expense was approximately $604,485 and $580,500 for the years ended
December 31, 1998 and 1997, respectively.
F-13
<PAGE> 33
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Obligations Under Capital Leases
The Company is the lessee of equipment under capital leases expiring in May
2000. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
asset.
Following is a summary of property held under capital leases:
<TABLE>
<S> <C>
Computer equipment $ 438,739
Less: Accumulated depreciation (229,830)
----------
$ 203,909
==========
</TABLE>
Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:
<TABLE>
<S> <C>
1999 $ 117,721
2000 55,756
2001 5405
2002 5405
2003 2252
Total minimum lease payments 186,539
Less: Amount representing interest (22,995)
----------
Present value of net minimum lease payments $ 163,544
==========
</TABLE>
The interest rate on capitalized leases range from 0.0% to 8.5% and is imputed
based on the lower of the incremental borrowing rate at the inception of each
lease or the lessor's implicit rate of return.
Effective January 1, 1997, the Company adopted a key Employee Stock Option Plan
(ESOP). There was no activity in the ESOP since inception.
Scibal has in effect a 401 (k) Plan covering substantially all eligible
employees for the year ended December 31, 1998. Scibal elected not to match
payment of certain before tax contributions made by employees during 1998 and
1997.
10) MARKETABLE SECURITIES AND OTHER FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable,
marketable securities, accounts payable, accrued expenses and other current
liabilities and long-term debt. The book values of cash, accounts receivable,
marketable securities, accounts payable and accrued expenses and other current
liabilities are representative of their fair values due to the short-term
maturity of these instruments. The book value of the Company's long-term debt is
considered to approximate its fair value, based on current market rates and
conditions.
11) INVESTMENTS
The Company has interests in certain long-term investments, which are carried at
cost. Included in the balance of investments at December 31st is the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investment in third party administrative building $ 30,000 $ 30,000
Investment in office building - 202,348
Investment in an insurance related corp. by CSP - -
Investment in an insurance related LP 640,166 683,285
Investment in construction Joint Venture by CSP - 38,709
Other Investments 37,500 37,500
----------- -----------
$ 707,666 $ 91,842
</TABLE>
The Company has an investment in the Roc Shores/Century Industries, Inc. Limited
Partnership, a District of Columbia Limited Partnership, wherein its interest is
45%. This Limited Partnership was formed in 1997 to purchase and own Century
(Overseas) Insurance Co., S.A., a Dominican Republican insurance company, which
has been effected. The insurance captive has appointed USIB as its
F-14
<PAGE> 34
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Managing General Agent for North America. The General Partner is Roc Shores
Investments, Ltd. The insurance company is presently in its development stage.
There was no investment made by the Company into this partnership during 1998.
See note 18 below.
During 1997, the Company's subsidiary, Century Steel, had a 45% interest in the
Partnership Management Corporation/Century Steel Products Limited Partnership,
formed between Century Steel and Bainbridge Construction Co., Inc., a Class A
licensed Virginia General Contractor. Partnership Management Corporation is the
General Partner. The Limited Partnership was constructing the Accotink School in
Springfield, VA , using Century Steel's products. The Limited Partnership has
leased office and warehouse space from Century Steel. During 1998 there was no
activity in the limited partnership because the projected activity for 1998 did
not materialize due to changing economic conditions in the targeted market. The
Company does not foresee any further activity in this business venture.
12) DUE FROM RELATED PARTIES
This represents advances made to various related parties. These advances are
non-interest bearing and have no specific repayment terms.
13) ADVANCES FROM STOCKHOLDERS
At December 31, 1998 and 1997, $58,524 and $179,600 were advanced from a
stockholder to Scibal as a loan for working capital purposes with no specific
repayment terms. Such advance is non-interest bearing.
14) MAJOR CUSTOMERS
Scibal lost the workers compensation program for one major customer in 1998.
During 1997, one customer accounted for approximately 16% of revenues at
Scibal. During 1996, two customers accounted for approximately 20% of revenues.
15) STOCKHOLDERS' EQUITY
CSP did not declare any dividends in 1998. CSP declared dividends to its
preferred stockholders in the amount of $7,800 for the years ended December 31,
1998 and 1997, respectively. At December 31, 1998 and 1997, dividends of $1,950
were accrued but unpaid.
USIB did not declare any dividends in 1998. USIB declared dividends to its
preferred stockholders in the amount of $ - 0 - and $194,180 for the years ended
December 31, 1998 and 1997, respectively. At December 31, 1998 and 1997,
dividends of $ - 0 and $14,400, respectively, were accrued but unpaid.
Shares of common stock were reserved at December 31, 1998 for the following:
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
Conversion of a warrant for 200,000 shares 200,000 -
into Class A common voting shares @ $.01
Conversion of a warrant for 50,000 shares into 50,000 -
Class A common voting shares @ $1.25
Conversion of a warrant for 270,834 shares into 270,834 -
Class A common voting shares @. $.01
Exercise of 727,273 outstanding warrants @ $.01
into Class B common voting shares exercisable 727,273
subsequent to December 31, 1997 in conjunction
with DC Partners acquisition
Conversion of 250,000 warrants into Class A
common voting shares @ $.01 250,000 -
------------- --------------
770,834 727,273
============= ==============
</TABLE>
F-15
<PAGE> 35
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Shares of common stock were reserved at December 31, 1997 for the following:
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
Conversion of a warrant for 200,000 shares 200,000 -
into Class A common voting shares @ $.01
Conversion of a warrant for 50,000 shares into 50,000 -
Class A common voting shares @ $1.25
Conversion of a warrant for 270,834 shares into 270,834 -
Class A common voting shares @. $.01
Conversion of a warrant for 300,000 shares into 300,000
Class B common voting shares @ $1.25
Exercise of 727,273 outstanding warrants @ $.01 727,273
into Class B common voting shares exercisable
subsequent to December 31, 1997 in conjunction
with DC Partners acquisition
Conversion of a warrant for 500,000 shares into 500,000
Class B common voting shares @ $.01
Conversion of 250,000 warrants into Class A
common voting shares @ $.01 250,000 -
Conversion of 250,000 warrants into Class A
common voting shares @ $.01 250,000 -
------------- --------------
1,020,834 1,527,273
------------- --------------
</TABLE>
16) BUSINESS SEGMENT INFORMATION
Segment information for the years ended December 31, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998 CSP USIB SCIBAL CNTI TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,312,594 $ 4,818 $ 7,691,484 - $ 12,008,896
- ---------------------------------------------------------------------------------------------------------------------
Operating Income (loss) (83,059) (1,535,030) 357,844 (100,426) (1,410,671)
- ---------------------------------------------------------------------------------------------------------------------
Identifiable Assets 966,639 3,898,386 3,909,145 922,413 9,696,583
- ---------------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------------
Revenues 4,572,796 300,000 9,989,570 - 14,862,366
- ---------------------------------------------------------------------------------------------------------------------
Operating Income (loss) 175,207 (355,674) 719,880 (178,022) 361,391
- ---------------------------------------------------------------------------------------------------------------------
Identifiable Assets 1,111,389 2,492,068 4,484,443 720,022 8,807,922
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE> 36
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
17) SUBSEQUENT EVENTS
Century intends to develop business opportunities and recover previous years'
losses through its business opportunity with Interactive Gaming &
Communications, Ltd. ("IGC", trading on OTC:BB under the symbol "SBET"), wherein
both companies agreed to form Gamblenet Technologies, Ltd. Press releases
regarding this were issued by the Company in March of 1999.
Century has also, at the parent company level, reduced its overhead costs.
Several officer positions with regards to shareholder relations services were
eliminated, and legal and consulting fees have been greatly reduced. Scibal
Associates has also positioned itself to reduce overhead operating costs,
without compromising its ability to accommodate new customers.
18) ROC SHORES/CENTURY LIMITED PARTNERSHIP
There was no investment by the Company into this limited partnership during
1998. Due to the major natural disasters which decimated the Dominican Republic
during 1998, there was no business activity in this partnership during 1998.
Century, as the limited partner, will endeavor to create business opportunities
for Century Overseas Insurance Co. ("COIC"), 1999. Management has no assurances
that any level of performance will be achieved, nor that its operations will
materialize as planned.
19) INVESTMENTS IN LIMITED PARTNERSHIPS
Investments in 20% to 50% owned partnerships, affiliates, and other entities are
accounted for on the equity method and investments in less than 20% owned
affiliates are accounted for on the cost method.
20) CLARION FINANZ AG FINANCING
During the third quarter of 1998, the Company entered into a bridge loan
agreement with Clarion Finanz AG. Clarion Finanz was represented by the law firm
Kane Kessler in New York City. The Company borrowed $600,000 under this
agreement. Approximately $67,000 of the $600,000 was expended on attorney and
finder's fees. The Company returned $300,000 to Clarion Finanz in January, 1999.
As of the date of this filing the Company remains indebted to Clarion Finanz for
$300,000 plus penalties and interest, which approximate $35,000. This agreement
was collateralized by the accounts receivable of Scibal Associates and Century
Steel Products. The money was loaned to the Company for the purposes of
effectuating the $300,000 licensing fee with the Florida Insurance Department
for the proposed Florida property and casualty insurance company that Century
anticipated capitalizing through the Security Capital Trading private offering.
After Security Capital failed to raise the requisite funds, and the Company
pursued alternate forms of financing to capitalize the proposed insurance
company, the Company was obligated to return the remaining $300,000 funds to
Clarion Finanz, and did so in January, 1999.
21) YEAR 2000 (Y2K)
Management has determined that failure to correct internal computer systems,
particularly in its proprietary claims software, would have materially adverse
affects upon the Company's business, operations and financial condition.
Additionally, failure of two key service providers to be compliant was also
determined to be materially detrimental to the Company. Therefore, in early 1998
steps were taken to ensure that the Company's internal systems and the systems
of material third parties would be compliant prior to the failure of compliance
of such systems having an impact on the Company. Management expects to be fully
year 2000 compliant by July, 1999.
Two internal information technology systems at Scibal Associates were determined
to be "at risk" by the year 2000 issue; (1) the proprietary software and
underlying operating system of the computers on which it runs and (2) the
software within the telephone system (PBX) used at the main office of the
Company.
F-17
<PAGE> 37
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
The two external systems of outside service providers whose failure to be
compliant would put the Company at risk are the systems of the two largest banks
used by Scibal Associates. Scibal issues thousands of checks each month in
providing its services, hence the failure of the systems at these banks would
result in operational problems for the Company.
Scibal has been notified by both of these key banks that their systems are fully
compliant. Scibal has been notified by AT&T that the software which operates the
telephone system was Y2K compliant when it was originally installed.
Scibal has been aware of the year 2000 issue for the past several years.
However, in preliminary assessments, it was determined that the issues raised by
Y2K for the proprietary software were well understood and well within the
capabilities of the in-house programming staff to correct. The operating system
for the computers used by Scibal are already Y2K compliant. Based on these
assessments, it was decided that the corrections to the proprietary software
would begin in the fourth quarter of 1998, with a completion date of April and
testing to be completed by June 1, 1999. Upon completion of the testing, the
corrected system will be implemented, providing for another six months of
problem identification and correction prior to the end of the year. As of the
date of this report, Scibal is maintaining this timeline, and foresees no
problem with having the program corrections completed and tested by the budgeted
dates.
The cost to Scibal for the renovation of the proprietary software required for
Y2K is estimated at $125,000. This cost represents payroll and benefits as well
as estimated consulting fees. No material expenditures for hardware or
third-party software are expected. The dedication of the in-house programming
staff to Y2K has necessitated the deferment of previously ongoing projects.
However, these projects were long-term in nature, and their deferment will not
have a known adverse impact on the Company's operations or financial condition.
The most likely risk regarding Y2K is that minor corrections to the software
will not be completely fixed by the target date of June 1, which will become
evident during the use of the software as the corrected program goes "live".
However, since these problems will only be small glitches, they will easily be
corrected prior to their impacting the operations or financial condition of the
Company. The testing on the most difficult, pervasive Y2K corrections have
already been completed.
22) WRITE DOWN OF PREVIOUSLY CAPITALIZED DEFERRED OFFERING AND ACQUISITION COSTS
In 1998, the Company, after reviewing its books and records with relation to
previously capitalized deferred offering and acquisition costs, has elected to
write down these expenses, and these expenses, totaling approximately $725,000,
are included in the Company's audited income statement under Professional Fees.
These previously capitalized deferred offering and acquisition costs are
considered to be one time, non-recurring expenses which the Company will not
experience again. The resulting figure of Income (Loss) from Operations, when
taking into consideration this write down, reduces the Company's net loss from
($1,105,252) to ($269,172).
F-18
<PAGE> 38
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with the Company's presently engaged accountants,
Correa, Berger & Associates, CPA's, 67 Wall St., 2nd Floor, New York. NY 10005
who have audited the Registrant, Century Steel Products, Inc. (CSP), U.S.
Insurance Brokers, Inc. (USIB), and USIB Holdings LP.
While the Issuer did not re-engage Correa Berger & Associates, CPAs, PLLC and
engaged Sobel & Co. during 1998, Sobel & Co. never performed any audit for the
Registrant or any of its subsidiaries, and two Form 8-Ks was filed pertinent to
the Sobel & Co. dismissal.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's Directors, Executive Officers, and their ages are:
Joel M. Gundersheimer Director 54
Mr. Gundersheimer was the founder of Century Steel Products, Inc., the Company's
subsidiary, and functioned as its President since 1979 until 1996. He still
functions as a Director of Century Steel Products, Inc. and is currently helping
Mr. Schwartzbeck at CSP.
Theodore L. Schwartzbeck Director, President, Treasurer, Chairman 36
Mr. Schwartzbeck became President of the Company in 1996. He has served as a
Director since its inception. He has further served as the Executive Vice
President of Century Steel Products, Inc, since 1986, and became its CEO in
1996. Ted Schwartzbeck has also served as Vice President of CSP since 1985 and
President of CSP since 1996, and President of USIB since 1995. Mr. Schwartzbeck
is also a director of V-Twin Acquisitions, Inc.
William F. Balla Vice President, Director 34
Mr. Balla has been a Vice President of both USIB and Century since 1996, and has
performed that function in the Shareholders Relations department.
Robert Kelly Vice President, Director 44
Mr. Kelly has been a Vice President of both USIB and Century since 1996, and has
performed that function in the Shareholders Relations department.
A. Jay Pignatello Director, Secretary 29
Mr. Pignatello joined USIB in March, 1996 to act as the Vice President of
Shareholder Relations. He graduated from the University of Pennsylvania in 1992
and subsequently worked as a legal assistant in two major Washington, DC law
firms. Mr. Pignatello is also a director of V-Twin Acquisitions, Inc.
The above Directors are all elected annually, and Messrs. Schwartzbeck and
Gundersheimer have served since the inception of the Company in December of
1992. Mr. Pignatello have served since December, 1997. All of the Directors were
appointed to serve for the calendar year of 1998 and through 1999 at the 1998
annual meeting. Mr. Scibal remains as CEO of Scibal Associates.
Mr. David Scibal, CEO and President of Scibal Associates, is a significant
employee. Mr. Scibal Mr. Scibal serves as Chairman of the Board of the Company,
President and Chief Executive Officer of Scibal Associates and as Chairman OF
USIB. He began his insurance career in 1970 with Scibal Adjustment Bureau, a
family owned, independent adjusting firm. He founded Scibal Associates in 1984.
Mr. Scibal is a member of the Loss Executives Association, the National
Association of Independent Insurance Adjusters and was Treasurer of the
International Institute of Loss Adjusters. He is listed in "Who's Who in
Industry and Finance", as well as "Who's Who in Insurance".
-21-
<PAGE> 39
None of the above directors or significant employees have (a) been involved in
any bankruptcy or involved with a company that filed for bankruptcy, (b) any
conviction in a criminal proceeding or subject to a pending criminal proceeding,
(c) subject of any order, judgment, decree barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activity, and (d) been found by any court to have violated a federal or state
securities or commodities law.
ITEM 10. EXECUTIVE COMPENSATION.
Executive Officers, who also serve as Directors of the Company, do not receive
compensation from the Company. Mr. Schwartzbeck receives his compensation as
President and CEO of Century Steel Products, Inc. and Mr. Scibal receives his
compensation as Chief Executive Officer of Scibal Associates, Inc. and Reynolds
Dods receives his compensation as CFO of Scibal Associates. They do not receive
any compensation as Officers or Directors of the Company. Mr. Gundersheimer
receives his compensation as an Officer and Director of CSP. Mr. Pignatello
receives his $60,000 as a consultant of CSP, Century Industries and USIB.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name and Restricted All Company
Position Year Salary Bonus Other($) stock awards Other
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David Scibal 1998 -$200,000- -0- -0- -0- - -0- Scibal
J.M. Gunder 1998 -$100,000- -0- -0- -0- -0- CSP
Ted Beck 1998 -$100,000- -0- -0- -0- -0- CSP
Reynolds Dods 1998 -$ 69,000- -0- -0- -0- -0- Scibal
Robert Kelly 1998 -$45,000- -0- -0- -0- -0- Century
Jay Pignat. 1998 -0- -0- -$60,000- -0- -0- Century,USIB,CSP
William Balla 1998 -$45,000- -0- -0- -0- -0- Century
Steven Scibal 1998 -$90,000- -0- -0- -0- -0- Scibal
- --------------------------------------------------------------------------------------------------
</TABLE>
No bonuses were given by the Company or any of its subsidiaries during 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of December 31, 1998, the below charts indicate the only security ownership
of certain beneficial owners and management that exist within the Registrant:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
All 5% persons:
Name of Amount of
Beneficial Beneficial
Title of Class Owner Owner Percent of Class
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Common Voting
" " J.M. Gunder 349,501 9.24 %
" " Ted L. Schwartzbeck 347,167 9.18 %
" " David Scibal 760,000 20.09 %
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Management 5% persons and affiliates/control persons:
Name of Amount of
Beneficial Beneficial
Title of Class Owner Owner Percent of Class
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Common Voting
" " J.M. Gunder 349,501 9.24 %
" " Ted L. Schwartzbeck 347,167 9.18%
" " Richard Campanaro 58,000 1.53 %
" " David Scibal 760,000 20.09 %
" " Steven Scibal 60,000 1.59 %
- -------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 40
- --------------------------------------------------------------------------------
Management Warrants for Class A common voting shares:
If the 520,834 outstanding warrants for Class A common voting stock owned
by the Executive Officers and their affiliates were exercised at $.01 per share,
the Company would have 4,305,514 Class A common voting shares outstanding, on a
fully diluted basis. Messrs. Gundersheimer and Schwartzbeck have warrants for
135,417 Class A common voting shares available for exercise at $.01, and Mr.
Scibal has a warrant for 50,000 Class A common voting shares at $1.25. The
following share amounts and percentages would then apply:
<TABLE>
<CAPTION>
Name of Amount of
Beneficial Beneficial Common Stock
Title of Class Owner Owner Percent of Class
Class A Common
<S> <C> <C> <C>
" " " J.M. Gunder 484,918 12.82 %
" " " Ted Beck 482,584 12.76 %
" " " David Scibal 810,000 21.41 %
</TABLE>
If the 1,000,000 outstanding warrants for Class A common stock owned by the
USIB Trust* were exercised at $.01, the Company would have 5,305,514 shares
outstanding, on a fully diluted basis. The following share amounts and
percentages would then apply:
<TABLE>
<CAPTION>
Name of Amount of
Beneficial Beneficial Common Stock
Title of Class Owner Owner Percent of Class
Class A Common
<S> <C> <C> <C>
" " " USIB Trust 1,000,000 26.44 %
" " " J.M. Gunder 484,918 12.82 %
" " " Ted Beck 482,584 12.76 %
" " " David Scibal 810,000 21.41 %
</TABLE>
- - The USIB Trust cannot exercise their warrants until USIB contributes $.10
per share to the Company's consolidated earnings, or in the event of a
hostile takeover.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Warrants:
If the Company were to convert the 727,273 warrants* originally
issued to David Scibal to Class B common voting shares, the Company would have
5,894,271 Class B common voting shares outstanding, and the following additional
share amounts and percentages would apply:
<TABLE>
<CAPTION>
Name of Amount of
Beneficial Beneficial Common Stock
Title of Class Owner Owner Percentage
Class B Common
<S> <C> <C> <C>
" " " David Scibal 727,273 12.34 %
</TABLE>
- - These David Scibal warrants were contributed to USIB Holdings LP, and
Management intends to apply these warrants towards the ultimate conversion
of certain USIB Holdings convertible LP Units presently outstanding. These
Units are not convertible until 1999.
- --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
For the year ending December 31, 1998, the Company had no related party
transactions. Related party transactions for 1997 and 1996 are provided
hereinbelow.
-23-
<PAGE> 41
USIB and David Scibal formed USIB Holdings LP in 1997 to provide a go forward
basis for future acquisitions. David Scibal, the Chairman, contributed the
727,273 Class B warrants he received in consideration for his DCP shares in 1996
as capital, and the Company contributed $808, 000 in cash to the LP. USIB is the
General Partner, and Mr. Scibal is a Limited Partner. USIB will receive 80% of
all profits realized in the future, and Mr. Scibal will receive 20%. Mr.
Scibal's Class B warrants were valued at $1,192,000.
The date of the transaction whereby David Scibal received his warrants for
727,273 Class B common voting shares, par value $.001, was November 1996 at a
price of $2,000,000, based upon a value of $.61 per share on the common Class B
shares underlying the warrants. The parties to the transaction were David
Scibal, the President of the Company's Scibal Associates subsidiary and Century
Industries, the Issuer.
In December, 1997, the purchase price paid by USIB, the Company's wholly owned
subsidiary, for the above 727,273 Class B warrants was a 20% partnership
interest in the USIB Holdings, LP, an illiquid investment. In the opinion of
management, the terms of the transaction with Mr. Scibal were at least as fair
to the Company and its shareholders as could have been obtained from unrelated
parties. Additionally, the USIB Holdings LP effectively put US Insurance
Brokers, Inc. as the controlling General Partner. USIB, as a direct subsidiary
of the Issuer, and General Partner of the limited partnership, thereby ensured
that the warrants would not be exercised and/or sold to the detriment of the
trading market for non-affiliated shareholders. In December, 1997, the shares
underlying the David Scibal 727,273 warrants for Class B common voting shares,
par value $.001, were, at that time, trading at approximately $2.75 per share.
In November, 1996, the Company issued a warrant for 500,000 Class B common
voting shares at a price of $.01 per Class B common voting share for Sonimari's
assistance in the completion of the acquisition of DC Partners, Ltd., and its
Scibal Associates subsidiary. Mr. Richard Campanaro, who was, at that time, a
Director of the Company and COO of DC Partners, Ltd., advised the Company that
he effectively controlled Sonimari, Inc., a Bahamian corporation and as such
would be subject to all rules applicable to affiliated parties. The shares were
issued in lieu of any cash payment to Mr. Richard Campanaro, such cash payment
equal to a the insurance industry standard "Lehman fee" which would have
amounted to approximately $205,000. In the opinion of management, the issuance
of the warrants to Sonimari for 500,000 restricted Class B common voting shares
with the requisite two year holding period was more than fair to the Company,
than the payment of a Lehman fee as could have been obtained through an
unrelated third party.
The Company, as a result of the related party transaction with David Scibal
referred to hereinabove, acquired warrants for 727,273 Class B common voting
shares, par value $.001, from David Scibal. The Company's intention was to
ensure that the warrants would not be exercised and/or sold to the detriment of
the trading market for non-affiliated shareholders. There were no revenues
and/or earnings attributable to the acquired assets over the last three fiscal
years.
The Company, as a result of the related party transaction with Sonimari (Richard
Campanaro) referred to hereinabove, paid Sonimari restricted warrants for
restricted Class B common voting shares, par value $.001, in lieu of a $205,000
Lehman fee, and the only charge would have equated to $500 at par value of the
Class B shares. Conversely, had the Company been forced to utilize an unrelated
third party broker in the hereinabove described transaction with Sonimari
(Campanaro), the Company would have been subject to a Lehman fee of
approximately $205,000.
While warrants were authorized and approved for in futuro issuance to
Sonimari/Campanaro, the early resignation of Mr. Campanaro from Century's Board
in February of 1997 and the resulting inability of Campanaro/Sonimari to render
the services which would required for the issuance of the warrants was incapable
of being rendered. For these reasons, the authorized warrants were never issued.
Subsequent review by the Company has revealed that the anticipated consideration
can never now be provided and, further, that Sonimari has failed to maintain its
valid corporate existence in its jurisdiction of corporate formation.
The warrants to be issued to Sonimari were restricted and thus gave rise to
restricted shares under the then existant "two year" Rule 144 provisions.
Additionally, while the Company carried these warrants as issued and had agreed
to issue the warrants for the shares (at a price of $.01 per share) to Sonimari,
the warrants were never actually physically issued to Sonimari, and Sonimari has
previously indicated it no longer has a desire for
-24-
<PAGE> 42
the warrant issuance, as it is no longer in compliance with its corporate filing
obligations in its pertinent jurisdiction of incorporation. Accordingly, as a
result of this non-compliance, Sonimari can not legally seek to exercise the
warrants in any fashion. Sonimari has finally indicated it no longer intends to
update its corporate registration in its jurisdiction of corporate origin.
Therefore, as a subsequent event, the Company has cancelled the warrant for the
500,000 Class B common shares to Sonimari.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The Registrant reported the following items on Form 8-K during the year ending
December 31, 1998:
None recorded in the first quarter.
On April 20, 1998, the Registrant filed a Form 8-K regarding the mutual decision
with its auditor 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.
On December 18, 1998, the Registrant filed a Form 8-K with regards to the
failure of Security Capital Trading to raise the requisite funds for the
Company's proposed participation in the State of Florida's Joint Underwriting
Association HomeOwners TakeOut Program, and to advise that Joseph P.
DeAlessandro had resigned from the office Executive Counselor and as a Director
of the Company.
On December 23, 1998, the Registrant filed a Form 8-K regarding Sobel & Co.
-25-
<PAGE> 43
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Century Industries, Inc.
(Registrant)
Date: April 24, 1999 By: /s/ Ted L. Schwartzbeck
------------------------------
Ted L. Schwartzbeck
President/CEO/Director/Treasurer
Date: April 24, 1999 By: /s/ A. Jay Pignatello
------------------------------
A. Jay Pignatello
Vice President/Director
Date: April 24, 1999 By: /s/ Joel M. Gundersheimer
------------------------------
Joel M. Gundersheimer
Director
-26-
<PAGE> 44
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. Incorporated by reference.
(11) Statement re computation of per share earnings. Attached herewith
(12) Statement re computation of ratios. Not applicable.
(13) Annual or quarterly reports, Form 10-Q or quarterly report to security
holders. Incorporated by reference.
(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 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-
<PAGE> 45
(27) Financial data schedule. Filed herewith.
(28) Information from reports furnished to State Insurance Authorities. Not
applicable.
(99) Additional Exhibits.
99.1 Scibal Associates Y2K chart. Not available in EDGAR filing, available
in hard copy from the Registrant.
-28-
<PAGE> 1
EXHIBIT 11
CENTURY INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TWELVE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHARES OUTSTANDING............................................8,949,000 6,096,000
WEIGHTED AVERAGE SHARES OUTSTANDING...........................8,949,000 6,000,000
NET INCOME (LOSS)............................................($1,105,252) $ 792,098
PREFERRED DIVIDENDS ------------ (167,700)
---------------- -----------
TOTAL NET INCOME (LOSS) AVAILABLE
FOR COMMON STOCKHOLDERS' $ (1,105,252) $ 592,068
============= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE $(0.14) $0.10
------ -----
</TABLE>
31
<PAGE> 2
EXHIBIT 11
CENTURY INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHARES OUTSTANDING............................................8,949,000 7,546,000
WEIGHTED AVERAGE SHARES OUTSTANDING...........................8,949,000 7,546,000
NET INCOME (LOSS).............................................$ (461,224) $(66,163)
=======
PREFERRED DIVIDENDS -------------- (201,980)
---------------- -----------
TOTAL NET INCOME (LOSS) AVAILABLE
FOR COMMON STOCKHOLDERS' $ (461,224) $ (268,143)
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE $(0.05) $(0.04)
------- -------
</TABLE>
<PAGE> 1
Exhibit (21).
21. A list of all subsidiaries, the State or other jurisdiction of incorporation
or organization of each, and the names under which the subsidiaries do business.
Name of State of
subsidiary Incorporation Does business as
- ----------------------------------------------------------------------
Century Steel
Products, Inc. Virginia Century Steel Products, Inc.
U.S. Insurance Brokers, District of U.S. Insurance Brokers, Inc.
Inc. Columbia
Scibal Associates, Inc. New Jersey Scibal Associates, Inc.
USIB Holdings, LP District of USIB Holdings, LP
Columbia
-29-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 497,341
<SECURITIES> 116,925
<RECEIVABLES> 1,923,084
<ALLOWANCES> 283,000
<INVENTORY> 154,798
<CURRENT-ASSETS> 2,737,036
<PP&E> 3,887,342
<DEPRECIATION> (1,382,951)
<TOTAL-ASSETS> 9,696,583
<CURRENT-LIABILITIES> 4,264,881
<BONDS> 749,066
0
1,000
<COMMON> 8,950
<OTHER-SE> 8,080,396
<TOTAL-LIABILITY-AND-EQUITY> 9,696,583
<SALES> 4,445,471
<TOTAL-REVENUES> 12,008,896
<CGS> 7,563,425
<TOTAL-COSTS> 5,856,142
<OTHER-EXPENSES> 549,381
<LOSS-PROVISION> 283,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,960,052
<INCOME-TAX> 854,800
<INCOME-CONTINUING> 1,105,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105,252
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
