<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission File Number: 0-9969
May 19, 1999
CENTURY INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
District of Columbia 54-1666769
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45034 Underwood Lane
Sterling, Va. 20166
(Mail) P.O. Box 319
Sterling, Va. 20167
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
At March 31, 1998, 3,103,798 shares of the Registrant's $.001 par value Class A
common stock were issued and outstanding after deducting 269,202 Class A shares
classified as treasury stock, and 4,310,428 shares of the Registrant's $.001 par
value Class B common stock were issued and outstanding.
<PAGE> 2
<TABLE>
<CAPTION>
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
PAGE
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS F1
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998
AND DECEMBER 31, 1997 F2-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND DECEMBER 31, 1997 F4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1998 F5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997 F6-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
</TABLE>
<PAGE> 3
FINANCIAL STATEMENTS
--------------------
IN THE OPINION OF THE MANAGEMENT OF CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
(THE COMPANY), THE ACCOMPANYING UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS CONTAIN ALL ADJUSTMENTS NECESSARY OF A FAIR PRESENTATION OF THE
COMPANY'S FINANCIAL CONDITION AS OF MARCH 31, 1998 AND DECEMBER 31, 1997, AND
THE RESULTS OF ITS OPERATIONS AND CASH FLOWS FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1997.
THE ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED
PURSUANT TO THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.
CERTAIN INFORMATION AND NOTE DISCLOSURES NORMALLY INCLUDED IN ANNUAL FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
HAVE BEEN CONDENSED OR OMITTED PURSUANT TO THOSE RULES AND REGULATIONS, ALTHOUGH
THE COMPANY'S MANAGEMENT BELIEVES THAT THE DISCLOSURES AND INFORMATION PRESENTED
ARE ADEQUATE AND NOT MISLEADING. REFERENCE IS MADE TO THE DETAILED FINANCIAL
STATEMENT DISCLOSURES WHICH SHOULD BE READ IN CONJUNCTION WITH THIS REPORT AND
ARE CONTAINED IN THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE
COMPANY'S ANNUAL REPORT FORM 10-KSB/A FOR THE YEAR ENDED DECEMBER 31, 1997.
CERTAIN ITEMS IN PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN
RECLASSIFIED, WHERE APPROPRIATE, TO CONFORM WITH THE MARCH 31, 1998
PRESENTATION.
F-1
<PAGE> 4
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS 3/31/98 12/31/97
- -------------- ------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 119,230 $ 282,009
ACCOUNTS RECEIVABLE-TRADE (NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF
$120,000 IN 1998 AND 1997) 2,021,745 1,907,446
INVENTORY 234,207 256,695
MARKETABLE SECURITIES 130,059 106,952
OTHER CURRENT ASSETS 442,193 572,462
----------- ---------
TOTAL CURRENT ASSETS 2,947,434 3,125,564
----------- ---------
PROPERTY AND EQUIPMENT
- ----------------------
LAND AND BUILDING 361,475 --------
SOFTWARE AND COMPUTER EQUIPMENT 2,031,253 1,997,743
FURNITURE AND FIXTURES 806,744 779,941
MACHINERY AND EQUIPMENT 44,326 15,875
TRANSPORTATION EQUIPMENT 215,429 215,429
LEASEHOLD IMPROVEMENTS 159,251 151,878
----------- ---------
3,618,478 3,160,866
LESS: ACCUMULATED DEPRECIATION (1,136,966) (1,083,443)
----------- -----------
NET PROPERTY AND EQUIPMENT 2,481,512 2,077,423
---------- ----------
OTHER ASSETS
INVESTMENTS 1,126,950 991,842
DEFERRED COSTS ---------- ---------
SECURITY DEPOSITS 99,413 106,779
GOODWILL, NET 1,946,915 1,949,035
DUE FROM RELATED PARTIES 68,422 128,422
OTHER ASSETS 482,662 428,857
---------- ---------
TOTAL OTHER ASSETS 3,724,362 3,604,935
---------- ---------
TOTAL ASSETS $ 9,153,308 $8,807,922
============= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 5
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
CURRENT LIABILITIES
- -------------------
<S> <C> <C>
ACCOUNTS PAYABLE - TRADE $ 1,389,481 $1,732,486
CURRENT MATURITIES - LONG TERM DEBT AND MORTGAGES 273,443 260,267
CAPITAL LEASE OBLIGATIONS 90,385 90,385
NOTES PAYABLE 200,000 125,000
ADVANCES FROM STOCKHOLDERS ---------- 179,601
ACCRUED EXPENSES 1,669,935 1,442,004
DIVIDENDS PAYABLE 16,389 16,389
-------------- -------------
TOTAL CURRENT LIABILITIES 3,639,633 3,846,132
LONG TERM NOTES AND MORTGAGES PAYABLE, LESS CURRENT PORTION 899,723 555,926
- -----------------------------------------------------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 133,338 155,848
- ----------------------------------------------- ------------- -------
TOTAL LIABILITIES 4,672,694 4,557,906
------------ ---------
MINORITY INTEREST 31,703 38,250
-------------- ------------
STOCKHOLDERS' EQUITY
- --------------------
PREFERRED STOCK, CONVERTIBLE, $.001 PAR VALUE, 1,200,000 SHARES
AUTHORIZED, 1,000,000 ISSUED AND OUTSTANDING 1,000 1,000
COMMON STOCK, CLASS A, $.001 PAR VALUE, 25,000,000 SHARES
AUTHORIZED, 3,373,000 ISSUED 3,373 3,373
COMMON STOCK, CLASS B, $.001 PAR VALUE, 25,000,000 SHARES
AUTHORIZED, 4,310,000 AND 4,173,000 ISSUED AND OUTSTANDING 4,310 4,173
ADDITIONAL PAID IN CAPITAL 6,927,694 6,540,403
RETAINED DEFICIT (1,643,483) (1,482,401)
------------- -----------
5,292,894 5,066,548
LESS: CLASS A COMMON STOCK IN TREASURY, 269,202
SHARES IN 1998 AND 1997 (862,555) (862,555)
------------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,430,338 4,203,993
------------- ---------
OTHER COMPREHENSIVE INCOME 18,572 7,773
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,153,308 $ 8,807,922
============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 6
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES $ 3,070,052 $3,804,818
COST OF SALES 1,934,499 1,993,598
------------ ---------
GROSS PROFIT ON SALES 1,135,553 1,811,220
------------ -----------
OPERATING COSTS
PAYROLL EXPENSE 543,180 724,388
PROFESSIONAL FEES 86,444 48,006
AUTO, TRAVEL AND ENTERTAINMENT 49,622 92,722
AMORTIZATION AND DEPRECIATION 138,957 73,980
OTHER 451,408 550,933
----------- --------
TOTAL OPERATING COSTS 1,269,611 1,490,029
----------- ---------
INCOME (LOSS) FROM OPERATIONS (134,058) 321,191
----------- ----------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE (35,977) (43,460)
MINORITY INTEREST ------- (42,185)
OTHER INCOME (EXPENSE)-NET (5,567) (20,605)
----------- --------
TOTAL OTHER INCOME (EXPENSE) - NET (41,544) (106,250)
----------- ------------
INCOME (LOSS) BEFORE TAXES (175,602) 214,941
INCOME TAX BENEFIT 14,520 (12,000)
----------- ------------
NET INCOME (LOSS) $ (161,082) $ 202,941
PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES -------- (141,950)
----------- -----------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCKHOLDER $ (161,082) $ 60,991
=========== ===========
EARNINGS (LOSS) PER SHARE:
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.02) $ 0.01
======= =====
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 7
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL RETAINED
PREFERRED STOCK STOCK PAID-IN EARNINGS
STOCK CLASS A CLASS B CAPITAL (DEFICIT)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 $ 1,000 $ 3,373 $ 4,173 $ 6,540,403 $ (1,482,401)
- -------------------------
ISSUANCE OF COMMON STOCK AND LIMITED 137 387,291
PARTNERSHIP UNITS
NET LOSS FOR THREE MONTHS ENDED 3/31/98 (161,082)
------- ------- ------- ----------- -------------
BALANCE MARCH 31,1998 $ 1,000 $ 3,373 $ 4,310 $ 6,927,694 $ (1,643,483)
======= ======= ======= =========== =============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TREASURY STOCKHOLDERS'
STOCK EQUITY
----------------------------------------
<S> <C> <C>
BALANCE DECEMBER 31, 1997 $ (862,555) $ 4,203,993
- -------------------------
ISSUANCE OF COMMON STOCK AND LIMITED 387,428
PARTNERSHIP UNITS
NET LOSS FOR THREE MONTHS ENDED 3/31/98 (161,082)
------------ ------------
BALANCE MARCH 31,1998 $ (862,555) $ 4,430,339
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 8
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
3/31/98 3/31/97
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
CASH RECEIVED FROM CUSTOMERS $ 2,955,753 $ 3,412,961
CASH PAID TO SUPPLIERS AND EMPLOYEES (3,127,547) (3,652,165)
INTEREST RECEIVED 943 -------------
INTEREST PAID (35,977) (43,460)
INCOME TAXES PAID ----------- (12,000)
------------- -------------
NET CASH USED FOR OPERATING ACTIVITIES (206,828) (294,664)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
PURCHASES OF FIXED ASSETS (457,612) (76,709)
PURCHASES OF MARKETABLE SECURITIES AND INVESTMENTS (158,215) (113,302)
-------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (615,827) (190,011)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
PROCEEDS FROM STOCK AND LIMITED PARTNERSHIP UNITS 430,014 1,534,579
PREFERRED DIVIDENDS PAID ----------- (92,368)
RECEIPTS OF (PAYMENTS ON) NOTES 409,463 (105,926)
NET ADVANCES FROM AFFILIATES-STOCKHOLDERS (179,601) (11,933)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 659,876 1,324,352
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (162,779) 839,677
- ----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 $ 282,009 $ 382,548
- ------------------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS - MARCH 31 $ 119,230 $ 1,222,225
- ------------------------------------ ============= =============
NET (LOSS) INCOME $ (161,082) 202,941
AMORTIZATION AND DEPRECIATION 38,957 73,980
MINORITY INTEREST (7,000) 42,185
INCREASE IN ACCOUNTS RECEIVABLE (114,299) (391,857)
(INCREASE) DECREASE IN INVENTORY 22,488 (5,393)
(INCREASE) DECREASE IN OTHER CURRENT ASSETS AND OTHER ASSETS 29,182 (361,760)
DECREASE IN ACCOUNTS PAYABLE (343,005) (141,369)
INCREASE IN ACCRUED EXPENSES 227,931 286,609
-------------- -------------
NET CASH USED FOR OPERATING ACTIVITIES $ (206,828) $ (294,664)
============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 9
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
FOR THE PURPOSE OF THE STATEMENTS OF CASH FLOWS, THE COMPANY CONSIDERS ALL
HIGHLY LIQUID DEBT INSTRUMENTS PURCHASED WITH A MATURITY OF THREE MONTHS OR LESS
TO BE CASH EQUIVALENTS.
NON-CASH INVESTING AND FINANCING ACTIVITIES:
DURING THE QUARTERS ENDED MARCH 31, 1998 AND 1997, THE COMPANY RECOGNIZED AN
UNREALIZED GAIN OF $10,802 AND AN UNREALIZED LOSS OF $1,061, RESPECTIVELY, ON
MARKETABLE SECURITIES AVAILABLE FOR SALE. IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, THE INVESTMENT AND RETAINED EARNINGS ACCOUNTS WERE
INCREASED BY $10,802 AND DECREASED BY $1,061 FOR THE QUARTERS ENDED MARCH 31,
1998 AND 1997, RESPECTIVELY.
DIVIDENDS OF $141,950 WERE ACCRUED AND CHARGED TO RETAINED EARNINGS FOR THE
QUARTER ENDED MARCH 31, 1997.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE> 10
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-BASIS OF PRESENTATION
THE ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CENTURY
INDUSTRIES, INC. AND SUBSIDIARIES (THE COMPANY) HAVE BEEN PREPARED PURSUANT TO
THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION. CERTAIN
INFORMATION AND NOTE DISCLOSURES NORMALLY INCLUDED IN ANNUAL FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
HAVE BEEN CONDENSED OR OMITTED PURSUANT TO THOSE RULES AND REGULATIONS, ALTHOUGH
THE COMPANY'S MANAGEMENT BELIEVES THAT DISCLOSURES AND INFORMATION PRESENTED ARE
ADEQUATE AND NOT MISLEADING. REFERENCE IS MADE TO THE DETAILED FINANCIAL
STATEMENT DISCLOSURES WHICH SHOULD BE READ IN CONJUNCTION WITH THIS REPORT AND
ARE CONTAINED IN THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB/A FOR THE YEAR ENDED DECEMBER 31, 1997.
CERTAIN ITEMS IN PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN
RECLASSIFIED, WHERE APPROPRIATE, TO CONFORM WITH THE MARCH 31, 1998
PRESENTATION. THE DECEMBER 31, 1997 BALANCE SHEET WAS DERIVED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS, BUT DOES NOT INCLUDE ALL DISCLOSURES REQUIRED
BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
NOTE 2- INTERIM PERIODS
IN THE OPINION OF THE MANAGEMENT OF THE COMPANY, THE ACCOMPANYING UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTAIN ALL ADJUSTMENTS (WHICH ARE OF
A NORMAL RECURRING NATURE) NECESSARY FOR A FAIR PRESENTATION OF THE COMPANY'S
FINANCIAL CONDITION AS OF A MARCH 31, 1998 AND DECEMBER 31, 1997, AND THE
RESULTS OF ITS OPERATIONS AND CASH FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH
31, 1998 AND 1997. THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31,1998 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE
FULL YEAR.
NOTE 3-PER SHARE DATA
PER SHARE DATA WAS COMPUTED BY DIVIDING NET INCOME (LOSS) AS ADJUSTED BY THE
PREFERRED DIVIDENDS BY THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING DURING
THE PERIOD.
NOTE 4- BUILDING AND RELATED MORTGAGES
THE COMPANY CLOSED ON AN OFFICE CONDO BUILDING LOCATED IN RESTON, VIRGINIA
DURING THE FIRST QUARTER OF 1998. THIS FACILITY, WHICH COST APPROXIMATELY
$360,000, WILL HOUSE THE COMPANY'S CORPORATE OFFICE AND USIB AND USIB HOLDINGS
INSURANCE OPERATIONS.
THE FACILITY WAS FINANCED WITH A $281,250 FIRST TRUST MORTGAGE LOAN FROM A BANK.
THE FIRST TRUST MORTGAGE LOAN BEARS A 9% INTEREST RATE AND HAS A THREE YEAR
MATURITY WITH MONTHLY PRINCIPAL AND INTEREST PAYMENTS BASED ON A FIFTEEN YEAR
AMORTIZATION. ADDITIONAL FINANCING OF $37,500 WAS PROVIDED THROUGH A SECOND
TRUST MORTGAGE LOAN FROM A FINANCIAL INSTITUTION. THE SECOND TRUST MORTGAGE
BEARS INTEREST AT 13% AND HAS A TERM OF THREE YEARS. THE SECOND TRUST LOAN
CARRIES MONTHLY INTEREST PAYMENTS ONLY UNTIL THE LOAN IS PAID IN FULL. MONTHLY
INTEREST WILL BE ADJUSTED ACCORDINGLY FOR ANY PARTIAL REPAYMENTS OF PRINCIPAL.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Century Industries, Inc. in Consolidation
with its Subsidiaries
The Company has grown by acquisition since late 1995. The first quarter 1998
results reflect the Company's continuing growth in assets and capital over the
prior year's first quarter, but reflect a relatively small consolidated net loss
due to the costs of financing the continuing growth of its subsidiaries.
Its consolidated assets increased to $9,153,308 at first quarter 1998 from
$8,807,922 at 12-31-97, a 4% increase. Consolidated capital has increased from
$4,203,993 at 12-31-97 to $4,430,338 in 1998, a 5% increase.
Consolidated first quarter sales were $3,070,052, a decrease of $734,766 from
first quarter sales of $3,804,818 in 1997. Consolidated gross profit decreased
from $1,811,220 in 1997 to $1,135,553 in 1998. Consolidated operating costs
decreased concomitantly from $1,490,029 in 1997 to $1,269,611 in 1998. The
consolidated operating income from operations was ($134,058) in 1998, a decrease
from the $321,191 for the same period in 1997. As Century, the parent holding
company, has no operations of its own, further delineation of reduction in sales
and concomitant earnings is described later herein under each subsidiaries'
results of operations section.
The earnings (loss) per share was ($.02) for the first quarter of 1998, a $.03
decrease over the $.01 earned in the first quarter 1997. Outstanding shares
increased from 6,096,000 in first quarter 1997, to 7,414,226, after deducting
269,202 Class A shares classified as treasury stock, in the first quarter 1998,
due to final preferred stock conversions and Class B quarterly stock dividends
being paid to former USIB preferred shareholders at the rate of 8% per annum, to
those preferred investors who have been unable to liquidate their Class B shares
received after converting from USIB preferred stock to Class B stock of the
Company.
The Company and its subsidiaries have more than sufficient cash on hand and
liquidity from the cash flow of their accounts receivable to continue to grow
the profitability of their operations.
FUTURE PROSPECTS: TRENDS AND EVENTS LIKELY TO MATERIALLY IMPACT REGISTRANT'S
SHORT AND LONG TERM LIQUIDITY, REVENUES AND INCOME FROM CONTINUING OPERATIONS
CSP's, USIB's and Scibal's management teams expect to increase their respective
revenues and earnings substantially in 1998 through the Company's go forward
business plan described elsewhere herein, and Management continues to believe
that its investment in that program will provide a substantial return on that
investment. The Company's focus for 1998 is its formation and capitalization of
a new Florida insurance company to take advantage of the State of Florida JUA
Homeowners Insurance TakeOut Program.
-2-
<PAGE> 12
USIB Holdings, LP, whose general partner is USIB, has expended funds to cover
legal, auditing and compliance expenses, as well as the go forward expense
associated with the underwriting of the offering which is planned to finance the
Florida insurance JUA Program.
On March 5, 1998, the Company entered into two Letters of Intent with an NASD
member firm. The first letter of intent covers a $7,000,000 private placement of
Senior Callable Convertible Preferred shares, the proceeds of which are to fund
the formation and capitalization of the proposed new Florida insurance company.
The second letter of intent covers a public offering of an additional
$12,000,000 to $15,000,000 of Senior Callable Convertible Preferred shares, the
proceeds of which are generally to be used for further insurance related
acquisitions. In addition, the proposed registered offering will include the
registration of the privately placed shares.
Management projects that the proposed Florida insurance company will earn
substantial revenues of its own, while providing Scibal Associates with
additional claims adjustment revenues, and USIB with service fees as the
insurance company's Managing General Agent.
The proposed Florida insurance company is projected to have first year revenues
of $40,000,000, and first year's earnings are projected at $3,800,000, exclusive
of the revenues and profits it is expected to generate for both Scibal
Associates and USIB. Sixteen insurance companies have participated in the
Florida JUA Program to date and claims have averaged 25% of net premiums after
reinsurance costs.
The Company intends to organize Century Property and Casualty Insurance Company
(the "Insurance Company") under Florida law as a multiple line property and
casualty insurer licensed in the State of Florida. The Company will use
approximately $5.3 million of the proceeds of this Private Offering to provide
the capital and surplus which the Insurance Company will need in order to be
able to participate in the Market TakeOut Program of the Florida Residential
Property and Casualty Joint Underwriting Association (the "JUA").
The JUA was established by the Florida Legislature in 1992 as a temporary
measure to provide homeowners' insurance coverage for individuals who could not
obtain such coverage from private carriers by reason of the impact that
Hurricane Andrew had on the private insurance market. However, instead of
serving as a temporary source of emergency insurance coverage, as originally
intended, the JUA has become a significant provider of original and renewal
insurance coverage for Florida homeowners.
The proposed Florida insurance company's initial business operations will
consist of providing property and casualty insurance coverage through homeowners
insurance policies that are acquired from the JUA. The Company anticipates that
the proposed Florida insurance company will acquire between 30,000 and 60,000
policies from the JUA within the first year of the proposed Florida insurance
company's operations, representing approximately $40,000,000 in annual renewal
premiums. The Company further anticipates that the proposed Florida insurance
company will offer homeowners property and casualty insurance in Florida in the
voluntary insurance market through independent agents. The earnings of the
proposed Florida insurance company from policy premiums will be supplemented by
the generation of investment income from investment policies adopted by the
proposed Florida insurance company's Board
-3-
<PAGE> 13
of Directors. Principal investment goals will be to maintain safety and
liquidity, enhance equity values and achieve an increased rate of return
consistent with Florida's regulatory requirements.
The Company expects to rely on the use of reinsurance to limit the amount of
risk retained under its policies and to increase its ability to write additional
risk. The Company's intention is to limit the exposure and therefore protect its
capital, even in the event of catastrophic occurrences, through reinsurance
agreements that transfer the risk of loss in excess of $1,000,000.
The property and casualty reinsurance industry is subject to the same market
conditions as the direct property and casualty insurance market. Today there is
an over capacity of limits, with very competitive rates. The required
(catastrophe) limits would probably be $75,000,000 excess of $1,000,000
retention, with individual policies written on a fifty-fifty quota share basis.
The Company's research has revealed that, in the absence of a major catastrophe,
homeowners' insurance claims in Florida have been averaging approximately 22% of
net premium annually, or approximately $4,400,000 on $20,000,000 of net premium.
Prior to the occurrence of hurricane Andrew in 1994, many insurance companies
maintained very concentrated coverage exposures in Monroe, Dade, Broward and
Palm Beach Counties in Florida. After Hurricane Andrew, many insurers chose not
to write homeowners insurance in Florida. Florida ultimately implemented the JUA
program to cover the resulting shortfall in coverage availability. The JUA is
now providing to all insurers who qualify an opportunity to "depopulate" the JUA
pool through assumption of a pro rata cross section of state-wide risks in all
zip codes, so that no insurer will have a concentration in the above-mentioned
counties.
The Company's actuarial projections indicate that, if another Andrew-force
hurricane occurs, the proposed Florida insurance company's losses will be capped
at $5,000,000 on each tranche of $40,000,000 in premium. By reason of the fact
that the proposed Florida insurance company will have initial capital and
surplus of approximately $5,300,000, it will receive, pursuant to the
regulations which govern the JUA program, a "Surplus Bonus" of $3,700,000.
Accordingly, the proposed Florida insurance company will have aggregate
beginning capital and surplus of approximately $9,000,000.
The proposed Florida insurance company expects to receive a minimum bonus
payment of approximately $3,700,000 based on a portfolio of approximately 30,000
to 60,000 policies. Bonus payments must be held in escrow for three years,
during which time the funds can be utilized for statutory reserves, but may
otherwise only be used for certain prescribed purposes, such as payment of
claims. After the three-year period, the Insurance Company will have
unrestricted use of the bonus payment funds. Additionally, the Insurance Company
will have investment income from the bonus payments, which will be made
available at the end of the three years.
The proposed Florida insurance company's initial business operations will
consist of providing property and casualty insurance coverage through homeowners
insurance policies that are acquired from the JUA. The Company anticipates that
the proposed Florida insurance company
-4-
<PAGE> 14
will acquire between 30,000 and 60,000 policies from the JUA within the first
year of the proposed Florida insurance company's operations. The Company further
anticipates that the insurance company will offer homeowners' property and
casualty insurance in Florida in the voluntary insurance market through
independent agents. The earnings of the proposed Florida insurance company from
policy premiums will be supplemented by the generation of investment income from
investment policies adopted by the proposed Florida insurance company's Board of
Directors. Principal investment goals will be to maintain safety and liquidity,
enhance equity values and achieve an increased rate of return consistent with
Florida's regulatory requirements.
The Company has entered into an agreement with Joseph P. DeAlessandro, a
Director of the Company, to manage the new Florida insurance company as a full
service manager. Mr. DeAlessandro is presently the CEO of European American
Group, and its subsidiaries, Rutgers Insurance Co., and Kentucky National
Insurance Co. He was formerly a Senior Executive with Gulf Insurance Co.,
Travelers Insurance Co., and American International Group (AIG). He serves on
the Board of Directors of Smith Barney Trust Co., and the New Jersey Insurance
Advisory Board.
SUBSIDIARIES' FIRST QUARTER RESULTS OF OPERATIONS
- -------------------------------------------------
Century Steel Products, Inc. (CSP)
CSP's first quarter manufacturing revenues always reflect the nation's winter
weather in the steel subsidiary's marketing area, and manufacturing revenues
reflect winter conditions in general. In spite of the weather, CSP's sales were
10% greater than first quarter 1997, even though commercial and residential
construction volumes were generally consistent with 1997 in the region.
CSP's sales of $1,104,575 for the first quarter 1998 were $99,276 or 10% greater
than $1,005,299 for the 1997 first quarter.
CSP's trade debt was $731,169 as compared to $451,120 in the first quarter of
1997.
CSP's first quarter 1998 operating loss was ($63,527), this being considerably
lower than the 1997 first quarter's 1997 operating profits of $211,712.
This earnings decrease is attributed to CSP's increasing dependence on
fabrication and installation projects (which have contributed to its increased
revenues), as CSP must substantially complete those projects before the revenue
recognition therefrom can be recognized. CSP anticipates implementing a work in
process account during the 2nd quarter 1998 to properly reflect its expenses on
those projects while they are in the process of completion.
U.S. Insurance Brokers, Inc.
The $40,000,000 first year revenue projections for the new Florida insurance
subsidiary provide for a $2,000,000 service fee for USIB as the MGA. USIB will
facilitate the liaison and
-5-
<PAGE> 15
agency plant supervision for the Florida insurance agents providing the sales
for the Florida insurance subsidiary. USIB will also be responsible for cross
marketing the sale of other insurance products to the Florida homeowners it will
already be writing. These products will include automobile, accident and health
insurance.
USIB will be the managing general agency for Century Property & Casualty. Its
primary function will be the marketing of insurance products for Century
Property & Casualty, and acting as a licensed agency liaison, coordinating
Century Property & Casualty functions between Century Industries, Century
Property & Casualty and Century Insurance Management, Inc.
USIB, organized in April 1995 under the laws of the District of Columbia, has
its domiciliary offices at 1155 Connecticut Ave., N.W., Suite 300, Washington,
D.C., 20036 and its telephone number is (202) 965-6555. It has administrative
offices at 11708 Bowman Green Drive, Reston, VA 20190.
Results of Operations
USIB's first quarter 1998 operating loss was ($40,554), a decrease of 43% from
the operating loss of ($71,226) in 1997. This loss resulted from continued
operating and development costs related to its national association marketing
programs and its plan to act as the MGA for the proposed Florida insurance
subsidiary.
Scibal Associates, Inc.
In 1996 the Company acquired DC Partners, Ltd. (DCP), in Somers Point, NJ.
Scibal Associates, Inc., (Scibal), formerly the wholly owned subsidiary of DC
Partners, Ltd., is a third party claims administrator (TPA) , adjusting and
settling claims for both insurance companies and self insured companies and
institutions. Scibal adjusts in excess of $80,000,000 of claims annually. Scibal
is now a wholly owned subsidiary of USIB, as DCP and USIB merged with USIB
surviving the merger.
Scibal has been in business for 45 years, and specializes in workers
compensation and all phases of commercial liability claims administration. In
administering these programs, Scibal offers its customers a full range of
services, including claims adjusting and administration, risk management as well
as the full complement of reporting required for both program management by the
customer as well as for regulatory compliance.
Workers compensation and liability payments total in the tens of billions each
year, and the number of entities which are self insuring and administering this
aspect of their operations continues to grow. With its dual IBM AS 400 computer
systems running internally developed proprietary claims administration and
reporting software, Scibal is well positioned to add new customers.
The customer base of Scibal consists of municipal and other government-related
entities, primarily in New Jersey, as well as an expanding base of national and
regional industrial, retail and service corporations.
-6-
<PAGE> 16
Scibal's customers are comprised of clients of long standing, no one of which is
significant to the company. Being a service provider, there is no dependence on
any major supplier.
While competition in the claims administration industry is substantial, it has
evolved in the 90's into an industry where the administrator must be hardware
and software intensive, and the software must be developed internally and is
therefore proprietary. Scibal has the capacity to create, maintain and utilize
this software and is very competitive in the claims administration software
industry. Additionally, it has its 45 year track record of performance and
integrity in its operations and results on behalf of its clients, and handles
claims administration deposits for its clients.
Scibal has an experienced staff of computer programmers. These programmers are
continuously improving and enhancing the proprietary claims handling software.
Additionally, there is an effort underway at the company to write the "next
generation" of software, which will take advantage of Internet access,
electronic claims reporting, and data warehousing for its customers. The new
system will enable the company to better leverage its adjusters against case
loads, which will lead to higher profit margins while maintaining competitive
pricing. The features and functionality offered are singular, which should
provide Scibal with a substantial sales advantage in the near future.
Claims administration fees currently mirror the "soft" market in the entire
insurance industry. Rates are presently so competitive that they are stagnant or
reducing and have been for the last 4 years. Profit margins are slimmer in soft
markets, but markets are cyclical, and have historically upturned and rates
become "hard" for an undetermined cycle after they have remained soft for an
undetermined cycle.
Scibal presently employs approximately 120 persons. None of the employees are
represented by labor unions so the company is not vulnerable to union demands or
the threat of a strike. Employee turnover is at a rate consistent with or lower
than the industry average, with a majority of the employees having been with the
company for more than three years.
Results of Operations
- ---------------------
Scibal's revenues of $1,965,477 for the 1998 first quarter were $834,042 lower
than the first quarter of 1997 revenues of $2,799,519, a reduction of 30%. This
reduction was due to management's continued objective of replacing less
profitable accounts with accounts where profit margins are greater.
Scibal's trade debt was $642,174 in 1998 as compared to $1,037,654 in the first
quarter of 1997, a concomitant reduction of 38%.
Scibal's first quarter 1998 operating income of $144,112 was $46,409 lower than
the 1997 first quarter's operating income of $190,521, a reduction of 24%.
-7-
<PAGE> 17
However, Scibal's operating income for first quarter 1998 was 7.3% of revenues,
and operating income for first quarter 1997 was 6.8% of revenues. Operating
income therefore has increased as a percentage of revenues over the previous
year.
USIB Holdings Limited Partnership
USIB Holdings LP was formed in 1997 for the purpose of acting as an acquisition
entity for the proposed acquisition of Reinsurance Corporation of America, which
management has been in active negotiations to purchase for approximately one
year.
This entity was formed as a Limited Partnership, with USIB as its General
Partner, in order that the Company could utilize David Scibal's 727,273 Class B
warrants, which he contributed as capital to the LP, as consideration for the go
forward business plan as capital. This reduced the potential dilution of the
Company's shares after the securities underwriting which is planned for
financing the new Florida insurance subsidiary. Mr. Scibal, in effect, was
willing to participate in the go forward profits as a 20% investor rather than
exercise and sell the Class B shares underlying his warrant based upon his
demand registration rights which originally attached to his warrants.
The limited partnership will also provide favorable tax advantages to the
Company in that earnings upstreamed to the holding entity by any newly acquired
company can be upstreamed to the Company without being taxed in the holding
entity (USIB Holdings, LP) prior to being recognized as consolidated income by
the parent holding company, Century Industries, Inc.
The USIB Holdings, LP is being managed and operated by USIB as its General
Partner, and thus the information regarding USIB as explained herein will again
satisfy most of the informational requirements of the USIB Holdings, LP.
Results of Operations
- ---------------------
USIB Holdings, LP had a first quarter 1998 development stage operating loss of
($152,902).
This operating earnings loss is attributed to the go forward expenses connected
with the acquisition of Reinsurance Corporation of America and the formation of
the proposed Florida property & casualty insurance company.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------
The Company's and its subsidiaries' primary sources of capital are their
accounts receivable, their bank credit lines, and their private placement of
convertible securities from time to time.
Consolidated accounts receivable were $2,021,745 at March 31, 1998, an increase
of $365,978 over its accounts receivable of $1,655,767 at March 31, 1997, a 22%
increase.
The Company has entered into two Letters of Intent with an NASD member firm in
New York City. The Company has agreed to pay the underwriter's legal and due
diligence fees associated with the offering, which are anticipated to be
approximately $85,000.
-8-
<PAGE> 18
Consistent with the relationship with its underwriter, the Company has further
retained insurance counsel to represent the Company in the application process
for the proposed Florida insurance subsidiary, and other professionals who have
assisted with the insurance business plan, proposed reinsurance matters,
management considerations, etc. The Company believes that the proceeds of the
underwriting will be sufficient to capitalize the proposed Florida insurance
company and to provide its operations with sufficient working capital and
surplus to finance its future operations.
-9-
<PAGE> 19
PART II - Other Information
ITEM 1. Legal Proceedings
NONE
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits and Reports on Form 8-K
NONE
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
May 14, 1999
Century Industries, Inc.
/s/ Ted L. Schwartzbeck
---------------------------------------
Ted L. Schwartzbeck, President
/s/ A. Jay Pignatello
---------------------------------------
Jay Pignatello, Vice President
-10-
<PAGE> 20
INDEX TO EXHIBITS
(l) UNDERWRITING AGREEMENT. NOT APPLICABLE.
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION. NOT APPLICABLE.
(3) ARTICLES OF INCORPORATION AND BYLAWS. INCORPORATED BY REFERENCE THROUGH
PREVIOUSLY FILED 10-K'S.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES. INCORPORATED BY REFERENCE THROUGH PREVIOUSLY FILED 10-K'S.
(5) OPINION: RE: LEGALITY. NOT APPLICABLE.
(6) NO EXHIBIT REQUIRED.
(7) OPINION: RE: LIQUIDATION PREFERENCE. NOT APPLICABLE.
(8) OPINION: RE: TAX MATTERS. NOT APPLICABLE.
(9) VOTING TRUST AGREEMENT AND AMENDMENTS. NOT APPLICABLE.
(10) MATERIAL CONTRACTS. NOT APPLICABLE.
(11) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS. NOT APPLICABLE.
(12) NO EXHIBIT REQUIRED.
(13) ANNUAL REPORT TO SECURITIES HOLDERS. NOT APPLICABLE.
(14) MATERIAL FOREIGN PATENTS. NOT APPLICABLE.
(15) LETTER RE: UNAUDITED INTERIM, FINANCIAL INFORMATION. NOT APPLICABLE.
(16) LETTER ON CHANGE IN CERTIFYING ACCOUNTANT. NOT APPLICABLE.
(17) LETTER RE DIRECTOR RESIGNATION. NOT APPLICABLE.
(18) LETTER RE: CHANGE IN ACCOUNTING PRINCIPLES. NOT APPLICABLE.
(19) REPORT FURNISHED TO SECURITY HOLDERS. NOT APPLICABLE.
-11-
<PAGE> 21
INDEX TO EXHIBITS - CONT'D
(20) OTHER DOCUMENTS FURNISHED TO SECURITY HOLDERS. NOT APPLICABLE.
(21) SUBSIDIARIES OF THE REGISTRANT. SEE ATTACHED EXHIBIT 21.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO SECURITIES HOLDERS. NOT
APPLICABLE.
(23) CONSENTS OF EXPERTS AND COUNSEL. NOT APPLICABLE
(24) POWER OF ATTORNEY. NOT APPLICABLE.
(25) STATEMENT OF ELIGIBILITY OF TRUSTEE. NOT APPLICABLE.
(26) INVITATIONS FOR COMPETITIVE BIDS. NOT APPLICABLE.
(27) FINANCIAL DATA SCHEDULE. SEE ATTACHED EXHIBIT 27.
(28) INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY
AUTHORITIES. NOT APPLICABLE.
(29) ADDITIONAL EXHIBITS. NOT APPLICABLE.
-12-
<PAGE> 1
EXHIBIT 11
CENTURY INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHARES OUTSTANDING.......................................... 7,683,000 6,096,000
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 7,500,000 5,500,000
NET INCOME (LOSS)........................................... $ (161,082) $ 202,941
PREFERRED DIVIDENDS --------- (141,950)
----------- ----------
TOTAL NET INCOME (LOSS) AVAILABLE FOR COMMON STOCKHOLDERS' $ (161,082) $ 60,991
=========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE $(0.02) $0.01
------ -----
</TABLE>
