U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File No. 000-30313
Utah 41-1294552
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
|
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common equity, as of May 31, 2004 5,135,635 shares of common stock.
Transitional Small Business Format: Yes [ ] No [ X ]
FORM 10-QSB
CENTURY CONTROLS INTERNATIONAL, INC.
INDEX
Page
PART I. Item 1. Financial Statements 3
Balance Sheets as of May 31, 2004 and February 29, 2004 3
Statements of Operations for the Three Months Ended 5
May 31, 2004 and 2003
Statements of Cash Flows for the Three Months Ended 6
May 31, 2004 and 2003
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Item 3. Controls and Procedures 9
PART II. Item 2. Changes in Securities and Use of Proceeds 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
|
PART I. Financial Information
Item 1. Financial Statements
CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
May 31, February 29,
2004 2004
------------ -----------
ASSETS (unaudited)
Current assets:
Cash $ 12,727 $ 4,784
Accounts receivable - trade, net of allowance for doubtful accounts
of $12,817 and $10,000 for 2004 and 2003, respectively 21,687 52,916
Inventories 83,704 75,796
------------ -----------
Total current assets 118,118 133,496
Property and equipment, net 5,216 6,563
Other assets:
Patents, net 21,669 22,043
Deposits 400 -
Debt issuance costs 78,120 -
Other assets 13,000 -
------------ -----------
Total other assets 113,189 22,043
------------ -----------
Total assets $ 236,523 $ 162,102
============ ===========
See Notes to Financial Statements.
3
|
CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (continued)
May 31, February 29,
2004 2004
------------ -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT (unaudited)
Current liabilities:
Bank overdraft $ 4,910 $ 2,795
Line of credit 76,169 20,048
Notes payable - stockholders 178,600 176,100
Accounts payable 115,085 130,468
Deferred revenue 18,601 18,601
Accrued expenses:
Payroll and related 206,130 202,009
Warranty 3,000 3,000
Interest 12,266 12,266
Reimbursable expenses 109,685 109,385
------------ -----------
Total current liabilities 724,446 674,672
------------ -----------
Total liabilities 724,446 674,672
------------ -----------
Stockholders' deficit:
Common stock, $.004 par value; 50,000,000 shares authorized;
issued and outstanding 5,135,635 and 4,763,635 in 2004 and 2003 20,543 19,055
Additional paid-in-capital 1,453,391 1,330,279
Accumulated deficit (1,961,857) (1,861,904)
------------ -----------
Total stockholders' deficit (487,923) (512,570)
------------ -----------
Total liabilities and stockholders' deficit $ 236,523 $ 162,102
============ ===========
See Notes to Financial Statements.
4
|
CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
(unaudited)
Three months ended
---------------------------------------
May 31, May 31,
2004 2003
-------------- --------------
Net sales $ 66,395 $ 161,168
Cost of good sold 37,176 51,541
-------------- --------------
Gross profit 29,219 109,627
Operating expenses 121,111 122,188
-------------- --------------
Operating loss (91,892) (12,561)
-------------- --------------
Other expenses:
Interest expense 8,061 4,262
-------------- --------------
Net loss $ (99,953) $ (16,823)
============== ==============
Basic earnings per share $ (0.02) $ -
============== ==============
Weighted-average number of shares outstanding 5,135,635 4,763,635
============== ==============
Diluted earnings per share $ (0.02) $ -
============== ==============
Weighted-average number of shares outstanding 5,135,635 4,763,635
============== ==============
See Notes to Financial Statements.
5
|
CENTURY CONTROLS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
---------------------------------------
May 31, May 31,
2004 2003
-------------- --------------
Cash flows from operating activities:
Net loss $ (99,953) $ (16,823)
Adjustments to reconcile net loss to net cash flows
provided by operating activities:
Depreciation 1,347 1,347
Amortization 374 374
Amortization of debt issuance costs 33,480 -
Changes in operating assets and liabilities:
Accounts receivable - trade 31,229 92,484
Inventories (7,908) (8,426)
Deposits (400) -
Accounts payable (15,383) (61,194)
Accrued expenses 4,421 -
-------------- --------------
Net cash flows used in operating activities (52,793) 7,762
-------------- --------------
Cash flows from financing activities:
Checks written in excess of bank balance 2,115 (3,988)
Borrowings on notes payable - stockholders 2,500 -
Net borrowing on line of credit 56,121 -
Principal payments on long-term debt - (1,476)
-------------- --------------
Net cash flows provided by financing activities 60,736 (5,464)
-------------- --------------
Net increase in cash 7,943 2,298
Cash, beginning of year 4,784 -
-------------- --------------
Cash, end of year $ 12,727 $ 2,298
============== ==============
See Notes to Financial Statements.
6
|
CENTURY CONTROLS INTERNATIONAL, INC.
Notes to Financial Statements
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements include normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto included in its February 29, 2004 Annual Report on Form 10-KSB. Operating results for the three months ended May 31, 2004 are not necessarily indicative of the results that may be expected for the year ending February 28, 2005.
NOTE 2 - ISSUANCE OF STOCK
In March 2004, the Company issued 372,000 shares of common stock valued at $111,600 to one stockholder, a related party, in consideration for his agreement not to demand payment on the outstanding note payable of $100,000 before December 31, 2004. The Company capitalized the value as debt issuance costs which will be amortized over the ten month period beginning March 1, 2004.
NOTE 3 - LINE OF CREDIT
The Company has a line of credit with a bank that allows for borrowings up to $70,000. Interest is 4.75% above the Prime Rate (8.75% at February 29, 2004). There was $70,000 outstanding at May 31, 2004. In March 2004, the Company's Board of Directors and aforementioned stockholder issued warrants to purchase an aggregate of 400,000 shares of the Company's common stock. The warrants may be exercised at $0.25 per share and expire in four years. The Company determined the fair value of the warrants was $13,000 using the Black-Scholes option pricing model. The weighted average assumptions used in the calculation were a risk-free interest rate of 3.5%, an expected life of four years, volatility of 86% and no expected dividend yield. The fair value of these warrants was capitalized to debt issuance costs and will be amortized over the term of the Line of Credit.
Item 2. Management's Discussion and Analysis or Plan of Operation
General
Century Controls International, Inc. (Century) develops and markets oxygen control, boiler loading control, multiple boiler control, and air compressor control systems used in industrial and commercial applications. Century's control systems are designed to resolve common problems such as excess fuel consumption, excessive stack exit temperatures and increased stack emissions. With the introduction of Century's control systems, boilers operate at high efficiency, which result in lower energy consumption, lower nitrogen oxide emissions, less wear on boiler systems and significant savings on fuel costs and system repairs.
Over the past several years, Century's boiler control systems have become more widely implemented into various key markets around the country. As the number of Century's products has increased, a growing interest has occurred among consulting engineers. This escalating interest in turn, has resulted in a growing number of engineering specifications written around Century's products. Additionally, Century's air compressor sequence controller has been operating for 4 years at Sara Lee Hosiery, a Fortune 500 Company, with outstanding results and a positive return on investment. Last years results showed a return on investment of 4 to 8 months on approximately 10 more systems installed. Due to this increased interest and positive feedback within the industry, Century is able to claim its product performance as superior in the industry. A new dealer in Compressor Control has increased the activity in this area covering more than a dozen states increasing our expectations for sales this year.
Century's goal is to increase industry acceptance and increase sales significantly by concentrating more heavily in sales and marketing. Century's strategy for achieving this goal is to obtain highly qualified marketing individuals to increase Century's sales and increase its advertising in various trade magazines, emphasizing Century's newest product, the air compressor sequencer. Additionally, Century this year has made further product developments in its communications software, allowing Century's systems to interface with various energy management systems.
Results of Operations
Three Months periods Ended May 31, 2003 and 2002
Century had net sales of $66,395 and $161,168 for the three-month periods ended May 31, 2004 and 2003, respectively, which represent a 59% decrease. This decrease is primarily the result of decreased sales due to sluggish economy and the Century's efforts to concentrate on completing communications hardware and software as well as the development of a new version of the Sequencing controls which will enhance the future sales efforts.
In the three-month period ended May 31, 2004, Century's cost of sales was $37,176 compared to $51,541 for the three-month period ended May 31, 2004. Such costs, as a percentage of net sales for these periods were 56% and 32%, respectively.
Operating expenses for the three-month periods ended May 31, 2004 and 2003, were $121,111 and $122,188, respectively. Century also has interest expense of $8,061 for the three months ended May 31, 2004, compared to $4,262 for the comparable period in 2003.
As a result of the foregoing factors, Century realized a net loss of $99,953 for the three months ended May 31, 2004, as compared to a net loss of $16,823 for the three months ended May 31, 2003.
Liquidity and Capital Resources
At May 31, 2004, Century had a working capital deficit of $606,328 as compared to a working capital deficit of $541,176 at February 29, 2004. Century's cash balance at May 31, 2003 was $12,727. The loan from Michael Baghdoian in the amount of $100,000 came due July 1, 2002, and Century lacks the capital necessary to repay this loan. Century is paying the monthly interest on this loan and is in negotiations with Mr. Baghdoian regarding an extension. Century issued 372,000 shares of common stock in March 2004 to obtain an
agreement not to pursue collection of the obligation until after Dcemer 31, 2004. These factors and Century's history of recurring losses raise substantial doubt about its ability to continue as a going concern.
An employee and stockholder of Century, Howard Worden, incurred expenses on Century's behalf. Century has not had the monies necessary to reimburse Mr. Worden for these advances. At May 31, 2004 Century was indebted to Mr. Worden for reimbursable expenses totaling $82,073. Century does pay interest on a credit card of Mr. Worden's underlying some of this obligation.
Century's president, director and principal stockholder, Leo Christensen, has also incurred expenses on Century's behalf. Century has not had the monies necessary to reimburse Mr. Christiansen for these advances. At May 31, 2004 Century was indebted to Mr. Christiansen for reimbursable expenses totaling $27,612. Mr. Christiansen also deferred his salary in fiscal years 2004 and 2003, so that at May 31, 2004 Century was indebted to Mr. Christiansen for accrued salary totaling $128,800. Mr. Christiansen advanced funds to Century during fiscal years 2004 and 2003 to help meet cash flow needs, so that at May 31, 2004 the notes payable to Mr. Christiansen was $51,200.
Century's ability to continue in existence is dependent upon obtaining adequate financing and profitable operations. Management is expanding its product line with a new low cost microprocessor controller for smaller boilers and a sequencer program for air compressors, which are expected to generate additional sales. However, the ability of Century to bring its products to market will be hampered as long as Century does not have the working capital necessary to pursue more aggressive marketing. The Company is presently seeking additional equity or debt financing to fund future operations. Century has not identified any sources of debt or equity financing and cannot predict whether any such financing will be available to Century on terms acceptable to Century.
Forward-Looking Statement Notice
When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company's future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors.
Item 3. Controls and Procedures
Within 90 days prior to the filing of this report, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds
In March 2004, the Century issued 372,000 shares of its restricted common stock valued at $111,600 to one shareholder, a principal shareholder, in consideration for his agreement not to demand payment before December 31, 2004 on the past due outstanding note payable to him of $100,000. The shares were issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K: On June 16, 2004, Century filed a report on Form 8-K, which was subsequently amended by a filing on July 1, 2004, reporting under Item 4 a change in Century's independent accountants that occurred on May 5, 2004.
Exhibits: Copies of the following documents are included or furnished as exhibits to this report pursuant to Item 601 of Regulation S-B.
Exhibit
No. Title of Document
------- -----------------
31.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certifications of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CENTURY CONTROLS INTERNATIONAL, INC.
Date: August 5, 2004 By: /s/ Leo Christiansen
-----------------------------------
Chief Executive Officer and
Chief Financial Officer
|
Exhibit No. 31.1
Form 10-QSB
Century Controls International, Inc.
Certification
I, Leo Christiansen, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Century Controls International, Inc. for the period ended May 31, 2004;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: August 4, 2004 By: /s/ Leo Christiansen
--------------------------------------
Chief Executive and Financial Officer
|
Exhibit No. 32.1
Form 10-QSB
Century Controls International, Inc.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
In connection with the Quarterly Report of Century Controls International, Inc. (the "Company") on Form 10-QSB for the period ending May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leo Christiansen, Chief Executive Officer and Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 4, 2004 By: /s/ Leo Christiansen
--------------------------------------
Chief Executive and Financial Officer
|
A signed original of this written statement required by Section 906 has been provided to Century Controls International, Inc. and will be retained by Century Controls International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.