| [ X ] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
| For the quarterly period ended August 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 Number: 000-30313
CENTURY CONTROLS INTERNATIONAL, INC.
(Exact name of
small business owner as specified in its Charter)
| Utah | 41-1294552 | |
|
(State or Other Jurisdiction of
Incorporation or Organization) |
(IRS Employer
Identification No.) |
3140 Neil Armstrong Blvd., Eagan, MN 55121
(Address of Principal
Executive Offices)
(651) 454-0323
(Issuer’s
Telephone Number)
Not Applicable
(Former
name, address and fiscal year, if changed since last report)
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 August 31, 2004 there were 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 August 31, 2004 and February 29, 2004 | 3 | |
|
Statements of Operations for the Three Months and Six Months
Ended August 31, 2004 and 2003 |
5 | |
|
Statements of Cash Flows for the Six Months Ended
August 31, 2004 and 2003 |
6 | |
| 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 6. Exhibits and Reports on Form 8-K | 10 |
| Signatures | 10 | |
2
PART I. Financial
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
|
August 31,
2004 |
February 29,
2004 |
||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash | $ 8,798 | $ 4,784 | |||
| Accounts receivable - trade, net of allowance for doubtful | |||||
| accounts of $21,413 and $12,817, respectively | 76,382 | 52,916 | |||
| Inventories | 72,615 | 75,796 | |||
|
|
|||||
| Total current assets | 157,795 | 133,496 | |||
|
|
|||||
| Property and equipment, net | 3,869 | 6,563 | |||
|
|
|||||
| Other assets: | |||||
| Patents, net | 21,295 | 22,043 | |||
| Deposits | 400 | -- | |||
| Debt issuance costs | 51,140 | -- | |||
|
|
|||||
| Total other assets | 72,835 | 22,043 | |||
|
|
|||||
| Total assets | $234,499 | $162,102 | |||
|
|
|||||
3
CONSOLIDATED STATEMENTS OF OPERATIONS
|
August 31,
2004 |
February 29,
2004 |
|||||||
|---|---|---|---|---|---|---|---|---|
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Bank overdraft | $ | -- | $ | 2,795 | ||||
| Line of credit | 72,517 | 20,048 | ||||||
| Notes payable - stockholders | 189,208 | 176,100 | ||||||
| Accounts payable | 137,074 | 130,468 | ||||||
| Deferred revenue | -- | 18,601 | ||||||
| Accrued expenses: | ||||||||
| Payroll and related | 244,472 | 202,009 | ||||||
| Warranty | 3,000 | 3,000 | ||||||
| Interest | 13,266 | 12,266 | ||||||
| Reimbursable expenses | 125,522 | 109,385 | ||||||
|
|
||||||||
| Total current liabilities | 785,059 | 674,672 | ||||||
|
|
||||||||
| Total liabilities | 785,059 | 674,672 | ||||||
|
|
||||||||
| Stockholders' deficit: | ||||||||
| Common stock, $.004 par value; 50,000,000 shares authorized; | ||||||||
| issued and outstanding 5,135,635 and 4,763,635, respectively | 20,543 | 19,055 | ||||||
| Additional paid-in-capital | 1,448,311 | 1,330,279 | ||||||
| Accumulated deficit | (2,019,414 | ) | (1,861,904 | ) | ||||
|
|
||||||||
| Total stockholders' deficit | (550,560 | ) | (512,570 | ) | ||||
|
|
||||||||
| Total liabilities and stockholders' deficit | $ | 234,499 | $ | 162,102 | ||||
|
|
||||||||
4
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
August 31,
2004 |
August 31,
2003 |
August 31,
2004 |
August 31,
2003 |
|||||||||||
| Net sales | $ | 179,886 | $ | 177,617 | $ | 246,264 | $ | 338,724 | ||||||
| Cost of sales | 100,697 | 101,444 | 137,787 | 161,899 | ||||||||||
|
|
||||||||||||||
| Gross profit | 79,189 | 76,173 | 108,477 | 176,825 | ||||||||||
| Operating expenses | 81,809 | 100,036 | 169,509 | 213,249 | ||||||||||
|
|
||||||||||||||
| Operating loss | (2,620 | ) | (23,863 | ) | (61,032 | ) | (36,424 | ) | ||||||
|
|
||||||||||||||
| Other income (expenses): | ||||||||||||||
| Amortization of debt | ||||||||||||||
| Issuance costs | (39,980 | ) | -- | (73,460 | ) | -- | ||||||||
| Gain on sale of fixed asset | -- | 2,000 | -- | 2,000 | ||||||||||
| Interest expense | (15,331 | ) | (9,632 | ) | (23,392 | ) | (13,694 | ) | ||||||
|
|
||||||||||||||
| Total other expenses | (55,311 | ) | (7,632 | ) | (96,852 | ) | (11,694 | ) | ||||||
|
|
||||||||||||||
| Net loss before | ||||||||||||||
| income taxes | (57,931 | ) | (31,495 | ) | (157,884 | ) | (48,118 | ) | ||||||
| Income taxes | -- | -- | -- | -- | ||||||||||
|
|
||||||||||||||
| Net loss | (57,931 | ) | (31,495 | ) | (157,884 | ) | (48,118 | ) | ||||||
| Other comprehensive | ||||||||||||||
| income (loss) | -- | -- | -- | -- | ||||||||||
|
|
||||||||||||||
| Comprehensive loss | $ | (57,931 | ) | $ | (31,495 | ) | $ | (157,884 | ) | $ | (48,118 | ) | ||
|
|
||||||||||||||
| Basic earnings per share | $ | (.01 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | ||
|
|
||||||||||||||
| Weighted-average number of | ||||||||||||||
| shares outstanding | 5,135,635 | 4,763,635 | 5,135,635 | 4,763,635 | ||||||||||
|
|
||||||||||||||
| Diluted earnings per share | $ | (.01 | ) | $ | (.01 | ) | $ | (.03 | ) | $ | (.01 | ) | ||
|
|
||||||||||||||
| Weighted-average number of | ||||||||||||||
| shares outstanding | 5,135,635 | 4,763,635 | 5,135,635 | 4,763,635 | ||||||||||
|
|
||||||||||||||
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Six Months Ended
|
||||||||
|---|---|---|---|---|---|---|---|---|
|
August 31,
2004 |
August 31,
2003 |
|||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (157,884 | ) | $ | (48,118 | ) | ||
| Adjustments to reconcile net loss to net cash flows | ||||||||
| provided by operating activities: | ||||||||
| Depreciation | 2,694 | 2,275 | ||||||
| Amortization of patents | 1,122 | 747 | ||||||
| Amortization of debt issuance costs and other asset | 73,460 | -- | ||||||
| Gain on sale of fixed assets | -- | (2,000 | ) | |||||
| Stock compensation (income) | (5,080 | ) | -- | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable - trade | (23,466 | ) | 138,180 | |||||
| Inventories | 3,181 | (24,970 | ) | |||||
| Deposits | (400 | ) | -- | |||||
| Accounts payable | 6,606 | (63,802 | ) | |||||
| Deferred revenue | (18,601 | ) | -- | |||||
| Accrued expenses | 59,600 | -- | ||||||
|
|
||||||||
| Net cash flows used in operating activities | (58,768 | ) | 2,312 | |||||
|
|
||||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of fixed assets | -- | 2,000 | ||||||
|
|
||||||||
| Cash flows from financing activities: | ||||||||
| Checks written in excess of bank balance | (2,795 | ) | (1,127 | ) | ||||
| Borrowings on notes payable - stockholders | 13,108 | -- | ||||||
| Net borrowing on line of credit | 52,469 | -- | ||||||
| Principal payments on long-term debt | -- | (3,185 | ) | |||||
|
|
||||||||
| Net cash flows provided by financing activities | 62,782 | (4,312 | ) | |||||
|
|
||||||||
| Net increase in cash | 4,014 | -- | ||||||
| Cash, beginning of year | 4,784 | -- | ||||||
|
|
||||||||
| Cash, end of year | $ | 8,798 | $ | -- | ||||
|
|
||||||||
6
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 and six months ended August 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 $72,517 outstanding at August 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. |
7
| 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 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. |
| Century had net sales of $179,886 and $177,617 for the three-month periods ended August 31, 2004 and 2003, respectively, which represent a 1% increase. Century had net sales of $246,264 and $338,724 for the six-month periods ended August 31, 2004 and 2003, respectively, which represent a 27% decrease. This decrease is primarily the result of decreased sales due to sluggish economy & the company’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 August 31, 2004, Century’s cost of sales was $100,697 compared to $101,444 for the three-month period ended August 31, 2003. In the six-month period ended August 31, 2004, Century’s cost of sales was $137,787 compared to $161,899 for the six-month period ended August 31, 2003. Such costs, as a percentage of net sales for these periods were 56% and 57% for the three-month periods respectively, and 56% and 48% for the six month periods respectively. |
| Operating expenses for the three-month periods ended August 31, 2004 and 2003, were $81,809 and $100,036, respectively. Operating expenses for the six-month periods ended August 31, 2004 and 2003, were $169,509 and $213,249, respectively. Decreased costs in fiscal 2005 relate to additional cost cutting measures implemented in response to ongoing losses. |
| Century had interest expense of $15,331 for the three-months ended August 31, 2004, compared to $9,632 the three-months ended August 31, 2003. Century had interest expense of $23,392 for the six-months ended August 31, 2004, compared to $13,694 the six-months ended August 31, 2003. The increased interest corresponds to increased indebtedness in 2004. In addition, the Company had expense relating to amortization of debt issuance costs incurred relating to extension of certain indebtedness (See Note 2) and establishment of the line-of credit (See Note 3). |
8
| As a result of the foregoing factors, Century realized a net loss of $57,931 for the three-months ended August 31, 2004, as compared to a net loss of $31,495 for the three-months ended August 31, 2003. Century realized a net loss of $157,884 for the six-months ended August 31, 2004, as compared to a net loss of $48,118 for the six-months ended August 31, 2003. |
| At August 31, 2004, Century had a working capital deficit of $627,264 as compared to a working capital deficit of $541,176 at February 29, 2004. Century’s cash balance at August 31, 2004 was $8,798. The loan from Michael Baghdoian in the amount of $100,000 came due July 1, 2002, and Century lacked the capital necessary to repay this loan. Century has continued paying the monthly interest on this loan and ultimately negotiated an extension through December 31, 2004 with Mr. Baghdoian (See Note 2). The Company does not currently have any plan in place for addressing this loan when it again becomes due on December 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 August 31, 2004 Century was indebted to Mr. Worden for reimbursable expenses totaling $96,504. 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 August 31, 2004 Century was indebted to Mr. Christiansen for reimbursable expenses totaling $29,018. Mr. Christiansen also deferred his salary in fiscal years 2004 and 2003, so that at August 31, 2004 Century was indebted to Mr. Christiansen for accrued salary totaling $149,500. Mr. Christiansen advanced funds to Century during fiscal years 2004 and 2003 to help meet cash flow needs, so that at August 31, 2004 the notes payable to Mr. Christiansen totaled $61,808. |
| 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 PLC controller for boilers with communications to larger systems 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. |
| 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. |
| 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. However, due to the limited number of Company employees engaged in the authorization, recording, |
9
| processing and reporting of transactions, there is inherently a lack of segregation of duties. The Company periodically assesses the cost versus benefit of adding the resources that would remedy or mitigate this situation and currently, does not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions related to the Company’s operations. |
| Reports on Form 8-K: None. |
| Exhibits: Presented in Exhibit 31.1 and 32.1 are the Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 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: November 2, 2004 | By: /s/ Leo Christiansen | |
| Chief Executive Officer and Chief Financial Officer | ||
10
Exhibit No. 31.1
Form 10-QSB
Century Controls
International, Inc.
I, Leo Christiansen, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Century Controls International, Inc. for the quarter ended August 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: November 2, 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 August 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 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: November 2, 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.