UNITED STATES
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 March 31, 2007. |
| o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ___________. |
AAMPRO GROUP, INC.
(Exact name of registrant as specified in its charter)
| NEVADA | | 87-0419231 |
| (State or Other Jurisdiction of | | (I.R.S. Employer |
| Incorporation or Organization) | | Identification Number) |
1120 Route 22 E, Bridgewater, New Jersey 08807
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (908) 252-0008
Former name, former address, and former fiscal year, if changed since last report: No Changes.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by mark |X| 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.
YES x NO o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
Indicate by mark (X) if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-QSB or any amendment to this Form 10-QSB. Number of shares outstanding of each of the registrant's classes of common stock as of May 17, 2007: 53,452,860
Item 1 - Financial Statements
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2007
Assets | | | |
| Current Assets | | | |
Cash | | $ | 237,663 | |
Accounts receivable, net of allowance of $185,236 | | | 485,737 | |
Other current assets | | | 46,896 | |
Total Current Assets | | | 770,296 | |
| | | | | |
| Customer lists, net of accumulated amortization of $566,000 | | | 21,600 | |
| Property and equipment, net | | | 7,874 | |
Total Assets | | | 799,770 | |
| | | | | |
Liabilities and Stockholders’ Equity (Deficit) | | | | |
| Current Liabilities | | | | |
Accounts payable and accrued expenses | | | 523,466 | |
| Accrued penalties | | | 1,454,000 | |
Health benefits payable | | | 905,436 | |
Payroll taxes payable | | | 3,301,556 | |
Installment notes payable | | | 19,821 | |
Client deposits | | | 86,569 | |
Total Current Liabilities | | | 6,290,848 | |
| | | | | |
| Stockholders’ Deficit | | | | |
Preferred stock Series A, convertible, no par value, 10,000,000 shares authorized, 0 shares issued and outstanding | | | - | |
Common stock, $.001, 300 million shares authorized, 53,452,860 Issued and outstanding | | | 53,453 | |
Additional paid-in capital | | | 2,080,457 | |
Accumulated (deficit) | | | (7,624,988 | ) |
| Total Stockholders’ Deficit | | | (5,491,078 | ) |
| Total Liabilities and Stockholders’ Deficit | | $ | 799,770 | |
See notes to the condensed consolidated financial statements.
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
| | | Three Months EndedMarch 31, | |
| | | 2007 | | 2006 | |
| Revenues | | | | | |
| Employee leasing revenue | | $ | - | | $ | 234,708 | |
| Staffing Revenue | | | 260,184 | | | 156,432 | |
| Payroll Processing Revenue | | | 44,570 | | | 59,240 | |
| Total Revenue | | | 304,754 | | | 450,380 | |
| Cost of Revenues | | | 158.973 | | | 294,059 | |
| | | | | | | | |
| Gross Profit | | | 145,781 | | | 156,321 | |
| | | | | | | | |
| Operating Expenses | | | | | | | |
| General and administrative expenses | | | 292,516 | | | 323,893 | |
| Depreciation | | | 1,177 | | | 2,533 | |
| Total Operating Expenses | | | 293,693 | | | 326,426 | |
| Loss From Operations | | | (147,912 | ) | | (170,105 | ) |
| Other Income (Expense) | | | | | | | |
| Interest income | | | 22 | | | 49 | |
| Other income | | | 37,420 | | | | |
| Interest expense | | | (6 | ) | | (8,157 | ) |
| Total Other Income (Expense) | | | 37,436 | | | (8,108 | ) |
| Loss Before Income Taxes | | | (110,476 | ) | | (178,213 | ) |
| Income Taxes | | | - | | | - | |
| Net Loss | | $ | (110,476 | ) | $ | (178,213 | ) |
| Loss Per Share | | $ | (0.00 | ) | $ | (0.00 | ) |
| Weighted Average Number of CommonShares Outstanding | | | 53,452,860 | | | 53,452,860 | |
See notes to the condensed consolidated financial statements.
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
| | | Three Months Ended March 31, | |
| | | 2007 | | 2006 | |
| Cash Flows From Operating Activities | | | | | |
| Net Loss | | $ | (110,476 | ) | $ | (178,213 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Used in Operations | | | | | | | |
| Depreciation and amortization | | | 1,177 | | | 2,640 | |
| (Increase) Decrease in Assets | | | | | | | |
| Accounts receivable | | | (96,481 | ) | | 86,773 | |
| Other assets | | | (12,385 | ) | | 34,347 | |
| Increase (Decrease) in Liabilities | | | | | | | |
| Accounts payable and accrued expenses | | | 129,967 | | | 27,533 | |
| Health benefits payable | | | (2,429 | ) | | (1,948 | ) |
| Payroll taxes payable | | | 89,409 | | | 266,433 | |
| Client deposits | | | 35,391 | | | (400 | ) |
| Net Cash Provided by Operating Activities | | | 34,173 | | | 237,165 | |
| Cash Flows From Investing Activities | | | | | | | |
| Purchase of equipment | | | (926 | ) | | - | |
| Net Cash (Used in) Investing Activities | | | (926 | ) | | - | |
| Cash Flows From Financing Activities | | | | | | | |
| Repayments of long-term debt | | | - | | | (5,883 | ) |
| Net Cash (Used in) Financing Activities | | | - | | | (5,883 | ) |
| Net Increase in Cash | | | 33,247 | | | 231,282 | |
| Cash at Beginning of Period | | | 204,416 | | | 88,612 | |
| Cash at End of Period | | $ | 237,663 | | $ | 319,894 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | |
| Cash paid during the period for: | | | | | | | |
| Interest Expense | | $ | 7 | | $ | 8,157 | |
| Income Taxes | | $ | - | | $ | - | |
See notes to the condensed consolidated financial statements.
AAMPRO Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Three Month Period Ended March 31, 2007
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 2006.
LITIGATION
In August 2003 Alan Sporn and Corporate and Shareholder Solutions, Inc. filed a suit against the Company in the Superior Court of New Jersey, Chancery Division, Hunterdon County, alleging, among other things, breach of contract and the issuance of certain shares of preferred stock which the plaintiffs claim are allegedly due to them. In March 2005, there was a settlement reached in this action, which was subject to formal approval by the Court and to be effective
During the quarter ended March 31, 2007, after additional negotiations between the parties, the parties reached a revised settlement structure which was approved by the Court and is awaiting implementation by the parties. The pending settlement will include the release of all claims by all parties, the reverse of the prior acquisition transaction between the parties, and the spin-off of all assets and liabilities of the AAMPRO Group, Inc. and its related subsidiaries to its shareholders as multiple publicly tradable entities. Promptly after the filing of this Form 10-QSB, the parties will take all actions necessary to effectuate the terms of the settlement. Simultaneously therewith, there will be a change of control of the Company, and the current business of the Company will be continued to its subsidiaries.
GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has had recurring operating deficits in the past few years and accumulated large deficits. This raises substantial doubt about the Company's ability to continue as a going concern.
Management of the Company believes that its current cash and cash equivalents along with cash to be generated by existing and new business operations in 2007 and beyond will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for the next year.
AAMPRO Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Three Month Period Ended March 31, 2007
(Unaudited)
GOING CONCERN (Continued)
If cash generated from operations is insufficient to satisfy the Company's liquidity, requirements, management may seek to restructure the liabilities of the Company and/or sell additional equity, debt securities and/or obtain a credit facility. The sale of additional equity or convertible debt securities could result in additional ownership dilution to our stockholders. The incurrence of indebtedness would result in an increase in our fixed obligations and could result in borrowing covenants that would restrict our operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products or services. In addition, we may be unable to take advantage of business opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect on our business, results of operations and financial condition.
In view of these matters, realization of the assets of the Company is dependent upon the Company's ability to meet its financial requirements and the success of future operations. These condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements about our business, financial condition, and prospects that reflect our assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, our ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry. There may be other risks and circumstances that we are unable to predict. When used in this Quarterly Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. All forward-looking statements are intended to be covered by the safe harbor created by Section 21E of the Securities Exchange Act of 1934.
OVERVIEW
AAMPRO Group, Inc. together with its consolidated subsidiaries provides full service staffing resources to its clients by providing permanent placement, temporary staffing services, payroll administration, and professional services (including outsourcing services of worksite employees). The Company has expanded its services beyond that of a professional services organization to that of a full service staffing firm. The Company's services are designed to improve the productivity and profitability of small and medium-sized businesses by relieving business owners and key executives of many employer-related administrative and regulatory burdens and enables them to focus on the core competencies of their businesses.
The Company is organized in three basic operating segments--Staffing Services, Payroll Administration, and Professional Services. Within the Staffing Services Segment, the Company provides three primary services--permanent placement, temporary staffing, and human resource consulting services. Payroll administration services include the processing of the payrolls for clients along with the administration of benefits, tax filings, and workman's compensation programs. The Professional Services segment includes the outsourcing of the employment and administration services performed for clients.
The Company provides its services on a national basis with a primary focus in the New York, New Jersey and Pennsylvania area, and is currently executing a long-term expansion strategy target both organic growth and the acquisition of smaller and like-sized competitors.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere herein. Historical results and percentage relationships are not necessarily indicative of the operating results for any future period.
REVENUES
The net revenues for the first quarter of 2007 and 2006 included revenues from contract worksite employees (professional services) along with staffing and payroll administration services.
Total revenues for the three months ended March 31, 2007 decreased by to $304,754 in 2007 from $450,380 in 2006, as a result of a drop in revenues from our employee leasing business which was only partially offset by an increase in our staffing revenue. While the Company’s employee leasing revue was $0 for the three months ended March 31, 2007, the Company still intends to engages in employee leasing when appropriate for the Company’s clients.
COST OF REVENUES AND GROSS MARGIN
The Company's cost of revenue for the three months ended March 31, 2007 decreased from $294,059 in 2006 to $158,973 in 2007, as a result increased costs associated with our staffing and payroll administration businesses.
Gross profit decreased by $10,540 for the three months ended March 31, 2007 going from $156,321 in 2006 to $145,781 in 2007. The decrease in gross profit is the result of decreasing revenues.
OPERATING EXPENSES
Operating expenses consist of general, selling and administrative costs, stock based compensation and depreciation and amortization. Operating expenses for the three months ended March 31, decreased by $32,734 to $293,692 in 2007 from $326,426 in 2006 primarily as a result cost cutting efforts by the Company in 2007.
NET LOSS
The net loss for the three months ended March 31, 2007 decreased from a loss of $178,213 in 2006 to $110,476 in 2007. The decrease in net less in the three months ended March 31, 2007 was primarily attributed to a decrease in operating expenses as compared to the comparable period in 2006.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2007, the Company had cash and cash equivalents totaling $237,663. Net cash provided by operating activities during the three months ended March 31, 2007 was $34,173 as compared with $237,165 in 2006 or an decrease in net cash provided by operating activities of $202,992 primarily attributed to increases in payroll tax liabilities and receivable collections, offset by decreases in accounts payable, health benefit liabilities, deposits and other current assets.
Net cash used in investing activities through March 31, 2007 was $926 as compared to $0 in 2006, primarily attributed to the purchase of equipment.
Net cash used by financing activities in 2007 was $0 as compared to $5,883 in 2006 primarily to repayments on long-term debt.
The Company’s capital requirements are dependent on several factors, including marketing, acquisitions, and professional fees and consulting expenses. Although the Company’s working capital is currently in a shortfall position, we believe that our current cash and cash equivalents along with cash to be generated by existing and new business operations in 2007 and beyond will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next fiscal year.
If cash generated from operations is insufficient to satisfy the Company's liquidity requirements, management may seek to restructure the liabilities of the Company and/or sell additional equity, debt securities and/or obtain a credit facility. The sale of additional equity or debt securities could result in additional ownership dilution to our stockholders. The incurrence of indebtedness would result in an increase in our fixed obligations and could result in borrowing covenants that would restrict our operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products or services. In addition, we may be unable to take advantage of business opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect on our business, results of operations and financial condition.
RISK AND UNCERTAINTY
AAMPRO's business is subject to the effects of general economic conditions and in particular competition and government regulation.
Other risks and uncertainties for the Company include, but are not limited to:
- Adverse changes in general economic conditions in any of the areas in which we do business.
- We might not be able to fund its working capital needs from cash flow or we may not be able to raise capital
- Increased competition
- Litigation
We may experience material fluctuations in future revenues and operating results on a quarterly or annual basis resulting from a number of factors, including but not limited to the risks discussed above.
The preceding statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" which are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties that could render them materially different, including, but not limited to, the risk that new products and product upgrades may not be available on a timely basis, the risk that such products and upgrades may not achieve market acceptance, the risk that competitors will develop similar products and reach the market first, and the risk that we would not be able to fund its working capital needs from cash flow.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition and Returns
Revenue is recognized as services are provided. The Company's revenues consist of administrative fees paid by its clients under certain agreements, which are based upon each worksite employee's gross pay and a markup, computed as a percentage of the gross pay. Billing to the Company's clients is based on the average annual cost for services spread in equal payments over the clients' annual billing cycle. Billings do not reflect actual expenses incurred due to the front-loading and subsequent phase-out of expenses and taxes. As a direct result of this averaging, net income is decreased during the first half of the year and subsequently increases during the second half of the year. Furthermore, gross revenues generally increase in the fourth quarter primarily due to salary increases and bonuses that client companies award their employees during this period.
Revenues for services provided under staffing contracts are recognized as services are provided by the temporary, contract or leased employees. Revenue from direct placements or "fixed fee contracts" is recognized at the time the candidate begins the first full day after the completion of a 30-day contingency period. Revenue from permanent placements, which are also considered fixed fee contracts, is recognized at the time the candidate begins the first full day after the completion of a required amount of temporary hours as stipulated in the Temp to Perm contract.
Revenues for payroll processing services are recognized when the service is performed based on a fixed fee-processing period.
Item 3: Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days of the filing date of this report. In designing and evaluating the Company's disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the Company's chief executive officer concluded that as of March 31, 2007, the Company's disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company's chief executive officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Limitations on the Effectiveness of Internal Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost effective internal control system, financial reporting misstatements due to error or fraud may occur and not be detected on a timely basis.
There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the above paragraph.
PART II
Item 1. Legal Proceedings
In August 2003, Alan Sporn and Corporate and Shareholder Solutions, Inc. filed a suit against the Company in the Superior Court of New Jersey, Chancery Division, Hunterdon County, alleging, among other things, breach of contract and the issuance of certain shares of preferred stock which the plaintiffs claim are allegedly due to them. In March 2005, there was a settlement reached in this action, which was subject to formal approval by the Court and to be effective. In January, 2007, after additional negotiations between the parties, the parties reached a revised settlement structure which was approved by the Court and is awaiting implementation by the parties. The pending settlement will include the release of all claims by all parties, the reverse of the prior acquisition transaction between the parties, and the spin-off of all assets and liabilities of the AAMPRO Group, Inc. and its related subsidiaries to its shareholders as multiple publicly tradable entities. Promptly after the filing of this Form 10-QSB, the parties will take all actions necessary to effectuate the terms of the settlement. Simultaneously therewith, there will be a change of control of the Company, and the current business of the Company will be continued by its subsidiaries.
Item 5: Other Information
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AAMPRO GROUP, INC. (Registrant) | | | |
| By | /s/ Stephen Farkas | | | Dated: May 21, 2007 |
| |
(Stephen Farkas, President, Chief Executive Officer, Principal Accounting Officer and Director) | | | |
| | | | | |
