SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
OR
( ) 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 0-30474
American Group, Inc.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
88-0326984
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(IRS Employer Identification No.)
10570 Hagen Ranch Road, Boynton Beach, FL 33437
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(Address of principal executive offices)
561-732-4116
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ( ).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of April 10, 2000 the
registrant had issued and outstanding 19,415,000 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page No.
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Condensed Consolidated Balance Sheets at
February 29, 2000(unaudited) and
May 31, 1999 (audited) 2
Condensed Consolidated Statements of Operations
for the three and nine months ended February 29, 2000
and 1999 (unaudited) 3
Condensed Consolidated Statements of Cash Flow for
the nine months ended February 29, 2000
and 1999 (unaudited) 4
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 5 - 7
1
AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS May 31, February 29,
1999 2000
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(unaudited)
Current assets:
Cash $13,397 $0
Accounts receivable, less allowance for doubtful accounts
of $10,000 90,102 96,407
Stock subscription receivable 151,839 0
Inventory 79,009 35,475
Prepaid expenses 0 0
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Total current assets 334,347 131,882
Property, plant and equipment, net of accumulated
depreciation of $101,716 and $229,359, respectively 309,082 2,900,569
Other assets:
Note receivable 967,500 0
Interest receivable 101,987 0
Equipment deposit 187,500 445,000
Goodwill, net 0 2,434,707
Other 3,984 3,984
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$1,904,400 $5,916,142
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $199,751 $2,113,062
Current portion of capital lease obligation payable 75,343 71,582
Bank overdraft - 58,113
Accounts payable and accrued expenses 644,769 798,525
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Total current liabilities 919,863 3,041,282
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Long term liabilities:
Long term debt less current portion 52,689 465,070
Convertible long term debt - 600,000
Long term capital lease obligation less current portion 107,157 55,114
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159,846 1,120,184
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Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
862,158 issued and outstanding 862 862
Common stock, $.001 par value, 50,000,000 shares authorized,
18,115,000 and 19,415,000 shares issued and outstanding,
respectively 18,115 19,415
Additional paid-in capital 2,551,716 4,360,416
Accumulated deficit (1,746,002) (2,626,017)
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Total stockholders' equity 824,691 1,754,676
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$1,904,400 $5,916,142
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The accompanying notes are an integral part of these financial statements.
AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three For the three For the nine For the nine
months ended months ended months ended months ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue $651,178 $437,722 2,057,312 1,730,108
Cost of sales 792,016 485,933 2,128,184 1,526,762
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Gross profit (loss) (140,838) (48,211) (70,872) 203,346
Selling, general and administrative
expenses 323,775 369,272 724,457 845,682
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Operating loss (464,613) (417,483) (795,329) (642,336)
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Other income (expenses):
Interest expense (31,595) (10,916) (99,549) (55,958)
Interest income 1,483 0 14,378
Other income 382 0 488
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(29,730) (10,916) (84,683) (55,958)
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Net loss ($494,343) ($428,399) ($880,012) ($698,294)
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Net loss per share, basic and fully
diluted ($0.03) ($0.02) ($0.05) ($0.10)
========== ============= =========== =============
Weighted average shares outstanding 19,415,000 18,115,000 18,949,432 7,192,132
========== ============= =========== =============
The accompanying notes are an integral part of these financial statements.
AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine For the nine
months ended months ended
February 29 February 28,
2000 1999
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss -$880,015 -$698,294
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 127,643 30,366
Issuance of common stock for services 8,000
Changes in assets and liabilities
Accounts receivable -6,305 72,818
Other receivables 101,987 -24,933
Inventory 23,931 8,580
Bank overdraft 58,113 -33,347
Accounts payable and accrued expenses 222,136 65,099
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Net cash provided by (used in) operations -352,510 -571,711
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Cash flows from investing activities:
Cash used in business acquisition, net of cash acquired -397,520 0
Purchase of equipment -224,323
Deposit on new equipment -257,500 -230,637
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Net cash used by investing activities -655,020 -454,960
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Cash flows from financing activities:
Issuance of notes receivable -110,000 -474,500
Proceeds from notes payable and long term debt 1,039,900 722,000
Payments on loans payable -147,606 -498,141
Proceeds from sale of common stock 211,839 1,273,765
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Net cash provided by financing activities 994,133 1,023,124
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Net increase (decrease) in cash -13,397 -3,547
Cash at beginning of period 13,397 3,547
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Cash at end of period $0 $0
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Supplemental disclosure of cash flow information:
Cash paid during the year for interest $91,538 $47,890
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Cash paid during the year for taxes $0 $0
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In November 1998 the Company issued 7,500,000 shares of common stock to its
President in exchange for $750,000; On May 31, 1999 the Company issued 862,158
shares of preferred stock to an investment banker in exchange for $862,158 of
debt and accrued interest; The Company issued 80,000 shares of common stock at
$.10 per share (market value) in exchange for professional services rendered to
the Company; On August 15, 1999 the Company issued 700,000 shares of common
stock in connection with the acquisition of Torland.
The accompanying notes are an integral part of these financial statements.
F-5
AMERICAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
February 29, 2000
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10-QSB and
Article 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. The preparation requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results may differ from these estimates. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended February 29, 2000 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2000.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-SB 12G
for the year ended May 31, 1999 as filed with the Securities and Exchange
Commission.
5
Item 2. Management's Discussion and Analysis or Plan or Operation.
Forward-looking Statement and Information
The Company is including the following cautionary statement in this Form 10-QSB
for any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performance and underlying
assumptions and other statements which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitations, management's examination of historical operating trends,
data contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to effectuate and successfully operate acquisitions and the
ability of the Company to obtain acceptable forms and amounts of financing to
fund planned acquisitions.
Introduction
The Company currently operates in a facility on a month to month lease which is
not adequate to meet its future growth plans. The Company expects to move to a
new facility near Homestead Florida in June 2000. There can be no assurance that
the new facility will be ready or that the Company will be able to obtain
adequate funding to complete the new state of the art soil blending plant. In
the event the Company is unable to move into the new Homestead facility the
Company will loose its production capability.
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems, principally by obtaining equity capital and commencing
profitable operations. While pursuing equity capital, the Company must continue
to operate on cash flow generated from operations and financing
activity. The Company experienced a loss of $880,012 for the nine months ended
February 29, 2000 and has a negative working capital of $2,909,400. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to this matter are to raise capital,
become profitable by integrating its operations with Torland and increase
efficiency by relocating its operations into a new state of the art soil
blending facility near Homestead, Florida, close to the major portion of its
customer base. Additionally, the Company plans, along with the integration with
Torland, to begin utilizing this state of the art soil blending plant, which
management believes will substantially decrease its operating costs. Management
believes these efforts will generate positive cash flow.
Nine Months Ended February 29, 2000 compared to the Nine Months Ended February
28, 1999
Revenues for the nine months ended February 29, 2000 were $2,057,312 compared to
$1,730,108 for the nine months ended February 28, 1999. The increase in sales
can be attributed to the inclusion of six half months of sales for Torland which
was acquired on August 15, 1999. Gross profit (loss) margins as a percentage of
revenues for the nine months ended February 29, 2000 and 1999 were (3.4%) and
11.7%, respectively. The decrease in the gross profit margin can be attributed
to increased labor and material costs as a percentage of sales. The Company is
currently relocating to Homestead, FL where it is installing a new state of the
art plant which will be more efficient and is expected to reverse this trend.
Operating expenses for the nine months ended February 29, 2000 and 1999 were
$724,457 and $845,682, respectively, consisting of selling, general and
administrative expenses. The prior quarter included a one time marketing charge
of $200,000. The net losses for the nine months ended February 29, 2000 and 1999
were $880,012 and $698,294, respectively. The decrease is due to the
deterioration on the Company's gross profit margin during fiscal 2000.
Three months Ended February 29, 2000 compared to for the three months ended
February 28, 1999
Revenues for the three months ended February 29, 2000 were $651,178 compared to
$437,722 for the three months ended February 28, 1999. The increase in sales can
be attributed to the inclusion of three full months of sales for Torland which
was acquired on August 15, 1999. Gross profit (loss) margins as a percentage of
revenues for the three months ended February 29, 2000 and 1999 were (21.6%) and
(11.0%), respectively. The decrease in the gross profit margin can be attributed
to increased labor and material costs as a percentage of sales. The Company's
current facility is not adequate to handle the volume of business currently in
place. The Company is currently relocating to Homestead, FL where it is expected
to reverse this trend. Operating expenses for the three months ended February
29, 2000 and 1999 were $323,775 and $369,272, respectively, consisting of
selling, general and administrative expenses. The net losses for the three
months ended February 29, 2000 and 1999 were $494,343 and $428,399,
respectively. The decrease is due to the deterioration on the Company's gross
profit margin during fiscal 2000.
Qualitative Discussion
The Company believes that LPS's present operations will require that LPS obtain
additional capital during the next twelve months. One of the Company's
objectives for the next twelve months is to increase the capital base of LPS, so
that LPS can increase the scope of its operation with the construction of its
new soil blending facility, and to acquire additional soil blending capacity. It
is unknown at this time whether the Company will be successful in raising
capital on reasonable terms for the purpose of increasing the capital base of
LPS.
The Company anticipates that most, if not all, of any acquisitions it may make
during the next twelve months would be of operating entities that have
employees, or of assets that have employees associated with such assets.
Accordingly, the Company anticipates that there would be a significant increase
in the number of its employees at the operating unit or subsidiary level, at
such time, if any, that acquisitions may be consummated. The Company has been
unable to meet its cash requirements for its current operations through internal
cash flow in the prior twelve months. These requirements were only met by the
additional sale of stock. The Company believes that LPS's cash requirements for
LPS's current operations during the next twelve months, excluding capital
requirements for the construction of its new soil blending facility, can be met
through LPS's internal cash flow from operations. The Company's other cash
requirements would be in connection with additional capital for LPS's growth,
the funding of the acquisition of Torland or other assets, if any, in an amount
not yet determined. The Company must pay an additional $835,000 in connection
with the acquisition of the equity of Torland.
Until such time as the operating results of the Company improve sufficiently,
the Company must obtain outside financing to fund the expansion of the business
and to meet the obligations of the Company as they become due. Any additional
debt or equity financing may be dilutive to the interests of the shareholders of
the Company. Such outside financing must be provided from the Company's
operations, or from the sale of equity securities, borrowing, or other sources
of third party financing in order for the Company to expand its operations.
Further, the sale of equity securities could dilute the Company's existing
stockholders' interest, and borrowings from third parties could result in assets
of the Company being pledged as collateral and loan terms which would increase
its debt service requirements and could restrict the Company's operations. There
is no assurance that capital will be available from any of these sources, or, if
available, upon terms and conditions acceptable to the Company.
Year 2000 Issues
The Company has not had any Year 2000 deficiencies and does not expect to have
any Y2K deficiencies in the future.
Y2K Contingency Plans. In the event that the Company's computers ultimately are
shown not to be Y2K compliant, the Company will acquire compliant computers.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
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Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
No. Description
- --- -----------
27 Financial Data Schedule (Electronic filing only).
(b) Reports on Form 8-K.
During the three months ended February 29, 2000 the Company did not file
any reports on Form 8-K.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Group, Inc.,
a Nevada corporation
Date: April 13, 2000 By: /s/ Eric W. Deckinger
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Eric W. Deckinger,
President
13