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 August 31, 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 October 10, 2000 the
registrant had issued and outstanding 985,750 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
August 31, 2000(unaudited) and
May 31, 2000 (audited) 2
Condensed Consolidated Statements of Operations
for the three months ended August 31, 2000
and 1999 (unaudited) 3
Condensed Consolidated Statements of Cash Flow for
the three months ended August 31, 2000
and 1999 (unaudited) 4
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 5 - 7
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AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS August 31,
2000
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(unaudited)
Current assets:
Cash $ 28,919
Accounts receivable, less allowance for doubtful accounts
of $10,000 145,131
Inventory 101,930
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Total current assets 275,980
Property, plant and equipment, net of accumulated
depreciation of $361,667 3,088,306
Other assets:
Equipment deposit 861,555
Goodwill, net 1,737,006
Other 29,008
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$ 5,991,855
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 2,063,841
Current portion of convertible long-term debt $125,000
Current portion of capital lease obligation payable 25,592
Accrued interest payable 186,113
Accounts payable and accrued expenses 683,204
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Total current liabilities 3,083,750
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Long term liabilities:
Long term debt less current portion 295,613
Convertible long term debt 449,670
Long term capital lease obligation less current portion 36,766
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782,049
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Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
4,077 issued and outstanding 4
Common stock, $.001 par value, 50,000,000 shares authorized,
985,750 shares issued and outstanding 986
Additional paid-in capital 7,027,957
Comprehensive income 1,460
Accumulated deficit (4,904,351)
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Total stockholders' equity 2,126,056
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$ 5,991,855
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The accompanying notes are an integral part of these financial statements
2
AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three For the three
months ended months ended
August 31, August 31,
2000 1999
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(Unaudited) (Unaudited)
Revenue $ 862,851 $ 572,141
Cost of sales 907,651 578,401
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Gross profit (44,800) (6,260)
Selling, general and administrative expenses 989,745 130,929
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Operating loss (1,034,545) (137,189)
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Other income (expenses):
Interest expense (148,345) (29,032)
Interest income 509 12,544
Other income -- 4
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(147,836) (16,484)
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Net loss ($1,182,381) ($153,673)
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Net loss per share, basic and fully diluted ($1.21) ($0.17)
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Weighted average shares outstanding 978,827 911,135
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The accompanying notes are an integral part of these financial statements
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AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three For the three
months ended months ended
August 31, August 31,
2000 1999
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss ($1,182,381) ($153,673)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 75,573 10,643
Issuance of common stock for services and interest 656,604 --
Foreign currency exchange rate loss (4,437) --
Changes in assets and liabilities
Accounts receivable (37,113) 92,269
Other receivables -- (5,334)
Inventory 5,706 52,330
Prepaid expenses -- (21,841)
Other assets (24,524) --
Accounts payable and accrued expenses 128,763 (60,574)
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Net cash used in operations (381,809) (86,180)
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Cash flows from investing activities:
Purchase of equipment (60,713) 0
Cash used in business acquisition, net of cash acquired -- (397,520)
Deposit on new equipment (161,555) (123,000)
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Net cash used by investing activities (222,268) (520,520)
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Cash flows from financing activities:
Issuance (payment) of notes receivable -- (110,000)
Proceeds from notes payable and long term debt 150,000 600,000
Payments on loans payable (101,736) (43,833)
Proceeds from sale of common and preferred stock 575,000 151,839
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Net cash provided by financing activities 623,264 598,006
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Net increase in cash 19,187 (8,694)
Cash at beginning of year 9,732 13,397
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Cash at end of year $28,919 $4,703
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Supplemental disclosure of cash flow information:
Cash paid during the year for interest $53,335 $8,481
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Cash paid during the year for taxes $0 $0
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Non-Cash Supplementary Information:
On August 15, 1999 the Company issued 35,000 shares of common stock in
connection with the acquisition of Torland.
On June 13, 2000 the Company issued 2,400 shares of Series B preferred stock to
the existing Series A preferred shareholder in exchange for the outstanding
Series A preferred stock and $456,928 in notes and accrued interest due to the
shareholder. One June 13, 2000 the Company issued 959 shares of Series B
preferred stock to an individual in exchange for $766,875 in notes and accured
interest due to the individual. The Series B preferred stock had a stated value
of $800.
On July 9, 2000 the Company issued 15,000 shares of stock at $3.80 (market
value) in exchange for a loan extention on certain indebtedness
The accompanying notes are an integral part of these financial statements
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AMERICAN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
August 31, 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 three month period ended August 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2001.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended May 31, 2000 as filed with the Securities and Exchange
Commission.
Note 2 - Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company's continued
existence is dependent upon its ability to resolve its liquidity problems,
principally by obtaining equity capital and commencing profitable operations.
During the interim, the Company must continue to operate on cash flows generated
from loans, raising capital and internally generated cash flow. The Company
experienced a loss of $1,182,381 for the three months ended August 31, 2000, and
has a negative working capital of $2,807,770 at August 31, 2000. In addition,
various notes payable are delinquent or in default. 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 to a new facility in Homestead, Florida,
near its customer base. The Company plans, upon integration with Torland, to
begin utilizing the new facility, and management believes operating costs will
decrease due to the efficiencies of the new facility. Management believes these
efforts will generate positive cash flow. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Note 3 - Stockholders' Equity
On October 3, 2000, the Company executed a 20 to 1 reverse split of its
common stock and all of the share amounts in these financial statements have
been restated for the reverse split.
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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 obtain acceptable forms and amounts of financing to fund
planned acquisitions and the new facility in Homestead.
Introduction
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 $1,182,381 for the three months ended August 31,
2000 and has a negative working capital of $2,807,770. 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.
Three months Ended August 31, 2000 compared to for the three months ended August
31, 1999
Revenues for the three months ended August 31, 2000 were $862,851 compared to
$572,141 for the three months ended August 31, 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 and an increase in sales at LPS. Gross profit
(loss) margins as a percentage of revenues for the three months ended August 31,
2000 and 1999 were (5.2%) and (1.1%), 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. Due to the Company's poor cash flow
during the three months ended August 31, 2000, the Company was unable to avail
itself of any purchasing discounts that would have otherwise been available had
the Company been able to make commitments to purchase products at greater
amounts. The Company estimates that the price of material is 20% higher than the
price that could be obtained if the Company were able to take advantage of
volume price concessions. The Company is currently relocating to Homestead, FL
where it is expected to reverse the negative gross profit trend. Operating
expenses for the three months ended August 31, 2000 and 1999 were $989,745 and
$130,929, respectively, consisting of selling, general and administrative
expenses. For the three months ended August 31, 2000 operating expenses include
a payment-in-kind of preferred stock of the Company valued at the stated value
of $800 per share which amounted to approximately
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$600,344. The net losses for the three months ended August 31, 2000 and 1999
were $1,182,381 and $153,673, respectively. The decrease is due to the
deterioration of the Company's gross profit margin during the first quarter of
fiscal year 2001, the payment-in-kind of preferred stock of the Company valued
at the stated value of $800 per share which amounted to approximately $600,344
and the issuance of 300,000 share of the Company's common stock, valued at
$56,550 (market value), in exchange for the retirement of certain warrants
issued in connection with convertible debt and the extension for payment of this
debt.
At August 31, 2000, the Company had cash and cash equivalents of
$28,919, which was an increase of $19,187 compared to the cash held at May 31,
2000. During the three months ended August 31, 2000, the Company used net cash
for operations of $381,809, which was primarily due to the Company's operating
loss. This was funded by additional borrowings and issuance of stock. In
addition the Company had a working capital deficit of $2,807,770 at August 31,
2000.
Qualitative Discussion
The Company believes that LPS's present operations will require 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. 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, if any, in an amount not yet determined. The Company must pay
$835,000 in connection with the acquisition of Torland. As of August 31, 2000
the note payable to the former Torland shareholders was delinquent. The note
holder has made no assertion to close on the note.
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
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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On June 9, 2000, the Company issued 300,000 shares of common stock as an
inducement to extend the debt of five debt holders. The transaction was valued
at $57,000. This transaction was made in reliance on an exemption pursuant to
4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On October 3, 2000 Robert I. Claire,J.D., C.P.A. became President and Director
of the Company. Mr. Claire, 41, is a sole practitioner and former Partner at the
Law Firm of Kind, Selman & Claire of Boca Raton, Florida. He has previously
served as Counsel to American Group, Inc. and its subsidiaries. Specializing in
Real Estate, Corporate and Business law, Mr. Claire moves into a position
previously held by Mr. Eric Deckinger.
Mr. Deckinger had been serving as President of American Group, Inc., and
President of the subsidiary Lantana Peat and Soil (LPS). Mr. Deckinger will
remain in his position with LPS.
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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 August 31, 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: October 19, 2000 By: /s/ Robert I. Claire
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Robert I. Claire,
President
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