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 September 30, 1999
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 000-22653
American Risk Management 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)
65-0353816
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(IRS Employer Identification No.)
1900 Corporate Blvd., Suite 400 East, Boca Raton, FL 33431
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(Address of principal executive offices)
561-988-2544
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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 November 12, 1999 the
registrant had issued and outstanding 6,551,458 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 101,994
Accounts receivable, net of allowance for doubtful accounts 486,656
Inventories 498,554
Other current assets 166,040
-------------
Total current assets 1,253,244
Equipment, net of accumulated depreciation 1,012,341
Goodwill, net of accumulated amortization of $43,027 7,000,295
Deferred debt financing costs 1,168,788
Other assets 509,052
-------------
Total $10,943,720
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank under revolving credit facility $ 235,000
8% convertible and nonconvertible notes payable 900,000
Notes payable to stockholders and former stockholder 1,078,100
Current portion of long-term debt 161,744
Accounts payable 373,251
Other current liabilities 569,510
-------------
Total current liabilities 3,317,605
Long-term debt, net of current portion 51,113
-------------
Total liabilities 3,368,718
-------------
Minority interest 1,396,855
-------------
Contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized; none
issued -
Common stock, $.001 par value; 50,000,000 shares authorized;
6,251,458 shares issued 6,251
Additional paid-in capital 6,513,108
Accumulated deficit (341,212)
-------------
Total stockholders' equity 6,178,147
-------------
Total $ 10,943,720
=============
See Notes to Condensed Consolidated Financial Statements.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
Revenues $ 381,472
Cost of revenues 229,589
---------
Gross profit 151,883
---------
Selling, general and administrative expenses 273,106
Depreciation and amortization 60,046
---------
Total 333,152
---------
Operating loss (181,269)
Other expense - interest, including amortization of beneficial
conversion rights of $230,286 245,246
---------
Loss before minority interest (426,515)
Loss applicable to minority interest 85,303
---------
Net loss (341,212)
Preferred dividend requirements -
---------
Net loss applicable to common stock $(341,212)
==========
Basic net loss per common share $(.06)
=====
Basic weighted average common shares outstanding 5,417,153
==========
See Notes to Condensed Consolidated Financial Statements.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30,1999
(Unaudited)
Common Stock Additional
Members' ------------------ Paid-in Accumulated
Equity Shares Amount Capital Deficit Total
-------- -------- ------- ---------- ----------- -----
Balance, July 1, 1999 $100 $ 100
Common stock issued in connection with:
Reverse acquisition (100) 6,212,708 $6,213 $6,367,834 6,373,947
Compensation of employees
and payments for other
services 38,750 38 145,274 145,312
Net loss $(341,212) (341,212)
---- --------- ------ ---------- --------- ----------
Balance, September 30, 1999 $ - 6,251,458 $6,251 $6,513,108 $(341,212) $6,178,147
==== ========= ====== ========== ========= ==========
See Notes to Condensed Consolidated Financial Statements.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
Operating activities:
Net loss $(341,212)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 60,046
Amortization of debt issuance costs 230,287
Compensation and other services paid through the issuance of
common stock 145,312
Loss attributable to minority interest (85,303)
Changes in operating assets and liabilities:
Accounts receivable (23,457)
Inventories 8,452
Other current assets 30,078
Other assets (50,934)
Accounts payable and other current liabilities 51,631
---------
Net cash provided by operating activities 24,900
Investing activities - net cash received as a result of reverse acquisition 76,994
Financing activities - capital contribution 100
---------
Increase in cash and cash equivalents 101,994
Cash and cash equivalents, beginning of period -
---------
Cash and cash equivalents, end of period $ 101,994
=========
Supplemental disclosures of cash flow information:
Interest paid $ 14,961
=========
See Notes to Condensed Consolidated Financial Statements.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1- Business activities and reverse acquisition:
Business:
American Risk Management Group, Inc. ("American Risk"), a
publicly traded Florida corporation, was formed on August 17,
1992 as a holding company for the purpose of acquiring other
operating businesses, and it has acquired and disposed of
several businesses since it was formed. Prior to the exchange
of shares and business combination in September 1999 further
described below, American Risk's continuing operations were
comprised of the manufacturing and distribution operations of
its wholly-owned subsidiary, Industrial Fabrication & Repair,
Inc. ("IFR"). IFR provides machining, welding, specialty
design and fabrication for custom applications to clientele
from various industries. IFR is also an authorized distributor
for a variety of component products for other manufacturers.
PeopleFirst Staffing LLC ("PeopleFirst") was a limited
liability company that was formed in the State of Ohio on
October 2, 1998 to function as an administrative services
organization that provides small-to-medium sized businesses
with comprehensive, fully integrated outsourcing solutions to
human resource needs, including payroll management, workers'
compensation risk management, benefits administration,
unemployment services and human resource consulting services.
PeopleFirst commenced its administrative services operations
during July 1999.
Reverse acquisition:
On September 7, 1999, American Risk and PeopleFirst
consummated certain transactions pursuant to a Share Exchange
Agreement whereby American Risk, which had, effectively,
1,212,708 shares of common stock outstanding with a par value
of $.001 per share, issued 5,000,000 shares of common stock in
exchange for 100% of the equity interest in PeopleFirst (the
"Exchange").
As a result of the Exchange, PeopleFirst became a wholly-owned
subsidiary of American Risk and the former members of
PeopleFirst became the owners of approximately 80%, and the
stockholders of American Risk prior to the Exchange became the
owners of approximately 20%, of the 6,212,708 shares of common
stock of American Risk outstanding upon the consummation of
the Exchange. Therefore, the Exchange was treated for
accounting purposes as a "purchase business combination" and a
"reverse acquisition" effective as of September 1, 1999 in
which American Risk was the legal acquirer and PeopleFirst was
the accounting acquirer.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1- Business activities and reverse acquisition (concluded):
Reverse acquisition (concluded):
Accordingly, the assets and liabilities of the accounting
acquirer, PeopleFirst, continued to be accounted for at their
historical carrying values as of September 1, 1999. As further
explained in Note 3 herein, the fair value of the 1,212,708
shares deemed to have been issued to the stockholders of
American Risk prior to the Exchange was included in the total
cost of the acquisition of American Risk, the acquired
company, and the total cost was then allocated to the fair
values of the assets and liabilities of American Risk deemed
to have been acquired or assumed and the excess of the cost
over the fair value of the net assets acquired was allocated
to goodwill. The accompanying condensed consolidated statement
of operations for the three months ended September 30, 1999
reflects the results of the operations of PeopleFirst from
July 1, 1999 and the results of operations of American Risk
from September 1, 1999, the date of acquisition, through
September 30, 1999. Since July 1, 1999 was the effective date
of the commencement of PeopleFirst's operations, financial
statements for periods prior to July 1, 1999 have not been
presented.
Note 2 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of American Risk and its
subsidiaries (collectively, the "Company") as of September 30,
1999 and their results of operations, changes in stockholders'
equity and cash flows for the three months ended September 30,
1999. Certain terms used herein are defined in the audited
consolidated financial statements of the Company as of June 30,
1999 and for the years ended June 30, 1999 and 1998 (the "Audited
Financial Statements") included in the Company's Annual Report on
Form 10-KSB (the "Form 10KSB") for the year ended June 30, 1999
that was previously filed with the United States Securities and
Exchange Commission (the "SEC"). Pursuant to rules and
regulations of the SEC, certain information and disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted from these consolidated financial statements unless
significant changes have taken place since the end of the most
recent fiscal year. Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction
with the Audited Financial Statements and the other information
also included in the Form 10-KSB.
The results of the Company's operations for the three months
ended September 30, 1999 are not necessarily indicative of the
results of operations for the full year ending June 30, 2000.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Purchase business combination:
The Company acquired its approximate 80% interest in American
Risk through the Exchange described in Note 1 herein that has
been accounted for as a purchase business combination and a
reverse acquisition in which PeopleFirst was the accounting
acquirer and American Risk was the legal acquirer. Accordingly,
the accompanying historical condensed consolidated financial
statements include the results of operations of American Risk and
its subsidiaries from September 1, 1999, the effective date of
the acquisition, through September 30, 1999. The cost of the
acquisition of American Risk aggregated $6,373,947 and was
comprised as follows:
Deemed issuance of 1,212,708 shares of common
stock with an estimated fair value of $3.75
per share based on the market value of
American Risk's shares at the date of
the Exchange $4,547,655
Fair value of shares issued to consultants by
American Risk prior to the Exchange for services
related to the Exchange 1,811,292
Accrued estimated legal, accounting and other
costs related to the Exchange 15,000
----------
Total cost to be allocated $6,373,947
==========
Pursuant to the purchase method of accounting, the initial cost
of acquiring American Risk and its subsidiaries, which exceeded
the fair value of the net assets acquired by $6,598,009, was
allocated as follows:
Cash and cash equivalents $ 76,994
Account receivable 463,199
Inventories 507,006
Equipment 1,029,360
Deferred debt financing costs 1,399,075
Other current and noncurrent assets 654,236
Goodwill 7,043,322
Notes payable (2,425,957)
Minority interest (1,482,158)
Other current liabilities (891,130)
----------
Total cost of the acquisition $6,373,947
==========
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Purchase business combination (concluded):
The following unaudited pro forma information shows the results
of operations for the three months ended September 30, 1999 and
1998 as though the acquisition of American Risk and its
subsidiaries had been consummated on July 1, 1998:
Three Months Ended
September 30,
---------------------------
1999 1998
---------- ---------
Revenues $1,094,415 $ 881,077
Cost of revenues 688,766 531,817
---------- ---------
Gross profit 405,649 349,260
Other expenses 1,582,493 554,710
---------- ---------
Loss before minority interest (1,176,844) (205,450)
Loss applicable to minority interest 235,368 41,090
---------- ---------
Net loss and net loss applicable to common stock $ (941,476) $(164,360)
=========== =========
Basic loss from operations per common share $(.15) $(.03)
===== =====
Weighted average common shares outstanding 6,225,625 6,212,708
========= =========
In addition to combining the historical results of operations of
the Company and American Risk and its subsidiaries for each
period, the unaudited pro forma results of operations include
adjustments primarily to reflect for the entire period (i) the
amortization of the goodwill recorded in connection with the
acquisition of American Risk based on an estimated useful life of
ten years and (ii) minority interest. The unaudited pro forma
results of operations set forth above do not purport to represent
what the combined results of operations actually would have been
if the acquisition of American Risk and its subsidiaries had been
consummated on July 1, 1998 instead of, effectively, September 1,
1999 or what the results of operations would be for any future
periods.
Note 4 - Inventories:
At September 30, 1999, inventories consisted of the following:
Raw materials $657,973
Finished goods 341,033
--------
999,006
Noncurrent inventories 500,452
--------
Total $498,554
========
Noncurrent inventories, which are included in other assets,
consisted of finished goods and other supplies not expected to be
utilized by the Company during the twelve months ending September
30, 2000.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Equipment:
At September 30, 1999, equipment consisted of the following:
Machinery $ 921,801
Automobiles and trucks 66,869
Other 40,690
----------
Total 1,029,360
Less accumulated depreciation and amortization 17,019
----------
Total $1,012,341
==========
Depreciation and amortization expense was $17,019 for the three
months ended September 30, 1999.
Note 6 - 8% convertible and nonconvertible notes payable:
The 8% convertible notes and the 8% nonconvertible notes payable
(collectively, the "8% Notes") had an aggregate carrying value of
$900,000 at September 30, 1999, of which $819,000 and $81,000 was
attributable to the convertible and nonconvertible notes,
respectively. The 8% Notes are due on demand commencing on the
earlier of February 15, 2000 or the date as of which the Company
has received aggregate proceeds of $1,000,000 from the exercise
of warrants sold through private placement of units by American
Risk in March 1999 (see Note 15 to the Audited Financial
Statements in the Form 10-KSB). Convertible notes in the
principal amount of $273,000 and $546,000 can be converted into
shares of common stock at $.91 per share and $1.36 per share,
respectively, and, accordingly, a total of 701,471 shares of
common stock were reserved for possible future issuance upon
conversion as of September 30, 1999. However, conversion at any
time through March 31, 2000 is subject to the consent of the
investment banking firm that was the placement agent for the
private sale of the units.
The 8% Notes were issued by American Risk on March 10, 1999 as
part of the consideration for the redemption of shares of
preferred stock (see Note 15 to the Audited Financial Statements
in the Form 10-KSB). The fair value of American Risk's common
stock on that date was $5.25 per share which exceeded the
conversion prices for the convertible notes. Pursuant to
interpretations issued by the staff of the Securities and
Exchange Commission, such excess constitutes a beneficial
conversion feature or right for which the value is measured by
the difference between the aggregate conversion price and the
fair value of the common stock into which the securities are
convertible, multiplied by the number of shares into which the
securities are convertible. Accordingly, American Risk initially
recorded beneficial conversion rights in connection with the
issuance of the convertible notes with a fair value of
approximately $2,864,000, which equaled the excess of the
aggregate proceeds the noteholders would have received if they
had converted the notes and sold the 701,471 shares of common
stock for approximately $3,683,000 based on the fair market value
of $5.25 per share on March 10, 1999 and the aggregate exercise
price of approximately $819,000 for 300,000 shares at $.91 per
share and 401,471 shares at $1.36 per share.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - 8% convertible and nonconvertible notes payable (concluded):
In connection with the acquisition of American Risk (see Note 3),
the Company allocated $1,399,075 of the purchase price to
beneficial conversion rights, which was equal to American Risk's
historical net unamortized cost as of September 1, 1999, the
effective date of the Exchange. Amortization totaled $230,287
during the period from September 1, 1999 to September 30, 1999.
The unamortized balance of $1,168,788 comprises the balance of
deferred debt financing costs in the accompanying condensed
consolidated balance sheet as of September 30, 1999.
Note 7 - Other short-term and long-term debt:
For information as to the Company's notes payable to
stockholders and former stockholder, revolving line-of-credit
and long-term debt, see Notes 8, 9 and 10 to the Audited
Financial Statements in the Form 10-KSB.
Note 8 - Contingencies:
Litigation:
In the ordinary course of business, the Company is both a
plaintiff and defendant in various legal proceedings. In the
opinion of management, the resolution of these proceedings
will not have a material adverse effect on the consolidated
financial position or results of operations of the Company in
subsequent years.
Concentrations of credit risk and major customers:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
trade accounts receivable. The Company maintains its cash
balances with major financial institutions that have high
credit ratings. At times, such balances may exceed Federally
insured limits.
The Company generally extends credit to its customers,
substantially all of whom are located in the central United
States. Management of the Company closely monitors the
extension of credit to customers while maintaining allowances
for potential credit losses. During the three months ended
September 30, 1999, no customer accounted for more than 10% of
the Company's revenues. Generally, the Company does not have a
significant receivable from any single customer and,
accordingly, management does not believe that the Company was
exposed to any significant credit risk at September 30, 1999.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Income taxes:
As of September 30, 1999, the Company had net operating loss
carryforwards of approximately $18,000,000 arising primarily from
the operations of American Risk prior to the Exchange, which are
available to reduce future Federal taxable income and will expire
at various dates through 2019. The Company had no other material
temporary differences as of that date. Due to the uncertainties
related to, among other things, the changes in the ownership of
the Company, which could subject those loss carryforwards to
substantial annual limitations, and the extent and timing of its
future taxable income, the Company offset the deferred tax assets
attributable to the potential benefits of approximately
$7,200,000 from the utilization of those net operating loss
carryforwards by an equivalent valuation allowance as of
September 30, 1999.
The Company had also offset the potential benefits of
approximately $7,000,000 from net operating loss carryforwards by
equivalent valuation allowances as of September 1, 1999, the
effective date of the Exchange. As a result of the increases in
the valuation allowance of $200,000 during the period from
September 1, 1999 to September 30, 1999, no credit for income
taxes are included in the accompanying condensed consolidated
statements of operations for the three months ended September 30,
1999.
Note 10 - Earnings (loss) per share:
The Company presents "basic" earnings (loss) per common share
and, if applicable, "diluted" earnings per common share pursuant
to the provisions of Statement of Financial Accounting Standards
No. 128, Earnings per Share ("SFAS 128"). Basic earnings (loss)
per common share is calculated by dividing net income or loss
applicable to common stock by the weighted average number of
common shares outstanding during each period. The calculation of
diluted earnings (loss) per common share is similar to that of
basic earnings per common share, except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common
shares, such as those issuable upon the assumed exercise of stock
options and warrants, had been issued during the period.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 - Stockholders' equity:
Changes in authorized shares:
On July 30, 1999, the board of directors and a majority of the
Company's stockholders approved an amendment to the Company's
articles of incorporation whereby the number of shares of
preferred stock authorized for issuance increased from 200,000
to 5,000,000 shares, the number of shares of common stock
authorized for issuance increased from 3,125,000 to 50,000,000
shares and the par value of the common stock was reduced from
$.008 to $.001.
Stock options:
On July 30, 1999, the Company adopted an Employee Stock Option
Plan ( the "1999 Plan") which provides for grants of incentive
stock options ("ISOs"), nonqualified stock options ("NSOs")
and reload options to the Company's employees, directors,
consultants and advisors for the purchase of up to 1,000,000
shares of the Company's common stock. The option price per
share for ISOs granted under the Plan may not be less than the
fair market value of a share of the Company's common stock on
the date of grant, provided that the exercise price of any ISO
granted to an employee owning more than 10% of the outstanding
common shares of the Company may not be less than 110% of the
fair market value of the shares on the date of grant. The
option price per share for NSOs granted under the Plan may not
be less than the par value of the Company's common stock.
Options vest and are exercisable over periods determined by
the board of directors provided that no option may be
exercisable more than ten years from the date of grant. The
1999 Plan will terminate on July 30, 2009. As of September 30,
1999, no options had been granted under the 1999 Plan.
As further explained in Note 16 to the Audited Financial
Statement in the 10-KSB, there were options to purchase 25,938
shares of common stock outstanding as of June 30, 1999 that
had been granted pursuant to American Risk's 1997 stock option
plan. All of those options were canceled prior to the date of
the Exchange.
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12- Segment information:
The Company is reporting segment sales and gross margins in the
same format reviewed by the Company's management (the
"management approach"). The Company has two reportable segments:
"Administrative Services" and "Manufacturing" as further
described in Note 1.
Revenues, cost of revenues and other related segment information
as of and for the nine months ended September 30, 1999 follows:
Revenues:
Administrative Services $ 25,000
Manufacturing 356,472
---------
Total 381,472
---------
Cost of revenues - Manufacturing 229,589
---------
Selling, general and administrative expenses:
Manufacturing 243,885
Corporate 29,221
---------
Total 273,106
---------
Depreciation and amortization:
Manufacturing 59,054
Corporate 992
---------
Total 60,046
---------
Operating income (loss):
Administrative Services 25,000
Manufacturing (176,056)
Corporate (30,213)
---------
Total (181,269)
---------
Other expense - interest:
Manufacturing 2,960
Corporate 242,286
---------
Total 245,246
---------
Loss applicable to minority interest 85,303
---------
Net loss $(341,212)
=========
* * *
Management Discussion and Analysis or Plan of Operations
The following discussion regarding the Company and its business and operations
contains "forward-looking statements" within the meaning of Private Securities
Litigation Reform Act 1995. Such statements consist of any statement other than
a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements. The Company does not have a policy of updating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
Accounting Treatment of Exchange:
On September 7, 1999, American Risk Management Group, Inc. ("American Risk")
and PeopleFirst Staffing LLC ("PeopleFirst") consummated certain transactions
pursuant to a Exchange Agreement ( the "Exchange") whereby American Risk, which
had effectively 1,212,708 shares of common stock outstanding, issued 5,000,000
shares of common stock in exchange for 100% of the equity interest in
PeopleFirst.
As a result of the Exchange, the former members of PeopleFirst became the owners
of approximately 80% and the former stockholders of American Risk became the
owners of approximately 20% of the 6,212,708 shares of common stock of American
Risk outstanding upon the consummation of the Exchange. Therefore, the Exchange
was treated effective as of September 1, 1999 as a " purchase business
combination" and a "reverse acquisition" for accounting purposes in which
American Risk was the legal acquirer and PeopleFirst was the accounting
acquirer. Accordingly, the assets and liabilities of PeopleFirst will be
accounted for at their historical carrying values and the assets and liabilities
of American Risk will be valued at their fair values as of September 7, 1999
with the excess of PeopleFirst's cost over the fair value allocated to goodwill.
The Condensed Consolidated Statement of Operations includes the operations of
PeopleFirst prior to September 7, 1999 and American Risk together with
PeopleFirst subsequent to that date. See Notes 1 and 3 to the Consolidated
Financial Statements.
Three months ended September 30, 1999 as compared to September 30, 1998
Pro Forma
The following discussion includes the results of operations for the three months
ended September 30, 1999 and 1998 as though the acquisition had been consummated
on July 1, 1998.
During the three months ended September 30, 1999, consolidated revenues
increased by approximately $213,000 or 24% from approximately $881,000 for the
three months ended September 30, 1998 to approximately $1,094,000 for the three
months ended September 30, 1999. The primarily reason for the increase is due to
one large fabrication job which was completed by the company's manufacturing
division during the month of September 1999.
Cost of revenues during the three months ended September 30, 1999 increased by
approximately $156,000 or 29% from approximately $532,000 for the three months
ended September 30, 1998 to approximately $688,000 for the three months ended
September 30, 1999. The primary reason for the increase is due to the increase
in revenues for the three months ended September 30, 1999 compared to September
30, 1998.
Gross profit margin during the three months ended September 30, 1999 decreased
to approximately 37% or 2% from approximately 39% for the three months ended
September 30, 1998. The primarily reason for the decrease in the gross profit
margin is due to the larger fabrication jobs which contributed a lower gross
profit margin.
The Company's other expenses increased by approximately by $1,027,000 or 185%
from approximately $555,000 for the three months ended September 30, 1998 to
approximately $1,582,000 for the three months ended September 30, 1999.
Approximately $835,000 of this increase was a result of the following non-cash
charges which were incurred during the three months ended September 30, 1999 (I)
approximately $690,000 relating to the amortization of debt issue costs and (2)
approximately $145,000 of common stock issued for services. The balance of the
increase is primarily due to an increase in professional and consulting fees
necessitated by the Company's change in corporate direction.
As a result of all the above, the Company's net loss, after allocating the loss
to minority interest, increased by approximately $777,000 from approximately
$164,000 or $(.03) per share for the three months ended September 30, 1998 to
approximately $941,000 or $(.15) per share for the three months ended September
30, 1999.
Historical Information
These results include the operations of the fabrication business only from
September 7, 1999 through September 30, 1999.
During the three months ended September 30, 1999, the Company had revenues of
$381,472, of which $25,000 was from the administrative services business and the
remainder from the fabrication business. The administrative service business
became operational on October 1, 1999 and will continue to grow as new employees
are added.
Selling, general, and administrative expenses were $273,106 for the period, and
other expenses were $245,286, most of which were non-cash charges related to
amortization of debt issuance costs. The Company had a net loss for the period
of $341,212.
Liquidity and Capital Resources
At September 30, 1999, the Company had a working capital deficiency of
approximately $2,064,000. The working capital deficiency is primarily due to the
excess of current liabilities over assets assumed by PeopleFirst in its reverse
acquisition of American Risk, which includes $1,078,000 of Shareholder Loans and
$900,000 of other loans due in fiscal 2000. It will be necessary for the Company
to raise additional working capital or to take other action to help its working
capital situation for the operation of PeopleFirst. Subsequent to September 30,
1999, the Company received a note for $225,000 and issued 150,000 shares of
common stock upon the exercise of 150,000 warrants. The note is expected to be
repaid by December 1999. Further, the Company believes, but cannot assure, that
it will be able to generate additional resources through loans, sales or other
issuance of capital stock to related and/or unrelated parties or the exercise of
additional warrants. In addition, the Company cannot provide any assurances that
it will be successful in generating profitable operations on a sustained basis
from PeopleFirst or its manufacturing division, however, it believes that it
will have sufficient resources to fund operations through at least September 30,
2000.
In January 1998 American Risk completed a private placement of 5% Convertible
Preferred Stock, resulting in gross proceeds of $1,250,000. The Company filed a
proxy statement for a special meeting of shareholders at which the conversion
terms of additional shares of 5% Convertible Preferred Stock would be submitted
for approval by the Company's shareholders; however, no meeting date was set. In
February 1999, the Company and the holder of the Preferred Stock entered into an
agreement pursuant to which the Preferred Stock was exchanged in March 1999 for
(i) $600,000 in cash, (ii) convertible notes aggregating $819,000 with fixed
conversion prices (iii) a non convertible note for $81,000(iv) 31,250 shares of
Common Stock and (v) the cancellation of outstanding warrants.
In March 1999, American Risk completed a private placement of Common Stock
and warrants to raise additional funds to fund its plan of operations for the
balance of fiscal 1999 and to pay the above-described payment. The Company
issued 250,000 shares of Common Stock, 1,000,000 Class A Warrants, and 1,000,000
Class B Warrants. The Company received gross proceeds of $1,000,000. The funds
received from the private placement have been utilized.
On July 2, 1999, American Risk completed the transaction in which it sold
its real property in Knoxville, Tennessee for $450,000 plus certain other
liabilities. The proceeds from the sale were utilized to satisfy the debt on the
property as well as other outstanding obligations of the Company.
Year 2000
The Company recognized the need to assure that its operations will not be
adversely impacted by Year 2000 (Y2K) software failures. The impact on
operations continues to be evaluated. Management has already assessed the
revisions needed to be made to ensure that the Company will be able to process
information beyond 1999 without disruption. New hardware and software has been
purchased and installed and the Company's accounting programs have been upgraded
and revised to reduce the possibility of Y2K failure. The installation and
testing of the new programs and systems has been completed. The Company has
assessed the Y2K status of its major suppliers to also reduce the likelihood of
Y2K failure. Based on this assessment, Y2K compliance is not anticipated to have
any material adverse effect on the Company's results of operation. The Company
has also determined that a contingency plan in the event that it is unable to
achieve Y2K compliance is unnecessary. The Company does not expect to incur
material costs if such compliance is not achieved. The Company is also subject
to external Y2K related failures or disruptions that might generally affect
industry and commerce Y2K compliance failures and related service interruptions.
All of these could materially effect the Company's results of operations and
financial condition.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
During the three months ended September 30, 1999, the Company
issued an aggregate of 5,157,500 shares of common stock as
follows: (i) 5,000,000 shares in connection with the completion of
the transaction with Peoplefirst Staffing LLC, (ii) 118,750 shares
for the conversion of the balance of the series E preferred shares
held by Robert Hausman, and (iii) 38,750 shares issued as
directors compensation and shares earned in employment agreements.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Pursuant to the written consent of a majority of the Company's
shareholders, the following actions were approved and became effective on
September 7, 1999:
1. STOCK ISSUANCE AND CHANGE OF CONTROL. An aggregate of 5,000,000 shares
of common stock, $0.01 par value, have been issued in connection with the
acquisition of PeopleFirst Staffing, Ltd. and the associated change of control
of the Company.
2. AMENDMENT TO CERTIFICATE OF INCORPORATION.The Company has approved an
amendment to the Articles of Incorporation that increased the number of
authorized shares of preferred stock from 250,000 shares to 5,000,000 shares and
the common stock from 3,125,000 shares to 50,000,000 shares common stock and
changed the name to American Risk Management Group, Inc.
3. ELECTION OF DIRECTORS. Five directors have been elected to the Board of
Directors until the next annual meeting or until their successors have been
qualified;
4. STOCK OPTION PLAN. The 1999 Stock Option Plan has been approved.
5. APPOINTMENT OF ACCOUNTANTS. The Company has appointed JH Cohn LLP as its
auditors for the fiscal year ending June 30, 1999.
Item 5. Other Information.
None.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
During the three months ended the Company filed the following Reports on
Form 8-K with the Securities and Exchange Commission:
1. On September 20, 1999 the Company filed a Report on Form 8-K disclosing
the completion of the transaction with Peoplefirst Staffing LLC., the amendment
to its articles of incorporation authorizing more shares of stock, and its
change of name from Coventry Industries Corp.
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 Risk Management Group, Inc.
a Florida corporation
Date: November 19, 1999 By: /s/ Robert Hausman
-------------------
Robert Hausman, President