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, 2003
[ ] 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 Identification
Incorporation or Organization) Number
3592 Route 22 W, Whitehouse, New Jersey 08888
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (908) 534-1446
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 0.0001 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 |_|
Number of shares outstanding of each of the registrant's classes of common stock
as of May 19, 2003: Common Stock: 13,228,551
1
AAMPRO Group, Inc. and Subsidiaries
Table of Contents
Page
PART I
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Item 3. Legal Proceedings 14
Item 4. Procedures and Controls 14
PART II
Item 5. Other information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Certifications 16
2
Item 1: Financial Statements
AAMPRO Group, Inc. and Subsidiaries
Consolidated Balance Sheet
March 31, 2003
(Unaudited)
Assets
Current Assets
Cash $ 102,047
Accounts receivable 535,629
Note receivable 3,241
Prepaid consulting 18,770
Other current assets 1,722
--------------
Total Current Assets 661,409
Note receivable 240,953
Customer lists, net of accumulated amortization of $263,806 368,794
Property and equipment 40,813
Deposits 3,487
--------------
Total Assets 1,315,456
==============
Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
Accounts payable 79,126
Accrued expenses 408,325
Health benefits payable 790,938
Payroll taxes payable 436,791
Current maturities of long-term debt 22,377
Client deposits 97,554
--------------
Total Current Liabilities 1,835,111
Long-term debt, excluding current maturities 50,814
--------------
Total Liabilities 1,885,925
--------------
Stockholders' Equity (Impairment)
Common stock, $.001, 50,000,000 shares authorized, 12,664,107 13,299
issued and outstanding
Series A, 10% cumulative convertible preferred stock, $.001 par value 3
Additional paid in capital 414,038
Accumulated (deficit) (997,809)
--------------
Total Stockholders' Equity (Impairment) (570,469)
--------------
Total Liabilities and Stockholders' Equity (Impairment) $ 1,315,456
==============
See notes to the consolidated financial statements.
3
AAMPRO Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2003 2002
---------------- --------------
Revenue $ 5,099,255 $ 4,018,852
---------------- --------------
Cost of Services
Payroll 4,223,807 3,332,176
Payroll taxes 492,454 357,583
Employee benefits 231,746 181,881
Workers compensation insurance 22,878 46,454
---------------- --------------
Total Cost of Services 4,970,885 3,918,094
---------------- --------------
Gross Profit 128,370 100,758
---------------- --------------
Operating Expenses
General and administrative expenses 241,947 143,609
Stock based compensation 99,039 -
Selling expenses 8,622 4,551
Depreciation 4,461 2,859
Amortization 11,606 11,877
---------------- --------------
Total Operating Expenses 365,675 162,896
---------------- --------------
(237,305) (62,138)
Loss From Operations
---------------- --------------
Other Income (Expense)
Interest income 275 -
Interest expense (2,794) (6,472)
---------------- --------------
Total Other (Expense) (2,519) (6,472)
---------------- --------------
Loss Before Income Taxes (239,824) (68,610)
Income Taxes - -
---------------- --------------
Net Loss $ (239,824) $ (68,610)
================ ==============
Earning (Loss) Per Share $ (0.02) $ (0.01)
================ ==============
Weighted Average Number of Common Shares Outstanding 13,228,551 10,264,107
See notes to the consolidated financial statements.
4
AMPRO Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
----------------------------------
2003 2002
--------------- ---------------
Cash Flows From Operating Activities
Net Loss $ (239,824) $ (68,610)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations
Depreciation and amortization 16,067 14,736
Stock and options issued for consulting services 99,039 -
Decrease (Increase) in Assets
Accounts receivable (77,327) (42)
Other current assets (1,722) -
Deposits 38 (438)
Increase (Decrease) in Liabilities
Accounts payable 24,688 (56,490)
Accrued expenses (37,942) 66,275
Health benefits payable 43,099 87,202
Payroll taxes payable 79,629 (45,643)
Client deposits (12,339) (6,200)
--------------- ---------------
Net Cash Used by Operating Activities (106,594) (9,210)
--------------- ---------------
Cash Flows From Financing Activities
Repayments for notes receivable 3,250 -
Repayments of long-term debt (6,323) (3,186)
Proceeds from issuance of preferred stock and warrants 22,500 -
Proceeds from exercise of stock options 40,600 -
--------------- ---------------
Net Cash Provided (Used) by Financing Activities 60,027 (3,186)
--------------- ---------------
Net Decrease in Cash (46,567) (12,396)
Cash at Beginning of Year 148,614 35,221
--------------- ---------------
Cash at End of Year 102,047 22,825
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the
period for:
Interest 2,794 6,472
=============== ===============
Income Taxes - -
=============== ===============
See notes to the consolidated financial statements.
5
AAMPRO Group, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
AAMPRO Group, Inc. and Subsidiaries (the "Company") was organized on October 8,
1995 under the laws of the State of New Jersey. The Company is primarily engaged
in the business of providing employee leasing, payroll, benefits and human
resource management services to small and middle market businesses in a variety
of industries.
Effective October 1, 2002, the Company entered into an agreement to acquire all
of the outstanding common stock of Trident Systems, Inc. (Trident). Pursuant to
the agreement, AAMPRO, Inc. exchanged 100% of their common shares for 10,261,607
newly issued shares of Trident.
For accounting purposes, the acquisition has been treated as a reverse
acquisition or public shell merger of Trident by AAMPRO, Inc. and as a
recapitalization of AAMPRO. The historical financial statements prior to October
1, 2002, are those of AAMPRO, Inc. Subsequent to the exchange, Trident changed
its name to AAMPRO Group, Inc. The Company's operations are entirely those of
AAMPRO Group, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of AAMPRO Group, Inc.
and its wholly owned subsidiaries, AAMPRO, Inc. and AAMPRO Pay, LLC. All
significant intercompany balances and transactions have been eliminated.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles 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 (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2003 and 2002 are not necessarily indicative of the
results that may be expected for the years ended December 31, 2003 and 2002. The
unaudited condensed 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, 2002.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Allowance for Doubtful Accounts
An allowance for doubtful accounts has not been established, as all accounts
receivable are considered to be collectible.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets: 3-5 years for computer equipment and
software and 7 years for office furniture and equipment. Repairs and maintenance
expenditures which do not extend the useful lives of related assets are expensed
as incurred.
6
AAMPRO Group, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
Revenue Recognition
Revenue is recognized as services are provided. 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.
Loss Per Share
Loss per share, in accordance with the provisions of Financial Accounting
Standards Board No. 128. "Earnings Per Share," is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. The effect of the Company's Series A, 10% cumulative convertible
preferred stock, Class A warrants, Class B warrants and outstanding stock
options would be anti-dilutive.
Securities Issued for Services
The Company accounts for common stock issued for services by reference to the
fair market value of the Company's stock on the date of stock issuance.
Compensation and consulting expenses are recorded at the fair market value of
the stock issued.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising expense
was $8,622 and $4,551 for the three months ended March 31, 2003 and 2002,
respectively.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes, as
applicable. Deferred taxes relate to the differences between financial reporting
and income tax carrying amounts of assets and liabilities. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will be either taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are recognized for
operating losses that are available to offset future federal and state income
taxes.
CONCENTRATIONS OF BUSINESS AND CREDIT RISK
At times throughout the year, the Company may maintain certain bank accounts in
excess of FDIC insured limits.
The Company provides credit in the normal course of business. The Company
performs ongoing credit evaluations of its customers and does not maintain an
allowance for doubtful accounts because management believes all accounts
receivable are collectible.
PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following at March 31, 2003:
Computer equipment and software $ 99,698
Office furniture 4,500
---------------
Total 104,198
Less: accumulated depreciation 63,385
---------------
Total $ 40,813
---------------
7
Depreciation expense charged to operations amounted to $4,461 and $2,859 for the
three months ended March 31, 2003 and 2002, respectively.
CUSTOMER LISTS
On April 1, 2001, the Company acquired a customer list from a vendor in exchange
for the forgiveness of advances and the assumption of liabilities which net to
$587,600. The customer list is being amortized on a straight-line basis over 10
years.
On December 23, 2002, the Company acquired a customer list from a competitor. In
consideration thereof, the Company paid $5,000 on December 23, 2002 and agreed
to pay $40,000 over a period of eight months commencing February 2003. As of
March 31, 2003, the amount due under the agreement was $30,000 and is included
in accrued expenses. The customer list is being amortized on a straight-line
basis over ten years.
Amortization expense was $10,481 the period ended March 31, 2003 and $11,877 for
the periods ended March 31, 2002 and 2001, respectively.
EMPLOYEE BENEFIT PLANS
Medical Benefit Plans
The Company offers fully-insured and self-insured medical benefits to employees.
Participating employer clients may participate or opt to offer their own
insurance coverage to employees.
The Company's self-insured plan is a self-funded employee welfare benefit plan
pursuant to the Employee Retirement Income Security Act of 1974, as amended. The
plan administration is provided by a third party Claims Supervisor for claim
form submissions, correspondence, benefit determinations, claim processing and
disbursement preparation. All eligible employees may participate in the welfare
benefit plan upon satisfaction of the waiting period, completion of enrollment
documents and meeting eligibility requirements. Participating employees
contribute to the cost of their coverage premiums through payroll deductions.
Such payroll deductions are recorded as revenue when billed to client employers.
The plan offers Network and Non-Network Provider Organization medical services,
hospital services, inpatient and outpatient treatment, prescription drug, vision
care and dental benefits.
Accrued Health Insurance Plan Claims under the self-funded employee welfare
benefit plan amounted to $702,597, and consists of amounts due to providers
based on claims filed and estimates of claims incurred before March 31, 2003 but
not reported.
LONG-TERM DEBT
Long-term debt is comprised of the following:
Installment Notes
Interest at 15.3% due in monthly installments of $239 including interest through $ 5,884
December 2005 secured by equipment with a net book value of $2,513
Interest at 15.3% due in monthly installments of $599 including interest through May 17,574
2006 secured by equipment with a net book value of $14,583
Interest at 10% due in monthly installments of $1,033 including interest through April 2007 41,408
Interest at 14.2% due in monthly installments of $901 including interest through April 8,325
2004 secured by equipment with a net book value of $12,782
--------------
Total 73,191
22,377
Less Current Maturities
--------------
Long-Term Debt, Net of Current Maturities $ 50,814
--------------
8
Total maturities of long-term debt are as follows:
Period Ended March 31,
2004 $ 25,495
2005 18,531
2006 18,236
2007 10,929
----------
$ 73,191
==========
INCOME TAXES
The provision for income taxes consists of the following:
March 31,
----------------------------------
2003 2002
--------------- ---------------
Current
Federal $ - $ -
State - -
--------------- ---------------
$ - $ -
=============== ===============
The components of the Company's deferred tax asset is as follows:
Federal and State Net Operating Losses $ 121,718
Less: Valuation Allowances (121,718)
---------------
Net Deferred Tax Assets $ -
===============
The differences between income tax provision in the financial statements and
the tax benefit computed at the U.S. Federal statutory rate of 34% at March
31, 2003 are as follows:
Tax Benefit (34%)
Valuation Allowance 34%
-----------
Effective Tax Rate - %
===========
OPERATING LEASE COMMITMENTS
The Company leases certain office space under an operating lease. The lease
expires September 31, 2003 and contains a renewal option for an additional two
years.
Rent expense for the period ended March 31, 2003 and 2002 was $12,800 and
$9,600, respectively.
EQUITY COMPENSATION PLAN
During the year, the Company adopted the 2002 Equity Compensation Plan ("The
2002 Plan"). Under the 2002 Plan the Company may grant either restricted shares
or options to purchase up to 3 million shares of common stock in the aggregate.
Under the terms of the 2002 plan, common stock or options may be granted to
officers, directors, employees and independent consultants of the Company who
are responsible for the management, growth or profitability of the Company as
determined by the 2002 Plan Committee. The 2002 Plan is in effect for a term of
10 years.
On February 8, 2003, the Company issued 50,000 shares under the 2002 Plan to a
consultant. An amount of $20,000 relating to these shares was recognized based
on the fair market value of the shares on the date of issuance.
During the period ended March 31, 2003, the Company granted stock options to
various consultants under the 2002 plan. In addition, the Company granted stock
options in connection with its asset purchase of Amstaff, Inc.
The value of each option granted is estimated on the date of the grant using the
Black - Scholes option pricing model using the following weighted average
assumptions:
9
Weighted average risk free interest rate 1.4%
Expected dividend yield 0%
Expected volatility 115%
Expected lives (in years) 1.0
The following is a summary of the status of the stock options during the
period ended March 31, 2003:
Number of Weighted
Options Average
Exercise
Price
--------------- ------------
Outstanding at December 31, 2002 500,000 0.02
Options granted 400,000 0.40
Options exercised (585,000) 0.07
Options forfeited (215,000) 0.36
---------------
Outstanding at March 31, 2003 100,000 0.36
===============
EQUITY COMPENSATION PLAN, Continued
The following table summarizes information about stock options outstanding at
March 31, 2003:
Range of Exercise Number Weighted Weighted Average
Prices Outstanding Average Exercise Price
Remaining
Contractual
Life
-------------------- ----------------- ----------------------- --------------------
$0.50 - $ 0.50 100,000 21.5 months $0.50
All options outstanding at March 31, 2003 are exercisable.
ACQUISITION
On January 14, AAMPRO Group, Inc. acquired the assets of Amstaff, Inc. via an
asset purchase. In conjunction with this acquisition, AAMPRO formed a new
subsidiary entitled AAMPROPAY, LLC to enter into the computerized payroll
services sector. On January 31, 2003, the parties modified their agreement so
that Amstaff executed a five (5) year promissory note in favor of AAMPRO to for
$244,193 for the outstanding accounts receivable due AAMPRO. Payments of $1,264
constituting principal and interest will be paid monthly based on a thirty year
amortization and will commence on July 14, 2003. The note is secured by all
remaining assets of Amstaff, as well as, the stock and stock options of AAMPRO
which are held by Amstaffs' sole Officer and Director.
SUBSEQUENT EVENT
On May 6, 2003, AAMPRO Group, Inc. acquired a 20% stake in a California based
security company Security 20/20, Inc. (dba SecurityProUSA). Consideration for
the equity stake were 100,000 stock options in AAMPRO at $.50 and an additional
100,000 incentive based stock options at $.75 per share.
10
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, is a
professional employer organization ("PEO") that provides a broad range of
services comprised primarily of employee leasing and human resources management.
These services include payroll and benefits administration, health and workers'
compensation insurance programs, state and federal labor compliance, tax
filings, safety program design and management and other related services to
small and medium-sized businesses nationally with a primary concentration in the
tri-state (New York/New Jersey/Pennsylvania) marketplace.
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 provides services by entering into a Client Service Agreement, which
establishes a relationship whereby the Company acts as employer of the employees
who work at the client's location ("worksite employees"). Under the Client
Service Agreement, the Company becomes the employer of the worksite employees
and assumes responsibility for personnel administration and compliance with most
employment-related governmental regulations. The Company charges a comprehensive
service fee, which is invoiced concurrently with the processing of payroll for
the worksite employees of the client. The fee is based upon the gross payroll of
each client and the Company's estimated cost of providing the services.
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 targeting 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
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. Within this discussion and
analysis, all dollar amounts (except for per share amounts) have been rounded to
the nearest thousand.
11
NET REVENUES
Our overall revenues increased $1,080,403 or 26.8% from $4,018,852 in
2002 to $5,099,255 in 2003. All of our revenues were from our AAMPRO, Inc.
subsidiary. This was primarily attributable to the acquisition of a client list
and from new marketing efforts.
COST OF REVENUES AND GROSS MARGIN
AAMPRO's cost of revenues is composed primarily of:
o Client and Client Employee Payrolls
o Benefits Premium and Administration
o Federal and State Income Tax and Payroll Tax
Cost of revenues, as a percentage of net revenues remained the same at
97.5% in 2003 from 97.5% in 2002 primarily due to increase in insurance premiums
and in particular health insurance increases.
Operating Expenses
2003 2002 Change
---- ------
Marketing, sales and support $8,622 $8,144 6%
Percentage of net sales 0.17% 0.20% --
Marketing, sales and support expenses for AAMPRO decreased to $25,283
in 2002 from $32,577 in 2001. This decrease was due to cost control measures
implemented in 2002.
2003 2002 Change
---- ------
General and administrative $241,947 $143,609 69.8%
Percentage of net sales 4.74% 3.57% -
General and administrative expenses are composed principally of
salaries of administrative personnel, fees for professional services and
facilities. General and administrative expenses increased to $241,947 in 2003
from $143,609 in 2002. This increase was mostly due to the transition from a
private company to a public company, mergers and acquisition related expenses,
as well as, the implementation of the new marketing plan for both AAMPRO, Inc.
and the newly founded AAMPROPAY, LLC. The 2003 figures for G&A include fees
associated with the Company transitioning to a public company with the requisite
reporting requirements. Furthermore, in order to position the company for growth
and development, it was necessary to retain several consultants on behalf of the
Company. By retaining consultants instead hiring additional staff, the Company
was able to save on usual and customary benefits and payroll taxes. Furthermore,
the consultants were paid either through the issuance of stock and\or stock
options which preserved cash flow.
Provision for Income Taxes
12
INCOME TAXES
The Company switched from Subchapter S status to C corp. commencing in
the fourth quarter of 2002. As such the Company does not receive the benefit of
its net operating loss from the first previous three quarters, however, the
Company will receive the benefit of its net operating loss for the fourth
quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had cash and cash equivalents totaling $102,047
compared to $41,154 at March 31, 2002.
Net cash provided by operating activities during the three months ended
March 31, 2003 was ($106,594) a decrease of $97,384 compared with net cash
provided by operating activities of ($9,210) in 2002.
Net cash used in financing activities in the three months ended March
31, 2003 was ($60,027)for [e.g. payments on capital leases], as compared with
$3,186 used in 2002.
Our capital requirements are dependent on several factors, including
marketing, acquisitions, professional fees and consulting expenses.
We believe that our current cash and cash equivalents along with cash
to be generated by operations in 2003 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 our
liquidity requirements, we may seek to sell additional equity or debt securities
or obtain a credit facility. The sale of additional equity or convertible debt
securities could result in additional 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.
The Company has embarked on a capital raising campaign through a
private placement of its 10% Series A Preferred Stock in units consisting of
30,000 shares of Series A Preferred Stock together with 30,000 warrants having
an exercise price of $.75 and 30,000 warrants have an exercise price of $1.25.
Each Unit is priced at $22,500.00. The Preferred Shares are convertible into
common stock by multiplying the average bid price by .75 with a cap of $1.00 and
a conversion floor of $.50.
RISKS AND UNCERTAINTY
Our 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:
o Adverse changes in general economic conditions in any of the countries
in which we do business, including the U.S., Europe, Japan and other
geographic areas
o We might not be able to fund its working capital needs from cash flows
o Increased competition
o 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.
13
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. 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.
Item 3: Legal Proceedings
None
Item 4: Procedures and Controls
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial 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.
Based on their evaluation, our principal executive officer and principal
accounting officer concluded that the Company's disclosure controls and
procedures are effective.
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 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 99.1 Certification of Chief Executive
Officer and Chief Financial Officer pursuant
to Section 906 as well as Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
14
Report of Form 8-K dated February 6, 2003 reporting the change of
Registrant's name to "AAMPRO Group, Inc."
Report of Form 8-K dated March 5, 2003 reporting the declaration of a
dividend of Telco Energy Inc. common stock to the Company's shareholders of
record as of March 31, 2003
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.
By /s/ Stephen Farkas
------------------------------
(Stephen Farkas, President, Chief Executive Officer,
Principal Accounting Officer and Director)
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Stephen Farkas, Chief Executive Officer and Chief Financial Officer of AAMPRO
Group, Inc. certifies that:
1. I have reviewed this quarterly report on Form 10-QSB of AAMPRO
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 of the Exchange Act) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Stephen Farkas
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Stephen Farkas
Chief Executive Officer and Chief
Financial Officer
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