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, 2004
| | Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________.
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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
1120 Route 22 E, Bridgewater, New Jersey 08807
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (908) 252-0008
Former name, former address and former fiscal year, if changed since last
report: No Changes.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.001 per share
Indicate by mark (X) whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by mark (X) if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ] Number of shares outstanding of each of the registrant's
classes of common stock as of May 28, 2003: Common Stock: 53,999,989
AAMPRO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
ASSETS
CURRENT ASSETS
Cash $ 100,367
Accounts receivable, net of allowance of $117,177 640,176
Note receivable 2,714
Other current assets 19,082
-----------
TOTAL CURRENT ASSETS 762,339
Investments 117,071
Customer list, net 261,056
Note receivable 237,575
Property and equipment, net 56,282
-----------
TOTAL ASSETS $ 1,434,323
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 74,286
Accrued expenses 567,432
Health benefits payable 1,010,820
Payroll taxes payable 736,485
Current maturities of long-term debt 35,172
Client deposits 81,293
-----------
TOTAL CURRENT LIABIILITIES 2,505,488
Long-term debt, excluding current maturities 34,639
-----------
TOTAL LIABIILITIES 2,540,127
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, Series A convertible; no par value $10,000,000 shares
authorized; 0 shares issued or outstanding
Common stock, 0.001 value, 300,000,000 shares authorized, 53,999,989 issued
and outstanding 54,000
Additional paid-in capital 1,760,831
Accumulated (deficit) (2,920,635)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,105,804)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,434,323
===========
See notes to the condensed consolidated financial statements.
AAMPRO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
--------------------------
2004 2003
----------- -----------
NET REVENUE (gross billings of $3.8 and $5.1 million less worksite
employee payroll costs of $3.1 and $4.2 million, respectively) $ 677,241 $ 875,448
COST OF REVENUES 652,443 747,078
----------- -----------
GROSS PROFIT 24,798 128,370
----------- -----------
OPERATING EXPENSES
General and administrative expenses 271,734 340,996
Selling expenses 1,736 8,622
Depreciation 7,348 4,461
Amortization 9,669 11,606
----------- -----------
TOTAL OPERATING EXPENSES 290,487 365,675
----------- -----------
LOSS FROM OPERATIONS (265,689) (237,305)
OTHER INCOME (EXPENSES)
Interest income -- 275
Interest expense (2,332) (2,794)
----------- -----------
TOTAL OTHER INCOME (EXPENSES) (2,332) (2,519)
----------- -----------
LOSS BEFORE INCOME TAXES (268,021) (239,824)
Income taxes -- --
----------- -----------
NET LOSS $ (268,021) $ (239,824)
=========== ===========
LOSS PER SHARE $ (0.01) $ (0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
51,822,212 13,228,551
=========== ===========
See notes to the condensed consolidated financial statements.
AMPRO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
--------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (268,021) $ (239,824)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) OPERATIONS
Depreciation and amortization 17,017 16,067
Stock and options issued for consulting services -- 99,039
Write off of investment 22,500 --
(INCREASE) IN ASSETS
Accounts receivable (160,866) (77,327)
Other assets (8,353) (1,684)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable (49,827) 24,688
Accrued expenses 124,765 (37,942)
Health benefits payable 48,305 43,099
Payroll taxes payable 197,430 79,629
Client deposits (3,052) (12,339)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (80,102) (106,594)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (5,626) --
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (5,626) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock option -- 40,600
Collections from note receivable 1,650 3,250
Repayments of note payable (11,967) (6,323)
Issuance of common stock 50,000 22,500
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 39,683 60,027
----------- -----------
NET (DECREASE) IN CASH (46,045) (46,567)
CASH AT BEGINNING OF PERIOD 146,412 148,614
----------- -----------
CASH AT END OF PERIOD $ 100,367 $ 102,614
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest Expense $ 2,332 $ 6,472
=========== ===========
Income Taxes $ -- $ --
=========== ===========
See notes to the condensed consolidated financial statements.
AAMPRO GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2004
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statement have
been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
the instructions to Item 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2004. 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, 2003.
NOTE 2 - 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.
On September 29, 2003, the Company formed a new organization, AAMPRO Pay,
LLC. AAMPRO Pay, LLC was formed to engage in the service of payroll
processing.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AAMPRO
Group, Inc. and its wholly owned subsidiaries, AAMPRO, Inc., AAMPRO Pay,
LLC. All significant intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION
The Company has adopted a new revenue recognition policy under which
compensation of worksite employees will be recognized as revenue
components ("net method"). The change in policy was made based in part on
the collective weight of the indicators included in Emerging Issues Task
Force No. 99-19, Reporting Revenues Gross as a Principal versus Net as an
Agent ("EITF 99-19"). The policy has been applied to the current
consolidated statement of operations and retroactively applied to the
previous years' consolidated statement of operations. The new policy had
no effect on the gross profit, net income (loss) or shareholders' equity
(deficit) amounts previously reported by the Company in its public
filings.
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.
STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The
provisions of SFAS 123 allow companies to either expense the estimated
fair value of stock options or to continue to follow the intrinsic value
method set forth in Accounting Principles Bulletin Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro
forma effects on net income (loss) had the fair value of the options been
expensed. The Company follows the provisions of FASB 123 in their
accounting for stock based compensation.
NOTE 3: GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America, which contemplates continuation of the Company as a
going concern. The Company has had recurring operating deficits in the
past few years and has accumulated large deficits. This raises substantial
doubt about the Company's ability to continue as a going concern.
Management of the Company has begun the process of raising capital through
a private placement of their stock. This will infuse working capital into
the Company and contribute to the business model that the Company has
incorporated to grow their operations to sustain positive working capital
and profitability.
In view of these matters, realization of the assets of the Company is
dependent upon the Company's ability to meet its financial requirements
and the success of future operations. These consolidated financial
statements do not include adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
NOTE 4: ISSUANCE OF COMMON STOCK
During the quarter ended March 31, 2004, the Company sold 2,000,000 newly
issued shares of its common stock for $50,000. In addition, the Company
issued a two year warrant to purchase 250,000 shares of common stock of
the Company at a price of ten ($0.10) cents per share and a two year
warrant to purchase 250,000 shares of its common stock at fifteen ($0.15)
cents per share. The fair market value of the options granted was $5,000.
The fair value was determined as of the date of grant using Black-Scholes
stock option pricing model, based upon the following assumptions: annual
expected return of 0%, annual volatility of 120%, based upon a risk free
interest rate of 1.5%.
NOTE 5: LITIGATION
In August 2003, Alan Sporn and Corporate and Shareholder Solutions, Inc.
filed a suit against the Company in the Superior Court of New Jersey,
Chancery Division, Hunterdon Country, alleging, among other things, breach
of contract and the issuance of certain shares of preferred stock which
the plaintiffs claim are allegedly due to them. The Company is vigorously
defending this action and has filed an answer denying all of the
plaintiffs' claims and has counterclaimed.
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
expectation s 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
established 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 process 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 target both organic growth and the acquisition of
smaller and like-sized competitors.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the 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.
NET REVENUES
Our overall net revenues decreased $198,207 or 22.7% from $875,448 in 2003 to
$677,241 in 2004. The majority of our revenues were from our AAMPRO, Inc. The
decrease was primarily attributable to ceasing our relations with a major
customer. We have also weeded out several smaller unprofitable clients in order
to streamline our client base. However, in March 2004, the Company acquired
another major client which will bring revenue higher for the second quarter. We
have also instituted our new internet Human Resources and Payroll program for
the second quarter and are looking forward to increase revenue from our
computerized payroll division, Aampro-Pay, Inc. We have also been able to
negotiate with new health care carriers to lower costs for our health programs
making our overall program more attractive to our target markets.
COST OF REVENUES AND GROSS MARGIN
The Company's cost of revenue is composed primarily of: Client Employee
Payrolls, Benefits Premium and Administration and Federal and State Income Tax.
Cost of revenue, as a percentage of net revenues increased to 96.4% in 2004 from
85.4% in 2003 primarily due to our changing our billing to a standard rate over
the course of a year. Since the first quarter has higher payroll taxes, our
margins are skewed.
OPERATING EXPENSE
Our operating expenses decreased from $365,675 in 2003 to $290,487 in 2004 or
20.6% due to a concentrated effort of lowering overhead costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, we had cash and cash equivalents totaling $100,367 compared
to $102,047 at March 31, 2003.
Net cash used by operating activities during the three months ended March 31,
2004 was $80,102, a decrease of $26,492, as compared with $106,594 used in 2003.
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 will not be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
the next fiscal year. Therefore, we 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 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 conditions.
RISK 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:
- - 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
- - We might not be able to fund its working capital needs from cash flow or
we may not be able to raise capital
- - Increased competition
- - Litigation
We may experience material fluctuations in future revenues and operating results
on a quarterly or annual basis resulting from a number of factors, including but
not limited to the risks discussed above. The preceding statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which are not historical facts are forward-looking statements. These
forward-looking statements involve risks and uncertainties that could render
them materially different, including, but not limited to, the risk that new
products and product upgrades may not be available on a timely basis, the risk
that such products and upgrades may not achieve market acceptance, the risk that
competitors will develop similar products and reach the market first, and the
risk that we would not be able to fund its working capital needs from cash flow.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION AND RETURNS
Revenue is recognized as services are provided. 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
In August 2003, Alan Sporn and Corporate and Shareholder Solutions, Inc. filed a
suit against the Company in the Superior Court of New Jersey, Chancery Division,
Hunterdon Country, alleging, among other things, breach of contract and the
issuance of certain shares of preferred stock which the plaintiffs claim are
allegedly due to them. The Company is vigorously defending this action and has
filed an answer denying all of the plaintiffs' claims and has counterclaimed.
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.
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
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAMPRO GROUP, INC.
(Registrant)
By /s/ Stephen Farkas
- ------------------------------
(Stephen Farkas, President, Chief Executive Officer,
Principal Accounting Officer and Director)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Stephen Farkas, Chief Et 0 0 xecutive Officer t 0 0 and Chief Financial
Officer of AAMPRO Group, Inc. certified 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 annual 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 annual 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: June 16, 2004 /s/ Stephen Farkas
----------------------------------
Stephen Farkas
Chief Executive Officer and Chief
Financial Officer