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, 2005
|_| 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
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 24,2005: Common Stock: 53,102,860
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31,
(Unaudited)
ASSETS 2005
--------------
CURRENT ASSETS
Cash $ 208,969
Accounts receivable, net of allowance of $192,177 471,266
Other current assets 44,612
--------------
TOTAL CURRENT ASSETS 724,847
Customer list, net 176,800
Property and equipment, net 30,709
--------------
TOTAL ASSETS $ 932,356
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 145,852
Accrued expenses 443,065
Health benefits payable 985,462
Payroll taxes payable 1,593,804
Current maturities of long-term debt 31,049
Client deposits 77,859
--------------
TOTAL CURRENT LIABIILITIES 3,277,091
Long-term debt, excluding current maturities 16,393
--------------
TOTAL LIABIILITIES 3,293,484
--------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, Series A convertible; no par value, 10,000,000 shares
authorized; none issued or outstanding
Common stock, 0.001 value, 300,000,000 shares authorized, 53,102,860 issued
and outstanding 53,103
Additional paid-in capital 1,934,607
Accumulated (deficit) (4,348,838)
--------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (2,361,128)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 932,356
==============
See notes to the condensed consolidated financial statements.
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31,
(Unaudited)
2005 2004
NET REVENUE
Employee leasing revenue (gross billings of $2.9 and $3.8 million less worksite employee $ 323,089 $ 677,241
payroll costs of $2.6 and $3.1 million, respectively)
Staffing revenue 161,937
Payroll processing revenue 52,770
-------------- --------------
TOTAL REVENUE 537,796 677,241
COST OF REVENUES 300,290 652,443
-------------- --------------
GROSS PROFIT 237,506 24,798
-------------- --------------
OPERATING EXPENSES
General and administrative expenses 299,692 271,734
Selling expenses 1,055 1,736
Depreciation 4,818 7,348
Amortization 2,600 9,669
-------------- --------------
Total operating expenses 308,165 290,487
-------------- --------------
LOSS FROM OPERATIONS (70,659) (265,689)
-------------- --------------
OTHER INCOME (EXPENSES)
Interest income 2020 --
Interest expense (6,573) (2,332)
-------------- --------------
Total other income (expenses) (6,553) (2,332)
-------------- --------------
LOSS BEFORE INCOME TAXES (77,212) (268,021)
Income taxes --
-------------- --------------
--
--------------
NET LOSS $ (77,212) $ (268,021)
============== ==============
LOSS PER SHARE $ (0.00) $ (0.01)
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 53,102,860 51,822,212
============== ==============
See notes to the condensed consolidated financial statements.
AMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Unaudited)
2005 2004
----------------------------
Cash Flows From Operating Activities
Net loss $ (77,212) $ (268,021)
Adjustments to Reconcile Net Loss to Net Cash (Used in) Operations
Depreciation and amortization 9,106 17,017
Write off of investment -- 22,500
Decrease in Assets
Accounts receivable (120,951) (160,866)
Other assets (12,939) (8,353)
Increase (Decrease) in Liabilities
Accounts payable (4,741) (49,827)
Accrued expenses 173,753 124,765
Health benefits payable (15,432) 48,305
Payroll taxes payable 136,920 197,430
Client deposits 1,800 (3,052)
------------ ------------
Net Cash Provided By (Used In) Operating Activities 90,304 (80,102)
------------ ------------
Cash Flows From Investing Activities
Purchase of equipment (1,558) (5,626)
------------ ------------
Net Cash (Used in) Investing Activities (1,558) (5,626)
------------ ------------
Cash Flows From Financing Activities
Collections from note receivable -- 1,650
Repayments of note payable (6,636) (11,967)
Issuance of common stock -- 50,000
------------ ------------
Net Cash Provided By (Used In) Financing Activities (6,636) 39,683
------------ ------------
Net Increase (Decrease) in Cash 82,110 (46,045)
Cash at Beginning of Period 126,859 146,412
------------ ------------
Cash at End of Period $ 208,969 $ 100,367
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest Expense $ 6,553 $ 2,332
============ ============
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, 2005
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statement
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, 2005 are not
necessarily indicative of the results that may be expected for the full
2005 fiscal year. The unaudited condensed consolidated 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, 2004.
Litigation
In March 2005, there was a settlement reached in the litigation with
the former majority shareholder that is subject to formal approval by
the Court. The pending settlement is anticipated to include the release
of all claims by all parties, the reverse of the prior acquisition
transaction between the parties, and the spin off of all assets and
liabilities of the AAMPRO Group, Inc. and its related subsidiaries to
its shareholder into multiple publicly traded entities. The settlement
is subject to Court approval, and will not be effective until such
approval is received.
Going Concern
The accompanying unaudited condensed 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 accumulated
large deficits. This raises substantial doubt about the Company's
ability to continue as a going concern.
Management of the Company believes that its current cash and cash
equivalents along with cash to be generated by existing and new
business operations in 2005 and beyond, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for
the next year.
If cash generated from operations is insufficient to satisfy the
Company's liquidity requirements, management may seek to restructure
the liabilities of the Company and/or sell additional equity, debt
securities and/or obtain a credit facility. The sale of additional
equity or convertible debt securities could result in additional
ownership 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.
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.
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, provides full
service staffing resources to its clients by providing permanent placement,
temporary staffing services, payroll administration, and professional services
(including outsourcing services of worksite employees). The Company expanded its
services beyond that of a professional services organization to that of a full
service staffing firm in the fourth quarter of 2004. 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 is organized in three basic operating segments--Staffing Services,
Payroll Administration, and Professional Services. Within the Staffing Services
Segment, the Company provides three primary services--permanent placement,
temporary staffing, and human resource consulting services. Payroll
administration services include the processing of the payrolls for clients along
with the administration of benefits, tax filings, and workman's compensation
programs. The Professional Services segment includes the outsourcing of the
employment and administration services performed for clients.
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
Overall consolidated net revenues for the three months ended March 31, decreased
$139,445 or 20.6%, from $677,241 in 2004 to $537,796 in 2005. The net revenues
for the first quarter of 2005 included revenues from contract worksite employees
along with staffing and payroll administration services. In 2004, all of the net
revenues were from contract worksite employees. Gross revenues for the contract
worksite employee for the three months ended March 31, declined by approximately
$900,000 or 23.7%, from $3,800,000 in 2004 to $2,900,000 in 2005 The net
decreases were primarily attributable to ceasing to provide services for certain
customers, partially offset by new revenues from staffing and payroll
administration services in 2005.
COST OF REVENUES AND GROSS MARGIN
The Company's cost of revenue is composed primarily of: Contract Worksite
Employee Costs, Benefit Premiums, Federal, and State Income Tax. Cost of
revenues decreased by $352,153 or 54%, from $652,443 in 2004 to $300,290 in 2005
as a result of the corresponding reductions in revenues attributed to the
cessation of providing services to certain clients, offset by the increased
costs for the staffing and payroll administration services.
The Company has strategically evaluated the overall 2005 operations, and the
profitability of providing services to its clients, and has decided to cease
doing business with several unprofitable clients in order to streamline its
client base, and better focus its overall operations. Gross profit margins
increased by $212,708 from $24,798 in 2004 to $237,506 in 2005 as a result of
the elimination of certain unprofitable clients, and the inclusion of the higher
margin staffing and payroll administration services in 2005. The Company
continues to expand its operations with a focus on providing quality services
with higher profitability.
OPERATING EXPENSE
Operating expenses for the three months ended March 31, increased $17,678 or
6.1%, from $290,487 in 2004 to $304,327 in 2005 due to increased costs
associated with the new staffing and payroll administration services, partially
offset by the continuation of the Company's cost containment program.
NET LOSS
The net loss for the three months ended March 31, was decreased by $190,809or
71.2%, from a loss of $268,021 in 2004 to $73,374 in 2005.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, the Company had cash and cash equivalents totaling $208,969
compared to $100,367 at March 31, 2004. Net cash provided by operating
activities during the three months ended March 31, 2005 was $90,304 as compared
with $80,102 used by operating activities in 2004, or an increase in net cash by
$170,40g resulting from increases in trade receivable collections and reductions
in health benefit liabilities, offset by increases in liabilities. The Company's
capital requirements are dependent on several factors, including marketing,
acquisitions, and professional fees and consulting expenses.
Management of the Company believes that its current cash and cash equivalents
along with cash to be generated by existing and new business operations in 2005
and beyond will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for the next year.
If cash generated from operations is insufficient to satisfy the Company's
liquidity requirements, management may seek to restructure the liabilities of
the Company and/or sell additional equity, debt securities and/or obtain a
credit facility. The sale of additional equity or convertible debt securities
could result in additional ownership 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.
RISK AND UNCERTAINTY
AAMPRO's 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 areas in
which we do business.
- - 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. The Company's revenues consist
of administrative fees paid by its clients under certain agreements, which are
based upon each worksite employee's gross pay and a markup, computed as a
percentage of the gross pay. 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.
Revenues for services provided under staffing contracts are recognized as
services are provided by the temporary, contract or leased employees. Revenue
from direct placements or "fixed fee contracts" is recognized at the time the
candidate begins the first full day after the completion of a 30-day contingency
period. Revenue from permanent placements, which are also considered fixed fee
contracts, is recognized at the time the candidate begins the first full day
after the completion of a required amount of temporary hours as stipulated in
the Temp to Perm contract.
Revenues for payroll processing services are recognized when the service is
performed based on a fixed fee-processing 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 County, 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.
The parties to this litigation have executed a settlement agreement in March
2005, which is subject to Court approval. Reference is made to the Company's
annual report on Form 10-KSB for the year ended December 31, 2004 for additional
information relating to Litigation.
Item 4: Procedures and Controls
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files under the Exchange Act is
accumulated and communicated to the Company's management, including its Chief
Executive Officer, as appropriate to allow timely decisions regarding required
disclosure.
Under the supervision and with the participation of the Company's management,
including its Chief Executive Officer, the Company has evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures within 90 days of the filing date of this report, and, based on
their evaluation, the Company's Chief Executive Officer has concluded that these
controls and procedures are effective for a company with limited resources such
as the Company. There were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL
Management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material errors. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations on all internal control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. The design of any
system of internal control is also based in part upon certain assumptions about
the likelihood of future events and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in
circumstances, and/or the degree of compliance with the policies and procedures
may deteriorate. Because of the inherent limitations in a cost effective
internal control system, financial reporting misstatements due to error or fraud
may occur and not be detected on a timely basis.
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.
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)