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, 2006
|_| 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
Incorporation or Organization) Identification 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 check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
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 17, 2006: 53,452,860
0
Item 1 - Financial Statements
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2006
Assets
Current Assets
Cash $ 319,894
Accounts receivable, net of allowance of $186,051 316,957
Other current assets 50,694
-----------
Total Current Assets 687,545
Customer lists, net 59,800
Property and equipment, net 16,043
-----------
Total Assets 763,388
===========
Liabilities and Stockholders' (Deficit)
Current Liabilities
Accounts payable and accrued expenses 362,519
Health benefits payable 969,783
Payroll taxes payable 2,678,184
Installment notes payable 23,822
Client deposits 85,405
-----------
Total Current Liabilities 4,119,713
-----------
Stockholders' (Deficit)
Preferred stock Series A, convertible, no par value, 10,000,000 shares
authorized, 0 shares issued and outstanding --
Common stock, $.001, 300 million shares authorized, 53,452,860
issued and outstanding 53,453
Additional paid-in capital 2,018,507
Accumulated (deficit) (5,428,285)
-----------
(3,356,325)
Total Stockholders' (Deficit)
-----------
Total Liabilities and Stockholders' (Deficit) $ 763,388
===========
See notes to the condensed consolidated financial statements.
1
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended
March 31,
-------------------------------
2006 2005
------------ ------------
Revenues
Employee leasing revenue $ 234,708 $ 323,089
Staffing Revenue 156,432 161,937
Payroll Processing Revenue 59,240 52,770
------------ ------------
450,380 537,796
Total Revenue
Cost of Revenues 294,059 300,290
------------ ------------
Gross Profit 156,321 237,506
------------ ------------
Operating Expenses
General and administrative expenses 323,786 300,747
Depreciation 2,640 4,818
Amortization -- 2,600
------------ ------------
Total Operating Expenses 326,426 308,165
------------ ------------
Loss From Operations (170,105) (70,659)
------------ ------------
Other Income (Expense)
Interest income 49 2,020
Interest expense (8,157) (6,573)
------------ ------------
Total Other Income (Expense) (8,108) (6,553)
------------ ------------
(178,213) (77,212)
Loss Before Income Taxes
Income Taxes -- --
------------ ------------
Net Loss $ (178,213) $ (77,212)
============ ============
Loss Per Share $ (0.00) $ (0.00)
============ ============
Weighted Average Number of Common
Shares Outstanding 53,452,860 53,102,860
See notes to the condensed consolidated financial statements.
2
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended
March 31,
---------------------------
2006 2005
----------- -----------
Cash Flows From Operating Activities
Net Loss $ (178,213) $ (77,212)
Adjustments to Reconcile Net Loss to Net Cash Used in Operations
Depreciation and amortization 2,640 9,106
(Increase) Decrease in Assets
Accounts receivable 86,773 (120,951)
Other assets 34,347 (12,939)
Increase (Decrease) in Liabilities
Accounts payable and accrued expenses 27,533 169,012
Health benefits payable (1,948) (15,432)
Payroll taxes payable 266,433 136,920
Client deposits (400) 1,800
----------- -----------
Net Cash Provided by Operating Activities 237,165 90,304
----------- -----------
Cash Flows From Investing Activities
Purchase of equipment -- (1,558)
----------- -----------
Net Cash (Used in) Investing Activities -- (1,558)
----------- -----------
Cash Flows From Financing Activities
Repayments of long-term debt (5,883) (6,636)
----------- -----------
Net Cash (Used in) Financing Activities (5,883) (6,636)
----------- -----------
Net Increase in Cash 231,282 82,110
Cash at Beginning of Period 88,612 126,859
----------- -----------
Cash at End of Period $ 319,894 $ 208,969
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest Expense $ 8,157 $ 6,553
=========== ===========
Income Taxes $ -- $ --
=========== ===========
See notes to the condensed consolidated financial statements.
3
AAMPRO Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Three Month Period Ended March 31, 2006
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
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 considered necessary for a fair
presentation have been included. Operating results for the three months
ended March 31, 2006 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2006. 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, 2005.
LITIGATION
In August 2003, Corporate and Shareholder Solutions, Inc. (CSS) and its
major shareholder filed a suit against the Company, Professional Employer
Services, Inc. d/b/a AAMPRO, Inc. and an officer of the Company in the
Superior Court of New Jersey, Chancery Division, Hunterdon County
alleging, three causes of action each related to the reverse acquisition
transaction between the Company and AAMPRO, Inc., inter alia, (a) seeking
a rescission of the majority shareholder of CSS as a director and officer
of the Company, rescinding the appointment of an officer of the Company as
President and Chief Executive Officer, ordering return of the shares
issued to the Company, and reestablishing the majority shareholder of CSS,
as President CEO and Director of the Company, (b) seeking damages in the
amount of $85,000, and (c) seeking punitive damages. Management denied all
allegations, and filed counterclaims in an amount in excess of $5,000,000.
In March 2005, there was a settlement reached in this action, which is
subject to formal approval by the Court and will not be effective until
such approval is received. The pending settlement will 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 Court approved the
settlement in August 2005, and the Company is proceeding forward with the
legal filings needed to implement the settlement.
In January 2006, subsequent to the execution of the settlement agreement
and Court approval, the U. S. Department of Justice seized the AAMPRO
shares held by the majority shareholder and officer of the Company (AAMPRO
Shareholder) along with other personal assets in connection with a
judgment dating back to July 2003. The 2003 judgment involved a personal
tax lien related to a prior employer (not AAMPRO) of the current AAMPRO
Shareholder dating back to December 1992. In April 2006, the U. S.
Department of Justice directly notified certain AAMPRO shareholders about
the judgment and seizure of the AAMPRO shares held by the AAMPRO
Shareholder, and solicited the Company's shareholders to generate
potential interest in purchasing the seized AAMPRO shares to settle the
judgment. The AAMPRO Shareholder is in the process of negotiating a
settlement of the judgment with the U. S. Department of Justice. The
current seizure of the AAMPRO shares held by the AAMPRO Shareholder as a
means to settle the outstanding judgment may make it difficult for the
Company to fulfill the terms of the above mentioned settlement agreement,
and may require a restructuring of the terms of the settlement.
4
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 2006 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 condensed 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.
5
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.
6
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
$87,416 from $537,796 in 2005 to $450,380 in 2006. The net revenues for the
first quarter of 2005 and 2006 included revenues from contract worksite
employees along with staffing and payroll administration services. 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 2006. Gross revenues for the contract worksite
employee for the three months ended March 31, declined by approximately from
$2,900,000 in 2005 to $2,500,000 in 2006 on costs of $2,600,000 in 2005 and
$2,300,000 in 2006 for the first quarters. Revenues for staffing decreased
approximately $5,505 from $161,937 for the first quarter of 2005 to $156,432 in
2006, while revenues from payroll administration services increased by $6,470
for the first quarter from $52,770 in 2005 to $59,240 in 2006 due to revenues
generated for year end reporting requirements that were performed and billed
during the quarter.
COST OF REVENUES AND GROSS PROFIT
The Company's cost of revenues is composed primarily of: contract worksite
employee costs, staffing and payroll administration costs, benefits, and taxes.
Cost of revenues decreased by $6,231, from $300,290 in 2005 to $ 294,059 in 2006
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 leasing, staffing and payroll administration services.
The Company has strategically evaluated the overall 2006 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 decreased by
$81,185 from $237,506 in 2005 to $156,321in 2006 as a result of the elimination
of certain clients in 2006. The Company continues to expand its operations with
a focus on providing quality services with higher profitability.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, increased $18,261, from
$308,165 in 2005 to $326,426 in 2006 due to increased costs associated with the
payroll and professional fees, partially offset by the continuation of the
Company's cost containment program.
NET LOSS
The net loss for the three months ended March 31, increased by $101,001, from a
loss of $77,212 in 2005 to $178,213 in 2006.
7
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006, the Company had cash and cash equivalents totaling $319,894
compared to $208,969 at March 31, 2005 or an increase of $110,925. Net cash
provided by operating activities during the three months ended March 31, 2006
was $237,165 as compared with $90,304 used by operating activities in 2005, or
an increase in net cash by $146,861 resulting from decreases in trade
receivables, other assets, offset by increases in payables and tax 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 2006
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.
8
CRITICAL ACCOUNTING POLICIES
Revenue Recognition and Returns
As it pertains to the employee leasing division, the Company records net revenue
in accordance with Emerging Issues Task Force Issue No. 99-19, "Reporting
Revenues Gross as a Principal Versus Net as an Agent". The Company records
revenue as services are provided. The Company's revenues consist of
administrative fees paid by its clients under Shared Employer Agreements, which
are based upon each worksite employee's gross pay and a markup, computed as a
percentage of the gross pay. The Company includes the component of its
comprehensive service fees related to the gross pay of its worksite employees as
revenue. In consideration for payment of such service fees, the Company agrees
to pay the following direct costs associated with the worksite employees: (i)
salaries and wages; (ii) employment-related taxes; and (iii) workers'
compensation insurance premiums. The Company accounts for fees and the related
direct costs using the accrual method. Under the accrual method, fees related to
worksite employees with earned but unpaid wages at the end of each period are
recognized as unbilled revenues and the related direct costs for such wages are
accrued as a liability during the period in which wages are earned by the
worksite employee. Subsequent to the end of each period, the related fees are
billed.
Revenue 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.
Revenue for payroll processing services are recognized when the service is
performed based on a fixed amount fee processing period.
Item 3: Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive 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. In designing and
evaluating the Company's disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, the
Company's chief executive officer concluded that as of March 31, 2006, the
Company's disclosure controls and procedures were (1) designed to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company's chief executive officer by others
within those entities, particularly during the period in which this report was
being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
9
Limitations on the Effectiveness of Internal Controls
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.
PART II
Item 1. Legal Proceedings
In August 2003, Corporate and Shareholder Solutions, Inc. (CSS) and its major
shareholder filed a suit against the Company, Professional Employer Services,
Inc. d/b/a AAMPRO, Inc. and an officer of the Company in the Superior Court of
New Jersey, Chancery Division, Hunterdon Country alleging, three causes of
action each related to the reverse acquisition transaction between the Company
and AAMPRO, Inc., inter alia, (a) seeking a rescission of the majority
shareholder of CSS as a director and officer of the Company, rescinding the
appointment of an officer of the Company as President and Chief Executive
Officer, ordering return of the shares issued to the Company, and reestablishing
the majority shareholder of CSS, as President CEO and director of the Company,
(b) seeking damages in the amount of $85,000, and (c) seeking punitive damages.
Management denied all allegations, and filed counterclaims in an amount in
excess of $5,000,000.
In March 2005, there was a settlement reached in this action, which is subject
to formal approval by the Court and will not be effective until such approval is
received. The pending settlement will 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 Court approved the settlement in August 2005, and the Company is proceeding
forward with the legal filings needed to implement the settlement.
10
In January 2006, subsequent to the execution of the settlement agreement and
Court approval, the U.S. Department of Justice seized the AAMPRO shares held by
the majority shareholder and officer of the Company (AAMPRO Shareholder) along
with other personal assets in connection with a judgment dating back to July
2003. The 2003 judgment involved a personal tax lien related to a prior employer
(not AAMPRO) of the current AAMPRO Shareholder dating back to December 1992. In
April 2006, the U.S. Department of Justice directly notified certain AAMPRO
shareholders about the judgment and seizure of the AAMPRO shares held by the
AAMPRO Shareholder, and solicited the Company's shareholders to generate
potential interest in purchasing the seized AAMPRO shares to settle the
judgment. The AAMPRO Shareholder is in the process of negotiating a settlement
of the judgment with the U.S. Department of Justice. The current seizure of the
AAMPRO shares held by the AAMPRO Shareholder as a means to settle the
outstanding judgment may make it difficult for the Company to fulfill the terms
of the above mentioned settlement agreement, and may require a restructuring of
the terms of the settlement.
Item 5: Other Information
None.
11
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)
12