T 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 June 30, 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-QSB or any amendment to
this Form 10-QSB. Number of shares outstanding of each of the registrant's
classes of common stock as of August 18, 2006: 53,452,860
Item 1 - Financial Statements
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(Unaudited)
June 30, 2006
Assets
Current Assets
Cash $ 106,257
Accounts receivable, net of allowance of $185,236 351,071
Other current assets 30,583
----------
Total Current Assets 487,911
----------
Customer lists, net 59,800
Property and equipment, net 13,403
----------
Total Assets $ 561,114
==========
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued expenses $ 330,391
Health benefits payable 969,980
Payroll taxes payable 2,728,434
Current maturities of long-term debt 21,535
Client deposits 85,405
----------
Total Current Liabilities 4,135,745
----------
Stockholders' Deficit
Preferred stock Series A, convertible, no par value,
10,000,000 shares authorized, 0 shares issued and
outstanding
Common stock, $.001 par value, 300,000,000 shares authorized,
53,452,860 issued and outstanding 53,453
Additional paid-in capital 2,080,457
Accumulated (deficit) (5,708,541
----------
Total Stockholders' Deficit (3,574,631
----------
Total Liabilities and Stockholders' Deficit $ 561,114
==========
See notes to the condensed consolidated financial statements.
1
AAMPRO Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net Revenue $ 250,560 $ 500,501 $ 485,268 $ 1,018,640
Staffing Revenue 166,281 85,202 322,713 247,139
Payroll Processing Revenue 62,085 67,847 121,325 120,617
------------ ------------ ------------ ------------
478,926 653,550 929,306 1,386,396
Total Revenue
Cost of Revenues 346,964 566,071 641,023 1,061,411
------------ ------------ ------------ ------------
Gross Profit 131,962 87,479 288,283 324,985
------------ ------------ ------------ ------------
Operating Expenses
General and administrative 345,487 352,412 669,380 653,159
expenses
Stock based compensation 61,950 44,250 61,950 44,250
Depreciation 2,533 5,124 5,066 9,942
Amortization -- 6,500 -- 9,100
------------ ------------ ------------ ------------
Total Operating Expenses 409,970 408,286 736,396 716,451
------------ ------------ ------------ ------------
Loss From Operations (278,008) (320,807) (448,113) (391,466)
------------ ------------ ------------ ------------
Other Income (Expense)
Interest income 48 12 97 32
Interest expense (2,298) (1,139) (10,455) (7,712)
------------ ------------ ------------ ------------
Total Other (Expense) (2,250) (1,127) (10,358) (7,680)
------------ ------------ ------------ ------------
(280,258) (321,934) (458,471) (399,146)
Loss Before Income Taxes
Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (280,258) $(321,934) $ (458,471) $ (399,146)
------------ ------------ ------------ ------------
Loss Per Basic and Diluted Share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
------------ ------------ ------------ ------------
Weighted Average Number of Common
Shares Outstanding 53,452,860 53,102,860 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
(Unaudited)
Six Months Ended
June 30,
----------------------
2006 2005
--------- ---------
Cash Flows From Operating Activities
Net Loss $(458,471) $(399,146)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operations
Depreciation and amortization 5,066 19,042
Allowance for bad debt -- (6,941)
Stock based compensation 61,950 44,250
Decrease (Increase) in Assets
Accounts receivable 52,659 (197,331)
Other current assets 54,458 (9,855)
Increase (Decrease) in Liabilities
Accounts payable and accrued expenses (4,657) 134,559
Health benefits payable (1,751) (16,931)
Payroll taxes payable 316,961 480,586
Client deposits (400) 9,000
--------- ---------
Net Cash Provided by Operating Activities 25,815 57,233
--------- ---------
Cash Flows From Investing Activities
Cash paid for equipment -- (1,377)
--------- ---------
Net Cash (Used in) Investing Activities -- (1,377)
--------- ---------
Cash Flows From Financing Activities
Repayments of long-term debt (8,170) (12,678)
--------- ---------
Net Cash (Used in) Financing Activities (8,170) (12,678)
--------- ---------
Net Increase in Cash 17,645 43,178
Cash at Beginning of Period 88,612 126,859
--------- ---------
Cash at End of Period $ 106,257 $ 170,037
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 10,455 $ 7,712
========= =========
Income Taxes $ -- $ --
========= =========
See notes to the condensed consolidated financial statements.
3
AAMPRO Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2006 and 2005
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 six months ended June 30, 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2005 financial statements to
conform with the current year presentation. These reclassifications have no
effect on net loss or stockholders' deficit as previously reported.
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
(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 Shares
continue to be held by the U.S. Department of Justice but none have been
sold to date. 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 related to the AAMPRO Shareholder 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
AAMPRO Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2006 and 2005
Continued
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.
STOCK BASED COMPENSATION
On April 10, 2003, the Company entered into an option agreement with an
officer of the Company, whereby, the officer was granted 5,400,000 options of
the Company's common stock. The agreement between the Company and the officer
expires on March 31, 2008. On each anniversary (through 2008), the Company
shall grant to the officer an additional 5,400,000 options at an exercise
price equal to the fair market value of the Company's common stock on the
date of each such grant. On April 10, 2006, the Company granted 5,400,000
options at an exercise price of $0.007. The options have been valued at
$37,800 using the Black-Scholes pricing modeL.
On April 10, 2003, the Company entered into an option agreement with an
officer of the Company, whereby, the employee was granted 900,000 options of
the Company's common stock. The agreement between the Company and the
employee expires on March 31, 2008. On each anniversary (through 2008), the
Company shall grant to the officer an additional 900,000 options at an
exercise price equal to the fair market value of the Company's common stock
on the date of each such grant. On April 10, 2006, the Company granted
900,000 options at an exercise price of $0.007. The options have been valued
at $6,300 using the Black-Scholes pricing model.
On April 10, 2003, the Company entered into a consulting agreement with a
consultant of the Company, whereby, for services to be provided to the
Company through March 31, 2008, the consultant was granted 2,550,000 options
of the Company's common stock. On each anniversary (through 2008), the
Company shall grant to the consultant an additional 2,550,000 options at an
exercise price equal to the fair market value of the Company's common stock
on the date of each such grant. On April 10, 2006, the Company granted
2,550,000 options at an exercises price of $0.007. The options have been
valued at $17,850 using the Black-Scholes pricing model.
5
AAMPRO Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2006and 2005
Continued
STOCK BASED COMPENSATION, Continued
The following table summarizes stock options activity during the six months
ended June 30, 2006 and 2005:
June 30, 2006 Activity
- ---------------------- Weighted
Number of Average
Options Exercise
Price
---------- ----------
Options outstanding at January 1, 2006 26,550,000 $ .07
Granted 8,850,000 .007
Exercised -- --
Expired -- --
---------- ----------
Options outstanding and exercisable at June 30, 2006 35,400,000 $ .05
========== ==========
June 30, 2005 Activity
- ---------------------- Weighted
Number of Average
Options Exercise
Price
---------- ----------
Options outstanding at January 1, 2005 18,000,000 $ .05
Granted 8,850,000 .01
Exercised -- --
Expired -- --
---------- ----------
Options outstanding and exercisable at June 30, 2005 26,850,000 $ .04
========== ==========
The fair value of the options granted in 2006 were $61,950. The fair value
was determined as of the date of grant using the Black-Scholes pricing model,
based on the following assumptions; annual expected rate of return of 0%,
annual volatility of 120%, and a risk free interest rate of 5.14%.
The fair value of the options granted in 2005 were $44,250. The fair value
was determined as of the date of grant using the Black-Scholes pricing model,
based on the following assumptions; annual expected rate of return of 0%,
annual volatility of 186% and a risk free interest rate of 4.14%.
6
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 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 has expanded
its services beyond that of a professional services organization to that of a
full service staffing firm. 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 unaudited
condensed 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.
7
The following table sets forth certain common sized data derived from the
unaudited condensed consolidated statements of operations, expressed as a
percentage of net revenues for each of the three and six month periods presented
in 2006 and 2005 as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ----------------
2006 2005 2006 2005
------ ------ ------ ------
Total Net Revenue 100% 100% 100% 100%
------ ------ ------ ------
Cost of Revenues 72% 87% 69% 77%
------ ------ ------ ------
Gross Profit 28% 13% 31% 23%
------ ------ ------ ------
Operating Expenses
General and administrative 72% 54% 72% 47%
expenses
Stock based compensation 13% 7% 7% 3%
Depreciation and 1% 1% -- 1%
------ ------ ------ ------
Amortization
Total Operating 86% 62% 79% 51%
====== ====== ====== ======
Expenses
------ ------ ------ ------
Loss From Operations (58%) (49%) (48%) (28%)
------ ------ ------ ------
Other Income (Expense)
Interest income -- -- -- --
Interest expense (1%) (0.0%) (1%) (1%)
------ ------ ------ ------
Total Other (Expense) (1%) (0.0%) (1%) (1%)
------ ------ ------ ------
Loss Before Income Taxes (59%) (49%) (49%) (29%)
Income Taxes -- -- -- --
------ ------ ------ ------
Net Loss (59%) (49%) (49%) (29%)
====== ====== ====== ======
REVENUES
The net revenues for the first half and second quarter of 2006 and 2005 included
revenues from contract worksite employees (professional services) along with
staffing and payroll administration services.
Total net revenues for the six months ended June 30, 2006 decreased by $457,090
or 33%, from $1,386,396 in 2005 to $929,306 in 2006, while total net revenues
for three months ended June 30, decreased by $174,624 or 27 % going from
$653,550 in 2005 to $478,926 in 2006, as a result of the reductions in revenues
attributed to the cessation of providing services to certain clients.
Gross revenues for the contract worksite employee for the six months ended June
30, declined by approximately $800,000 from $5.9 million in 2005 to $5.1 million
in 2006, while gross revenues for the contract worksite employee for the three
months ended June 30, declined by approximately $500,000 from $3 million in 2005
to $2.5 million in 2006. The net decreases for the six months and the three
months ended June 30, 2006, were primarily attributable to ceasing to provide
services for certain customers in 2006.
Staffing revenues for the six months ended June 30, 2006, increased $75,574 or
31%, going from $247,139 in 2005 to $322,713 in 2006, as compared to an increase
of $81,079 or 95% for the three months ended June 30, 2006, going from $85,202
in 2005 to $166,281 in 2006. The increases in the staffing revenue for the three
and six month periods are primarily attributed to new business development and
the expansion of the staffing segment.
8
Payroll processing revenues for the six months ended June 30, 2006, increased
slightly by $708 or 1%, going from $120,617 in 2005 to $121,325 in 2006, as
compared to a decrease of $5,762 or 8% for the three months ended June 30, 2006,
going from $67,847 in 2005 to $62,085 in 2006. Variations are primarily
attributable to ceasing to provide services for certain customers in 2006.
COST OF REVENUES AND GROSS MARGIN
The Company's cost of revenue for the six months ended decreased by $420,388
from $1,061,411 in 2005 to $641,023 in 2006, while the cost of revenues for the
three months ended decreased by $219,107 from $566,701 in 2005 to $346,964 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 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
$36,702 or 11% for the six months ended June 30, going from $ 324,985 in 2005 to
$288,283 in 2006, and by $44,483 or 51% for the three months ended June 30,
going from $87,479 in 2005 to $131962 in 2006. The gross margin percentages (as
a percentage of total revenues) for the six months ended June 30, increased by
8% going from a gross profit margin percentage of 23% in 2005 to 31% in 2006,
and for the three months ended June 30, gross profit margins increased 15% going
from 13% in 2005 to 28% in 2006. Both the six month as three month gross margin
amounts and margin percentages are the result of the elimination of certain
unprofitable clients, and the inclusion of the higher margin staffing and
payroll administration services in 2006. The Company continues to expand its
operations with a focus on providing quality services with higher profitability.
OPERATING EXPENSES
Operating expenses consist of general. selling and administrative costs, stock
based compensation and depreciation and amortization. Operating expenses for the
six months ended June 30, increased by $19,945 from $716,451 in 2005 to $736,396
in 2006, and for the three months ended June 30, increased by $1,684 going from
$408,286 in 2005 to $409,970 in 2006. General and administrative expenses for
the six months ended June 30, increased by $16,221 from $653,159 in 2005 to
$699,380 in 2006, and for the three months ended June 30, increased by $6,925
going from $352,412 in 2005 to $345,487 in 2006 due to increased costs
associated with the staffing and payroll administration services, partially
offset by the continuation of the Company's overall cost containment program.
Stock based compensation increased by $17,700 for the six months and three
months ended June 30 primarily due to higher stock values associated with the
issuance of stock options. Depreciation and amortization for the six months
ended June 30, decreased by $13,976, and as compared to the decrease of $9,091
for the three months ended June 30. The decreases in the Company's depreciation
and amortization expense are primarily associated with the lower depreciable net
book values for assets recorded
9
NET LOSS
The net loss for the six months ended June 30, increased by $59,325, from a loss
of $399,146 in 2005 to $458,471 in 2006, as compared to an decrease of $41,676
for the three months ended June 30, from a loss of $321,934 in 2005 to $280,258
in 2006.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2006, the Company had cash and cash equivalents totaling $106,257
compared to $170,037 at June 30, 2005. Net cash provided by operating activities
during the six months ended June 30, 2006 was $25,815 as compared with $57,233
in 2005, or a decrease in net cash of $31,418 primarily attributed to increases
in payroll tax liabilities, offset by decreases in accounts payable and health
benefit liabilities and decreases in receivables, deposits and other current
assets.
Net cash used in investing activities through June 30, 2006 was zero as compared
to outflows of $1,377 in 2005, primarily attributed to the purchase of
equipment.
Net cash used by financing activities in 2006 was $8,170 as compared to $12,678
in 2005, or a decrease of $4,508. The decrease from 2005 to 2006 was primarily
due to repayments on long-term debt.
The Company's capital requirements are dependent on several factors, including
marketing, acquisitions, and professional fees and consulting expenses. At June
30, 2006, the Company had cash and cash equivalents totaling $106,257 as
compared to $170,037 at June 30, 2005. The June 30, 2006 working capital
shortfall of current assets in excess of current liabilities was $3,647,834
primarily due to health benefit and payroll liabilities aggregating in excess of
$3,698,414. Although the Company's working capital is currently in a shortfall
position, we believe that our 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 our anticipated cash needs for working capital and capital
expenditures for the next fiscal 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 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.
10
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.
11
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 June 30, 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.
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.
12
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, Chief Financial Officer 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 shares continue to be held by the U.S. Department of
Justice, but none have been sold to date. 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.
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.
13
AAMPRO GROUP, INC.
(Registrant)
By /s/ Stephen Farkas Dated: August 21, 2006
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(Stephen Farkas, President,
Chief Executive Officer,
Chief Financial Officer,
Director
14