SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: June 30, 1999; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to __________
Commission File Number: 000-26261
AMERICAN FIRE RETARDANT CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 88-03826245
- ------------------------------ -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9337 Bond Avenue, El Cajon, California 92021
- ---------------------------------------------------- ------------------------
(Address of principal executive offices) Zip Code)
(619) 390-6888
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark 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 a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On June 30, 1999 there were 2,343,788 shares of the registrant's Common
Stock, $0.01 par value, issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
This Form 10-QSB has 19 pages, the Exhibit Index is located at page 19.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements included herein have been prepared by the Company,
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of June 30, 1998 and the results of its operations and changes in its
financial position from inception through June 30, 1998 have been made. The
results of operations for such interim period is not necessarily indicative of
the results to be expected for the entire year.
Index to Financial Statements
-----------------------------
Page
---
Balance Sheets ........................................................... 3
Statements of Operations ................................................. 5
Statements of Stockholders' Equity (deficit) ............................. 6
Statements of Cash Flows ................................................. 7
Notes to Financial Statements for Period ................................. 9
All other schedules are not submitted because they are not applicable or
not required or because the information is included in the financial statements
or notes thereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Page 2
<PAGE>
AMERICAN FIRE RETARDANT CORP.
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 19,249 $ 62,057
Inventory 123,251 140,495
Accounts receivable, net 401,261 472,302
----------------------------------
Total Current Assets 543,761 674,854
----------------------------------
PROPERTY AND EQUIPMENT 189,306 196,603
----------------------------------
OTHER ASSETS
Deferred charges, net 53,200 72,500
Deposits and other assets 16,372 16,372
----------------------------------
Total Other Assets 69,572 88,872
----------------------------------
TOTAL ASSETS $ 802,639 $ 960,329
==================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 3
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 88,769 $ 65,887
Accrued expenses 229,624 221,621
Unearned revenue 42,690 42,690
Shareholder loans 201,663 215,700
Notes payable, current portion 254,026 225,697
Line of credit 378,637 418,869
---------------------------------
Total Current Liabilities 1,195,409 1,190,464
---------------------------------
LONG-TERM LIABILITIES
Notes payable 82,976 94,668
---------------------------------
Total Liabilities 1,278,385 1,285,132
---------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 0.001 par value; 25,000,000
shares authorized, 2,343,788 and 2,278,661
shares issued and outstanding, respectively 2,344 2,279
Additional paid-in capital 847,114 801,590
Accumulated deficit (1,325,204) (1,128,672)
---------------------------------
Total Stockholders' Equity (Deficit) (475,746) (324,803)
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 802,639 $ 960,329
=================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 4
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
------------------------- --------------------------
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $1,021,544 $ 849,514 $ 469,301 $ 444,071
COST OF SALES 321,814 274,969 156,735 162,356
--------------------------------------------------------
GROSS MARGIN 699,730 574,545 312,566 281,715
--------------------------------------------------------
EXPENSES
Selling, general and administrative 704,936 820,691 344,326 418,357
Depreciation and amortization expense 36,016 6,496 18,008 3,248
--------------------------------------------------------
Total Expenses 740,952 827,187 362,334 421,605
--------------------------------------------------------
INCOME (LOSS) BEFORE OTHER
EXPENSES (41,222) (252,642) (49,768) (139,890)
--------------------------------------------------------
OTHER EXPENSES
Interest expense (144,451) (82,106) (83,135) (46,852)
Bad debt expense (10,859) (12,458) (5,396) (3,881)
--------------------------------------------------------
Total Other Expenses (155,310) (94,564) (88,531) (50,733)
--------------------------------------------------------
LOSS BEFORE INCOME TAXES (196,532) (347,206) (138,299) (190,623)
PROVISION FOR INCOME TAXES - - - -
--------------------------------------------------------
NET LOSS $ (196,532) $ (347,206) $ (138,299) $ (190,623)
========================================================
BASIC LOSS PER SHARE $ (0.17) $ (0.33) $ (0.24) $ (0.36)
========================================================
FULLY DILUTED LOSS PER SHARE $ (0.17) $ (0.33) $ (0.24) $ (0.36)
========================================================
BASIC WEIGHTED AVERAGE SHARES 1,155,613 1,051,030 577,806 525,515
========================================================
FULLY DILUTED WEIGHTED
AVERAGE SHARES 1,155,613 1,051,030 577,806 525,515
========================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 5
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional Stock
---------------------- Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,018,333 $ 2,018 $ 730,369 $ (30,000) $ (695,768)
Common stock issued for cash 4,785 5 18,495 - -
Receipt of stock subscription - - - 30,000 -
Common stock issued for
services and interest 255,543 256 52,726 - -
Net loss for the year ended
December 31, 1998 - - - - (432,904)
------------------------------------------------------------------------
Balance, December 31, 1998 2,278,661 2,279 801,590 - (1,128,672)
Common stock issued for
debt conversion (unaudited) 49,159 49 34,362 - -
Common stock issued for
interest (unaudited) 15,968 16 11,162 - -
Net loss for the six months
ended June 30, 1999
(unaudited) - - - - (196,532)
------------------------------------------------------------------------
Balance, June 30, 1999
(unaudited) 2,343,788 $ 2,344 $ 847,114 $ - $(1,325,204)
========================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 6
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
------------------------- --------------------------
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (196,532) $ (347,206) $ (138,299) $ (190,623)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Common stock issued for interest expense 11,178 30,961 11,178 30,961
Depreciation and amortization 36,016 6,496 18,008 3,248
Bad debt expense 10,859 12,548 5,396 3,971
Change in Assets and Liabilities:
(Increase) decrease in accounts receivable 60,181 2,370 48,349 63,311
(Increase) decrease in deposits - (6,683) - -
(Increase) decrease in inventory 17,244 (14,500) 998 (539)
(Increase) decrease in prepaid expenses
and deferred charges - 5,225 - 5,225
Increase (decrease) in accounts payable 22,882 303 28,080 (13,278)
Increase (decrease) in accrued expenses 8,005 72,590 (20,623) 23,444
Increase (decrease) in unearned revenue - - (27,205) (4,400)
--------------------------------------------------------
Net Cash Provided (Used) by
Operating Activities (30,167) (237,896) (74,118) (78,680)
--------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets (9,420) (12,290) (2,360) -
--------------------------------------------------------
Net Cash (Used) by Investing Activities (9,420) (12,290) (2,360) -
---------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from sale of common stock - 48,500 - 7,000
Proceeds from notes payable 105,000 75,500 105,000 50,100
Proceeds from lines of credit 763,869 457,865 404,401 274,501
Payment on notes payable and line of credit (872,090) (308,650) (442,406) (264,849)
--------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities $ (3,221) $ 273,215 $ 66,995 $ 66,752
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 7
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
------------------------- --------------------------
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ (42,808) $ 23,029 $ (9,483) $ (11,928)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 62,057 83,911 28,732 118,868
--------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 19,249 $ 106,940 $ 19,249 $ 106,940
========================================================
SUPPLEMENTAL CASH FLOW
INFORMATION
CASH PAID FOR
Interest $ 115,693 $ 51,145 $ 59,256 $ 15,891
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for debt $ 34,411 $ - $ 34,411 $ -
Common stock issued for interest $ 11,178 $ 30,961 $ 11,178 $ 30,961
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 8
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1999 and
1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1998 audited
consolidated financial statements. The results of operations for the periods
ended June 30, 1999 and 1998 are not necessarily indicative of the operating
results for the full years.
Page 9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998.
NET SALES increased $25,230 or 5.68% over the comparable period a year
earlier. For such three month periods the increase was from $444,071 to
$469,301. The increase in net sales is due to additional contracts signed in the
course of doing normal business.
GROSS PROFIT increased 10.95% in the three months ended June 30, 1999 to
$312,566 from $281,715. Gross profit as a percentage of sales was 66.6% for the
second quarter of fiscal 1999 compared to 63.4% for the second quarter of fiscal
1998. The increase in percentage gross profit is mainly due to increased sales
in chemicals which the company has a higher percent of profit. Also, the Company
now controls the manufacturing of its main chemical, FIREXTRA 238 at a savings
of $12 per gallon. In addition, the Company is now pricing its products more
competitively.
OPERATING EXPENSES decreased to $362,334 for the three months ended June
30, 1999 from $421,605 for the three months ended June 30, 1998. The decrease in
operating expenses is primarily due to a decrease in payroll expenses from the
second quarter of 1998 to the second quarter of 1999. In 1998 the Company was
involved in a very large job at Beau Rivage in Biloxi, Mississippi which
resulted in a much larger payroll. The payroll for the entire Company for the
three months ended June 30, 1999 was $107,064 compared to $242,412 for the same
period in 1998. The decrease in payroll expenses in the second quarter 1999 was
significantly offset by a substantial increase in legal and accounting fees in
preparation for the Company going public. The legal and accounting fees for the
second quarter 1999 were $44,688 as compared to $1,112 for the second quarter
1998. There was also an increase in travel expenses associated with various
meetings with the attorneys and accountants in the same matter. Travel also
included trips for maintaining due diligence in future acquisitions in addition
to normal business trips to Louisiana and Florida, setting up the Florida
satellite office and sending crews to Florida and Louisiana for particular jobs.
The travel for the second quarter 1999 was $50,486 as compared to $26,371 for
the same period in 1998.
As a result of the foregoing factors, the Company had a NET LOSS of
$138,299 for the three months ended June 30,1999 as compared to a NET LOSS of
$190,623 for the three months ended June 30, 1998, a decrease of 27.45%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998.
NET SALES increased $172,030 or 20.25% for the six months ended June
30,1999 to $1,021,544 from $849,514 for the six months ended June 30, 1998. The
increase in net sales is attributable to a significant increase in overall
business. The sale of chemicals increased 46.92% for the six months ended June
30, 1999 from $130,048 for the six months ended June 30, 1998 to $191,065 for
the six months ended June 30, 1999. The firefilm jobs increased from $97,436 for
the six months ended June 30,1998 to $258,349 for the same period in 1999. That
is a 165.15% increase from 1998 to 1999. Our fabric treatment sales increased
136.54% in the six-month period for 1999 as compared to the same six-month
period in 1998. It was $87,598 for the six-months ended June 30, 1998 as
compared to $207,200 for the six months ended June 30, 1999. However, all of
these increases were significantly offset by a decrease in firestop sales due to
the completion of the Beau Rivage job prior to 1999. The firestop sales for the
six months ended June 30, 1999 were $283,698 as compared to $453,471 for the six
months ended June 30, 1998. That is a 59.84% decrease in those six-month periods
from 1998 to 1999. As a result of the foregoing factors, the NET SALES for the
company increased $172,030 for the six months ended June 30, 1999 as compared to
the six months ended June 30, 1999 as compared to the six months ended June 30,
1998.
GROSS PROFIT increased 21.79% in the six months ended June 30, 1999 to
$669,730 from $574,545. Gross profit as a percentage of sales was 68.5% for the
first half of 1999 as compared to 67.6% for the first half of fiscal 1998. This
increase is primarily due to the increase in net sales, as the cost of sales
remained consistent as a percentage for the two periods. Also, the Company now
controls the manufacturing of its main chemical, FIREXTRA 238 at a savings of
$12 per gallon. In addition, the Company is now pricing its products more
competitively.
OPERATING EXPENSES decreased to $740,952 for the six months ended June 30,
1999 from $827,187 for the six months ended June 30, 1998. This decrease was
primarily due to the decrease in payroll expenses from 1998 to 1999, which was
caused by the completion of the Beau Rivage job later in 1998.
Page 10
<PAGE>
The payroll expenses decreased $221,821 from the first half of the fiscal year
1998 to the first half of fiscal year 1999. They were $226,738 in the six months
ended June 30, 1999 as compared to $448,559 for the six months ended June 30,
1998. This decrease was significantly offset by an increase in various
categories, including:
%
EXPENSE INCREASE
-------------------------------------------
Accounting and Legal 636.1%
Advertising 255.8%
Travel 58.4%
Interest 56.6%
The accounting and legal expenses are directly related to the Company
preparing to go public. The interest increase is due to the use of factoring and
additional interest on loans received by the Company to assist in cash flow. The
travel increase is because of the number of meetings with the attorneys and
accountants in preparation for the Company going public in addition to the other
reasons stated above. The advertising has increased in an effort to better
publicize the Company to a larger market.
As a result of the foregoing factors, the Company had a NET LOSS of
$196,532 for the six months ended June 30, 1999 as compared to a NET LOSS of
$347,206 for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for funds are to provide working capital
associated with forecasted growth in sales volume. Specifically, funds are
required to provide materials and manpower required for larger contracts which
the Company has been signing beginning in July of 1999. Working capital for the
six months ended June 30, 1999 was funded primarily through the sale of accounts
receivable and proceeds from private lenders.
Net cash provided by operating activities was ($30,167) for the six months
ended June 30, 1999 as compared to ($237,896) for the six months ended June 30,
1998. This substantial change is due in large part to the significant decrease
in the NET LOSS of $150,674. A significant part of the loss in the second
quarter of fiscal 1998 was because an employee purposefully set out to undermine
the Company for his own reasons and then left for a competitor.
Net cash provided by financing activities for the six months ended June 30,
1999 was ($3,221) compared to $273,215 during the six months ended June 30,
1998. The first half of fiscal 1999 included $105,000 proceeds from the notes
payable and $763,869 from lines of credit. The repayment of the notes payable
and lines of credit offset these amounts. For the first half of fiscal 1998,
$48,500 was provided from issuance of capital stock. No such issuance occurred
in the first half of fiscal 1999.
The Company holds a patent on a new product that is just coming into the
marketplace, and proprietary rights on several of its fire-retardant chemicals.
The Company will engage in a research and development program, and is now
searching for a chemist to head the program.
CAUTIONARY FORWARD -LOOKING STATEMENT
- -------------------------------------
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (i) the extremely competitive conditions that
currently exist in the three dimensional software development marketplace are
expected to continue, placing further pressure on pricing which could adversely
impact sales and erode profit margins; (ii) many of the Company's major
competitors in its channels of distribution have significantly greater financial
resources than the Company; and (iii) the inability to carry out marketing and
sales plans would have a materially adverse impact on the Company's projections.
The foregoing list should not be construed as exhaustive and the Company
disclaims any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
Page 11
<PAGE>
YEAR 2000 ISSUES
- ----------------
Year 2000 Issues - Uncertainty Of The Effects Of The Year 2000 On Computer
Programs And Systems. The "year 2000" issue concerns the potential exposure
related to the possible automatic generation of business and financial
misinformation resulting from the application of computer programs which have
been written using two digits, rather than four, to define the applicable year
of business transactions. When the year 2000 begins, programs with such
date-related logic will not be able to distinguish between the years 1900 and
2000, potentially causing software and hardware to fail, generating erroneous
calculations or presenting information in an unusable format. The Company is
dependent on multiple computer servers and the third-party computer programs
running on them to provide data in support of its accounting and administrative
functions. The Company's plan for year 2000 compliance includes the following
phases: (i) conducting a comprehensive inventory of the Company's internal
systems, including information technology systems and non-information technology
systems and the systems acquired or to be acquired by the Company from third
parties, (ii) assessing and prioritizing any required changes, upgrades, or
enhancements, (iii) resolving any problems by repairing or, if appropriate,
replacing the non-compliant systems, (iv) testing all remediated systems for
Year 2000 compliance and (v) developing contingency plans that may be employed
in the event that any system used by the Company is unexpectedly affected by a
previously unanticipated problem relating to the Year 2000. In recognition of
the potential year 2000 problem, the Company has begun a program to replace any
of its existing communications, engineering and accounting software that is not
year 2000 compliant with new software that is warranted by its vendors as being
year 2000 compliant. It is anticipated that the costs of such replacement will
not be material. The Company has relationships with various third parties on
whom it relies to provide goods and services necessary for the manufacture and
distribution of its products. These include suppliers and vendors. As part of
its determination of year 2000 readiness, the Company has identified material
relationships with third party vendors and is in the process of assessing the
status of their compliance through the use of informal inquiries and review of
hardware and software documentation. The components to be purchased by the
Company in connection with the manufacture of its products are generally
available through numerous independent sources. Due to the broad diversification
of these sources, the risk associated with potential business interruptions as a
result of year 2000 non-compliance by one or more sources is not considered
significant. It is anticipated that the steps the Company has taken and is
continuing to take to deal with the year 2000 problem will reduce the risk of
significant business interruptions, but there is no assurance that this outcome
will be achieved. Failure to detect and correct all internal instances of
non-compliance or the inability of third parties to achieve timely compliance
could result in the interruption of normal business operations which could,
depending on its duration, have a material adverse effect on the Company.
RISK FACTORS
- ------------
FUTURE CAPITAL REQUIREMENTS; UNCERTAININTY OF FUTURE FUNDING. The Company's
plan of operation calls for additional capital to facilitate growth and support
its long-term development and marketing programs. It is likely that the Company
would need to seek additional financing through subsequent future public or
private sales of its securities, including equity securities. The Company may
also seek funding for the development and marketing of its products through
strategic partnerships and other arrangements with investment partners. There
can be no assurance, however, that such collaborative arrangements or additional
funds will be available when needed, or on terms acceptable to the Company, if
at all. Any such additional financing may result in significant dilution to
existing stockholders. If adequate funds are not available, the Company may be
required to curtail one or more of its future programs.
PATENTS AND PROPRIETARY RIGHTS. The Company relies on patents, contractual
rights, trade secrets, trademarks, and copyrights to establish and protect its
proprietary rights in its products and its components. The Company has patented
the technology that is incorporated into its products and believes that, since
it is a technology patent, competitors will have a more difficult time
developing products functionally similar to the Company's. To further protect
its products, the Company will apply for additional patents for its inventions
and for non-commercial available components designed and developed by the
Company that are integral to product performance. The Company intends to closely
monitor competing product introductions for any infringement of the Company's
proprietary rights. The Company believes that, as the demand for products such
as those developed by the Company increases, infringement of intellectual
property rights may also increase. If infringement of the Company's proprietary
rights is by industry competitors, they have substantially greater financial,
technical, and legal resources than the Company which could adversely affect the
Company's ability to defend its rights. In addition, the Company could incur
substantial costs in defending its rights.
Page 12
<PAGE>
DEPENDENCE ON KEY EMPLOYEES. Historically, the Company has been heavily
dependent on the ability of Bruce E. Raidl, to contribute essential technical
and management experience. In the event of future growth in administration,
marketing, manufacturing and customer support functions, the Company may have to
increase the depth and experience of its management team by adding new members.
The Company's success will depend to a large degree upon the active
participation of its key officers and employees. Loss of services of any of the
current officers and directors could have a significant adverse effect on the
operations and prospects of the Company. There can be no assurance that it will
be able to employ qualified persons on acceptable terms to replace officers that
become unavailable.
NEED FOR ADDITIONAL SPECIALIZED PERSONNEL. Although the management of the
Company is committed to the business and continued development and growth of the
business, the additional of specialized key personnel and sales persons to
assist the Company in its expansion of its national operations will be
necessary. There can be no assurance that the Company will be able to locate and
hire such specialized personnel on acceptable terms.
COMPETITION. There are numerous corporations, firms and individuals which
are engaged in the type of business activities in which the Company is presently
engaged. Many of those entities are more experienced and possess substantially
greater financial, technical and personnel resources than the Company. While the
Company hopes to be competitive with other similar companies, there can be no
assurance that such will be the case.
VOTING CONTROL. Due to the joint ownership of a majority of the shares of
the Company's outstanding common stock by Angela M. Raidl and her brother Bruce
Raidl, collectively, these individuals have the ability to elect all of the
Company's directors, who in turn elect all executive officers, without regard to
the votes of other stockholders.
ABILITY TO MAINTAIN ADEQUATE INVENTORY LEVELS. The size of the fire
retardant and fire protection markets and need to maintain adequate inventories
with regard to such products could force the Company into implementing
additional manufacturing and warehousing programs. There can be no assurance
that the Company will have the necessary capital resource or man power to
implement such manufacturing and warehousing programs.
DEPENDENCE ON ABILITY TO MARKET PRODUCTS AND SERVICES. Due to the Company's
limited resources, the sales and marketing of the Company's products has been
limited to date. The success of the Company is dependent upon its ability to
market and sell the products and services of the Company with such limited
resources.
RISKS OF "PENNY STOCKS." The Company's common stock may be deemed to be
"penny stock" as that term is defined in Reg. Section 240.3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks (i) with a price of
less than five dollars per share; (ii) that are not traded on a "recognized"
national exchange; (iii) whose prices are not quoted on the NASDAQ automated
quotation system (NASDAQ-listed stocks must still meet requirement (i) above);
or (iv) of an issuer with net tangible assets less than US$2,000,000 (if the
issuer has been in continuous operation for at least three years) or
US$5,000,000 (if in continuous operation for less than three years), or with
average annual revenues of less than US$6,000,000 for the last three years.
Section 15(g) of the 1934 Act and Reg. Section 240.15g-2 of the Commission
require broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential investors in
the Company's common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Moreover, Reg. Section 240.15g-9 of the Commission requires broker-dealers
in penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in the Company's
common stock to resell their shares to third parties or to otherwise dispose of
them.
Page 13
<PAGE>
NO MARKET FOR COMMON STOCK. Although the Company intends to submit for
quotation of its common stock on the OTC Bulletin Board of the NASD following
the effectiveness of this registration statement, and to seek a broker-dealer to
act as market maker for its securities (without the use of any consultant),
there is currently no market for such shares, there have been no discussions
with any broker-dealer or any other person in this regard, and no market maker
has been identified; there can be no assurance that such a market will ever
develop or be maintained. Any market price for shares of common stock of the
Company is likely to be very volatile, and numerous factors beyond the control
of the Company may have a significant effect. In addition, the stock markets
generally have experienced, and continue to experience, extreme price and volume
fluctuations which have affected the market price of many small capital
companies and which have often been unrelated to the operating performance of
these companies. These broad market fluctuations, as well as general economic
and political conditions, may adversely affect the market price of the Company's
common stock in any market that may develop.
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
Alman v. AFRC Florida
---------------------
The Company was involved in litigation in the calendar year 1997. The
Company's former subsidiary, AFRC Florida was a party defendant in the matter
Allen E. Alman and Phyllis S. Alman v. American Fire Retardant Corporation of
Florida and Stephen F. Owens, Dade County Florida, Case No. 97-7203 CA 09. The
matter was a dispute over the terms of a Stock Purchase Agreement entered into
in September 1993 with regard to the purchase by AFRC Florida of all the stock
and assets of Apco Equipment Sale Corporation dba Thoro-Sheen Company. This
matter was resolved in July 1997 wherein AFRC Florida and Mr. Owens agreed to
pay to Mr. And Mrs. Almans the total sum of $51,550, payable $5,775.00 on or
before July 15, 1997, $5,775.00 on or before August 30, 1997 and the balance of
$40,000 in installments of $1,800.00 per month for 24 months commencing on
September 30, 1997, until paid in full. To date the Company has made all
payments in a timely manner pursuant to the terms of the Joint Stipulation.
Halvelin v. AFRC
----------------
The Company is a party defendant in the matter of Havelin v. American Fire
Retardant Corporation, United States District Court, Southern District of
Mississippi, Case No. 1-99CV156GR. The Plaintiff, Jennifer L. Havelin is suing
the Company alleging that the Company discriminated against the Plaintiff
because of Plaintiff's sex, a female. The Plaintiff originally filed a claim
with Equal Employment Opportunity Commission ("EEOC") in May 15, 1998 alleging
discrimination and that Plaintiff had been laid off because she was a female. On
January 29, 1999 the EEOC dismissed Plaintiffs claim as being without merit.
This action arises from the same facts set forth by Plaintiff in her claim with
the EEOC and the Company believes that the Company will prevail on the merits of
this action. Further, pursuant to Title VII the Plaintiff had 90 days (i.e.
until May 1, 1999) to file a lawsuit in Federal Court with regard to this
matter. The Plaintiff filed her action beyond the prescribed time period.
Delinquent Payroll Taxes
------------------------
The Company owes the Internal Revenue Service $219,582 for prior delinquent
payroll taxes by the Company's former subsidiaries, AFRC Florida and AFRC
Louisiana. These payroll taxes became delinquent starting in the 3rd quarter of
1997 through the 4th quarter of 1998. The total delinquent payroll tax
liabilities are $101,403 attributed to AFRC Florida and $118,178 attributed to
AFRC Louisiana. The Company has retained the tax counsel of Royston & Hebert in
Lafayette, Louisiana to represent the Company before the Internal Revenue
Service and the Company is currently submitting an Offer and Compromise work-out
agreement to obtain a substantial reduction of the outstanding payroll tax
balance due. The Company has since kept current with all present payroll and
other tax obligations.
With the exception of the legal proceedings and tax matter set forth above,
the Company is not presently a party to any litigation, claim, or assessment.
Further, the Company is unaware of any unasserted claim or assessment, which
will have a material effect on the financial position or future operations of
the Company.
Item 2. Changes in Securities.
Not required.
Item 3. Defaults Upon Senior Securities.
Not required.
Page 14
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On June 1, 1999, a majority of the shareholders pursuant to Section
78.320(2) of the Nevada Revised Statutes voting in favor of Restating the
Company's By-laws. A copy of said By-laws are incorporated herein by reference.
See Exhibit list.
Item 5. Other Information.
On June 4, 1999, the Company filed a Registration Statement on Form 10-SB
in order to register the Company's common stock, $0.01 par value pursuant to
Section 12(g) of the Securities Exchange Act of 1934. The Registration Statement
on Form 10-SB as filed with the Securities and Exchange Commission is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits attached or incorporated by referenced pursuant to
Item 601 of Regulation S-B.
(2) 2.1(a) Certificate of Merger from the State of Wyoming
regarding Merger AFRC Louisiana with and into AFRC Wyoming
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
2.1(b) Certificate of Merger from the State of Louisiana
regarding Merger of AFRC Louisiana with and into AFRC
Wyoming. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
2.1(c) Articles of Merger regarding Merger of AFRC Louisiana
with and into AFRC Wyoming. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
2.1(d) Acquisition Agreement and Plan of Merger regarding
Merger of AFRC Louisiana with and into AFRC Wyoming.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
2.2(a) Certificate of Merger from the State of Florida
regarding Merger of AFRC Florida with and into AFRC
Wyoming.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
2.2(b) Certificate of Merger from the State of Wyoming
regarding Merger of AFRC Louisiana with and into AFRC
Wyoming. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
2.2(c) Florida Articles of Merger regarding Merger of AFRC
Louisiana with and into AFRC Wyoming.(Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
2.2(d) Wyoming Articles of Merger regarding Merger of AFRC
Louisiana with and into AFRC Wyoming.(Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
2.2(e) Acquisition Agreement and Plan of Merger regarding
Merger of AFRC Florida with and into AFRC Wyoming.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
2.3(a) Articles of Merger regarding Merger regarding Merger
of AFRC Wyoming with and into AFRC Nevada (the "Company") to
change the Domicile of the Company. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
2.3(b) Acquisition Agreement and Plan of Merger regarding
Merger of AFRC Wyoming with and into AFRC Nevada (the
"Company") to change the Domicile of the Company.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
Page 15
<PAGE>
(3) 3.1 Articles of Incorporation of American Fire Retardant
Corp. filed on January 20, 1998. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
3.2 Restated By-laws of American Fire Retardant Corp.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
3.3 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Florida. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.4 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Louisiana. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.5 Statement and Designation of American Fire Retardant
Corp., as a Foreign Corporation in California. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.6 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Colorado. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.7 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Mississippi.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
(10) 10.1(a) Letter of Intent Between American Fire Retardant
Corp., and Fabritek Industries, LLC. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.1(b) Amendment to Letter of Intent Between American Fire
Retardant Corp., and Fabritek Industries, LLC. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
10.2 Royalty Agreement between American Fire Retardant
Corp., and Norman O. Houser. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.3 Sale, Assignment and Assumption Agreement between
American Fire Retardant Corp. and Patrick L. Brinkman with
regard to the purchase of manufacturing rights to De-Fyre
X-238.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(a) Merchant Service Agreement between American Fire
Retardant Corp. and St. Martin Bank. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(b) St. Martin Bank $100,090 Promissory Note Dated March
11, 1997.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
Page 16
<PAGE>
10.4(c) Edward E. Friloux Commercial Guaranty to St. Martin
Bank re:$100,090 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(d) Stephen F. Owens Commercial Guaranty to St. Martin
Bank re:$100,090 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(e) Angela M. Raidl Commercial Guaranty to St. Martin
Bank re:$100,090 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(f) St. Martin Bank $250,000 Promissory Note Dated May
21, 1998.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(g) St. Martin Bank Business Loan Agreement Dated August
18, 1998. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(h) St. Martin Bank $172,725.73 Promissory Note Dated
August 18, 1998. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.4(i) Edward E. Friloux Commercial Guaranty to St. Martin
Bank re:$172,725.73 Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(j) Stephen F. Owens Commercial Guaranty to St. Martin
Bank re: $172,725.73 Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(k) Angela M. Raidl Commercial Guaranty to St. Martin
Bank re: $172,725.73 Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(l) St. Martin Bank Commercial Pledge Agreement re:
$172,725.72 Promissory Note. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.4(m) St. Martin Bank Pledge of Collateral Mortgage Note
re: $172,725.72 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(n) St. Martin Bank Agreement to Provide Insurance re:
$172,725.72 Promissory Note. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.4(o) St. Martin Bank - Collateral Mortgage re:
$172,725.72 Promissory Note. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.4(p) St. Martin Bank - $54,059.29 Promissory Note Dated
February 4, 1999. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.5(a) Private Capital, Inc. - Purchase and Security
Agreement Dated April 17, 1997. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.5(b) Private Capital, Inc. - Angela M. Raidl Continuing
Guaranty & Waiver. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
Page 17
<PAGE>
10.5(c) Private Capital, Inc. - Stephen F. Owens and Edward
E. Friloux Continuing Guaranty & Waiver. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.6(a) Bank of Erath $15,030 Promissory Note Dated June 16,
1997. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.6(b) Bank of Erath of Loan Extension Agreement Dated
October 20, 1998.(Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.7 American Fire Retardant Corp. - El Cajon, California
Industrial Lease. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.8(a) Whitney Bank - $74,400 Secured Promissory Note.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.8(b) Whitney Bank - Collateral Mortgage, Security
Agreement and Assignment of Leases and Rents. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
10.9 American Fire Retardant Corp. - Standard Lease for
Louisiana Corporate Apartment. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.10 Oil, Gas & Mineral Lease with Penwell Energy Inc.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.11(a) Whitney National Bank - $42,888.46 Promissory Note.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.11(b) Whitney National Bank - Security Agreement.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.12 Presidio Capital Consulting Agreement. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
10.13 Warren Guidry Letter Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.14(a) Agreement with Richard Rosenberg. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.14(b) Amendment to Agreement with Richard Rosenberg.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.14(c) Richard Rosenberg - $43,134.39 Promissory Note.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
(27) Financial Data Schedule
27.1. Financial Data Schedule (submitted electronically for
SEC information only).
Page 18
<PAGE>
(b) There were no other reports on Form 8-K filed during the period covered
by this report.
The following Exhibit Index sets forth the Exhibit attached hereto.
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
NONE
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN FIRE RETARDANT CORP.
A Nevada Corporation
Date: August 13, 1999 /S/ Stephen F. Owens
---------------------------------------
By: Stephen F. Owens
Its: President
Date: August 13, 1999 /S/ Angela M. Raidl
---------------------------------------
By: Angela M. Raidl
Its: Vice President, Chief Financial
Officer, Secretary
Page 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,249
<SECURITIES> 0
<RECEIVABLES> 401,261
<ALLOWANCES> 0
<INVENTORY> 123,251
<CURRENT-ASSETS> 543,761
<PP&E> 189,306
<DEPRECIATION> 0
<TOTAL-ASSETS> 802,639
<CURRENT-LIABILITIES> 1,195,409
<BONDS> 0
0
0
<COMMON> 2,344
<OTHER-SE> (478,090)
<TOTAL-LIABILITY-AND-EQUITY> 802,639
<SALES> 1,021,544
<TOTAL-REVENUES> 1,021,544
<CGS> 321,814
<TOTAL-COSTS> 740,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (144,451)
<INCOME-PRETAX> (196,532)
<INCOME-TAX> 0
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<NET-INCOME> (196,532)
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