<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission file number 0-30474
American Group, Inc.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
88-0326984
---------------------------------
(IRS Employer Identification No.)
10570 Hagen Ranch Road, Boynton Beach, FL 33437
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(Address of principal executive offices)
561-732-4116
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ( )
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of January 8, 2001 the
registrant had issued and outstanding 985,750 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Condensed Consolidated Balance Sheet at
November 30, 2000 (unaudited) 2
Condensed Consolidated Statements of Operations
for the three and six months ended November 30, 2000
and 1999 (unaudited) 3-4
Condensed Consolidated Statements of Cash Flow for
the six months ended November 30, 2000
and 1999 (unaudited) 5-6
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 7 - 8
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AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
November 30, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 9,985
Accounts receivable, less allowance for doubtful accounts
of $10,000 218,830
Inventory 105,852
------------
Total current assets 334,667
Property, plant and equipment, net of accumulated
depreciation of $434,641 2,954,619
Other assets:
Equipment deposit 936,555
Goodwill, net 1,722,025
Other 73,537
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$ 6,021,403
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 927,776
Convertible debt 768,283
Current portion of capital lease obligation payable 26,705
Accrued interest payable 150,089
Accounts payable and accrued expenses 743,978
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Total current liabilities 2,616,831
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Long term liabilities:
Long term debt less current portion 1,111,696
Long term capital lease obligation less current portion 28,683
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1,140,379
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Stockholders' equity:
Preferred stock, $.001 par value, 9,991,000 authorized;
no shares issued and outstanding $ -
Preferred stock, Series C, $.001 par value, 9,000 authorized;
5,600 issued and outstanding 6
Common stock, $.001 par value, 50,000,000 shares authorized,
985,750 shares issued and outstanding 986
Additional paid-in capital 8,228,083
Comprehensive income 8,497
Accumulated deficit (5,973,379)
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Total stockholders' equity 2,264,193
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$ 6,021,403
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
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AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
November 30, November 30,
2000 1999
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenue $ 979,686 $ 833,993
Cost of sales 1,052,180 757,767
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Gross profit (loss) (72,494) 76,226
Selling, general and administrative expenses (including
non-cash stock compensation of $1,218,472) 822,852 269,753
---------- ----------
Operating loss (895,346) (193,527)
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Other income (expenses):
Interest expense (173,891) (38,922)
Interest income 209 351
Other income -- 102
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(173,682) (38,469)
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Net loss $(1,069,028) $(231,996)
Preferred stock dividends 18,000 --
---------- ----------
Net loss available to
common stockholders $(1,087,028) $(231,996)
========== ==========
Net loss per share, basic and fully diluted $(1.08) $(0.24)
========== ==========
Weighted average shares outstanding 985,750 960,750
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
November 30, November 30,
2000 1999
-------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue $1,842,537 $1,406,134
Cost of sales 1,959,831 1,336,168
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Gross profit (loss) (117,294) 69,966
Selling, general and administrative expenses (including
non-cash stock compensation of $618,128) 1,812,597 400,682
---------- ----------
Operating loss (1,929,891) (330,716)
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Other income (expenses):
Interest expense (322,236) (67,954)
Interest income 718 12,895
Other income -- 106
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(321,518) (54,953)
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Net loss $(2,251,409) $(385,669)
Preferred stock dividends 18,000 --
---------- ----------
Net loss available to
common stockholders $(2,269,409) $(385,669)
========== ==========
Net loss per share, basic and fully diluted $(2.30) $(0.41)
========== ==========
Weighted average shares outstanding 979,569 935,832
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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AMERICAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
November 30, November 30,
2000 1999
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,251,409) ($385,669)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 313,858 21,287
Issuance of common stock for services and interest 1,274,732 --
Changes in assets and liabilities
Accounts receivable (110,812) (82,900)
Other receivables -- 101,987
Inventory 1,784 19,970
Other assets (44,529) --
Accounts payable and accrued expenses 224,396 183,149
----------- ----------
Net cash used in operations (591,980) (142,176)
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Cash flows from investing activities:
Cash used in business acquisition, net of cash acquired -- (397,520)
Deposit on new equipment (261,079) (123,000)
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Net cash used by investing activities (261,079) (520,520)
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Cash flows from financing activities:
Proceeds from notes payable and long term debt 326,669 490,000
Payments on loans payable (48,357) (52,290)
Proceeds from sale of common and preferred stock 575,000 211,839
----------- ----------
Net cash provided by financing activities 853,312 649,549
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Net increase in cash 253 (13,147)
Cash at beginning of year 9,732 13,397
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Cash at end of year $9,985 $250
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $55,045 $67,954
=========== ==========
Cash paid during the year for taxes $0 $0
=========== ==========
</TABLE>
Continued
5
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Non-Cash Supplementary Information:
On August 15, 1999 the Company issued 35,000 shares of common stock in
connection with the acquisition of Torland.
On June 13, 2000 the Company issued 2,400 shares of Series B preferred stock to
the existing Series A preferred stockholder in exchange for the outstanding
Series A preferred stock and $456,928 in notes and accrued interest due to the
stockholder. One June 13, 2000 the Company issued 959 shares of Series B
preferred stock to an individual in exchange for $766,875 in notes and accrued
interest due to the individual. The Series B preferred stock had a stated value
of $800.
On July 9, 2000 the Company issued 15,000 shares of stock at $3.80 (market
value)and recorded $57,000 of expense in exchange for a loan extension on
certain indebtedness.
On October 24, 2000 the Company issued 2,400 shares of Series C preferred stock
to the existing Series B preferred stockholder in exchange for the outstanding
Series B preferred stock. On October 24, 2000 the Company issued 2,000 shares of
Series C preferred stock to an individual in exchange for 1,677 shares of
outstanding Series B preferred stock. On October 24, 2000 the Company issued 800
shares of Series C preferred stock to Limited Partnership in exchange for
$600,000 of convertible debt.
On November 30, 2000 the Company issued 400 shares of Series C preferred stock
to an individual for a release of an unasserted claim.
The accompanying notes are an integral part of these financial statements
6
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AMERICAN GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
November 30, 2000
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10-QSB and
Article 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. The preparation requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results may differ from these estimates. 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 month period ended November 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2001.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended May 31, 2000 as filed with the Securities and Exchange
Commission.
Note 2 - Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company's continued
existence is dependent upon its ability to resolve its liquidity problems,
principally by obtaining equity capital and commencing profitable operations.
During the interim, the Company must continue to operate on cash flows generated
from loans, raising capital and internally generated cash flow. The Company
experienced a loss of $2,251,409 for the six months ended November 30, 2000, and
has a negative working capital of $2,282,164 at November 30, 2000. In addition,
various notes payable are delinquent or in default. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are to raise capital,
become profitable by integrating its operations with Torland, and increase
efficiency by relocating its operations to a new facility in Homestead, Florida,
near its customer base. The Company plans, upon integration with Torland, to
begin utilizing the new facility, and management believes operating costs will
decrease due to the efficiencies of the new facility. Management believes these
efforts will generate positive cash flow. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Note 3 - Stockholders' Equity
On October 26, 2000, the Company designated 9,000 shares of convertible
preferred stock as Series C which has a stated value of $800 per share. The
holders of the Series C preferred stock are entitled to receive dividends at the
rate of 5% per annum payable semi-annually, in arrears. The dividends may be
paid in cash, or by the in-kind payment of common stock. Payment of dividends in
cash can only be paid if the Company has earnings. The preferred stock may be
converted into a quantity of shares of the then outstanding common stock of the
Company that, after conversion, equal 90% of the then outstanding common stock
on the day immediately prior to the conversion, and each share of preferred
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stock is convertible into its pro rata quantity of common stock of the Company.
The calculation is made based as if the total original issue quantity of shares
of the preferred stock is being converted in each occurrence of conversion.
Concurrent with the designation of the Series C preferred stock, the
Company issued 2,400 shares of the Series C preferred stock to MJ Shulman, Inc.
in exchange for 2,400 shared of the Series B preferred stock.
Concurrent with the designation of the Series C preferred stock, the
Company issued 2,000 shares of the Series C preferred stock to an individual in
exchange for 1,677 shared of the Series B preferred stock.
Concurrent with the designation of the Series C preferred stock, the
Company issued 800 shares of the Series C preferred stock to a limited
partnership in exchange for $600,000 of convertible debt.
On October 24, 2000 the Company entered into a total of $643,283 of
promissory notes, with interest at 10%, interest and principal due in full on
March 31,2001. The notes were issued in exchange for notes outstanding in
similar amounts. The entire unpaid principal balance and all unpaid accrued
interest owing, together with all other charges, if any, on these notes, at the
sole discretion of the Company, may be paid by either (i) cash or (ii)
conversion into common stock of the Company at a conversion price of $.25 per
share.
On November 30, 2000 the Company issued 400 shares of the Series C
preferred stock to an individual for a release of an unasserted claim an
expensed $320,000. Concurrent with the issuance the Company and its president
guaranteed an obligation to the same individual for approximately $352,000
undertaken by an officer of the Company. The guarantee is removed pro rata with
the individual's proceeds from the 400 shares of the Series C preferred stock.
Note 4 - Long Term Debt
On January 18, 2001, the Company entered into an agreement with the
former Torland Stockholders to restructure the terms of the existing $835,000
promissory note whereby the unpaid principal and accrued interest will be
payable as follows: $50,000 due on February 28, 2001, $50,000 due on July 31,
2001, $100,000 due on December 31, 2001 and the balance in 60 annual payments of
principal and interest beginning February 1, 2002. Interest shall accrue at the
rate of 8% until the note is paid in full. Consequently $821,283 of the note
is shown as long term debt and the balance is short term debt.
Item 2. Management's Discussion and Analysis or Plan or Operation.
Forward-looking Statement and Information
The Company is including the following cautionary statement in this Form 10-QSB
for any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performance and underlying
assumptions and other statements which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitations, management's examination of historical operating trends,
data contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following is an important
factor that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to obtain acceptable forms and amounts of financing to fund
planned acquisitions and the new facility in Homestead.
Introduction
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems, principally by obtaining equity capital and commencing
profitable operations. While pursuing equity capital, the Company must continue
to operate on cash flow generated from operations and financing activity. The
Company experienced a loss of $2,251,409 for the six months ended November 30,
2000 and has a negative working capital of $2,282,164. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are to raise capital, become
8
<PAGE>
profitable by integrating its operations with Torland and increase efficiency by
relocating its operations into a new state of the art soil blending facility
near Homestead, Florida, close to the major portion of its customer base.
Additionally, the Company plans, along with the integration with Torland, to
begin utilizing this state of the art soil blending plant, which management
believes will substantially decrease its operating costs. Management believes
these efforts will generate positive cash flow.
Six months Ended November 30, 2000 compared to for the six months ended
November 30, 1999
Revenues for the six months ended November 30, 2000 were $1,842,537 compared to
$1,406,134 for the six months ended November 30, 1999. The increase in sales can
be attributed to the inclusion of three full months of sales for Torland which
was acquired on August 15, 1999, and an increase in sales at LPS. Gross profit
(loss) margins as a percentage of revenues for the six months ended November 30,
2000 and 1999 were (6.3%) and 5.0%, respectively. The decrease in the gross
profit margin can be attributed to increased labor and material costs as a
percentage of sales. The Company's current facility is not adequate to handle
the volume of business currently in place. Due to the Company's poor cash flow
during the six months ended November 30, 2000, the Company was unable to avail
itself of any purchasing discounts that would have otherwise been available had
the Company been able to make commitments to purchase products in greater
amounts. The Company estimates that the price of material is 20% higher than the
price that could be obtained if the Company were able to take advantage of
volume price discounts. The Company is currently in the process of constructing
its facility in Homestead, Fla. to which it will move when completed. Operating
expenses for the six months ended November 30, 2000 and 1999 were $1,812,597 and
$400,682, respectively, consisting of selling, general and administrative
expenses. For the six months ended November 30, 2000 operating expenses include
a payment-in-kind of preferred stock of the Company valued at the stated value
of $800 per share which amounted to approximately $1,218,472. The net losses for
the six months ended November 30, 2000 and 1999 were $2,251,409 and $385,669,
respectively. The decrease is due to the deterioration of the Company's gross
profit margin during the first quarter of fiscal year 2001, the payment-in-kind
of preferred stock of the Company, and the issuance of 15,000 share of the
Company's common stock, valued at approximately $57,000 (market value), in
exchange for the retirement of certain warrants issued in connection with
convertible debt and the extension for payment of this debt.
Three months Ended November 30, 2000 compared to for the three months ended
November 30, 1999
Revenues for the three months ended November 30, 2000 were $979,686 compared to
$833,993 for the three months ended November 30, 1999. The increase in sales can
be attributed to an increase in sales at LPS. Gross profit (loss) margins as a
percentage of revenues for the three months ended November 30, 2000 and 1999
were (7.4%) and 9.1%, respectively. The decrease in the gross profit margin can
be attributed to increased labor and material costs as a percentage of sales.
The Company's current facility is not adequate to handle the volume of business
currently in place. Due to the Company's poor cash flow during the three months
ended November 30, 2000, the Company was unable to avail itself of any
purchasing discounts that would have otherwise been available had the Company
been able to make commitments to purchase products in greater amounts. The
Company estimates that the price of material is 20% higher than the price that
could be obtained if the Company were able to take advantage of volume price
discounts. The Company is currently in the process of constructing its
facility in Homestead, Fla. to which it will move when completed. Operating
expenses for the three months ended November 30, 2000 and 1999 were $822,852 and
$269,753, respectively, consisting of selling, general and administrative
expenses. For the three months ended November 30, 2000 operating expenses
include a payment-in-kind of preferred stock of the Company valued at the stated
value of $800 per share which amounted to approximately $618,128. The net losses
for the three months ended November 30, 2000 and 1999 were $1,069,028 and
$231,996, respectively. The decrease is due to the deterioration of the
Company's gross profit margin during the first quarter of fiscal year 2001 and
the payment-in-kind of preferred stock of the Company.
9
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At November 30, 2000, the Company had cash and cash equivalents of
$9,985, which was an increase of $253 compared to the cash held at May 31, 2000.
During the six months ended November 30, 2000, the Company used net cash for
operations of $591,980, which was primarily due to the Company's operating loss.
This was funded by additional borrowings and issuance of stock. In addition, the
Company had a working capital deficit of $2,282,164 at November 30, 2000.
Qualitative Discussion
The Company believes that LPS's present operations will require LPS
obtain additional capital during the next twelve months. One of the Company's
objectives for the next twelve months is to increase the capital base of LPS, so
that LPS can increase the scope of its operation with the construction of its
new soil blending facility, and to acquire additional soil blending capacity. It
is unknown at this time whether the Company will be successful in raising
capital on reasonable terms for the purpose of increasing the capital base of
LPS. The Company has been unable to meet its cash requirements for its current
operations through internal cash flow in the prior twelve months. These
requirements were only met by the additional sale of stock or borrowings. The
Company believes that LPS's cash requirements for LPS's current operations
during the next twelve months, excluding capital requirements for the
construction of its new soil blending facility, can be met through LPS's
internal cash flow from operations. The Company's other cash requirements would
be in connection with additional capital for LPS's growth, if any, in an amount
not yet determined. The Company must pay $835,000 in connection with the
acquisition of Torland.
Until such time as the operating results of the Company improve
sufficiently, the Company must obtain outside financing to fund the expansion of
the business and to meet the obligations of the Company as they become due. Any
additional debt or equity financing may be dilutive to the interests of the
shareholders of the Company. Such outside financing must be provided from the
sale of equity securities, borrowing, or other sources of third party financing
in order for the Company to expand its operations.Further, the sale of equity
securities could dilute the Company's existing stockholders' interest, and
borrowings from third parties could result in assets of the Company being
pledged as collateral and loan terms which would increase its debt service
requirements and could restrict the Company's operations. There is no assurance
that capital will be available from any of these sources, or, if available, upon
terms and conditions acceptable to the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
We have issued the following shares based upon an exemption from
registration pursuant to 4(2) of the Securities Act of 1933. No commissions
were paid.
On October 26, 2000, the Company designated 9,000 shares of convertible
preferred stock as Series C which has a stated value of $800 per share. The
holders of the Series C preferred stock are entitled to receive dividends at the
rate of 5% per annum payable semi-annually, in arrears. The dividends may be
paid in cash, or by the in-kind payment of common stock. Payment of dividends in
cash can only be paid if the Company has earnings. The preferred stock may be
converted into a quantity of shares of the then outstanding common stock of the
Company that, after conversion, equal 90% of the then outstanding common stock
on the day immediately prior to the conversion, and each share of preferred
stock is convertible into its pro rata quantity of common stock of the Company.
The calculation is made based as if the total original issue quantity of shares
of the preferred stock is being converted in each occurrence of conversion.
Concurrent with the designation of the Series C preferred stock, the
Company issued 2,400 shares of the Series C preferred stock to MJ Shulman, Inc.
in exchange for 2,400 shares of the Series B preferred stock.
Concurrent with the designation of the Series C preferred stock, the
Company issued 2,000 shares of the Series C preferred stock to an individual in
exchange for 1,677 shares of the Series B preferred stock.
Concurrent with the designation of the Series C preferred stock, the
Company issued 800 shares of the Series C preferred stock to a limited
partnership in exchange for $600,000 of convertible debt.
On October 24, 2000 the Company entered into a total of $643,283 of
promissory notes, with interest at 10%, interest and principal due in full on
March 31, 2001. The notes were issued in exchange for notes outstanding in
similar amounts. The entire unpaid principal balance and all unpaid accrued
interest owing, together with all other charges, if any, on these notes, at the
sole discretion of the Company, may be paid by either (i) cash or (ii)
conversion into common stock of the Company at a conversion price of $.25 per
share.
On November 30, 2000 the Company issued 400 shares of the Series C
preferred stock to an individual for a release of an unasserted claim.
Concurrent with the issuance the Company and its president guaranteed an
obligation to the same individual for approximately $352,000 undertaken by an
officer of the Company. The guarantee is removed pro rata with the individual's
proceeds from the 400 shares of the Series C preferred stock.
<PAGE>
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
10
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Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
No. Description
--- -----------
27 Financial Data Schedule (Electronic filing only).
(b) Reports on Form 8-K.
During the three months ended November 30, 2000 the Company did not
file any reports on Form 8-K.
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Group, Inc.,
a Nevada corporation
Date: January 19, 2001 By: /s/ Robert I. Claire
---------------------
Robert I. Claire,
President
12
