FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] 15, ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended: 12/31/96
---------
OR
[ ] 15,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: 0-14039
AMERICAN GENERAL VENTURES, INC.
---------------------------------------------------
(Exact name of Small Business Company in its charter)
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
NEVADA 11-2714721
------------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3650 AUSTIN BLUFFS PARKWAY SUITE 138
Colorado Springs, Colorado 80918
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code:
(719) 548-1616
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.001 par value
Check whether the Registrant (l) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
<PAGE>
The Company's revenues for its most recent fiscal year. $1,397,850.
As of December 31, 1996, the market value of the Company's voting $.001 par
value common stock held by non-affiliates of the Company was $499,770.
The number of shares outstanding of Company's only class of common stock, as of
December 31, 1996 was 9,200,000 shares of its $.001 par value common stock.
Check whether the Issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes x No
--- ---
No documents are incorporated into the text by reference.
Transitional Small Business Disclosure Format (check one) Yes No x
--- ---
2
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM l0-KSB
PART I
ITEM 1 BUSINESS
(a) General Development of Business
(a) (1) The original purpose of the Registrant was to seek potential
business ventures, which in the opinion of the management of the Registrant
would provide a profit for the Company. Such involvement would be either as
acquisition of existing businesses or the acquisition of assets to establish a
subsidiary business for the Company.
On January 22, l986, the Registrant signed a letter of intent with Aspen
Medical Diagnostics, Inc. and Neuro Medical, Inc., both Utah Corporations, to
acquire all of the stock of both of those companies in exchange for 1,000,000
shares of the common stock of the Registrant to the shareholders of each of the
acquired companies or a total of 2,000,000 shares. Both Companies acquired were
in the business of establishing medical diagnostic facilities.
On September 11, 1987, the Registrant acquired all of the stock of ACI
Micro Systems, Inc., a Colorado Corporation. ACI Micro Systems, Inc. was in the
business of manufacturing and selling micro computers.
In January 1991, the Registrant incorporated Your ATTACHE(C), a wholly
owned subsidiary. Your ATTACHE develops and sells licenses of powerful high
speed computer systems that provides a mutually beneficial communication and
interaction medium between suppliers and consumers. ATTACHE is not active and
had no revenues in 1996.
The Registrant has not been involved, during the year ended December 31,
l996, in any bankruptcy, receivership or similar proceedings.
(a)(2) Not applicable.
(b) Financial Information About Industry segments
The Registrant has engaged in a single line of business since September 11,
1987, when the Registrant acquired ACI Micro Systems. The Registrant engages in
the business of manufacturing computers, software development, computer related
training and sales of computers and computer accessories.
(C) Narrative Description of Business
(c)(1)(i) The Registrant on January 29, l986, acquired 100 percent of
outstanding stock of Neuro-Medical, Inc. (Neuro) and Aspen Medical Diagnostics,
Inc. (Aspen), both Utah corporations. The letter of intent for said purchase was
3
<PAGE>
executed on the 22nd day of January, l986. In exchange, the Registrant issued
1,000,000 of its restricted shares to the stockholders of Aspen and 1,000,000 of
its restricted shares to the stockholders of Neuro.
The business of Neuro and Aspen was to establish and operate neurological
diagnostic centers that provide diagnostic testing for physicians and others in
the medical community. The Registrant makes available to the medical community
the latest neurological testing and assessment equipment. The officers of the
Registrant for the past eight years have used the Brain Electrical Activity
Mapping System (BEAM) which was developed at Harvard University Medical School.
The officers of the Registrant selected the BEAM system because they believe
that this system represents a significant advancement over alternative equipment
and will greatly expand the effectiveness of neurological testing in the overall
treatment of patients. However, the technology has faced resistance from the
medical community which has had a negative impact upon the growth of the
Registrant. The Registrant ceased to operate its BEAM centers in 1993.
CURRENT OPERATIONS
The Registrant continues to operate ACI Micro Systems, Inc., (ACI), a
Colorado Corporation, that manufactures and sells computers and accessories. ACI
also provides computer training and software development and rentals.
In September 1995, ACI entered into an agreement with Goodwill Industries
of Colorado Springs and the State of Colorado to train 17 of their clients in
the Registrant's NewStart program. The Goodwill clients were unwed mothers on
welfare. The NewStart program is geared to identify and train welfare recipients
in a workplace environment to be computer assemblers. Upon successful completion
of the training course, the Registrant hires the trainee and removes them from
the welfare rolls. The Registrant plans to expand its NewStart program in other
cities and within private industry.
In August 1995, ACI received a national vendor number from Wal-Mart Stores,
Inc. authorizing the Registrant to sell computers and accessories in 1,989 of
their retail stores and 245 of their supercenters. One of the reasons Wal-Mart
agreed to purchase computers from the Registrant was because of its NewStart
program. The NewStart program trains welfare recipients to assemble computers
and ACI hires the successful trainee. The NewStart program reverses the trend of
the welfare recipient costing the government $14,000 a year to one who is
earning at least $15,000 per year and contributing to society. Wal-Mart is a
community oriented company with a philosophy to buy "Made in America" products.
The ACI computer uses non-integrated circuitry and tower-style cases with
extra bays that allows true upgradability. The ACI computer can grow with the
4
<PAGE>
consumer's needs. ACI provides local upgrades, service and tech support. As ACI
expands outside Colorado Springs, the Registrant plans to acquire or contract
with existing computer retail stores to provide upgrades, service and support
within the area of expansion.
By December 31, 1996, ACI had its product in 70 Wal-Mart retail stores in
Colorado, New Mexico, Kansas, Nebraska, Iowa, Oklahoma and Missouri.
ACI received a second vendor number from Wal-Mart Stores, Inc. allowing the
Company to sell its products through Wal-Mart's interactive world wide web site
(www.Wal-Mart.com). On June 26, 1997, ACI had seven lines of computer systems
available to be purchased through Wal-Mart's on-line server.
PROPOSED OPERATIONS
The Registrant through its wholly owned subsidiary ACI Micro Systems, Inc.
plans to concentrate it sells through Wal-Mart's world wide web site. ACI has
seven computer lines presently on Wal-Mart's web site and expects it will have a
"build your own computer" web page on-line through Wal-Mart by the end of July,
1997. ACI plans to expand into Wal-Mart's retail stores by selecting retail
outlets meeting specific demographics. The expansion is limited due the
Registrant's limited resources.
To increase its profit margins, the Registrant plans to acquire a computer
component distribution company. The distribution company should increase profit
margins on most computer components by eight to ten percent. A letter of intent
has been signed between ACI and Nextel Micro. The acquisition is to be completed
when sufficient funds have been raised by the Registrant. The Registrant is
attempting to raise short term capital through a 505 private placement.
THE ACI MICRO COMPUTER SYSTEMS
ACI Micro Systems, Inc., manufactures non-integrated circuitry computer
systems that allows true upgradability. ACI has a retail store and a
manufacturing plant in Colorado Springs, CO. By using three shifts the
manufacturing plant has the capacity of assembling 15,000 computers per month.
REVENUES
During the fiscal year ending December 31, 1996, the Registrant, through
its subsidiary, ACI, generated operating revenues of $1,397,850. In 1995, the
Registrant had $985,979 in operating revenues.
In 1996, the Registrant had revenues of $1,397,850 with a net loss of
($723,911) compared with a gain in 1995 of $120,381. The loss for 1996 yielded
($0.08) per share loss compared to a gain of $0.01 per share in 1995. Revenues
of $1,397,850 for 1996 were up 42 percent from the revenues in 1995 of $985,979.
5
<PAGE>
The increase in revenues was in part due to the sales of $975,940 to Wal-Mart
compared to sales of $255,000 in 1995 to Wal-Mart. Revenues are expected to
continue to increase into 1997 because of new marketing strategies in Wal-Mart's
retail outlets and, even more so, because the Registrant is now selling its
products through Wal-Mart's web site on the Internet.
(c)(1)(ii) Not applicable.
(c)(1)(iii) Not applicable.
(c)(1)(iv) Not applicable.
(c)(1)(v) The Registrant's business is not considered seasonal.
(c)(1)(vi) The Registrant's working capital of ($45,484) (current
assets less current liabilities) is not sufficient for
moderate growth. Major expansion will require additional
capital. The Registrant is pursuing several avenues to
obtain additional financing. The Registrant is presently
offering units of common shares and warrants of its stock
through a private placement. The Registrant has been given
assurance that an investor group with $83 million will
purchase its Wal-Mart purchase orders. Therefore capital for
inventory is not likely needed. The Registrant plans to use
the money it raises through the private placement for
general and administrative expenses, specifically salaries
and marketing, until profits from sales meet these needs.
(c)(1)(vii) Not applicable.
(c)(1)(viii) As of December 31, l996, the Registrant was able to fill all
orders and did not have any backlog orders.
(c)(1)(viii) Not applicable.
(c)(1)(ix) Not applicable.
(c)(1)(x) COMPETITION. The Registrant's ACI training and manufacturing
operations faces stiff competition from existing computer
manufacturers. The Registrant has met the competition in the
past with its niche in the computer industry. ACI is able to
produce computers in America and still be competitive with
computers built in foreign countries. The Registrant's
computers are not only built in America but they are
6
<PAGE>
assembled by previous welfare recipients who have been
trained and hired by ACI. This method of producing computers
gives the Registrant a competitive edge to resellers such as
Wal-Mart whose philosophy mirrors the Registrants'. In
addition to "Made in America" the Registrant provides
Wal-Mart computers with non-integrated circuitry that allows
true upgradability and local service and support. ACI places
its computers in Wal-Mart stores based upon demographics and
the location of the store. For example, the Grand Junction
Wal-Mart store draws from a population of about 150,000, has
a college and does not have competition from large retailers
such as Best Buy and Circuit City. The Grand Junction
Wal-Mart store sold more than 200 ACI computers in a
two-month period. Some Wal-Mart stores sell only the ACI
computer. ACI will likely be the only "build your own
computer" on Wal-Mart's web page.
(c)(1)(xi) Since its inception, the Registrant has spent $193,370 for
company-sponsored research and development of the Your
ATTACHE concept.
(c)(1)(xii) Compliance with federal, state and local provisions
regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment
will have no material effect on the capital expenditures,
earnings and competitive position of the Registrant.
(c)(1)(xiii) The Registrant employs a total of eight persons: One Chief
Executive Officer, one Secretary/Treasurer, one full time
Accountant, and five technicians and/or assemblers.
(d) Not applicable since the Registrant had no foreign
operations or export sales during fiscal year l995.
ITEM 2 PROPERTIES
The Registrant, and ACI, currently occupy approximately 2,000 square
feet at 3650 Austin Bluffs Parkway, suite 138, Colorado Springs,
Colorado and a 4400 square foot manufacturing plant at 1065 Elkton
Drive, Colorado Springs, Colorado. The Registrant is paying $1,810
plus utilities for rent for the Austin Bluffs space and $2485 plus
utilities for the Elkton Drive space each month. The lease for the
Austin Bluffs space will continue until May l, l999 and the Elkton
7
<PAGE>
Drive space will continue until January 1997. The Registrant has two
five year options on the Austin Bluffs space and two three year
options on the Elkton Drive space.
ITEM 3 LEGAL PROCEEDINGS
The Registrant knows of no litigation pending, threatened or
contemplated, or unsatisfied judgments against the Registrant, nor any
proceedings to which the Registrant is a party that will adversely
affect the company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 12, 1995, the majority of the shareholders voted to authorize
management to reverse the shares of common stock 10 to one. The
majority of the shareholders also voted to capitalize the Registrant's
subsidiaries to be the same as the Registrants. That is, ACI Micro
Systems and Your ATTACHE each have 900,000,000 common shares and
8,000,000 preferred shares authorized.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a)(1)(i) The principal market on which the Registrant's common stock
is traded is on the over-the-counter bulletin board. Its
symbol is AMGV.
(a)(1)(ii) Not applicable.
(a)(1)(iii) Since January l986, the Registrant's stock has been traded
on the over the-counter market. The range of high and low
bid quotations for the Registrant's common stock for the
quarters in l996 is provided below. The over-the-counter
market quotations reflect inter-dealer prices without retail
markup, markdown or commissions and may not necessarily
represent actual transactions.
High Bid Low Bid
-------- -------
1/1/96 -- 3/31/96 $.37 $.05
4/1/96 -- 6/30/96 $.75 $.31
7/1/96 -- 9/31/96 $.68 $.37
l0/1/96 -- 12/31/96 $.50 $.18
8
<PAGE>
(a)(1)(iv) Not applicable.
(a)(1)(v) Not applicable.
(a)(2) Not applicable.
(b)(2) The approximate number of record holders of the Registrant's
common stock on March 15, 1997 was 1150.
(b)(2) Not applicable.
(c)(1) The Registrant has paid no dividends with respect to its
common stock. There are no contractual restrictions on the
Registrant's present or future ability to pay dividends.
(c)(2) Not applicable since the Registrant has not had earnings
that indicate an ability to pay cash dividends. The
Registrant does not expect to pay dividends in the
foreseeable future.
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities for year ending December
31, 1996 is .87 compared to 11.2 for 1995. Actual working capital for the year
ended December 1996 was ($45,484) compared to $279,164 at December 31, 1995. The
decrease in working capital was primarily due to an increase in liabilities that
came from increases in expenses and the return of product. The increase in
expenses was due to the cost of the Registrant's rapid expansion into new
Wal-Mart stores. The number of Wal-Mart stores that the Registrant placed its
product grew from eight stores in 1995 to 70 stores in 1996.
The Registrant believes that its anticipated funds raised through a private
placement and a purchase order financing arrangement are sufficient to meet its
cash requirements for major growth in the year ahead.
The Registrant currently has no commitments for capital expenditures.
RESULTS OF OPERATIONS
The Registrant's primary business and source of revenue is derived from the
sales of its wholly owned subsidiary ACI Micro Systems, Inc. The Registrant had
a net loss of ($723,911) for the year ended December 31, 1996 compared to a gain
of $74,020 for the year ended December 31, 1995.
9
<PAGE>
Revenues from overall operations for the year ended December 31, 1996
increased by $411,871 or 42 percent over the year ended December 31, 1995. The
increase in sales was primarily due to the Registrants expansion from selling
its product in eight Wal-Mart stores to 70 stores by years end.
Cost of sales as a percentage of sales for ACI was 98 percent compared to
70 percent for the cost of sales in 1995. The increase in the percentage of the
cost of goods was due to Wal-Mart returning unsold computers. While returns due
to defective product is minimal, ACI has a guaranteed-sale provision with
Wal-Mart and agrees to take back unsold computers at the original invoice
amount. The vast fluctuation in prices of computer components causes the
percentage of the cost of goods to rise if the computers are returned several
months after they are originally purchased.
The Registrant has taken provisions to avoid guaranteed-sale returns. ACI
no longer continues to automatically accept orders from all Wal-Mart stores. The
store must meet specific demographics and commit to a standardized marketing
plan before ACI will accept an order for computers. The demographics must be
similar to the Wal-Mart store in Grand Junction, Colorado that sold over 200
computers in two months. Wal-Mart on the average sells nine computers per month
per store. The Grand Junction Wal-Mart store draws from a population of
approximately 150,000 including students from a State operated college. They
train their electronic managers to demonstrate the features on the computers and
advertise computers with the local media. The Grand Junction Wal-Mart store won
a regional sales contest by applying the above tactics. They beat out 120 other
Wal-Mart stores by selling the ACI computer.
Secondly, ACI has implemented a "build your own" computer within the
electronic department of some Wal-Mart stores. The customer may select from a
variety of computer components and have a customized computer built for them.
Before the computer is built, it is bought and paid for by the consumer and
therefore nullifies the guaranteed-sale problem.
The third and most encouraging provision in eliminating the problem of
guaranteed-sale returns, is the Registrants new association with Wal-Mart
Online. ACI has received a second vendor agreement from Wal-Mart Stores, Inc.
that provides the Registrant the ability to sell its computers world wide
through Wal-Mart's web site. ACI presently has seven computer configurations
available through Wal-Mart's web site and expects to have its customized "build
your own" computer web page up and running by the end of July 1997. These
computers are sold to the consumer before they are built, therefore nullifying
the guaranteed-sale problem.
10
<PAGE>
Selling, general and administrative expenses were 50 percent of Sales
compared with 23 percent in 1995. The increase was mainly due to increased
expenses incurred by the rapid expansion of doing business with eight Wal-Mart
stores in 1995, to 70 stores by the end of 1996.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supporting schedules reporting supplementary
financial information are listed in the Index to Financial Statements filed as
part of this Form l0-KSB.
ITEM 9 DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
THE REGISTRANT
(a) Identification of Directors.
Position held Dates of
Name with Registrant Age Service
- --------------------------------------------------------------------------------
Steven H. Walker President, Chair 58 l985-l997
of the Board, Director
Christopher S. Walker Secretary-Treasurer 27 1996-1997
Director
(b) Identification of Executive Officers
Position held Dates of
Name with Registrant Age Service
- --------------------------------------------------------------------------------
Steven H. Walker President, Chair 58 l985-l997
of the Board
Christopher S. Walker Secretary-Treasurer 27 l996-1997
(c) Identification of Certain Significant Employees.
Not applicable.
No other officer or director of the Registrant, including controlling
shareholders, is related to any other such person.
11
<PAGE>
(e)(1) The business experience of the Registrant's officers and directors
is as follows:
STEVEN H. WALKER, (58), has been President and Chair of the Board of the Company
since January l986 and has been Vice President and Chair of the Board of
Neuro-Medical, Inc. and President and Chair of the Board of Aspen Medical
Diagnostics, Inc. since 1983 and 1984 respectively. He is also a licensed
psychologist who has been in private practice since l973. He is a past president
of the El Paso County Psychological Society. He received a Ph.D. from the
University of Wyoming in l972.
CHRISTOPHER S. WALKER, (27), has been Secretary/Treasurer and a director on the
Board since August 12, 1996. He has been an employee of Registrant since 1988
and has held positions of Director of Marketing and Chief Operating Officer. Mr.
Walker received a Bachelor of Science degree in Business Administration from the
University of Northern Colorado in 1990. Mr. Walker was instrumental in
acquiring the Wal-Mart accounts.
(e)(2) Not applicable
(f) Not applicable
(g) Not applicable.
ITEM II MANAGEMENT REMUNERATION
(a)(l) Cash compensation for the fiscal year ended December 31, l995.
Name of individual Capacities Cash salaries Cash bonuses
or number in group in which and fees and deferred
served compensation
- --------------------------------------------------------------------------------
Steven H. Walker President $63,000 10% of net
profits
Christopher W. Walker COO $26,400
All officers and/or Directors
as a Group (two persons) $89,400 10% of net
profit
(a)(2) Bonuses and deferred compensation.
Name of individual Capacities Deferred Compensation.
- --------------------------------------------------------------------------------
Steven H. Walker President 10% of net profit
(b)(1) Compensation pursuant to Plans.
The Registrant has no retirement, pension or profit sharing covering its
officers and directors and does not contemplate implementing any such plan at
this time.
12
<PAGE>
(b)(2) Pension Table. Not applicable.
(b)(3) Alternative Pension Plan Disclosure. Not applicable.
(b)(4) Stock Option and Stock Purchase right plans. Not applicable.
(c) Other compensation Not applicable.
(d) Compensation of Directors.
(d)(l) Standard Arrangements. The Board of Directors shall not receive any
fee for serving as directors.
(d)(2) Other arrangements. None.
(e) Termination of employment and change of control arrangements. None.
ITEM 2 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(a) Security Ownership of Certain Beneficial Owners as of December 31,
l995.
Title of class Name and address of Amount and Percent
beneficial owner Nature of
beneficial class
Ownership
- --------------------------------------------------------------------------------
Common Stock Steven H. Walker 5,563,400 60.5%
$.001 par value 3650 Austin Bluffs Parkway
Colorado Springs, CO
Common Stock Christopher S. Walker 304,800 3.3%
$.001 par value
Common Stock All officers and 5,868,200 63.8%
$.001 par value directors as a group
(c) Changes in control. none
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions With Management and Others.
13
<PAGE>
Steven H. Walker, President and CEO receives cash salaries and consulting
fees totaling $63,000 per annum plus 10% of the net profit before taxes.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed apart of this Report of the Company
immediately following the signature page.
1. Financial Statements
Report of Certified Public Accountants
Balance Sheets - December 31, 1996
Statements of Operations - Years ended December 31, 1996, and 1995.
Statement of Stockholders' Equity - Years ended December 31, 1996, and
1995.
Statements of Cash Flows - Years ended December 31, 1996, and 1995.
Notes to Financial Statements
2. Financial Statement schedules required to be filed immediately follow Item
14 of this Form 10-KSB
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN GENERAL VENTURES, INC.
By: /S/ STEVEN H. WALKER
------------------------------------
Steven H. Walker
President/CEO
Date:
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: July 7, 1997 /S/ STEVEN H. WALKER
----------------- --------------------------------
Steven H. Walker, President
Director
Date: July 7, 1997 /S/ CHRISTOPHER S. WALKER
------------------ --------------------------------
Christopher S. Walker, Secretary
Treasurer, Director
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
American General Ventures, Inc.
We have audited the consolidated balance sheet of American General Ventures,
Inc. as of December 31, 1996, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the two year period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of American General
Ventures, Inc. as of December 31, 1996, and the results of its operations and
cash flows for each of the years in the two year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
May 22, 1997
16
<PAGE>
American General Ventures, Inc.
Consolidated Balance Sheet
December 31, 1996
Current assets:
-----------
Cash $ 23,984
Accounts receivable, trade 19,551
Inventory 167,987
Prepaid expenses 2,000
-----------
Total current assets 213,522
Property and equipment, at cost, net of
accumulated depreciation of $27,454 70,089
Goodwill, net of amortization of $22,795 24,971
-----------
$ 308,582
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 8,083
Accounts payable 174,231
Accrued salaries, officers 98,075
Customer deposits 39,000
Accrued interest - related party 25,729
Accrued expenses, other 8,948
-----------
Total current liabilities 354,066
Notes payable - shareholders 429,672
Long-term debt 35,496
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, no stated value
8,000,000 shares authorized,
no shares issue and outstanding --
Common stock, $.001 par value,
900,000,000 shares authorized,
9,200,000 shares issue and outstanding 9,200
Additional paid-in capital 1,702,099
Accumulated deficit (2,221,951)
-----------
(510,652)
-----------
$ 308,582
===========
See accompanying notes to consolidated financial statements
17
<PAGE>
American General Ventures, Inc.
Consolidated Statement of Operations
Years Ended December 31, 1996 and 1995
1996 1995
----------------------------
----------------------------
Sales $ 1,397,850 $ 985,979
Cost of sales 1,365,308 721,372
----------------------------
Gross profit 32,542 264,607
Other costs and expenses:
General and administrative 701,032 187,709
----------------------------
Income (loss) from operations (668,490) 76,898
Other income and (expense):
Interest and dividend income -- 2,148
Realized gain on sale of investments -- 7,335
Other income -- 34,000
Interest expense - related party (25,729) --
Interest expense (29,692) --
----------------------------
(55,421) 43,483
----------------------------
Income (loss) before income taxes (723,911) 120,381
Provision for income taxes -- --
----------------------------
Net income (loss) $ (723,911) $ 120,381
============================
Earnings (loss) per share:
Net income (loss) $ (0.08) $ 0.01
============================
Weighted average shares outstanding 9,200,000 8,300,000
============================
See accompanying notes to consolidated financial statements.
18
<PAGE>
American General Ventures, Inc.
Consolidated Statement of Changes in Stockholders'
Equity
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid -in Accumulated
Shares Amount Capital (Deficit) Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 8,000,000 $ 8,000 $ 1,664,299 $(1,618,421) $ 53,878
Shares issued for services 1,200,000 1,200 37,800 -- 39,000
Net income for the year -- -- -- 120,381 120,381
------------------------------------------------------------------
Balance, December 31, 1995 9,200,000 9,200 1,702,099 (1,498,040) 213,259
Net (loss) for the year -- -- -- (723,911) (723,911)
------------------------------------------------------------------
Balance, December 31, 1996 9,200,000 9,200 1,702,099 (2,221,951) (510,652)
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
American General Ventures, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
Net income (loss) $(723,911) $ 120,381
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 12,255 5,980
Stock issued for services -- 38,999
Realized (gains) losses on marketable securities -- (9,768)
Unrealized (gains) losses on marketable securities -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 112,097 (127,994)
(Increase) decrease in inventory 2,929 (78,134)
(Increase) decrease in prepaid expenses 2,024 3,618
(Increase) decrease in other assets 4,874 (2,450)
Increase (decrease) in customer deposits 39,000 --
Increase (decrease) in related party accruals 123,804
Increase (decrease) in accounts payable and
accrued expenses 155,756 753
---------------------------------
Total adjustments 452,739 (168,976)
---------------------------------
Net cash (used in)
operating activities (271,172) (48,595)
---------------------------------
Cash flows from investing activities:
Acquisition of plant and equipment (1,740) (29,084)
Liquidation of marketable securities -- 70,209
---------------------------------
Net cash (used in) investing activities (1,740) 41,125
---------------------------------
---------------------------------
Cash flows from financing activities:
Increase in bank overdraft -- 1,666
Repayment of long-term debt (3,085)
Increase in officer loans 299,981 --
---------------------------------
Net cash provided by
financing activities 296,896 1,666
---------------------------------
---------------------------------
Increase (decrease) in cash 23,984 (5,804)
Cash and cash equivalents,
beginning of period -- 5,804
---------------------------------
Cash and cash equivalents,
end of period $ 23,984 $ --
=================================
See accompanying notes to consolidated financial statements.
20
</TABLE>
<PAGE>
American General Ventures, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------------------------
Supplemental cash flow information:
<S> <C> <C>
Cash paid for interest $ 1,803 $ --
Cash paid for income taxes $ -- $ --
Non-cash investing and financing activities:
Assets acquired by issuance of long-term debt $46,664 $ --
See accompanying notes to consolidated financial statements.
21
</TABLE>
<PAGE>
American General Ventures, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
Note 1. Organization and Summary of Significant Accounting Policies.
-----------------------------------------------------------
The Company was incorporated in Nevada in November 1984. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, ACI Micro Systems, Inc., a manufacturer and distributor of computers
and related products, which was acquired on September 11, 1987. All significant
inter-company items have been eliminated in consolidation.. The Company
distributes its products through a retail outlet in Colorado Springs, CO and
through a national retail chain in the southwestern United States.
Inventory:
Inventory is valued at the lower of cost or market on a first-in first-out basis
and consists primarily of raw materials and finished goods of the computer
business.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost and are depreciated based
upon estimated useful lives using the straight-line method. Estimated useful
lives range from 3 to 5 years for furniture and fixtures and from 5 to 10 years
for equipment.
Earnings Per Share:
Per share amounts are based on the weighted average number of common shares
outstanding. Common stock equivalents are not considered in years when operating
losses are incurred as their effect would be anti-dilutive.
Revenue Recognition:
Revenue is recognized at the time the product is delivered or the service is
performed. Revenue related to long term service contracts is recognized on a pro
rata basis over the term of the contract. Provision for sales returns are
estimated based on the Company's historical return experience.
Intangible Assets:
Intangible assets consist of goodwill related to the acquisition of a subsidiary
company. Goodwill is being amortized using the straight line method over a
period of 20 years.
Cash:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Estimates:
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates. The Company made sales to its major customer, see Note 10, on terms
which include a guaranteed right of return. At December 31, 1996 the Company
accrued $39,000 related to anticipated returns.
Advertising costs:
Advertising costs are charged to operations when the advertising first takes
place. Advertising costs charged to operations were $15,554 and $7,818 in 1996
and 1995, respectively.
22
<PAGE>
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and payables and accruals. The
carrying amounts of these financial instruments approximates fair value because
of their short-term maturities. Financial instruments that potentially subject
the Company to a concentration of credit risk consist principally of cash and
accounts receivable, trade. During the year the Company did not maintain cash
deposits at financial institutions in excess of the $100,000 limit covered by
the Federal Deposit Insurance Corporation. The Company has a major customer,
(see Note 10) the loss of which could have a material negative impact upon the
Company. The Company does not hold or issue financial instruments for trading
purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees. No stock based compensation was paid by the Company during the year
ended December 31, 1996.
Note 2. Inventory.
---------
Inventory at December 31, 1996 consists of the following:
Raw materials $ 102,555
Finished goods 65,432
------------
$ 167,987
============
Note 3. Property, Plant and Equipment.
-----------------------------
Property, plant and equipment consists of the following at December 31, 1996
Office furniture and equipment $ 50,879
Vehicles 46,664
------------
Less accumulated depreciation (27,454)
-----------
$ 70,089
===========
Depreciation charged to operations was $9,867 and $3,642 for the years ended
December 31, 1996 and 1995 respectively. Vehicles are pledged as collateral for
the underlying purchase financing contracts, see Note 8.
Note 4. Goodwill.
--------
Amortization of goodwill amounted to $2,388 for each of the years ended December
31, 1996 and 1995 and was computed using the straight line method over a twenty
year period. Goodwill recorded by the Company represents the excess of the
purchase of ACI Micro Systems, Inc. over the net assets acquired.
23
<PAGE>
Note 5. Stockholders' Equity.
--------------------
During the year ended December 31, 1995 the Company issued 1,200,000 shares of
its restricted common stock for services provided by its president and an
employee. The shares were valued at 1/2 of the bid price ($.0325 per share) for
the Company's common stock upon reestablishment of the public market for the
stock during January 1996.
Note 6. Income Taxes.
------------
The Company has not provided for income taxes for the year ended December 31,
1996 due to an operating loss.
A reconciliation of federal income taxes computed at statutory rates to the
provision for income taxes is as follows at December 31, 1995:
Taxes computed at statutory rates (34%) $ 40,930
Utilization of net operating
loss carryforward (40,930)
----------
Provision for income taxes $ --
==========
The Company has net operating loss carryforwards available to offset future
taxable income of approximately $2,215,000. Such carryforward amounts expire in
years beginning in 2002 as follows:
2002 $214,000
2003 $233,000
2004 $353,000
2005 $190,000
2007 $140,000
2008 $280,000
2009 $ 81,000
2011 $724,000
The Company does not anticipate the utilization of these net operating losses in
the near future and has established a valuation allowance for the full amount of
deferred tax asset ($707,000) estimated to arise therefrom. The reserve amount
decreased by approximately $44,000 during the year ended December 31, 1995 and
increased by approximately $246,000 during the year ended December 31, 1996.
Note 7. Related Party Transactions.
--------------------------
The Company is obligated to compensate its president at the rate of $63,000 plus
10% of pre tax profits per annum effective January, 1992.
During 1992 the balance due for cash advances and deferred salary to the
Company's president was converted to an unsecured note with interest at 10% per
annum due in installments through August, 2000. The balance on this note was at
$129,691 December 31, 1996. The Company was unable to meet repayment
requirements during 1995 and 1996 and the Company's president elected to forgo
interest on the note for the year ended December 31, 1995. The Company has
accrued interest of $12,969 for the year ended December 31, 1996.
24
<PAGE>
During the year ended December 31, 1995, the Company's president made
approximately $210,000 of working capital advances to the Company which were
repaid in full at year end.
During the year ended December 31, 1996, the Company's president made working
capital advances to the Company of $44,781 and assumed personal liability for
funds advanced to the Company pursuant to a line of credit with a bank amounting
to $255,200.
Note 8. Long-term debt
--------------
During the year ended December 31, 1996, the Company entered into two vehicle
purchase contracts which provide for monthly repayments aggregating $968 though
2001. The contracts bear interest at 8.5% per annum and are secured by the
Company's vehicles. Aggregate amounts due under the contracts are $8,083 in
1997, $8,827 in 1998, $9,639 in 1999, $10,526 in 2000 and $6,504 in 2001.
Note 9. Commitments and contingencies
-----------------------------
Operating leases
The Company leases its facilities under an operating leases through May 31,
1999. Minimum future rentals payable under the leases are as follows:
Year Amount
---- ------
1997 $ 17,574
1998 18,453
1999 7,875
--------
$ 43,902
========
Rent expense amounted to $52,843 and $20,920 for the years ended December 31,
1996 and 1995, respectively.
The Company began factoring certain of accounts receivable on a full recourse
basis during September 1996. At December 31, 1996 the Company had uncollected
accounts receivable transferred to the factor amounting to $85,824 and had
received gross proceeds from the factor amounting to $736,961 during the year
ended December 31, 1996.
Note 10. Sales to major customers
------------------------
During the year ended December 31, 1996, the Company recorded revenue for goods
or services provided to client companies that comprise greater than 10% of total
revenues as follows:
Wal-Mart Stores, Inc. $975,940
During the year ended December 31, 1995, the Company recorded revenue for goods
or services provided to client companies that comprise greater than 10% of total
revenues as follows:
Wal-Mart Stores, Inc. $254,863
DC Private Industry Council $169,000
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1996 financials.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,984
<SECURITIES> 0
<RECEIVABLES> 19,551
<ALLOWANCES> 0
<INVENTORY> 157,957
<CURRENT-ASSETS> 203,492
<PP&E> 70,089
<DEPRECIATION> 27,454
<TOTAL-ASSETS> 298,552
<CURRENT-LIABILITIES> 354,066
<BONDS> 0
0
0
<COMMON> 9,200,000
<OTHER-SE> (520,682)
<TOTAL-LIABILITY-AND-EQUITY> 298,552
<SALES> 1,397,850
<TOTAL-REVENUES> 1,397,850
<CGS> 1,275,338
<TOTAL-COSTS> 701,032
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,421
<INCOME-PRETAX> (723,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (723,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (723,911)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
