FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended: 12/31/97
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: 0-14039
AMERICAN GENERAL VENTURES, INC.
-------------------------------
(Name of Small Business Issuer in its charter)
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
NEVADA 11-2714721
------ ----------
(State of incorporation) (I.R.S. Employer Identification No.)
3650 Austin Bluffs Parkway - Suite 138
Colorado Springs, Colorado 80918
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(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
<PAGE>
Check whether the Company (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]
The Company's revenues for its most recent fiscal year. $721,745.
As of December 31, 1997, the market value of the Company's voting $.001 par
value common stock held by non-affiliates of the Company was $1,020,000.
The number of shares outstanding of Company's only class of common stock, as of
December 31, 1997 was 10,593,666 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
--- ---
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM l0-KSB/A
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(a) General Development of Business
(a) (1) The original purpose of American General Ventures, Inc. (the
Company) was to seek potential business ventures, which in the opinion of the
management of the Company 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 Company 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 Company 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 Company 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 Company 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 1997.
The Company has not been involved, during the year ended December 31, l997,
in any bankruptcy, receivership or similar proceedings.
(a)(2) Not applicable.
(b) Financial Information About Industry segments.
The Company has engaged in a single line of business since September 11,
1987, when the Company acquired ACI Micro Systems. The Company engages in the
business of manufacturing computers and sales of computers and computer
accessories.
<PAGE>
(c) Narrative Description of Business
(c)(1)(i) The Company 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
executed on the 22nd day of January, l986. In exchange, the Company 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 Company made available to the medical community the
latest neurological testing and assessment equipment. The officers of the
Company for eight years used the Brain Electrical Activity Mapping System (BEAM)
which was developed at Harvard University Medical School. The officers of the
Company selected the BEAM system because they believed that the system
represented a significant advancement over alternative equipment being used for
neurological testing in the overall treatment of patients. However, the
technology faced resistance from the medical community which created a negative
impact upon the growth of the Company. The Company ceased to operate its BEAM
centers in 1993.
CURRENT OPERATIONS
The Company continues to operate ACI Micro Systems, Inc., (ACI), a Colorado
Corporation, that manufactures and sells computers and accessories.
In August 1995, ACI received a national vendor number from Wal-Mart Stores,
Inc. authorizing the Company to sell computers and accessories in 1,989 of their
retail stores and 245 of their supercenters.
Wal-Mart Stores selected the ACI computer because it uses non-integrated
circuitry and versatile cases with extra bays that allows true upgradability.
The ACI computer can grow with the consumer's needs. ACI provides local
upgrades, service and technical support.
ACI began selling it computers in eight stores in Southern Colorado. By
December 31, 1996, ACI had expanded to 70 Wal-Mart retail stores in Colorado,
New Mexico, Kansas, Nebraska, Iowa, Oklahoma and Missouri.
Because of ACI's relationship with Wal-Mart stores it 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 online server.
<PAGE>
PROPOSED OPERATIONS
ACI has an exclusive agreement with Wal-Mart in which ACI will be the sole
manufacturer of Wal-Mart's build to order "BTO" computer. ACI expects that the
BTO will be available through Wal-Mart's web site by the end of July 1998. The
BTO will be for both desktop and notebook computers. ACI presently has five
pre-configured desktop computer systems and a notebook on Wal-Mart's web site.
In addition to selling its products through Wal-Mart Online, ACI has
developed its own web site (www.availpc.com). ACI's web site is promoted by
Hotmail, a wholly owned subsidiary of Microsoft. Hotmail is the world's largest
e-mail provider with more than nine million members. ACI banner ads on Hotmail
are presently eliciting an average of 600 hits per day. If the Hotmail customer
chooses, he/she can be directly linked into ACI's web site. ACI offers a fully
loaded computer for $799.00 on its web site. ACI's web page will also provide a
direct link into Wal-Mart's BTO page.
THE ACI MICRO COMPUTER SYSTEMS
ACI Micro Systems, Inc., manufactures non-integrated circuitry computer
systems that allows true upgradability. Through in-house assembly and
outsourcing, ACI presently has a capacity of assembling 15,000 computers per
month.
REVENUES
During the fiscal year ending December 31, 1997, the Company, through its
subsidiary, ACI, generated operating revenues of $721,745. In 1996, the Company
had $1,397,850 in operating revenues.
In 1997, the Company had revenues of $721,745 with a net loss of $430,921
compared with $1,397,850 with a net loss of ($723,911) in 1996. The loss for
1997 yielded a net loss of ($0.05) compared to 1996 that yielded ($0.08) per
share loss. Revenues of $721,745 for 1997 were down 48 percent from the revenues
of $1,397,850 in 1996. The decrease in revenues was in part due to the Company's
decision to concentrate on sales through Wal-Mart Online and not to sell to
Wal-Mart retail stores. The guaranteed sales provision given to the retail
stores forced the Company to credit Wal-Mart for outdated and obsolete product.
The last orders shipped to Wal-Mart's retail stores were in April 1997. The
Company began selling its products through Wal-Mart Online in June 1997. There
were no sales to Wal-Mart for two months in 1997.
When the Company began selling its products through Wal-Mart's web page, it
quickly became one of the top five vendors for Wal-Mart Online. Even though the
Company was one the top five vendors for Wal-Mart Online, revenues for the
Company were down from previous quarters. Concentrating on sales through
Wal-Mart Online resulted in lower revenues but offered the Company an
opportunity to grow with a new division within the largest retailer in the
world. When the Company began selling its products through Wal-Mart Online, the
Online division was in its development stage.
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(c)(1)(ii) Not applicable.
(c)(1)(iii) Not applicable.
(c)(1)(iv) Not applicable.
(c)(1)(v) The Company's business is not considered seasonal.
(c)(1)(vi) The Company's working capital of ($142,243) (current assets less
current liabilities) would normally cause difficulty for moderate growth.
However, with the Company's "just in time" inventory control, the Company can
grow without considerable capital infusion. The Company is paid by Wal-Mart 15
days from the date of shipment. The Company has 25 days to pay its major
outsourcing facility from the date of ship. This provides the Company a ten day
period between receiving funds and having to pay for the product shipped.
Customers ordering through the Company's own web site must pay, by credit
card, for the product at the time of ordering. The Company has the use of these
revenues for 30 days before having to pay its supplier.
(c)(1)(vii) Not applicable.
(c)(1)(viii) As of December 31, l997, 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 Company's manufacturing operations faces stiff
competition from existing computer manufacturers. The Company 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 Company's computers are built in America giving the
Company a competitive edge to resellers such as Wal-Mart whose philosophy
mirrors that of the Company. In addition to "Made in America" the Company builds
computers with non-integrated circuitry that allows true upgradability and local
service and support.
ACI has an exclusive arrangement with Wal-Mart Online for its build to
order (BTO) computer program on Wal-Mart's web site. Wal-Mart Online's BTO
software has been developed exclusively for marketing the Company's desktop and
notebook computer. Being an exclusive partner with the largest retailer in the
world gives the Company name recognition and a competitive edge over other
computer manufacturers.
<PAGE>
ACI's BTO program has an advantage over the larger computer manufacturers
because it gives the consumer more choices and lower prices. The Wal-Mart Online
customer is able to build a computer system for less than $1,000. This is not
possible with some of the larger firms because their standard systems contain
components that the consumer may not want. Limited choices results in higher
prices for computer systems.
(c)(1)(xi) Since its inception, the Company 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 Company.
(c)(1)(xiii) The Company employs a total of eight persons: One Chief
Executive Officer, one Secretary/Treasurer, one Chief Technology Officer, one
part-time Accountant, and four part time technicians and/or assemblers. The
Company's outsourcing facility has 125 employees.
(d) Not applicable since the Company had no foreign operations or export
sales during fiscal year l997. The Company does ship to APO and FPO addresses.
ITEM 2 PROPERTIES
The Company currently occupies approximately 2,000 square feet at 3650
Austin Bluffs Parkway, suite 138, Colorado Springs, Colorado. The Company is
paying $2110 plus utilities for rent for the Austin Bluffs. The lease for the
Austin Bluffs space will continue until May l, l999. The Company has two five
year options on the Austin Bluffs space.
ITEM 3 LEGAL PROCEEDINGS
The Company's subsidiary, ACI Micro Systems, Inc. has been sued by
California IC for $27,500 for goods and services. ACI has answered generally and
specifically that the plaintiff refused to accept returned merchandise. The
matter has been dormant since February 1998 and until recently the court ordered
some action or the case will be dismissed. No settlement negotiations have been
held but should be fruitful if initiated by plaintiff.
Two other suppliers have recently made demands for payment. Daytek alleges
$27,000 is due and Altura PC Systems claims $21,350. Both claims are in dispute.
Negotiations will likely result in settlement of both at reduced amounts.
<PAGE>
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The shareholders at the annual shareholders meeting held on August 10, 1997
elected Steven H. Walker as a Director and Chair of the Board of Directors and
Christopher S. Walker as a Director on the Board of Directors.
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 Company'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 Company's stock has been traded on the
over-the-counter market. The range of high and low bid quotations for the
Company's common stock for the quarters in l997 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
1/1/97 -- 3/31/97 $.46 $.15
4/1/97 -- 6/30/97 $.56 $.15
7/1/97 -- 9/31/97 $.43 $.21
l0/1/97 -- 12/31/97 $1.28 $.25
(a)(1)(iv) Not applicable.
(a)(1)(v) Not applicable.
(a)(2) Not applicable.
(b)(2) The approximate number of record holders of the Company's common
stock on December 31, 1997 was 1,150.
(b)(2) Not applicable.
<PAGE>
(c)(1) The Company has paid no dividends with respect to its common stock.
There are no contractual restrictions on the Company's present or future ability
to pay dividends.
(c)(2) Not applicable since the Company has not had earnings that indicate
an ability to pay cash dividends. The Company 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, 1997 is .58 compared to .87 for 1996. Actual working capital for the year
ended December 1997 was ($142,243) compared to ($45,484) at December 31, 1996.
The decrease in working capital was primarily due to an increase in liabilities
that came from increases in payables due to the return of product from Wal-Mart
retail stores.
The Company believes that its "just in time" inventory method will reduce
capital requirements and provide sufficient revenues to meet its cash
requirements for major growth in the year ahead. The Company plans to sell its
product only through Wal-Mart Online and its own web site. Products will not be
shipped until paid for.
The Company has reached an agreement with Wal-Mart that there will be no
more returns of products from its retail stores. The Company has satisfied its
debit balance with Wal-Mart and has satisfied its obligation with its largest
creditor.
The Company currently has no commitments for capital expenditures.
RESULTS OF OPERATIONS
The Company's primary business and source of revenue is derived from the
sales by its wholly owned subsidiary ACI Micro Systems, Inc. The Company had a
net loss of ($430,921) for the year ended December 31, 1997 compared to a net
loss of ($723,911) for the year ended December 31, 1996.
Revenues from overall operations for the year ended December 31, 1997
decreased by $676,105 from the year ended December 31, 1996. The decrease in
sales was primarily due to the Company's change from selling its product to
Wal-Mart retail stores to Wal-Mart Online. There were two months that no sales
were made to either the Wal-Mart retail stores or through Wal-Mart Online.
Cost of sales as a percentage of sales for ACI was 95 percent compared to
98 percent for the cost of sales in 1996. The decrease in the percentage of the
cost of goods was due to Wal-Mart returning fewer unsold computers in 1997 than
in 1996, and the Company's decision to sell products through Wal-Mart Online
instead of Wal-Mart retail stores. While returns due to defective product are
minimal, ACI had a guaranteed-sale provision with Wal-Mart and agreed 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 sold. The
Company's decision to sell computers through Wal-Mart Online instead of Wal-Mart
retail stores has enabled the Company to adopt a `Just In Time' inventory method
which significantly reduces the risk of obsolete inventory.
<PAGE>
The Company has taken provisions to avoid guaranteed-sale returns. ACI no
longer accepts orders from Wal-Mart retail stores. The Company only accepts
orders from Wal-Mart Online and those orders are produced only if the computer
is sold and paid for. The customer has only 15 days to return the computer and
there are no returns of unsold computers.
ACI received a second vendor agreement from Wal-Mart Stores, Inc. that
provides the Company the ability to sell its computers world wide through
Wal-Mart's web site. ACI presently has five computer configurations available
through Wal-Mart's web site and expects to have its customized built to order
"BTO" computer web page up and running by the end of July 1998. These computers
are sold to the consumer before they are built, therefore nullifying the
guaranteed-sale problem.
ACI has an exclusive agreement with Wal-Mart Online for the BTO computers.
Wal-Mart Online software has been developed to be used with ACI's price points
and products for both the desktop and notebook computer. ACI's BTO has an
advantage over some of the larger BTO companies in that the customer can build a
computer with fewer standard features thus providing the customer more choices.
Selling, general and administrative expenses were $429,212 for 1997
compared with $701,032 for 1996. The Company reduced its selling general and
administrative by 39 percent in 1997. The Company was able to decrease its
selling general and administrative expenses by focusing on Internet sales and
reducing sales to retail stores.
The loss per share in 1997 was ($.05) compared to a loss per share of
($.08) in 1996. The accumulated deficit was reduced by $119,059 in 1997 and the
Shareholder equity deficit was reduced from ($510,632) in 1996 to ($211,490) in
1997 or $299,142. The deficit reductions were due to additional paid in capital
for common shares and by the President, Steven H. Walker converting $500,000 of
debt owing him to equity.
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.
<PAGE>
ITEM 9 DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS OF THE COMPANY.
(a) Identification of Directors.
Position held Dates of
Name with Company Age Service
- ---- ------------ --- -------
Steven H. Walker President, Chair 59 l985-l997
of the Board, Director
Christopher S. Walker Secretary-Treasurer, 28 1996-1997
Director
(b) Identification of Executive Officers
Position held Dates of
Name with Company Age Service
- ---- ------------ --- -------
Steven H. Walker CEO 59 l985-l997
Christopher S. Walker COO 28 l996-1997
(c) Identification of Certain Significant Employees.
Michael P. Lohman, Ph.D. was appointed to the position Chief Technology
Officer (CTO). Dr. Lohman received his doctorate from UCLA in Computer
Science/Electrical Engineering in 1986.
No other officer or director of the Company, including controlling
shareholders, is related to any other such person.
(e)(1) The business experience of the Registrant's officers and directors
is as follows:
<PAGE>
STEVEN H. WALKER, (59), has been President, Chair of the Board and Chief
Executive Officer 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 was in private practice for 15 years. 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, (28), has been Secretary/Treasurer, Director on the Board
and Chief Operating Officer since August 1996. He has been an employee of the
Company since 1988 and has held positions of Transfer Agent and Marketing
Director. 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, l997.
Cash bonuses
Name of individual Capacities Cash salaries and deferred
or number in group in which served and fees compensation
- ------------------ --------------- -------- ------------
Steven H. Walker President/CEO $63,000/year plus 10% of netprofits
Christopher W. Walker Secretary/Treasurer
COO $26,400
All officers and/or
Directors as a Group
(two persons) $89,400 plus 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 Company has no retirement, pension or profit sharing covering its
officers and directors and does not contemplate implementing any such plan at
this time.
<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 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 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(a) Security Ownership of Certain Beneficial Owners as of December 31,
l997.
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
3650 Austin Bluffs Parkway value
Colorado Springs, CO 80918
Common Stock Christopher S. Walker 304,800 3.3% $.001 par
3650 Austin Bluffs Parkway value
Colorado Springs, CO 80918
Common Stock All officers and 5,868,200 63.8% $.001 par
directors as a group value
<PAGE>
(c) Changes in control. none
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions With Management and Others.
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, 1997
Statements of Operations - Years ended December 31, 1997 and 1996.
Statement of Stockholders' Equity - Years ended December 31, 1997 and 1996.
Statements of Cash Flows - Years ended December 31, 1997 and 1996.
Notes to Financial Statements
2. Financial Statement schedules required to be filed immediately follow Item
14 of this Form 10-KSB
<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, 1997, 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, 1997. 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, 1997, and the results of its operations and
cash flows for each of the years in the two year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
May 26, 1998
<PAGE>
American General Ventures, Inc.
Consolidated Balance Sheet
December 31, 1997
ASSETS
------
Current assets:
Cash $ 17,706
Accounts receivable, trade 1,425
Inventory 177,057
Prepaid expenses 198
-----------
Total current assets 196,386
Property and equipment, at cost, net of
accumulated depreciation of $36,081 37,602
Goodwill, net of amortization of $25,183 22,583
-----------
$ 256,571
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 4,200
Accounts payable 289,846
Accrued interest - related party 37,729
Accrued expenses, other 6,854
-----------
Total current liabilities 338,629
Notes payable - shareholders 115,215
Long-term debt 14,217
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,
10,593,666 shares issue and outstanding 10,594
Additional paid-in capital 2,430,788
Accumulated deficit (2,652,872)
-----------
(211,490)
-----------
$ 256,571
===========
See accompanying notes to consolidated financial statements.
<PAGE>
American General Ventures, Inc.
Consolidated Statement of Operations
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
Sales $ 721,745 $ 1,397,850
Cost of sales 690,064 1,365,308
----------- -----------
Gross profit 31,681 32,542
Other costs and expenses:
General and administrative 429,212 701,032
----------- -----------
Income (loss) from operations (397,531) (668,490)
Other income and (expense):
Other income 117 --
Interest expense - related party (12,000) (25,729)
Interest expense (21,507) (29,692)
----------- -----------
(33,390) (55,421)
----------- -----------
Income (loss) before income taxes (430,921) (723,911)
Provision for income taxes -- --
----------- -----------
Net income (loss) $ (430,921) $ (723,911)
=========== ===========
Earnings (loss) per share:
Net income (loss) $ (0.05) $ (0.08)
=========== ===========
Weighted average shares outstanding 9,506,222 9,200,000
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
American General Ventures, Inc.
Consolidated Statement of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
Common Stock Additional
--------------------------- Paid-in Accumulated
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
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)
Common stock sold for cash 566,666 567 150,266 -- 150,833
Common stock issued for services 277,000 277 53,973 -- 54,250
Common stock issued for debt conversion 550,000 550 524,450 525,000
Net (loss) for the year -- -- -- (430,921) (430,921)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 10,593,666 10,594 2,430,788 (2,652,872) (211,490)
See accompanying ntoes to consolidated financial statements.
</TABLE>
<PAGE>
American General Ventures, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
--------- ---------
Net income (loss) $(430,921) $(723,911)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 16,134 12,255
Stock issued for services 44,250 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 18,126 112,097
(Increase) decrease in inventory (9,070) 2,929
(Increase) decrease in prepaid expenses 1,802 2,024
(Increase) decrease in other assets -- 4,874
Increase (decrease) in accounts payable and
accrued expenses 112,078 318,560
--------- ---------
Total adjustments 183,320 452,739
--------- ---------
Net cash (used in)
operating activities (247,601) (271,172)
--------- ---------
Cash flows from investing activities:
Acquisition of plant and equipment -- (1,740)
--------- ---------
Net cash (used in) investing activities -- (1,740)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (8,084) (3,085)
Proceeds from the sale of common stock 148,833 --
Increase in officer loans 100,574 299,981
--------- ---------
Net cash provided by
financing activities 241,323 296,896
Increase (decrease) in cash (6,278) 23,984
Cash and cash equivalents,
beginning of period 23,984 --
--------- ---------
Cash and cash equivalents,
end of period $ 17,706 $ 23,984
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
American General Ventures, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
-------- --------
Supplemental cash flow information:
Cash paid for interest $ 21,506 $ 1,803
Cash paid for income taxes $ -- $ --
Non-cash investing and financing activities:
Assets acquired by issuance of long-term debt $ -- $ 46,664
Asset liquidated to satisfy note payable $ 18,741 $ --
Conversion of officer loans to common stock $500,000 $ --
See accompanying notes to consolidatd financial statements.
<PAGE>
American General Ventures, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
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 through the
chain's worldwide online shopping website.
Inventory:
Inventory is valued at the lower of cost or market on a first-in first-out basis
and consists primarily of finished goods including complete computer systems,
spare parts and related equipment held for retail sale.
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.
Loss per share:
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128. 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.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Loss
per share is unchanged on a diluted basis since the assumed exercise of common
stock equivalents would have an anti-dilutive effect.
<PAGE>
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. Amortization expense amounted to $2,388 for each of the
years ended December 31, 1997 and 1996.
The Company makes reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Under SFAS No. 121,
an impairment loss would be recognized when estimated future cash flows expected
to result from the use of the asset and its eventual disposition is less than
its carrying amount. No such impairment losses have been identified by the
Company for the 1997 and 1996 fiscal 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 $3,720 and $15,554 in 1997
and 1996, respectively.
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.
<PAGE>
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. Stock based compensation was paid by the Company during the year
ended December 31, 1997 as described in Note 4.
Note 2. Property, Plant and Equipment.
------------------------------
Property, plant and equipment consists of the following at December 31, 1996
Office furniture and equipment $ 50,908
Vehicles 22,775
-----------
Less accumulated depreciation (36,081)
-----------
$ 37,602
Depreciation charged to operations was $13,746 and $9,897 for the years ended
December 31, 1997 and 1996 respectively. Vehicles are pledged as collateral for
the underlying purchase financing contracts, see Note 7.
Note 3. Goodwill.
--------
Amortization of goodwill amounted to $2,388 for each of the years ended December
31, 1997 and 1996 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.
Note 4. Stockholders' Equity.
--------------------
During the year ended December 31, 1997 the Company issued 500,000 shares of its
common stock for the conversion of debt owed to its president. The shares were
valued at $1.00 per share when the Company's common stock had a bid price of
$.50 per share at the date the conversion was approved by the Company's Board of
Directors. The excess of the conversion price over the bid price for the shares
issued is considered to be a capital contribution to the company by its
president. Additionally, 50,000 shares of restricted common stock were issued to
a vendor for debt conversion at $.50 per share, the fair value of the stock on
the conversion date.
The Company issued an aggregate of 277,000 shares of its common stock for
services provided to the Company by three entities. The shares were valued at
$.10 per share for 100,000 shares issued in January 1997 and $.25 per share for
177,000 shares issued in September 1997 based on the bid prices of the Company's
common stock.
<PAGE>
During the fourth quarter of 1997, the Company received and aggregate of
$150,833 in cash for the exercise of common stock warrants. The exercise price
of 500,000 of the warrants was $.25 per share and the exercise price of 66,666
of the warrants was $.3875 per share. The warrants were issued in connection
with a contract to provide WEB site development and public relations services to
the Company. The contract was entered into on September 25, 1997 at which date
the fair value of the Company's common stock was $.25 per share. The Company
recorded no additional compensation expense as a result of the warrants.
Warrants to purchase an additional 433,334 shares of the Company's common stock
expired on December 31, 1997.
During the year ended December 31, 1997 the Company established a non-statutory
stock option plan to benefit employees, officers, directors, consultants and
others providing services to the Company. The Company has reserved 25,000,000
shares of common stock for issuance in connection with option grants made
pursuant to the plan. The purchase price for shares granted under the plan shall
not be less than 67% of the fair market value of the stock on the grant date.
The shares and warrant shares described in the preceding paragraph were issued
in connection with the stock option plan.
Note 5. Income Taxes.
-------------
The Company has not provided for income taxes for the years ended December 31,
1997 and 1996 due to operating losses.
The Company has net operating loss carryforwards available to offset future
taxable income of approximately $2,676,000. 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
2012 $461,000
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 ($910,000) estimated to arise therefrom. The reserve amount
increased by approximately $157,000 and $246,000 during the years ended December
31, 1997 and 1996.
<PAGE>
Note 6. 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
$129,691 at December 31, 1996. The Company was unable to meet repayment
requirements during 1997 and 1996.
The Company has accrued interest of $12,000 and $12,969 for the years ended
December 31, 1997 and 1996, respectively. During the years ended December 31,
1997 and 1996, the Company's president made working capital advances to the
Company of $100,574 and $44,781, respectively and during 1996, assumed personal
liability for funds advanced to the Company in 1996 pursuant to a line of credit
with a bank amounting to $255,200.
At December 31, 1997 the note plus additional cash advances an salary accruals
amounting to $500,000 were converted into common stock of the Company as
described in Note 4.
Note 7. 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. During 1997, the Company disposed of one of the vehicles and
retired the related debt. Aggregate amounts due under the remaining contract are
$4,200 in 1998, $4,603 in 1999, $5,044 in 2000 and $4,570 in 2001.
Note 8. 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
1998 $ 18,453
1999 7,875
$ 26,328
Rent expense amounted to $27,310 and $52,843 for the years ended December 31,
1997 and 1996, respectively.
The Company has three legal matters pending with its suppliers for collection of
trade accounts payable aggregating approximately $75,000. The Company expects to
reach settlement agreements with the suppliers for reduced payment amounts,
however, the gross amounts due each vendor are included in accounts payable at
December 31, 1997.
<PAGE>
Note 9. Sales to major customers
------------------------
During the years ended December 31, 1997 and 1996, the Company recorded revenue
for goods or services provided to client companies that comprise greater than
10% of total revenues as follows:
1997 1996
Wal-Mart Stores, Inc. $422,041 $975,940
Note 10. Subsequent event
----------------
On June 29,1998, the Company settled an outstanding trade account payable with a
vendor having a balance at December 31, 1997 and the settlement date of
$110,232. The Company made a one time cash payment of $32,000 in full settlement
of the claim and will record a gain from debt extinguishment during the quarter
ended June 30, 1998 amounting to $78,232.
<PAGE>
AMERICAN GENERAL VENTURES, INC.
By: /s/ Steven H. Walker
-------------------------------
Steven H. Walker
President/CEO
Date: January 15, 1999
-----------------------------
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: January 15, 1999 /s/ Steven H. Walker
----------------------------- ------------------------------------
Steven H. Walker, President Director
Date: January 15, 1999 /s/ Christopher S. Walker
----------------------------- ------------------------------------
Christopher S. Walker, Secretary
Treasurer, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,706
<SECURITIES> 0
<RECEIVABLES> 1,425
<ALLOWANCES> 0
<INVENTORY> 177,057
<CURRENT-ASSETS> 196,386
<PP&E> 198
<DEPRECIATION> 36,081
<TOTAL-ASSETS> 256,571
<CURRENT-LIABILITIES> 338,624
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> (211,490)
<SALES> 721,745
<TOTAL-REVENUES> 721
<CGS> 690,064
<TOTAL-COSTS> 690,064
<OTHER-EXPENSES> 429,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,390
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (430,921)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
