U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
<P>
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<P>
For the quarterly period ended September 30, 2000
<P>
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
<P>
For the transition period from to
<P>
Commission File No. 0-30440
<P>
THE AUXER GROUP, INC.
(Name of Small Business Issuer in Its Charter)
<P>
Delaware 22-3537927
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
<P>
12 Andrews Drive, West Paterson, New Jersey 07424
(Address of Principal Executive Offices) (Zip Code)
<P>
(973) 890-4925
(Issuer's Telephone Number, Including Area Code)
<P>
Check whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period
that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.
<P>
Yes X No
----- -----
<P>
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: As of November 16, 2000, the Company
had 100,912,030 shares of Common Stock outstanding,
$0.0001 par value.
<P>
Index to Financial Statements
The Auxer Group, Inc.
<P>
<TABLE>
<S> <C>
Accountant's Report 2
<P>
Consolidated Balance Sheets 3-4
<P>
Consolidated Statement of Income
and Retained Earnings 5
<P>
Consolidated Statement of Cash Flows 6
<P>
Notes to Consolidated Financial
Statements 7-15
<P>
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations.
<P>
PART II - OTHER INFORMATION
<P>
Item 1. Legal Proceedings
<P>
Item 2. Changes in Securities.
<P>
Item 3. Defaults Upon Senior Securities.
<P>
Item 4. Submission of Matters to a
Vote of Security Holders.
<P>
Item 5. Other Information
<P>
Item 6. Exhibits and Reports of Form 8-K. None
<P>
Exhibit 27 - Financial Date Schedule - Electronic Filing
Only
<P>
Signatures
</TABLE>
<P>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
BASIS OF PRESENTATION
The accompanying reviewed financial statements are
presented in accordance with generally accepted
accounting principles for interim financial
information and the instructions to Form 10-QSB and
item 310 under subpart A of Regulation S-B.
Accordingly, they do not include all of the
information and footnotes required by generally
accepted accounting principles for complete
financial statements. The accompanying statements
should be read in conjunction with the audited
financial statements for the years ended December
31, 1999 and 1998. In the opinion of management,
all adjustments (consisting only of normal occurring
accruals) considered necessary in order to make the
financial statements not misleading, have been
included. Operating results for the three months and nine
months ended September 30, 2000 are not necessarily
indicative of results that may be expected for the year
ending December 31, 2000. The financial statements are
presented on the accrual basis.
<P>
THE AUXER GROUP, INC.
FINANCIAL STATEMENTS
<P>
EDELMAN & KALOSIEH, CPAs P.A.
CERTIFIED PUBLIC ACCOUNTANTS
15-01 BROADWAY
FAIR LAWN, NEW JERSEY 07470
----------
TEL (201) 797-4490
FAX (201) 797-0881
<P>
GEORGE A. KALOSIEH, CPA
JOSEPH F. SHACKIL, CPA
PAUL MEOLA, CPA
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS
N.J. SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
------------
DONALD L. EDELMAN, CPA (RETIRED)
To the Board of Directors
The Auxer Group, Inc.
West Paterson, NJ 07424
<P>
Independent Accountant's Report
<P>
We have reviewed the accompanying balance sheet of
The Auxer Group, Inc. and consolidated subsidiaries
as of September 30, 2000, and the related statements of
income and retained earnings for the three and nine
months ended September 30, 2000 and September 30, 1999, and
cash flows for the nine months ended September 30, 2000
and September 30, 1999, in accordance with Statements on
Standards for Accounting and Review Services issued
by the American Institute of Certified Public
Accountants. All information included in these
financial statements is the representation of the
management of The Auxer Group, Inc.
<P>
We conducted our review in accordance with
standards established by the American Institute of
Certified Public Accountants. A review of interim
financial information consists principally of
applying analytical procedures to financial data
and making inquiries of persons responsible for
financial and accounting matters. It is
substantially less in scope than an audit conducted
in accordance with generally accepted auditing
standards, the objective of which is the expression
of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express
such an opinion.
<P>
Based on our review, we are not aware of any
material modifications that should be made to the
accompanying financial statements for them to be in
conformity with generally accepted accounting
principles.
<P>
/s/ EDELMAN & KALOSIEH, CPA'S PA
November 9, 2000
<P>
THE AUXER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
<TABLE>
<S> <C>
Current assets:
<P>
Cash $ 300,782
<P>
Accounts receivable (net of allowances $24,090) 738,762
<P>
Inventory 1,138,775
<P>
Prepaid expenses 8,000
-------------
Total current assets 2,186,319
-------------
Property and Equipment
<P>
Vehicles 38,087
<P>
Furniture and fixtures 16,989
<P>
Machinery and equipment 628,239
<P>
Leasehold improvements 7,879
-------------
691,194
<P>
Less: accumulated depreciation (68,043)
-------------
Property and equipment (Net) 623,151
-------------
Other assets:
<P>
Security deposit 41,782
<P>
Other Receivables 29,783
<P>
Goodwill and other 846,939
-------------
Total other assets 918,504
-------------
Total assets $ 3,727,974
==============
<P>
See accountant's report and accompanying notes to
consolidated financial statements.
</TABLE>
<P>
THE AUXER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
<P>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C>
<P>
Current liabilities
<P>
Accounts payable and accrued expenses $1,408,324
<P>
Credit Line 142,284
<P>
Notes payable 788,345
<P>
Notes payable-shareholders 75,732
----------
Total current liabilities 2,414,685
<P>
Long Term Debt, less current maturities 3,602
<P>
Stockholders' Equity
<P>
Capital stock-authorized 150,000,000 shares,
$.001 par value per share 100,912,030 shares
outstanding 100,912
<P>
Preferred stock - authorized 25,000,000 shares
$.001 par value per share, 2,750,000
shares outstanding 2,750
<P>
Additional paid in capital 8,032,378
<P>
Accumulated deficit (6,826,353)
------------
Total stockholders' equity 1,309,687
------------
Total liabilities and stockholders' equity $ 3,727,974
============
<P>
See accountant's report and accompanying notes to
consolidated financial statements.
</TABLE>
<P>
THE AUXER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF
INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended Nine Months Ended
June 30, June 30, September 30, September 30,
2000 1999 2000 1999
<P>
Income $953,215 $260,576 $2,004,133 $ 650,523
<P>
Less cost of good sold 812,525 159,612 1,517,978 419,814
-------------------------------------------------------
<P>
Gross profit 140,690 100,964 486,155 230,709
-------------------------------------------------------
Operations:
<P>
General and administrative 1,531,411 231,387 2,435,419 1,045,375
<P>
Depreciation 22,618 2,680 31,464 8,148
<P>
Interest expense 6,284 2,317 14,289 8,620
-------------------------------------------------------
Total expenses 1,560,313 236,384 2,481,172 1,062,143
--------------------------------------------------------
Income (loss) from operations (1,419,623) (135,420) (1,995,017) (831,434)
<P>
Other Income (Expense)
<P>
Loss on Abandonment of
Leasehold Improvements 0 0 (2,518) 0
--------------------------------------------------------
Net income (loss)before
extraordinary items (1,419,623) (135,420) (1,997,535) (831,434)
<P>
Extraordinary item, gain on
forgiveness of debt 0 0 0 99,780
--------------------------------------------------------
Net Income (loss) (1,419,623) (135,420) (1,997,535) (731,654)
<P>
Accumulated deficit
at beginning (5,406,730) (4,449,924) (4,828,818) (3,853,690)
---------------------------------------------------------
Accumulated deficit at end $(6,826,353) $(4,585,344) $(6,826,353) $(4,585,344)
=========================================================
<P>
Net income (loss) per
common share $(0.018) $(0.002) (0.025) (0.016)
=========================================================
Net income (loss) per common share
assuming dilution $(0.013) $(0.002) (0.019) (0.010)
=========================================================
See accountant's report and accompanying notes to
consolidated financial statements.
</TABLE>
<P>
THE AUXER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30, 2000 September 30, 1999
<P>
CASH FLOWS FROM OPERATING ACTIVITIES
<P>
Net profit (loss) $(1,997,535) $(731,654)
Depreciation 31,464 8,148
Common Stock Issued For Services 1,476,275 39,240
Common Stock Issued for compensation 0 385,000
Loss on Leasehold Improvements 2,518 0
Extraordinary item, gain on
forgiveness of debt 0 99,780
-----------------------------------
(487,278) (199,486)
(Increase) decrease:
<P>
Accounts receivable (646,392) (80,275)
Inventory (848,050) (152,713)
Prepaid expenses (8,000) 0
Subscriptions receivable 0 13,000
<P>
Increase (decrease):
<P>
Accounts payable & accrued expenses 1,300,437 (58,998)
-----------------------------------
TOTAL CASH FLOW FROM OPERATIONS (689,283) (478,472)
<P>
CASH FLOWS FROM INVESTING ACTIVITIES
<P>
Purchase property, inventory,
equipment, goodwill and other (1,471,313) (111,046)
Security deposit (17,483) (864)
-----------------------------------
<P>
TOTAL CASH FLOWS FROM
INVESTING ACTIVITIES (1,488,796) (111,910)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
<P>
Borrowings/payments under line
of credit agreement (net) 110,916 6,403
Proceeds from short term debt 709,334 13,000
Payments on short term debt (4,907) (110,000)
Proceeds on long term debt 6,478 5,000
Payments on long term debt (2,636) (833)
Shareholder loan payable (8,148) (42,559)
Sale of common stock 1,659,424 720,224
Sale of preferred stock 0 27,500
----------------------------------
<P>
TOTAL CASH FLOWS FROM FINANCING
ACTIVITIES 2,470,461 618,735
<P>
NET INCREASE IN CASH 292,382 28,353
<P>
CASH BALANCE BEGINNING OF PERIOD 8,400 3,087
---------------------------------
CASH BALANCE END OF PERIOD $300,782 $31,440
==================================
<P>
See accountant's report and accompanying notes to
consolidated financial statements.
</TABLE>
<P>
THE AUXER GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
<P>
Note 1 - Organization of Company
-----------------------
a. Creation of the Company
<P>
Auxer Industries, Inc. (the "Company") was formed on June
20, 1920 under the laws of the State of Idaho as The Auxer
Gold Mines. On May 2, 1995, the certificate of
incorporation was amended to change the name of the Company
to Auxer Industries, Inc.
<P>
On August 11, 1997 the Company incorporated in the State of
Delaware under the name The Auxer Group, Inc. In September
1997 the shareholders of the company voted to exchange
their shares on a one for one basis for shares in the new
company, The Auxer Group, Inc. The new corporate name was
effective January 1, 1998 for accounting and tax purposes.
<P>
b. Description of the Company
<P>
The Company is an investment holding company that is
comprised of six subsidiaries: the Harvey Westbury
Corporation, Hardyston Distributors, Inc., CT Industries,
Universal Filtration Industries, Auxer telecom, Inc. and
Clifton Telecard Inc.
<P>
On April 18, 1995, the Company acquired CT Industries, Inc.
("CT"), a New Jersey corporation based in Wayne, New
Jersey. CT is a distributor of various automotive
products.
<P>
On February 8, 1996, the Company acquired Universal
Filtration Industries, Inc. ("Universal Filtration") a New
York corporation. Based in West Patterson New Jersey,
Universal Filtration has developed the "Fiona Micro Screen
Filter", a replacement upgrade to a component of machinery
used by the dry cleaning industry.
<P>
On October 25, 1996, the Company acquired Harvey-Westbury
Corp. ("Harvey-Westbury"), a New York corporation. Based
in West Patterson, New Jersey, Harvey-Westbury is a
manufacturer and wholesaler of various automotive, marine
and aviation products.
<P>
On April 22, 1999, the Company formed Hardyston
Distributors, Inc. DBA The Mechanic's Depot, a Nevada
corporation. Based in northern New Jersey, The mechanic's
Depot is an automotive parts distributor.
<P>
On August 7, 2000, the Company formed Auxer Telecom Inc., a
Delaware corporation. Auxer Telecom is a reseller of
telecommunication access services with operations based in
Los Angeles, California.
<P>
On August 7, 2000, the Company formed Clifton Telecard
Inc., a Delaware corporation. Based in northern New
Jersey, Clifton Telecard is a wholesale distributor of
prepaid phone cards.
<P>
Note 2 - Summary of Significant Accounting Policies
------------------------------------------
a. Basis of Financial Statement Presentation
<P>
The accompanying condensed financial statements are
unaudited. These statements have been prepared in
accordance with the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair
presentation have been included. These financial
statements should be read in conjunction with the Company's
financial statements and notes thereto for the year ended
December 31, 1999, included in the Company's Form 10-KSB as
filed with the SEC.
<P>
The consolidated financial statements presented consist of
the company and its wholly owned subsidiaries CT, Universal
Filtration and Harvey Westbury, Auxer Telecom and Clifton
Telecard, all of which are under common control. Material
inter-company transactions and balances have been
eliminated in the consolidation.
<P>
b. Loss per share
<P>
Loss per share has been computed by dividing the net loss
for the period by the weighted average number of shares of
common stock outstanding as of September 30, 2000 and
September 30, 1999, respectively.
<P>
Loss per share - assuming dilution, has been computed by
dividing net loss for the period by the weighted average
number of shares of common stock outstanding as of
September 30, 2000 and September 30, 1999 respectively
assuming the dilution effect of the convertible preferred
stock issued and outstanding. Each preferred share is
convertible to 10 shares of the Company's common stock.
Conversion was omitted in determining the diluted earnings
per share because the effect was anti-dilutive.
<P>
c. Receivables
<P>
Allowances against receivables are provided equal to the
estimated collection losses that will be incurred in
collection of all receivables and a reserve for returns and
discounts traditionally taken. Estimated allowances are
based on historical collection experience coupled with
review of current status of the existing receivables and
amounted to $24,090 at September 30, 2000.
<P>
d. Property and Equipment
<P>
Property and equipment are recorded at cost and are
depreciated under the straight-line methods over the
estimated useful lives of the related assets. Expenditures
for major renewals and betterments that extend the useful
lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to
expenses as incurred.
<P>
e. Revenue recognition
<P>
Revenue is recognized when products are shipped or services
are rendered.
<P>
f. Research and development expenses
<P>
Research and development costs are charged to operations
when incurred.
<P>
g. Use of Estimates
<P>
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Accordingly, actual results could differ from those
estimates.
<P>
h. Impairment of Long-Lived Assets
<P>
In the event that facts and circumstances indicate that the
carrying value of long lived assets, including associated
intangibles, may be impaired, an evaluation of
recoverability is performed by comparing the estimated
future undiscounted cash flows associated with the asset to
the assets carrying amount to determine if a write down to
market value or discounted cash flows is required.
<P>
i. Off Balance Sheet Risk
<P>
The Company purchased prepaid phone cards from various
telephone companies who agree to provide long distance
phone service to the cardholder after the Company activates
the phone card when it is sold. In the event the long
distance service provider does not provide the service or
goes out of business, the Company would be responsible for
refunding the purchase price of the phone card.
<P>
The Company mitigates its risk by dealing with well-
capitalized long distance service providers.
<P>
Note 3 - Acquisitions
------------
a. Acquisition of CT Industries, Inc.
<P>
On April 18, 1995, the Company acquired all the capital
stock CT, owned equally by Eugene Chiaramonte, Jr. and
Howard Tapen, for 4,000,000 shares of common stock. The
transaction has been accounted for as a reverse acquisition
and using the purchase method of accounting with historic
costs being the basis of valuation.
<P>
b. Acquisition of Universal Filtration Industries, Inc.
<P>
On February 10, 1996, the Company entered into a memorandum
of understanding which was formalized on August 7, 1996,
for the acquisition of all of the common shares of
Universal Filtration for 1,100,000 shares of common stock.
<P>
c. Acquisition of Harvey-Westbury Corp.
<P>
On October 25, 1996, the Company issued 170,000 shares of
common stock for acquisition of Harvey-Westbury at $.50 per
share. The transaction has been accounted for as a reverse
acquisition and using the purchase method of accounting
with historic costs being the basis of valuation.
<P>
d. Acquisition of the assets of Hardyston Distributors
<P>
On April 22, 1999 the Company issued 836,700 shares of
common stock at $.1075 per share plus $15,000 for the
purchase of inventory and sundry equipment from Mr. Ernest
DeSaye, a sole proprietor.
<P>
e. Acquisition of Telecommunications Switch Operations
<P>
On August 24, 2000 the Company acquired telecommunication
equipment.
<P>
f. Acquisition of Wholesale Prepaid Phone Distribution
Operation
<P>
On September 22, 2000 the Company acquired the assets of
Clifton Telecard Alliance Inc., a New jersey based
telecommunications company.
<P>
Note 4 - Inventory
-------------
<P>
Inventory consists of raw materials, work in process and
finished goods and is valued at the lower of cost
determined on the first-in, first-out method or market.
<P>
Note 5 - Debt
-----
a. Security Agreement
<P>
The Company has entered into a security agreement with
Merchant Financial Corp. to borrow money secured by the
receivables evidenced by invoices of Harvey-Westbury Corp.
The Company has provided guarantees of the repayment of
loans. Finova agreed to lend an amount equal to 75% of the
net value of all Harvey-Westbury's accounts.
<P>
b. Notes Payable
<P>
The following is a summary of short term debt at September
30, 2000:
<P>
Notes Payable to a finance company, payable on demand plus
interest at a rate of 8%. $80,000
<P>
Notes payable to individuals, principal payable in full on
March 20, 2001 200,000
<P>
Note payable to a finance company, due August 1, 2001,
payable in 10 monthly principal and interest payments of
$10,000, one payment principal and interest payment of
$458,000, secured by equipment 564,427
<P>
$784,427
<P>
Long term debt is as follows:
<TABLE>
<S> <C>
13.5% installment note, collateralized by vehicle
payable in monthly installments of $239
with the final payment due May, 2001 $2067
<P>
11.5% installment note, collateralized by vehicle,
payable in monthly installments of $188
with the final payment due May 2003. 5453
-------
7520
Less current maturities (3918)
-------
$3602
=======
</TABLE>
Note 6 - Related Party Transactions
--------------------------
Issuance of Common Shares
<P>
On April 18, 1995, the Company acquired all the capital CT,
owned equally by Eugene Chiaramonte, Jr. and Howard Tapen,
for 4,000,000 shares of common stock.
<P>
Note 7 - Income Taxes
------------
<P>
The Company provides for the tax effects of transactions
reported in the financial statement. The provision, if
any, consists of taxes currently due plus deferred taxes
related primarily to differences between the basis of
assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities, if
any, represent the future tax return consequences of those
differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
As of September 30, 2000, the Company had no material
current tax liability, deferred tax assets, or liabilities
to impact on the Company's financial position because the
deferred tax asset related to the Company's net operating
loss carry forward and was fully offset by a valuation
allowance.
<P>
The Company has net operating loss carry forwards for
income tax purposes of $(4,828,817) at December 31, 1999.
These carry forward losses are available to offset future
taxable income, if any, and expires starting in the year
2011. The Company's utilization of this carry forward
against future taxable income may become subject to an
annual limitation due to a cumulative change in ownership
of the company of more than 50 percent.
<P>
<TABLE>
<S> <C>
Deferred Dec 31, 1999
tax asset:
Net Operating loss $1,641,798
carry forward
Valuation (1,641,798)
allowance
Net deferred tax $0
assets ============
<P>
</TABLE>
<P>
The Company recognized no income tax benefit for the loss
generated for the periods through December 31, 1999.
<P>
SFAS No. 109 requires that a valuation allowance be
provided if it is more likely than not that some portion of
all of a deferred tax asset will not be realized. The
Company's ability to realize benefit of its deferred tax
asset will depend on the generation of future taxable
income. Because the Company has yet to recognize
significant revenue from the sale of its products, the
Company believes that a full valuation allowance should be
provided.
<P>
Note 8 - Business and Credit Concentrations
----------------------------------
<P>
The amount reported in the financial statements for cash,
trade accounts receivable and investments approximates fair
market value. Because the difference between cost and the
lower of cost or market is immaterial, no adjustment has
been recognized and investments are recorded at cost.
<P>
Financial instruments that potentially subject the company
to credit risk consist principally of trade receivables.
Collateral is generally not required.
<P>
Note 9 - Commitments and Contingencies
-----------------------------
a. Lease agreement for office space
<P>
The Company entered into a three-year lease agreement with
a nonaffiliated party beginning on November 1, 1996 at 30
Galesi Drive, Wayne, New Jersey for office space. A $1,800
security deposit was required with minimum monthly
rental payments to be paid as follows:
<TABLE>
<S> <C> <C>
Period Annual Rent Monthly Rent
December 1, 1998 to November 30, 1999 $23,777.04 $1,981.42
</TABLE>
<P>
Effective November 30, 1999, the company continued to lease
the property on a month to month basis at the same rate as
the last period through February 29, 2000 at which time the
lease expired.
<P>
The Company entered into a six month 15 day lease agreement
with a new affiliated party beginning September 1, 2000 and
expiring on March 15, 2001 at a monthly rate of $7,766 for
office space in los Angeles, California.
<P>
b. Lease Agreements for Industrial Facilities
<P>
The Company entered into a three-year lease agreement with
a non affiliated party beginning on April 1, 1995 and
expiring April 1, 1998, at 15 Heisser Court, Farmingdale,
New York, for the Harvey-Westbury operations. On February
23, 1998, the lease was extended to expire on April 30,
1999. On March 29, 1999 the lease was extended to expire
on April 30, 2000. A $5,770 security deposit was required
with minimum monthly rental payments to be paid as follows:
<P>
<TABLE>
<S> <C> <C>
Period Annual Rent Monthly Rent
May 1, 1998 to April 30, 1999 $35,604.00 $2,967.00
May 1, 1999 to April 30, 2000 $36,024.00 $3,002.00
</TABLE>
<P>
The Company assumed the lease agreement with a non
affiliated party entered into by Mr. Ernest DeSaye, Jr.
beginning March 1, 1999 and expiring on February 28, 2000,
at 22B Lasinski Road, Franklin, NJ. The option to renew for
an additional one year was invoked extending the
expiration of the lease to February 28, 2001.
<P>
<TABLE>
<S> <C> <C>
Period Annual Rent Monthly Rent
March 1, 1999 to February 28, 2000 $8700.00 $725.00
March 1, 2000 to February 28, 2001 $9000.00 $750.00
</TABLE>
<P>
The Company entered into a five year lease agreement with a
nonaffiliated party beginning on February 1, 2000 and
expiring January 31, 2005, at 12 Andrews Drive, West
Paterson, NJ, for their Wayne, NJ and Farmingdale, NY
operations. A $15,583 security deposit was required with
minimum monthly payments to be paid as follows:
<TABLE>
<S> <C> <C>
Period Annual Rent Monthly Rent
Feb. 1, 2000 - Jan. 31, 2001 $85,000 $7,083.34
Feb. 1, 2001 - Jan. 31, 2002 $89,250 $7,437.50
Feb. 1, 2002 - Jan. 31, 2003 $93,500 $7,791.67
Feb. 1, 2003 - Jan. 31, 2004 $97,750 $8,145.84
Feb. 1, 2004 - Jan. 31, 2005 $102,000 $8,500.00
</TABLE>
<P>
In addition to the minimum monthly rental payments, the
Company must pay real estate taxes, insurance, and
utilities.
<P>
The Company entered into a month-to-month lease agreement
with a non-affiliated party beginning August 1, 2000 at a
monthly rate of $2,500 for facility space in Los Angeles,
California.
<P>
Note 10 - Development Stage Company
-------------------------
<P>
The Company was considered to be a development stage
company with little operating history and having conducted
research and development and test market activities, funded
the production of multiple sales videos of the Company's
expanded product lines for television and cable
presentation, obtained financing, hired personnel and
developed consulting relationships for the period April 18,
1995 to December 31, 1997. The Company will also be
dependent upon its ability to raise additional capital to
complete its marketing program, acquiring additional
equipment, management talent, inventory and working capital
to engage in profitable business activity. Subsequent to
December 31, 1997, the Company's primary attention turned
to routine, on-going activities and ceased to be a
development stage enterprise.
<P>
Note 11 - Segment Information
-------------------
<P>
Management Policy in Identifying Reportable Segments
<P>
The Company reportable business segments are strategic
business units that offer distinctive products and services
that are marketed through different channels. They are
managed separately because of their unique technology,
marketing, and distribution requirements.
<P>
Types of Products and Services
<P>
The Company is an investment holding company that is
comprised of six subsidiaries: The Harvey Westbury Corp.,
Hardyston Distributors Inc., CT Industries, Universal
Filtration Industries, Inc., Auxer Telecom Inc. and Clifton
Telecard Inc. Harvey Westbury is a manufacturer and
wholesaler of various automotive, marine and aviation
products. Hardyston Distributors is a Northern New Jersey
based automotive parts distributor. CT Industries is a
distributor of various automotive products. Universal
Filtration has in the past manufactured and distributed
filters used by the dry cleaning industry and is currently
inactive.
<P>
Segment Profit or Loss
<P>
The Company's accounting policies for segments are the same
as those described in the summary of significant accounting
policies. Management evaluates segment performance based
on segment profit or loss before income taxes and
nonrecurring gains and losses. Transfers between segments
are accounted for at market value.
<P>
The Company's consolidated balance sheet consists of the
following subsidiary components as of September 30,2000.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Automotive Telecom Intercompany Auxer Group, Inc.
Parent Group Group Eliminations Consolidated
---------------------------------------------------------------------
Balance Sheet
--------------
Current Assets $ 6,250 $ 915,485 $1,264,584 $ 0.00 $2,186,319
Fixed Assets 11,352 66,810 544,989 0.00 623,151
Other Assets 3,584,017 24,112 19,669 (2,709,294) 918,504
------------------------------------------------------------------------
3,601,619 1,006,407 1,829,242 (2,709,294) 3,727,974
=========================================================================
<P>
Liabilities & Stockholders' Equity
<P>
Current
Liabilities $ 372,608 469,745 1,802,592 (230,260) 2,414,685
Long Term
liabilities 0 2,265,515 (2,261,913) 3,602
Stockholders'
Equity 3,229,011 (1,728,853) 26,650 (217,121) 1,309,687
-------------------------------------------------------------------------
Total liabilities
and stockholders'
equity $3,601,619 1,006,407 1,829,242 (2,709,294) 3,727,974
=========================================================================
<P>
The Company's consolidated statement of operations for the
nine month period ended September 30,2000
<P>
Statement of operations
-----------------------
Revenues $ 0 1,417,829 586,304 0 2,004,133
Costs of goods sold 0 955,010 562,968 0 1,517,978
-------------------------------------------------------------------------
Gross profit 0 462,819 23,336 0 486,155
Operating
expenses 1,902,087 465,338 113,747 0 2,481,155
-------------------------------------------------------------------------
Income (loss) $(1,902,087) (2,519) (90,411) 0 (1,995,017)
Other Income
(expense) (2,518) 0 0 0 (2,518)
-------------------------------------------------------------------------
Net Income(loss) (1,904,605) (2,519) (90,411) 0 (1,997,535)
=========================================================================
<P>
The Company's consolidated statement of operations for the
nine month period ended September 30,1999
<P>
Statement of operations
-----------------------
Revenues $ 0 650,523 0 0 650,523
Costs of goods sold 0 419,814 0 0 419,814
-------------------------------------------------------------------------
Gross profit 0 230,709 0 0 230,814
Operating
expenses 559,349 (502,794) 0 0 56,555
-------------------------------------------------------------------------
Income (loss)
from operations $(559,349) (272,085) 0 0 (831,434)
Extraordinary
items 99,780 0 0 0 99,780
-------------------------------------------------------------------------
Net Income(loss) (459,569) (272,085) 0 0 (731,654)
=========================================================================
<P>
The Company's consolidated statement of operations for the
three months ended September 30,2000
<P>
Statement of operations
-----------------------
Revenues $ 0 953,215 0 0 953,215
Costs of goods sold 0 812,525 0 0 812,525
-------------------------------------------------------------------------
Gross profit 0 140,690 0 0 140,690
Operating
expenses 1,316,835 243,478 0 0 1,560,313
-------------------------------------------------------------------------
Net Income
(loss) $(1,316,835) (102,788) 0 0 (1,419,623)
=========================================================================
<P>
The Company's consolidated statement of operations for the
three months ended September 30,1999
<P>
Statement of operations
-----------------------
Revenues $ 0 260,576 0 0 260,576
Costs of goods sold 0 159,612 0 0 159,612
-------------------------------------------------------------------------
Gross profit 0 100,964 0 0 100,964
Operating
expenses 82,176 154,208 0 0 236,384
-------------------------------------------------------------------------
Income (loss)
from operations $ (82,176) (53,244) 0 0 (135,420)
Extraordinary
items 0 0 0 0 0
-------------------------------------------------------------------------
Net Income(loss) (82,176) (53,244) 0 0 (135,420)
=========================================================================
</TABLE>
<P>
Note 12 - Stockholders' Equity
<P>
On January 2, 1999, the Company issued 1,500,000 shares and
1,250,000 shares of the Company's preferred stock valued at
$.15 per share to Eugene Chiaramonte, Jr. and Ronald Shaver
respectively as repayment of loans in the amount of
$15,000, reimbursement of expenses of $12,500, and deferred
compensation of $208,500 and $173,750 respectively.
<P>
The Preferred Stock is convertible, at the holder's option,
at any time into shares of the Company's Common Stock at a
rate of ten shares of Common Stock for each share of
Preferred Stock.
<P>
Item 2. Management's Discussion and Analysis or Plan of
Operation
------------------------------------------------
<P>
The Company is a holding company that has formed a
Telecommunications Group and established two (2)
subsidiaries, Clifton Telecard Inc., a wholesale
distributor of prepaid phone cards and Auxer Telecom Inc.,
which provides telecommunication services from
telecommunications carriers to the telecommunications
industry. Additionally, Auxer owns an Automotive Group
with three (3) active subsidiaries: The Harvey Westbury
Corporation Inc., Hardyston Distributors, Inc. and CT
Industries, Inc. Harvey Westbury assembles and packages
automotive accessories under the name, Easy Test , sells
engine treatment under the name, Formula 2000 Ultimate and
sells waxes and polishes under the name, Garry's Royal
Satin to the automotive, marine, and aviation industries.
Hardyston Distributors, Inc. is a specialty distributor of
automotive parts and accessories to local mechanics,
service stations and dealers. CT Industries, Inc. has been
designated to house any future internet-related business
and currently handles the internet-related sales from the
company's websites as well as other retail programs.
<P>
RESULTS OF OPERATIONS
<P>
THIRD QUARTER ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 1999.
<P>
The Company had sales of $953,215 for the quarter ended
September 30, 2000 as compared to sales of $260,576 for the
quarter ended September 30, 1999. The increase in sales was
attributable to the increase in Harvey Westbury's sales
from its Easy Test products, the additional sales from
Hardyston Distributor's second location, and the additional
sales from Clifton Telecard, Inc. The company had net
losses of $1,419,623 or a loss of $0.013 per share for the
quarter ended September 30, 2000 compared to loss of
$135,420 or a loss of $0.002 per share for the quarter
ended September 30, 1999. The increase in losses was a
result of the increase in general and administrative
expenses related to the development of the Telecom Group
and the acquisitions of Auxer Telecom, Inc. and Clifton
Telecard, Inc. The operating losses increased $1,284,203
from $135,420 in the quarter ended September 30, 1999 to
$1,419,623 in the quartered ended September 30, 2000.
<P>
The Company had general and administrative expenses of
$1,531,411 for quarter ended September 30, 2000 compared to
$231,387 for quarter ended September 30, 1999. The increase
in these expenses was attributable to the additional
general and administrative expenses related to the
development of the Telecom Group and the acquisitions of
assets of Clifton Telecard, Inc. and Auxer Telecom, Inc.
during the quarter ended September 30, 2000. The company
had interest expenses of $6,284 for the quarter ended
September 30, 2000 compared to $2,317 for the quarter ended
September 30, 1999. The increase in interest expenses was a
result of a higher average principal outstanding on Harvey
Westbury's credit facility in 2000.
<P>
PLAN OF OPERATION
<P>
The plan of operation for the Automotive Group for the next
twelve months is to continue to develop the product lines,
expand the automotive operations to a third location,
pursue additional Joint Venture arrangements with other air
conditioning refrigerant suppliers, and seek to acquire
other strategic product lines. The twelve month plan of
operation for the Telecom Group is to complete the
transition of Clifton Telecard's telecommunication traffic
into Auxer Telecom's service operation. Additionally, the
group plans to pursue other strategic acquisitions within
wholesale distribution as well as other sectors of the
telecommunication industry.
<P>
Over the next twelve months, the Company's plans will
require funding to maintain the proper inventory
requirements, to expand the automotive operations, to
secure additional telecommunication equipment, and to
complete any potential acquisitions the company may
consider pursuing. The company can satisfy its cash
requirements for three to six months without financing.
<P>
The Company has an on-going research and development
program under both the automotive and telecommunications
groups. The automotive group is continuing its focus on
development of aftermarket automotive kits and accessories.
The telecommunications group is pursuing development
projects in the areas of Broadband technology and other
innovative products and services related to reselling
access services and prepaid phone services. These programs
are planned to continue over the next twelve months. The
Company does plan to acquire additional switch and
telecommunications equipment as well as increase inventory
to accommodate seasonal automotive products during the next
twelve months. The Company does plan to lease additional
facility requirements as needed for both the automotive
warehouse requirements and telecommunications office and
equipment requirements.
<P>
The Company plans to add additional employees over the next
twelve months in both the automotive and telecommunications
group as sales and service requirement increase. The
company's telecommunication group will require additional
customer service personnel and engineer staff as Clifton
Telecard's customer base is transferred. The automotive
group will require additional sales and driver personnel if
sales continue to increase.
<P>
Management's plan to overcome its financial difficulties
consists of raising additional capital and increasing
revenues from its subsidiaries that are both required to be
able to achieve profitability. The plan of operation
disclosed the Company's plan to grow its subsidiaries
sales. Additionally, the plan of operations for the
Telecom Group focuses on the completing the transition of
Clifton Telecard's traffic and sales. Management projects
current sales levels from Clifton Telecard when combined
with the Auxer Telecom operations will be sufficient to
achieve a profit. The Company estimates its requirements
for additional funding of $2 Million to support automotive
and telecommunication's expansion programs in the next
twelve months. If the Company decides to pursue additional
acquisitions, additional funding may be required.
<P>
The Company will rely on the following to fund its
expansion plans over the next twelve months:
<P>
The Company is anticipating increased revenues to support
the costs of both groups.
<P>
The Company plans to increase its line of credit to assist
in financing inventory. The automotive group will require
an increase in its credit line to $1,500,000 to meet
potential inventory requirements in the 1st and 2nd quarters
of 2001.
<P>
The Company plans to initiate an asset-based line of credit
to assist in financing the Telecom Group's equipment and
expansion requirements. The Telecom Group will require a
line of $2.5 to $5 Million to assist in the group's
expansion and equipment requirements.
<P>
The Company expects to raise additional funding pursuant to
the exemption under Rule 506 of Regulation D of the Act to
support its expansion programs and any acquisitions in both
operation groups.
<P>
TRENDS, EVENTS, OR UNCERTAINTIES WITH MATERIAL IMPACTS
<P>
The Company's ability to achieve profitability will depend,
in part, on its ability to successfully increase its
revenue from its operating groups. The Company will
require additional funding through external sources to
achieve profitability. There is no assurance that the
Company will be able to successfully raise the additional
funding or increase its revenue in order to achieve
profitability.
<P>
In August, the Company acquired key telecommunication
equipment and formed Auxer Telecom, Inc., a wholly owned
subsidiary of the Company. The Company contracted key
telecommunications and strategic business consultants to
assist in the development of the Telecom Group. Auxer
Telecom leased space in two locations within Los Angeles to
accommodate office and equipment requirements.
<P>
In September, the Company's subsidiary, Harvey Westbury
launched its new Fall and Winter line of Easy Test
Products. The product lines were added to achieve an
increase in revenue in the fall and winter seasons when air
conditioning sales are typically at the lowest.
<P>
In September, the Company acquired the assets of Clifton
Telecard Alliance, Inc. and transferred the assets to
Clifton Telecard, Inc., a wholly owned subsidiary of the
Company. Additionally, the Company hired the President of
Clifton Telecard Alliance and his staff to continue
operations.
<P>
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB
REFLECT MANAGEMENT'S BEST JUDGEMENT BASED ON FACTORS
CURRENTLY KNOWN AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS MAY VARY MATERIALLY.
<P>
SOURCE OF LIQUIDITY
<P>
The company's subsidiary, Harvey Westbury signed a new
credit facility agreement on July 11, 2000 with Merchant
Financial Corporation and terminated its credit facility
agreement with Finova Capital (formerly United Credit
Corp.) The new credit facility currently permits borrowings
of up to $400,000 against a fixed percentage of 75% of
eligible accounts receivable and up to 40% of the eligible
inventory. The interest rate on the line of credit is basic
interest on the daily-unpaid cash balances outstanding
during each month at a rate equal to the prime rate plus 5%
per annum above the prime rate of 9.5%. The credit facility
agreement requires a commitment fee of 1% of the maximum
credit line per annum on each anniversary date of the
signing of the agreement, July 11, 2000.
<P>
For the quarter ended September 30, 2000, the Company paid
for operations by raising $2,470,461 through common stock
issuance and debt borrowings after payments to short term
debts. The Company had Notes Payable to shareholders of
$75,732 and had other notes payable of $788,345 on
September 30, 2000. The Company had loans outstanding
against its credit line of $142,284 under a security
agreement with Merchant Financial Corporation to borrow
money secured by the receivable evidenced by invoices of
Harvey Westbury Corp. The Company has provided guarantees
of the repayment of loans. Merchant Financial Corporation
agreed to lend an amount equal to 75% of the net value of
all Harvey Westbury accounts.
<P>
In comparison for the quarter ended September 30, 1999, the
Company paid for operations by raising $618,735 through
common stock issuance and debt borrowing after payment to
short term debts. The Company had Other Notes Payable of
$97,167 on September 30, 1999. The Company had loans
outstanding against its credit line of $32,195 under a
security agreement with Finova Capital to borrow money
secured by the receivable evidenced by invoices of Harvey
Westbury Corp. The Company has provided guarantees of the
repayment of loans. Finova agreed to lend an amount equal
to 75% of the net value of all Harvey Westbury accounts.
The Company issued common stock of $39,240 to provide for
services rendered and consulting requirements during the
quarter ended September 30, 1999.
<P>
PART II - OTHER INFORMATION
<P>
Item 1. Legal Proceedings.
<P>
The Company has the following pending or threatened
litigation:
<P>
Ross & Craig Solicitors v. Auxer Industries, Inc. -
Superior Court of New Jersey, Law Division, Passaic
County - Index No. L1598-98. This is a case brought by
an English partnership against us. Ross & Craig is
requesting the sum of $46,666.23 plus interest accruing
from 1997 for work, labor and services rendered. This
case should have been commenced in England against one
of Auxer's subsidiary or affiliate corporations and
perhaps against certain management of Auxer
individually. To date there has been a complaint served
and an answer filed. We have a pending motion to extend
discovery. The Company plans to contest the case
vigorously. To date we cannot estimate the likelihood of
success of the defense because discovery has not yet
begun.
<P>
Eileen M. Huff, et. al. v. Harvey Westbury Corp. and
Auxer Industries, Inc. - Supreme Court of the State of
New York, Suffolk County, Index No. 29090-97 and Suffolk
County District Court, First District Civil Court of New
York, Index No. CEC67098; and Lorraine Duff v. Harvey
Westbury (and Auxer) and Suffolk County District Court,
First District Civil Court of New York, Index No.CEC67-98.
These cases all involved Auxer's purchase of Harvey
Westbury. They are about the "wrongful termination"
of one employee, and the alleged non-payment of
insurance premiums for another. The Company filed
answers to all lawsuits. In July 1999, the Lorraine Duff
case was settled whereby the parties signed a settlement
agreement. The Company agreed to pay the sum of $5,000
in 10 monthly installments of $500 each. Payments
commenced in August 1999 and will continue until May
2000. With respect to the other lawsuit, the Company
plans to defend its position vigorously. To date, we can
not estimate the likelihood that Auxer will be successful
in defending this lawsuit.
<P>
The Company is not currently aware of any other
pending, past or present litigation that would be
considered to have a material effect on the Company. The
Company considers that any litigation under 10% of its
net assets is not material. There are no known bankruptcy
or receivership issues outstanding and has no known
securities law violations. Additionally, the Company has
no known legal proceedings in which certain corporate
insiders or affiliates of the issuer are in a position
that is adverse to the issuer.
<P>
Item 2. Changes in Securities.
<P>
On July 24, 2000, the Company issued 400,000 shares to
Thomas Trobiano in consideration for $20,000. Such shares
were issued in reliance on the exemption under Section
4(2) of the Securities Act of 1933, as amended (the "Act")
and are restricted in accordance with Rule 144 of the
Securities Act of 1933.
<P>
On September 5, 2000, the Company issued 1,000,000 shares
to Samir Khalaf for consulting services rendered to the
Company. Such shares were issued in reliance on the
exemption under Section 4(2) of the Securities Act of 1933,
as amended (the "Act") and are restricted in accordance
with Rule 144 of the Securities Act of 1933.
<P>
On September 18, 2000, the Company issued 600,000 shares to
James Morris for Consulting Services rendered to the
Company. Such shares were issued in reliance on the
exemption under Section 4(2) of the Securities Act of
1933, as amended (the "Act") and are restricted in
accordance with Rule 144 of the Securities Act of 1933.
<P>
On September 18, 2000, the Company issued 1,000,000 shares
to Mustafa Qattous pursuant to an Asset Purchase Agreement
between the Company and Clifton Telecard, Inc. Such shares
were issued in reliance on the exemption under Section 4(2)
of the Securities Act of 1933, as amended (the "Act") and
are restricted in accordance with Rule 144 of the
Securities Act of 1933.
<P>
On September 18, 2000 the Company issued 1,000,000 shares
to Aref Aref pursuant to an Asset Purchase Agreement
between the Company and Clifton Telecard, Inc. Such shares
were issued in reliance on the exemption under Section
4(2) of the Securities Act of 1933, as amended (the "Act")
and are restricted in accordance with Rule 144 of the
Securities Act of 1933.
<P>
Item 3. Defaults Upon Senior Securities. Not Applicable.
<P>
Item 4. Submission of Matters to a Vote of Security
Holders.
On August 11, 2000, the Company had a vote of Security
Holders which approved the amendment of the Certificate of
Incorporation of the Company to increase the authorized
common shares from 150,000,000 to 1,000,000,000.
<P>
On August 11, 2000, the Company had a Vote of Security
Holders to adopt the Company's 2000 Non Statutory option
Plan to reserve 25,000,000 common shares for the stock
option plan which may be granted to employees, officers,
directors, consultants of the Company and any other parties
who have made a significant contribution to the business
and success of the Company.
<P>
Item 5. Other Information. None.
<P>
Item 6. Exhibits and Reports of Form 8-K. None.
<P>
On September 7, 2000, the Company filed an 8-K with the
Securities and Exchange Commission for the Contract for
the Sale of Goods between Auxer Telecom, Inc., a wholly
owned subsidiary of The Auxer Group, Inc. and Chasin of
Long Beach, Inc. d/b/a Colbie Pacific Capital ("Colbin")
dated August 25, 2000.
<P>
On October 11, 2000, the Company filed an 8-K with the
Securities and Exchange Commission for the Asset Purchase
Agreement effective September 27, 2000 between Clifton
Telecard Inc., a wholly owned subsidiary of The Auxer
Group, Inc. and Clifton Telecard Alliance Inc. (See SEC
File No. 000-30440). This is being reported on this Form
10-QSB since the Asset Purchase Agreement was effective
September 27, 2000.
<P>
Exhibit 27 - Financial Date Schedule - Electronic Filing
Only
<P>
SIGNATURES
<P>
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this 10-QSB report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE AUXER GROUP, INC.
(Registrant)
Date: November 17, 2000 /s/Eugene Chiaramonte, Jr.
---------------------------
Eugene Chiaramonte, Jr.
President, Chief Executive
Officer and Director
<P>
