SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 000-22653
American Risk Management Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0353816
---------------------------------
(IRS Employer Identification No.)
4700 Ashwood Drive - Suite 300 - Cincinnati, OH 45241
- --------------------------------------------------------------------------------
(Address of principal executive offices)
513-530-1634
---------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of
the issuer's classes of common equity, as of the latest
practicable date. As of February 29, 2000 the registrant
had issued and outstanding 6,700,168 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 108,782
Accounts receivable, net of allowance for doubtful accounts 749,914
Inventories 408,175
Other current assets 72,864
-----------
Total current assets 1,339,735
Equipment, net of accumulated depreciation 945,586
Goodwill, net of accumulated amortization of $541,944 6,659,989
Deferred debt financing costs 247,644
Other assets 429,810
-----------
Total $ 9,622,764
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank under revolving credit facility $ 235,000
8% convertible and nonconvertible notes payable 900,000
Notes payable to stockholders and former stockholder 1,078,100
Current portion of long-term debt 140,321
Accounts payable 383,881
Other current liabilities 703,433
-----------
Total current liabilities 3,440,735
Long-term debt, net of current portion 42,839
-----------
Total liabilities 3,483,574
-----------
Minority interest 1,093,401
-----------
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized; none
issued --
Common stock, $.001 par value; 50,000,000 shares authorized;
6,473,125 shares issued 6,473
Additional paid-in capital 6,594,344
Accumulated deficit (1,555,028)
-----------
Total stockholders' equity 5,045,789
-----------
Total $ 9,622,764
===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE AND THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Ended
March 31,2000 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenues $ 3,170,814 $ 1,384,236
Cost of revenues 1,896,131 767,238
-------------- --------------
Gross profit 1,274,683 616,998
-------------- --------------
Selling, general and administrative expenses 1,557,133 672,711
Depreciation and amortization 440,058 226,424
-------------- --------------
Total 1,997,191 899,135
-------------- --------------
Operating loss (772,508) (282,137)
Other expense - interest, including amortization of beneficial
conversion rights of $1,151,431 1,221,277 256,510
-------------- --------------
Loss before minority interest (1,943,785) (538,647)
Loss applicable to minority interest 388,757 107,729
-------------- --------------
Net loss (1,555,028) (430,918)
Preferred dividend requirements -- --
-------------- --------------
Net loss applicable to common stock $ (1,555,028) $ (430,918)
============== ==============
Basic net loss per common share $ (.25) $ (.07)
============== ==============
Basic weighted average common shares outstanding 6,316,831 6,473,125
============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 2000
(Unaudited)
Common Stock Additional
Members' -------------------- Paid-in Accumulated
Equity Shares Amount Capital Deficit Total
-------- --------- -------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1999 $ 100 $ 100
Common stock issued in connection with:
Reverse acquisition (100) 6,212,708 $6,213 $6,367,834 6,373,947
Compensation of employees
and payments for other
services 143,750 143 190,169 190,312
Shares issued in settlement of
accrued expenses 116,667 117 36,341 36,458
Net loss (1,555,028) (1,555,028)
------ ---------- ------ ---------- ----------- ----------
Balance, March 31, 2000 $ -- $6,473,125 $6,473 $6,594,344 $(1,555,028) $5,045,789
====== ========== ====== ========== =========== ==========
</TABLE>
3
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net loss $(1,555,028)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 467,107
Amortization of debt issuance costs 1,151,431
Compensation and other services paid through the issuance of
common stock 190,312
Loss attributable to minority interest (388,757)
Changes in operating assets and liabilities:
Accounts receivable (286,715)
Inventories 98,831
Other current assets 123,254
Other assets 28,308
Accounts payable and other current liabilities 232,642
-----------
Net cash provided by operating activities 61,385
Investing activities - net cash received as a result of reverse acquisition 76,994
Financing activities:
Capital contribution 100
Net payments on long-term debt (29,697)
-----------
Net cash used by financing activities (29,597)
-----------
Increase in cash and cash equivalents 108,782
Cash and cash equivalents, beginning of period --
-----------
Cash and cash equivalents, end of period $ 108,782
===========
Supplemental disclosures of cash flow information:
Interest paid $ 27,769
===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1- Business activities and reverse acquisition:
Business:
American Risk Management Group, Inc. ("American Risk"), a publicly traded
Florida corporation, was formed on August 17, 1992 as a holding company for the
purpose of acquiring other operating businesses, and it has acquired and
disposed of several businesses since it was formed. Prior to the exchange of
shares and business combination in September 1999 further described below,
American Risk's continuing operations were comprised of the manufacturing and
distribution operations of its wholly-owned subsidiary, Industrial Fabrication &
Repair, Inc. ("IFR"). IFR provides machining, welding, specialty design and
fabrication for custom applications to clientele from various industries. IFR is
also an authorized distributor for a variety of component products for other
manufacturers.
PeopleFirst Staffing LLC ("PeopleFirst") was a limited liability company that
was formed in the State of Ohio on October 2, 1998 to function as an
administrative services organization that provides small-to-medium sized
businesses with comprehensive, fully integrated outsourcing solutions to human
resource needs, including payroll management, workers' compensation risk
management, benefits administration, unemployment services and human resource
consulting services. PeopleFirst commenced its administrative services
operations during July 1999.
Reverse acquisition:
On September 7, 1999, American Risk and PeopleFirst consummated certain
transactions pursuant to a Share Exchange Agreement whereby American Risk, which
had, effectively, 1,212,708 shares of common stock outstanding with a par value
of $.001 per share, issued 5,000,000 shares of common stock in exchange for 100%
of the equity interest in PeopleFirst (the "Exchange").
As a result of the Exchange, PeopleFirst became a wholly-owned
subsidiary of American Risk and the former members of PeopleFirst became the
owners of approximately 80%, and the stockholders of American Risk prior to the
Exchange became the owners of approximately 20%, of the 6,212,708 shares of
common stock of American Risk outstanding upon the consummation of the Exchange.
Therefore, the Exchange was treated for accounting purposes as a "purchase
business combination" and a "reverse acquisition" effective as of September 1,
1999 in which American Risk was the legal acquirer and PeopleFirst was the
accounting acquirer.
Accordingly, the assets and liabilities of the accounting acquirer, PeopleFirst,
continued to be accounted for at their historical carrying values as of
September 1, 1999. As further explained in Note 3 herein, the fair value of the
1,212,708 shares deemed to have been issued to the stockholders of American Risk
prior to the Exchange was included in the total cost of the acquisition of
American Risk, the acquired company, and the total cost was then allocated to
the fair values of the assets and liabilities of American Risk deemed to have
been acquired or assumed and the excess of the cost over the fair value of the
net assets acquired was allocated to goodwill. The accompanying condensed
consolidated statement of operations for the three and nine months ended March
31, 2000 reflects the results of the operations of PeopleFirst from July 1, 1999
and the results of operations of American Risk from September 1, 1999, the date
of acquisition, through March 31, 2000. Since July 1, 1999 was the effective
date of the commencement of PeopleFirst's operations, financial statements for
periods prior to July 1, 1999 have not been presented.
Note 2 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position of
American Risk and its subsidiaries (collectively, the "Company") as of March 31,
2000 and their results of operations, changes in stockholders' equity and cash
flows for the three and nine months ended March 31, 2000. Certain terms used
herein are defined in the audited consolidated financial statements of the
Company as of June 30, 1999 and for the years ended June 30, 1999 and 1998 (the
"Audited Financial Statements") included in the Company's Annual Report on Form
10-KSB (the "Form 10KSB") for the year ended June 30, 1999 that was previously
filed with the United States Securities and Exchange Commission (the "SEC").
Pursuant to rules and regulations of the SEC, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from these consolidated financial statements unless significant changes have
taken place since the end of the most recent fiscal year. Accordingly, these
5
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
unaudited condensed consolidated financial statements should be read in
conjunction with the Audited Financial Statements and the other information also
included in the Form 10-KSB.
The results of the Company's operations for the three and nine month
periods ended March 31, 2000 are not necessarily indicative of the results of
operations for the full year ending June 30, 2000.
Note 3 - Purchase business combination:
The Company acquired its approximate 80% interest in American Risk
through the Exchange described in Note 1 herein that has been accounted for as a
purchase business combination and a reverse acquisition in which PeopleFirst was
the accounting acquirer and American Risk was the legal acquirer. Accordingly,
the accompanying historical condensed consolidated financial statements include
the results of operations of American Risk and its subsidiaries from September
1, 1999, the effective date of the acquisition, through March 31, 2000. The cost
of the acquisition of American Risk aggregated $6,373,947 and was comprised as
follows:
Deemed issuance of 1,212,708 shares of common
stock with an estimated fair value of $3.75
per share based on the market value of
American Risk's shares at the date of the Exchange $4,547,655
Fair value of shares issued to consultants by
American Risk prior to the Exchange for services
related to the Exchange 1,811,292
Accrued estimated legal, accounting and other
costs related to the Exchange 15,000
----------
Total cost to be allocated $6,373,947
==========
Pursuant to the purchase method of accounting, the initial cost
of acquiring American Risk and its subsidiaries, which exceeded the fair value
of the net assets acquired by $6,598,009, was allocated as follows:
Cash and cash equivalents $ 76,994
Account receivable 463,199
Inventories 507,006
Equipment 1,029,360
Deferred debt financing costs 1,399,075
Other current and noncurrent assets 654,236
Goodwill 7,043,322
Notes payable (2,425,957)
Minority interest (1,482,158)
Other current liabilities (891,130)
----------
Total cost of the acquisition $6,373,947
==========
The following unaudited pro forma information shows the results of
operations for the six and three months ended March 31, 2000 and 1999 as though
the acquisition of American Risk and its subsidiaries had been consummated on
July 1, 1998:
6
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Note 3 - Purchase business combination (concluded):
Nine Months Three Months
Ended March 31, Ended March 31,
---------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,883,757 $ 2,973,253 $ 1,384,236 $ 1,053,639
Cost of revenues 2,355,308 1,863,396 767,238 718,619
----------- ----------- ----------- -----------
Gross profit 1,528,449 1,109,857 616,998 335,020
----------- ----------- ----------- -----------
Other expenses 4,222,563 3,336,461 1,155,645 943,302
----------- ----------- ----------- -----------
Loss before minority interest (2,694,114) (2,226,604) (538,647) (608,282)
Loss applicable to minority interest 538,823 445,321 107,729 121,656
----------- ----------- ----------- -----------
Net Loss (2,155,291) (1,781,283) (430,918) (486,626)
Preferred dividends 89,000 19,250
----------- ----------- ----------- -----------
Net loss and net loss applicable to common stock $(2,155,291) $(1,692,283) $ (430,918) $ (467,376)
Basic loss from operations per common share $ (.34) $ (.26) $ (.07) $ (.07)
Weighted average common shares outstanding 6,316,831 6,500,771 6,473,125 6,453,049
</TABLE>
In addition to combining the historical results of operations of the
Company and American Risk and its subsidiaries for each period, the unaudited
pro forma results of operations include adjustments primarily to reflect for the
entire period (i) the amortization of the goodwill recorded in connection with
the acquisition of American Risk based on an estimated useful life of ten years
and (ii) minority interest. The unaudited pro forma results of operations set
forth above do not purport to represent what the combined results of operations
actually would have been if the acquisition of American Risk and its
subsidiaries had been consummated on July 1, 1998 instead of, effectively,
September 1, 1999 or what the results of operations would be for any future
periods.
Note 4 - Inventories:
At March 31, 2000, inventories consisted of the following:
Raw materials $627,337
Finished goods 201,670
--------
829,007
Noncurrent inventories 420,832
--------
Total $408,175
========
Noncurrent inventories, which are included in other assets, consisted
of finished goods and other supplies not expected to be utilized by the Company
during the twelve months ending March 31, 2001.
7
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Equipment:
<TABLE>
<CAPTION>
At March 31, 2000, equipment consisted of the following:
<S> <C>
Machinery $ 921,801
Automobiles and trucks 66,869
Other 40,690
-----------
Total 1,029,360
Less accumulated depreciation and amortization 83,774
-----------
Total $ 945,586
===========
</TABLE>
Depreciation and amortization expense was $32,770 and $99,192 for the three and
nine months ended March 31, 2000.
Note 6-8% convertible and nonconvertible notes payable:
The 8% convertible notes and the 8% nonconvertible notes payable
(collectively, the "8% Notes") had an aggregate carrying value of $900,000 at
March 31, 2000, of which $819,000 and $81,000 was attributable to the
convertible and nonconvertible notes, respectively. The 8% Notes are due on
demand commencing on the earlier of February 15, 2000 or the date as of which
the Company has received aggregate proceeds of $1,000,000 from the exercise of
warrants sold through private placement of units by American Risk in March 1999
(see Note 15 to the Audited Financial Statements in the Form 10-KSB).
Convertible notes in the principal amount of $273,000 and $546,000 can be
converted into shares of common stock at $.91 per share and $1.36 per share,
respectively, and, accordingly, a total of 701,471 shares of common stock were
reserved for possible future issuance upon conversion. However, conversion at
any time through March 31, 2000 is subject to the consent of the investment
banking firm that was the placement agent for the private sale of the units.
The 8% Notes were issued by American Risk on March 10, 1999 as part of
the consideration for the redemption of shares of preferred stock (see Note 15
to the Audited Financial Statements in the Form 10-KSB). The fair value of
American Risk's common stock on that date was $5.25 per share which exceeded the
conversion prices for the convertible notes. Pursuant to interpretations issued
by the staff of the Securities and Exchange Commission, such excess constitutes
a beneficial conversion feature or right for which the value is measured by the
difference between the aggregate conversion price and the fair value of the
common stock into which the securities are convertible, multiplied by the number
of shares into which the securities are convertible. Accordingly, American Risk
initially recorded beneficial conversion rights in connection with the issuance
of the convertible notes with a fair value of approximately $2,864,000, which
equaled the excess of the aggregate proceeds the noteholders would have received
if they had converted the notes and sold the 701,471 shares of common stock for
approximately $3,683,000 based on the fair market value of $5.25 per share on
March 10, 1999 and the aggregate exercise price of approximately $819,000 for
300,000 shares at $.91 per share and 401,471 shares at $1.36 per share.
In connection with the acquisition of American Risk (see Note 3), the
Company allocated $1,399,075 of the purchase price to beneficial conversion
rights, which was equal to American Risk's historical net unamortized cost as of
September 1, 1999, the effective date of the Exchange. Amortization totaled
$1,151,431 during the period from September 1, 1999 to March 31, 2000. The
unamortized balance of $247,644 comprises the balance of deferred debt financing
costs in the accompanying condensed consolidated balance sheet as of March 31,
2000.
8
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Other short-term and long-term debt:
For information as to the Company's notes payable to stockholders and
former stockholder, revolving line-of-credit and long-term debt, see Notes 8, 9
and 10 to the Audited Financial Statements in the Form 10-KSB.
Note 8 - Contingencies:
Litigation:
In the ordinary course of business, the Company is both a plaintiff and
defendant in various legal proceedings. In the opinion of management, the
resolution of these proceedings will not have a material adverse effect on the
consolidated financial position or results of operations of the Company in
subsequent years.
Concentrations of credit risk and major customers:
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and trade accounts receivable. The
Company maintains its cash balances with major financial institutions that have
high credit ratings. At times, such balances may exceed Federally insured
limits.
The Company generally extends credit to its customers, substantially
all of whom are located in the central United States. Management of the Company
closely monitors the extension of credit to customers while maintaining
allowances for potential credit losses. During the nine months ended March 31,
2000, no customer accounted for more than 10% of the Company's revenues.
Generally, the Company does not have a significant receivable from any single
customer and, accordingly, management does not believe that the Company was
exposed to any significant credit risk at March 31, 2000.
Note 9 - Income taxes:
As of March 31, 2000, the Company had net operating loss carryforwards
of approximately $18,000,000 arising primarily from the operations of American
Risk prior to the Exchange, which are available to reduce future Federal taxable
income and will expire at various dates through 2019. The Company had no other
material temporary differences as of that date. Due to the uncertainties related
to, among other things, the changes in the ownership of the Company, which could
subject those loss carryforwards to substantial annual limitations, and the
extent and timing of its future taxable income, the Company offset the deferred
tax assets attributable to the potential benefits of approximately $7,200,000
from the utilization of those net operating loss carryforwards by an equivalent
valuation allowance as of March 31, 2000.
The Company had also offset the potential benefits of approximately
$7,000,000 from net operating loss carryforwards by equivalent valuation
allowances as of September 1, 1999, the effective date of the Exchange. As a
result of the increases in the valuation allowance of $200,000 during the period
from September 1, 1999 to March 31, 2000, no credit for income taxes are
included in the accompanying condensed consolidated statements of operations for
the nine months ended March 31, 2000.
Note 10 - Earnings (loss) per share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings per common share pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128"). Basic earnings (loss) per common share is calculated by dividing net
income or loss applicable to common stock by the weighted average number of
common shares outstanding during each period. The calculation of diluted
earnings (loss) per common share is similar to that of basic earnings per common
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potentially
dilutive common shares, such as those issuable upon the assumed exercise of
stock options and warrants, had been issued during the period.
Note 11 - Stockholders' equity:
Changes in authorized shares:
On July 30, 1999, the board of directors and a majority of the Company's
stockholders approved an amendment to the Company's articles of incorporation
whereby the number of shares of preferred stock authorized for issuance
increased from 200,000 to 5,000,000 shares, the number of shares of common stock
authorized for issuance increased from 3,125,000 to 50,000,000 shares and the
par value of the common stock was reduced from $.008 to $.001.
9
<PAGE>
AMERICAN RISK MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock options:
On July 30, 1999, the Company adopted an Employee Stock Option Plan ( the "1999
Plan") which provides for grants of incentive stock options ("ISOs"),
nonqualified stock options ("NSOs") and reload options to the Company's
employees, directors, consultants and advisors for the purchase of up to
1,000,000 shares of the Company's common stock. The option price per share for
ISOs granted under the Plan may not be less than the fair market value of a
share of the Company's common stock on the date of grant, provided that the
exercise price of any ISO granted to an employee owning more than 10% of the
outstanding common shares of the Company may not be less than 110% of the fair
market value of the shares on the date of grant. The option price per share for
NSO's granted under the Plan may not be less than the par value of the Company's
common stock. Options vest and are exercisable over periods determined by the
board of directors provided that no option may be exercisable more than ten
years from the date of grant. The 1999 Plan will terminate on July 30, 2009. As
of March 31, 2000, no options had been granted under the 1999 Plan.
As further explained in Note 16 to the Audited Financial Statement in
the 10-KSB, there were options to purchase 25,938 shares of common stock
outstanding as of June 30, 1999 that had been granted pursuant to American
Risk's 1997 stock option plan. All of those options were canceled prior to the
date of the Exchange.
Note 12- Segment information:
The Company is reporting segment sales and gross margins in the same
format reviewed by the Company's management (the "management approach"). The
Company has two reportable segments: "Administrative Services" and
"Manufacturing" as further described in Note 1.
Revenues, cost of revenues and other related segment information as of
and for the three and nine months ended March 31, 2000 follows:
10
<PAGE>
Management Discussion and Analysis or Plan of Operations
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of
Private Securities Litigation Reform Act 1995. Such statements consist
of any statement other than a recitation of historical fact and can be
identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. The
reader is cautioned that all forward-looking statements are necessarily
speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred
to in such forward looking statements. The Company does not have a
policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by management of the Company over
time means that actual events are bearing out as estimated in such
forward looking statements.
Accounting Treatment of Exchange:
On September 7, 1999, American Risk Management Group, Inc. ("American
Risk") and PeopleFirst Staffing LLC ("PeopleFirst") consummated certain
transactions pursuant to a Exchange Agreement ( the "Exchange") whereby
American Risk, which had effectively 1,212,708 shares of common stock
outstanding, issued 5,000,000 shares of common stock in exchange for
100% of the equity interest in PeopleFirst.
As a result of the Exchange, the former members of PeopleFirst became
the owners of approximately 80% and the former stockholders of American
Risk became the owners of approximately 20% of the 6,212,708 shares of
common stock of American Risk outstanding upon the consummation of the
Exchange. Therefore, the Exchange was treated effective as of September
1, 1999 as a " purchase business combination" and a "reverse
acquisition" for accounting purposes in which American Risk was the
legal acquirer and PeopleFirst was the accounting acquirer.
Accordingly, the assets and liabilities of PeopleFirst will be
accounted for at their historical carrying values and the assets and
liabilities of American Risk will be valued at their fair values as of
September 7, 1999 with the excess of PeopleFirst's cost over the fair
value allocated to goodwill.
The Condensed Consolidated Statement of Operations includes the
operations of PeopleFirst prior to September 7, 1999 and American Risk
together with PeopleFirst subsequent to that date. See Notes 1 and 3 to
the Consolidated Financial Statements.
Pro Forma
The following discussion includes the results of operations for the
nine and three months ended March 31, 2000 and 1999 as though the
acquisition had been consummated on July 1, 1998.
Nine months ended March 31, 2000 vs. nine months ended March 31, 1999
During the nine months ended March 31, 2000, consolidated revenues
increased by approximately $910,504 or 31% from approximately
$2,973,253 for the nine months ended March 31, 1999 to approximately
$3,883,757 for the nine months ended March 31, 2000. The increase is
attributable to (1) $371,148 in staffing sales from PeopleFirst
Holdings (2) increase in fabrication contracts within the manufacturing
division in December 1999.
Cost of revenues during the nine months ended March 31, 2000 increased
by approximately $491,912 or 26% from approximately $1,863,396 for the
nine months ended March 31, 1999 to approximately $2,355,308 for the
nine months ended March 31, 2000. The primary reason for the increase
is due to the increase in revenues for the nine months ended March 31,
2000 compared to March 31, 1999.
Gross profit margin during the nine months ended March 31, 2000
increased to approximately 39% or 2% from approximately 37% for the
nine months ended March 31, 1999. The primarily reason for the increase
in the gross profit margin is an increase in revenues generated by
PeopleFirst Holdings which has larger gross profit margin than those of
the manufacturing division.
The Company's other expenses increased by approximately by $886,102 or
27% from approximately $3,336,461 for the nine months ended March 31,
1999 to approximately $4,222,563 for the nine months ended March 31,
2000. Approximately $1,341,743 of this increase was a result of the
11
<PAGE>
following non-cash charges which were incurred during the nine months
ended March 31, 2000 (1) $1,151,431 relating to the amortization of
debt issue costs and (2) approximately $190,312 of common stock issued
for services. During the nine months ended March 31, 1999, the Company
had non-cash charges totaling $1,424,211. The balance of the increase
is primarily due to an increase in professional and consulting fees
necessitated by the Company's change in corporate direction.
As a result of all the above, the Company's net loss, after allocating
the loss to minority interest, increased by approximately $463,008 from
approximately $1,692,283 or $(.26) per share for the nine months ended
March 31, 1999 to approximately $2,155,291 or $(.34) per share for the
nine months ended March 31, 2000.
Three months ended March 31, 2000 vs. three months ended March 31, 1999
During the three months ended March 31, 2000, consolidated revenues
increased by approximately $330,597 or 31% from approximately
$1,053,639 for the three months ended March 31, 1999 to approximately
$1,384,236 for the three months ended March 31, 2000. The increase is
primarily attributable to $233,151 in staffing sales from PeopleFirst
Holdings.
Cost of revenues during the three months ended March 31, 2000 increased
by approximately $48,619 or 7% from approximately $718,619 for the
three months ended March 31, 1999 to approximately $767,238 for the
three months ended March 31, 2000. The primary reason for the increase
is due to the increase in revenues for the three months ended March 31,
2000 compared to March 31, 1999.
Gross profit margin during the three months ended March 31, 2000
increased to approximately 45% or 13% from approximately 32% for the
three months ended March 31, 1999. The primarily reason for the
increase in the gross profit margin is due to the increase in staffing
sales from PeopleFirst Holdings which have larger gross profit margins.
The Company's other expenses increased by approximately by $212,343 or
23% from approximately $943,302 for the three months ended March 31,
1999 to approximately $1,155,645 for the three months ended March 31,
2000. Approximately $406,369 of the change was a result of the
following non-cash charges which were incurred during the three months
ended March 31, 2000 (i) approximately $230,286 relating to the
amortization of debt issue costs and (2) approximately $176,083
relating to the amortization of goodwill. After giving effect to the
non-cash charges during the three months ended March 31, 2000, other
expenses decreased $194,126 for the same period in the prior year. The
decrease is primarily the result of costs incurred as a result of the
acquisition of BSD during the three months ended March 31, 1999.
As a result of all the above, the Company's net loss, after allocating
the loss to minority interest, decreased by approximately $36,458 from
approximately $467,376 or $(.07) per share for the three months ended
March 31, 1999 to approximately $430,918 or $(.07) per share for the
three months ended March 31, 2000.
Historical Information
These results include the operations of the fabrication business only
from September 7, 1999 through March 31, 2000.
Six months ended March 31, 2000
During the nine months ended March 31, 2000, the Company had revenues
of $3,170,814, of which $371,148 was from the administrative services
business and the remainder from the fabrication business. The
administrative service business became operational on October 1, 1999
and will continue to grow as new employees are added.
Selling, general, and administrative expenses were $1,557,133 for the
nine months ended March 31, 2000, and other expenses were $1,661,335,
most of which were non-cash charges related to amortization of debt
issuance costs and amortization of goodwill. The Company had a net loss
for the nine months ended of $1,555,028 or $(.25) per share.
12
<PAGE>
Three months ended March 31, 2000
During the three months ended March 31, 2000, the Company had revenues
of $1,384,236, of which $233,151 was from the administrative services
business and the remainder from the fabrication business. The
administrative service business became operational on October 1, 1999
and will continue to grow as new employees are added.
Selling, general, and administrative expenses were $672,711 for the
three months ended March 31, 2000, and other expenses were $482,934,
most of which were non-cash charges related to amortization of debt
issuance costs and goodwill. The Company had a net loss for the three
months ended of $430,918 or $(.07) per share.
Liquidity and Capital Resources
At March 31, 2000, the Company had a working capital deficiency of
approximately $2,101,000. The working capital deficiency is primarily
due to the excess of current liabilities over assets assumed by
PeopleFirst in its reverse acquisition of American Risk, which includes
$1,078,000 of shareholder loans and $900,000 of other loans due in
fiscal 2000. During the nine months ended March 31, 2000, the Company
generated $61,385 in cash from operations and acquired $76,994 in cash
pursuant to the transaction with PeopleFirst. The Company utilized
$29,697 in cash by paying down long-term debt. It will be necessary for
the Company to raise additional working capital or to take other action
to help its working capital situation for the operation of PeopleFirst.
In October 1999, the Company received a note for $225,000 and issued
150,000 shares of common stock upon the exercise of 150,000 warrants.
The note and warrant exercise were cancelled in December 1999. Further,
the Company believes, but cannot assure, that it will be able to
generate additional resources through loans, sales or other issuance of
capital stock to related and/or unrelated parties. In addition, the
Company cannot provide any assurances that it will be successful in
generating profitable operations on a sustained basis from PeopleFirst
or its manufacturing division, however, it believes that it will have
sufficient resources to fund operations through June 30, 2000. At this
time the Company is reviewing its options as to whether to sell some or
all of its operations or to sell the Company.
In January 1998 American Risk completed a private placement of 5%
Convertible Preferred Stock, resulting in gross proceeds of $1,250,000.
The Company filed a proxy statement for a special meeting of
shareholders at which the conversion terms of additional shares of 5%
Convertible Preferred Stock would be submitted for approval by the
Company's shareholders; however, no meeting date was set. In February
1999, the Company and the holder of the Preferred Stock entered into an
agreement pursuant to which the Preferred Stock was exchanged in March
1999 for (i) $600,000 in cash, (ii) convertible notes aggregating
$819,000 with fixed conversion prices (iii) a non convertible note for
$81,000(iv) 31,250 shares of Common Stock and (v) the cancellation of
outstanding warrants.
In March 1999, American Risk completed a private placement of Common
Stock and warrants to raise additional funds to fund its plan of
operations for the balance of fiscal 1999 and to pay the
above-described payment. The Company issued 250,000 shares of Common
Stock, 1,000,000 Class A Warrants, and 1,000,000 Class B Warrants. The
Company received gross proceeds of $1,000,000. The funds received from
the private placement have been utilized.
On July 2, 1999, American Risk completed the transaction in which it
sold its real property in Knoxville, Tennessee for $450,000 plus
certain other liabilities. The proceeds from the sale were utilized to
satisfy the debt on the property as well as other outstanding
obligations of the Company.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
American Risk Management Group, Inc.
a Florida corporation
Date: May 19, 2000 By: /s/ RONALD WILHEIM
-----------------------------------
Ronald Wilheim, Chief Executive Officer
14
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