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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-82468
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AIM GROUP, INC.
(Exact name of small business issuer as specified in its charter)
1000 Abernathy Road, Suite 1000, Atlanta, GA 30328
(Address of registrant's principal executive office)
770-668-0900
(Registrant's telephone number)
<TABLE>
<CAPTION>
Delaware 13-3773537
<S> <C>
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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Check whether the issuer (1) filed all reports to be filed by Section 13 or
(15(d) of the Exchange Act during the past 12 months and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of November 9, 1999 was
3,043,237.
Transitional Small Business Disclosure Format: Yes X No
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AIM GROUP, INC.AND SUBSIDIARIES
INDEX
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<CAPTION>
Page(s)
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PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 3-4
Condensed Consolidated Statements of
Operations - Nine Months and Three
Months Ended September 30,1999 and 1998 5
Condensed Consolidated Statements of
Cash Flows - Nine Months and Three
Months Ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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2
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PART 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AIM Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30, December 31,
1999 1998
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ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $122,007 $324,841
Accounts receivable
Trade 722,107 67,473
Inventories 146,627 135,198
Prepaid expenses and other assets 18,466 7,752
------------- --------------
Total current assets 1,009,207 535,264
Property, Plant, and Equipment (Cost) 1,113,131 877,830
Less Accumulated Depreciation (413,817) (293,740)
--------- ----------
Net Property Plant and Equipment 699,314 584,090
Resource Property 4,036,814 4,005,373
Investments 317,388
Deposits and Patents 51,978 29,917
Goodwill 3,616,123
Less Accumulated Amortization (40,179)
------------- --------------
TOTAL ASSETS $9,690,645 $5,154,644
============= ==============
</TABLE>
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY Sept. 30, December 31,
CURRENT LIABILITIES 1999 1998
----------------- -----------------
<S> <C> <C>
Accounts payable $1,061,087 $621,511
Note Payable 167,500 150,000
Current portion of long-term debt 161,443 34,277
Accrued expenses 210,232 73,048
----------------- -----------------
Total current liabilities 1,600,262 878,836
LONG-TERM DEBT, less current maturities 284,691 179,207
CONVERTIBLE NOTES PAYABLE 600,000 1,050,000
STOCKHOLDERS' EQUITY
Preferred Stock;$1 par value; 1,000,000 shares authorized;
0 and 150,000 shares issued and outstanding at Sept. 30, 1999 0 150,000
and December 31, 1998
Common stock;$.01 par value; 12,000,000 shares authorized;
3,046,387 and 1,330,018 shares issued and outstanding 30,464 13,300
at Sept. 30, 1999 and December 31, 1998
Additional paid in capital 9,386,312 4,544,810
Common stock held in treasury - 3,150 shares at cost (9,876) (9,876)
Retained Earnings (deficit) (2,201,208) (1,651,633)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 7,205,692 3,046,601
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,690,645 $5,154,644
================= =================
</TABLE>
4
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<TABLE>
<CAPTION>
AIM Group, Inc. and Subsidiaries
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
Sept 30 Sept 30 Sept 30 Sept 30
----------------- ---------------- --------------- -----------------
1999 1998 1999 1998
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales $1,254,135 $306,075 $2,441,816 $1,632,686
Costs and expenses
Cost of products sold 907,536 205,315 1,753,800 1,169,433
Selling and administrative expenses 393,555 147,001 1,010,489 417,603
Interest 43,011 44,515 133,171 150,388
Depreciation and amortization 61,313 19,400 93,930 58,201
-------------- ------------ ------------- --------------
Total Expenses 1,405,415 416,231 2,991,390 1,795,625
-------------- ------------ ------------- --------------
(Loss) before taxes ($151,280) ($110,156) ($549,574) ($162,939)
Income taxes 0 0 0 0
-------------- ------------ ------------- --------------
Net( loss) ($151,280) ($110,156) ($549,574) ($162,939)
============== ============ ============= ==============
Net (loss) per share ($0.059) ($0.083) ($0.305) ($0.123)
============== ============ ============= ==============
Weighted average shares outstanding 2,567,908 1,323,702 1,799,794 1,323,702
============== ============ ============== ==============
</TABLE>
** Shares and earnings per share shown are adjusted for one for three reverse
stock split effective on August 21, 1998.
5
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AIM Group, Inc. and Subsidiaries
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30 Sept 30 Sept 30 Sept 30
------------ ------------ ------------- ------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS (DEFICIT) FROM OPERATIONS ($218,660) ($17,209) ($342,998) ($64,681)
CASH FLOWS FROM INVESTING ACTIVITIES:
Common stock proceeds net of issuance costs 2,300,000 2,300,000
Acquisitions of other companies (1,550,000) (1,550,000)
Preferred stock redemptions (375,000) (375,000)
Purchases of property and equipment (54,859) 16,434 (61,620) (55,776)
Increases in other assets and resource property (101,992) (7,882) (342,883) (56,569)
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities 218,149 8,552 (29,503) (112,345)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Debt 21,093 (12,781) 100,125 184,061
------------ ----------- ------------ ------------
Net cash provided by (used in) financing activities 21,093 (12,781) 100,125 184,061
------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH $20,582 ($21,438) ($272,376) $7,035
============ =========== ============ ============
</TABLE>
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AIM Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)-September 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended Sept. 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the AIM Group, Inc. Annual Report
on Form 10-KSB for the year ended December 31, 1998.
NOTE B - INVENTORIES
The components of inventory consist of the following:
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<CAPTION>
September 30, December 31,
1999 1998
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<S> <C> <C>
Finished goods $50,882 $30,909
Raw materials 38,194 47,134
Klannerite ore 48,645 48,645
Spare parts and supplies 8,906 8,510
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Total 146,627 135,198
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</TABLE>
NOTE C - ACQUISITIONS
The financial statements include the results of operations of two companies,
Enterprise Solutions Group, Inc. and The Reddy Group, that were acquired by AIM
Group, Inc. on July 30, 1999. Results of operations subsequent to July 30 are
included in the statements and have been accounted for as purchases.
7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30,1998
Net sales of AIM Group, Inc. (the "Company") for the third quarter of 1999
amounted to $1,254,135, an increase of $948,060 over net sales of $306,075 in
the prior year's comparable quarter. The significant increase in net sales was
primarily attributable to the Company's acquisitions of two companies on July
30, 1999. One company acquired, Enterprise Solutions Group, Inc. ("ESG") is in
the business of business software solutions and the other acquisition, The
Reddy Group, Inc. ("Reddy") does Internet application services. Net revenues
from these two companies in the third quarter were $662,000. The balance of the
increase, $286,060, was due to a substantial increase in demand for the surface
treatment of fire retardant materials handled by the Company's minerals
processing subsidiary, United Minerals Corp.
Cost of products sold amounted to $907,536 and $205,315 in the third
quarters of 1999 and 1998, respectively, resulting in a gross margin of
$346,599 or 28% of net sales in the third quarter of 1999 compared to $100,760
or 33% of net sales in the third quarter of 1998. The increase of both items
was due mainly to two items. One, was the two acquisitions completed during the
quarter accounting for $470,063 in cost of products sold and a 29% gross
margin. A second factor was the 93% increase in sales for the minerals
operation compared to the third quarter of 1998. This resulted in higher cost
of sales of $437,473 and a gross margin of 26%.
Selling and administrative expenses during the third quarter of 1999 were
$393,555, or 31% of net sales, compared to $147,001, or 48% of net sales, in the
third quarter of 1998. This increase of $246,554 was primarily due to expenses
incurred in the connection with the Company's efforts to acquire ESG and Reddy.
Some of these expenses included on-going relocation costs in connection with the
Company's move of the corporate offices to Atlanta, GA
8
<PAGE> 9
during the third quarter, professional services, and travel. Approximately
$120,000 of the increase was attributable to the selling and administrative
expenses related to the two acquisitions completed in the quarter.
Interest expenses were $43,011, or 3% of net sales, in the third quarter of
1999 compared to $44,515, or 15% of net sales, in the third quarter of 1998. The
decrease in interest expenses was attributable to a decline in interest costs
for the convertible notes payable that were partially converted to common stock
in the second quarter of 1999. There was $450,000 principal amount of these
notes converted resulting in an interest savings of $11,250 compared to the
third quarter of 1998. The significant increase in net sales in the quarter
ended September 30, 1999 resulted in interest costs being a much lower
percentage of net sales compared to the third quarter of 1998.
Depreciation and amortization expenses were $61,313 in the third quarter
of 1999 compared to $19,400 for same quarter in 1998. This increase, $41,913,
is almost entirely due to the recognition of $3,616,123 in goodwill that was
recorded in connection with Company's acquisitions of ESG and Reddy during the
quarter. This goodwill is amortized using a 15-year life and amounted to
$40,179 for the quarter.
Primarily as a result of the above, the Company incurred a net loss of
$151,280, or $.059 per share, in the quarter ended September 30, 1999, compared
to a net loss of $110,156, or $.083 per share, in the quarter ended September
30, 1998. The net loss in the quarter ended September 30, 1999 is primarily due
to above average expenses in the general and administrative areas as a result
of acquisition related expenses along with goodwill amortization expense
associated with the two acquisitions completed during the third quarter.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Net sales of the Company for the nine months ended September 30, 1999
amounted to $2,441,816, an increase of
9
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$809,130 from the net sales of $1,632,686 for the nine months ended September
30, 1999. A total of $662,000 or 82% of the increase was attributable to the
two companies acquired by the Company during the third quarter of 1999. The net
sales for these acquisitions during the third quarter was $662,000. The balance
of the increase, $147,130, was due to increased sales for the surface treatment
of fire retardant materials during the nine months ended September 30, 1999
compared to the comparable period in 1998. Net sales for this product line
increased 9% compared to the 1998 period.
Cost of products sold amounted to $1,753,800 and $1,169,433 for the nine
months ended September 30, 1999 and 1998, respectively, resulting in a gross
margin of $688,016 or 28% of net sales for the first nine months of 1999
compared to $463,253 or 28% of net sales for the comparable period in 1998. The
increase in cost of products sold is primarily attributable to the two
acquisitions completed during the third quarter of 1999. Costs of products sold
from the acquisitions was $470,063 with a gross margin of $191,937 or 29% of
net sales. These amounts account for 80% and 85% of the overall increases in
costs of sales and gross margin. The balance of the increases was due to
increased sales in the minerals processing division of the Company.
Selling and administrative expenses for the nine months ended September
30, 1999 were $1,010,489, or 41% of net sales, compared to $417,603, or 26% of
net sales, in the nine months ended September 30, 1998. Of the $592,886
increase in the 1999 period approximately $120,000 or 5% of net sales is due to
major expenses related to the closing of ESG and Reddy during the third quarter
of 1999. In addition, $200,000 of the increase in selling and administrative
expenses was attributable to the stock compensation expense recognized in the
first quarter of 1999 for the hiring of the Company's Chief Operating Officer.
This significant non-cash expense was 8% of net sales. Other acquisition
related expenses contributing to this increase include legal, accounting, and
shareholder professional services, travel, and corporate office relocation to
Atlanta, GA.
Interest expenses were $133,171, or 5% of net sales, in the nine months
ended September 30, 1999 compared to
10
<PAGE> 11
$150,388, or 9% of net sales, for the comparable period in 1998. There were
several reasons for the decline including the following: Higher interest costs
in the 1998 period due to additional financing required such as an inventory
loan and higher interest costs on receivables financing; a decline in
convertible notes interest during the second and third quarter of 1999 due to
conversion of $450,000 principal amount of debt to common stock which resulted
in an approximate interest savings of $16,000; and lastly, the reduction of
$100,000 in debt in the third quarter of 1999 for a noteholder who chose to
exchange this debt owed for 25,000 shares of common stock in connection with
the Company's private placement offering of common stock completed during the
third quarter of 1999.
Depreciation and amortization expenses were $93,930 and $58,201,
respectively, for first nine months of 1999 and 1998. The increase of $35,729
was due to the initial recording of goodwill amortization and depreciation from
the two acquisitions in the third quarter of 1999. Together this amounted to
approximately $47,000. Offsetting this was higher interim depreciation expense
occurring during the first nine months of 1998 that was adjusted down during
the fourth quarter of 1998.
Primarily as a result of the above, the Company incurred a net loss of
$549,574, or $.305 per share, in the nine months ended September 30, 1999,
compared to a net loss of $162,939, or $.123 per share, in the nine months
ended September 30, 1998.
Liquidity and Sources of Capital
The Company had a negative cash flow from operations of $218,660 and
$342,998, respectively, in the third quarter of 1999 and first nine months of
1999, compared to a negative cash flow from operations of $17,209 and $64,681,
respectively, for the comparable periods in 1998. The negative cash flow for the
1999 periods was primarily attributable to the net cash losses incurred and a
large increase in accounts receivable balances as a result of the two
acquisitions completed during the third quarter of 1999.
11
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There was an overall net increase in cash at September 30, 1999 compared to
June 30, 1999 of $20,582. This was due mainly to the $2,300,000 of net proceeds
raised from the Company's private placement of 624,750 shares of common stock
at a price of $4.00 per share. A significant portion of this was used for
investing activities such as the two acquisitions ($1,550,000), redemption of
preferred stock ($375,000), property and equipment purchases ($54,859), and
other investments ($101,992). As of September 30, 1999, the Company had a
working capital deficit of $591,055, which was approximately $180,000 less than
the working capital deficit at June 30, 1999.
In order to increase available cash to meet expenses in the short term, the
Company continued its factoring arrangement for its minerals subsidiary only,
which provides for cash advances against invoices to customers during the period
in which such invoices are outstanding. Generally, the cost of factoring,
similar to interest rates on short term borrowings, is payable on the amounts
outstanding and customer payments are then applied directly to advances.
Factoring, while not increasing working capital, does provide liquidity of
receivables. It is the intention of management to discontinue the use of
factoring as soon as practicable.
On July 30, 1999, AIM Solutions, Inc., a wholly-owned subsidiary of the
Company, acquired 100% of the issued and outstanding capital stock of ESG, a
Florida corporation, for a total purchase price of $1,950,000, consisting of
the payment of $550,000 in cash at closing, the issuance of a promissory note
in the amount of $250,000 which bears interest at 3% per annum and the issuance
of 383,333 shares of the Company's common stock based on a $3.00 share price,
with 191,666 of those shares being held in escrow for distribution on the
following schedule: 50% on July 30, 2000 and 50% on July 30, 2001.
On July 30, 1999, American Internet Media, Inc., a wholly-owned subsidiary
of the Company, acquired 100% of the issued and outstanding capital stock of
Reddy, a Georgia corporation and owner of 100% of the membership interests of
Cereus Bandwith, L.L.C., a Georgia limited liability company. The total
purchase price was $2,000,000 consisting of the payment of $1,000,000 in cash
at closing and the issuance of
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333,333 shares of common stock, based on a $3.00 share price, with such shares
being held in escrow for distribution on the following schedule: 50% on July
30, 2000 and 50% on July 30, 2001. Cash paid by the Company in connection with
the two acquisitions mentioned above was raised in the consummation on July 30,
1999 of the minimum amount of the Company's private offering of common stock
previously mentioned.
The Company expects to consummate its proposed acquisition of Client
Server Solutions, Inc. and CSS Financial Software Sales, Inc. of Atlanta, GA
pursuant to a definitive agreement dated May 5, 1999. The agreement
calls for a purchase price of $5,175,000 to be comprised of (i) $400,000 in
cash, (ii) 983,333 shares of common stock, (iii) promissory notes in the amount
of $1,325,000 bearing interest at 8% per annum, $1,149,000 of which are due in
six months and $176,000 of which are due in four months, and (iv) promissory
notes in the amount of $500,000 bearing interest at 3% per annum and payable
50% in twelve months and the remaining balance in twenty four months. The cash
portion of the purchase price is expected to be generated by the sale of
$750,000 principal amount of the Company's 15% convertible subordinated notes
in a private placement. No assurance can be given as to whether, when or on
what terms the proposed acquisition will be consummated.
YEAR 2000 ISSUE
The Company continued during the third quarter of 1999 monitoring its
program to ensure that all significant computer systems are substantially Year
2000 compliant by the year ending December 31, 1999. Specifically, the
information technology systems primarily used by the company are deemed to be
substantially compliant. For example, the primary computer software
applications supporting the accounting and financial reporting systems are
vendor supplied and have been certified as Year 2000 compliant by such vendors.
In addition, critical automated equipment and machinery used by the Company's
minerals processing subsidiary does not have internal date sensitive chips or
software that require Year 2000 updates.
During the current quarter of 1999 efforts have continued in contacting
key suppliers and customers regarding each other's plans to handle key Year
2000 issues. The majority of the responses received has been positive and has
indicated that most have addressed the issue with a plan and testing. The
Company has also been contacted by most of its larger vendors and customers on
its readiness for Year 2000.
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The Company will continue to monitor the impact of the Year 2000 issue on
its operation and test any software updates or compliance resolutions where
appropriate. However, no guarantee can be assumed that some problems caused by
the Year 2000 issue will not occur either in interacting with third parties or
with the Company's internal systems.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibit is filed herewith:
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<CAPTION>
Exhibit No. Document
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<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. The Company filed a Form 8-K on August 11, 1999
reporting the acquisitions of Enterprise Solutions Group, Inc. and The
Reddy Group, Inc. including its subsidiary, Cereus Bandwith L.L.C. on
July 30, 1999. On October 12, 1999, the Company filed an amendment to
the Form 8-K containing the required historical and proforma financial
statements and other information related to the acquisitions reported.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
AIM GROUP, INC.
<S> <C>
November 10, 1999 By: /s/Paul R. Arena
----------------
Paul R. Arena
Chairman of the Board,
Chief Executive Officer
and President
November 10, 1999 By: /s/ Leigh S. Zoloto
-------------------
Leigh S. Zoloto
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 122,007
<SECURITIES> 0
<RECEIVABLES> 722,107
<ALLOWANCES> 0
<INVENTORY> 146,627
<CURRENT-ASSETS> 1,009,207
<PP&E> 1,113,131
<DEPRECIATION> 413,817
<TOTAL-ASSETS> 9,690,645
<CURRENT-LIABILITIES> 1,600,262
<BONDS> 884,691
0
0
<COMMON> 30,464
<OTHER-SE> 7,175,228
<TOTAL-LIABILITY-AND-EQUITY> 9,690,645
<SALES> 1,254,135
<TOTAL-REVENUES> 1,254,135
<CGS> 907,536
<TOTAL-COSTS> 1,405,415
<OTHER-EXPENSES> 454,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,011
<INCOME-PRETAX> (151,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (151,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,280)
<EPS-BASIC> (.059)
<EPS-DILUTED> (.059)
</TABLE>
