UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended April 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______.
Commission File No. 0-10841
American Millennium Corporation, Inc.
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(Exact name of small business issuer as specified in its charter)
New Mexico 85-0273340
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
110 North Rubey Drive, Suite 100A, Golden, CO 80403
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(Address of principal executive offices)
(303) 279-2002
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(Issuer's telephone number)
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(Former name, former address, and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 48,031,977 at June 23, 2003.
Transitional Small Business disclosure Format (check one): Yes [ ] No [X]
AMERICAN MILLENNIUM CORPORATION, INC.
FORM 10-QSB
INDEX
PAGE
PART I-FINANCIAL INFORMATION
Item 1-Financial Statements (Unaudited)
Consolidated Balance Sheet - April 30, 2003 (Unaudited) 2
Consolidated Statements of Operations - Three months ended
April 30, 2003 and 2002 (Unaudited) 3
Consolidated Statements of Operations - Nine months ended 4
April 30, 2003 and 2002 (Unaudited)
Consolidated Statement of Stockholders' Equity - April 30, 5
2003 (Unaudited)
Consolidated Statements of Cash Flows - Nine months ended
April, 2003 and 2002 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2-Management's Discussion and Analysis or Plan of Operation 9
Item 3-Controls and Procedures 11
PART II-OTHER INFORMATION
Item 1 -Legal Proceedings 12
Item 2 -Changes in Securities 12
Item 3 -Defaults Upon Senior Securities 12
Item 4 -Submission of matters to a Vote of Securities Holders 12
Item 5 -Other Information 12
Item 6 -Exhibits and reports on Form 8-K 13
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PART I - FINANCIAL INFORMATION
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Item 1-Consolidated Financial Statements (Unaudited)
The consolidated financial statements in response to this item are as follows:
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
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April 30, 2003
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 205,215
Restricted cash 100,468
Accounts receivable, less allowance for doubtful accounts of $41,000 622,855
Inventories 138,906
Employee advances 97,775
Prepaid expenses 36,141
Equipment deposits 126,250
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TOTAL CURRENT ASSETS 1,327,610
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PROPERTY AND EQUIPMENT, NET 238,978
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OTHER ASSETS
Securities in closely-held corporation 3,040
Security deposits and other assets 10,974
Equipment deposits 1,500,000
Intangible assets 306,000
Goodwill 925,000
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TOTAL OTHER ASSETS 2,745,014
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TOTAL ASSETS $ 4,311,602
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 43,687
Accounts payable - trade 1,432,451
Accounts payable - related parties 126,514
Accrued expenses 222,873
Accrued warranty liability 15,000
Notes payable to related parties 309,674
Bank credit facility 807,755
Current portion of notes payable and capital lease obligations 437,974
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TOTAL CURRENT LIABILITIES 3,395,928
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LONG TERM LIABILITIES
Notes payable, net of current portion 33,243
Capital lease obligations, net of current portion 3,519
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TOTAL LONG TERM LIABILITIES 36,762
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TOTAL LIABILITIES 3,432,690
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STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 10,000,000 shares authorized; 1,240,000
shares issued and outstanding (liquidation preference of
$2.50 per share plus cumulative unpaid dividends, $3,131,000) 1,240
Common stock, $.001 par value, 60,000,000 shares authorized;
48,031,977 shares issued and outstanding 48,032
Additional paid-in capital 21,760,415
Accumulated deficit (20,543,925)
Stock subscription receivable (115,000)
Advances from officers (271,850)
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TOTAL STOCKHOLDERS' EQUITY 878,912
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,311,602
=========================================================================================================
See accompanying notes.
2
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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For the Three Months Ended April 30, 2003 2002
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REVENUES $ 235,957 $ 81,874
COST OF REVENUES 165,625 78,338
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GROSS PROFIT 70,332 3,536
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Compensation to officers 98,910 112,200
Consulting - others 26,606 40,053
Professional 68,238 14,909
Employee salaries 82,385 74,145
Employee benefits and payroll taxes 28,098 23,955
Travel 15,089 13,158
Telephone and utilities 4,885 10,545
Depreciation and amortization 7,088 7,595
Equipment and property rental 18,431 20,771
Bad debts 63 -
Computer and internet 18,371 22,732
Other 14,650 97,995
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TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 382,814 438,058
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LOSS FROM OPERATIONS (312,482) (434,522)
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OTHER INCOME (EXPENSES)
Interest expense (4,957) (14,590)
Other (102,715) 17,061
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TOTAL OTHER INCOME (EXPENSES) (107,672) 2,471
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NET LOSS (420,154) (432,051)
Preferred stock dividends paid (50,000) -
Deemed preferred stock dividends (31,000) -
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NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (501,154) $ (432,051)
=========================================================================================================================
BASIC AND DILUTED NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS $ (0.01) $ (0.01)
=========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(BASIC AND DILUTED) 45,590,802 30,516,989
=========================================================================================================================
See accompanying notes.
3
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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For the Nine Months Ended April 30, 2003 2002
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REVENUES $ 660,758 $ 462,290
COST OF REVENUES 447,155 412,026
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GROSS PROFIT 213,603 50,264
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Compensation to officers 376,410 371,825
Consulting - others 283,843 196,078
Professional 187,922 37,676
Employee salaries 234,931 204,146
Employee benefits and payroll taxes 77,547 84,451
Travel 39,724 50,082
Telephone and utilities 24,047 25,857
Depreciation and amortization 22,279 57,831
Equipment and property rental 56,325 61,375
Bad debts 8,209 43,348
Computer and internet 62,178 54,961
Other 48,723 136,234
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TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,422,138 1,323,864
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LOSS FROM OPERATIONS (1,208,535) (1,273,600)
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OTHER INCOME (EXPENSES)
Interest expense (77,693) (73,433)
Impairment of asset - (20,417)
Other (102,389) 12,592
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TOTAL OTHER INCOME (EXPENSES) (180,082) (81,258)
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NET LOSS (1,388,617) (1,354,858)
Preferred stock dividends paid (141,978) -
Deemed preferred stock dividends (31,000) -
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NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(1,561,595) $(1,354,858)
==========================================================================================================================
BASIC AND DILUTED NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS $ (0.03) $ (0.04)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(BASIC AND DILUTED) 45,208,717 30,516,989
==========================================================================================================================
See accompanying notes.
4
AMERICAN MILLENNIUM CORPORATION, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
For the Nine Months Ended April 30, 2003
Additional Advances Total
Common stock Preferred stock paid-in Accumulated Subscription from stockholders'
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Shares Amount Shares Amount capital deficit receivable officers (deficit)equity
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Balances - August
1, 2002 44,781,977 $44,782 1,000,000 $1,000 $20,714,110 $(19,155,308) $(2,615,000) $- $(1,010,416)
Issuance of Series A
preferred stock and
reduction in
subscription
receivable in
exchange for cash
and in satisfaction
of $750,000
notes payable - - 240,000 240 599,760 - 2,500,000 - 3,100,000
Common stock issued
for the
acquisition
of Lightfoot
Precision
Control, Inc. 2,750,000 2,750 - - 354,750 - - - 357,500
Advances from
officers, acquired
in
connection with
business
acquisition - - - - - - - (271,850) (271,850)
Common stock
exchanged for
services 500,000 500 - - 39,500 - - - 40,000
Forgiveness of
accrued
compensation
by officers - - - - 194,273 - - - 194,273
Preferred stock
dividends paid - - - - (141,978) - - - (141,978)
Net loss - - - - - (1,388,617) - - (1,388,617)
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Balances - April
30, 2003 48,031,977 $48,032 1,240,000 $1,240 $21,760,415 $(20,543,925) $(115,000)$(271,850) $878,912
========================================================================================================================
See accompanying notes.
5
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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For the Nine Months Ended April 30, 2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,388,617)$(1,354,858)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and Amortization 22,279 57,831
Provision for bad debts 8,209 43,348
Common stock exchanged for services 40,000 24,260
Write down of impaired asset - 20,417
(Increase) decrease in assets, net of business acquisition:
Accounts receivable (48,625) (60,665)
Inventory 4,499 5,514
Prepaid expenses (15,766) 7,417
Other assets (10,175) 13,791
Increase (decrease) in liabilities, net of business acquisition:
Accounts payable 317,080 245,175
Accounts payable - related parties 54,863 -
Accrued expenses and other liabilities 122,509 206,038
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NET CASH USED IN OPERATING ACTIVITIES (893,744) (791,732)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Cash acquired in business acquisition 2,726 -
Notes receivable 100,000 -
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RECEIPTS FROM INVESTING ACTIVITIES 102,726 -
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Disbursements
Acquisition of property and equipment (3,706) -
Equipment deposits (1,376,250)
(1,379,956) -
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DISBURSEMENTS FROM INVESTING ACTIVITIES (1,379,956) (3,105)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,277,230) (3,105)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from note payable related parties, net 128,000 30,130
Proceeds from issuance of preferred stock 2,350,000 1,535,000
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RECEIPTS FROM FINANCING ACTIVITIES 2,478,000 1,565,130
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Disbursements
Payments on capitalized leases (2,898)
Payments on notes payable to stockholders (6,810) -
Payments on notes payable related parties - (5,000)
Preferred stock dividends paid (141,978)
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DISBURSEMENTS FROM FINANCING ACTIVITIES (151,686) (5,000)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,326,314 1,560,130
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NET INCREASE IN CASH AND CASH EQUIVALENTS 155,340 765,293
CASH AND CASH EQUIVALENTS - BEGINNING 49,875 4,184
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CASH AND CASH EQUIVALENTS - ENDING $ 205,215 $ 769,477
=======================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 77,693 $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for:
Notes payable to related parties $ 30,130
Convertible debt $ 875,000
Notes payable to shareholders $ 170,595
Forgiveness of accrued compensation by officers $ 194,273
Related party payable exchanged for subscription receivable $ 750,000
Purchase of Lightfoot Precision Control, Inc. (Note 2):
Fair value of tangible assets acquired:
Restricted cash $ (100,468)
Accounts receivable (467,667)
Advances from officers (271,850)
Employee advances (88,645)
Property and equipment (171,336)
Prepaid expenses and other (61,695)
Intangible assets (Note 2) (306,000)
Goodwill (Note 2) (925,000)
Liabilities assumed:
Bank overdraft 43,687
Accounts payable and accrued expenses 716,251
Bank credit facility 807,755
Notes payable, other 470,194
Fair value of common stock exchanged 357,500
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Cash acquired: $ 2,726
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See accompanying notes.
6
AMERICAN MILLENNIUM CORPORATION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying unaudited condensed consolidated financial statements of
American Millennium Corporation, Inc. (AMCI) have been prepared in accordance
with accounting principles generally accepted in the United States for interim
information and with the instructions to Form 10-QSB and Regulation S-B, and
should be read in conjunction with a reading of the consolidated financial
statements and notes thereto included in the Company's Form 10-KSB Annual Report
filed with the Securities and Exchanged Commission on November 14, 2002.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments of a normal
and recurring nature considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
April 30, 2003, may not necessarily be indicative of the results that may be
expected for the year ending July 31, 2003.
Basis of consolidation and segments
The accompanying consolidated financial statements include the accounts of
American Millennium Corporation, Inc. and its wholly-owned subsidiaries, AMCI
International, Inc. and, effective April 21, 2003, Lightfoot Precision Control,
Inc. ("Precision", Note 2). The Company and Precision designated April 30, 2003
as the effective date for consolidating Precision, therefore the Company's
results of operations through April 30, 2003 do not include results of
Precision. All significant intercompany accounts and transactions have been
eliminated in consolidation.
As a result of the Precision acquisition, the Company now operates in two
segments, which include the satellite communications segment and the electrical
controls and automation segment (Precision). At April 30, 2003 total assets of
the satellite communications segment are $2,188,065 and total assets of
Precision are $2,123,537.
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Basic and diluted net loss per common share
Basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during each period.
Available stock options and warrants at April 30, 2003, to purchase 19,454,716
shares were anti-dilutive and not considered common stock equivalents for
purposes of computing loss per common share. In periods where losses are
reported, the weighted average number of common shares outstanding excludes
common stock equivalents, because their inclusion would be anti-dilutive.
Revenue recognition
AMCI develops and sells satellite communication systems. Revenue from sales of
satellite communication systems is recorded at the time the goods are shipped or
access is granted to the service. The Company provides satellite airtime to its
customers on a month-to-month basis, which is recognized as revenue at the time
the service is provided.
Precision develops and markets electrical controls and automation equipment to
the oil and gas industry, primarily in Texas, Wyoming and Colorado. Revenue from
sales of equipment is recorded at the time the goods are shipped. Precision also
provides consulting and repair services to the automation market within the oil
and gas industry. Revenue from these services is recognized at the time the
service is performed.
7
Product warranty costs
The Company provides standard warranty coverage on its systems for up to 12
months, providing labor and parts necessary to repair the systems during the
warranty period. The Company accounts for the estimated warranty cost as a
charge to cost of sales when the revenue is recognized. The estimated warranty
cost is based on historical product performance and field expenses. The Company
uses actual service hour and parts expense per system and applies the actual
labor and overhead rates to estimate the warranty charge. The actual product
performance and/or field expense profiles may differ, and in those cases the
Company adjusts warranty accruals accordingly. The Company charged $22,000 to
increase the accrual during the nine months ended April 30, 2003, and reduced
the accrual by $22,000 based on costs incurred and historical performance.
There was no change in the
Company's warranty accrual during the nine months ended April 30, 2003.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified
for comparative purposes to conform with the presentation of the current period
financial statements.
Goodwill, intangible assets and amortization
Goodwill and intangible assets were recorded at April 30, 2003 in connection
with the Company's April 2003 acquisition of Precision (Note 2). Goodwill
represents the excess of the purchase price over the estimated fair values of
the net tangible and identifiable intangible assets acquired. As discussed
below, goodwill and intangible assets with indefinite lives are not amortized
pursuant to recently issued accounting standards. Identifiable intangible assets
with finite lives (customer lists) will be amortized on a straight-line basis
over three years.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. Effective July 1, 2002, SFAS No. 142 no longer allows the
amortization of goodwill and intangible assets with indefinite useful lives.
SFAS No. 142 requires that these assets be reviewed for impairment at least
annually, or whenever there is an indication of impairment. Intangible assets
with finite lives continue to be amortized over their estimated useful lives and
are reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
SFAS No. 142 requires companies to allocate goodwill to identifiable reporting
units, which are then tested for impairment using a two-step process. The first
step requires comparing the fair value of each reporting unit with its carrying
amount, including goodwill. If the fair value exceeds the carrying amount,
goodwill of the reporting unit is considered not impaired, and the second step
of the impairment test is not necessary. If the fair value of the reporting unit
does not exceed the carrying amount, the second step of the goodwill impairment
test must be performed to measure the amount of impairment loss, if any. This
step requires the allocation of the fair value of the reporting unit to the
reporting unit's assets and liabilities (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the price paid to acquire the reporting
unit. The excess of the fair value of the reporting unit over its re-evaluated
net assets would be the new basis for the reporting unit's goodwill, and any
necessary goodwill write down to this new value would be recognized as an
impairment expense. A goodwill impairment test will be performed annually in the
fourth fiscal quarter or upon significant changes in the Company's business
environment.
Recently issued accounting standards
In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes a new standard on how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. Under
previous guidance, issuers could account for many of those instruments as
equity. SFAS No. 150 requires that those instruments be classified as
liabilities in statements of financial position. SFAS No. 150 is effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company believes that the adoption of SFAS No. 150 will
not have a material impact on its results of operations or financial condition.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. This statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, and establishes two alternative methods
of transition from the intrinsic value method to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
requires prominent disclosure about the effects on reported net income (loss)
and requires disclosure for these effects in interim financial information. The
provisions for the alternative transition methods are effective for fiscal years
ending after December 15, 2002, and the amended disclosure requirements are
effective for interim periods beginning after December 15, 2002. The Company
plans to continue accounting for stock-based compensation under Accounting
Principles Board (APB) Opinion No. 25. Therefore, this pronouncement is not
expected to impact the Company's financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be
made by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The recognition and measurement provisions
of this Interpretation are effective for all guarantees issued or modified after
December 31, 2002. The Company has not guaranteed indebtedness of others.
8
NOTE 2. BUSINESS ACQUISITION
On April 21, 2003, the Company acquired 100% of the outstanding common stock of
Precision, a Texas S Corporation. Precision develops and markets electrical
controls and automation equipment for a number of energy and other companies.
The products and services of Precision include panel design and construction,
SCADA (Supervisory Control and Data Acquisition) systems design and integration,
HMI (Human Machine Interface) and PLC (Programmable Logic Controller)
programming, radio and cellular communications and complete electrical services.
Precision's applications focus on remote data acquisition. The Company expects
that Precision's current services and products will be an integral part of the
Company's oil and gas solutions offerings.
The acquisition of Precision is expected to enhance the Company's share of key
markets and provide the Company additional competitive momentum in its target
markets, specifically the oil and gas industry. In addition, the acquisition is
expected to enhance the distribution channel adding new reference accounts for
both customer relationships and technology partners. These incremental
intangible benefits attributed to excess purchase consideration resulting in
goodwill.
The aggregate purchase price for Precision was $357,500, which consisted of the
issuance of 2.75 million shares of the Company's common stock. The value of the
common shares issued was determined based on the market price of the Company's
common shares of $0.13 a few days before and after April 9, 2003, the date the
acquisition was announced. In addition, if Precision's post-acquisition gross
sales exceed $4 million after the closing date through July 31, 2004, then the
Company is to issue a three-year warrant to purchase up to 1 million shares of
the Company's common stock, exercisable as follows: $0.25 per share if exercised
during the first warrant year; $0.50 per share if exercised during the second
warrant year; and $0.75 per share if exercised during the third warrant year.
The acquisition was accounted for using the purchase method of accounting. The
purchase method of accounting conforms to the accounting policies followed by
the consolidated entities.
The
preliminary allocation of the purchase price has been made to the major
categories of assets and liabilities in the accompanying consolidated financial
statements, of which $306,000 was allocated to a customer list, which represents
management's best estimate of the fair value of the customer list as of the date
of the acquisition. The customer list was assigned a useful life of three years
and will be amortized to general and administrative expenses. In addition,
$925,000 was allocated to goodwill. In accordance with SFAS 142, the goodwill
will not be amortized but will be reviewed for impairment on an annual basis.
The final allocation of the purchase price may differ from the amounts included
in the accompanying consolidated financial statements.
The following table reflects unaudited pro forma results of operations of the
Company assuming that the Precision acquisition had occurred on August 1, 2002
and 2001, respectively:
Nine Months Ended April 30,
2003 2002
---- ----
Revenues $ 2,511,000 $ 2,715,000
Net loss $(1,820,000) $(1,695,000)
Net loss applicable to common stockholders $(1,993,000) $(1,695,000)
Net loss per share applicable to
common stockholders, basic and fully diluted
Shares used in per share calculation (0.04) (0.05)
47,857,987 33,340,831
Terms of the purchase agreement also provide that a prior shareholder/current
officer of Precision contribute to Precision, approximately 4.5 acres of land
and a 10,000 square foot building occupied by Precision, subject to related
indebtedness. As of April 30, 2003, the land and building has not yet been
contributed to Precision, pending finalization of matters necessary to complete
the transaction.
9
NOTE 3. RELATED PARTY TRANSACTIONS
President and Chief Executive Officer Garrett L. Thomas resigned his positions
of officer and director of the Company effective February 19, 2003. The Board of
Directors and Mr. Thomas mutually agreed that based on the Company's desired
business direction, a change in the position of president and Chief Executive
Officer would be in the best interest of both the Company and Mr. Thomas.
As part of the settlement agreement reached with Mr. Thomas, the Company
assigned to Mr. Thomas the Purchase Agreement between the Company and Interlink
Logistics, Inc. dated June 28, 2002. Also, as part the settlement agreement, the
Company assigned to Mr. Thomas open accounts receivable due from Interlink
Logistics, Inc. in the amount of $105,064 in exchange for $ 129,439 of accrued
and unpaid compensation, all unpaid reimbursable expenses due Mr. Thomas and the
forfeiture of all his stock compensation plans. This transaction has been
accounted for as a capital transaction, which has resulted in an increase of
$24,375 in additional paid in capital.
The Board of Directors assigned the Interlink contract to Mr. Thomas as part of
the settlement agreement because the Interlink contract was outside the scope of
the Company's current business plan and the Board believes that Mr. Thomas would
be best able to support the contract on an individual basis. The Company intends
to provide monthly engineering support for Interlink until an alternative
solution can be found.
On February 21, 2003, the Board of Directors approved and tendered an offer to
James Hamilton for the position of President and Chief Executive Officer of the
Company. On February 22, 2003 Mr. Hamilton accepted the offer.
Related party note payable
In December 2002, a shareholder advanced the Company $128,000 in the form of a
one-year unsecured promissory note, which bears interest at 12% per year.
On June 6, 2003, Jerry D. Kennett, MD, a current shareholder, advanced the
Company $75,000 in the form of a six month promissory note with a stated
interest rate of 8% per year.
Other capital transaction
On April 30, 2003, the Company entered into agreements with certain officers and
directors whereas those officers and directors agreed to forfeit $169,898 of
unpaid past compensation that had been accrued by the Company. This transaction
has been accounted for as a capital transaction, which has resulted in an
increase in additional paid in capital.
Precision advances receivable
At April 30, 2003, Precision has unsecured, non-interest bearing advances
receivable from officers and employees of Precision, which total approximately
$360,000. Advances due from officers are approximately $272,000, and advances
due from employees are approximately $88,000. All advances are due on demand.
The advances due from officers of $272,000 have been presented as a component of
stockholders' equity at April 30, 2003.
Other
In February of 2003, LISEN, LLC, a stockholder of the Company, agreed to
guarantee a letter of credit for the Company in an amount not to exceed
$500,000.
NOTE 4. SUBSIDIARY CREDIT FACILITY AND SUBSIDIARY NOTES PAYABLE
Precision has a credit facility with a bank, in which Precision may assign and
sell to the bank, up to $810,000 of accounts receivable, subject to service fees
and cash reserve requirements. Receivables that remain unpaid after 90 days are
to be repurchased by the Company. At April 30, 2003, Precision owes
approximately $808,000 under this credit agreement, which primarily represents
advances made to the Company based on receivables retained by Precision. The
balance is due on demand and is collateralized by receivables and other
financial instruments, contract rights and general intangibles. The credit
agreement is also guaranteed by an officer of Precision.
At April 30, 2003, Precision has a $345,000 variable rate loan with a bank
(6.75% at April 30, 2003), which is collateralized by the majority of
Precision's assets, and which matured in May 2003. Precision also has an $8,000,
10.5% loan with the same bank, which is due in March 2004, and which is
collateralized by vehicles and equipment.
In addition, Precision has approximately $117,000 of notes payable which are
collateralized by vehicles. These notes bear interest at rates ranging from
8.25% to 14.9% and mature at various dates through April 2008.
10
NOTE 5. CONTINGENCIES
On April 17, 2003 the United States District Court, Southern District of Florida
issued a Final Order of Dismissal without Prejudice for Lack of Prosecution in
the case of Potter Financial, Inc. vs. American Millennium Corporation, Inc. As
a result, management believes there will be no impact to the Company's financial
position, results of operations or cash flows.
On April 15, 2003 the Company entered in a Settlement Agreement with Robert
Buntin. Pursuant to the agreement, the Company will pay Robert Buntin $65,000 in
settlement of all claims brought against the Company in the action titled Robert
Buntin vs. American Millennium Corporation, Inc. On April 23 2003, the United
States District Court, District of Nevada issued a dismissal of said case. The
Company has accrued the $65,000 settlement amount at April 30, 2003.
NOTE 6. STOCKHOLDERS' EQUITY
Preferred stock
In October 2002, the Company received cash of $1,750,000 and exchanged a
$750,000 payable in satisfaction of the subscription receivable related to the
1,000,000 shares of Series A Non-Voting Cumulative Preferred Stock to LISEN,
LLC, a shareholder of the Company. Holders of the Series A Preferred Stock are
entitled to receive cumulative dividends on each share of Series A Preferred
Stock at an annual rate of 12% of the original issued price per share, payable
quarterly. Each share of Series A Preferred stock is convertible into a number
of shares of common stock equal to the original issue price, divided by the
greater of (i) 30% less than the mean between the closing sales or bid price, as
the case may be, of the Common Stock, as report by the National Quotation
Bureau, Inc. or the OTC Bulletin Board for the 20 consecutive trading days
immediately prior to the date of conversion, or (ii) $0.50 per share. The
Company received net proceeds of $2,500,000 from the sale of the preferred
stock.
During the quarter ended April 30, 2003, the Company issued an additional
240,000 shares of Series A Preferred Stock to LISEN, LLC. These shares of Series
A Preferred stock are convertible into a number of shares of common stock equal
to the original issue price divided by $0.25. The Company received net proceeds
of $600,000 from the sale of the preferred stock.
Through April 30, 2003, the Company has paid dividends on the shares of
preferred stock of $141,978. Cumulative unpaid dividends at April 30, 2003 are
$31,000.
Common stock
In November 2002, the Company issued 500,000 shares of restricted common stock
to an investor relations firm. The shares were valued at $40,000 ($0.08 per
share, which was the market price of the Company's common stock at the date of
issuance), and were issued for services related to management consulting,
strategic planning and corporate development.
Stock options
On February 24, 2003, the Board of Directors granted to James E. Hamilton, the
Company's President and Chief Executive Officer an option to purchase 1,500,000
shares of the Company's restricted common stock for $.10 per share (the market
value of the Company's stock at the date of grant). The options will vest in
three equal increments as the Company's revenues reach $2,500,000, $5,000,000
and $7,500,000. The options provide for a term of three years.
On February 24, 2003, the Board of Directors granted to Ronald J. Corsentino,
the Company's Chief Financial Officer and Controller an option to purchase
1,000,000 shares of the Company's restricted common stock for $.10 per share
(the market value of the Company's stock at the date of grant). The options will
vest in three equal increments as the Company's revenues reach $2,500,000,
$5,000,000 and $7,500,000. The options provide for a term of three years.
The pro forma impact on the Company's results of operations, had the Company
applied SFAS, No. 123 is considered not material.
11
NOTE 7. OPERATING AND ECONOMIC CONDITIONS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and settlement of
liabilities and commitments in the normal course of business. However,
conditions have limited the ability of the Company to market its products and
services at amounts sufficient to recover its operating and administrative
costs. The Company has continued to incur net operating losses ($1,388,617 for
the nine months ending April 30, 2003; $1,561,595 applicable to common
stockholders). As a result, the Company has used substantial working capital in
its operations. Because of these factors, there is substantial doubt as to the
Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts or
classifications of liabilities that might be necessary in the event the Company
cannot continue in existence.
Management believes that it can raise additional capital through further
issuances of common or preferred stock, through public or private securities
offerings. The Company is also in the process of securing a $500,000 line of
credit with a bank. In addition, the Company believes that its recent
acquisition of Precision will provide additional sources of working capital
through its operations.
Item 2. Management's Discussion and Analysis or Plan of Operations
SAFE HARBOR STATEMENT
Certain statements in this section and elsewhere in this quarterly report on
Form 10-QSB are forward-looking in nature and relate to our plans, objectives,
estimates and goals. Words such as "expects," "anticipates," "intends," "plans,"
"projects," "forecasts," "believes," and "estimates," and variations of such
words and similar expressions, identify such forward-looking statements. Such
statements are made, pursuant to the safe harbor provisions of the private
securities litigation reform act of 1995 and speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks and uncertainties and should be viewed with
caution. Actual results and experience may differ materially from those
expressed or implied by the forward-looking statements as a result of many
factors, including, without limitation, those set forth under "business --
additional factors that may affect our business and future results" in our most
recent annual report on Form 10-KSB and under "risk factors." We make no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statements.
OVERVIEW
We are an information management company specializing in the provision of
services for monitoring high value assets located in remote areas using
proprietary hardware and data management software and wireless communications.
Through the use of our satellite-based hardware and software, we are able to
provide these data communication services to areas in the United States and
abroad that do not have telephone or cellular access.
The trend in the oil and gas industry is now to optimize production from
existing reservoirs and production sites. Optimizing production means the
ability to analyze and control the production at the producing sites and be able
to also optimize and control distribution through the pipeline systems.
Optimizing requires data and information from the field and the ability to
affect remote site control. There are many companies that can analyze field data
and make production recommendations. Our focus is to actually go to the field to
engineer, install and deliver data to the analysis companies.
We currently provide information management services for the oil and gas
industry in North America. Our Sentry product line includes proprietary hardware
and sensors that are placed at a gas compressor site. SatAlarm, our back-end
server software, allows the end user to gather data and communicate directly
with the Sentry hardware via a secure website. The essential function of this
product line is to provide an alert when a gas compressor stops operating
allowing our customers field maintenance personnel the opportunity to quickly go
to the inoperative unit to try to resolve any problems with it.
We intend to provide similar products and services for the car telematics, fleet
management/tracking, asset tracking, and fixed asset monitoring markets in South
America.
On April 21, 2003 we acquired Lightfoot Precision Control, Inc. ("Precision")
located in Andrews, TX. Precision develops and markets electrical controls and
automation equipment to the oil and gas industry in Texas and Wyoming. We expect
that Precision's current services and products will be an integral part of our
oil and gas solutions offerings. We have designated April 30, 2003 as the
effective date for consolidating Precision, therefore our results of operations
through April 30, 2003 do not include results of Precision.
Our primary business focus is to provide a complete communication system to the
energy sector. We are in the process of acquiring the knowledge, products and
resources to offer a complete system for data gathering and information
distribution. We believe that with our current Sentry product line, along with
Precision's field knowledge and customer base, we will be able to achieve this
goal.
The independent auditors' report on the Company's financial statements as of
July 31, 2002, and for each of the years in the two-year period then ended,
includes a "going concern" explanatory paragraph, that describes substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to the factors prompting the explanatory paragraph are discussed
below and also in Note 7 to the quarterly financial statements.
RESULTS OF OPERATIONS
Revenue consists of hardware and airtime sales and custom development of
products for our customers. During the nine months ended April 30, 2003,
revenues increased approximately 43% to $660,758 compared to the same period in
2002 (during the three-month period ended April 30, 2003, revenues increased
$154,083). This increase in year over year revenue was due to the fact that we
released our new Sentry hardware product, which is Class I, Division 2
certified, on October 14, 2002. We had several orders pending that
certification, which lead to larger sales for this period.
Our cost of revenues increased from $412,026 in 2002 to $447,155 in 2003, an
increase of $35,129 or 8.5%. Gross profit for the nine months ended April 30,
2003, was $213,603 (32% of sales) compared to $50,264 (11%) for the nine months
ended April 30, 2002 (gross profit increased $66,796 for the three-month period
ended April 30, 2003). This decrease in cost of revenues and increase in gross
profits primarily reflects less costs for testing and start up production costs
as we are realizing the benefits of streamlining our production and
manufacturing process. We expect our margins to increase as we gain economies of
scale by producing and selling more hardware and by growing our customer base of
residual airtime.
Payroll, payroll taxes, and related benefits increased by $28,466 for the nine
months ended April 30, 2003, as compared to April 30, 2002. We have maintained
our current number of employees over the past year in an effort to contain costs
associated with payroll and related expenses. The total number of employees as
of April 30, 2003, is 12.
Consulting fees increased from $196,078 to $251,843 for the nine months ended
April 30, 2002 and 2003, respectively. This is an increase of $55,765 or 28%.
The increase is due to the fact that we have engaged several consultants to
assist us in engineering consulting work, sales and marketing, capital formation
and developing the South American operations.
Professional fees increased from $37,676 to $187,922 for the nine months ended
April 30, 2002 and 2003, respectively. This is an increase of $150,246 or 398%.
This increase is due to the fact that we had a large increase in legal and
accounting fees relating to SEC compliance work with regards to the Annual
Report on Form 10-KSB, the Proxy Statement on Schedule 14A and various costs
related to litigation against the Company (Note 5).
Selling, general and administrative expenses principally consist of compensation
and related costs for personnel, fees for legal and other professional services
and depreciation of equipment and software used for general corporate purposes.
There was a $65,039 or 5% increase in total selling, general and administrative
expenses compared to the nine-month period a year ago. Selling, general and
administrative expenses for the nine months ended April 30, 2003 and 2002, were
$1,388,903 and $1,323,864, respectively. The increase is primarily due to
increased consulting and increased professional fees.
Other Income and Expenses. Other income (expenses) consisted of income from cash
equivalents and short-term investments, less interest expense related to
financing obligations and other transactions. Other income (expenses) for the
nine months ended April 30, 2003 and 2002, was ($181,195) and ($81,258),
respectively. For the period ended April 30, 2003, the Company recognized a loss
of $42,333 pursuant to the settlement agreement reached with Robert Buntin (see
Item 1), and a loss of $48,647 relating to obsolete inventory.
Net Loss. There was a $206,737 or 15% increase in net loss applicable to common
stockholders compared to the nine-month period a year ago. We had a net loss
applicable to common stockholders of $1,561,595 (or $0.03 per share) on revenues
of $660,758 for the nine months ended April 30, 2003, compared to a net loss
applicable to common stockholders of $1,354,858 (or $0.04 per share) on revenues
of $462,290 for the period ended April 30, 2002. We had a net loss applicable to
common stockholders of $501,154 (or $0.01 per share) on revenues of $235,957 for
the three months ended April 30, 2003, compared to a net loss applicable to
common stockholders of $432,051 (or $0.01 per share) on revenues of $81,874 for
the period ended April 30, 2002. The increase in net loss is primarily due to
the preferred stock dividends, both paid and deemed, for the period ending April
30, 2003.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of June 23, 2003, based on current operations, we do not have sufficient cash
and liquid assets to satisfy our cash requirements on a monthly basis. While we
generate income from hardware sales and monthly airtime fees, these proceeds are
currently not sufficient to meet our current monthly overhead. During the
nine-month period ending April 2003 we issued 1,240,000 shares of our Series A
Preferred stock and we received net cash proceeds of $2,350,000 of which $1.6
million of the proceeds is on deposit with Vistar Telecommunications relating to
the South American operation. We paid preferred stock dividends of $141,000 and
the remainder of the proceeds was used for normal business operations. We will
require approximately $750,000 to cover our anticipated overhead and operational
needs for the fiscal year ending July 31, 2003. Revenues from existing
operations, including those of Precision starting May 1, 2003, for the fiscal
year ending July 31, 2003, are expected to offset operation overhead by
approximately $1.6 million. While we have projected revenues from our existing
operations of approximately $1.6 million for the fiscal year ending July 31,
2003, there is no guarantee these projections will be achieved or that any
revenue will be generated from these operations.
We believe that we can raise additional capital through further issuances of
common or preferred stock, through public or private securities offerings. We
are also in the process of securing a $500,000 line of credit with a bank. In
addition, we believe that our recent acquisition of Precision will provide
additional sources of working capital through its operations.
Our current revenue consists of Sentry hardware sales and monthly airtime fees
for satellite airtime and the use of our SatAlarm software system. Our goal is
to acquire customers through hardware sales rendering residual income through
monthly airtime fees. Our current business plan provides for 500 hardware unit
sales per month until we reach a customer base of 6,000 units. At that level our
current business plan projects that we will be able to meet our monthly overhead
through current operating income. For the nine months ended April 30, 2003, we
averaged sales of 50 hardware units per month and as of May 30, 2003, we had a
740-unit customer base providing residual airtime revenues. For the nine months
ended April 30, 2003, 52% or our revenues were derived from hardware sales, 23%
of our revenues were derived from recurring monthly charges for airtime and use
of our SatAlarm software system and the remainder of our revenues consisted of
engineering fees and software support fees relating to the Interlink agreement.
As part of our South American operation, we have a commitment to purchase earth
station equipment from Vistar Telecommunications, Inc. pursuant to an agreement
dated April 22, 2002 for $1,500,000. This entire amount is on deposit with
Vistar Telecommunications pending final delivery of the equipment to us. As part
of the agreement, we are also committed to purchase certain inventory from
Vistar for a total purchase price of $275,000. We currently have $1,626,250 on
deposit with Vistar for this purchase.
We will try to obtain additional financing through the sale of equity and/or
debt securities. If we are successful in completing an equity financing,
existing shareholders will experience dilution of their interest in us. In the
event we are not successful in raising sufficient additional financing, it is
anticipated that we will not be able to proceed with the business plan for the
further development and marketing of the Sentry and SatAlarm systems nor will we
be able to implement our South American operations. In addition, we may have to
limit our operations to an extent not presently determinable by management, but
which may include the sale of any assets owned or our ceasing to conduct
business. The availability of other sources of cash may, or may not, materialize
and thus, presents a significant risk that we will exhaust our financial
resources in the short term, with no ability to pay for ongoing operational
expenses, before our revenues can be developed to adequately cover our expenses.
Because of these factors, there is substantial doubt as to our ability to
continue as a going concern.
Recently Issued Accounting Standards
In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes a new standard on how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. Under
previous guidance, issuers could account for many of those instruments as
equity. SFAS No. 150 requires that those instruments be classified as
liabilities in statements of financial position. SFAS No. 150 is effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company believes that the adoption of SFAS No. 150 will
not have a material impact on its results of operations or financial condition.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. This statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, and establishes two alternative methods
of transition from the intrinsic value method to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
requires prominent disclosure about the effects on reported net income (loss)
and requires disclosure for these effects in interim financial information. The
provisions for the alternative transition methods are effective for fiscal years
ending after December 15, 2002, and the amended disclosure requirements are
effective for interim periods beginning after December 15, 2002. The Company
plans to continue accounting for stock-based compensation under Accounting
Principles Board (APB) Opinion No. 25. Therefore, this pronouncement is not
expected to impact the Company's financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be
made by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The recognition and measurement provisions
of this Interpretation are effective for all guarantees issued or modified after
December 31, 2002. The Company has not guaranteed indebtedness of others.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
We believe that the following are some of the more critical accounting policies
that currently affect our financial condition and results of operations:
* revenue recognition;
* reserve for doubtful accounts;
* stock based compensation;
* income taxes, deferred taxes; and
* goodwill and other intangible assets
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements (SAB 101), as amended by
SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
We recognized product revenue upon shipment, net of estimated returns, provided
that collection is determined to be probable and no significant obligations
remain. Service revenue is recognized upon completion of the service.
The Company records a provision for estimated sales returns and allowances on
product and services related sales in the same period as the related revenues
are recorded. These estimates are based on historical sales returns, analysis of
credit memo data and other known factors. If the historical data the Company
uses to calculate these estimates does not properly reflect future returns,
revenue could be overstated.
Reserve for Doubtful Accounts
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. Estimates are used in determining our allowance for
bad debts and are based on our historical collection experience, current trends,
credit policy and a percentage of our accounts receivable by aging category. In
determining these percentages, we look at historical write-offs of our
receivables. We also look at current trends in the credit quality of our
customer bases as well as changes in the credit policies.
Stock Transactions
The Company has chosen to account for employee stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25 (APB No. 25) Accordingly, employee compensation cost for stock options is
measured as the excess, if any, of the market price of the Company's common
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Transactions in which the Company issues stock-based compensation for goods or
services received from non-employees are accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. The Company often utilizes
pricing models in determining the fair values of options and warrants issued as
stock-based compensation to non-employees. These pricing models utilize the
market price of the Company's common stock and the exercise price of the option
or warrant, as well as time value and volatility factors underlying the
positions.
Accounting for Goodwill and other Intangible Assets
In connection with the acquisition of Precision, we now have goodwill and other
intangibles related to the acquisition as of April 30, 2003. The valuation and
classification of these assets and the assignment of useful amortization lives
involves significant judgments and the use of estimates. The testing of these
intangibles under established account guidelines for impairment also requires
significant use of judgment and assumptions. Our assets are tested and reviewed
for impairment on an ongoing basis under the established accounting guidelines.
Changes in business conditions could potentially require future adjustments to
asset valuations.
Since the adoption of SFAS 142, goodwill is not amortized, but instead is tested
annually for impairment. If the carrying value of goodwill exceeds its fair
value, an impairment loss must be recognized. A present value technique is often
the best available technique with which to estimate the fair value of a group of
assets. The use of a present value technique requires the use of estimates of
future cash flows. These cash flow estimates incorporate assumptions that
marketplace participants would use in their estimates of fair value as well as
our own assumptions. These cash flow estimates are based on reasonable and
supportable assumptions and consider all available evidence. However, there is
inherent uncertainty in estimates of future cash flow. As such, different
assumptions were used in our calculations and the likelihood of possible
outcomes was considered.
We evaluate long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review of recoverability, we estimate future cash flows expected
to result from the use of the asset and its eventual disposition. The estimates
of future cash flows, based on reasonable and supportable assumptions and
projections, require management's subjective judgments. The time periods for
estimating future cash flows is often lengthy, which increases the sensitivity
to assumptions made. Depending on the assumptions and estimates used, the
estimated future cash flows projected in the evaluation of long-lived assets can
vary within a wide range of outcomes. We consider the likelihood of possible
outcomes in determining the best estimate of future cash flows.
Income Taxes, Deferred Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements, and a deferred income tax liability or asset is recognized
for temporary differences between our financial statements and tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
A valuation allowance has been provided to reduce the deferred tax assets, based
on management's estimate of the assets' realizability. Realization of the net
deferred tax asset is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax asset
will be realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carry forward period are reduced.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer
and Chief Financial Officer have reviewed and evaluated the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)
and 240.15d-14(c)) as of a date within 90 days before the filing date of this
quarterly report. Based on that evaluation, they have concluded that our current
disclosure controls and procedures are effective in timely providing the
material information required to be disclosed in the reports we file or submit
under the Exchange Act.
Changes in Internal Controls. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls subsequent to the date we carried out this evaluation.
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
As discussed in our Annual Report on Form 10-KSB for the fiscal year ended July
31, 2002, we are a party to certain pending legal proceedings.
On April 17, 2003 the United States District Court, Southern District of Florida
issued a Final Order of Dismissal without Prejudice for Lack of Prosecution in
the case of Potter Financial, Inc. vs. American Millennium Corporation, Inc.
On April 15, 2003 the Company entered in a Settlement Agreement with Robert
Buntin. Pursuant to the agreement, the Company will pay Robert Buntin $65,000 in
settlement of all claims brought against the Company in the action titled Robert
Buntin vs. American Millennium Corporation, Inc. On April 23 2003, the United
States District Court, District of Nevada issued a dismissal of said case.
Item 2. Changes in Securities and Use of Proceeds
On April 1, 2003, the Board of Directors issued 240,000 shares of Series A
Non-Voting Cumulative Preferred Stock to LISEN, LLC, for a purchase price of
$2.50 per share. Holders of the Series A Preferred Stock are entitled to receive
cumulative dividends on each share of Series A Preferred Stock at an annual rate
of 12% of the original issued price per share, payable quarterly. Each share of
Series A Preferred stock is convertible into a number of shares of common stock
equal to the original issue price, divided by $.25. The Company received net
proceeds of $600,000 from the sale of the preferred stock.
In the event of a liquidation, dissolution or winding up of our company, holders
of the Series A Preferred Stock will first be entitled to receive the original
issue price per share, as adjusted, with any remaining distributions going to
the holders of the Common Stock. Holders of Series A Preferred Stock do not have
any voting rights with respect to their shares of Series A Preferred Stock,
except that the vote or written consent of at least 50% of the outstanding
shares of Series A Preferred Stock, voting as a single class, is required for us
to incur long-term indebtedness in a material amount.
The Series A Preferred Stock issuance was made in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933 as a transaction not
involving a public offering.
On April 21, 2003, the Board of Directors authorized the issuance of 2,750,000
shares of restricted common stock to the shareholders of Lightfoot Precision
Control, Inc. in exchange for 100% of the issued and outstanding capital stock
of Precision.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
2.1 Agreement and Plan of Reorganization between American Millennium
Corporation, Inc. and Lightfoot Precision Control, Inc. dated April 7,
2003 (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K filed April 28, 2003)
3.1 Articles of Incorporation, as amended (incorporated by reference to
Exhibits 3(i), (ii), (iii) and (iv) to the Company's Amendment No. 3
to Registration Statement on Form SB-2 filed November 29, 2001)
3.2 Bylaws (incorporated by reference to Exhibit 3(v) to the Company's
Amendment No. 3 to Registration Statement on Form SB-2 filed November
29, 2001)
4.1 Statement of Determination for Series A Non-Voting Cumulative
Preferred Stock (incorporated by reference to the Company's Current
Report on Form 8-K filed October 25, 2002)
4.2 Employee Stock Option Agreement dated February 23, 2003, between the
Company and James E. Hamilton (incorporated by reference to the
Company's Quarterly Report on Form 10-QSB filed March 24, 2003)
4.3 Employee Stock Option Agreement dated February 23, 2003, between the
Company and Ronald J. Corsentino (incorporated by reference to the
Company's Quarterly Report on Form 10-QSB filed March 24, 2003)
10.1 Promissory Note dated June 6, 2003 between American Millennium
Corporation, Inc. and Jerry D. Kennett, MD
10.2 Preferred Stock Purchase Agreement dated as of April 1, 2003 between
the Company and LISEN, LLC
10.3 Registration Rights Agreement dated as of April 1, 2003 between the
Company and LISEN, LLC
10.4 Resignation and Settlement Agreement, General Release and Covenant Not
to Sue dated February 19, 2003 between the Company and Garrett L.
Thomas (incorporated by reference to the Company's Current report on
Form 8-K filed February 23, 2003)
99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(B) Reports on Form 8-K:
1) On April 28, 2003, a report on form 8-K was filed with the
Securities and Exchange Commission announcing that the Company had
acquired 100% of the outstanding capital stock of Lightfoot
Precision Control, Inc. located in Andrews, TX.
2) On May 30, 2003, a report on Form 8-K was filed with the
Securities and Exchange Commission announcing that the Company
changed its Certifying Accountant to Gelfond Hochstadt Pangburn,
PC located in Denver, CO.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN MILLENNIUM CORPORATION, INC.
Dated: June 23, 2003 By: /s/ James E. Hamilton
----------------------
James E. Hamilton
President and
Chief Executive Officer
Dated: June 23, 2003 By: /s/ Ronald J. Corsentino
------------------------
Ronald J. Corsentino
Treasurer, Secretary and
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this Registrant and
in the capacities and on the dates indicated.
Dated: June 23, 2003 By: /s/ Bruce R. Bacon
------------------
Bruce R. Bacon
Director
Vice President of Engineering
and Chief Technology Officer
Dated: June 23, 2003 By: /s/ Stephen F. Watwood
-----------------------
Stephen F. Watwood,
Director
Vice President of Business
Development
Dated: June 23, 2003 By: /s/ Shirley M. Harmon
----------------------
Shirley M. Harmon
Director
Dated: June 23, 2003 By: /s/ Andrew F. Cauthen
---------------------
Andrew F. Cauthen
Director
CERTIFICATIONS
I, James E. Hamilton, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American
Millennium Corporation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 23, 2003 /s/ James E. Hamilton
---------------------
James E. Hamilton
President and
Chief Executive Officer
I, Ronald J. Corsentino, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American
Millennium Corporation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 23, 2003 /s/ Ronald J. Corsentino
---------------------
Ronald J. Corsentino
Treasurer, Secretary and
Chief Financial Officer
(Principal Accounting Officer)