UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10Q-SB
--------------------------
Quarterly Report Pursuant to Section 13 or 15 (D) of
the Securities Act of 1934 for the quarterly
period ended: September 30, 2004
Commission File number: 000-49950
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American Petroleum Group, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of Incorporation or organization)
98-0232018
(IRS Employee Identification No.)
1400 N. Gannon Drive
2nd Floor
Hoffman Estates, IL 60194
(847) 805-0125 (Address of
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.001 par value 3,740,000
(Class) (Outstanding as of November 19, 2004)
American Capital Alliance, Inc.
Form 10Q-SB
Index
Part I - FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited) 3
Condensed Balance Sheets 3
Condensed Statements of Operation 4
Condensed Statements of Cash Flows 5
Condensed Statements of Stockholder's Equity 6
Notes on Condensed Financial Information 7
Item 2 Management's Discussion and Analysis or Plan of Operation 18
Item 3 Control and Procedures 27
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 28
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission Of Matters To A Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8 -K 29
Signatures 30
Certifications 31
2
Part I: Financial Information
Item 1. Financial Statements
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Interim Consolidated Balance Sheets
September 30, 2004 and December 31, 2003
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(Unaudited) Audited
September 30, December 31,
2004 2003
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ASSETS
Current Assets
Cash and cash equivalents $ 8,995 $ 35,432
Accounts receivable 220,291 -
Inventory 267,033 -
Acquisition deposits 200,200
Other current assets 3,400 -
---------------------------------------
Total current assets 499,719 235,632
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Property and Equipment, net of accumulated depreciation 3,068 -
---------------------------------------
Other Assets
Goodwill 758,124 -
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TOTAL ASSETS $ 1,260,911 $ 235,632
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 808,716 $ -
Accounts payable 416,676 67,792
Accrued liabilities 10,154 -
---------------------------------------
Total current liabilities 1,235,546 67,792
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Long-term debt, net of current portion - -
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Stockholders' Equity
Common stock; $0.001 par value; 100,000,000 shares authorized; 3,740,000 and
750,000 shares issued and outstanding,
respectively 72,650 28,300
Preferred stock; Series A; 5,000,000 shares authorized 25,275 -
2,527,500 issued and outstanding
Additional paid-in-capital 11,423,525 9,801,700
Deficit accumulated (11,496,085) (9,662,160)
---------------------------------------
Total Stockholders' Equity 25,365 167,840
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,260,911 $ 235,632
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AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Interim Consolidated Statements of Operations
Three and Nine Month Periods Ended September 30, 2004 and 2003 -Unaudited
-----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
-------------------------------------------------------------------------------
Net Sales $ 345,515 $ - $ 345,515 $ -
Cost of Goods Sold 216,808 - 216,808 -
-------------------------------------------------------------------------------
Gross Profit 128,707 - 128,707 -
-------------------------------------------------------------------------------
Operating Expenses
Advertising and marketing expense 5,000 - 55,250 -
Bad debts 44,417 - 44,417 -
Bank charges - 51 126
Failed acquisition expense - - 10,000 -
Interest expense 2,500 - 3,475 -
Licenses and insurance 9,545 - 9,545 -
Management fees - 61,890 - 136,890
Office expense 11,430 - 14,388 231
Other operating expenses 26,589 - 33,945 -
Outside sales 28,009 - 28,009 -
Payroll 102,630 - 102,630 -
Payroll taxes 9,180 - 9,180 -
Plant equipment 3,342 - 3,342 -
Professional fees 18,300 26,477 85,927 62,322
Rents and taxes 1,140 - 1,140 -
Repairs and maintenance 1,320 - 1,320 -
Stock compensation expense 1,516,500 - 1,523,200 -
Telephone 5,196 - 5,196 -
Termination expenses - 355,000 355,000
Transfer agent fees - 486 2,247
Travel and entertainment 16,976 - 23,282 -
Utilities 6,152 - 6,152 -
Vehicle expense 2,234 - 2,234 -
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Total Operatin g Expenses 1,810,460 443,904 1,962,632 556,816
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Net loss before income taxes (1,681,753) (443,904) (1,833,925) (556,816)
Income Tax Expense (Benefit) - - - -
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NET LOSS FOR THE PERIOD $ (1,681,753) $ (443,904) $ (1,833,925) $ (556,816)
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Loss Per Share $ (0.59) $ (0.59) $ (1.02) $ (0.74)
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Wei ghted Average Number
of Shares Outstandin g 2,846,111 750,000 1,797,593 750,000
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AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Interim Consolidated Statements of Cash Flows
Three and Nine Month Periods Ended September 30, 2004 and 2003 -Unaudited
----------------------------------------------------------------------------------------------------------------------
September 30, September 30,
2004 2003
-----------------------------------------------
Cash flows from operating activities:
Net loss $ (1,833,925) $ (556,816)
Adjustments to reconcile net loss to net cash used in
operating activities:
Accounts receivable (220,291) -
Acquisition deposits 200,200 -
Inventory (267,033) -
Prepaid expense 400
Other current assets (3,400) -
Accounts payable and accrued liabilities 359,038 154,632
Management and termination expense payable - 355,000
Proceeds for additional paid-in capital
and stock shares issued 1,691,450 -
-----------------------------------------------
Net cash used in operating activities (73,961) (46,784)
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Cash flows from investing activities
Acquisition of subsidiary net of assets acquired and
liabilities assumed (758,124) -
Purchase of equipment (3,068) -
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Net cash used in investing activities (761,192) -
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Cash flows from financing activities:
Loans payable 808,716 22,442
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Net cash provided by financing activities 808,716 22,442
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DECREASE IN CASH AND CASH
EQUIVALENTS (26,437) (24,342)
Cash and cash equivalents, beginning of period 35,432 24,397
-----------------------------------------------
Cash and cash equivalents, end of period $ 8,995 $ 55
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AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) -
September 30, 2004
--------------------------------------------------------------------------------
Note A - Basis of Presentation
The accompanying unaudited interim condensed financial statements
included herein have been prepared in accordance with the
instructions to Form 10-QSB and Item 310 of Regulation SB of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
American Petroleum Group, Inc. and Subsidiary believes that the
disclosures are adequate to make the information presented not
misleading. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Form 10-KSB for the fiscal year ended December 31, 2003 filed with
the Security and Exchange Commission on April 29, 2004.
Note B - Reorganization and Name Change
The Board of Directors (the "Board") by unanimous written consent
dated as of November 18, 2003, and certain stockholders (the
"Majority Stockholders") owning a majority of issued and outstanding
capital stock of the Company entitled to vote, by written consent
dated as of November 18, 2003, approved and adopted resolutions to
amend the Company's Certificate of Incorporation. The Certificate of
Amendment to the Company's Certificate of Incorporation, already
filed with the Secretary of State of Nevada, changed the Company's
name to "American Capital Alliance, Inc." from Prelude Ventures, Inc.
The name of the Company was changed again on November 1, 2004 to
American Petroleum Group, Inc. by a vote of the security holders.
Note C - Business Combination and Operations
Business Combinations
"TSG" Acquisition
On October 9, 2003, the Company acquired an option for $500,000 to
purchase the assets and certain liabilities of Tri-State Stores,
Inc., an Illinois Corporation ("Tri-State"), GMG Partners LLC, an
Illinois Limited Liability Company ("GMG"), and SASCO Springfield
Auto Supply Company, a Delaware Corporation ("SASCO"). Tri-State,
GMG and SASCO are collectively referred to herein as "TSG." Upon
exercise of the option, the Company was to pay $3,000,000 and
assume certain liabilities, not exceeding $700,000. TSG is
involved in the automotive after market. During the first quarter
of 2004, the Company elected not to continue to pursue this
acquisition. The contractual amount of the option was never fully
paid, however, amounts advanced for the option purchase and
associated acquisition expenses resulted in an $185,000 charge to
operations for the year ended December 31, 2003 and $10,000 for
the nine month period ended September 30, 2004.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note C - Business Combination and Operations (Continued)
Motor Parts Waterhouse, Inc.
The Company issued 5,000,000 shares of common stock for an option
to acquire all the outstanding stock of Motor Parts Warehouse,
Inc. ("MPW"), of St. Louis, Missouri. In order to exercise the
option, the Company must issue an additional 5,000,000 shares of
common stock to the shareholders of MPW and pay $2,200,000. This
MPW option cannot be exercised until after the refinancing of the
TSG debt of approximately $3,000,000. MPW is also an auto parts
distributor. As a result of the financing not being completed, the
Company elected not to continue to pursue this acquisition.
Alliance Petroleum Products Company
On October 9, 2003, the Company also entered into a Stock Purchase
Agreement ("Alliance Agreement") with Alliance Petroleum Products
Company ("Alliance"), an Illinois Corporation, and a Rider to the
Alliance Agreement ("Rider"). Alliance is in the business of
blending and bottling motor oil and anti-freeze. Under the
Alliance Agreement, the Company issued 5,000,000 shares of common
stock for 100% of the issued and outstanding shares of the common
stock of Alliance (757,864 common shares). An additional 5,000,000
shares of common stock of the Company is to be issued to Worldlink
International Network, Inc. upon 24 months from the date hereof.
Under the terms of the Rider, the Company is required to provide
funding of at least $3,500,000 to pay Harris Bank, a secured
creditor of Alliance. The shareholders of Alliance have the option
to have the 757,864 issued and outstanding shares of common stock
of Alliance returned and the Alliance Agreement rescinded if they
choose, if the Company did not arrange the funding within 150 days
from the date of the execution of the Alliance Agreement. Since
the expiration of the option period has expired, the principals of
the transactions have verbally agreed to extend the option period
pending completion of the financing. This was a material
contingency to the transactions and as a result had to be resolved
prior to recognition of a business combination. On June 24, 2004
(effective date July 1, 2004) the Company ("Prelude") then known
as American Capital Alliance, Inc., ("AMAI") and Alliance
Petroleum Products Company ("Alliance"), entered into an Amendment
to the original Alliance Agreement, dated October 9. 2003 whereby
all previous conditions and contingencies were deemed to have been
completed or waived and the agreement amended as follows:
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note C - Business Combination and Operations (Continued)
Alliance Petroleum Products Company (Continued)
o 5,000,000 shares of AMAI voting capital stock are to be
issued to the shareholders of Alliance in the same
proportions as the first 5,000,000 shares were issued to
them pursuant to the exchange of securities contemplated
in the Agreement and Plan of Reorganization upon the
execution of this Amendment. The exchange of securities
also includes, 1,000,000 shares of preferred shares,
with the necessary Certificate of Designation, to allow
conversion at the rate of 1 share of preferred to ten
(10) shares of common, and to permit the preferred
shareholders to vote their shares, at any time after
issuance, and after they have been converted, the shares
be issued to the shareholders of American in the same
proportions as the first 5,000,000 shares were issued to
them pursuant to the Agreement and Plan of
Reorganization.
o All the shares to the Alliance shareholders are no
longer subject to a two year restriction prior to sale
or transfer, but are now only subject to those transfer
restrictions under Rule 144 of the Securities Laws.
o AMAI assumes all payment obligations and all other
agreements of Alliance as set forth in the including
four "Promissory Notes"; and AMAI assumes all payment
obligations and all other agreements of Alliance to the
Harris Bank (See Note I).
The operations of Alliance have been consolidated with the results
of AMAI since July 1, 2004.
The aggregate acquisition price was $856,200, which consisted of
1,107,500 of the Company's common stock valued at $0.54 and cash
advances outstanding to Company at the time of consummation of the
transactions. The value of the stock was determined based on the
approximate average market price of the shares on August 11, 2004
(change in control date) and discounted for factors such a limited
market for the stock.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note C - Business Combination and Operations (Continued)
Alliance Petroleum Products Company (Continued)
Following is a condensed balance sheet showing the fair values of
the assets acquired and the liabilities assumed as of the date of
acquisition:
Current assets $ 542,504
Property and equipment 3,068
Intangible assets -
Goodwill arising in the acquisition 758,124
----------
$1,303,696
Current liabilities $ 321,921
Current maturities of long-term debt 125,575
Net assets acquired 856,200
----------
$1,303,696
The Company acquired only minimal property, plant and equipment in
the transaction; Alliance does not have title to these production
assets. Additionally, no expense has been recognized during the three
months ended September 30, 2004 for compensation for the use of the
machinery and equipment to a corporation representing the processor
operation to Alliance and to an entity that owned the real estate.
The processor company was owned by the current officers of APPC who
are also stockholders and directors of the Company; the real estate
company is owed by the former president and a major stockholder of
the Company; The assets of these entities secure obligations to
Harris Bank as a result of certain transactions entered into by the
predecessor company, the real estate company or their owners. A
security interest had been entered into to as a result of these prior
lending activities with appropriate lien filed and personal guarantee
of the principals, some who are currently officers of the Company or
Alliance. Harris Bank has threaten foreclosure if the prior borrowers
can not reach terms allowing the bank to forebear the defaults (See
Note I)
The Company is still in the process of obtaining third-party
valuations of certain intangible assets; accordingly, allocation of
the purchase price is subject to modification in the future. Any such
modification is not expected to be significant.
Goodwill of $758,124 arising in the acquisition has been recognized.
All the goodwill is expected to be deductible for income tax
purposes.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note C - Business Combination and Operations (Continued)
Interim Pro Forma Information
On July 1, 2004, the company purchased 100% of the voting stock of
APPC. Results of operations for APPC are included in the
consolidated financial statements since that date. The acquisition
was made for the purpose of the reasons as stated above. Following
are pro forma amounts assuming that the acquisition was made on
January 1, 2004:
Net sales $ 975,368
Net income (loss) (2,209,688)
Loss per share:
Basic $ 2.92
Operations
American Petroleum Group, Inc. FKA American Capital Alliance, Inc.
(the "Company") is a Chicago based holding company with an agenda to
acquire, merge, and manage various business opportunities. The
Company's current direction is in the manufacturing and distribution
of petroleum and related products for the automotive industry. After
the above acquisition, the Company is no longer considered a
"development state entity"
Going Concern
The financial statements have been prepared using accounting
principles generally accepted in the United States of America
applicable for a going concern which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary
course of business. At September 30, 2004, the Company has
accumulated losses of $11,496,085, since its inception. In addition,
for each of the three and nine months ended September 30, 2004, the
Company lost $1,681,753 and $1,833,925, respectively. Its ability to
continue as a going concern is dependent upon the ability of the
Company to obtain the necessary financing to meet its obligations
and pay its liabilities arising from normal business operations when
they come due; however, there can be no assurance that financing can
and will be obtained. The Company is currently pursuing new debt and
equity financing in conjunction with additional proposed
acquisitions.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note D -Significant Accounting Policies
Consolidation Policy
The accompanying consolidated financial statements include the
accounts of the company and all of its wholly owned and
majority-owned subsidiaries. Intercompany transactions and balances
have been eliminated in consolidation
Use of Estimates in Financial Statement Preparation
The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States of
America, 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 financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could vary from the estimates
that were used.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Inventory
Inventories are stated at the lower of cost, determined by the first
in, first out method, or market.
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and loans payable
approximates fair value because of the short maturity of these
instruments. Unless otherwise noted, it is management's opinion that
the Company is not exposed to significant interest, currency or
credit risks arising from these financial instruments.
New Accounting Standards
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted could have a
material effect on the accompanying financial statements.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note D - Significant Accounting Policies (Continued)
Impairment of Long Lived Assets
The Company evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful life of long lived
assets may warrant revision or that the remaining balance of an asset
may not be recoverable. The measurement of possible impairment is
based on the ability to recover the balance of assets from expected
future operating cash flows on an undiscounted basis. In the opinion
of management, no such impairment existed at September 30, 2004.
Goodwill is assigned to specific reporting units and is reviewed for
possible impairment at lest annually or more frequently upon the
occurrence of an event or when circumstances indicate that a
reporting unit's carrying amount is greater than its fair value.
Income Taxes
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards, No. 109,
"Accounting for Income Taxes." Any benefit from net loss
carryforwards have been fully reserved for, due to the future
uncertainty of the generation of earnings by the Company.
Basic Loss Per Share
The Company reports basic loss per share in accordance with the
Statement of Financial Accounting Standards No. 128, "Earnings per
Share". Basic loss per share is computed using the weighted average
number of shares outstanding during the period. On August 25, 2004,
the Company approved a one-for-twenty reverse stock split; all per
share amounts have been retroactively adjusted.
Note E - Stock Borrowing Liability
In conjunction with the purchase of the afore mentioned "options",
the Company entered into a stock borrowing arrangement whereby
several stockholder/officers of the Company transferred approximately
1,000,000 shares pre-split or 50,000 shares on a post split basis of
common stock into an escrow account. The shares were subsequently
sold with the proceeds of $500,000 being transferred to the company.
The Company is obligated to return the shares to the original holders
by April 2005. If the Company had to repurchase its stock at
September 30, 2004, it would be required to pay $29,000 to acquire
the aggregate shares using a $0.029 approximate share price in order
to replace such shares for the original contributors of the stock.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note F - Related Party Transactions
Payroll services
The Company has its payroll processed though a "professional employer
organization" owned by a publicly traded corporation that has common
shareholders, directors and officers. This company processed $90,577
of payroll, taxes and benefits, along with an administration fee of
$4,259. Included in accounts payable at September 30, 2004 is a
balance due for these services of $25,522.
Expense reimbursements
The Company reimburses Company officer/directors for travel, office
and other expenses. In addition, certain officers make temporary
advances. Accounts Payable includes $36,215 of advances of these
types.
Due Alpha Advisors
A professional services agreement dated October 9, 2003 was entered
into with Alpha Advisors, LLC for a term of one year and renewable
for an additional year. Alpha Advisors LLC is an entity owned by
stockholders/directors/officers of the Company. The fee for these
services was the issuance of 1,000,000 shares of common stock of the
Company upon execution of the agreements, $25,000 due at signing of
the Tri-State Stores and Alliance Petroleum, Inc. agreements and
$6,000 payable on the first of each month thereafter. In addition, a
finder's fee of 10% of any new financing was to be paid on funds
being committed. Accounts Payable includes $31,000 of such amounts
due as of September 30, 2004. The Company and Alpha are currently in
the process of converting the debt into equity based upon a discount
of 80% from the market price.
Note G - Related Party Notes and Loans Payable Amount
-----------
New Century Capital Consultants, Inc.-Note Payable $ 50,000
Keystone Nittany Ventures-Loan Payable 65,800
Warren Field-Loan Payable 50,000
Former President-Loan Payable 42,916
-----------
Total $ 308,716
===========
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note G - Related Party Notes and Loans Payable (Continued)
New Century Capital Consultants, Inc.-Note Payable
The Company on March 16, 2004 entered into a convertible unsecured
revolving promissory note agreement with New Century Capital
Consultants, Inc. The lender is a stock holder in the company via
compensation it received (see Note H). The agreement allows for
borrowings up to $500,000 of which $50,000 has been advanced
currently. Interest accrues at the rate of 9% per annum payable along
with the any outstanding principle balance on March 16, 2005, unless
the note is in default. The lender may convert the principal amount
and any accrued interest into common stock of the Company based upon
a formula equal to 40% below the closing bid price of the stock
starting after six months from execution of this agreement.
Additionally, on a one time basis the lender upon written demand
after the six month can require the Company to prepare and file a
registration statement under the Securities and Exchange Act of 1933
for an offering of up to 1,000,000 shares. Also, the agreement allows
for "piggyback registration" rights in that the Company must notify
the lender and allow the lender to register its shares if the
companies file such a registration statement. The agreement contains
events of default such as bankruptcy, insolvency, defaults or
rendering of judgments on indebtedness in excess of $75,000 on from
any other lender. Additionally, the agreement contains certain
covenants as prohibition of payment of dividends, retirements or
redemptions of capital stock, or the transfer of material assets of
the Company. Upon these acts of defaults, the entire amount of
principle and interest is immediately due, and interest accrues at a
rate of 15% per annum. As of September 30, the Company has not
recognized interest on this obligation.
On October 18, 2004, the company received notice from the lender
that, in its opinion, the Company was in default on the arrangement
as a result of distributions of to classes of equity holders and
possibly transfer of material assets. The lender has made assertions
about misappropriation of corporate funds. Management of the Company
finds these assertions as unfounded and feel the Company is in
compliance with the terms of the agreement.
Keystone Nittany Ventures-Loan Payable
Keystone Nittany Ventures, Inc. (Keystone) is a corporation owned by
the President of the Company who is also a director and a major
shareholder. Keystone has from time-to-time made advances to the
Company. The loan is unsecured and on a demand basis and calls for
interest of 8% per annum. At September 30, 2004 the Company has not
recognized interest on this obligation.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note G - Related Party Notes and Loans Payable (Continued)
Warren Field-Loan Payable
Warren Field is related to the company by virtue of being a
stockholder. His unsecured loan is on a demand repayment basis and
accrues interest of 7% per annum. At September 30, 2004, the Company
has no interest recognized on this obligation.
Former President-Loan Payable
The amount recorded by the Company represents the estimated fair
value of the liability of the amount assumed at the time of purchase
of APPC. It appears that the liability represents funds advance for
the working capital. The obligation is unsecured, as no terms for
repayment and non-interest bearing. As a result of other
contingencies that of the purchase of AAPC the final settled amount
of this liability could be significantly different from the present
recorded amount.
Note H - Stockholders' Equity
A consulting services agreement was entered into on October 9, 2003,
with National Securities Corporation, Inc. for a term of six months
renewable on a monthly basis. The fee for this service is the
issuance of 1,000,000 shares of common stock of the Company (issued).
A consulting services agreement was entered into on October 9, 2003,
with New Century Consultants, Inc. for a term of six months renewable
on a monthly basis. The fee for this service is the issuance of
1,000,000 shares of common stock of the Company (issued). New Century
Consultants, Inc. will become a related party to the Company as it
has agreed to purchase a significant portion of the Company's issued
and outstanding shares.
A consulting agreement was entered into on October 10, 2003, with
Commonwealth Partners NY, LLC for a term of three years. The fee for
this service is the issue of 200,000 free trading shares and 300,000
restricted shares (issued) of common stock of the Company.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note H - Stockholders' Equity (Continued)
On January 27, 2004, the Company entered into a manufacturing
agreement with the shareholders of International Pit Crew Express,
Inc. ("IPC"), a Texas corporation, to acquire the exclusive right to
manufacture petroleum products for IPC's customers within the United
States, including the United States convenience store industry. As
consideration for these rights, the Company issued 1,500,000 shares
of common stock on April 2, 2004 to the shareholders of IPC.
Additionally, the Company is to provide one half of the funds
necessary for the purchase of machinery, and all related parts,
supplies, and installation costs.
In junction with change of control of the Company on August 11, 2004,
1,298,750 shares of common and 2,527,500 of preferred stock were
issued to newly elected officers of the corporation. The Company
recognized the issuance as compensation expense of $1,516,500 for the
period ended September 30, 2004. The value was based upon the closing
price of the stock as quoted on the "electronic bulletin board
market" on August 11, 2004. The Corporation also issued Series A
Preferred Stock in the amount of 1,527,500 convertible at a ratio of
one share of Series A Preferred Stock to 10 shares of common stock.
Note I - Commitments and Contingencies
Harris Bank
In conjunction with the Bank attempting to collect their debt against
certain parties as indicated above in Note C, the bank is requesting
that the Company become a party to any forbearance as to collection
of the debt, such as becoming a guarantor or buying life insurance
for the original makers of the debt. The basis of their claims is
that the company is using facilities that secure the original
borrowings. It is the opinion of management and counsel of the
company that there is no basis and claims or commitments since
Alliance or the Company was not a borrower or a guarantor on the debt
(management of Alliance are guarantors of the original debt). The
Company has offered to enter into negotiations with the bank and is
attempting to secure financing to purchase the operating assets being
utilized in the operations at fair value. To date the Company has
attempted to obtain a listing of the assets; none has been provided.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note I - Commitments and Contingencies (Continued)
Compensation for Utilizing Operation Assets
As indicated in Note C, no rent or compensation of any type has been
paid to the entities that claim to have legal title to the operating
assets of Alliance. Management has taken the position that since
there was no contract or agreement to purchase or for the payment of
rentals for these assets, therefore nothing is owed. The consolidated
operations for the period since Alliance was acquired do not contain
any provision for compensation for use of the facilities. The owner
(and former resident of the Company and major shareholder) of the
entity that owns the real estate had previously had Alliance recorded
$15,000 in rent a month with a corresponding increase to an amount
payable to this entity; This is a contingency relating to the
business combination that could potentially result in an adjustment
of the purchase price of Alliance or additional charges to the
Company's operations.
Amendment of Alliance Petroleum Products Company Agreement
On June 24, 2004 the Company amended the original agreement removing
the contingencies contained in the original document, the most
significant being of refinancing certain debt owed Harris Bank (see
Note C and above). As part of this amendment the document stated
Alliance assumed assumes all payment obligations and all other
agreements of Alliance to the Harris Bank,; and all payment
obligations and all other agreements of Alliance as set forth in the
following four "Promissory Notes":
o Alliance is to pay $200,000 to Richard Stiefel after all
amounts have been paid to Jesse Fuller and American
Group Financial (owned by Jesse Fuller) and funding has
been received from Cornell Capital Corporation. The note
is non-interest bearing. Jesse Fuller was the former
president and a director of the Company and a major
shareholder. Richard Stiefel is an officer in Alliance
and former shareholder, and currently is an
officer/director/ shareholder of the Company. ----It is
the position of the Company that since there was no
consideration received and the funding from Cornell
Capital Corporation was not completed and it is unlikely
to be completed that there is no basis for this
liability.
o Alliance promises to pay American Group Financial, Inc.
and/or Jesse Fuller $407,368.09 and any additional sums
that AGF or Jesse Fuller owes to Harris Bank. Jesse
Fuller is the owner of AGF, the former president of the
Company, former director and still a major shareholder.
The note accrues interest at 5% per annum. The note due
December 1, 2004. Management of the Company's position
is that there was not consideration for the note and
that Alliance was never a party on any debt obligations
to Harris Bank.
AMERICAN PETROLEUM GROUP, INC. AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements -
(Unaudited) - Continued
September 30, 2004
--------------------------------------------------------------------------------
Note I - Commitments and Contingencies (Continued)
o Alliance is to pay $200,000 to Virginia Gefvert after
all amounts have been paid to Jesse Fuller and American
Group Financial (owned by Jesse Fuller) and funding has
been received from Cornell Capital Corporation. The note
is non-interest bearing. Jesse Fuller was the former
president and a director of the Company, and a major
shareholder. Virginia Gefvert was a former shareholder
of Alliance----It is the position of the Company that
since the funding from Cornell Capital Corporation was
not completed and it is unlikely to be completed that
there is no basis for this liability.
|X| Alliance is to pay $200,000 to American Group Financial,
Inc. after all amounts have been paid to Jesse Fuller
and American Group Financial (owned by Jesse Fuller) and
funding has been received from Cornell Capital
Corporation. The note is non-interest bearing. Jesse
Fuller was the former president and a director of the
Company, and a major shareholder. Virgina Gefvert was a
former shareholder of Alliance. It is the position of
the Company that since there was no consideration
received and the funding from Cornell Capital
Corporation was not completed, it is unlikely to be
completed that there is no basis for this liability.
Note J - Non-Cash Transactions
Investing and financing activities that do not have a direct impact
on current cash flows are excluded from the cash flow statement.
3
Item 2. Management's Discussion and Analysis and Plan of Operations.
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
OVERVIEW
History and Organization
American Petroleum Group, Inc., formerly American Capital Alliance,
Inc., formerly Prelude Ventures, Inc. (the "Company") was incorporated under the
laws of the State of Nevada on May 24, 2000. Prior to its acquisition of
Alliance Petroleum Products, Inc., he Company had limited business operations
and was considered a development stage enterprise. The activities during that
period principally have been limited to organizational matters, and examining
business and financing opportunities for the Company.
Prior Business Matters
On March 9, 2001, we acquired a 20 year mining lease from Steve
Sutherland, the owner of 24 unpatented lode mining claims, sometimes referred to
as the Medicine Project, located in Elko County, Nevada.
During the nine months ended September 30, 2003, management of the
Company terminated the mining lease. As the Company terminated the lease, it is
required to pay all federal and state mining claim maintenance fees for the
current year. The Company is required to perform reclamation work on the
property as required by federal state and local law for disturbances resulting
from the Company's activities on the property. In the opinion of management,
there will be no continuing liability. Please see the Company's Schedule 14C
Information Statement as filed with the Securities and Exchange Commission on
February 13, 2004 and mailed or furnished to Shareholders on February 17, 2004,
and incorporated herein by reference, for additional details on this matter.
4
Business Acquisitions
"TSG" Acquisition
On October 9, 2003, the Company acquired an option for $500,000 to purchase the
assets and certain liabilities of Tri-State Stores, Inc., an Illinois
Corporation ("Tri-State"), GMG Partners LLC, an Illinois Limited Liability
Company ("GMG"), and SASCO Springfield Auto Supply Company, a Delaware
Corporation ("SASCO"). Tri-State, GMG and SASCO are collectively referred to
herein as "TSG." Upon exercise of the option, the Company was to pay $3,000,000
and assume certain liabilities, not exceeding $700,000. TSG is involved in the
automotive after market. During the first quarter of 2004, the Company elected
not to continue to pursue this acquisition.
Motor Parts Waterhouse, Inc.
The Company issued 5,000,000 shares of common stock for an option to acquire all
the outstanding stock of Motor Parts Warehouse, Inc. ("MPW"), of St. Louis,
Missouri. In order to exercise the option, the Company must issue an additional
5,000,000 shares of common stock to the shareholders of MPW and pay $2,200,000.
This MPW option cannot be exercised until after the refinancing of the TSG debt
of approximately $3,000,000. MPW is also an auto parts distributor. As a result
of the financing not being completed, the Company elected not to continue to
pursue this acquisition.
Alliance Petroleum Products Company
On October 9, 2003, the Company also entered into a Stock Purchase Agreement
("Alliance Agreement") with Alliance Petroleum Products Company ("Alliance"), an
Illinois Corporation, and a Rider to the Alliance Agreement ("Rider"). Alliance
is in the business of blending and bottling motor oil and anti-freeze. Under the
Alliance Agreement, the Company issued 5,000,000 shares of common stock for 100%
of the issued and outstanding shares of the common stock of Alliance (757,864
common shares). An additional 5,000,000 shares of common stock of the Company is
to be issued to Worldlink International Network, Inc. upon 24 months from the
date hereof. Under the terms of the Rider, the Company is required to provide
funding of at least $3,500,000 to pay Harris Bank, a secured creditor of
Alliance. The shareholders of Alliance have the option to have the 757,864
issued and outstanding shares of common stock of Alliance returned and the
Alliance Agreement rescinded if they choose, if the Company did not arrange the
funding within 150 days from the date of the execution of the Alliance
Agreement. Since the expiration of the option period has expired, the principals
of the transactions have verbally agreed to extend the option period pending
completion of the financing. This was a material contingency to the transactions
and as a result has to be resolved prior to recognition of a business
combination. On June 24, 2004(effective date July 1, 2004) the Company
("Prelude") now known as American Capital Alliance, Inc., ("AMAI") and Alliance
Petroleum Products Company ("Alliance"), entered into an Amendment to the
original Alliance Agreement, dated October 9, 2003 whereby all previous
conditions and contingencies were deemed to have been completed or waived and
the agreement amended as follows;
5
o 5,000,000 shares of AMAI voting capital stock are to be issued to
the shareholders of Alliance in the same proportions as the first
5,000,000 shares were issued to them pursuant to the exchange of
securities contemplated in the Agreement and Plan of Reorganization
upon the execution of this Amendment. The exchange of securities
also includes, 1,000,000 shares of preferred shares, with the
necessary Certificate of Designation, to allow conversion at the
rate of 1 share of preferred to ten (10) shares of common, and to
permit the preferred shareholders to vote their shares, at any time
after issuance, and after they have been converted, the shares be
issued to the shareholders of American in the same proportions as
the first 5,000,000 shares were issued to them pursuant to the
Agreement and Plan of Reorganization.
o All the shares to the Alliance shareholders are no longer subject to
a two year restriction prior to sale or transfer, but are now only
subject to those transfer restrictions under Rule 144 of the
Securities Laws.
o AMAI assumes all payment obligations and all other agreements of
Alliance as set forth in the including four "Promissory Notes"; and
AMAI assumes all payment obligations and all other agreements of
Alliance to the Harris Bank.
The operations of Alliance have been consolidated with the results of AMAI since
July 1, 2004. American Petroleum Group, Inc. formerly American Capital Alliance,
Inc. (the "Company") is a Chicago based holding company with an agenda to
acquire, merge, and manage various business opportunities. The Company's current
direction is in the manufacturing and distribution of petroleum and related
products for the automotive industry. After the above acquisition, the Company
is no longer considered a "development state entity"
PLAN OF OPERATIONS
We were a startup, development stage Company prior to the acquisition
of Alliance Petroleum Products Company (AAPC) and did not realized any revenues
from our business operations until that time. However at time of acquiring APPC
its sales volume was at a point below its break even point and there fore was
losing money. Management of the Company feels that APPC is operating at a small
percentage of its capacity with its major constraint on increasing volume being
that of financing raw materials for manufacturing and some other limited
variable manufacturing costs. Accordingly, we must raise money from sources
other than the operations of this business. Our only other source of cash at
this time is investments by others in our Company. We must raise cash to
complete the acquisitions and stay in business.
6
We must also obtain additional financing to either purchase our operating assets
or obtain working capital for leasing arrangements
To meet our need for cash, we are attempting to raise debt and equity financing
to complete the acquisitions described in this document and fund the Company's
on-going operations. There is no assurance that we will be able to raise these
funds and stay in business. If we do not raise the funds required to complete
any of the acquisitions, we will have to find alternate sources such as a
secondary public offering, private placement of securities, or loans from
officers or others. If we need additional cash and can not raise it, we will
either have to suspend operations until we do raise the cash or cease operations
entirely
Limited Operating History.
The only historical financial information about our Company on which to
base an evaluation of our performance is the last three months after the
acquisition of APPC which was generating losses at the time of acquisition . We
can not guarantee we will be successful in our business operations. Our business
is subject to the risks inherent in the establishment of a new business
enterprise, including limited capital resources and the ability to find and
finance suitable acquisition candidates. We are seeking equity and debt
financing to provide the capital required to fund additional proposed
acquisitions and our on-going operations.
We have no assurance that future financing will be available to the
Company on acceptable terms. If financing is not available on satisfactory
terms, we may be unable to continue, develop or expand our operations. Equity
financing could result in additional dilution to shareholders.
Liquidity, Capital Resources and Operations
Since the Company's inception, the Company has raised funds from
officer/stockholder advances, from private sales of its common shares and
approximately $500,000 from sale of borrowed stock contributed by the Company's
promoters. This money has been utilized for start-up costs and operating
capital. For each of the three and nine months ending September 30, 2004, the
Company has sustained operating losses of $1,681,753 and $1,833.925,
respectively, of which for each of the three month and nine months ended
September 30, 2004, were $1,516,500 and $1,523,200, respectively, for the
payment for professional services rendered to the Company and compensation to
certain officers.
In this regard, the Company's plan of operations for the next 12 months
is to pursue profitable business acquisitions, and obtain financing to increase
the sale volume of APPC.. Product research and development is expected is
expected to be minimal during the period. Additionally, the Company does not
expect any change in number of employees other than through acquisitions.
7
RISK FACTORS
Contingencies
Harris Bank
In conjunction with the Bank attempting to collect their debt against
certain parties, the bank is requesting that the Company become a party to any
forbearance as to collection of the debt, such as becoming a guarantor or buying
life insurance for the original makers of the debt. The basis of their claims is
that the company is using facilities that secure the original borrowings. It is
the opinion of management and counsel of the company that there is no basis and
claims or commitments since Alliance or the Company was not a borrower or a
guarantor on the debt (management of Alliance are guarantors of the original
debt). The Company has offered to enter into negotiations with the bank and is
attempting to secure financing to purchase the operating assets being utilized
in the operations at fair value. To date the Company has attempted to obtain a
listing of the assets; none has been provided.
Compensation for Utilizing Operation Assets
No rent or compensation of any type has been paid to the entities that
claim to have legal title to the operating assets of Alliance. Management has
taken the position that since there was no contract or agreement to purchase or
for the payment of rentals for these assets, therefore nothing is owed. The
consolidated operations for the period since Alliance was acquired do not
contain any provision for compensation for use of the facilities; The owner (and
former president of the Company and major shareholder) of the entity that owns
the real estate had previously had Alliance recorded $15,000 in rent a month
with a corresponding increase to an amount payable to this entity; This is a
contingency relating to the business combination that could potentially result
in an adjustment of the purchase price of Alliance or additional charges to
operations.
Amendment of Alliance Petroleum Products Company Agreement
On June 24, 2004 the Company amended the original agreement removing the
contingencies contained in the original document, the most significant being of
refinancing certain debt owed Harris Bank. As part of this amendment the
document stated Alliance assumed assumes all payment obligations and all other
agreements of Alliance to the Harris Bank,; and all payment obligations and all
other agreements of Alliance as set forth in the following four "Promissory
Notes".:
o Alliance is to pay $200,000 to Richard Stiefel after all amounts
have been paid to Jesse Fuller and American Group Financial (owned
by Jesse Fuller) and funding has been received from Cornell Capital
Corporation. The note is non-interest bearing. Jesse Fuller was the
former president and a director of the Company and a major
shareholder. Richard Stiefel is an officer in Alliance and former
shareholder, and currently is an officer/director/ shareholder of
the Company. ----It is the position of the Company that since the
funding from Cornell Capital Corporation was not completed and it is
unlikely to be completed that there is no basis for this liability.
8
o Alliance promises to pay American Group Financial, Inc. and/or Jesse
Fuller $407,368.09 and any additional sums that AGF or Jessee Fuller
owes to Harris Bank. Jessee Fuller is the owner of AGF, the former
president of the Company, former director and still a major
shareholder. The note accrues interest at 5% per annum. The note due
December 1, 2004. Management of the Company's position is that there
was not consideration for the note and that Alliance was never a
party on any debt obligations to Harris Bank.
o Alliance is to pay $200,000 to Virginia Gefvert after all amounts
have been paid to Jesse Fuller and American Group Financial (owned
by Jesse Fuller) and funding has been received from Cornell Capital
Corporation. The note is non-interest bearing. Jesse Fuller was the
former president and a director of the Company, and a major
shareholder. Virginia Gefvert was a former shareholder of Alliance.
It is the position of the Company that since the funding from
Cornell Capital Corporation was not completed and it is unlikely to
be completed that there is no basis for this liability.
o Alliance is to pay $200,000 to American Group Financial, Inc. after
all amounts have been paid to Jessee Fuller and American Group
Financial (owned by Jesse Fuller) and funding has been received from
Cornell Capital Corporation. The note is non-interest bearing. Jesse
Fuller was the former president and a director of the Company, and a
major shareholder. Virginia Gefvert was a former shareholder of
Alliance. It is the position of the Company that since the funding
from Cornell Capital Corporation was not completed and it is
unlikely to be completed that there is no basis for this liability.
Much of the information included in filing includes or is based upon estimates,
projections or other "forward looking statements". Such forward-looking
statements include any projections or estimates made by us and our management in
connection with our business operations. While these forward-looking statements,
and any assumptions upon which they are based, are made in good faith and
reflect our current judgment regarding the direction of our business, actual
results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested
herein.
Such estimates, projections or other "forward-looking statements" involve
various risks and uncertainties as outlined above. We caution the reader that
important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other
"forward-looking statements".
9
Our common shares are considered speculative during our search for a new
business opportunity. Prospective investors should consider carefully the risk
factors set out below.
Government Regulation
To the best of our knowledge, we are not currently subject to direct
federal, state or local regulation in the United States, other than regulations
applicable to businesses generally.
Key personnel
All of our present officers or directors are key to our continuing
operations, we rely upon the continued service and performance of these officers
and directors, and our future success depends on the retention of these people,
whose knowledge of our business and whose technical expertise would be difficult
to replace. At this time, none of the officers or directors is bound by
employment agreements, and as a result, any of them could leave with little or
no prior notice.
If we are unable to hire and retain technical, sales and marketing and
operations personnel, any business we acquire could be materially adversely
affected. It is likely that we will have to hire a significant number of
additional personnel in the future if we identify and complete the acquisition
of a business opportunity, or if we enter into a business combination.
Competition for qualified individuals is likely to be intense, and we may not be
able to attract, assimilate, or retain additional highly qualified personnel in
the future. The failure to attract, integrate, motivate and retain these
employees could harm our business.
Limited Operating History. Need for Additional Capital
There is limited financial information about our Company on which to
base an evaluation of our performance. We were a development stage Company prior
to the acquisition of APPC and have not generated any substantial revenues from
operations. We can not guarantee we will be successful in our business
operations. Our business is subject to the risks inherent in the establishment
of a new business enterprise, including limited capital resources and the
ability to find and finance suitable acquisition candidates. We are seeking
equity and debt financing to provide the capital required to fund the proposed
acquisitions and our on-going operations.
We have no assurance that future financing will be available to the
Company on acceptable terms. If financing is not available on satisfactory
terms, we may be unable to continue, develop or expand our operations. Equity
financing could result in additional dilution to shareholders.
We have not conducted or received results of market research indicating
that there is a demand for the acquisition of a business opportunity or business
combination as contemplated by our company. Even if there is demand for the
acquisition of a business opportunity or combination as contemplated, there is
no assurance we will successfully complete such an acquisition or combination.
10
Regulation
Although we will be subject to regulation under the Securities Exchange
Act of 1934, management believes that we will not be subject to regulation under
the Investment Company Act of 1940, insofar as we will not be engaged in the
business of investing or trading in securities. In the event that we engage in
business combinations which result in us holding passive investment interests in
a number of entities, we could be subject to regulation under the Investment
Company Act of 1940, meaning that we would be required to register as an
Investment company and could be expected to incur significant registration and
compliance costs. We have obtained no formal determination from the Securities
and Exchange Commission as to the status of our company under the Investment
Company Act of 1940 and, consequently, any violation of such act would subject
us to material adverse consequences.
Uncertain Ability to Manage Growth
Our ability to achieve any planned growth upon the acquisition of a
suitable business opportunity or business combination will be dependent upon a
number of factors including, but not limited to, our ability to hire, train and
assimilate management and other employees and the adequacy of our financial
resources. In addition, there can be no assurance that we will be able to manage
successfully any business opportunity or business combination. Failure to manage
anticipated growth effectively and efficiently could have a materially adverse
effect on our business.
"Penny Stock" Rules May Restrict the Market for the Company's Shares
Our common shares are subject to rules promulgated by the Securities
and Exchange Commission relating to "penny stocks," which apply to companies
whose shares are not traded on a national stock exchange or on the NASDAQ
system, trade at less than $5.00 per share, or who do not meet certain other
financial requirements specified by the Securities and Exchange Commission.
These rules require brokers who sell "penny stocks" to persons other than
established customers and "accredited investors" to complete certain
documentation, make suitabe inquiries of investors, and provide investors with
certain information concerning the risks of trading in the such penny stocks.
These rules may discourage or restrict the ability of brokers to sell our common
shares and may affect the secondary market for our common shares. These rules
could also hamper our ability to raise funds in the primary market for our
common shares.
Possible Volatility of Share Prices
Our common shares are currently publicly traded on the Over-the-Counter
Bulletin Board service of the National Association of Securities Dealers, Inc.
The trading price of our common shares has been subject to wide fluctuations.
Trading prices of our common shares may fluctuate in response to a number of
factors, many of which will be beyond our control. The stock market has
generally experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of companies with no
current business operation. There can be no assurance that trading prices and
price earnings ratios previously experienced by our common shares will be
matched or maintained. These broad market and industry factors may adversely
affect the market price of our common shares, regardless of our operating
performance.
11
In the past, following periods of volatility in the market price of a
company's securities, securities class-action litigation has often been
instituted. Such litigation, if instituted, could result in substantial costs
for us and a diversion of management's attention and resources.
Indemnification of Directors, Officers and Others
Our by-laws contain provisions with respect to the indemnification of
our officers and directors against all expenses (including, without limitation,
attorneys' fees, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that the person is one of our officers or directors) incurred by an officer
or director in defending any such proceeding to the maximum extent permitted by
Nevada law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
our company under Nevada law or otherwise, we have been advised the opinion of
the Securities and Exchange Commission is that such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
Anti-Takeover Provisions
We do not currently have a shareholder rights plan or any anti-takeover
provisions in our By-laws. Without any anti-takeover provisions, there is no
deterrent for a take-over of our company, which may result in a change in our
management and directors.
Reports to Security Holders
Under the securities laws of Nevada, we are not required to deliver an
annual report to our shareholders but we intend to send an annual report to our
shareholders.
Item 3. Controls And Procedures
The registrant's new Principal executive financial officer, based on
his evaluation of the registrant's disclosure controls and procedures (as
defined in Rules 13a-14 (c) of the Securities Exchange Act of 1934) as of
September 30, 2004 has concluded that the registrants' disclosure controls and
procedures are adequate and effective to ensure that material information
relating to the registrants and their consolidated subsidiaries is recorded,
processed, summarized and reported within the time periods specified by the
SEC's rules and forms, particularly during the period in which this quarterly
report has been prepared.
12
The registrant's principal executive officers and principal financial
officer have concluded that there were no significant changes in the
registrant's internal controls or in other factors that could significantly
affect these controls subsequent to September 30, 2004 the date of their most
recent evaluation of such controls, and that there was no significant
deficiencies or material weaknesses in the registrant's internal controls.
Part II. Other Information
Item 1. Legal Proceedings.
We know of no material, active or pending legal proceedings against us, nor are
we involved as a plaintiff in any material proceedings or pending litigation.
There are no proceedings in which any of our directors, officers or affiliates,
or any registered or beneficial shareholders are an adverse party or have a
material interest adverse to us.
There is a threatened action by the Harris Bank of Chicago, Illinois with
respect to a defaulted loan agreement. Harris Bank claims to have a lien on the
equipment used by the Registrant in its operations. The Registrant has had
contact with Harris Bank and is attempting to resolve the matter. In the event
that a resolution is not resolved in a manner satisfactory to the Registrant, it
could result in the seizure of the equipment and have a material adverse effect
on the operations of the Registrant.
Item 2. Changes In Securities
Effective August 25, 2004, the control of the Registrant changed. This was due
to appointment of the new Directors. In addition, the Registrant issued a
controlling block of shares to the persons identified. These shares consisted of
shares of common stock and shares of preferred stock Series A, convertible to
common stock at a ratio of one share of preferred to 10 shares of common, with
immediate voting rights as if they were converted to common stock. The shares
were issued as part of compensation packages for the services to be rendered to
the registrant.
In addition, shares of common stock were issued, in a total amount of 15,000,000
pre-reverse split, in exchange for any preferred stock that was to be issued
pursuant to the Amendment to Agreement and Plan of Reorganization, previously
filed by Form 8-K, as well as making the effective date of the Amendment August
1, 2004.
The shares issued are as follows:
No. of Common No. of Preferred(1) % ownership(1)
-------------- ------------------ --------------
James W. Zimbler 500,000 1,000,000 13.6
Richard Carter 535,000 1,000,000 14.3
George L. Riggs, III 75,000 150,000 *
Michael S. Krome, Esq 75,000 150,000 *
Alpha Advisors, LLC (2) 113,750 227,500 * (2)
Richard Steifel 290,000 -- 7.75
Chris Hansen 222,500 -- 5.9
Jesse Fuller 575,000 -- 23.7
Alfred Ciella 20,000 -- *
13
(1) Percentage of ownership does not include conversion ration of
preferred stock at a rate of one share of preferred stock to ten
shares of common stock.
(2) Alpha Advisors, LLC is controlled by James W. Zimbler, Richard
Carter, George L. Riggs, and Michael S. Krome. When all of the
ownership percentages are added, the control percentage for Alpha
Advisors LLC is 34.7%, not counting the conversion of the preferred
stock, if voted as a block.
Effective November 1, 2004, the Company completed the following actions:
1. Change of name of the Corporation to American Petroleum Group, Inc.,
with an accompanying change of its trading symbol, to "AMPE", and
2. Completion of a reverse stock split of Twenty (20) old shares of
common stock for each One (1) new share of common stock. This
resulted in a reduction of the total issued and outstanding shares
of the Company after to the completion of the reverse split of
3,740,000.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
There were no items submitted to a vote of security holders during the quarter
ended September 30, 2004, other than a vote by the majority of shares entitled
to vote to approve a reverse split of the common stock of the Company twenty
(20) old shares for each one (1) new share of common stock, effective November
1, 2004
Item 5. Other Information
None
14
Item 6. Exhibits And Reports On Form 8-K
a. Exhibits:
3.1 Articles of Incorporation of the Registrant, as amended*
3.2 By-laws of the Registrant, as amended*
31.1 Section 302 Certification
32.1 Section 906 Certification
------------
* Previously filed as an exhibit to the Company's Form 10-SB filed on June 26,
2001
b. Reports on Form 8-K filed during the three months ended September
30, 2004.
On July 9, 2004, we filed an 8-K-A, with respect to Item 2, amending the Form
8-K filed on November 6, 2003. On September 20, 2004, we filed a Form 8-K with
respect to Item 5.01 Changes in Control of Registrant
Subsequent Events
On November 3, 2004, we filed a Form 8-K with respect to Item 5.03, Amendments
to Articles of Incorporation or By-laws; Change in Fiscal Year, with respect to
an amendment to the name of the Registrant; and Item 8.01, Other Events with
respect to a reverse split of the common stock and new trading symbol
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 22, 2004 American Petroleum Group, Inc.
/s/ James W. Zimbler
-----------------------------------
James W. Zimbler, Interim President
/s/ George L. Riggs
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George L. Riggs, III, CFO
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