SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER 000-32635
GROUP MANAGEMENT CORP
(Exact name of registrant as specified in its charter)
DELAWARE 59-2919648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12503 EXCHANGE BOULEVARD, SUITE 554
STAFFORD, TEXAS 77477
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 242-4744
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No.
----
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. As of September 5, 2002,
there were 7,263,421 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes No X .
----- -----
GROUP MANAGEMENT CORP
TABLE OF CONTENTS
-----------------
PART I
Item 1 Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operations
PART II
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
2
PART I
EXPLANATORY NOTE
Included in this Quarterly Report on Form 10-QSB is a consolidated balance sheet
of Group Management Corp as of June 30, 2002, and the related consolidated
statements of operations for the three and six month periods ended June 30, 2002
and 2001, and statements of cash flows for the six month periods ended June 30,
2002 and 2001.
The Company elected to list its 88.5% owned subsidiary, Swan Magnetics, Inc.
(Swan) as an unconsolidated affiliate because it was precluded from obtaining
the necessary information to allow a consolidated financial filing due to
Swan's former CEO withholding financial records, making control impractical.
Litigation has been initiated to gain control of the books and records. On
February 26, 2002, the Company terminated Kim as the President and Chairman of
the Board of Swan. In March 2002 the Company sold its interest in Swan to Lumar
Worldwide, Inc.
This Quarterly Report includes forward-looking statements within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition or Plan of Operation." Forward-looking statements also include
statements in which words such as "expect," "anticipate," "intend," "plan,"
"believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results
and shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
ITEM 1 FINANCIAL STATEMENTS
3
GROUP MANAGEMENT CORP.
BALANCE SHEET (UNAUDITED)
JUNE 30, 2002
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,522
Accounts receivable - net of $15,000 allowance for bad debts. 4,001
Due from shareholders . . . . . . . . . . . . . . . . . . . . 46,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 60,635
-------------
Total current assets. . . . . . . . . . . . . . . . . . . 214,158
PROPERTY AND EQUIPMENT, AT COST
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 225,205
Office furniture and fixtures . . . . . . . . . . . . . . . . 192,973
Leasehold improvements. . . . . . . . . . . . . . . . . . . . 170,381
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . 41,857
Less: Accumulated depreciation. . . . . . . . . . . . . . . . (293,325)
-------------
337,091
NOTE RECEIVABLE - LUMAR WORLDWIDE . . . . . . . . . . . . . . . 2,500,000
OTHER ASSETS, NET . . . . . . . . . . . . . . . . . . . . . . . 256,737
-------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . $ 3,307,986
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . . . $ 932,640
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 5,101,169
-------------
Total current liabilities . . . . . . . . . . . . . . . . 6,033,809
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . 2,500,000
SHAREHOLDERS' EQUITY
Common stock, par value $.002, 150,000,000 shares authorized,
5,051,679 shares issued and outstanding . . . . . . . . . . 10,104
Additional paid in capital. . . . . . . . . . . . . . . . . . 34,847,973
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (40,083,900)
-------------
Total shareholders' equity. . . . . . . . . . . . . . . . (5,225,823)
-------------
Total liabilities and shareholders' equity. . . . . . . . . $ 3,307,986
=============
See accompanying note.
4
GROUP MANAGEMENT CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30 JUNE 30
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------------------------------- ---------------- ---------------- ------------ ------------
REVENUES:
Sales . . . . . . . . . . . . . . . . . . $ 120,763 $ 427,595 $ 76,421 $ 246,096
---------------- ---------------- ------------ ------------
Total revenues. . . . . . . . . . . . 120,763 427,595 76,421 246,096
COSTS AND EXPENSES:
Cost of goods sold. . . . . . . . . . . . 81,587 336,706 34,398 215,793
Selling, general and administrative . . . 1,566,459 11,230,283 209,059 8,736,035
Loss on investment in Cybercoupons, Inc.. 0 2,700,000 0 0
Depreciation and amortization expense . . 75,000 27,028 37,500 13,199
Interest expense. . . . . . . . . . . . . 22,060 494,422 10,669 23,982
---------------- ---------------- ------------ ------------
Total costs and expenses. . . . . . . 1,745,106 14,788,439 291,626 8,989,009
---------------- ---------------- ------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . $ (1,624,343) $ (14,360,844) $ (215,205) $(8,742,913)
================ ================ ============ ============
BASIC AND FULLY DILUTED NET LOSS PER SHARE. $ (0.37) $ (5.65) $ (0.04) $ (3.22)
WEIGHTED AVERAGE NUMBER OF SHARES . . . . . 4,434,872 2,542,908 4,875,679 2,712,533
See accompanying note.
5
GROUP MANAGEMENT CORP.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30 JUNE 30
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- --------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) . . . . . . . . . . . . . . . . . . . . $ (1,624,343) $ (14,360,844) $ (215,205) $(8,742,913)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Bad debt expense . . . . . . . . . . . . . . . . 36,000 2,700,000 0 0
Depreciation and amortization. . . . . . . . . . 75,000 27,028 37,500 13,199
Stock based compensation . . . . . . . . . . . . 1,100,762 8,900,089 56,400 7,367,352
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . 2,544 (110,590) (2,723) (77,464)
Inventory. . . . . . . . . . . . . . . . . . . . 28,551 16,097 28,167 18,880
Accounts payable and accrued expenses. . . . . . 67,021 69,380 35,004 144,184
-------------- --------------- ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. (314,465) (2,758,840) (60,857) (1,276,762)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment . . . . . . . . . . . . . . (100) (139,644) 0 (84,654)
Notes receivable . . . . . . . . . . . . . . . . . 0 (113,857) 0 5,886
-------------- --------------- ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES. (100) (253,501) 0 (78,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock . . . . . . . . 250,000 42,500 0 20,000
Related party. . . . . . . . . . . . . . . . . . . 0 (39,000) 0 (33,000)
Notes payable. . . . . . . . . . . . . . . . . . . 70,176 2,987,811 56,554 1,347,500
-------------- --------------- ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. 320,176 2,991,311 56,554 1,334,500
-------------- --------------- ------------ ------------
Increase (decrease) in cash . . . . . . . . . . . . 5,611 (21,030) (4,303) (21,030)
Cash at beginning of period. . . . . . . . . . . . . 97,911 288,439 107,825 491,027
-------------- --------------- ------------ ------------
Cash at end of period. . . . . . . . . . . . . . . . $ 103,522 $ 267,409 $ 103,522 $ 267,409
============== =============== ============ ============
See accompanying note.
6
GROUP MANAGEMENT CORP
FORM 10-QSB
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10 and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
for generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six- and three-month periods ended June 30, 2002
are not necessarily indicative of the results that may be expected for the
year ended December 31, 2002. These financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 2001.
7
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Our independent accountant included an explanatory paragraph in their
report, stating that the audited financial statements of Group Management Corp
for the year ending December 31, 2001 have been prepared assuming the company
will continue as a going concern. They note that the Company's continued
existence is dependent upon its ability to generate sufficient cash flows from
operations to support its daily operations as well as provide sufficient
resources to retire existing liabilities and obligations on a timely basis. We
have continued losses from operations, negative cash flow and liquidity
problems. These conditions raise substantial doubt about our ability to continue
as a going concern. The accompanying financial statements do not include any
adjustments relating to the recoverability of reported assets or liabilities
should we be unable to continue as a going concern.
We have been able to continue based upon loans from institutional investors
and our subsidiaries, and the financial support of certain of our stockholders.
Management believes that actions presently being taken to revise our operating
and financial requirements provide the opportunity for us to continue as a going
concern. Management is presently investigating potential financing transactions
and acquisitions that management believes can provide additional cash for the
operations and be profitable in both the short and long-term. Management also
intends to attempt to raise funds through private sales of our common stock.
Although management believes that these efforts will enable us to meet our
liquidity needs in the future, there can be no assurance that these efforts will
be successful.
RESULTS OF OPERATIONS
Revenue
Total revenues for the three months ended June 30, 2002 were $76,421 as
compared to $246,096 for the three months ended June 30, 2001. This decrease
was due to a decrease in product sales in the Company's GeeWhiz division, which
constituted substantially all of the revenues for the three months ended June
30, 2001, and further a result of management's change in focus to the human
resource services industry.
Costs and Expenses
Cost of goods sold was $34,398, or approximately 45% of sales, for the
three months ended June 30, 2002, as compared to $215,793, or approximately 88%
of sales, for the three months ended June 30, 2001. The decrease in cost of
goods sold reflects lower sales for the period.
General and administrative expenses were $209,059 for the three months
ended June 30, 2002, a decrease of approximately 97% as compared to $8,736,035
for the three months ended March 31, 2001. This decrease was attributable to a
decrease of over $7,310,952 in stock based compensation, and our overall
decreased sales activity.
Total costs and expenses were $291,626 for the three months ended June 30,
2002, as compared to $8,989,009 for the three months ended June 30, 2001. This
decrease of over 97% reflects a decreased cost of goods sold and general and
administrative expenses, as discussed above.
8
Net Losses
The net loss for the three months ended June 30, 2002 was $215,205 as
compared to $8,742,913 for the three months ended June 30, 2001. The primary
cause of this approximately 97% decrease is the decrease in total costs and
expenses, discussed above.
LIQUIDITY AND CAPITAL REQUIREMENTS
Net cash used in operating activities was $60,857 for the three months
ended June 30, 2002, as compared to $1,276,762 for the three months ended June
30, 2001, a decrease of over 95%. We had $103,522 in cash at June 30, 2002, a
decrease of $4,303 during the quarter.
Our net cash provided by financing activities was zero for the three months
ended June 30, 2002.
At June 30, 2002, our current assets were $214,158, while our current
liabilities were $6,033,809. Total current liabilities consists of $932,640 in
accounts payable and accrued expenses, and $5,101,169 in notes payable.
We are presently seeking to obtain alternative financing to repay the
outstanding note hodlers. If we are not able to obtain alternative financing and
the note holders are successful in their action to collect on the notes, we
would be unable to make payment in full on the notes and would consider all
strategic alternatives available to us, possibly including a bankruptcy,
insolvency, reorganization or liquidation proceeding or other proceeding under
bankruptcy law or laws providing for relief of debtors. It is also possible that
one of these types of proceedings could be instituted against us.
Management has taken steps to revise our operating and financial require-
ments to accommodate our available cash flow, including the temporary suspension
of management and certain employee salaries. As a result of these efforts,
management believes funds on hand, cash flow from operations and additional
issuance of common equity will enable us to meet our liquidity needs for at
least the short-term foreseeable future. We need to raise additional cash,
however, in order to satisfy our proposed business plan, to meet obligations,
and expand our operations. Management is presently investigating potential
financing transactions and acquisitions that management believes can provide
additional cash for our operations and be profitable long-term. Management also
intends to attempt to raise funds through private sales of our common stock.
Although management believes that these efforts will enable us to meet our
liquidity needs in the future, there can be no assurance that these efforts will
be successful.
In the opinion of the Company's management, lawsuits currently pending or
threatened against the Company, unless dismissed or settled within a short
period of time, will have a material adverse effect on the financial position
and results of operations of the Company because the Company does not have the
cash flow to continue to fund defense costs. Management is currently reviewing
several strategies for continuing to fund defense costs while at the same time
funding the development of the Company. Such strategies may include selling
some or all of the Company's current assets, acquiring one or more businesses
with positive cash flow, or filing for bankruptcy protection. No decisions have
been made as of this time.
9
PART II
ITEM 1 LEGAL PROCEEDINGS
There have been no material developments to the legal proceedings described
in our Form 10-QSB for the quarter ended March 31, 2002, filed with the
Commission on May 24, 2002.
In the ordinary course of business, the Company is from time to time
involved in various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company.
In the opinion of the Company's management, matters currently pending or
threatened against the Company, unless dismissed or settled within a short
period of time, will have a material adverse effect on the financial position
and results of operations of the Company because the Company does not have the
cash flow to continue to fund defense costs. Management is currently reviewing
several strategies for continuing to fund defense costs while at the same time
funding the development of the Company. Such strategies may include selling
some or all of the Company's current assets, acquiring one or more businesses
with positive cash flow, or filing for bankruptcy protection. No decisions have
been made as of this time.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2002, the Company issues 2,600 shares of
common stock to two investors for total proceeds of $700. The issuances were
exempt pursuant to Section 4(2) of the Securities Act of 1933, and the shares
were restricted in accordance with Rule 144.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
There have been no events which are required to be reported under this
Item.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no events which are required to be reported under this
Item.
ITEM 5 OTHER INFORMATION
Effective July 15, 2002, the Company changed its principal business address
to 12503 Exchange Boulevard, Suite 554, Stafford, Texas 77477, telephone number
(281) 242-4744.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
23.1 Consent of Wrinkle, Gardner & Company, P.C.
99.1 Certification as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
10
(b) Reports on Form 8-K
On May 2, 2002, the Company filed a Current Report on Form 8-K describing
the circumstances surrounding the listing of its subsidiary, Swan Magnetics,
Inc., as an unconsolidated affiliated due to the lack of financial information
for Swan.
11
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.
Dated: September 6, 2002 Group Management Corp
/s/ Elorian Landers
------------------------------
By: Elorian Landers
Its: Chief Executive Officer
12