MBG Holdings, Inc. - Quarter Report: 2014 September (Form 10-Q)

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

[    ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

From the transition period from ___________ to ____________.

Commission File Number 333-168089

AMERICAN METALS RECOVERY AND RECYCLING INC.

(Exact name of small business issuer as specified in its charter)

Nevada		27-2262066
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

61 Broadway, 32^nd Floor

New York, NY 10006

(Address of principal executive offices)

(917) 289-1998

(Issuer's telephone number)

N/A

(1713 Moorish Lane, Heath, Texas 75032)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:.  Yes [ X ]   No [     ].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

	Large Accelerated Filer [  ]	Accelerated Filer [  ]
	Non-Accelerated Filer [  ]	Smaller Reporting Company [X]

 

Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act: Yes[  ] No [X].

Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS325.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files),  Yes [   ]   No [X ]

As of March 11, 2015, there were 10,096,336  shares of Common Stock of the issuer outstanding.

 

 

TABLE OF CONTENTS

Items

Page

	PART I
Item 1	Consolidated Financial Statements	3-8
Item 2	Management’s Discussion and Analysis or Plan of Operation	9-10
Item 3	Quantitative and Qualitative Disclosures about  Market Risk	10
Item 4	Controls and Procedures	10
	PART II
Item 1	Legal Proceedings	11
Item 1A	Risk Factors	11
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3	Defaults Upon Senior Securities	11
Item 4	Mine Safety Disclosures	11
Item 5	Other Information	11
Item 6	Exhibits	12-14
	Signatures	14

 

 

 

PART I –FINANCIAL INFORMATION

Item 1. Financial Statements

 

AMERICAN METALS RECOVERY AND RECYCLING, INC.
Consolidated Statements of Cash Flows
(unaudited)
				For the Nine Months Ended
				September 30,
				2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss			$	(111,191)		$	(145,238)
	Adjustments to reconcile net loss to net
	cash provided by (used in) operating activities:
		Depreciation			90,483			93,010
		Preferred stock issued for services			600			-
		Gain on sale of assets			(56,530)			(2,425)
	Changes in operating assets and liabilities
		Accounts receivable			21,483			(5,262)
		Refundable deposits and advances			51,187			-
		Inventory			(10,830)			(52,499)
		Accounts payable and accrued expenses-related parties			54,693			58,000
		Accounts payable and accrued expenses			27,775			(23,544)
			Net Cash Provided by (Used in) Operating Activities		67,670			(77,958)
CASH FLOWS FROM INVESTING ACTIVITIES
	Sale of property and equipment				203,545			19,352
			Net Cash Provided by  Investing Activities		203,545			19,352
CASH FLOWS FROM FINANCING ACTIVITIES
	Repayments on related party loans				(89,411)			-
	Repayment of line of credit				(231,501)			(9,067)
			Net Cash Provided by (Used in) Financing Activities		(320,912)			(9,067)
NET DECREASE IN CASH					(49,697)			(67,673)
CASH AT BEGINNING OF PERIOD					136,766			82,703
CASH AT END OF PERIOD				$	87,069		$	15,030
SUPPLEMENTAL DISCLOSURES OF
	CASH FLOW INFORMATION:
	CASH PAID FOR:
		Interest		$	20,195		$	25,834
		Income taxes			-			-
	NON CASH FINANCING ACTIVITIES:
		Issuance of 996,336 shares of common stock which is net of
			The cancellation of 6,350,000 shares associated
			With the divesture of past operations	$	-		$	-
The accompanying notes are an integral part of these consolidated financial statements.

 

 

 AMERICAN METALS RECOVERY AND RECYCLING, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2014 and 2013

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2014 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2013 audited financial statements filed in an 8-K filed on April 11, 2014. The results of operations for the period ended September 30, 2014 and 2013 are not necessarily indicative of the operating results for the full years.

On April 7, 2014, the Company (fka Premier Oil Field Services, Inc.), entered into a Share Exchange Agreement (the “Exchange Agreement”) with Perfect Metals Inc., a Nevada corporation (“Perfect Metals”) and the shareholders (the “PM Shareholders”) holding all of the issued and outstanding common stock (“PM Common Stock”) of Perfect Metals. Under the Exchange Agreement, the PM Shareholders sold, transferred, conveyed and assigned all their share of PM Common Stock to the Company and the Company issued to the PM Shareholders an aggregate of 9,000,000 newly issued common stock, par value $.001 per share, of the Company (“Premier Common Stock”). As a result of the Exchange Agreement, Perfect Metals became the Company’s wholly-owned subsidiary (the “Acquisition”) and the Company changed its name to American Metals Recovery and Recycling, Inc. The 9,000,000 shares were valued at the value of the common stock and additional paid in capital of Perfect Metals.

 

In addition, pursuant to the terms and conditions of the Exchange Agreement Immediately following the Acquisition the Company cancelled 6,350,000 shares of Common Stock, in connection with the Agreement of Conveyance, Transfer and Assignment of  Assets and Assumption of Obligations (the Agreement). Under terms of the Agreement the Company returned all of the assets and obligations of Premier Oil Field Services, Inc. to the transferring shareholders. Accordingly, the Company has presented the recapitalization as being a net issuance of 996,336 shares of common stock valued at a zero value which represented the net assets and liabilities of Premier Oil Field Services after the divesture of the prior operations.

After the completion of the agreements described above the shareholders of the Perfect Metals became the controlling shareholders of the Company. Accordingly, the transaction is accounted for as a recapitalization of Perfect Metals, whereby the historical financial statements of Perfect Metals are presented as those of the combined entity.

NOTE 2 –SIGNIFICANT ACCOUNTING POLICIES

   

Principles of Consolidation

The accompanying financial statements present on a consolidated basis the financial position and operations of Whispers and Perfect as the predecessors to the Company. All significant intercompany transactions have been eliminated in the consolidation.

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 reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

  

Cash and Cash Equivalents

We maintain cash balances in non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

  

Accounts Receivable

Management reviews accounts receivable periodically to determine if any receivables will potentially be uncollectible. Management’s evaluation includes several factors including the aging of the accounts receivable balances, a review of significant past due accounts, economic conditions, and our historical write-off experience, net of recoveries. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company’s allowance for bad doubtful accounts was $-0- and $-0- as of September 30, 2014 and 2013, respectively.

Inventory

 

 

The Company’s inventory is comprised of scrap metals held for resale to metal recyclers and is recorded at the lower of cost or market on a first in first out basis. The Company’s inventory of scrap metals was $104,203 and $93,373  as of September 30, 2014 and December 31, 2013, respectively.

 AMERICAN METALS RECOVERY AND RECYCLING, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2014 and 2013

NOTE 2 –SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   

Revenue Recognition

The Company’s revenues derive from the sale of scrap metals. Revenue is recognized at the time of sale if collection is reasonably assured. The time of sale is determined to be the point at which the scrap metals are delivered to and accepted by the customer.  The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

NOTE 3 – RELATED-PARTY TRANSACTIONS

During the nine months ended September 30, 2014 and 2013 the Company made repayments on notes payable related party of $89,411 and $-0-, respectively.

As of September 30, 2014 and December 31, 2013 the outstanding balance on the notes payable related party was $187,074 and $276,485, respectively.

NOTE 4 – LINE OF CREDIT

Line of Credit

The Company’s founder has a bank line of credit, in the original amount of $440,000, which is secured by the Company’s inventory and equipment and is accordingly accounted for as a liability of the Company. The line of credit accrues interest at 6.75% per annum and requires monthly payments of $5,000 with the balance due on March 1, 2015. As of September 30, 2014 and December 31, 2013 the outstanding balance on the line of credit was $141,108 and $372,609, respectively.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The Company currently leases office space and property at a rate of $2,800 per month for an aggregate total of $33,600 annually. The term of the lease is one year beginning April 1, 2012. The Company renewed the lease through March 31, 2015.

NOTE 6 – SIGNIFICANT EVENTS

On August 22, 2014, the Company filed a Certificate of Designation (the “Certificate of Designation”) of Series A Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation:

	·	5,000,000 shares of preferred stock were designated Series A Preferred Stock (the “Series A Preferred Stock”), which Series A Preferred Stock holds no conversion rights or rights to dividends.

	·	The Series A Preferred Stock will vote as a single class with the common stock and the holders of the Series A Preferred Stock will have the number of votes equal to 10 times the number of shares of Series A Preferred Stock.

	·	Upon liquidation, the holders of the Series A Preferred Stock will have the right to receive, prior to any distribution with respect to the common stock, the Stated Value (plus any other fees or liquidated damages payable thereon).

On August 22, 2014, the Company’s board of directors, approved the issuance (i) to Gordon Muir, the Company’s current Chief Executive Officer, Chairman, and Chief Financial Officer, 500,000 shares of the Company’s newly designated Series A Preferred Stock in consideration of his services to the Company, and (ii) to Gordon Muir’s spouse, 100,000 shares of the Company’s newly designated Series A Preferred Stock.

NOTE 7 – SUBSEQUENT EVENTS

On October 1, 2014, a receiver was appointed to manage the day to day operations of Perfects Metals LLC and Whispers LLC, the wholly owned subsidiaries of Perfect Metals USA, the wholly owned subsidiary of the Company. The receiver will remain in place pending the settlement of litigation between the 2 founding shareholders of Perfect Metals USA.

In accordance with ASC 855, management evaluated subsequent events through the date these consolidated financial statements were issued and the Company had no additional material subsequent events to report.

 

 

  

 

 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS

Executive Overview

On April 7, 2014, the Company (fka Premier Oil Field Services, Inc.), entered into a Share Exchange Agreement (the “Exchange Agreement”) with Perfect Metals Inc., a Nevada corporation (“Perfect Metals”) and the shareholders (the “PM Shareholders”) holding all of the issued and outstanding common stock (“PM Common Stock”) of Perfect Metals. Under the Exchange Agreement, the PM Shareholders sold, transferred, conveyed and assigned all their share of PM Common Stock to the Company and the Company issued to the PM Shareholders an aggregate of 9,000,000 newly issued common stock, par value $.001 per share, of the Company (“Premier Common Stock”). As a result of the Exchange Agreement, Perfect Metals became the Company’s wholly-owned subsidiary (the “Acquisition”) and the Company changed its name to American Metals Recovery and Recycling, Inc.

 

In addition, pursuant to the terms and conditions of the Exchange Agreement Immediately following the Acquisition the Company cancelled 6,350,000 shares of Common Stock, in connection with the Agreement of Conveyance, Transfer and Assignment of  Assets and Assumption of Obligations (the Agreement). Under terms of the Agreement the Company returned all of the assets and obligations of Premier Oil Field Services, Inc. to the transferring shareholders.

After the completion of the agreements described above the shareholders of the PM became the controlling shareholders of the Company. Accordingly, the transaction is accounted for as a recapitalization of PM, whereby the historical financial statements of PM are presented as those of the combined entity.

Following the Acquisition, the Company carried on the business of PM as the Company’s primary line of business. PM was incorporated on October 10, 2012 as a closely-held Nevada corporation for the purpose of holding the equity interests and assets of a number of related entities in various businesses related to metals recycling and trucking. PM owns all of the outstanding equity interests of its two subsidiaries, Perfect Metals USA LLC, incorporated in 2010 and Whispers Trucking LLC, incorporated in 2009. Perfect Metals operates these businesses as individual wholly owned subsidiaries of Perfect Metals. Each operating business earns revenue from different sources but are both related to the purchase for resale and trucking of ferrous and non-ferrous metals for recycling.

 

RESULTS FOR THE THREE MONTHS ENDED September 30, 2014 and 2013

REVENUE.  Revenue for the three months ended September 30, 2014 was $709,068 compared to $796,517 for the three month period ended September 30, 2013.   The decrease in sales of $87,449 is due to a decline in scrap metal prices. We expect revenues to continue to be driven by scrap metal prices for the remainder of 2014.

GROSS PROFIT.  Gross profit for the three months ended September 30, 2014 was $273,666 (39%) compared to $276,652 (35%), for the three months ended September 30, 2013.   We were able to improve our margins by offering our customers cash payments for scrap metals. We expect our margins to continue in the same range for the remainder of 2014.

OPERATING EXPENSES. Total operating expenses for the three months ended September 30, 2014 were $295,586 compared to $304,106 for the three months ended September 30, 2013. The decrease was due to a decrease in our fuel expenses. We expect to continue to incur costs related to due diligence on potential acquisitions for the next year. We expect to incur significant costs related to the engagement of the receiver until the litigation between the founding shareholders is resolved.

NET INCOME (LOSS). Net income for the three months September 30, 2014 was $1,192 compared to net loss of $39,867 for the three months ended September 30, 2013.   The loss from operations for the three months ended September 30, 2014 of $21,920 was offset by a gain on the sales of excess equipment of $40,495.

RESULTS FOR THE NINE MONTHS ENDED September 30, 2014 and 2013

REVENUE.  Revenue for the nine months ended September 30, 2014 was $2,440,500 compared to $2,427,128 for the nine month period ended September 30, 2013.   The increase in sales of $13,372 is due to a pent up supply of scrap metals after the extremely hard winter in the first quarter of 2014 in north central Missouri. We expect revenues to continue at the same level for the remainder of 2014.

GROSS PROFIT.  Gross profit for the nine months ended September 30, 2014 was $938,568 (38%) compared to $821,456 (34%), for the nine months ended September 30, 2013.   We were able to improve our margins by offering our customers cash payments for scrap metals. We expect our margins to continue in the same range for the remainder of 2014.

OPERATING EXPENSES. Total operating expenses for the nine months ended September 30, 2014 were $1,078,901 compared to $943,003 for the nine months ended September 30, 2013. The increased expense is directly related the costs of being public. Also included in operating expenses for the nine months ended September 30, 2014 is a one time charge of $50,000 for the impairment of the deposit made on the purchase of a scrap yard and $31,803 in additional professional fees related to going

 

 

public. We expect to continue to incur costs related to due diligence on potential acquisitions for the next year.

NET INCOME (LOSS). Net loss for the nine months September 30, 2014 was $111,191 compared to net loss of $145,238 for the nine months ended September 30, 2013.   The loss from operations for the nine months ended September 30, 2014 of $140,333 was offset by a gain on the sales of excess equipment of $56,530.

 

LIQUIDITY AND CAPITAL RESOURCES.  

Trends, events or uncertainties impact on liquidity:

The Company knows of no trends, additional events or uncertainties that would impact liquidity other than the volatility of the oil and gas market.

In addition to the preceding, the Company plans for liquidity needs on a short term and long term basis as follows:

Short Term Liquidity

The Company has an accumulated deficit of $281,589 as of September 30, 2014.   The Company has relied on external sources of financing to assist short-term working capital needs; through bank loans and shareholder advances.  The Company has negative working capital of $482,516 due to shareholder loans of $187,074 and a bank line of credit of $141,108.  Cash flows from operations for the nine months ended September 30, 2014 were $67,670.

.

Long Term Liquidity

The Company has a line of credit secured by its equipment. The Company repaid $220,000 of the line of credit during the nine months ended September 30, 2014. The Company also repaid $89,411 of related party loans during the nine months ended September 30, 2014. The Company received $203,545 from the sale of excess equipment during the nine months ended September 30, 2014.

The Company has historically financed itself through shareholder loans and a line of credit with its bank. The Company is presently seeking equity and debt financing to expand its operations into other parts of the United States. The Company has no commitments for such financing at this time. The Company’s management believes that its cash reserves are sufficient to meet its present operating needs for at least the next 12 months.

Item 3:  Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014.  This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are not effective.

 

Based upon an evaluation conducted for the period ended September 30, 2014, our Chief Executive and Chief Financial Officer has concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls:

 

·  

Reliance upon third party financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transaction.

 ·  

Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control.

 

In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.

 

Changes in Internal Controls over Financial Reporting

 

During the period covered by this report on Form 10-Q the Company’s management changed. The Company’s newly acquired subsidiary, Perfect Metals, USA, brought in its own accounting department. This materially affected our internal control over financial reporting. However, the material weaknesses described above continue to exist with the new accounting department.

 

 

 

PART II

Items No. 1, 2, 3, 4, 5 - Not Applicable.

Item No. 6 - Exhibits and Reports on Form 8-K

(a)  None

(b)   Exhibits

 

 

Exhibit Number		Name of Exhibit
31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN METALS RECOVERY AND RECYCLING, INC.

By /s/ Gordon Muir

Gordon Muir, Chief Executive Officer

and Chief Financial Officer

Date: March 11, 2015