UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2004
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Commission File Number: 000-25947
NORTH AMERICAN LIABILITY GROUP, INC.
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(Name of Small Business issuer in its Charter)
Florida 65-0386286
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2929 East Commercial Boulevard, Suite 610, Ft. Lauderdale, FL 33308
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(Address of Principal Executive Offices) (Zip Code)
954-771-5500
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
Check whether the issuer: (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
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference or any amendment to this Form 10-QSB. [ ]
The issuer is a developmental stage company, and as such has yet
to generate any substantial revenues.
As of November 15, 2004 the issuer had 280,954,860 shares of
common stock outstanding.
Documents incorporated by reference: NONE
Transition Small Business Disclosure Format (check one):
YES [ ] NO [X]
NORTH AMERICAN LIABILITY GROUP, INC.
Form 10-QSB Index
Page
Part I: Financial Information 1
Item 1. Financial Statements 1
Condensed Consolidated Balance Sheet - September 30, 2004 1
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 2004 and 2003
And cumulative for the period from March 23, 1999
(inception) through September 30, 2004 2
Condensed Consolidated Statements of Cash Flows -
Three and nine months ended September 30, 2004 and 2003
and cumulative for the period from March 23, 1999
(inception) through September 30, 2004 3
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Part II: Other Information
Item 1. Legal Proceedings 16
Item 2. Change in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTH AMERICAN LIABILITY GROUP, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
(Unaudited)
September 30, 2004
Assets
------
Current assets:
Cash $ 13,869
Undeposited Checks 171
Prepaid rent 1,415
-------------
Total current assets 15,455
Property and equipment, net 10,152
Other assets
Deposits 174,400
Due from related parties 48,866
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Total other assets 223,266
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Total assets $ 248,873
=============
Liabilities and Stockholders' Deficiency
----------------------------------------
Current liabilities:
Accounts payable $ 183,512
Accrued expenses 573,588
Due to related parties 264,164
Notes payable 226,466
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Total current liabilities 1,247,729
Stockholders' deficiency:
Series 2001 convertible preferred stock 42,470
Series 2001A convertible preferred stock -
Series 2001B convertible preferred stock -
Class B preferred stock -
Common stock 3,605,783
Accumulated deficit (4,647,109)
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Total stockholders' deficiency (998,856)
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Total liabilities and
stockholders' deficiency $ 248,873
=============
See accompanying notes to the consolidated financial statements.
1
NORTH AMERICAN LIABILITY GROUP, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Three
Months Months
Ended Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Gross revenues $ - $ -
Cost of sales - -
------------------ ------------------
Net revenue - -
Operating Expenses 52,086 -
Other income(expenses):
Other income 2,122 -
Interest expense (8,846) (31,467)
------------------ ------------------
Total other income(expense) (6,723) (31,467)
------------------ ------------------
Net Loss $ ( 58,809) $ (31,467)
================== ==================
Loss per common share:
Basic (0.02) (0.01)
Diluted (0.02) (0.01)
================== ==================
Weighted average common shares
outstanding:
Basic 2,723,806 4,808,844
Diluted 2,723,806 4,808,844
================== ==================
See accompanying notes to the consolidated financial statements.
2
NORTH AMERICAN LIABILITY GROUP, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
Cumulative for
Nine Nine the period from
Months Months March 23,1999
Ended Ended (inception) to
September 30, 2004 September 30, 2003 September 30,2004
------------------ ------------------ -----------------
Gross revenues $ - $ - $ 45,744
Cost of sales - - 264
------------------ ------------------ -----------------
Net revenue - - 45,480
Operating Expenses 275,136 - 3,827,989
Other income(expenses):
Other income 56,366 - 115,454
Interest expense (123,074) (91,170) (440,027)
Impairment of assets - - (315,027)
Provision for loss on
non-cancelable leases - - (225,000)
------------------ ------------------ -----------------
Total other income(expense) ( 66,708) (91,170) (864,600)
------------------ ------------------ -----------------
Net income(loss) $ (341,844) $ (91,170) $ (4,647,109)
================== ================== =================
Income(loss) per common share:
Basic (0.09) (0.01)
Diluted (0.09) (0.01)
================== ==================
Weighted average common shares
outstanding:
Basic 4,044,122 6,309,261
Diluted 4,044,122 6,309,261
================== ==================
See accompanying notes to the consolidated financial statements.
3
NORTH AMERICAN LIABILITY GROUP, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Cumulative for
Nine Nine the period from
Months Months March 23,1999
Ended Ended (inception) to
September 30, 2004 September 30, 2003 September 30,2004
------------------ ------------------ -----------------
Cashflows from operating activities
Net Loss $ (341,844) $ (91,170) $ (4,647,109)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Forgiveness of related party note payable - (59,088)
Depreciation and amortization 1,704 - 295,525
Loss on impairment of assets - - 315,027
Provision for loss on non-cancelable leases - - 225,000
Common stock issued for services - - 2,055,405
Increase(decrease) in cash caused by
changes in:
Other current assets (171) - (1,586)
Other assets 80,000 - 75,600
Accounts payable (8,644) - 183,511
Accrued expenses 150,980 38,233 576,095
Due from related parties (48,866) 52,937 472,139
----------------- ------------------ -----------------
Net cash used in operating activities (166,841) - (509,481)
Cashflows from investing activities:
Acquisition of property and equipment (9,359) - (286,358)
Cashflows from financing activities
Repayment of note payable to related party - - (200,000)
Proceeds from issuance of preferred stock - - 49,000
Proceeds from issuance of capital stock 160,174 - 806,348
Due to related parties 2,247 - (397,106)
Repayment/proceeds of notes payable - - 551,466
----------------- ------------------ -----------------
Net cash from provided by financing activities 153,062 - 523,350
Net increase(decrease) in cash (13,779) - 13,869
Cash at beginning of period 27,648 - 0
Cash at end of period $ 13,869 $ - $ 13,869
================= ================== =================
See accompanying notes to the consolidated financial statements.
4
NORTH AMERICAN LIABILITY GROUP, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Cumulative for
Six Six the period from
Months Months March 23,1999
Ended Ended (inception) to
June 30, 2004 June 30, 2004 June 30, 2004
------------------ ------------------ -----------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ - $ 15,310
================= ================== =================
Non-cash activity:
Purchase of intangible assets from related
party $ - $ - $ 399,353
================= ================== =================
Reduction of capital lease obligation upon
abandonment of assets $ - $ - $ 65,006
================= ================== =================
See accompanying notes to the consolidated financial statements.
5
NORTH AMERICAN LIABILITY GROUP, INC.
AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
(1) Statement of Information Furnished
The accompanying unaudited condensed consolidated
financial statements as of September 30, 2004 and for nine
months ended September 30, 2004 and 2003 and the
cumulative period from March 23, 1999 (Inception) to
September 30, 2004 have been prepared in accordance with
accounting principles generally accepted in the United
States of America for interim financial information and
pursuant with the rules and regulations of the Securities
and Exchange Commission for Form 10-QSB. Accordingly, the
condensed consolidated financial statements do not include
all the information and notes to the financial statements
required by accounting principles generally accepted in
the United States of America for complete financial
statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only
normal recurring adjustments) considered necessary for a
fair presentation of North American Liability Group, Inc.
and Subsidiary's financial position, results of
operations, and cash flows for the periods presented.
These results have been determined on the basis of
accounting principles generally accepted in the United
States of America and applied consistently with those used
in the preparation of the Company's 2003 financial
statements.
The results of operations for the interim periods ended
September 30, 2004 and 2003 are not necessarily indicative
of the results to be expected for the full year. These
interim financial statements should be read in conjunction
with the December 31, 2003 financial statements and
related notes included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2003.
(2) Loss Per Share
Basic income or loss per common share amounts are based
on the weighted average shares outstanding of 2,732,806
and 4,808,844 for the three months ended September 30,
2004 and 2003, respectively. Diluted income per common
share amounts reflect the potential dilution that could
occur if convertible preferred shares are converted into
common stock. No conversion is assumed if such conversion
would have an anti-dilutive effect on diluted loss per
common share amounts.
(3) Recent Financial Accounting Standards
In January 2003, the FASB issued FIN No. 46,
"Consolidation of Variable Interest Entities," ("FIN
46"). FIN 46 clarifies the application of Accounting
6
Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity
investors do not have the characteristics of a
controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities
without additional subordinated financial support from
other parties. FIN 46 applies immediately to variable
interest entities (VIE's) created after January 31, 2003,
and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the
first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired
before February 1, 2003.
The Company has not identified any VIE's for which it is
the primary beneficiary or has significant involvement.
In December 2003, the FASB issued FIN No. 46 (revised
December 2003), "Consolidation of Variable Interest
Entities" ("FIN 46-R") to address certain FIN 46
implementation issues. The effective dates and impact of
FIN 46 and FIN 46-R are as follows:
(i) For special purpose entities (SPE's) created prior to
February 1, 2003, the Company must apply either the
provisions of FIN 46 or early adopt the provisions of FIN
46-R at the end of the first interim or annual reporting
period ending after December 15, 2003.
(ii) For non-SPE's created prior to February 1, 2003, the
Company is required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after
March 15, 2004.
(iii) For all entities, regardless of whether a SPE, that were
created subsequent to January 31, 2003, the provisions of
FIN 46 were applicable for variable interests in entities
obtained after January 31, 2003. The Company is required
to adopt FIN 46-R at the end of the first interim or
annual reporting period ending after March 31, 2004.
The adoption of the provisions applicable to SPE's
and all other variable interests obtained after January
31, 2003 did not have a material impact on the Company's
consolidated financial statements. The Company is
currently evaluating the impact of adopting FIN 46-R
applicable to non-SPE's created prior to February 1,
2003, but does not expect a material impact.
(4) Capitalization
(A) COMMON STOCK
In the first half of 2003, the Company issued 6,000 shares
of its common stock in voluntary conversions of 2,800
shares of its Series 2001 Convertible Preferred stock.
7
(4) Capitalization, Continued
On July 30, 2003, the Majority Shareholders and the Board
of Directors approved amendments to the Articles of
Incorporation which were designed to reorganize the
capital structure of the Company. The Articles increased
the total number of authorized common shares to
500,000,000. The stock has no par value. On September
1, 2003, the Company affected a one hundred-for-one
reverse split of its outstanding common stock.
In accordance with the Plan and Agreement of Merger, as
described in Note 1, the Company issued 56,625,000 shares
of common stock as a result of a 75-to-1 conversion of its
Series 2001A Convertible Preferred stock outstanding at
the time of the merger. In addition, the Company issued
160,000,000 shares of common stock in a 16-to-1 exchange
for the 10,000,000 issued and outstanding shares of Nor-
American Liability Corporation.
Following the merger, 31,125,000 shares of common stock
were issued in a voluntary 1-to-1 conversion of
outstanding shares of Series 2001A convertible preferred
stock.
During the first quarter of 2004, shareholders were issued
35,304,000 shares of common stock in a conversion of
35,304,000 shares of Series 2001A Preferred stock.
Also during the first quarter, the Company's Chairman,
Bradley Wilson, contributed capital in the amount of
$160,000 in exchange for 160,000 shares of restricted
common stock.
During the second quarter, the Company issued 500,000
shares of common stock, restricted under Rule 144, to an
investor who contributed $250,000 in cash. Also during
the quarter, the Company cancelled 33,721,200 common
shares that had been issued improperly.
In July 2004, the Company did a 1 for 30 reverse stock
split on common stock. In November 2004, the Company did
an additional 1 for 10 reverse split on all common shares.
At September 30, 2004 and 2003, the Company had
outstanding 2,587,225 and 70,890 shares of common stock,
respectively.
(B) PREFERRED STOCK
In 2001, Series 2001 Convertible Preferred stock was
approved to be issued in a private offering as follows:
(i) Holders of Series 2001 Convertible Preferred Stock
shall receive preference in the event of liquidation,
dissolution or winding up of the corporation.
Specifically, in the event of liquidation, dissolution or
winding up holders of Series 2001 Preferred Stock shall be
8
(4) Capitalization, Continued
paid Five Dollars ($5.00) per share for each Preferred
Share, plus all declared and unpaid dividends.
(ii) Shares of Series 2001 Convertible Preferred Stock
shall have no voting rights.
(iii) Each share of Series 2001 Convertible Preferred
Stock may, at the option of the holder, be converted into
common stock of the
corporation at any time after twelve months after the
issuance of such shares. The conversion ratio per share of
the Series 2001 Convertible
Preferred Stock shall be the lesser of $5.00 per share or
30% below the trading price of the common stock as priced
the prior trading day to conversion. This conversion ratio
is subject to change in the event of subdivision of common
stock or issuance of a stock dividend.
During the year ended December 31, 2003, the Company
cancelled 2,800 shares of its Series 2001 Convertible
Preferred stock in voluntary conversions to 6,000 shares
of its common stock. As of June 30, 2004, the number of
shares outstanding of Series 2001 Convertible Preferred
stock was 22,100.
On July 30, 2003, the Majority Shareholders and the Board
of Directors approved amendments to the Articles of
Incorporation which were designed to reorganize the
capital structure of the Company. The Articles increased
the total number of authorized preferred shares to
150,000,000, of which 100,000,000 are Series 2001A
Convertible Preferred stock with the following
characteristics:
(i) Each share of 2001A Convertible Preferred Stock
entitles the holder thereof to one vote, either in person
or by proxy, at meetings of shareholders, and such vote
shall be equal to the voting rights of the common stock
and shall be counted with the common stock toward election
of directors or such other action as the class of common
stock shall be entitled.
(ii) Each share of Series 2001A Convertible Preferred
Stock may, at the option of the holder, be converted into
shares of common stock on one for one basis at any time
after February 1, 2002.
9
(4) Capitalization, Continued
Prior to the Plan and Agreement of Merger taking effect,
the Company cancelled 775,000 shares of Series 2001A
Convertible Preferred shares held by the former President
of the Company.
In accordance with the Plan and Agreement of Merger, the
Company issued 94,375,000 shares of Series 2001A
Convertible Preferred in a 125-to-1 forward stock split.
Following the merger, 31,125,000 outstanding shares of
Series 2001A convertible preferred stock were cancelled in
a voluntary 1-to-1 conversion to shares of common stock.
On December 15, 2003, the Company entered into a Sales
Restriction Agreement with certain holders of Series 2001A
Preferred stock to prohibit the holders from selling or
otherwise transferring their interest in the stock between
June 20, 2003 and June 19, 2004. Subject to the Agreement
are 4,062,900 Common shares and 6,771,500 Series 2001A
Preferred shares.
During the first quarter of 2004, shareholders converted
35,304,000 shares of Series 2001A Preferred stock one-for-
one to shares of common stock .
At September 30, 2004, 27,946,000 shares of Series 2001 A
Convertible Preferred stock were issued and outstanding.
In the above action of July 30, 2003, the Company voided
the Series 2001 B Convertible Preferred stock and
cancelled its 2,727,444 outstanding shares. It also
created a new Class B Preferred stock, the main feature of
which is the existence of ten votes per share for each
share of this series.
On February 2, 2004, the Company cancelled 158,000,000
shares of its Common stock. The cancelled shares were
held by Bradley Wilson, Chairman of the Company and a non-
related party, each canceling 79,000,000 shares. In
consideration of canceling their shares, 30,000,000 and
20,000,000 shares of Class B Preferred stock were issued
to Mr. Wilson and the non-related party, respectively.
Shares of Class B Preferred stock carry 10 votes per share
and cannot be converted into common stock prior to
September 1, 2005.
During May 2004, the Company cancelled 33,731,200 common
shares which had been issued improperly.
At September 30, 2004 there were 50,000,000 outstanding
Class B Preferred shares.
10
(4) Capitalization, Continued
In July, 2004 the Company made a 1 for 30 reverse split of
its common stock for shareholders of record on July 5,
2004, which it expected would leave approximately
3,000,000 shares issued and outstanding. The split was
made as a necessary step towards the Company's acquisition
of 100% of the stock of Grupo Industria N.K.S., S.A., de
CV ("NKS"), a Mexican corporation. NKS is the owner of a
steel mill foundry and other assets in Las Cardenas,
Mexico. Pending
the outcome of an audit of NKS, the Company expects it
will issue approximately 500,000,000 shares of NALG
Convertible Preferred Stock to the shareholders of NKS.
On July 14, 2004 the Company assigned a new trading symbol
to its common stock. The new symbol is OTCBB: NOAL and
became effective immediately.
(5) Related Party Transactions
In February, 2004 the Company issued three notes totaling
$42,000 to a related party, FJW Pendylum, Inc., in which
the majority shareholder of the Company is the majority
shareholder of FJW Pendylum, Inc. The notes bear interest
at 6% and are due in February 2005. At September 30,
2004, $42,000 is due on the notes and included in due from
related parties in the accompanying consolidated financial
statements.
The president, current and former principal stockholders,
and certain employees from time to time made advances to
the Company. The advances have been made for financing
and working capital purposes. At September 30, 2004 and
2003 respectively, the total of such advances and accrued
interest was $264,164 and $504,105.
The Company has an agreement with KIWI Network Solutions,
Inc to share space in the Company's executive offices.
Under the terms of this agreement the Company receives
back 50% of the rent paid under its lease agreement for
the Ft. Lauderdale office space. At September 30, 2004,
approximately $6,400 is owed to the Company relating to
this agreement and is included in due from related parties
in the accompanying consolidated financial statements.
The Company leased an apartment for one member of its
Board of Directors and the apartment served as the
Company's office in the Washington, D.C. area. During the
second quarter the Director resigned his position on the
Board. The Company is seeking to sublet the apartment to
the former Director. The lease for the apartment is non-
cancelable and expires November 30, 2004. Rent and fees
paid in total at September 30, 2004 amount to $17,352.
Rent paid in the quarter ended September 30, 2004 amounted
to $4,494. Rent remaining to be paid is $2,828, all of
which is due to be paid in 2004.
11
(5) Related Party Transactions (Continued)
The Company has a Consulting Agreement with James Jarboe,
which pays him $1,000 per week for his services as
President of the Company. In the quarter ended September
30, 2004, the Company paid Jarboe $16,000 (including
$1,600 accrued at June 30, 2004) and accrued an additional
$1,000. Also, through its wholly-owned subsidiary North
American Liability Corporation ("the Subsidiary"), the
Company has an Agreement with Jarboe to serve as
Consultant and Director. Under that agreement, which is
for a term of two years, Jarboe is to receive base annual
compensation of $24,000 plus a bonus to be paid in cash
and stock of 10% of any debt or equity capital raised. No
bonus has been paid for capital raising in the quarter
ended September 30, 2004. A bonus will also be paid for
the procurement of business at the Group or Policy level
for a fair commercial market fee to be determined at the
time the business is completed with the Subsidiary. No
bonus has been paid for business procurement in the
quarter ended September 30, 2004. The Subsidiary was also
to grant, immediately upon execution of the Consulting
Agreement, 2,000,000 Rule 144 shares of common stock. No
shares have been issued by the Subsidiary under this
Consulting Agreement.
The Subsidiary had an Employment Agreement with its
Chairman and CEO Harold Fischer. Mr. Fischer resigned his
position with the Company effective May 3, 2004,
terminating the Employment Agreement.
The Subsidiary had a Consulting Agreement with David Tews
as Consultant and Director. Mr. Tews resigned his
position with the Company effective May 3, 2004,
terminating the Consulting Agreement.
In December 2003, the Company settled its note payable
to the former controlling shareholder. With principal and
accumulated interest, the debt amounted to $444,088. In
the settlement, the Company paid $200,000, the current
controlling shareholder contributed $185,000,
and $59,088 was forgiven.
During April 2004, common stock held as collateral against
secured notes payable and accrued interest were used to
repay these liabilities which totaled $487,500.
The Company has filed suit seeking monetary damages from a
current shareholder, alleging the shareholder failed to
cancel certain shares of Company stock as promised.
12
(6) Accrued Expenses
Accrued expenses at September 30, 2004 consisted of the
following:
2004
-------
Accrued lease obligations 365,181
Accrued interest 106,601
Accrued salaries 101,806
-------
573,588
=======
(7) Subsequent Transactions
Effective November 2004, the Company made a 1 for 10
reverse split of its common stock for shareholders of
record on November 4, 2004.
(8) Going Concern Matters
The accompanying financial statements have been prepared
on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities
in the normal course of business. Due to its past
financial difficulties, the Company has accumulated debts,
including judgments, and accrued interest of approximately
$1,200,000 relating to its former line of business and
maintains these on its balance sheet as current
liabilities. Interest on these balances is accruing at a
rate of approximately $13,000 per quarter as of September
30, 2004. The Company is continuing in its efforts to
resolve these obligations and others through settlements.
However, there is no assurance that the Company will be
able to settle in terms agreeable to the Company and if it
does not do so, this will have a material adverse affect
on the ability of the Company to operate properly in the
future. As shown in the financial statements, the Company
has incurred cumulative losses of $4,647,109 during its
development stage and has classified all of its debt as
current at September 30, 2004. These factors among others
may dictate that the Company will be unable to continue as
a going concern for a reasonable period of time.
13
Item 2. Management Discussion and Analysis or Plan of Operation
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the
anticipated impact of future capital requirements and future
development plans are based on current expectations. These
statements are forward looking in nature and involve a number of
risks and uncertainties. Actual results may differ materially.
Among the factors that could cause actual results to differ
materially are the following: amount of revenues earned by the
Company's operations; the availability of sufficient capital to
finance the Company's business plan on terms satisfactory to the
Company; general business and economic conditions; and other risk
factors described in the Company's reports filed from time to
time with the Commission. The Company wishes to caution readers
not to place undue reliance on any such forward looking
statements, which statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made.
Results of Operations
---------------------
Nine Months Ended September 30, 2004 Compared with Nine Months
Ended September 30, 2003.
-----------------------------------------------------------------
We had no revenues for the nine months ended September 30, 2004
and 2003. There is no assurance that we will any have revenues in
fiscal 2004. As we had no sales in this quarter, we had no cost
of sales for the quarters.
Operating expenses for the nine months ended June 30, 2004 were
$275,136 as opposed to no operating expenses for the nine months
ended June 30, 2003. The increase is due to the launch of our new
business.
Other expense for the nine months ended September 30, 2004 was
$66,708 as compared to expense of $91,170 for the nine months
ended September 30, 2003. This improvement was due primarily to a
settlement with our former CEO providing a benefit of
approximately $56,000. The income was partially offset by
interest expense of $123,074.
The Company's net loss for the nine months ended September 30,
2004 was $341,944, as compared to a loss of $91,170 for the nine
months ended September 30, 2003, an decline approximately
$250,000 or 275%. This change in performance was primarily due to
identification of the acquisition target and the preparation for
the company to complete the acquisition, which was announced in
July 2004.
14
Item 2. Management Discussion and Analysis or Plan of Operation
(continued)
Three Months Ended September 30, 2004 compared with Three Months
Ended September 30, 2003
-----------------------------------------------------------
The Company's net loss for the three months ended September 30,
2004 was $58,809 as compared to $31,467 for the three months
ended September 30, 2003, a reduction in profitability of $27,342
or 87%. This increase in net loss was primarily due to the
increase in operating expenses associated with preparing the
company for the acquisition announced in July 2004, which was
partially offset by a decrease in interest expense as a result of
the repayment and/or cancellation of our secured loans in April,
2004.
Liquidity and Capital Resources
-------------------------------
On September 30, 2004, the Company had a working capital deficit
of approximately $1,200,000. Since its inception, the Company has
continued to sustain losses. The Company's operations since
inception have been funded by the sale of common and preferred
stock, and proceeds from loans secured by the Company's common
stock. These funds have been used for working capital and capital
expenditures and other corporate purchases. The Company has had
losses of approximately $4,300,000 since inception. The Company
is seeking financing through equity financing. There can be no
assurance that the Company will be able to obtain funding at
terms acceptable to the Company. These factors indicate that the
Company may not be able to continue as a going concern.
Other Events
------------
In the first quarter of 2004, we converted 35,304,000 of our
Series 2001 A Preferred Stock into 35,304,000 shares of our
common stock. These shares have been reduced in total as part of
the 1 for 30 reverse split and the subsequent 1 for 10 reverse
split, reducing the post split shares to approximately 117,680
shares. Also in February 2004, Bradley Wilson and Regency
Financial Group, Inc., agreed to tender to us and we retired
158,000,000 shares of common stock. In return, they were
collectively issued a total of 50,000,000 shares of the Company's
Class B Preferred Stock.
In February 2004, in return of contributing $160,000 to our
capital, we agreed to issue Bradley Wilson 160,000 shares of our
common stock. In May 2004, in return of contributing $250,000 to
our capital, we agreed to issue Terry Hunter 500,000 shares of
our common stock. Both of these capital infusions have been
affected by the reverse splits mentioned above. These splits
have reduced the above mentioned shares to approximately 533
shares and 1,667 shares respectively.
Off-Balance Sheet Arrangements
------------------------------
The Company does not maintain off-balance sheet arrangements nor
does it participate in non-exchange traded contracts requiring
fair value accounting treatment.
15
Item 3. Controls and Procedures
As of September 30, 2004, an evaluation was performed under the
supervision and with the participation of the Company's
management, including the Principal Executive Officer and the
Principal Accounting Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and
procedures. Based on that evaluation, the Company's management,
including the Principal Executive Officer and the Principal
Accounting Officer, concluded that the Company's disclosure
controls and procedures were effective as of September 30, 2004.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect
internal controls subsequent to June 30, 2004.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Due to its financial difficulties, the Company is in default on a
number of debt and lease obligations as of September 30, 2004.
The Company and other parties to the obligations are in various
stages of negotiations. The Company has provided accruals in its
financial statements for all known contingencies. Except for any
legal proceedings related to these obligations, the Company is
not aware of any legal proceedings pending against it as of
September 30, 2004.
The Company has filed suit seeking monetary damages from a
current shareholder, alleging the shareholder failed to cancel
certain shares of Company stock as promised.
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Item 2. Change in Securities
During the second quarter, the Company issued 500,000 shares of
common stock, restricted under Rule 144, to an investor who
contributed $250,000 in cash. Also during the quarter, the
Company cancelled 1,124,040 common shares that had been issued
improperly.
In February, 2004 the Company issued three notes totaling $42,000
to a related party, FJW Pendylum, Inc., in which the majority
shareholder of the Company is the majority shareholder of FJW
Pendylum, Inc. The notes bear interest at 6% and are due in
February 2005. At June 30, 2004, $42,000 is due on the notes and
included in due from related parties in the accompanying
consolidated financial statements.
In July, 2004 the Company made a 1 for 30 reverse split of its
common stock for shareholders of record on July 5, 2004, which it
expected would leave approximately 3,000,000 shares issued and
outstanding. The split was made as a necessary step towards the
Company's acquisition of 100% of the stock of Grupo Industria
N.K.S., S.A., de CV ("NKS"), a Mexican corporation. NKS is the
owner of a steel mill foundry and other assets in Las Cardenas,
Mexico. Pending the outcome of an audit of NKS, the Company
expects it will issue approximately 500,000,000 shares of NALG
Convertible Preferred Stock to the shareholders of NKS.
On July 14, 2004 the Company assigned a new trading symbol to its
common stock. The new symbol is OTCBB: NOAL and became effective
immediately.
In September 2004, the Company authorized an additional
30,000,000 shares to be issued at the discretion of the Board.
In October 2004, the Company made a 1 for 10 reverse split of it
common shareholders for shareholders of record as of November 4,
2004.
After the 1 for 10 reverse split, the Company authorized an
additional 35,000,000 shares to be issued at the discretion of
the Board.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect
internal controls subsequent to June 30, 2004.
Item 3. Defaults Upon Senior Securities
Not applicable
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Item 4. Submission of Matters to a Vote of Security Holders
On September 10, 2004, the holders of a majority
of the Company' outstanding voting shares executed a written
consent, amending the Company's Articles of incorporation to
increase the total number of authorized shares of the Company's
Common Stock from 500,000,000 to 1,000,000,000.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Index of Exhibits
31. Rule 13a-14(a)/15d-14(a) Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32. Section 1350 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On September 16, 2004, the Company filed a current
report on Form 8-K in connection with the following:
(i) as of September 10, 2004, the Company has finalized
the Letter of Intent to originally acquire 100% of all
classes of shares issued and outstanding of Grupo
Industrial N.K.S., S.A., de CV, a Mexican corporation;
and
(ii) on September 10, 2004, the holders of a majority
of the Company' outstanding voting shares executed a
written consent, amending the Company's Articles of
incorporation to increase the total number of
authorized shares of the Company's Common Stock from
500,000,000 to 1,000,000,000.
SIGNATURES
North American Liability Group, Inc.
By: /s/ Bradley Wilson
------------------------------
Bradley Wilson, President
Date: November 18, 2004
18