U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended August 31, 2002
[ ] Transition under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to _________
COMMISSION FILE NUMBER 33-98682
AMERICAN COMMERCE SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 05-0460102
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1400 Chamber Dr., Bartow, Florida 33830
(Address of Principal Executive Offices)
(863) 533-0326
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Common Stock, $.002 par value per share, 17,999,344 shares outstanding at
September 28, 2002.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [X]
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of August 31, 2002 3
Consolidated Statements of Operations for the Three
and Six Months Ended August 31, 2002 and 2001 5
Consolidated Statements of Cash Flows for the Six Months
Ended August 31, 2002 and 2001 6
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
August 31, 2002
---------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 77,437
Accounts Receivable, Net of Allowance of $8,732 196,823
Inventory 300,269
Other Receivables 112,503
Other Current Assets 29,107
-----------
Total Current Assets 716,139
-----------
Property and Equipment, Net of Accumulated
Depreciation of $652,231 5,208,379
-----------
Long-Term Receivable 139,824
Real Property for Resale 170,000
Equipment for Resale 243,150
-----------
552,974
-----------
TOTAL ASSETS $ 6,477,492
===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET -- CONTINUED
(Unaudited)
August 31, 2002
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank Overdrafts $ 68,971
Current Portion of Long-Term Debt 1,225,428
Accounts Payable 585,832
Accrued Expenses 221,790
Accrued Payroll Taxes 335,848
Accrued Interest 252,004
Due to Stockholders 122,494
------------
Total Current Liabilities 2,812,367
------------
Long-Term Debt, Net of Current Portion 1,401,226
------------
STOCKHOLDERS' EQUITY:
Preferred Stock, total authorized 1,000,000 shares:
Series A, cumulative and convertible, authorized
600 shares, $.001 par value, 102 shares issued
and outstanding, liquidating preference of $ 376,125
Series B, cumulative and convertible, authorized
3,950 shares, $.001 par value, 3,609 shares
issued and outstanding, liquidating preference
of $3,609,595 3
Common Stock, $.002 par value, authorized 30,000,000
shares, 18,521,344 issued and 17,999,344 outstanding 37,043
Additional Paid-In Capital 14,676,703
Stock Subscription Receivable (10,000)
Treasury Stock; 522,000 Shares Issued (265,526)
Accumulated Deficit (12,130,324)
------------
2,307,899
Prepaid consulting (44,000)
------------
Total Stockholders' Equity 2,263,899
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,477,492
============
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended August 31, Six Months Ended August 31,
---------------------------- ----------------------------
2002 2001* 2002 2001*
------------ ------------ ------------ ------------
Net Sales $ 611,953 $ 556,988 $ 1,128,009 $ 1,051,694
Cost of Goods Sold 363,879 388,111 665,364 605,673
------------ ------------ ------------ ------------
Gross Profit 248,074 168,877 462,645 446,021
------------ ------------ ------------ ------------
Selling, General and
Administrative Expenses:
Payroll and Payroll Taxes 159,559 145,053 475,817 548,304
Consulting Expenses 11,270 20,329 108,070 120,579
Professional Fees 55,744 127,037 55,744 269,953
Other 46,974 17,449 249,508 160,169
------------ ------------ ------------ ------------
Total Selling, General and
Administrative Expenses 273,547 309,868 889,139 1,099,005
------------ ------------ ------------ ------------
Loss from Operations (25,473) (140,991) (426,494) (652,984)
Net Other (Expense) Income (948) 15,344 104 15,344
Other Income from Disposition
of Assets 14,547 7,774 14,547
Interest Expense (63,223) (66,199) (140,700) (108,191)
------------ ------------ ------------ ------------
Loss from Continuing Operations (89,644) (177,299) (559,316) (731,284)
Income (loss)from Discontinued
Operations 32,093 (18,688)
------------ ------------ ------------ ------------
Net Loss to Common Shareholders $ (89,644) $ (145,206) $ (559,316) $ (749,972)
============ ============ ============ ============
Loss Per Share:
Basic and Fully Diluted Loss Per
Common Share from Continuing
Operations $ (.01) $ (.01) $ (.03) $ (.07)
Basic and Fully Diluted Loss Per
Common Share from Discontinued
------------ ------------ ------------ ------------
Net Loss per Common Shareholders,
Basic and Diluted $ (.01) $ (.01) $ (.03) $ (.07)
============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding 17,999,344 10,659,346 17,560,594 10,659,346
============ ============ ============ ============
*As Restated
The accompanying notes are an integral part of these
consolidated financial statements.
5
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended August 31, Ended August 31,
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (559,316) $ (749,972)
---------- ----------
Adjustments to Reconcile Net Loss to Net Cash
(Used) Provided by Operating Activities:
Depreciation and Amortization 140,726 196,554
Stock Issued for Services 273,903 10,992
Loss (Gain) On sale of Assets 7,774 (14,457)
Changes in Operating Assets and Liabilities:
Accounts Receivable 37,511 (4,120)
Inventory (32,239) 409,998
Prepaid Expenses and Other Assets (134,216) 47,262
Accounts Payable 12,876 (12,293)
Accrued Expenses 206,155 169,067
---------- ----------
Total Adjustments 512,490 803,003
---------- ----------
Net Cash (Used) Provided by Operating Activities (46,826) 53,031
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment Purchased (11,618) (2,271)
Investment in Loans Receivable (41,925)
Proceeds from Sale of Asset 14,000
---------- ----------
Net Cash Provided (Used) by Investing Activities 2,382 (44,196)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Checks Drawn in Excess of Available
Cash Balance 68,693 20,885
Advances on Notes Payable and Long-Term Debt 157,412 70,000
Repayments on Notes Payable and Long-Term Debt (128,432) (40,643)
Proceeds from Stock Receivable 10,000
Net Repayment of Stockholder Loans (75,267)
---------- ----------
Net Cash Provided (Used) by Financing Activities 107,673 (25,025)
---------- ----------
Net Increase (Decrease) in Cash 63,229 (16,190)
Cash and Cash Equivalents - Beginning of Period 14,208 34,885
---------- ----------
Cash and Cash Equivalents - End of Period $ 77,437 $ 18,695
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
6
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended August 31, Ended August 31,
2002 2001
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Period for Interest $ 77,587 $ 32,910
========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property Surrendered for Note Repayment $ $ 133,416
========== ==========
Securities Issued for Debt Repayment $ $ 7,000
========== ==========
Notes Payable Refinanced $ $ 221,229
========== ==========
Treasury Stock Acquired in Sale of Operations $ $ 420,967
========== ==========
Stock Options Issued for Compensation $ $ 221,000
========== ==========
Stock Options Issued in Sale of Operations $ $ 4,700
========== ==========
Equipment Purchased for Notes Payable $ $ 61,745
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
7
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(Unaudited)
August 31, 2002
NOTE 1: THE COMPANY
The Company was incorporated in Rhode Island in 1991 under the name Jaque
Dubois, Inc., and was re-incorporated in Delaware in 1994. In July 1995, the
Company's name was changed to JD American Workwear, Inc. In December 2000, the
shareholders voted at the annual shareholders' meeting to change the name of the
Company to American Commerce Solutions, Inc. The Company is primarily a holding
company whose wholly owned subsidiary is engaged in the machining and
fabrication of parts used in industry, and parts sales and service for heavy
construction equipment.
The consolidated financial statements for the period ended August 31, 2001
have been restated to reflect the discontinued operations of the construction
management and product marketing segments that had existed during this period to
aid in the comparative analysis of current operations.
NOTE 2: GOING CONCERN
The Company has incurred substantial operating losses since inception. It
has recorded losses from operations of $559,316 and $749,972, as restated, for
the six-month periods ended August 31, 2002 and 2001, respectively. Current
liabilities exceed current assets by $2,096,228 at August 31, 2002.
Additionally, the Company has been unable to meet obligations to its creditors
as they have become due. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management has revised its business strategy to include expansion into
other lines of business through the acquisition of other companies in exchange
for the Company's stock. Management is currently negotiating new debt financing,
the proceeds from which would be used to settle outstanding debts at more
favorable terms, to finance operations, and to complete additional business
acquisitions.
However, there can be no assurance that the Company will be able to raise
capital, obtain debt financing, or improve operating results sufficiently to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of recorded assets or the amounts and classification of liabilities that might
be necessary if the Company is unable to continue as a going concern.
8
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(Unaudited)
August 31, 2002
NOTE 3: BASIS OF PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. The interim
financial information included herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
that are, in the opinion of management, necessary to present a fair presentation
of the Company's financial position, results of operations, and cash flows for
the interim periods. The accompanying consolidated financial statements do not
contain all of the disclosures required by generally accepted accounting
principles and should be read in conjunction with the financial statements and
related notes included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended February 28, 2002. The results of operations for the interim
periods shown in this report are not necessarily indicative of results to be
expected for the fiscal year ending February 28, 2003.
Prior year financial information was restated to conform to the current
year presentation by reclassification of discontinued operations.
NOTE 4: STOCK TRANSACTION
During the period, the Company adopted a non-qualifying Stock Option Plan
with 7,000,000 shares of common stock of American Commerce Solutions, Inc. to be
reserved for employees, officers, and consultants.
9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth in this report, the company's Annual Report on Form 10-KSB, and other
reports and documents that the Company files with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
International Machine and Welding, Inc. (IMW)is currently the only
subsidiary of American Commerce Solutions, Inc. IMW has three distinct operating
divisions that make up its total sources of income. All three divisions operate
from the same 38,000 square foot facility on 4.71 acres in Polk County, Florida.
The administrative portion of this facility also houses the offices of the
parent company, American Commerce Solutions, Inc.
The first operating division is the machine shop that boasts some of the
largest equipment of its type in the southeastern U.S. This division provides
machining services to a wide variety of users such as marine, aerospace, nuclear
and fossil electric utilities, heavy machine services industry, phosphate
mining, chemical and defense industries. The capability to machine components up
to 55 feet in length and 20 feet in diameter is only one reason that IMW has a
niche in this market place. This division is particularly strong in the
machining and remanufacturing of large, complex shaped heavy components, pumps,
valves, bearings, and shafts.
The second division is an independent, full service repair facility for
heavy construction equipment. Specializing in tracked earth moving equipment,
IMW is fully capable of complete servicing and rebuilding of engines,
transmissions, torque converters, undercarriage, and tracks for crawler
tractors. With its fleet of fully equipped service vehicles and experienced
repairmen, many repairs are done in the field. The customer base includes
various municipalities, solid waste companies, construction and construction
services companies, and the mining industry. This division is growing at a pace
that will require expansion of the facility in the foreseeable future.
The third division is parts sales for the repair division, as well as those
who will do their own repairs. Customers are both domestic and foreign, with
parts sales to the islands occurring routinely. As working capital and inventory
improve, this division will provide a more substantial presence within the
division.
The Company does not have discrete financial information on each division,
nor does the Company make decisions on the divisions separately; therefore, they
are not reported as segments.
10
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31,
2002 AND 2001.
After adjustment for discontinued operations that were reported in 2001,
net sales for the three months ended August 31, 2002 increased by 9.9% to
$611,953 from $556,988 for the three months ended August 31, 2001. The heavy
equipment repair division accounts for the majority of the increase with the
month of August producing revenue in excess of $100,000 above the division's
five-month average sales. Aggressive marketing and sales activity and a more
closely managed shop produced the opportunity. The cost of goods sold decreased
by 6.2% for the period ended August 31, 2002 to $363,879 as compared to $388,111
for the same period in 2001. The gross profit margin increased by 46.9% to
$248,074 for the quarter ending August 31, 2002 as compared to $168,877 reported
for the period ended August 31, 2001. This is an increase from 30.3% in 2001 to
40.5% in 2002. Although the emphasis can be placed on the significant
improvement in 2002, it also highlights a weak fiscal quarter in 2001.
Operating expenses decreased for the three months ended August 31, 2002 by
11.7% to $273,547 from $309,868 for the three months ending August 31, 2001.This
was primarily the result of a reduction in consulting fees.
The company experienced a significantly lower loss from operations of
$25,473 for the three months ended August 31, 2002 as compared to a net
operating loss of $140,991 recorded for the same period in 2001 or an
improvement of 81.9%. After all adjusting entries for additional income and
expenses, interest, disposition of assets and income from discontinued
operations, the net loss to common shareholder for the period ending August 31,
2002 was $89,644 or $.005 per share compared to a fully diluted loss of $145,206
or $.014 per share for the quarter ended August 31, 2001.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2002
AND 2001.
Net sales for the six months ended August 31, 2002 were up 7.3% to
$1,128,009 from the $1,051,694 the same period in 2001. On the other hand, the
cost of goods sold for the six month ended August 31, 2002 were $665,364 as
compared to $605,673 for the six months ended August 31, 2001. This 9.9%
increase was due primarily to the high cost of troubleshooting and redoing of a
job for one of our largest heavy equipment-servicing customers. In excess of
$40,000 was lost on a complete rebuild of a piece of equipment after thousands
of dollars spent in inspection and rework of the job until it was discovered
that there was a manufacturer's defect in a replacement part that had caused a
catastrophic failure of the unit. The part manufacturer's warranty covered only
replacement of the part, not the consequential damages that resulted from
installation of the part. As an additional result, gross profit increased only
3.7% to $462,645 for the six months ended August 31, 2002 from $446,021 for the
same period of 2001.
Operating expenses decreased by 18.9% to $889,139 through August 2002 from
$1,099,005 through August 2001.
11
The net loss after all accounting for other income, adjustments for
disposition of assets, interest expense and disposal of discontinued operations
at the end of the six month reporting period ending August 31, 2002 was
$559,316. The fully adjusted net loss for the same period in 2001 was 25.4%
higher at $749,972.
The basic and fully diluted loss per common share from continuing
operations for the six month ended in August 31, 2002 and for the comparable
period of 2001 were $.03 and $.07, respectively. This represents a 57.1%
reduction in the per share loss compared to the same period last year which is
partially a factor of the issue of additional common shares of stock.
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities for the six months ended
August 31, 2002 was $21,867 compared to $73,916 for the same period of 2001.
Accounts receivable decreased by $37, 511 through the first six months of 2002.
Inventory for continuing operations increased by $32,239.
Cash flow from operations and short-term loans provided working capital and
principal payments on long-term debt of the company through the six months ended
August 31, 2002. However, to meet its existing obligations through the year-end
February 28, 2003, the company will require additional financing to provide
working capital and service long-term debt. Subsequent to August 31, 2002 the
company has received a contingent loan commitment from a local lending
institution with very favorable terms to provide the capital needed to
restructure the existing debt and to provide adequate working capital to fund
the anticipated growth opportunities for the Company for the remainder of the
fiscal year. The additional benefit of this restructuring of debt will be a
substantial one-time gain for the quarter ending November 30, 2002. This
one-time gain could result in a $1,000,000 increase in stockholder equity. Cash
requirements for operations could be reduced by as much as $15,000 per month
under the terms of the negotiated funding and the settlement of long-term debt
for less than booked balances.
From inception and through August 31, 2002 the company has suffered
substantial losses. The accumulated losses through that date are $12,130,323.
Although current quarter losses are significantly lower than prior quarters, the
company still has not achieved profitability and additional losses are expected
until the anticipated restructuring occurs. The company has not been able to pay
all of its obligations in a timely manner and is in a default status on a number
of long and short-term debts. Management is currently negotiating both debt and
equity funding.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has defaulted on a total of $468,881 of notes payable. The
amount of principal payments in arrears was $160,804 with an additional amount
of $ 75,946 of interest due at August 31, 2002. These defaults are the result of
failure to pay in accordance with the terms agreed.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITIES HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
N/A
13
SIGNATURES
Pursuant to 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 COMMERCE SOLUTIONS, INC.
By: /s/ Daniel L. Hefner
------------------------------------------
Daniel L. Hefner, Chief Executive Officer
(Principal Executive Officer)
/s/ Frank D. Puissegur
------------------------------------------
Frank D.Puissegur, Chief Financial Officer
Date: October 9, 2002 (Principal Accounting Officer)
14