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 November 30, 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
November 30, 2002.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [X]
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of November 30, 2002 3
Consolidated Statements of Operations for the Three
and Nine Months Ended November 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the Nine
Months Ended November 30, 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
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
November 30, 2002
-----------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 29,634
Accounts Receivable, Net of Allowance of $7,604 234,674
Inventory 207,234
Other Receivables 109,044
Other Current Assets 92,805
----------
Total Current Assets 673,391
----------
Property and Equipment, Net of Accumulated
Depreciation of $749,379 5,196,962
----------
Long-Term Receivable 140,513
Real Property for Resale 185,000
Equipment for Resale 243,150
----------
568,663
----------
TOTAL ASSETS $6,439,016
==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET -- CONTINUED
(Unaudited)
November 30, 2002
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks Drawn in Excess of Available Cash Balance $ 28,269
Current Portion of Long-Term Debt 1,151,618
Accounts Payable 615,347
Accrued Expenses 111,560
Accrued Payroll Taxes 321,078
Accrued Interest 227,663
Due to Stockholders 150,444
------------
Total Current Liabilities 2,605,979
------------
Long-Term Debt, Net of Current Portion 884,070
------------
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, 3,718 shares issued and
outstanding, liquidating preference of $3,718,180 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 (11,445,256)
------------
2,992,967
Prepaid Consulting (44,000)
------------
Total Stockholders' Equity 2,948,967
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,439,016
============
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended November 30, Three Months Ended November 30,
------------------------------ -------------------------------
2002 2001* 2002 2001*
------------ ------------ ------------ ------------
Net Sales $ 1,776,163 $ 1,523,899 $ 648,154 $ 472,205
Cost of Goods Sold 1,030,440 895,534 365,076 289,891
------------ ------------ ------------ ------------
Gross Profit 745,723 628,365 283,078 182,314
------------ ------------ ------------ ------------
Selling, General and
Administrative Expenses 1,221,817 1,437,614 332,678 343,031
Gain on Forgiveness of Debt (812,014) (812,014)
------------ ------------ ------------ ------------
Total Selling, General and
Administrative Expenses 409,803 1,437,614 (479,336) 343,031
------------ ------------ ------------ ------------
Loss from Operations 335,920 (809,249) 762,414 (160,717)
Other Income 20,798 17,323 20,694 1,978
(Gain) Loss on Sale of Assets (7,774) 14,547 (15,548)
Interest Expense (223,191) (155,533) (82,491) (42,890)
------------ ------------ ------------ ------------
Income (Loss) from Continuing
Operations 125,753 (932,912) 685,069 (201,629)
(Loss)from Discontinued Operations (59,350) (14,136)
Loss on Disposal of Discontinued
Operations (16,840) (16,840)
------------ ------------ ------------ ------------
Net Income (Loss) to Common
Shareholders $ 125,753 $ (1,009,102) $ 685,069 $ (232,605)
============ ============ ============ ============
Loss Per Share:
Basic and Fully Diluted Income
(Loss) Per Common Share from
Continuing Operations $ .01 $ (.09) $ .04 $ (.02)
Basic and Fully Diluted Loss Per
Common Share from Discontinued
Operations (.09) (.02)
------------ ------------ ------------ ------------
Net Income (Loss) Per Common
Shareholders, Basic and Diluted $ .01 $ (.09) $ .04 $ (.02)
============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding 17,705,780 10,628,938 17,999,344 10,628,938
============ ============ ============ ============
*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)
Nine Months Nine Months
Ended November 30, Ended November 30,
2002 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 125,753 $(1,009,102)
----------- -----------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used by Operating Activities:
Gain on Extension of Debt (812,014)
Depreciation and Amortization 237,874 280,511
Stock Issued for Services 273,903 217,843
Loss on Sale of Assets 7,774 (14,547)
Loss On Disposal of Subsidiaries 16,840
(Increase) decrease in:
Accounts Receivable (340) (31,753)
Inventory (29,325) 3,403
Prepaid Expenses and Other Assets (195,144) (3,212)
Increase in:
Accounts Payable 42,391 161,150
Accrued Expenses 124,113 366,631
----------- -----------
Total Adjustments (350,768) 996,866
----------- -----------
Net Cash Used by Operating Activities (225,015) (12,236)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Surrendered in Disposal of Subsidiaries (61,259)
Collection from Notes 16,753
Investment in Notes (55,307)
Equipment Purchased (22,229) (10,033)
Proceeds from Sale of Asset 14,000
----------- -----------
Net Cash Used by Investing Activities (8,229) (109,846)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Checks Drawn in Excess of Available
Cash Balance 27,991
Advances on Notes Payable and Long-Term Debt 972,639 159,015
Repayments on Notes Payable and Long-Term Debt (761,960) (76,121)
Proceeds from Stock Receivable 10,000 15,000
----------- -----------
Net Cash Provided by Financing Activities 248,670 97,894
----------- -----------
Net Increase (Decrease) in Cash 15,426 (24,188)
Cash and Cash Equivalents - Beginning of Period 14,208 34,885
----------- -----------
Cash and Cash Equivalents - End of Period $ 29,634 $ 10,697
=========== ===========
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)
Nine Months Nine Months
Ended November 30, Ended November 30,
2002 2001
------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Period for Interest $ 136,228 34,111
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property Sold for Mortgage Payoff and
Receivable $ 165,000
=========== ===========
Securities Issued for Debt Repayment $ 7,000
=========== ===========
Notes Payable Refinanced $ 221,229
=========== ===========
Treasury Stock Acquired in Sale of Operations $ 577,499
=========== ===========
Stock Options Issued in Sale of Operations $ 47,000
=========== ===========
Equipment Purchased for Notes Payable $ 65,385
=========== ===========
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)
As of November 30, 2002 and the Three and Nine Months Ended
November 30, 2002 and 2001
NOTE 1: THE COMPANY
American Commerce Solutions, Inc. was incorporated in Rhode Island in 1991
under the name Jaque Dubois, Inc., and was re-incorporated in Delaware in 1994.
In July 1995, Jaque Dubois, Inc. changed its name to J.D. American Workwear,
Inc. In December 2000, the shareholders voted at the annual shareholders'
meeting to change the name of J.D. American Workwear, Inc. to American Commerce
Solutions, Inc. (the "Company").
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.
NOTE 2: GOING CONCERN
The Company has incurred substantial operating losses since inception;
however, it has recorded income from operations of $125,753 for the nine-month
period ended November 30, 2002. Current liabilities exceed current assets by
approximately $1.9 million at November 30, 2002, and the Company has used
approximately $225,000 of cash in operations for the nine months ended November
30, 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 negotiated new debt financing, of which, the
proceeds of $875,000 were used to settle outstanding debts at more favorable
terms, and to finance operations. A gain of $812,014 has been recognized as a
result of the forgiveness of debt, as recorded in the accompanying consolidated
financial statements.
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)
As of November 30, 2002 and the Three and Nine Months Ended
November 30, 2002 and 2001
NOTE 3: BASIS OF PRESENTATION
The consolidated interim financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission with respect to Form 10-QSB. Certain information and note disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures made herein are adequate to make the information contained herein
not misleading. These consolidated interim financial statements should be read
in conjunction with the Company's audited consolidated financial statements for
the year ended February 28, 2002 and the notes thereto included in the Company's
Annual Report on Form 10-KSB. In the Company's opinion, all adjustments,
consisting only of normal recurring adjustments and reclassifications, necessary
for a fair presentation of the information shown herein have been included.
NOTE 4: FORGIVENESS OF DEBT AND NOTE PAYABLE
During the nine months ended November 30, 2002, the Company negotiated new
debt financing, of which, the proceeds of $875,000 paid various debts, which
resulted in a forgiveness of debt of $812,014. This new note bears interest at
7.5 percent and has monthly principle payments of $8,111 including interest,
matures in December 2005, and is secured by property.
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 American
Commerce Solutions, Inc., the parent company.
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, and chemical and defense industries. It has the capability to machine
components up to 55 feet in length on a horizontal lathe and machine a component
that is 20 feet in diameter on a vertical mill. This equipment is 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, undercarriages, and tracks for crawler
tractors. Providing in the field service and inspections, this division benefits
its customers with convenient and professional service of their equipment. The
customer base includes various municipalities, solid waste companies,
construction and construction service 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 third 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 NOVEMBER 30,
2002 AND 2001.
After adjustment for discontinued operations that were reported in 2001,
net sales for the three months ended November 30, 2002 increased 37.3 percent to
$648,154 from $472,205 for the three months ended November 30, 2001. The heavy
equipment repair division accounts for the majority of the increase with two
months of the quarter producing revenue in excess of $100,000 above the
division's prior six-month average sales. Aggressive marketing and sales
activity and a more closely managed shop produced the opportunity. The cost of
goods sold decreased by 25.3 percent for the period ended November 30, 2002 to
$289,891 as compared to $365,076 for the same period in 2001. The gross profit
margin increased by 35.6 percent to $283,078 for the quarter ending November 30,
2002 as compared to $182,314 reported for the same quarter ended November 30,
2001.
After incorporation of the one-time gain from refinancing operating
expenses were negated for the three months ended November 30, 2002, a gain of
$479,336 resulted instead of a cost of $343,031 for the three months ended
November 30, 2001, or a positive difference of $822,367. This was the direct
result of the refinancing of debt in the subsidiary, IMW.
The Company experienced a significant gain from operations of $685,069 for
the three months ended November 30, 2002 as compared to a net operating loss of
$201,629 recorded for the same period in 2001, or an improvement of $886,698.
After all adjusting entries for additional income and expenses, interest,
disposition of assets, and income from discontinued operations, the net gain to
common shareholders for the period ended November 30, 2002 was $685,069, or $.04
per share.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 30,
2002 AND 2001.
Net sales for the nine months ended November 30, 2002 were up 16.6 percent
to $1,776,163 from the $1,523,899 for the same period in 2001. On the other
hand, the cost of goods sold for the nine months ended November 30, 2002 were
$1,030,440 as compared to $895,534 for the nine months ended November 30, 2001.
Gross profit increased 18.7 percent to $745,723 for the nine months ended
November 30, 2002 from $628,365 for the same period in 2001.
Operating expenses decreased to $409,803 through November 30, 2002 from
$1,437,614 through November 30, 2001. This $1,027,011 improvement incorporates
the one-time gain of $812,014 recognized from the refinancing accomplished by
management during the third quarter of 2002.
11
The net gain after all accounting for other income, adjustments for
disposition of assets, interest expense, and disposal of discontinued operations
at the end of the nine-month period ended November 30, 2002 was $125,753. The
fully adjusted net loss for the same period in 2001 was $1,009,102, for a net
improvement of $1,134,855.
The basic and fully diluted gain per common share from continuing
operations for the nine months ended November 30, 2002 was $.01, which is a
factor of the refinancing accomplished in the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
The net cash used by operating activities for the nine months ended
November 30, 2002 was $225,015 compared to $12,236 for the same period in 2001.
Accounts receivable increased by $340 through the first nine months of 2002.
Inventory for continuing operations increased by $29,325.
Cash flow from operations and short-term loans provided working capital and
principal payments on long-term debt of the Company through the nine months
ended November 30, 2002. On November 30, 2002, the Company received a loan from
a local lending institution with very favorable terms to provide the capital
needed to restructure the existing debt and to provide adequate cash flow to
fund the anticipated growth opportunities for the Company for the remainder of
the fiscal year. The additional benefit of this restructuring of debt is a
one-time gain for the quarter ended November 30, 2002. This one-time gain
resulted in an $812,014 increase in stockholder equity. Cash requirements for
operations have been reduced by almost $15,000 per month under the terms of the
negotiated funding and the settlement of long-term debt for less than booked
balances. The refinancing accomplished at the end of November provided funding
to substantially reduce both long and short-term debt subsequent to the end of
the quarter. This will assist the Company in meeting its existing obligations
through the year-end February 28, 2003. Anticipated future growth will require
additional financing to provide working capital for inventory and manpower.
From inception, the Company had suffered substantial losses; however, it
has recorded income from operations of $125,753 for the nine-month period ended
November 30, 2002. The accumulated losses through that date total $11,445,256.
Although the current quarter was profitable, the Company still has not achieved
overall, sustained profitability and additional losses are expected until equity
funding occurs to offset the costs of having a public company. The Company has
not been able to consistently pay all of its obligations in a timely manner and
has converted some of its defaulted debt to short-term installment agreements.
Management will continue negotiating for both debt and equity funding.
12
PART I. FINANCIAL INFORMATION
ITEM 3. CONTROLS AND PROCEDURES
THE COMPANY HAD CONTROLS AND PROCEDURES IN PLACE DURING THE REPORTING PERIOD TO
ENSURE THAT MATERIAL INFORMATION IS KNOWN TO US IN A TIMELY FASHION. THOSE
CONTROLS AND PROCEDURES HAVE BEEN REVIEWED FROM TIME TO TIME TO EVALUATE THEIR
EFFECTIVENESS. THE COMPANY IS SATISFIED THAT THESE CONTROLS AND PROCEDURES ARE
ADEQUATE TO GIVE FAIR REPRESENTATION OF MATERIAL INFORMATION ABOUT THE FINANCIAL
CONDITION OF THE COMPANY. THERE HAVE BEEN NO SIGNIFICANT FACTORS OR CHANGES TO
THE CONTROLS AND PROCEDURES OF THE COMPANY THAT COULD SIGNIFICANTLY AFFECT
INTERNAL CONTROLS SUBSEQUENT TO THE REPORTING PERIOD.
13
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 $993,130 of notes payable. The
amount of principal payments in arrears was $993,130, with an additional amount
of $227,449 of interest due at November 30, 2002. These defaults are the result
of a 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
14
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: January 9, 2003 (Principal Accounting Officer)
15