SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 2003
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 {NO FEE REQUIRED}
For the transition period from _____________ to _____________
Commission file No. 33-98682
AMERICAN COMMERCE SOLUTIONS, INC.
(Exact name of registrant 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) (Zip Code)
Registrant's telephone number, including area code: (863) 533-0326
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 { }
Check if there is no disclosure of delinquent filings pursuant to Item 405
of Regulation S-K contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. {X}.
State the issuer's revenues for its most recent fiscal year: $2,211,984
The aggregate market value of the voting and non-voting common equity of
the registrant held by non-affiliates of the registrant at February 28, 2003 was
approximately $1,753,149 based upon the closing sale price of $.06 for the
Registrant's Common Stock, $.002 par value, as reported by the National
Association of Securities Dealers OTC Bulletin Board on February 28, 2003.
As of February 28, 2003 the registrant had 29,219,158 shares of Common
Stock, $.002 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
American Commerce Solutions, Inc.
Annual Report on Form 10-KSB
For the Fiscal Year Ended February 28, 2003
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Description of Business 3
Item 2. Description of Property 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to Vote of Securities Holders 8
PART II
Item 5. Market for Common Equity and Related Security Stockholder Matters 9
Item 6. Management's Discussion and Analysis or Plan of Operation 10
Item 7. Financial Statements 12
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 12
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act 12
Item 10. Executive Compensation 13
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 17
Item 13. Exhibits and Reports on Form 8-K 18
Item 14. Controls and Procedures 18
2
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are subject to risks, uncertainties, and other factors, which could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. See "Item 1. Description of Business - Forward
Looking Statements."
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
American Commerce Solutions, Inc., was incorporated in Rhode Island in May
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 to change the name of the company to
American Commerce Solutions, Inc. to more accurately portray the activities of
the company.
American Commerce Solutions, Inc. (the "Company" or "American Commerce") is
a multi-industry holding company for its operating subsidiaries. As of the close
of its most recently completed fiscal year end, the Company had one wholly owned
subsidiary operating in the manufacturing segment. The operating subsidiary is
International Machine and Welding, Inc. located in Bartow, FL.
The Company intends to expand its holdings by acquiring additional
subsidiaries to facilitate its business plan. The current business plan has been
in development since June 2000.
International Machine and Welding, Inc. provides specialized machining
services for heavy industry. Target customers in the region include mining,
agriculture processing, maritime, power generation and industrial machinery
companies. Additional operations include heavy equipment service to the
construction, forestry, waste and scrap industries. The operation provides
complete service of the equipment, which includes rebuilding undercarriages,
engines, transmissions, final drives and hydraulics. The effective service area
for the operation located in the Southeastern region of the United States is a
prime and lucrative market for such services. Growth in this region of the
United States (population, infrastructure, and building) has created long term
needs for construction equipment. All of these machines require periodic
maintenance, and at certain points major overhauls. In addition to its 38,000
square foot facility, the operation also provides fully equipped field service
vehicles so machines do not have to be removed from the work site. Normally, the
Company as an "independent" is more competitive than the "factory" centers. In
most cases the operation can turn work in a quicker and more cost effective
manner.
International Machine and Welding, Inc. also sells OEM and after-market
repair parts for heavy equipment. The operation has an extensive cross-reference
listing and network of sources. One of the major competitive advantages of the
operation is its ability to determine exactly what the customer needs and
fulfill the requirement. In many cases, the customer may not have service
manuals or to be able to identify part numbers. If a customer has more than one
type of machine, which is quite common, they may have to contact a number of
different suppliers to get parts for multiple machines. Our operation identifies
the required parts and arranges the necessary repairs. As a result, the customer
only has to make one phone call for all of their needs. This also makes
International Machine and Welding, Inc. an attractive alternative for sales to
customers outside the United States. Orders can be accumulated throughout the
month and be sent on consolidated shipments. This has created a niche market for
the direct parts sales division. The operation currently has two customer
relationships in the Caribbean. Management believes that this market has not
been fully targeted by its competitors and offers potential as a source of
increased business.
The Board of Directors of American Commerce Solutions, Inc. has determined
that it will seek to acquire additional manufacturing operations and
construction operations that utilize heavy equipment. Additional segments being
considered are manufacturing supply operations, consumer products and commercial
construction support services.
3
ACQUISITIONS AND DIVESTITURES
The Company sold back to its original founder the assets and certain
liabilities of its JD American Workwear, Inc. operation and all of the Rhode
Island Truck and Equipment, Inc. operations on May 31, 2001 and October 31,
2001, respectively. The terms and conditions of these transactions have been
reported in their respective Form 10-QSB for the period ended May 31, 2001 and
November 30, 2001 and are incorporated by reference herein.
On June 1, 2000, the Company completed the purchase of International
Machine and Welding, Inc. by acquiring all of the outstanding capital stock of
its holding company, Patina Corporation for a total purchase price of
$4,446,159. The acquisition was accounted for using the purchase method of
accounting and, accordingly, International Machine and Welding, Inc.'s results
of operations have been included in the consolidated financial statements since
the date of acquisition. The acquisition was funded by the issuance of 9,800
shares of Series C 6% Preferred Stock.
On June 1, 2000, the Company completed the purchase of Rhode Island Truck
and Equipment Corp. d/b/a International Paving, Inc. by acquiring all its
outstanding capital stock for a total purchase price of $238,000. The
acquisition was funded by the issuance of 200,000 shares of common stock.
On June 1, 2001, the Company discontinued the operations of its JD American
Workwear, Inc. subsidiary and exchanged certain assets and liabilities with the
President of the subsidiary for 725,000 shares of the Company's common stock and
notes payable of $43,115. On October 31, 2001, the Company returned all of the
stock of Rhode Island Truck and Equipment Corp. to its original owners in
exchange for 155,000 shares of the Company's common stock.
BUSINESS STRATEGY
The Company has adopted a business strategy that focuses on expansion
through acquisitions of companies that are synergistic to the existing
subsidiary operations.The key elements must include solid management,
profitability, geographically compatible and can be enhanced by shared services
and opportunites.
Under the current strategy, the Company is developing three divisions of its
chosen segment: Manufacturing.
Manufacturing Division. This division was formed to house the operations of
International Machine and Welding, Inc. Its operations include a 38,000 square
foot machine shop and sales of heavy equipment, parts and service.
PRODUCTS, SERVICES AND FEATURES
MANUFACTURING SEGMENT
The Manufacturing Division through International Machine and Welding, Inc.
offers a broad range of products and services to heavy industry through its
three subdivisions. The operations of Division 1 provide specialized machining
of very large components and machinery repair to industries such as aerospace,
agricultural processing, chemical, defense, mining, maritime and power
generation. Our 38,000 square foot facility located in Bartow, Florida is one of
the only operations in the Southeast capable of machining components up to 55
feet in length and/or 20 feet in diameter. Division 2 provides heavy equipment
service (parts and labor), which includes repair and bonded rebuilds of engines,
tracks, undercarriages, transmissions, final drives and hydraulic systems on
heavy equipment. The equipment we repair is from the heavy construction industry
including bulldozers, scrapers, loaders, excavators, large tractors, rollers,
etc. The division provides field service via a fleet of fully equipped service
trucks to provide repairs at the customer's site. Division 3 sells replacement
parts to the heavy equipment market, directly to the end user with most of the
parts exported outside the United States.
4
MANUFACTURING AND SOURCES OF SUPPLY
Manufacturing Segment
Supplies and parts used by International Machine and Welding, Inc. are
purchased from several major suppliers including Caterpillar, John Deere, Case
and other major manufacturers and after market parts suppliers. The machining
operations purchase from many suppliers based on the need of specific jobs.
Although the operations do not have any long-term contracts with any of its
suppliers, management believes that it has excellent business relationships with
its current suppliers and it is not exposed to any significant risk in the event
any one source of supply is discontinued, because there are many suppliers.
MARKETING AND SALES
Manufacturing Segment
International Machine and Welding, Inc. operates three subdivisions at one
location. Division 1 sales have traditionally come from industries within a
100-mile radius of its facilities requiring specialized machining applications.
Direct salesmen have established relationships with specific customers and the
Company has expanded the business relationship through quality, rapid turn and
value. While this business is quite lucrative, visibility is limited. The
operation intends to expand its operations in the OEM market, where the
subsidiary provides components to manufacturers of large machines. These types
of accounts generally involve annual contracts with three-month rolling
schedules. The expansion of the market also is expected to increase the
serviceable territory from the Southeast to include the entire United States.
Direct sales personnel who primarily target mid-tier accounts handle sales
for Division 2 and 3. We believe that this broad niche market is largely
untapped by the larger factory-sponsored operations which cater specifically to
very large accounts. Margins are typically very slim in these accounts and a
large percentage of customer base is represented by very few accounts. Because
we are an independent repair facility, we can provide service to a much broader
base of customers with greater margins than the large factory-sponsored
competitors. Division 2 has recently expanded its sales force to address the
total available market. Anticipating growth of sales, the Company has installed
additional specialized equipment to service undercarriages, which represents
approximately 37% of the Company's repair revenue. The recent installation of an
additional track press will allow this division to double its capacity.
COMPETITION
Manufacturing Segment
The principal competitors of the Manufacturing Division consists of
regional companies such as Southern Machinery, Florida Plating and Machine,
Arroyo and Florida Metallizing in the machining operations and national
corporations such as Ringhaver Equipment, Caterpillar, and Case repair
facilities in the heavy equipment parts and service category. Management
believes that the ability to rapidly turn goods or to provide parts on a timely
basis gives it a competitive advantage. We are able to ship parts directly to
the consumer, usually on the same day as the order or to return all service work
within the time specified either by completing the work at the customers site or
because of immediate turnaround capabilities.
Customer Dependence
International Machine and Welding, Inc. has a broad and diverse base of
customers. The division does not rely on any single customer, the loss of which
would have a material adverse effect on the segment. This division does generate
a significant amount of revenues from sales and services provided to three
different industries. The construction industry accounted for approximately
31.7% of the division's revenues in fiscal 2003 compared to 28.9% in fiscal
2002, while the industrial and mining industries accounted for approximately
26.6% and 29.3% in fiscal 2003 compared to 18.4% and 20.0% in fiscal 2002,
respectively, of the division's total revenues. Due to these concentrations, the
results of operations of the division could be affected by changes in the
economic, regulatory, or other related conditions impacting on these industries.
5
CUSTOMER DEPENDENCE
International Machine and Welding, Inc. has a broad and diverse base of
customers. The division does not rely on any single customer, the loss of which
would have a material adverse effect on the segment. During fiscal 2003 five
customers provided more than 5% of sales each. These customers were IMC
Phosphates Company 14.96%, Vehicare 13.68%, Wadsworth 6.87%, Southern Developers
6.74%, Kovacs 6.09% and Tuco Peat 5.23%.
EMPLOYEES
At May 15, 2003, the Company and its subsidiaries had 23 employees devoting
full-time hours, no part time employees and 1 contractors. Of these workers, two
are performing executive, management and marketing functions, two are performing
accounting, financial and office functions, three provide sales functions and
the remainder provide support, maintenance or fulfill shop operation
requirements. The parent operation has three full time employees. The
Manufacturing Division employs 20 full time employees.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB (including the Exhibits hereto) may
contain "forward-looking statements" within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, including,
but not limited to, statements regarding, among other things, the financial
condition and prospects of the Company and its subsidiaries, results of
operations, projections, plans for future business development activities and
the opportunities available within its market areas, capital spending plans,
financing sources, projections of financial results or economic performance,
capital structure, the effects of competition, statements of plans,
expectations, or objectives of the Company, and the business of the Company and
its subsidiaries. These forward-looking statements are typically identified by
words or phrases such as "believe," "expect," "anticipate," "plan," "estimate,"
"intend," and other similar words and expressions, or future or conditional
verbs such as "will," "should," "would," and "could" and other characterizations
of future events or circumstances. In addition, the Company may from time to
time make such written or oral "forward-looking statements" in future filings
with the Securities and Exchange Commission (including exhibits thereto), in its
reports to stockholders, and in other communications made by or with the
approval of the Company.
These forward-looking statements reflect the current views of the Company
at the time they are made and are based on information currently available to
the management of the Company and upon current expectations, estimates, and
projections regarding the Company and its industry, management's beliefs with
respect thereto, and certain assumptions made by management. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors (many of which are outside
the control of the Company), which could cause actual results to differ
materially from those expressed or implied by such forward-looking statements.
Such forward-looking statements speak only to the date that such statements are
made, and the Company undertakes no obligation to update any forward-looking
statements, whether as the result of new information, future events, the
occurrence of unanticipated events, or otherwise. The following sets forth some,
but not necessarily all, of the factors that may cause the Company's actual
results to vary materially from those which are the subject of any
forward-looking statements.
RISK FACTORS
Accumulated Deficit and Operating Losses and Anticipated Earnings;
Explanatory Language in Auditor's Report. The Company had an accumulated deficit
at February 28, 2003 of $11,918,918 and net loss to common shareholders of
$347,910 for the year ended February 28, 2003.The Company had an accumulated
deficit of $11,528,008, and net loss to common shareholders of $1,542,919 for
the year ended February 28, 2002. The Company had positive cash flow of $275 for
the fiscal year February 28,2003 as opposed to negative cash flow for the year
ended February 28, 2002 of $20,677. The Company's financial statements are
presented on the basis that the Company is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the ordinary
course of business. While there can be no assurance of this outcome, management
believes its plan of operation will allow the Company to achieve this goal.
6
Growth Plans and Risk of Expansion. The Company adopted and implemented a
business strategy, which seeks growth and expansion through the acquisition of
synergistic companies. Accordingly, the growth and financial performance of the
Company will depend, in large part, upon the Company's ability to identify and
locate suitable acquisitions, to manage such growth and the resultant diverse
operations, to manage the margins of the acquired operations, and to attract,
hire, train, and retain qualified supervisory personnel and other operational
employees to meet the Company's needs as it expands, as well as the availability
of sufficient working capital. Difficulties resulting from the failure of the
Company to manage and control its growth could materially adversely affect the
Company's operating results and financial condition.
No Assurance of Acquisitions. The Company has limited acquisition
experience and, although from time to time it has had preliminary discussions
with potential acquisition candidates, the Company has not entered into any such
transactions since June 2000. The Company does have current understandings,
arrangements, or agreements (oral or written) relating to specific acquisitions,
but has not secured funding to close the potential acquisitions. There can be no
assurance that any acquisition candidate will be interested in such a
transaction, that an acquisition transaction will be successfully negotiated or
consummated, or that the Company will be able to finance any such acquisition.
Furthermore, there can be no assurance that the Company will be able to identify
other suitable acquisition candidates in the future that would be interested in
such a transaction. To the extent that acquisitions are consummated, the Company
may have difficulty in successfully integrating the acquired business into the
Company or may lack the management skills or systems necessary to adequately
implement the Company's strategy. Furthermore, once integrated, acquisitions may
not achieve comparable levels of revenues, profitability, or productivity as
existing Company operations, or otherwise perform as expected (including the
potential failure to achieve expected synergies or other anticipated financial
benefits). The Company is unable to predict whether or when any prospective
acquisition candidate will become available or the likelihood that an
acquisition will be completed should any negotiations commence. The Company will
face competition for such acquisitions from entities that have substantially
greater resources than the Company.
Acquisition Risks. Acquisitions involve a number of special risks, some or
all of which could have a material adverse effect on the Company's results of
operations or financial condition. Such risks include, but are not limited to,
the diversion of management's attention from core operations, difficulties in
the integration of acquired operations and retention of personnel, customers,
and suppliers, unanticipated problems or legal liabilities, tax and accounting
issues, and the inability to obtain all necessary governmental and other
approvals and consents.
Need for Additional Financing. Cash flow from operations and the sale of
securities provided the working capital needs and principal payments on
long-term debt through most of fiscal 2003. However, the Company will need to
obtain additional financing in order to finance its acquisition and growth
strategy. There can be no assurance that debt or equity financing will be
available to the Company on acceptable terms, if at all. If the Company does
require additional financing and it cannot be obtained or the terms of such
financings are unfavorable, it may have a material adverse impact on our
operations and profitability, and the Company may need to curtail its business
plan and strategy
Loss of Certain Members of Our Management Team Could Adversely Affect the
Company. The Company is dependent to a significant extent on the continued
efforts and abilities of our Chairman, Robert E. Maxwell and President and Chief
Executive Officer, Daniel L. Hefner. If the company were to lose the services of
either of these individuals or other key employees or consultants before a
qualified replacement could be obtained, the business could be materially
affected.
Expected Volatility in Share Price. The market price of our stock has
traded in a wide range. From March 1, 2001 through February 28,2003 the price of
our common shares has ranged from $0.625 to $0.03 per share. The price of our
7
common stock may be subject to fluctuations in response to quarter-to-quarter
variations in operating results, creation or elimination of funding
opportunities, restriction of the acquisition plans, and favorable or
unfavorable coverage of our officers and Company by the press.
Control by Current Stockholders, Officers and Directors. Management and
affiliates of the Company currently beneficially own, including shares they have
the right to acquire, approximately 66% of the voting Common Stock. These
persons are, and will continue to be, able to exercise control over the election
of the Company's directors and the appointment of officers.
ITEM 2. PROPERTIES
International Machine and Welding, Inc. owns in fee simple title a 38,000
square foot facility in Bartow, Florida, which currently serves as the principal
executive offices of American Commerce. A note with Valrico State Bank encumbers
this building. This note needs to be refinanced by November 2005. The note and
mortgage in favor of Valrico State Bank allowed the Company to negotiate a
settlement with GE Capital Small Business and other creditors, substantially
reducing debt service and generating a one time gain of $812,014.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 21, 2003 a stockholders meeting was held at the corporate
offices in Bartow, Florida. All notices and filings were properly made. A quorum
( 9,641,611) was present by proxy.
Three proposals came for action:
Proposal No. 1 Election of Directors. Three nominees, Robert E. Maxwell (2
years) Daniel L. Hefner (2 years) and Frank D. Puissegur (1 year) were elected
13,137,346 FOR 2,000 AGAINST
Proposal No. 2 Amendment to Company's 1995 Employee Stock Option Plan.
Proposed to increase the shares available by 1,500,000 shares to 3,500,000.
13,139,346 FOR 0 AGAINST
Proposal No. 3 Management Proposal on Independent Accountants. Vote to ratify
the selection of Pender Newkirk & Company as Independent Auditors for Fiscal
2003.
13,139,346 FOR 0 AGAINST
8
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Since the April 1996 closing of the Company's initial public offering, the
Company's Common Stock has traded in the over-the-counter market on the National
Association of Securities Dealers, Inc. OTC Bulletin Board System ("OTCBB").
Until January 31, 2001 the company's common stock traded under the symbol
"JDAW." In connection with the name change, since February 10, 2001, the common
stock has traded under the symbol "AACS." The following table sets forth the
range of high and low closing bid quotations of the Common Stock as reported by
the OTCBB for each fiscal quarter for the past two fiscal years. High and low
bid quotations reflect inter-dealer prices without adjustment for retail
mark-ups, markdowns or commissions and may not necessarily represent actual
transactions.
Bid Prices
----------------
High Low
---- ---
FISCAL 2003
First Quarter (March 1, 2002 through May 31, 2002) $0.30 $0.20
Second Quarter (June 1, 2002 through August 31, 2002) $0.26 $0.03
Third Quarter (September 1, 2002 through November 30, 2002) $0.14 $0.03
Fourth Quarter (December 1, 2002 through February 28, 2003) $0.12 $0.04
FISCAL 2002
First Quarter (March 1, 2001 through May 31, 2001) $0.625 $0.25
Second Quarter (June 1, 2001 through August 31, 2001) $0.34 $0.17
Third Quarter (September 1, 2001 through November 30, 2001) $0.30 $0.18
Fourth Quarter (December 1, 2001 through February 28, 2002) $0.30 $0.18
On May 15, 2003 the closing bid price of the Company's Common Stock as reported
by the OTCBB was $0.03 and there were approximately 538 shareholders of record.
DIVIDENDS
The Company has never declared or paid a dividend on its Common Stock, and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. The Company expects to retain, if any, its future earnings
for expansion or development of the Company's business. The decision to pay
dividends, if any, in the future is within the discretion of the Board of
Directors and will depend upon the Company's earnings, capital requirements,
financial condition and other relevant factors such as contractual obligations.
There can be no assurance that dividends can or will ever be paid.
RECENT SALES OF UNREGISTERED SECURITIES
None
9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management's Discussion and Analysis or Plan of Operation presents a
review of the consolidated operating results and financial condition of the
Company for the fiscal years ended February 28, 2003 and February 28, 2002. This
discussion and analysis is intended to assist in understanding the financial
condition and results of operation of the Company and its subsidiaries. This
section should be read in conjunction with the consolidated financial statements
and the related notes.
RESULTS OF OPERATIONS
The Company owns one subsidiary that operated in the manufacturing segment
during the fiscal year ended February 28, 2003 and February 28, 2002. To
facilitate the readers understanding of the Company's financial performance,
this discussion and analysis is presented on a segment basis.
MANUFACTURING SUBSIDIARY
The manufacturing subsidiary generates its revenues from three divisions.
Division 1 provides specialized machining and repair services to heavy industry
and original equipment manufacturers. Division 2 provides repair and rebuild
services on heavy equipment used in construction and mining as well as sales of
used equipment. Division 3 provides parts sales for heavy equipment directly to
the customer. The primary market of this segment is the majority of central and
south Florida with parts sales expanding its market internationally. The current
operations can be significantly expanded using the 38,000 square foot structure
owned by International Machine and Welding, Inc.
The subsidiary's sales expectations were not met in fiscal 2003 although
there was an increase in revenue. We have expectation of more significant growth
in fiscal 2004. This will be facilitated by additional working capital
anticipated through improved operations, capital raises and bank loans.
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
General
The Company's consolidated net sales increased to $2,211,984 for the fiscal
year ended February 28, 2003 an increase of $270,129 from $1,941,855 for the
fiscal year ended February 28, 2002, an increase of 13.9%. This increase was due
to increased sales effort.
Gross profit for the consolidated operations decreased to $789,941 for the
fiscal year ended February 28, 2003 from $837,147 for the fiscal year ended
February 28, 2002. Gross profit decreased as a percentage of sales to 35.71%
from 43.11%. This change was due,in part, to the management decision to write
down inventory by $102,823. Consolidated interest expenses in fiscal 2003 were
$301,774 compared to $297,235 in fiscal 2002. The company incurred a net
consolidated loss of $347,910 for the year ended February 28, 2003 compared to a
loss of $1,542,919 for the year ended February 28, 2002. One time gains on
renegotiation and settlement of debt was a major factor in this improvement.
Selling, general and administrative expenses decreased to $1,584,470 for
fiscal 2003 from $2,043,752 for fiscal 2002, a decrease of $459,282 or 22.47%.
The decrease was mainly attributable to reduction in management staff and
general tightening of controls.
The Company's net loss to common shareholders was $347,910 for fiscal 2003
compared to a net loss to common shareholders of $1,542,919 for fiscal 2002.
This improvement was largely attributable to the one-time gain on forgiveness of
debt of $812,014 from the previous fiscal year. Despite this improvement over
the preceding year and because of these continuing losses, the Independent
Auditors have questioned the Company's continuation as a going concern.
10
Manufacturing Subsidiary
The Manufacturing operation provided net sales of $2,211,984 for the fiscal
year ended February 28, 2003 compared to $1,941,855 for the fiscal year ended
February 28, 2002. The machining operations provided $827,725 or 37.4% of net
sales with parts and service providing $1,384,259 or 62.6% of net sales for the
fiscal year ended February 28, 2003 as compared to machining operations
contributing $849,723 or 43.8% of net sales with parts and service providing
$1,092,132 or 56.2% of net sales for the fiscal year ended February 28, 2002.
This was through the efforts of a three person sales staff and the exemplary
work of the rank and file who provided product turnaround that excited the
customers and created more opportunities.
Gross profit from the Manufacturing operation was $789,941 for the fiscal
year ended February 28, 2003 compared to $837,147 in fiscal 2002 providing gross
profit margins of 35.71% and 43.1%, respectively.
Selling, general and administrative expenses were $1,584,470 for the fiscal
year ended February 28, 2003 compared to $2,043,752 for the fiscal year ended
February 28, 2002. Interest expenses were $301,774 for the fiscal year ended
February 28, 2003 compared to $297,235 for the fiscal year ended February 28,
2002.
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.
Non-recurring Income
On October 23, 2000 the terms of the original agreement between the Company
and ULLICO were substantially modified to meet the changing needs of the
Company. The holder relinquished all mandatory conversion rights allowing the
Company to reclassify the proceeds of the preferred stock transaction as equity
and a non-recurring gain of $1,994,768 from the extinguishment of debt and the
recapture of dividend and warrant costs.
On November 30, 2002 the company received a bank loan of $875,000 which was used
to pay off short and long term debt negotiated by management to allow a one time
gain on forgiveness of debt of $812,014.This debt was associated with the June
2000 acquisition of the assets of International Machine and Welding, Inc.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal years ended February 28, 2003 and February 28, 2002, the
Company (used) net cash for operating activities of $504,686 and $(12,948),
respectively. Accounts receivable decreased to $169,040 at February 28, 2003
from $234,334 at February 28, 2002, a decrease of $65,294, or 27.86%. Inventory
decreased to $103,630 at February 28, 2003 from $268,030 at February 28, 2002, a
decrease of $164,400, or 61.3% as a result of a substantial write down during
fiscal 2003 and reclassification to property and equipment.
During fiscal 2003 and 2002, the Company used funds for capital
expenditures of $31,841 and $15,556, respectively.
Cash flows from operations and loans or the sale of equity provided for
working capital needs and principal payments on long-term debt through fiscal
2003. To the extent that the cash flows from operations are insufficient to
finance the Company's anticipated growth, or its other liquidity and capital
requirements during the next twelve months, the Company will seek additional
financing from alternative sources including bank loans or other bank financing
arrangements, other debt financing, the sale of equity securities (including
those issuable pursuant to the exercise of outstanding warrants and options), or
other financing arrangements. However, there can be no assurance that any such
financing will be available and, if available, that it will be available on
terms favorable or acceptable to the Company.
SEASONALITY
The diversity of operations in the Manufacturing Segment protects it from
seasonal trends except in the sales of agricultural processing where the
majority of the revenue is generated while the processors await the next
harvest.
11
ITEM 7. FINANCIAL STATEMENTS
The response to this item is included as a separate section of this report
commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE
REGISTRANT
The following table sets forth information about each person who serves as
an executive officer or director of the Company:
Name Age Positions with the Company
---- --- --------------------------
Robert E. Maxwell 67 Chairman of the Board and Director
Frank D. Puissegur 43 Chief Financial Officer and Director
Daniel L. Hefner 52 Chief Executive Officer, President and Director
Directors of the Company hold office until the earlier of the next annual
meeting of the stockholders and until their successors have been duly elected
and qualified, or their death, resignation, or removal. Two board members were
elected to two-year terms at the annual stockholders meeting held January 21,
2003. Robert Maxwell and Daniel Hefner were elected to a two-year term. On March
5, 2002 in consent action by shareholders, Norman Birmingham was elected to a
two-year term, but subsequently resigned the position.Our officers are elected
annually by the board of directors to hold office until the next annual meeting
of our board and their successors have been duly elected and qualified. There
are no family relationships between any of our officers and directors. Set forth
below is a description of the business experience during the past five years or
more and other biographical information for directors and executive officers
identified above:
Mr. Maxwell has been a director and the Chairman of the Board of Directors
of the Company since June 2000. Mr. Maxwell serves as a consultant to
International Machine and Welding, Inc., a subsidiary of the Company. He was the
owner/operator of Florida Machine and Welding, Inc., located in Bartow, Florida,
for the past 24 years until the sale of its assets in June 2000. Mr. Maxwell has
served on various bank and charitable boards of directors.
Mr. Puissegur joined the Company in June 2001 as Chief Financial Officer
and Director. He became a Certified public Accountant with his certificate from
the State of Florida and the creation of a sole practitioner office in 1982. The
practice grew and has evolved into its current form as the partnership of
Puissegur, Finch, & Slivinski, P.A., a full service accounting firm. He is a
member of the American and Florida Institutes of Certified Public Accountants
and the National and Polk County Estate Planning Councils. The American
Institute of Tax Studies has awarded Mr. Puissegur the designation of "Certified
Tax Professional." He also holds the designation from the State of Florida as a
Certified Family Mediator.
12
Mr. Hefner has been President of the Company since September,2002 and Chief
Executive Officer since March 2002. He previously served as Executive Vice
President from June 2000 to June 2001 and as interim President from June 2001
through February 2002. Mr. Hefner has been a director of the Company since June
2000. Mr. Hefner currently serves as President of International Machine and
Welding, Inc. He also serves as President of International Commerce and Finance,
Inc. an investment/consulting company for manufacturing and technology
companies, and he has held this position since August 1999. Mr.Hefner has been
active for the past twelve years as an independent consultant to individuals or
business seeking to begin operations or to create turnarounds of existing
business. During the same period, Mr. Hefner also operated his own independent
real estate brokerage operation where he served as President and Chief Executive
Officer. From March to October 1999, Mr. Hefner was Chief Operating Officer for
Chronicle Communications, Inc. (OTCBB: CRNC), a Tampa based printer. CRNC filed
bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code two months
after Mr. Hefner's departure.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth cash and non-cash
compensation awarded, paid or accrued, for the past three fiscal years of the
Company's Chief Executive Officers, and all other, if any, whose total annual
compensation exceeded $100,000 for the fiscal year ended February 28, 2003
(collectively, the " Named Executive Officers").
SUMMARY COMPENSATION TABLE
Compensation
Awards
Annual ------------
Compensation Securities
Name and Fiscal ---------------- Underlying All Other
Principal Position Year Salary Bonus Options Compensation
------------------ ---- ------ ----- ------- ------------
Daniel L. Hefner 2003 $67,600 100,000 $25,000
President
David N. DeBaene 2001 $87,500 $ 0 100,000 $25,000
Subsidiary President (1)
----------
(1) The Company's Board of Directors accepted the resignation of Mr. DeBaene
from his position as President of J.D. American Workwear, Inc., on December
15, 2000. Daniel L. Hefner was named President in September 2002.
The Company does not have any annuity, retirement, pension, deferred or
incentive compensation plan or arrangement under which any executive officers
are entitled to benefits, nor does the Company have any long-term incentive plan
pursuant to which performance units or other forms of compensation are paid.
Executive officers who qualify will be permitted to participate in the Company's
1995 Stock Option Plan, which was adopted in February 1995. See "Stock Option
Plan." Executive officers may participate in group life, health and
hospitalization plans if and when such plans are available generally to all
employees. All other compensation consisted solely of health care premiums.
EMPLOYMENT AGREEMENTS
The Company signed an employment agreement with Daniel L. Hefner on June 1,
2000 containing a base salary of $60,000; a minimum cash bonus of $15,000 per
year and a 4% annual increase of the base pay. Stock options are granted on the
signing and June 1 of each contract year at the rate of 100,000 common share
equivalents. The contract also provides for a $750 per month car allowance and
the payment of all insurance, fuel and maintenance costs and all perquisites
related to health, dental, life or disability as may be offered to the executive
management staff. All other provisions of the previous contract related to
capital raises or warrant or exercise revenue were omitted except for the
termination provisions stated above.
13
DIRECTOR COMPENSATION
Directors of the Company who are not employees or consultants do not
receive any compensation for their services as members of the Board of
Directors, but are reimbursed for expenses incurred in connection with their
attendance at meetings of the Board of Directors.
COMPENSATION COMMITTEE
Robert E. Maxwell, Daniel L. Hefner and Frank Puissegur are members of the
Compensation Committee, which reviews and makes recommendations with respect to
compensation of officers, employees and consultants, including the granting of
options under the Company's 1995 Stock Option Plan, the NonQualifying Stock
Option Plan aproved effective July 10,2002 and the Employee Stock Incentive Plan
approved effective May 27,2003.
EMPLOYEE STOCK OPTION PLAN
The 1995 Stock Option Plan. The Company's 1995 Stock Option Plan (the
"Plan") adopted by the Company's Board of Directors in February 1995 and by the
stockholders in July 1995 provides for the issuance of options to employees,
officers and, under certain circumstances, directors of and consultants to the
Company ("Eligible Participants"). Options granted under the plan may be either
"incentive stock options" ("ISOs") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or "nonqualified stock options"
("NQSOs"). The Plan does not provide for the issuance of stock appreciation
rights but does permit the granting of restricted and non-restricted stock and
deferred stock awards. A total of 250,000 shares of Common Stock were originally
reserved for issuance under the Plan; however, in January 1998, the Board of
Directors voted to amend the Plan and reserve for issuance under the Plan an
additional 500,000 shares, which amendment was ratified by the stockholders of
the Company at the Annual Meeting of Stockholders held April 15, 1998. The plan
was further amended at an Annual Shareholders meeting December 15, 2000 at which
time an increase of 1,250,000 shares were ratified. The Plan was also amended on
January 21, 2003 by the stockholders at which time an increase of 1,500,000
shares were ratified for a total of 3,500,000 shares. The Compensation Committee
of the Board of Directors administers the Plan. The Committee has sole
discretion and authority, consistent with the provisions of the Plan, to select
the Eligible Participants to whom Options will be granted under the Plan, the
number of shares which will be covered by each Option and the form and terms of
the agreement to be used.
All employees and officers of the Company (including members of the Committee)
are eligible to participate in the Plan. Directors are eligible to participate
only if they have been declared to be "eligible directors" by resolution of the
Board of Directors.
Options. The Committee is empowered to determine the exercise price of Options
granted under the Plan, but the exercise price of ISOs must be equal to or
greater than the fair market value of a share of Common Stock on the date the
Option is granted (110% with respect to option holders who own at least 10% of
the outstanding Common Stock). The exercise price of NQSOs granted under the
Plan must not be less than 85% of the fair market value of the Common Stock on
the date the Option is granted. The Committee has the authority to determine the
time or times at which Options granted under the Plan become exercisable, but
the Options expire no later than ten years from the date of grant (five years
with respect to Option holders who own at least 10% of the outstanding Common
Stock of the Company). The Options are nontransferable, other than by will and
the laws of descent, and generally may be exercised only by an employee while
employed by the Company or within 90 days after termination of employment (one
year from termination resulting from death or disability). The compensation
committee has the authority to waive payment of the exercise price of stock
options issued under the plan.
NONQUALIFYING STOCK OPTION PLAN
On July 10, 2002 the Company adopted a Non-qualifying Stock Option/ Stock
Appreciation Rights Plan and reserved 7,000,000 common shares of stock for
employees officers and consultants. These options are granted by the Board at
their discretion. 50,000 options were granted during fiscal 2003.
EMPLOYEE STOCK INCENTIVE PLAN (SUBSEQUENT EVENT)
Effective May 27, 2003, the Company adopted an employee stock incentive plan
(the "Plan") for the year 2003 that authorizes up to 15,000,000 shares of common
stock for grants of both incentive stock options and non-qualified stock options
to designated officers, employees, and certain non-employees. Options granted
under the Plan must be exercised within 10 years of the date of grant. The
exercise price of options granted may not be less than 85 percent of the fair
market value of the stock. As of May 29, 2003, there were no options granted
under this Plan.
Effective May 27, 2003, the Company also adopted a non-employee directors and
consultants retainer stock plan for the year 2003. This plan authorizes up to
5,000,000 shares of common stock to be issued in the amount of compensation for
services to directors and consultants at the deemed issuance price of $.04 per
share. As of May 29, 2003, there were no options issued under this plan.
At February 28, 2003, the Company did not have any long-term incentive
plans nor had it awarded any restricted shares to any Named Executive Officer.
The table set forth below contains information with respect to the award of
stock options during the fiscal year ended February 28, 2003 to the Named
Executive Officers covered by the Salary Compensation Table.
14
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(individual grants)
Number of % of Total
Securities Options/SAR's Exercise
underlying Granted to or Base
Options/SAR's Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) Date
---- ------- ----------- ------ ----
Daniel L. Hefner 100,000 11.76 $0.286 June 1, 2007
Daniel L. Hefner 200,000 23.53 $0.242 Exercised
Barbara Maxwell 200,000 23.53 $0.242 Exercised
R. Beimel 200,000 23.53 $0.242 Exercised
N. Birmingham 150,000 17.65 $0.242 Exercised
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth, for each Named Executive Officer in the
Summary Compensation Table who holds stock options, the number of shares
acquired pursuant to the exercise of stock options during fiscal 2003, the
number of stock options held on February 28, 2003 and the realizable gain of
stock options that are "in-the-money."
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year End At Fiscal Year End (1)
Shares --------------------------- ---------------------------
Acquired or Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercised (#) Realized (#) (#) $ $
---- ------------- -------- ----------- ------------- ----------- -------------
Daniel L. Hefner 100,000 0 100,000 0 0 0
----------
(1) Based upon the closing price of the Common Stock as quoted on the Over The
Counter Bulletin Board on February 28, 2003 of $0.06 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of May 15, 2003, by: (i)
each director and nominee for director of the Company, (ii) each Named Executive
Officer, (iii) all directors and executive officers of the Company as a group,
and (iv) each person known to the Company beneficially owning more than 5% of
the outstanding Common Stock. Except as otherwise indicated, the persons named
in the table have sole voting and investment power with respect to all of the
Common Stock owned by them.
15
Name and Address or Amount and Nature of Percentage
Number in Group Beneficial Ownership (1) of Class (2)
--------------- ------------------------ ------------
Directors and Executive Officers
Robert E. Maxwell (3) 11,147,342 38.15%
Frank D. Puissegur 0 **
Daniel L. Hefner (5)
1400 Chamber Dr.
Bartow, FL 9,511,110 32.55%
All Directors and Executive
Officers as a Group (3 persons) 20,658,452(6) 70.70%
International Commerce and
Finance, Inc.
Tampa, FL 7,970,000 27.28%
FMW (4) 10,423,982 35.68%
Bartow, Florida
----------
(**) less than 1%
(1) In accordance with Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, a person is deemed to be the beneficial owner of a
security for purposes of the rule if he or she has or shares voting power
or dispositive power with respect to such security or has the right to
acquire such ownership within sixty days. As used herein, "voting power" is
the power to vote or to direct the voting of shares, and "dispositive
power" is the power to dispose or direct the disposition of shares,
irrespective of any economic interest therein.
(2) In calculating the percentage ownership for a given individual or group,
the number of shares of Common Stock outstanding includes unissued shares
subject to options, warrants, rights or conversion privileges exercisable
within sixty days held by such individual or group, but are not deemed
outstanding by any other person or group.
(3) Includes 723,360 shares of Common Stock held by his spouse Barbara Maxwell.
Includes 10,423,982 shares held in FMW of which Mr. Maxwell is beneficial
owner.
(4) Stock issued for extinguishing $531,000 of long-term debt.
(5) Includes (a) 300,000 shares of Common Stock, which may be acquired pursuant
to currently exercisable options (b) 1,241,110 shares of Common Stock held
personally and, (c) 7,970,000 shares of Common Stock beneficially owned as
the President of International Commerce and Finance, Inc.
(6) Includes 400,000 shares of Common Stock subject to options.
The Company has two classes of preferred stock outstanding comprised of 102
shares of Series A Preferred Stock and 3,718 shares of Series B Preferred Stock.
Each outstanding class of preferred stock has voting rights and is convertible
into Common Stock. Each share of Series A Preferred Stock converts to 1,289
shares of Common Stock and votes on an as converted basis. 3,207 shares of
Series B Preferred Stock is convertible into 641,400 shares of Common Stock and
511 Series B Preferred Shares convert into 511,000 shares of Common Stock and
votes on an as converted basis.
Gerald Hoak, owner of 20 shares or 19.61% of Series A Preferred Stock, and
Merit Capital Associates, owner of 40 shares or 39.22% of Series A Preferred
Stock are the only owners of more than 5% of the class. No director or officer
is the beneficial owner of any of the Series A or Series B Preferred Stock.
Beneficial Voting Power Held
The following table sets forth the voting power in the Company's equity
securities, as of February 28, 2003 held by: (i) each director of the
Company,(ii) each Named Executive Officer, (iii) all directors and executive
officers as a group, and (iv) each person known by the Company to own more than
5% of any class of outstanding equity security of the Company. The voting power
set forth in this table is the beneficial voting power held, directly and
indirectly, by
16
such person as of the date indicated assuming no conversion of the preferred
stock (i.e., includes shares that may be acquired within 60 days by reason of
option or warrant exercise but not those that could be obtained upon conversion
of preferred stock).
Percent of Outstanding
Name Voting Power Held(1)
---- ----------------------
Directors and Executive Officers
Robert E. Maxwell........................................ 38.15%
Frank Puissegur ......................................... *
Daniel L. Hefner (3)..................................... 32.55%
All directors and executive officers
as a group (3 persons)................................... 70.70%
FMW (2).................................................. 35.68%
International Commerce and Finance (4)................... 27.28%
----------
* Less than 1%
(1) Based upon 29,219,158 outstanding shares of common stock, 102 outstanding
shares of Series A Preferred Stock and 3718 outstanding shares of Series B
Preferred Stock. Each share of Common Stock is entitled to one vote per
share. Each outstanding share of Series A Preferred Stock is entitled to
1,289 votes. 3,207 shares of Series B Preferred Stock are entitled to 200
votes per share and 511 shares of Series B Preferred are entitled 1,000
votes each. Accordingly, as of Feb 28, 2003, the Series A Preferred Stock
and Series B Preferred Stock are entitled to an aggregate of 131,478 votes
and 1,152,400 votes, respectively. Voting rights are calculated in the same
manner described in footnote 2 to table above disclosing the Security
Ownership of Management and Certain Beneficial Owners ("Beneficial
Ownership Table"). Totals exceed 100% due to such calculations and
overlapping beneficial voting rights held between holders as set forth
herein.
(2) FMW was awarded 10,423,982 shares for acceptance of $531,000 of debt.
(3) Consisting of 300,000 votes upon exercise of currently exercisable options
to purchase Common Stock, 1,241,110 shares of Common Stock held and
7,970,000 shares of Common Stock beneficially owned as President of
International Commerce and Finance, Inc.
(4) Consisting of 7,970,000 shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
A Stockholders Agreement dated April 9, 1998 was entered into among ULLICO, the
Company, David N. DeBaene, Annette DeBaene, Norman DeBaene, Thomas Lisi, and
Steve Panneton (each, a "Holder"). The Stockholders Agreement provides that the
Company shall have a right of first refusal before any Holder may transfer any
shares of Common Stock. ULLICO has a right of second refusal and co-sale rights,
if the Company does not elect to buy all of the securities it is offered. If
ULLICO enters into an agreement to transfer, sell or otherwise dispose of all of
its Preferred Stock, Warrants and any Common Stock issued upon conversion or
exercise of the former (such agreement referred to as a "Tag-Along Sale"), each
Holder has the right to participate in the Tag-Along Sale. If ULLICO, alone or
with another person, accepts an offer from any party who is unaffiliated with it
to purchase any of ULLICO's shares which results in such party having the
ability to elect a majority of the Company's Board of Directors, then, at the
request of ULLICO, each Holder shall sell all shares of Common Stock held by
such Holder (referred to as a "Drag-Along Sale").
During the year ended February 28, 2003, two executives who are stockholders of
the Company deferred approximately $130,000 of compensation earned during the
year. The balance due to stockholders at February 28, 2003 totaled $178,394. The
note is unsecured, non-interest bearing, and has no specific repayment terms.
During the year ended February 28, 2003, the Company issued 462,500 shares of
common stock to an employee valued at $74,650 for services rendered. The Company
also issued 200,000 shares of common stock to a related party valued at $48,400
for services rendered.
The Company also issued 566,666 shares of common stock to a related company
valued at $55,000 for a pledge of assets and guarantee of a loan. This related
company is 100 percent owned by the president and chief executive officer of the
Company.
During the year ended February 28, 2003, the Company wrote off a loan receivable
balance of $31,234, which was due from a stockholder as additional compensation.
The above amounts are not necessarily indicative of the amounts that would have
been incurred had comparable transactions been entered into with independent
parties.
17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
List of Exhibits
(a) The exhibits that are filed with this report or that are incorporated
herein by reference are set forth in the Exhibit Index appearing on page
E-1.
(b) Reports on Form 8-K
ITEM 14. 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.
Certification by each Director and executive officer has been executed.
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN COMMERCE SOLUTIONS, INC.
Date: June 6, 2003 By: /s/ Daniel L. Hefner
------------------------------------
Daniel L. Hefner, President
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBAENES-OXLEY ACT OF 2002
In connection with the Annual Report of American Commerce Solutions, Inc.
(the 'Company') on Form 10-KSB for the year ended February 28, 2003, as filed
with the Securities and Exchange Commission on the date hereof (the 'Report'),
each of the undersigned officers of the Company certifies, pursuant to 18
U.S.C.Sction 1350, as adopted pusuant to Section 906 of the Sarbaenes-Oxley Act
of 2002, that to such officer's knowledge: Section 13(a)
(1) The Report fully complies with the requirements of Section 13 (a) or
Section 15 (d) of the Securities and Exchange Act of 1934: and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company as of the dates and for the periods expressed in the
Report.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Robert E. Maxwell Chairman of the Board and Director June 11,2003
--------------------------
Robert E. Maxwell
/s/ Daniel L. Hefner Chief Executive Officer, President
and Director June 11,2003
--------------------------
Daniel L. Hefner
/s/ Frank D. Puissegur Chief Financial Officer (Principal
-------------------------- Financial Officer) and Director June 11,2003
Frank D. Puissegur
Certifications
SECTION 302
I, Frank D. Puissegur, certify that:
1. I have reviewed this annual report on Form 10-KSB of American Commerce
Solutions, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date June 11, 2003 /s/ Frank D. Puissegur
----------------------------------------
Frank D. Puissegur
Chief Financial Officer
----------------------------------------
Title
I, Daniel L. Hefner, certify that:
1. I have reviewed this annual report on Form 10-KSB of American Commerce
Solutions, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date June 11, 2003 /s/ Daniel L. Hefner
----------------------------------------
Daniel L. Hefner
Chief Executive Officer
----------------------------------------
Title
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
(1) An annual report covering the registrant's last fiscal year ended February
28,2002 was sent to security holders of the registrant in January 2003.
(2) A proxy statement, proxies, and other proxy soliciting material was sent to
the registrant's shareholders during the past fiscal year. The Company held
its annual shareholders meeting on January 21, 2003.
American Commerce Solutions, Inc. and Subsidiary
Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
Contents
Independent Auditors' Report on Consolidated Financial Statements,
February 28, 2003........................................................F-1
Independent Auditors' Report on Consolidated Financial Statements,
February 28, 2002........................................................F-2
Consolidated Financial Statements:
Consolidated Balance Sheet...............................................F-3
Consolidated Statements of Operations....................................F-4
Consolidated Statements of Changes in Stockholders' Equity...............F-5
Consolidated Statements of Cash Flows..............................F-7 - F-8
Notes to Consolidated Financial Statements........................F-9 - F-24
Independent Auditors' Report
Stockholders and Board of Directors
American Commerce Solutions, Inc. and Subsidiary
Bartow, Florida
We have audited the accompanying consolidated balance sheet of American Commerce
Solutions, Inc. and Subsidiary as of February 28, 2003 and the related
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the management of American Commerce Solutions, Inc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2003 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Commerce Solutions, Inc. and Subsidiary as of February 28, 2003 and the results
of its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements of American Commerce
Solutions, Inc. and Subsidiary have been prepared assuming that the Company will
continue as a going concern. As more fully described in Note 2, the Company has
had recurring operating losses since inception, has negative working capital as
of February 28, 2003, has used approximately $504,700 of cash in operations for
the year ended February 28, 2003, and is in default on several loans. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also disclosed in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
April 11, 2003, except for the last two paragraphs of Note 14, as to which the
date is May 29, 2003
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of American Commerce Solutions, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity, and cash flows of American Commerce Solutions, Inc. (a
Delaware Corporation) and Subsidiary for the year ended February 28, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations, changes in
stockholders' equity, and cash flows referred to above present fairly, in all
material respects, the results of operations and cash flows of American Commerce
Solutions, Inc. and Subsidiary for the year ended February 28, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying 2002 consolidated statements of operations, changes in
stockholders' equity, and cash flows have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the 2002 financial
statements (which is not presented herein), the Company's significant operating
losses and negative working capital raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding these matters were
also discussed in Note 2 to the 2002 financial statements. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Respectfully submitted,
/s/ BELLA, HERMIDA, GILLMAN, HANCOCK & MUELLER
Certified Public Accountants
Plant City, Florida
May 23, 2002
F-2
American Commerce Solutions, Inc. and Subsidiary
Consolidated Balance Sheet
February 28, 2003
Assets
Current assets:
Cash $ 14,483
Accounts receivable, net of allowance of $5,190 169,040
Inventory 103,630
Other receivables 77,814
Other current assets 41,908
------------
Total current assets 406,875
------------
Property and equipment, net of accumulated depreciation of $823,999 5,245,655
------------
Other assets:
Prepaid loan costs 32,430
Long-term receivable 142,675
Real property held for resale 243,150
------------
Total other assets 418,255
------------
$ 6,070,785
============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable and capital leases $ 828,030
Bank overdraft 14,187
Accounts payable 503,459
Accrued expenses 46,854
Accrued interest 157,442
Due to stockholders 178,394
Deferred revenue 36,425
------------
Total current liabilities 1,764,791
------------
Notes payable and capital leases, net of current portion 1,269,691
------------
Stockholders' equity:
Preferred stock, total authorized 1,000,000 shares:
Series A, cumulative and convertible; $.001 par value;
600 shares authorized; 102 shares issued and
outstanding; liquidating preference of $376,125
Series B, cumulative and convertible; $.001 par value;
3,950 shares authorized; 3,718 shares issued and
outstanding; liquidating preference of $3,718,180 3
Series C, cumulative and convertible; $.001 par value;
20,000 shares authorized; 0 shares issued and outstanding
Common stock; $.002 par value; 75,000,000 shares
authorized; 29,741,158 shares issued; 29,219,158 shares
outstanding 59,482
Additional paid-in capital 15,233,137
Stock subscription receivable (10,000)
Treasury stock, at cost (265,526)
Accumulated deficit (11,918,918)
Loan costs (61,875)
------------
Total stockholders' equity 3,036,303
------------
$ 6,070,785
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Operations
Year Ended February 28,
----------------------------
2003 2002
------------ ------------
Net sales $ 2,211,984 $ 1,941,855
Cost of goods sold 1,422,043 1,104,708
------------ ------------
Gross profit 789,941 837,147
------------ ------------
Selling, general and administrative expenses 1,584,470 2,043,752
Impairment of property and equipment 80,000
Gain on forgiveness of debt (812,014)
------------ ------------
852,456 2,043,752
------------ ------------
Loss from operations (62,515) (1,206,605)
------------ ------------
Other income (expense):
Other income 24,153 22,564
(Loss) gain on sale of assets (7,774) 14,547
Interest expense (301,774) (297,235)
------------ ------------
Total other income (expense) (285,395) (260,124)
------------ ------------
Net loss from operations (347,910) (1,466,729)
------------ ------------
Discontinued operations:
Loss from discontinued operations (59,350)
Loss on disposal of subsidiary (16,840)
------------ ------------
Net loss from discontinued operations (76,190)
------------ ------------
Net loss $ (347,910) $ (1,542,919)
============ ============
Net loss from continuing operations per common share $ (.02) $ (.14)
============ ============
Net loss from discontinued operations per common share $ (.00) $ (.01)
============ ============
Net loss per common share $ (.02) $ (.15)
============ ============
Weighted average number of common shares outstanding 17,991,670 10,300,282
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years Ended February 28, 2003 and 2002
Common Stock Preferred Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Balance, February 28, 2001 10,717,589 $ 21,435 8,117 $ 8
Common shares issued for services 25,000 50
Common shares issued for debt repayment 96,690 194
Common shares surrendered for stock
receivable (10,000) (20)
Preferred shares converted 4,850,065 9,700 (4,808) (5)
Common shares issued for accrued compensation 2,030,000 4,060
Common stock acquired in sale of subsidiary
Stock receivable paid in services
Stock receivable paid in cash
Common shares retired (358,000) (716)
Preferred shares issued for Series B dividends 264
Net loss
------------ ------------ ------------ ------------
Balance, February 28, 2002 17,351,344 34,703 3,573 3
Common shares issued for services 1,415,832 2,831
Common shares issued for debt repayment 10,423,982 20,848
Common shares issued for compensation 550,000 1,100
Cash received for stock subscription receivable
Preferred shares issued for Series B dividends 247
Loan cost from issuance of common stock
Amortization of loan cost
Net loss
------------ ------------ ------------ ------------
Balance, February 28, 2003 29,741,158 $ 59,482 3,820 $ 3
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
Additional Stock
Paid-In Subscription Accumulated Treasury Loan
Capital Receivable Deficit Stock Cost Total
------------ ------------ ------------ ------------ ------------ ------------
$ 14,229,367 $ (477,000) $(10,028,089) $ 3,745,721
4,450 4,500
82,007 82,201
(2,980) 10,000 7,000
(9,695)
361,340 365,400
$ (525,588) (525,588)
442,000 442,000
5,000 5,000
(259,346) 260,062
(1,542,919) (1,542,919)
------------ ------------ ------------ ------------ ------------ ------------
14,405,143 (20,000) (11,571,008) (265,526) 2,583,315
185,219 188,050
510,775 531,623
132,000 133,100
10,000 10,000
$ 89,259
(27,384)
(347,910) (347,910)
------------ ------------ ------------ ------------ ------------ ------------
$ 15,233,137 $ (10,000) $(11,918,918) $ (265,526) $ 61,875 $ 3,098,178
============ ============ ============ ============ ============ ============
F-6
American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Year Ended February 28,
--------------------------
2003 2002
----------- -----------
Operating activities
Net loss $ (347,910) $(1,542,919)
----------- -----------
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 312,494 294,314
Impairment of property and equipment 80,000
(Recovery) provision for doubtful accounts (18,125) 731
Provision for losses on inventory 102,823
Stock issued for services and compensation 321,150 475,162
Loss on disposal of subsidiary 16,840
Loss (gain) on disposal of assets 7,774 (14,457)
Gain on forgiveness of debt (812,014)
Decrease (increase) in:
Accounts receivable 83,416 (73,134)
Inventory (28,544) 15,889
Other receivables and other assets (211,373) (11,354)
(Decrease) increase in:
Accounts payable and accrued expenses (30,802) 825,980
Deferred income 36,425
----------- -----------
Total adjustments (156,776) 1,529,971
----------- -----------
Net cash used by operating activities (504,686) (12,948)
----------- -----------
Investing activities
Decrease in long-term receivables (28,440)
Increase in long-term receivables 37,189 22,787
Cash sold in disposals (61,260)
Proceeds from sale of assets 14,000 9,089
Acquisition of property and equipment (31,841) (15,556)
----------- -----------
Net cash provided (used) by investing activities 19,348 (73,380)
----------- -----------
Financing activities
Increase (decrease) in bank overdrafts 13,909 (8,371)
Increase in due to stockholder 132,599
Proceeds from notes payable 1,135,811 152,651
Principal payments on notes payable and capital leases (806,706) (83,629)
Proceeds received on common stock receivable 10,000 5,000
----------- -----------
Net cash provided by financing activities 485,613 65,651
----------- -----------
Net increase (decrease) in cash 275 (20,677)
Cash, beginning of year 14,208 34,885
----------- -----------
Cash, end of year $ 14,483 $ 14,208
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Year Ended February 28,
----------------------
2003 2002
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 239,430 $ 168,798
========= =========
Supplemental schedule of noncash investing and financing activities:
During the year ended February 28, 2003, the Company transferred $499,700
from equipment held for resale to property and equipment. Also, the Company
transferred $75,121 from inventory to property and equipment.
During the year ended February 28, 2003, the Company transferred $15,000 of
merchandise from inventory to equipment held for resale.
During the year ended February 28, 2003, the Company exchanged $381,437 of
accrued expenses for a note payable.
During the year ended February 28, 2003, the Company exchanged $437,830 and
$93,793 of debt and related accrued interest, respectively, for common
stock.
The following are noncash investing and financing activities as of February
28, 2002:
Securities issued for debt repayment $ 44,500
=========
Securities issued for payables $ 381,438
=========
Securities surrendered $ 3,000
=========
Common stock acquired in sale of subsidiary $ 156,532
=========
In connection with the disposal of all of the common stock of Rhode Island
Truck and Equipment Corp., the Company reacquired 155,000 shares of its
common stock in exchange for net assets valued at $156,532 during the year
ended February 28, 2002.
Common stock acquired in sale of operations $ 369,056
=========
Notes payable issued in sale of operations $ 43,115
=========
In connection with the disposal of the assets of JD American Workwear, Inc.,
the Company reacquired 725,000 shares of its common stock and issued notes
payable of $43,115 in exchange for net assets valued at $325,941 during the
year ended February 28, 2002.
Mortgage paid with proceeds from sale of building $ 106,323
=========
Notes payable issued for equipment $ 106,212
=========
Notes receivable issued to President of JD American Workwear, Inc. $ 40,000
=========
Notes receivable assigned for accounts payable $ 42,291
=========
Notes payable and accrued interest refinanced $ 185,229
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
1. BACKGROUND INFORMATION
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 JD American Workwear, Inc. In
December 2000, the stockholders voted at the annual stockholders meeting to
change the name of JD 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.
2. GOING CONCERN
The Company has incurred substantial operating losses since inception and has
used approximately $504,700 of cash in operations for the year ended February
28, 2003. The Company recorded losses from continuing operations of $347,910 and
$1,466,729 for the years ended February 28, 2003 and 2002, respectively. Current
liabilities exceed current assets by $1,357,916 at February 28, 2003.
Additionally, the Company has been unable to meet obligations to its creditors
as they have become due and is in default on several notes payable. The ability
of the Company to continue as a going concern is dependent upon its ability to
reverse negative operating trends, raise additional capital, and obtain debt
financing.
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.
F-9
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed are:
The accompanying consolidated financial statements include the
activity of the Company and its wholly owned subsidiary. All
intercompany transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. Accounts receivable consist of billed services or
products. The Company records an allowance for doubtful accounts to
allow for any amounts that may not be recoverable, which is based on
an analysis of the Company's prior collection experience, customer
credit worthiness, and current economic trends. Based on management's
review of accounts receivable, an allowance for doubtful accounts of
$5,190 is considered adequate at February 28, 2003. Receivables are
determined to be past due based on payment terms of original invoices.
The Company does not charge significant amounts of interest on past
due receivables. There were no receivables on non-accrual of interest
status at February 28, 2003.
Inventories are stated at the lower of cost or market. Cost is
determined on a standard cost basis that approximates the first-in,
first-out method; market is determined based on net realizable value.
Appropriate consideration is given to obsolescence, excessive levels,
deterioration, and other factors in evaluating net realizable value.
F-10
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment are stated at cost. Depreciation and
amortization expense are calculated using the straight-line and
accelerated methods of accounting over the following estimated useful
lives of the assets:
Building and improvements 15 - 39 years
Machine and equipment 5 - 30 years
Office furniture and equipment 5 - 10 years
Trucks and vehicles 5 - 7 years
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment
are sold or otherwise disposed of, the asset account and related
accumulated depreciation account are relieved, and any gain or loss is
included in operations.
Direct costs incurred with the issuance of notes payable are deferred
and amortized over the life of the guaranty. As of February 28, 2003,
the Company incurred amortization expense of $30,336.
The Company records amounts billed to customers for shipping and
handling costs as sales revenue. Costs incurred by the Company for
shipping and handling are included in cost of sales.
Sales are recorded when products, repairs, or parts are delivered to
the customer. Provisions for discounts and rebates to customers,
estimated returns, allowances, and other adjustments are provided for
in the same period the related sales are recorded. No products or
parts are delivered with any contingencies except for defects.
The Company has adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
financial accounting and reporting for the impairment of long-lived
assets, excluding goodwill and intangible assets, to be held and used
or disposed of. The adoption of SFAS No. 144 did not have an impact on
the Company's financial position or results of operations. In
accordance with SFAS No. 144, the carrying values of long-lived assets
are periodically reviewed by the Company and impairments would be
recognized if the expected future operating non-discounted cash flows
derived from an asset were less than its carrying value and if the
carrying value is more than the fair value of the asset. During the
year ended February 28, 2003, the Company recorded $80,000 in asset
impairment. At February 28 2003, the Company did not have any asset
that it considered impaired.
F-11
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 provides that expense equal to
the fair value of all stock-based awards on the date of grant be
recognized over the vesting period. Alternatively, this statement
allows entities to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB Opinion No. 25), whereby compensation expense is
recorded on the date the options are granted to employees equal to the
excess of the market price of the underlying stock over the exercise
price. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma disclosure of the provisions
of SFAS No. 123.
Net loss per common share is computed by dividing net loss to common
stockholders by the weighted average number of shares of common stock
outstanding for each fiscal year. Common stock equivalents are not
considered in loss years because they are anti-dilutive.
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management. The
respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, accounts receivable, accounts payable, and
accrued expenses. Fair values were assumed to approximate carrying
values for these financial instruments since they are short-term in
nature and their carrying amounts approximate fair values or they are
receivable or payable on demand. The fair value of the Company's notes
payable is estimated based upon the quoted market prices for the same
or similar issues or on the current rates offered to the Company for
debt of the same remaining maturities.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
consolidated financial statements carrying amounts of existing assets
and liabilities and their respective income tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that included the enactment date.
F-12
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company records stock as issued at the time consideration is
received or the obligation is incurred.
On April 1, 2002, the Company adopted SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." SFAS No. 145 rescinded the following
pronouncements: SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt"; SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements"; and SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers." In addition, SFAS No. 145 amends
SFAS No. 13, "Accounting for Leases," and makes technical corrections
and amendments to various existing pronouncements. The adoption of
SFAS No. 145 resulted in the Company classifying the gain on
forgiveness of debt as part of income from operations on the Company's
consolidated statements of operations.
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for
the Company for exit or disposal activities that are initiated after
December 31, 2002. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF Issue No. 94-3, a liability for an
exit cost, as defined, was recognized at the date of an entity's
commitment to an exit plan. The Company will adopt SFAS No. 146 for
all exit or disposal activities that are initiated after December 31,
2002, and does not expect this statement to have a material effect on
the consolidated financial statements.
In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45). The
interpretation elaborates on the existing disclosure requirements for
most guarantees, including loan guarantees such as standby letters of
credit. It also clarifies that, at the time a company issues a
guarantee, the company must recognize an initial liability for the
fair value, or market value, of the obligations it assumes under the
guarantee and must disclose
F-13
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that information in its interim and annual financial statements. The
provisions related to recognizing a liability at inception of the
guarantee for the fair value of the guarantor's obligations does not
apply to product warranties or to guarantees accounted for as
derivatives. The initial recognition and initial measurement
provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are
effective for financial statements of periods ending after December
15, 2002. The Company believes the adoption of the recognition and
measurement provisions of FIN 45 will not have a material impact on
its financial position, results of operations, or cash flows.
FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," which is effective for the Company as of
January 1, 2003. This statement amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
In April 2003, FASB issued SFAS No. 149, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for contracts
entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. This statement amends
and clarifies financial accounting and reporting for derivative
instruments including certain instruments embedded in other contracts
and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Company will adopt
this statement and does not expect it to have a material effect on its
consolidated financial statements.
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity," which is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. The Company will adopt SFAS No. 150 and does
not expect it to have a material impact on its consolidated financial
statements.
F-14
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
4. INVENTORIES
Inventories consist of the following at February 28, 2003:
Work-in-process $ 23,661
Finished goods 79,969
-----------
Total inventory $ 103,630
===========
During the year ended February 28, 2003, management evaluated its estimate of
the net realizable value of inventories based on actual sales. As a result, a
provision for loss on inventories of $102,823 was charged to cost of sales
during the fourth quarter of the year ended February 28, 2003.
During the year ended February 28, 2003, management determined that $75,121
should be reclassified to property and equipment as there is no resale market
for these items and the Company could better use these items within operations.
5. PROPERTY, EQUIPMENT, AND INTANGIBLE ASSETS
Property, equipment, and intangible assets at February 28, 2003 consist of:
Land $ 186,045
Building and improvements 2,851,837
Machinery and equipment 2,382,579
Office furniture and equipment 194,768
Trucks and automobiles 320,117
Equipment held under capital lease 134,308
-----------
6,069,654
Less accumulated depreciation 823,999
-----------
$ 5,245,655
===========
Depreciation expense for the years ended February 28, 2003 and 2002 was $312,494
and $292,314, respectively. Depreciation expense includes amortization of
equipment held under a capital lease in the amount of $8,954 for the each of the
years ended February 28, 2003 and 2002.
F-15
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
6. NOTES RECEIVABLE
Notes receivable, included in other receivables and long-term receivables, at
February 28, 2003 consist of the following:
Note receivable; 10.0% interest; due on demand; unsecured $ 35,473
Notes receivable; interest ranging between 7.25% and 9.0%;
unsecured; guaranteed by a stockholder 170,122
---------
205,595
Less current portion 65,473
---------
$ 140,122
7. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases at February 28, 2003 consist of:
Notes payable to the parents of the former president of the Company;
stockholders; 10.0% interest; matures May 2003; payable in
monthly installments of $5,494; unsecured $ 185,291
Notes payable to the parents and sister of the former president of the
Company; stockholders; 10.0% interest; matures May 2003;
monthly interest payments beginning January 15, 2003; unsecured 31,697
Notes payable; 5.0% to 18.0% interest; due on demand, including
$242,798 to stockholders; $145,000 past maturity; $10,000
collateralized by accounts receivable 362,239
Notes payable, individuals; matured April and May 2001; interest
payable in the amount of $10,000 each, in addition to principal;
unsecured 20,000
Note payable to a corporation related through common stockholders;
0.0% to 7.0% interest; $30,000 past maturity; $2,882 due on
demand; unsecured 32,882
Note payable; 9.0% interest; monthly principal and interest payment of
$670; matures April 1, 2006; collateralized by a vehicle 22,094
Capitalized lease on equipment; 8.0% interest; monthly payments of
$2,728; matures October 1, 2004 47,285
F-16
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
7. NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
Convertible subordinated notes due to investors; 11.0% interest; the
notes are subordinate in rights of payment to all indebtedness of the
Company outstanding as of August 15, 1995 or to be incurred in
the future; matured September 30, 1998; unsecured 37,500
Convertible note payable to investor; 15.0% interest; the note is
convertible at $.70 per share; in conjunction with the note, the
Company issued 3,500 warrants for the purchase of common stock at
$2.00 per share; the warrants expired on March 1, 2002; matured
June 1, 2002; unsecured 4,050
Note payable to investor; interest payable in 2,000 shares of stock until
the maturity date, and at 20 percent thereafter; matured September 7,
2000; unsecured 2,000
Note payable to Internal Revenue Service pursuant to a Chapter 11
reorganization plan; 8.0% interest; secured by tax lien; monthly
payments of $1,500 of principal and interest; matures on May 25,
2006 378,437
Note payable to Florida Department of Revenue pursuant to a
Chapter 11 reorganization plan; 5.0% interest; monthly payments of
$2,500 of principal and interest; matures by July 15, 2003 or
renewal of agreement 54,657
Note payable to stockholder; 15.25% interest; due January 3, 2004;
interest payments of $650; unsecured 50,000
Note payable to a financial institution; 7.5% interest; monthly principal
and interest payments of $8,166; collateralized by fixed assets, key
man life insurance policy, and 1,000,000 shares of common stock owned
by a stockholder; guaranteed by a stockholder; due
December 29, 2005 with a three-year balloon 869,589
-----------
2,097,721
Less current portion 828,030
-----------
$ 1,269,691
As of February 28, 2003, the notes payable listed above include $238,550 and are
currently in default.
F-17
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
7. NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
The aggregate principal maturing in subsequent years are:
Year Ending
February 28,
------------
2004 $ 828,030
2005 98,238
2006 826,633
2007 344,820
-----------
$ 2,097,721
Long-term debt includes a capital lease for equipment with a lease term through
October 2004. The obligation has been recorded in the accompanying consolidated
financial statements at the present value of future minimum lease payments,
discounted at eight percent. The total capitalized costs at February 28, 2003
and 2002 was $134,308. Related amortization included in accumulated depreciation
was $26,862 and $17,908 at February 28, 2003 and 2002, respectively.
The future minimum lease payments and the net present value of the future
minimum lease payments under the capital lease are as follows:
Year Ending
February 28,
------------
2004 $ 30,713
2005 16,572
-----------
Present value of future minimum lease payments 47,285
Less current portion 30,713
-----------
Long-term portion $ 16,572
===========
8. COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement with a key employee, the terms of which
expire in fiscal year 2004. Such agreements, which have been revised from time
to time, provide for minimum salary levels, adjusted annually for cost of living
increases, normal employment benefits, automobile allowances, stock options, as
well as bonuses, which may contain minimum and incentive components. The annual
commitment for future salaries at February 28, 2003, including minimum bonuses,
is approximately $125,000.
F-18
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
9. CONVERTIBLE PREFERRED STOCK
Holders of Series A convertible preferred stock vote on a converted basis with
the common stockholders on all matters to be brought to a vote of the
stockholders. Each share of Series A convertible preferred stock can be
converted into 1,289 shares of common stock. Dividends are payable in kind at
the Company's option at a rate of ten percent annually. Payments of annual
dividends have been deferred by the Company's Board of Directors on the
outstanding Series A shares because of losses sustained by the Company. As of
February 28, 2003, preferred dividends in arrears amounted to $118,377, or
$1,161 per share.
The Series B convertible preferred stock has rights to receive cumulative six
percent cash dividends in preference to the payment of dividends on all other
shares of capital stock of the Company. No dividends may be declared or paid on
any other shares of stock until the full amount of the cumulative dividends on
the Series B preferred stock has been paid. Each share of Series B convertible
preferred stock can be converted into 1,000 shares of common stock. Cumulative
dividends amounted to $193,635 and $117,926 at February 28, 2003 and 2002,
respectively. Dividends may be paid in stock through May 31, 2004 at a
conversion rate of $1.00 per share. For the years ended February 28, 2003 and
2002, 247 and 264 shares of preferred stock were paid in additional shares,
respectively.
Holders of Series B preferred stock vote on a converted basis with the common
stockholders on all matters to be brought to a vote of the stockholders. The
Series B preferred stockholders are entitled to elect one director out of the
seven authorized directors of the Company's board. If certain events occur or do
not occur, such as the failure to pay dividends to the Series B preferred
stockholders, the holders of the Series B preferred stock are entitled to elect
the smallest number of directors that will constitute a majority of the
authorized number of directors, immediately upon giving written notice.
10. CAPITALIZATION AND SUBSEQUENT EVENTS
Subsequent to year-end, the Company amended its articles of incorporation,
increasing the number of authorized shares of common stock from 30,000,000 to
75,000,000.
The Company's 1995 Stock Option Plan authorizes up to 3,500,000 shares of common
stock for grants of both incentive stock options and non-qualified stock options
to key employees, officers, directors, and consultants. Options granted under
the Plan must be exercised within ten years of the date of grant. The exercise
price of options granted may not be less than 85 percent of the fair market
value of the stock. Additionally, the Company issues stock options to executives
under their employment agreements.
F-19
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
10. CAPITALIZATION AND SUBSEQUENT EVENTS (CONTINUED)
On July 10, 2002, the Company adopted a Non-Qualified Option/Stock Appreciation
Rights Plan that authorizes 7,000,000 shares of common stock for grant to key
management employees or consultants. Options granted under the plan must be
exercised within ten years of the date of grant. The exercise price of options
shall not be less than par value and shall be determined by the Stock Option
Plan Committee and the Board of Directors.
A summary of the Company's stock option activity is as follows:
Weighted-Average
Number Exercise Price
of Shares Per Share
--------- ---------
Options outstanding, February 28, 2001 62,500 $1.57
Granted 200,000 0.51
Exercised 0 0.00
Expired, forfeited (150,000) 0.83
Options outstanding, February 28, 2002 112,500 0.57
Granted 900,000 0.23
Exercised (750,000) 0.24
Expired, forfeited 0 0.00
Options outstanding, February 28, 2003 262,500 0.36
At February 28, 2003, 262,500 options with a weighted-average contractual life
of 6.49 years were outstanding at exercise prices ranging from $.05 to $.57. All
outstanding options were fully vested and exercisable.
During the year ended February 28, 2003, the Company granted 900,000 options to
key executives and consultants, 750,000 of which were exercised immediately.
Total compensation expense recognized in conjunction with the exercise was
$181,500 in consulting expense.
During the year ended February 28, 2002, the Company granted 200,000 options to
two key executives in connection with their employment agreements. Total
compensation costs recognized for stock-based employee compensation awards in
conjunction with the exercise was $100,000 for the year ended February 28, 2002.
F-20
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
10. CAPITALIZATION AND SUBSEQUENT EVENTS (CONTINUED)
The following summarizes information about options granted during the years
ended February 28, 2003 and 2002:
Weighted-Average
Number Exercise Price
of Shares Per Share
--------- ---------
Options granted in 2002 with exercise
price below market price 200,000 $0.42
Options granted in 2003 with exercise
price below market price 150,000 $0.21
Stock-based compensation to non-employees is valued using the Black-Scholes
option pricing model. The Company uses the intrinsic value method under APB
Opinion No. 25 to account for stock option compensation granted to employees.
Had compensation costs been recognized under SFAS No. 123, the amount would have
been $195,482 and $90,320 for the years ended February 28, 2003 and 2002,
respectively.
The pro forma disclosures required under SFAS No. 123 are as follows:
2003 2002
------------ ------------
Net loss:
As reported $ (347,910) $ (1,542,919)
Pro forma $ (543,392) $ (1,633,239)
Loss per common share:
As reported $ (.02) $ (.15)
Pro forma $ (.03) $ (.16)
The following assumptions were used to estimate the fair value of stock options
using the Black-Scholes method:
2003 2002
------------ ------------
Dividend yield 0.00% 0.00%
Expected volatility 124.00% 399.00%
Average expected option life 8.34 years 5.00 years
Risk-free interest rate 1.75% 4.25%
F-21
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
10. CAPITALIZATION AND SUBSEQUENT EVENTS (CONTINUED)
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123," which provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for fiscal years
ending after December 15, 2002 and for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company
has decided to continue applying APB Opinion No. 25 (as permitted by SFAS No.
123 and SFAS No. 148). The required disclosures of the effects of SFAS No. 123
and SFAS No. 148 are included in the consolidated financial statements. Under
APB Opinion No. 25, the Company did not have any compensation expense for the
years ended February 28, 2003 and 2002, respectively.
11. INCOME TAXES
The Company has incurred significant operating losses since its inception and,
therefore, no tax liabilities have been incurred for the periods presented. The
amount of unused tax losses available to carryforward and apply against taxable
income in future years totaled approximately $13,500,000. The loss carryforwards
expire beginning in 2007. Due to the Company's continued losses, management has
established a valuation allowance equal to the amount of deferred tax asset
because it is more likely than not that the Company will not realize this
benefit.
Temporary differences giving rise to the deferred tax asset are as follows:
Unused operating loss carryforward $ 5,000,000
Excess depreciation for tax purposes over the amount
for financial reporting purposes (441,000)
------------
4,559,000
Valuation allowance (4,559,000)
------------
$ 0
============
F-22
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
11. INCOME TAXES (CONTINUED)
Differences between the federal benefit computed at a statutory rate and the
Company's effective tax rate and provision are as follows:
Statutory benefit $ (118,300)
State tax benefit, net of federal effect (12,600)
Non-deductible expenses 2,500
Increase in deferred income tax valuation allowance 128,400
----------
$ 0
==========
The Internal Revenue Code contains provisions that may limit the net operating
loss carryforwards available for use in any given year if significant changes in
ownership interest of the Company occur.
12. FORGIVENESS OF DEBT
During the year ended February 28, 2003, management of the Company negotiated
new debt financing, of which the proceeds of $875,000 were used to settle
outstanding debts and finance operations. The Company settled debt in the
amounts of $1,374,775 for $562,761, which resulted in a gain of $812,014. This
gain has been reflected as forgiveness of debt income in the accompanying
consolidated financial statements.
13. RELATED PARTY TRANSACTIONS
During the year ended February 28, 2003, two executives who are stockholders of
the Company deferred approximately $130,000 of compensation earned during the
year. The balance due to stockholders at February 28, 2003 totaled $178,394. The
note is unsecured, non-interest bearing, and has no specific repayment terms.
During the year ended February 28, 2003, the Company issued 462,500 shares of
common stock to an employee valued at $74,650 for services rendered. The Company
also issued 200,000 shares of common stock to a related party valued at $48,400
for services rendered.
The Company also issued 566,666 shares of common stock to a related company
valued at $55,000 for a pledge of assets and guarantee of a loan. This related
company is 100 percent owned by the president and chief executive officer of the
Company.
F-23
American Commerce Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
As of February 28, 2003 and for the
Years Ended February 28, 2003 and 2002
13. RELATED PARTY TRANSACTIONS (CONTINUED)
During the year ended February 28, 2003, the Company wrote off a loan receivable
balance of $31,234, which was due from a stockholder as additional compensation.
The above amounts are not necessarily indicative of the amounts that would have
been incurred had comparable transactions been entered into with independent
parties.
14. SUBSEQUENT EVENTS
On March 28, 2003, the Company entered into an agreement to sell and assign all
rights, title, and interest to certain of the Company's accounts receivable
existing at that date, and certain receivables arising in the future. In
exchange, the Company will immediately receive a discounted percent of approved
accounts receivable. These terms are based on guarantees of two stockholders and
collateralized by inventory and fixed assets. Management of the Company is
currently studying and determining the accounting treatment of this arrangement
in accordance with SFAS No. 140.
Effective May 27, 2003, the Company adopted an employee stock incentive plan
(the "Plan") for the year 2003 that authorizes up to 15,000,000 shares of common
stock for grants of both incentive stock options and non-qualified stock options
to designated officers, employees, and certain non-employees. Options granted
under the Plan must be exercised within 10 years of the date of grant. The
exercise price of options granted may not be less than 85 percent of the fair
market value of the stock. As of May 29, 2003, there were no options granted
under this Plan.
Effective May 27, 2003, the Company also adopted a non-employee directors and
consultants retainer stock plan for the year 2003. This plan authorizes up to
5,000,000 shares of common stock to be issued in the amount of compensation for
services to directors and consultants at the deemed issuance price of $.04 per
share. As of May 29, 2003, there were no options issued under this plan.
F-24
EXHIBIT INDEX
Sequentially
Incorporated Documents SEC Exhibit Reference Numbered
---------------------- --------------------- --------
3.1 Certificate of Incorporation of the As filed with the Registrant's N/A
Registrant, as amended Form SB-2, on October 27, 1995,
File No. 33-98486
3.2 By-Laws of the Registrant, as amended As filed with the Registrant's N/A
Form SB-2 on October 27,
1995, File No. 33-98486
4.1 Form of Warrant Agreement As filed with the Registrant's N/A
Form SB-2, on October 27, 1995,
File No. 33-98486
4.2 Form of Warrant of the Registrant As filed with the Registrant's Form N/A
issued in the Registrant's January SB-2 on October 27, 1995, File No.
1995 Private Placement 33-98486
4.3 Form of Unit Purchase Option issued As filed with the Registrant's Form N/A
to Merit Capital Associates, Inc. SB-2 on October 27, 1995, File No.
33-98486
4.4 Form of 11% Convertible Subordinated As filed with the Registrant's Form N/A
Note of the Registrant issued in the SB-2 on October 27, 1995, File No.
Registrant's August, 1995 Private 33-98486
Placement
4.5 Form of Warrant of the Registrant As filed with the Registrant's Form N/A
issued in the Registrant's August, SB-2 on October 27, 1995, File No.
1995 Private Placement 33-98486
4.6 Securities Purchase Agreement dated As filed with the Registrant's Form N/A
April 9, 1998 10KSB on June 13, 1999
4.7 Certificate of Designation of Series As filed with the Registrant's Form N/A
B Preferred Stock. 10 KSB on June 13, 1999
4.8 Stockholders' Agreement dated April As filed with the Registrant's Form N/A
9, 1998. 10 KSB on June 13, 1999
4.9 Registration Rights Agreement dated As filed with the Registrant's Form N/A
April 9, 1998 10 KSB on June 13, 1999
4.10 Warrant Certificate issued to ULLICO As filed with the Registrant's Form N/A
10 KSB on June 13, 1999
4.11 Escrow Agreement As filed with the Registrant's Form N/A
10 KSB on June 13, 1999
4.12 Certificate of Designations of Series As filed with the Registrant's N/A
A Preferred Stock Form 10-KSB on June 11, 1998
4.13 Certificate of Designation of Series As filed with the Registrant's Form N/A
C Preferred Stock 10-KSB on June 12, 2000
4.14 Amendment to the Articles of As filed with the Registrant's N/A
Incorporation of JD American Form10-KSB on June 14, 2001
Workwear, Inc. for name change to
American Commerce Solutions, Inc. and
the increase in authorized shares
10.2 Employment Agreement with Steven D. As filed with Registrant's Form N/A
Smith 10-KSB on July 19, 2001
10.3 Registrant's 1995 Stock Option Plan As filed with the Registrant's N/A
Form SB-2 on October 27, 1995,
File No. 33-98486
10.4 Form of Option Agreement under the As filed with the Registrant's Form N/A
Registrant's 1995 Stock Option Plan SB-2 on October 27, 1995, File No.
33-98486
10.5 Employment Agreement with Norman As filed with Registrant's Form N/A
Birmingham 10-KSB on June 12, 2000
10.6 Consulting Agreement with Richard As filed with Registrant's Form N/A
Sullivan 10-KSB on June 12, 2000
10.7 Option to Purchase Businesses between As filed with Registrant's Form N/A
Registrant and International Commerce 10-KSB on June 12, 2000
and Finance, Inc.
10.8 Stock Purchase Agreement between As filed with Registrant's Form N/A
Registrant and Patina Corporation 10-KSB on June 12, 2000
10.9 Employment Agreement with David As filed with Registrant's Form N/A
DeBaene January 1, 2001 10-KSB on June 12, 2000
10.10 Asset Sale Agreement Between As filed with Registrant's Form N/A
Registrant and David N. DeBaene June 10-QSB on July 26, 2001
1, 2001
10.11 Stock Purchase Agreement between As filed with Registrant's Form N/A
Registrant and Rhode Island truck and 10-QSB on December 14, 2001
Equipment, Corp. October 31, 2001
10.12 Employment Agreement with Daniel L.
Hefner dated June 1, 2000