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, 2002
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: $1,941,855
The aggregate market value of the voting and non-voting common equity of
the registrant held by non-affiliates of the registrant at May 15, 2002 was
approximately $1,422,323 based upon the closing sale price of $.24 for the
Registrant's Common Stock, $.002 par value, as reported by the National
Association of Securities Dealers OTC Bulletin Board on May 15, 2002.
As of May 15, 2002 the registrant had 17,266,344 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, 2002
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
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
successfully completed the sale of the assets and certain liabilities of its JD
American Workwear, Inc. subsidiary and the complete sale of its Rhode Island
Truck and Equipment, Inc. subsidiary during the fiscal year.
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 sent on consolidated shipments. This has created a niche market for
the direct parts sales division. Management is in the process of negotiating
with agents in various markets, including South America, the Caribbean, and
Puerto Rico to solicit parts sales. The operation currently has two major
customer relationships in the Caribbean. Management believes that this market
has not been fully targeted by its competitors and is a potential source of
significant 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.
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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 and
diversification through acquisitions of companies in other lines of business.
Under the current strategy, the Company has developed divisions in three
segments: Manufacturing, Product Marketing, and Construction Management.
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.
Product Marketing Division. This division has no operations but is
currently seeking an acquisition. Negotiations are ongoing for an expected
closing in the second quarter ending August 31, 2002.
Construction Management Division. This division has no operations but is
currently negotiating with several companies that may become part of the
division prior to the end of the second quarter ending August 31, 2002.
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.
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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 35% 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
28.9% of the division's revenues in fiscal 2002 compared to 26.6% in fiscal
2001, while the industrial and mining industries accounted for approximately
18.4% and 20.0% in fiscal 2002 compared to 17.2% and 16.6% in fiscal 2001,
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 2002 two
customers provided more than 5% of sales each. These customers were IMC
Phosphates Company 10.1% and Vehicare 7.8%.
EMPLOYEES
At May 15, 2002, the Company and its subsidiaries had 22 employees devoting
full-time hours, 2 part time employees and 4 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 19 full time and 2 part 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, 2002 of $11,571,008 and net loss to common shareholders of
$1,542,919 for the year ended February 28, 2002. At February 28, 2001, the
Company had an accumulated deficit of $10,028,089, and net income to common
shareholders, of $20,349 for the year ended February 28, 2001, as restated. The
Company had negative cash flow for the year ended February 28, 2002 of $20,677
and positive cash flow of $23,362 for the restated period ended February 28,
2001. 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. The sale of the assets and
discontinuance of JD American Workwear, Inc. will improve the cash flow of the
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overall Company and allow management to focus on its growth through acquisition
strategy without the requirement of committing financial resources to the
inventory requirements and marketing needs that management believes would have
used a minimum of $500,000 to achieve a minimal return over a lengthy period.
Growth Plans and Risk of Expansion. In 2000, the Company adopted and
implemented a business strategy, which seeks growth and expansion through the
acquisition of other companies with diversified lines of businesses.
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 2002. 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, President, Norman J.
Birmingham, and Chief Executive Officer, Daniel L. Hefner. If the company were
to lose the services of any 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, 2000 through March 31, 2002 the price of
our common shares has ranged from $1.9375 to $0.01 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 66.95% 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 the GE Capital Small
Business Group encumbers this building. This note needs to be refinanced by May
2005. The Company has negotiated a settlement that requires the note to be
refinanced by the end of July 2002. In the event that funding is unavailable to
take advantage of the negotiated settlement the operation will be required to
continue to pay its monthly payments in excess of $12,000 per month until the
note has been paid in full.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
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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
FISCAL 2001
First Quarter (March 1, 2000 through May 31, 2000) $1.9375 $0.88
Second Quarter (June 1, 2000 through August 31, 2000) $1.4375 $0.6875
Third Quarter (September 1, 2000 through November 30, 2000) $1.25 $0.10
Fourth Quarter (December 1, 2000 through February 28, 2001) $1.50 $0.01
On May 15, 2002 the closing bid price of the Company's Common Stock as reported
by the OTCBB was $0.24 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
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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, 2002 and February 28, 2001, as
restated. 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, 2002 and February 28, 2001. To
facilitate the readers understanding of the Company's financial performance,
this discussion and analysis is presented on a segment basis.
MANUFACTURING SEGMENT
The manufacturing segment 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. Management has implemented an
aggressive marketing campaign and hired additional sales staff in an effort to
improve the utilization of its assets. A partial second shift was added to the
operation during fiscal 2002.
The segments sales expectations were not met in fiscal 2002. We have
expanded our sales and marketing programs and are poised for growth in fiscal
2003.
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
General
The Company's consolidated net sales increased to $1,941,855 for the fiscal
year ended February 28, 2002 an increase of $291,901 from $1,649,954 for the
restated fiscal year ended February 28, 2001, an increase of 17.7%. This
increase was due to a full year's operation of International Machine and
Welding, Inc. compared to nine months in fiscal 2001.
Gross profit for the consolidated operations increased to $837,147 for the
fiscal year ended February 28, 2002 from $661,576 for the fiscal year ended
February 28, 2001. Gross profit increased as a percentage of sales to 43.11%
from 40.09%. Consolidated interest expenses in fiscal 2002 were $297,235
compared to $192,883 in fiscal 2001. The company incurred a net consolidated
loss of $1,542,919 for the year ended February 28, 2002 compared to a loss of
$1,765,086 for the year ended February 28, 2001.
Selling, general and administrative expenses increased to $2,043,752 for
fiscal 2002 from $1,573,986 for fiscal 2001, an increase of $469,766 or 29.8%.
The increase was mainly attributable to increases in accounting, legal fees and
stock compensation and the addition of two employees at our operating
subsidiary.
The Company's net loss to common shareholders was $1,542,919 for fiscal
2002 compared to a net gain to common shareholders of $20,349 for fiscal 2001.
This loss was mainly attributable to the lack of a one-time gain less accretion
of $1,785,435 from the previous fiscal year.
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Manufacturing Segment
The Manufacturing segment provided net sales of $1,941,855 For the fiscal
year ended February 28, 2002 compared to $1,649,954 for the fiscal year ended
February 28, 2001. The machining operations provided $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 as compared to machining operations
contributing $633,758 or 38.4% of net sales with parts and service providing
$1,016,196 or 61.6% of net sales for the fiscal year ended February 28, 2001.
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 segment was $837,147 for the fiscal
year ended February 28, 2002 compared to $661,576 in fiscal 2001 providing gross
profit margins of 43.1% and 40.1%, respectively.
Selling, general and administrative expenses were $877,771 for the fiscal
year ended February 28, 2002 compared to $695,470 for the fiscal year ended
February 28, 2001 leaving losses from operations of $40,624 and $33,894 or 2.1%
and 2.1%, respectively. Interest expenses were $243,488 for the fiscal year
ended February 28, 2002 compared to $130,066 for the fiscal year ended February
28, 2001.
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.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal years ended February 28, 2002 and February 28, 2001, the
Company provided/(used) net cash for operating activities of $(21,319) and
$228,834, respectively. Accounts receivable decreased to $234,334 at February
28, 2002 from $257,950 at February 28, 2001, a decrease of $23,616, or 9.2%.
Inventory decreased to $268,030 at February 28, 2002 from $717,709 at February
28, 2001, a decrease of $449,679, or 62.7% as a result of discontinued
operations.
During fiscal 2002 and 2001, the Company used funds for capital
expenditures of $15,556 and $5,452, 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
2002. 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
Norman J. Birmingham 47 President and Director
Frank D. Puissegur 43 Chief Financial Officer and Director
Daniel L. Hefner 52 Chief Executive Officer 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. Three board members were
elected to two-year terms at the annual stockholders meeting held December 15,
2000. Robert Maxwell is the only board member elected to a two-year term that
remains from this election. On March 5, 2002 in consent action by shareholders
Norman Birmingham was elected to a two-year term with all other members except
Mr. Maxwell elected to one-year terms. 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 is also the General Manager of
International Machine and Welding, Inc., a recently acquired subsidiary of the
Company. He was the owner/operator of Florida Machine and Welding, Inc., located
in Bartow, Florida, for the past 23 years until the sale of its assets in June
2000. Mr. Maxwell has served on various bank and charitable boards of directors.
Mr. Birmingham has been President and a director of the Company since March
2002. He previously served as Chief Financial Officer of the Company from
January 1, 2000 to April 2001 and as a director from March 2000 through April
2001. Mr. Birmingham has served as Chief Financial Officer of Open Door Online,
Inc. (OTCBB: NTER) since March 2000 and as a director since June 2000. Mr.
Birmingham has served as an officer or director of three other public companies.
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 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 Commerce and Finance, Inc. a holding company for manufacturing and
technology companies, and he has held this position since August 1999. Mr.
Hefner has been active for the past ten 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. During 1999, Mr. Hefner was Chief Operating Officer for
Chronicle Communications, Inc. (OTCBB: CRNC), a Tampa based printer.
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 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, 2002
(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 2002 $67,600 100,000 $25,000
Interim President
David N. DeBaene 2001 $87,500 $ 0 100,000 $25,000
Subsidiary President (1)
Steven D. Smith, 2001 $15,000 $3,750 0 0
President
----------
(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 and immediately elected Mr. Smith to serve as President of the
Company. Mr. Smith resigned as President June 1, 2001 and Daniel L. Hefner
was named interim President.
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.
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 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. At February 28, 1999,
approximately 20 persons were eligible to receive ISOs under the Plan.
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.
At February 28, 2002, 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, 2001 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
---- ------- ----------- ------ ----
David N. DeBaene 100,000 50.0 $0.42 Forfeited
Daniel L. Hefner 100,000 50.0 $0.42 June 1, 2006
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 2002, the
number of stock options held on February 28, 2002 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 on Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercised (#) Realized (#) (#) $ $
---- ------------- -------- ----------- ------------- ----------- -------------
Daniel L. Hefner 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, 2002 of $0.18 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, 2002, 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) 723,360 4.17%
Norman J. Birmingham (4) 1,470,000 8.48%
Frank D. Puissegur 0 **
Daniel L. Hefner (5)
1400 Chamber Dr.
Bartow, FL 9,411,110 54.3%
All Directors and Executive
Officers as a Group (4 persons) 11,604,470 (6) 66.95%
International Commerce and
Finance, Inc.
Tampa, FL 7,970,000 45.99%
----------
(**) 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.
(4) Includes (a) 200,000 shares of Common Stock, which may be acquired pursuant
to currently exercisable options and, (b) 1,270,000 shares of Common Stock.
(5) Includes (a) 200,000 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 3,471 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
264 Series B Preferred Shares convert into 264,000 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 May 15, 2002 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........................................ 3.92%
Norman J. Birmingham (2)................................. 7.89%
Frank Puissegur ......................................... *
Daniel L. Hefner (3)..................................... 49.46%
All directors and executive officers
as a group (4 persons)................................... 59.06%
Other Equity Holders (4).................................
International Commerce and Finance (5)................... 40.55%
----------
* Less than 1%
(1) Based upon 17,386,344 outstanding shares of common stock, 102 outstanding
shares of Series A Preferred Stock and 3,471 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 264 shares of Series B Preferred are entitled 1,000
votes each. Accordingly, as of May 15, 2002, the Series A Preferred Stock
and Series B Preferred Stock are entitled to an aggregate of 131,478 votes
and 905,400 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) Consisting of 200,000 votes upon exercise of currently exercisable options
to purchase Common Stock and 1,270,000 shares of Common Stock held.
(3) Consisting of 200,000 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 (a) 400,000 votes upon exercise of currently exercisable
options to purchase Common Stock, (b) Item 1 above, and (c) 1,032,550
warrants held by Union Labor Life Insurance Company totaling in aggregate
19,655,772 votes.
(5) 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").
In March 2001, the property at 46 Old Flat River Rd., Coventry, RI was sold to a
relative of the President of JD American Workwear, Inc. for $165,000. The
President received $40,000 from the proceeds of the sale.
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
None
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, 2002 By: /s/ Norman J. Birmingham
------------------------------------
Norman J. Birmingham, President
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 6, 2002
--------------------------
Robert E. Maxwell
/s/ Daniel L. Hefner Chief Executive Officer and Director June 6, 2002
--------------------------
Daniel L. Hefner
/s/ Frank D. Puissegur Chief Financial Officer (Principal
-------------------------- Financial Officer) and Director June 6, 2002
Frank D. Puissegur
/s/ Norman J. Birmingham President and Director June 6, 2002
--------------------------
Norman J. Birmingham
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
(1) No annual report covering the registrant's last fiscal year has been or
will be sent to security holders of the registrant
(2) No proxy statements, proxies, or other proxy soliciting material was sent
to the registrant's shareholders during the past fiscal year. The Company
expects to hold its next annual shareholders meeting in August 2002.
18
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND AUDITORS' REPORT
FEBRUARY 28, 2002 AND 2001
TABLE OF CONTENTS
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Changes
in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to the Consolidated Financial Statements F-10
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of American Commerce Solutions, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of American
Commerce Solutions, Inc. (a Delaware Corporation) and subsidiaries as of
February 28, 2002 and 2001, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. 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 audits.
We conducted our audits 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
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Commerce
Solutions, Inc. and subsidiaries as of February 28, 2002 and 2001, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States of
America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2, 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 are also described in Note 2. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
As discussed in Note 15 to the financial statements, certain errors resulting
from a failure to capitalize leased equipment and record unearned stock
compensation were discovered during the current year. Accordingly, the 2001
financial statements have been restated to correct the errors.
Respectfully submitted,
BELLA, HERMIDA, GILLMAN, HANCOCK & MUELLER
Certified Public Accountants
Plant City, Florida
May 23, 2002
F-2
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, February 28,
2002 2001 *
---------- ----------
ASSETS
Current Assets:
Cash $ 14,208 $ 34,885
Accounts receivable,
net of allowances of $34,383 (2002)
and $46,881 (2001) 234,334 257,950
Inventories 268,030 717,709
Prepaid expenses 11,354
---------- ----------
Total current assets 527,926 1,010,544
Property and equipment, net of 5,053,261 5,712,120
accumulated depreciation of $520,732
(2002) and $447,159 (2001)
Intangible assets, net 67,324
Long term receivables 179,864 202,806
Real property for resale 243,150 240,000
Equipment for resale 476,000 476,000
---------- ----------
TOTAL ASSETS $6,480,201 $7,708,794
========== ==========
F-3
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
February 28, February 28,
2002 2001 *
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable
and capital leases $ 1,976,278 $ 834,143
Bank overdraft 278 8,649
Accounts payable 572,956 624,159
Accrued expenses 725,978 664,529
------------ ------------
Total current liabilities 3,275,490 2,131,480
Long-term debt, net of current portion 621,396 1,831,593
Stockholders' equity:
Preferred stock, total authorized
1,000,000 shares, $.001 par value
Series A, cumulative and convertible,
authorized 600 shares, $.001 par value,
102 and 110 shares issued and
outstanding, respectively,
liquidation preference $369,750 -- --
Series B, cumulative and convertible,
authorized 3,950 shares,$.001 par value,
3,471 and 3,207 shares issued and
outstanding, respectively, liquidation
preference $3,549,895 3 3
Series C, cumulative and convertible,
authorized 20,000 shares, $.001 par value,
0 and 4,800 shares issued and outstanding,
respectively -- 5
Common stock, authorized 30,000,000 shares
$.002 par value, 17,351,344 and 10,717,589
shares issued and 16,829,344 and 10,717,589
outstanding, respectively 34,703 21,435
Additional paid-in-capital 14,405,143 14,229,367
Common stock receivables (20,000) (477,000)
Accumulated deficit (11,571,008) (10,028,089)
Treasury stock, 522,000 common shares
at cost (265,526)
------------ ------------
Total stockholders' equity 2,583,315 3,745,721
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY $ 6,480,201 $ 7,708,794
============ ============
* As Restated
The accompanying notes are an integral part of these financial statements.
F-4
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
----------------------------
February 28, February 28,
2002 2001 *
------------ ------------
Net sales $ 1,941,855 $ 1,649,954
Cost of goods sold 1,104,708 988,378
------------ ------------
Gross profit 837,147 661,576
Selling, general and administrative expenses 2,043,752 1,573,986
------------ ------------
(1,206,605) (912,410)
Other income (expenses)
Other income 22,564 3,444
Gain (loss) on disposal of assets 14,547 (3,400)
Interest expense (297,235) (192,883)
------------ ------------
Net loss from continuing operations (1,466,729) (1,105,249)
------------ ------------
Discontinued operations:
Income (loss) from discontinued operations (59,350) (659,837)
Loss on disposal of subsidiary (16,840)
------------ ------------
Net loss from discontinued operations (76,190) (659,837)
------------ ------------
Net loss (1,542,919) (1,765,086)
Accretion of discount and dividends on
mandatory redeemable preferred stock (209,333)
Gain on extinguishment of mandatory
redeemable preferred stock 1,994,768
------------ ------------
Net profit (loss) to common shareholders $ (1,542,919) $ 20,349
============ ============
Net profit (loss) per common share $ (0.15) $ 0.00
============ ============
Net loss from continuing operations
per common share $ (0.14) $ (0.25)
============ ============
Weighted average common shares outstanding 10,300,282 4,347,297
============ ============
----------
* As Restated
The accompanying notes are an integral part of these financial statements.
F-5
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 2002 AND 2001
Common stock Preferred stock Additional
$.002 Par $.001 Par Paid-in Stock
Shares Amount Shares Amount Capital Receivable
----------- -------- ------ ------ ------------ ----------
Balance, February 29, 2000 2,750,427 $ 5,501 154 $ 0 $ 7,116,100 $(489,248)
Preferred shares issued for
Acquisitions -- -- 9,800 10 4,446,159 --
Common shares issued for
services 347,500 695 -- -- 42,305 --
Common shares issued for
debt repayment 10,000 20 -- -- 4,980 --
Common shares returned for
stock receivable (130,000) (260) -- -- (146,640) 146,900
Exercise of stock options
and warrants 199,350 399 -- -- 231,354 (7,870)
Preferred stock conversion 5,081,562 10,163 (5,044) (5) (10,158) --
Common shares issued for
debt conversion 908,750 1,817 -- -- 179,932 7,870
Common stock issued for
acquisition 200,000 400 -- -- 237,600 --
Services received for
stock receivable -- -- -- -- -- 192,348
Extinguishment of Series B
mandatory conversion -- -- 3,207 3 1,994,768 --
Stock receivable paid in cash -- -- -- -- -- 20,000
Common shares issued for
receivables 1,350,000 2,700 -- -- 342,300 (347,000)
Accretion of discount and
dividends mandatory redeemable
preferred stock -- -- -- -- (209,333) --
Net loss -- -- -- -- -- --
----------- -------- ------ ----- ------------ ---------
Balance, February 28, 2001
as restated 10,717,589 $ 21,435 8,117 $ 8 $ 14,229,367 $(477,000)
Common shares issued for
services 25,000 50 -- -- 4,450 --
Common shares issued for
debt repayment 96,690 194 -- -- 82,007 --
Common shares surrendered
for stock receivable (10,000) (20) -- -- (2,980) 10,000
Preferred shares converted 4,850,065 9,700 (4,808) (5) (9,695) --
Common shares issued for
accrued compensation 2,030,000 4,060 -- -- 361,340 --
Common stock acquired
in sales of subsidiaries -- -- -- -- -- --
Stock receivable paid in
services -- -- -- -- -- 442,000
Stock receivable paid in
cash -- -- -- -- -- 5,000
Common shares retired (358,000) (716) -- -- (259,346) --
Preferred shares issued for
Series C dividends -- -- 264 -- -- --
Net loss
----------- -------- ------ ----- ------------ ---------
Balance, February 28, 2002 17,351,344 $ 34,703 3,573 $ 3 $ 14,405,143 $ (20,000)
=========== ======== ====== ===== ============ =========
Accumulated Treasury
Deficit Stock Total
------------ ------------ ------------
Balance, February 29, 2000 $ (8,263,003) $ (1,630,650)
Preferred shares issued for
Acquisitions -- 4,446,169
Common shares issued for
services -- 43,000
Common shares issued for
debt repayment -- 5,000
Common shares returned for
stock receivable -- --
Exercise of stock options
and warrants -- 223,883
Preferred stock conversion -- --
Common shares issued for
debt conversion -- 189,619
Common stock issued for
acquisition -- 238,000
Services received for
stock receivable -- 192,348
Extinguishment of Series B
mandatory conversion -- 1,994,771
Stock receivable paid in cash -- 20,000
Common shares issued for
receivables -- (2,000)
Accretion of discount and
dividends mandatory redeemable
preferred stock -- (209,333)
Net loss (1,765,086) (1,765,086)
------------ ------------ ------------
Balance, February 28, 2001
as restated $(10,028,089) -- $ 3,745,721
Common shares issued for
services -- -- 4,500
Common shares issued for
debt repayment -- -- 82,201
Common shares surrendered
for stock receivable -- -- 7,000
Preferred shares converted -- -- --
Common shares issued for
accrued compensation -- -- 365,400
Common stock acquired
in sales of subsidiaries -- (525,588) (525,588)
Stock receivable paid in
services -- -- 442,000
Stock receivable paid in
cash -- -- 5,000
Common shares retired -- 260,062 --
Preferred shares issued for
Series C dividends -- -- --
Net loss (1,542,919) -- (1,542,919)
------------ ------------ ------------
Balance, February 28, 2002 $(11,571,008) $ (265,526) $ 2,583,315
============ ============ ============
----------
* As Restated
The accompanying notes are an integral part of these financial statements.
F-6
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
--------------------------
February 28, February 28,
2002 2001 *
----------- -----------
Cash flows from operating activities:
Net loss $(1,542,919) $(1,765,086)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 294,314 317,519
Provision for doubtful accounts 731 36,881
Provision for losses on inventory -- 341,630
Securities issued for services 475,162 465,101
Loss on disposal of subsidiary 16,840
(Gain)loss on disposal of assets (14,457) 3,400
Changes in operating assets and
liabilities, net of disposals:
Accounts receivable (73,134) 92,504
Inventories 15,889 173,780
Prepaid expenses and other assets (11,354) --
Accounts payable and accrued expenses 825,980 519,456
Equipment held for resale -- 35,000
Bank overdraft (8,371) 8,649
----------- -----------
Net cash provided by (used in)
operating activities (21,319) 228,834
----------- -----------
Cash flows from investing activities:
Increase in long term receivables (28,440) (238,185)
Receipts on long term receivables 22,787 37,179
Cash acquired in acquisition transaction -- 2,465
Cash sold in disposals (61,260) --
Proceeds from sale of assets 9,089 --
Capital expenditures (15,556) (5,452)
----------- -----------
Net cash used in investing activities (73,380) (203,993)
----------- -----------
Cash flows from financing activities:
Bank overdraft assumed in acquisition -- (42,875)
Proceeds from notes payable 152,651 118,085
Principal payments on notes payable and
capital leases (83,629) (96,689)
Proceeds received on common stock receivable 5,000 20,000
----------- -----------
Net cash provided by (used in)
financing activities 74,022 (1,479)
----------- -----------
Increase (decrease) in cash (20,677) 23,362
Cash, beginning of year 34,885 11,523
----------- -----------
Cash, end of year $ 14,208 $ 34,885
=========== ===========
F-7
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Year Ended
---------------------------
February 28, February 28,
Supplemental cash flow disclosures: 2002 2001
------------ ------------
Cash paid for interest $ 168,798 $ 92,193
============ ============
Supplemental schedule of non-cash investing and financing activities:
Securities issued for debt repayment $ 44,500 $ 5,000
Securities issued for payables $ 381,438 $ 181,749
Securities surrendered $ 3,000 $ 146,900
Securities issued for receivables $ $ 347,000
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
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 of $325,941
Mortgage paid with proceeds from
sale of building $ 106,323
Notes payable issued for equipment $ 106,212
Capital leases payable issued
for equipment purchases $ 134,308
Notes receivable issued to President
of JD American Workwear, Inc. $ 40,000
F-8
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Notes receivable assigned for
accounts payable $ 42,291
Notes payable and accrued interest
refinanced $ 185,229
Common stock issued for acquisitions $ 238,000
In connection with the acquisition of the outstanding stock of Rhode Island
Truck and Equipment Corp. for $238,000 in common stock, the Company
acquired assets with a fair value of $324,155 and assumed liabilities of
$103,613
Preferred stock issued for acquisition $ 4,446,159
In connection with the acquisition of all of the common stock of
International Machine and Welding, Inc. for $4,446,159 in preferred stock,
the Company acquired assets with a fair value of $6,752,883 and assumed
liabilities of $2,306,724.
Accretion of discount and dividends on
mandatory redeemable preferred stock $ 209,333
Gain on extinguishment of mandatory
redeemable preferred stock $ 1,994,768
----------
* As restated
The accompanying notes are an integral part of these financial statements.
F-9
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Organization
American Commerce Solutions, Inc., a Delaware corporation, operates as the
parent company to its subsidiary International Machine and Welding, Inc.
International Machine and Welding, Inc. provides machining, heavy equipment
repair services and parts sales. The company has discontinued the
operations of two subsidiaries, JD American Workwear, Inc., a workwear
distributor and Rhode Island Truck and Equipment Corp., a paving contractor
(See Note 12).
Principles of Consolidation
The accompanying consolidated financial statements include the activity of
American Commerce Solutions, Inc. and its wholly owned subsidiaries. All
inter-company transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less, when acquired, to be cash equivalents. The Company
held no such instruments at February 28, 2002 and 2001.
Inventories
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 SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001 FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and Amortization
Property and equipment are stated at cost. The Company computes
depreciation and amortization expense using straight-line and accelerated
methods over the following estimated useful lives of the assets:
Asset Classification Estimated Useful Lives
-------------------- ----------------------
Building and Improvements 15 - 39 Years
Machinery and Equipment 5 - 15 Years
Office Furniture and Equipment 5 - 7 Years
Trucks and Autos 5 Years
Patent costs include the direct costs of obtaining the patents. Upon
issuance of the patent, the costs are capitalized and amortized over the
estimated useful life of the patent, generally five to seventeen years,
using the straight-line method.
Direct costs incurred with the issuance of notes and mandatory redeemable
preferred stock are deferred and amortized using the effective interest
method, through the maturity date.
Revenue Recognition
Sales are recorded when products, repairs or parts are shipped or delivered
to the customer. Provisions for discounts and rebates to customers,
estimated returns and allowances and other adjustments are provided for in
the same period the related sales are recorded. No products or parts are
shipped with any contingencies except for defects.
Stock-Based Compensation
The Company accounts for stock issued to employees as provided in
Accounting Principles Board Opinion No. 25, whereby compensation expense is
recorded on the date the options are granted equal to the excess of the
market price of the underlying stock over the exercise price and provides
pro forma disclosure of the application of Statement of Financial
Accounting Standards No. 123.
F-11
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and Diluted Loss Per Share
Net loss per common share is computed by dividing net loss to common
shareholders 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 of Financial Instruments
At February 28, 2002 and 2001, the fair values of cash and cash
equivalents, accounts receivable, and accounts payable approximate their
carrying value due to their short-term nature. The fair value of debt is
estimated at its carrying value based upon current rates available to the
Company.
Reclassification
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year presentation.
NOTE 2: GOING CONCERN
The Company has incurred substantial operating losses since inception. The
Company recorded losses from continuing operations of $1,466,729 and
$1,105,249 for the years ended February 28, 2002 and February 28, 2001,
respectively. Current liabilities exceed current assets by $2,747,564 and
$1,120,936 at February 28, 2002 and February 28, 2001. Additionally, the
Company has been unable to meet obligations to its creditors as they have
become due. 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 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
F-12
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 2: GOING CONCERN (CONTINUED)
capital, obtain debt financing or improve operating results sufficiently to
continue as a going concern.
The accompanying 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.
NOTE 3: INVENTORIES
Inventories consist of the following:
2002 2001
-------- --------
Work-in-process $ 10,483 $ 12,217
Finished Goods, Current Portion 257,547 428,031
Supplies 277,461
-------- --------
Total Inventories $268,030 $717,709
======== ========
During the fourth quarter of the year ended February 28, 2001, management
evaluated its estimate of the net realizable value of JD American Workwear,
Inc. inventory based on actual sales of product styles and liquidation sale
pricing. As a result, a provision for loss on inventory of $341,630 was
charged to operations during the fourth quarter of the year ended February
28, 2001.
NOTE 4: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment, at cost, consists of the following:
2002 2001
---------- ----------
Land $ 186,045 $ 244,925
Building and Improvements 2,851,837 2,938,837
Machinery and Equipment 2,202,058 2,485,053
Office Furniture and Equipment 28,836 64,638
Trucks and Autos 305,217 425,826
---------- ----------
5,573,993 6,159,279
Less: Accumulated Depreciation 520,732 447,159
---------- ----------
$5,053,261 $5,712,120
========== ==========
Depreciation expense for the years ended February 28, 2002 and 2001 was
$292,980 and $304,619, respectively. Depreciation expense includes
amortization of equipment held under a capital lease in the amount of
$8,954 for the
F-13
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 4: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (CONTINUED)
year ended February 28, 2002 and $8,954 for the year ended February 28,
2001.
Intangible assets, at cost, consists of the following:
2001
--------
Patents $ 70,970
Goodwill 17,458
--------
88,428
Less: Accumulated Amortization 21,104
--------
$ 67,324
========
Amortization expense for the years ended February 28, 2002 and February 28,
2001 was $1,334 and $3,619, respectively.
NOTE 5: LONG-TERM RECEIVABLES
Long term receivables consists of the following:
2002 2001
--------- ---------
Receivable from employee of subsidiary,
no stated interest or terms $ 8,605 $ 9,000
Receivable from related party, President
of subsidiary, no stated interest or terms 23,783
Receivable from corporation, related party
via common shareholders, no stated terms
or interest 7,637 7,083
Receivable from corporation, related party
via common shareholders, no interest or
terms 139,839 122,040
Long term accounts receivable
from customers, interest at 6% 64,683
--------- ---------
Total $ 179,864 $ 202,806
========= =========
NOTE 6: NOTES PAYABLE AND CAPITAL LEASES
2002 2001
--------- ---------
10.5% note payable, secured by a mortgage
on the JD American property, payable in
monthly installments of $2,687, principal
and interest, paid in full 2002. $ $ 106,323
10% note payable to the parents of the former
President of JD American Workwear, Inc.,
stockholders, payable in monthly
installments of $5,494, principal and
interest, due September, 2002. 161,959
F-14
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 6: NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
10% note due to an investor, due on
December 31, 1997. 40,000 40,000
Loans from stockholders, no written terms,
interest imputed at 0% to 7% annually. 172,037
Various loans from individuals, no
written terms, interest imputed at 0% to
7% annually. 24,724
Note payable on equipment, monthly
payments of $292, principal and
interest, disposed of in sale. 8,641
10% note payable to the parents of
the former President of JD American
Workwear, Inc., maturing May 31, 2003,
monthly interest payments beginning
January 15, 2003. 185,229
10% note payable to the former President
of JD American Workwear, Inc., maturing
May 31, 2003, monthly interest payments
commencing January 15, 2003. 36,000
10% note payable to the former President
of JD American Workwear, Inc., maturing
May 31, 2003, monthly interest payments
commencing January 15, 2003. 4,265
10% note payable to the sister of the
former President of JD American Workwear,
Inc., maturing May 31, 2003, monthly
interest payments commencing
January 15, 2003. 7,115
7% note payable to CEO and stockholder,
matured October 26, 2001. 20,000
Note payable to individual, matured May 5,
2001, interest payable in the amount of
$10,000 in addition to the principal. 10,000
Note payable to individual, matured May 5,
2001, interest payable in the amount of
$10,000 in addition to the principal. 10,000
F-15
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 6: NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
7% note payable to a corporation, related
party through common stockholders,
matured October 20, 2001. 30,000
Three notes payable to stockholder, 10%
interest, past maturity. 80,000
9% note payable to Ford Motor Credit,
monthly principal and interest payment
$670, matures April 1, 2006. 27,865
Note payable to a corporation, related
party through common shareholders,
no interest, due on demand. 8,000
10% note payable to CEO and stockholder,
due on demand. 34,400
Note payable to employee, due on demand,
interest payable $500 in addition
to principal. 10,000
10% note payable to the President of
International Machine and Welding, Inc.,
due on demand. 54,986
12% note payable to the daughter of the
President of International Machine
and Welding, Inc., due on demand. 3,000
8% capitalized lease on equipment,
monthly payments of $2,728, matures
October 1, 2004. 75,644 101,830
11% convertible subordinated notes due to
investors, matured September 30, 1998.
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. 37,500 75,000
F-16
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 6: NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
15% convertible note payable to investor,
matured June 1, 2000. The note is
convertible at $0.70 per share. In
conjunction with this note, the Company
issued 3,500 warrants for purchase of
common stock at $2.00 per share. The
warrants expire March 1, 2002. 4,050 7,000
15% convertible note payable to investor,
matured August 10, 2000. The note is
convertible at $0.70 per share. In
conjunction with this note, the Company
issued 3,500 warrants for purchase of
common stock at $2.00 per share. The
warrants expire May 10, 2002. 7,000
Note payable to investor, matured
September 7, 2000. Interest payable
in 2,000 shares of stock until the
maturity date and at 20% thereafter. 4,000 4,000
7% note payable to accounting firm,
matured June 1, 2001. 25,012 30,000
10% note payable, pursuant to a Chapter
11 reorganization plan attached to the
acquired assets of International
Machine and Welding, Inc., secured by a
mortgage on Florida property, monthly
payments of $10,252, principal and
interest, maturing May 22, 2005. 1,158,171 1,163,906
Note payable, pursuant to a Chapter 11
reorganization plan, secured by a
mortgage on Florida property, no
interest, monthly payments of
$2,034, maturing January 22, 2010. 199,283 219,629
9% loan payable to Internal Revenue
Service, pursuant to a Chapter 11
reorganization plan, monthly payments
of $25, principal and interest, maturing
May 24, 2005. 1,352 1,352
Loan payable to Internal Revenue Service,
pursuant to a Chapter 11 reorganization
plan, no interest, monthly payments of
$10, maturing May 24, 2005. 448 448
F-17
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 6: NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
9% loan payable to Internal Revenue Service
pursuant to a Chapter 11 reorganization
plan, secured by tax lien, monthly payments
of $7,661, principal and interest, maturing
May 24, 2006. 416,043 416,043
9% loan payable to Florida Department of
Revenue, pursuant to a Chapter 11
reorganization plan, monthly payments
totaling $173, principal and interest,
maturing May 24, 2005. 8,328 8,328
Loan payable to Florida Department of
Revenue, pursuant to a Chapter 11
reorganization plan, no interest,
monthly payments of $36, principal and
interest, maturing May 24, 2004. 1,706 1,706
9% loan payable to Polk County, pursuant
to a Chapter 11 reorganization plan,
secured by tax lien, monthly payments of
$1,455, principal and interest, maturing
January 24, 2006. 76,967 76,967
9% loan payable, pursuant to a Chapter 11
reorganization plan, monthly payments of
$262, principal and interest, maturing
May 24,2005. 12,620 12,620
Various loans payable, pursuant to a
Chapter 11 reorganization plan, no
interest, monthly payments totaling $411,
maturing May 24, 2004. 15,690 15,690
11% note payable, secured by a motor
vehicle, monthly payments of $449,
principal and interest, maturing
December 27,2001. 4,670
12% note payable, secured by a motor
vehicle, monthly payments of $903,
principal and interest, maturing
September 10, 2001. 5,863
---------- ----------
Total 2,597,674 2,665,736
Less, Current Portion 1,976,278 834,143
---------- ----------
NET LONG-TERM DEBT $ 621,396 $1,831,593
========== ==========
F-18
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 6: NOTES PAYABLE AND CAPITAL LEASES (CONTINUED)
The aggregate principal maturing in subsequent years are:
Year Ending February 28, Amount
------------------------ --------
2004 $364,387
2005 123,388
2006 109,652
2007 23,969
--------
$621,396
========
Long-term debt includes a capital lease for equipment with a lease term
through October 2004. The obligation has been recorded in the accompanying
financial statements at the present value of future minimum lease payments,
discounted at 8%. The total capitalized cost at February 28, 2002 $134,308.
Related amortization included in accumulated depreciation was $17,908
(2002) and $8,954 (2001).
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, Amount
------------------------ --------
2003 $ 33,386
2004 33,386
2005 16,967
Total future minimum lease payments 83,739
Less amount representing interest 8,095
--------
Present value of future
minimum lease payments 75,644
Less current portion 28,359
--------
Long term portion $ 47,285
========
F-19
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 7: COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has employment agreements with two key employees. The terms of
which expire at various times for each 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, auto allowances, stock options, as well as bonuses,
which may contain minimum and incentive components. The annual commitment
for future salaries at February 28, 2002, including minimum bonuses, is
approximately $208,000.
Cash In Bank
The Company maintains bank accounts, which at times may contain balances,
which exceed the amounts insured by the FDIC.
NOTE 8: MANDATORY REDEEMABLE PREFERRED STOCK
On April 9, 1998, the Company authorized the issuance and sale of 3,950
shares of Series B 12% Cumulative Convertible Preferred Stock and sold
2,500 shares at a stated value of $1,000 per share. In addition, the
Company issued detached ten-year stock purchase warrants to purchase
799,000 shares of the Company's common stock at an exercise price of $0.01
per share to the investor for an aggregate purchase price of $2,500,000. A
mandatory redemption of 1,250 shares, at $1,250,000, was required on each
of the first business days of April 2004 and 2005. Proceeds of $960,000
were allocated to the carrying value of the Series B Preferred Stock and
$1,540,000 to the detached warrants based on their relative fair values at
date of issue. The difference between the carrying value of the Series B
and its mandatory redemption amount was accreted to retained earnings or,
in the absence of retained earnings, to additional paid in capital over the
period until redemption using the effective interest rate method.
During the year ended February 28, 2001, the Company was able to negotiate
a troubled debt restructure agreement with the Series B investor. The
investor agreed to waive its rights to the mandatory redemption required
under the original stock purchase agreement, in exchange for an equity only
interest. As a result, the Company has recognized a gain on the
extinguishment of mandatory redeemable preferred stock in the amount of
$1,994,768.
F-20
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 8: MANDATORY REDEEMABLE PREFERRED STOCK (CONTINUED)
The Series B Preferred Stock has rights to receive cumulative 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. Cumulative dividends amounted
to $117,926 and $146,074 at February 28, 2002 and February 28, 2001,
respectively. Dividends paid in additional shares and warrants were
$264,000 for the year ended February 28, 2002 and $364,000 for the year
ended February 28, 2001.
Holders of Series B Preferred Stock vote on an as converted basis with the
common stockholders on all matters to be brought to a vote of the
shareholders. The Series B Preferred stockholders shall be 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 shall be entitled, immediately upon giving written
notice, to elect the smallest number of directors that will constitute a
majority of the authorized number of directors.
Under the terms of the amended agreement, the annual dividend rate was
reduced from 12% to 6%, effective June 1, 2000. Dividends may be paid in
stock through May 31, 2004 at a conversion rate of $1.00 per share.
NOTE 9: CAPITALIZATION
Authorized Number of Shares of Common Stock
On April 15, 1998, the shareholders of the Company approved an amendment to
the Company's Certificate of Incorporation that increased the number of
authorized shares of Common Stock of the Company from 4,500,000 shares to
7,500,000 shares. On December 15, 2000 the shareholder's, at the annual
meeting thereof approved an additional amendment to increase the Common
Stock to 30,000,000 shares authorized.
Series A 10% Convertible Preferred Stock
The Company sold 313 shares of Series A 10% Convertible Preferred Stock
through a Private Placement dated August 26, 1997, at a price of $2,500 per
Preferred Share. Dividends are payable in kind at the Company's option.
F-21
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 9: CAPITALIZATION (CONTINUED)
Holders of Series A Preferred Stock vote on an as converted basis with the
common stockholders on all matters to be brought to a vote of the
shareholders. 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, 2002, preferred
dividends in arrears amounted to $114,750 or $1,125 per share.
Stock Receivable
Stock receivable represents amounts due to the Company for shares issued
and outstanding at year-end. At February 28, 2002, the Company had an
outstanding receivable of $20,000 for unearned stock compensation. At
February 28, 2001, the Company held a note receivable issued in connection
with an exercise of stock options in the amount of $150,000. The 7% note
matured on December 31, 2001. The Company also had a stock receivable for
unearned compensation of $327,000. All amounts due at February 28, 2001,
were repaid in services in 2002.
Common Stock Options
The Company's 1995 Stock Option Plan authorizes up to 750,000 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 the grant. The exercise price of options granted may not be less
than 85% of the fair market value of the stock. Additionally, the Company
issues stock options to executives under their employment agreements.
A summary of the Company's stock option activity is as follows:
F-22
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 9: CAPITALIZATION (CONTINUED)
Number Weighted-Average
of Exercise Price
Shares Per Share
------ ---------
Options Outstanding,
February 29, 2000 132,500 $ 3.14
Granted 200,000 .15
Exercised (189,350) .19
Expired (80,650) 3.28
Options Outstanding,
February 28, 2001 62,500 $ 1.57
Granted 200,000 .51
Exercised 0
Expired, Forfeited (150,000) .83
--------
Options Outstanding,
February 28, 2002 112,500 $ .57
========
At February 28, 2002, 112,500 options, with a weighted-average contractual
life of 2.8 years, were outstanding at exercise prices ranging from $.42 to
$1.50. All outstanding options were fully vested and exercisable.
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 cost recognized for stock based employee compensation awards
was $100,000 and $0 for the years ended February 28, 2002 and 2001,
respectively.
During the year ended February 28, 2001, the Company granted 200,000 stock
options to consultants with a fair value of $193,883. The related
compensation was expensed over the lives of the consulting agreements. The
Company also granted 50,000 stock options to two key employees in
connection with their employment agreements. The following summarizes
information about options granted during the years ended February 28, 2002
and February 28, 2001:
Weighted-Average
Number ----------------------
of Exercise Fair Value
Shares Price Per Share
------ ----- ---------
Options Granted in 2001
whose exercise price:
Is Below Market Price 200,000 $ .15 $ 1.17
Options Granted in 2002
whose exercise price:
Is Below Market Price 200,000 $ .42 $ .45
F-23
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 9: CAPITALIZATION (CONTINUED)
Stock-based compensation to non-employees is valued using the Black-Scholes
pricing model. The Company uses the intrinsic value method under APB 25 to
account for stock option compensation granted to employees. Had
compensation cost been recognized under FAS 123, the amount would have been
$90,320 and $0 for the years ended February 28, 2002 and February 28, 2001,
respectively.
The pro forma disclosures required under FAS 123 are as follows:
2002 2001
------------ ----------
Gain (Loss) Attributable to
Common Stockholders:
As Reported $(1,542,919) $ 20,349
Pro forma $(1,633,239) $ 20,349
Loss per Common Share:
As Reported $ (0.15) $ 0.00
Pro forma $ (0.16) $ 0.00
The following assumptions were used to estimate the fair value of stock
options using the Black-Scholes method:
2002 2001
------ ------
Dividend Yield 0% 0%
Expected Volatility 399% 230%
Average Expected Option Life 5 Years 1 Year
Risk-Free Interest Rate 4.25% 6.50%
Warrants
During the year ended February 28, 2001, the Company issued 10,500 in
connection with short-term loans. The Company also has warrants outstanding
that were issued in prior years as compensation for consulting and legal
services. The warrants issued by the Company generally contain provisions
requiring proportionate adjustment of the exercise price in the event of a
stock split, stock dividend, or dilutive financing. At February 28, 2002
warrants to purchase 389,316 shares of common stock at a weighted average
exercise price of $1.71 were outstanding and exercisable. The weighted
average remaining contractual life of these warrants is 7 months.
F-24
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 10: INCOME TAXES
The Company recognizes the amount of taxes payable or refundable for the
current year and recognizes deferred tax liabilities and assets for the
expected future tax consequences of events and transactions that have been
recognized in the Company's financial statements or tax returns.
The Company currently has substantial net operating loss carry-forwards
that may be applied against future income. These losses create a deferred
tax asset at February 28, 2002 and February 28, 2001. The Company has
recorded a 100% valuation allowance against net deferred tax assets due to
uncertainty of their ultimate realization.
2002 2001
---------- ----------
Deferred Tax Assets Resulting
from Net Operating Losses $1,548,396 $1,376,168
Less, Valuation Allowance 1,548,396 1,376,168
---------- ----------
Net Deferred Tax Assets $ 0 $ 0
========== ==========
The Internal Revenue Code contains provisions, which may limit the net
operating loss carry-forward available for use in any given year, if
significant changes in ownership interest of the Company occur.
The loss carry-forwards expire as follows:
Years of Expiration Amount
------------------- -----------
2009 $ 241,269
2010 581,952
2011 1,144,859
2012 786,579
2013 1,131,271
2014 1,779,564
2015 2,465,497
2016 1,743,097
2017 1,542,900
-----------
$11,416,988
===========
F-25
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 11: ITEMS AFFECTING FOURTH QUARTER RESULTS OF OPERATIONS
During the fourth quarter of the year ended February 28, 2001,the Company
determined that a write down of inventory of $341,630 was required to reach
net realizable value as discussed in Note 3. The effect of the adjustment
was to increase net loss by $.08 per common share in the quarter.
NOTE 12: RELATED PARTY TRANSACTIONS
In March 2001, the property at 46 Old Flat River Rd., Coventry, RI was sold
to a relative of the President of JD American Workwear, Inc. for $165,000.
The President received $40,000 from the proceeds of the sale.
NOTE 13: ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS
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.
The following table presents the allocation of the acquisition cost to the
assets acquired and liabilities assumed:
Cash and Cash Equivalents $ 2,465
Accounts Receivable 324,394
Inventories 279,027
Property, Plant and Equipment 5,395,997
Other Non-current Assets 751,000
----------
Total Assets 6,752,883
----------
Accounts Payable (323,682)
Other Current Liabilities (40,784)
Long Term Liabilities (1,942,258)
----------
Total Liabilities (2,306,724)
----------
Total Acquisition Cost $4,446,159
==========
F-26
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 13: ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED)
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 accounted for using the purchase method of accounting and,
accordingly, the acquired company's results of operations have been
included in the consolidated financial statements since the date of
acquisition. The excess of the purchase price over the estimated fair value
of assets acquired of $17,458 has been recorded` as goodwill and was being
amortized using the straight-line method over 40 years. The acquisition was
funded by the issuance of 200,000 shares of common stock.
The following table presents the allocation of the acquisition cost to the
assets acquired and the liabilities assumed:
Accounts Receivable $ 10,855
Inventory 28,250
Goodwill 17,458
Property, Plant and Equipment 285,050
---------
Total Assets 341,613
---------
Accounts Payable (40,657)
Other Current Liabilities (62,956)
---------
Total Liabilities (103,613)
---------
Total Acquisition Cost $ 238,000
=========
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. Assets and liabilities disposed of
consisted of the following:
F-27
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 13: ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED)
October 31, February 28,
2002 2001
--------- ---------
Cash $ 53,721 $
Accounts Receivable 77,434 2,717
Inventory 19,516 19,516
Property, Plant and Equipment 297,087 255,465
--------- ---------
Total Assets 447,758 277,698
--------- ---------
Accounts Payable (195,223) (62,516)
Other Current Liabilities (96,003) (48,856)
--------- ---------
Total Liabilities (291,226) (111,372)
--------- ---------
Net Asset Disposal $ 156,532 $ 166,326
========= =========
The results of Rhode Island Truck and Equipment, Corp. have been classified
as discontinued operations in the statement of operations. The Company
recognized a loss on the disposal of $16,840 resulting from the write off
of goodwill.
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. Assets and liabilities disposed of
consisted of the following:
June 1, February 28,
2001 2001
--------- ---------
Cash $ 7,539 $ 5,544
Accounts Receivable 2,001 62,418
Receivable from Stockholder 42,888
Inventories 414,274 428,031
Property, Plant and Equipment 37,886 183,987
Patents 49,150 67,324
--------- ---------
Total Assets 553,738 747,304
--------- ---------
Accounts Payable (21,783) (21,783)
Other Liabilities (206,014) (224,571)
--------- ---------
Total Liabilities (227,797) (246,354)
--------- ---------
Net Asset Disposal $ 325,941 $ 500,950
========= =========
F-28
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 13: ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED)
The results of operations for JD American Workwear, Inc. have been
classified as discontinued operations in the statement of operations.
Operating results from discontinued operations for the years ended February
28, 2002 and February 28, 2001 are summarized as follows:
2001 2001
--------- ---------
Net Sales $ 496,245 $ 455,241
Cost of Sales 343,215 316,604
Selling, General & Administrative 206,500 456,235
Other Income (Expense) (5,880) (342,239)
Loss from Discontinued Operations (59,350) (659,837)
Loss from Disposal of Segments (16,840)
Loss from Discontinued Operations
per Share $ (.006) $ (.15)
NOTE 14: OPERATING SEGMENTS
The Company's reportable business segments are strategic business units
that offer distinctive products and services that are marketed through
different channels. They are managed separately because of their unique
technology, marketing and distribution requirements.
The Company had three reportable segments: Manufacturing, Product Marketing
and Construction Management. Manufacturing provides production and repair
of machine parts used in heavy industry and sales and service of heavy
equipment used primarily in mining and construction. During the year ended
February 28, 2002, the Company discontinued operations of both the
Construction Management and Product Marketing segments. Prior year segment
information has been restated in accordance with the revised organization.
The Company's accounting policies for segments are the same as those
described in the summary of significant accounting policies. Management
evaluates segment performance based on segment profit or loss before income
taxes and nonrecurring gains and losses.
F-29
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 14: OPERATING SEGMENTS (CONTINUED)
A summary of the Company's segmented information for the year ended
February 28, 2002 and 2001 is as follows:
MANUFACTURING
--------------------------
2002 2001
----------- -----------
Net sales to unaffiliated
customers $ 1,941,855 $ 1,649,954
Interest expense 243,448 130,066
Depreciation and amortization 258,706 263,084
Segment profit (loss) (40,624) (33,894)
Segment assets 6,463,671 6,683,792
Expenditures for assets 47,840 139,760
Reconciliation of Segment Information to Consolidated Amounts
Information for the Company's reportable segments relates to the
enterprise's consolidated totals as follows:
2002 2001
----------- -----------
Revenues
Total revenues for reportable
segments $ 1,941,855 $ 1,649,954
----------- -----------
Total consolidated revenue $ 1,941,855 $ 1,649,954
=========== ===========
Profit or Loss
Total profit (loss) for reportable
segments $ (40,624) $ (33,894)
Other income (expense) (276,964) (192,839)
Accretion of discount and
dividends on mandatory
redeemable preferred stock (209,333)
Gain on extinguishments of
mandatory redeemable
preferred stock 1,994,768
Loss from discontinued segments (59,350) (659,837)
General corporate expenses (1,165,981) (878,516)
----------- -----------
Total consolidated profit(loss) $(1,542,919) $ 20,349
=========== ===========
F-30
AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002 AND 2001
NOTE 14: OPERATING SEGMENTS (CONTINUED)
2002 2001
---------- ----------
Assets
Total assets of reportable
segments $6,463,671 $6,683,792
Net assets of discontinued
segments 1,025,002
General corporate assets
non-segment 16,530 --
---------- ----------
Total consolidated assets $6,480,201 $7,708,794
========== ==========
NOTE 15: RESTATEMENT OF PRIOR PERIOD
The accompanying financial statements for the year ended February 28, 2001
have been restated to record a lease not capitalized in accordance with
generally accepted accounting principles and to record stock granted for
unearned compensation in the period then ended. The effect of the
restatement was to decrease the net profit to common stockholders by
$18,026, $.004 per common share, and to increase the number of weighted
average shares outstanding.
NOTE 16: MAJOR CUSTOMERS
For the year ended February 28, 2002, IMC Phosphates Company and Vehicare
provided 10.1% and 7.8% of the Manufacturing segments revenue.
F-31
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