10-Q 1 american_10q.htm FORM 10-Q american_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended May 31, 2011
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from _______, 20    , to ______, 20 .
 
Commission File Number 33-98682
 
American Commerce Solutions, Inc.
(Exact Name of Registrant as Specified in Charter)

Delaware
 
05-0460102
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)
 
1400 Chamber Drive, Bartow, Florida 33830
(Address of Principal Executive Offices)
 
(863) 533-0326
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(g) of the Act:
 
$0.001 par value preferred stock
 
Over the Counter Bulletin Board
$0.002 par value common stock
 
Over the Counter Bulletin Board
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
 
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  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months.    Yes  ¨    No  ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.  x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x
 
As of July 14, 2011, the Registrant had 329,691,576 outstanding shares of its common stock, $0.002 par value.
 
Documents incorporated by reference: none
 


 
 

 
AMERICAN COMMERCE SOLUTIONS, INC.
 
FORM 10-Q—INDEX
 
Part I – Financial Information
     
         
Item 1.
Financial Statements
    3  
           
 
Consolidated Balance Sheets
    3  
           
 
Consolidated Statements of Operations
    4  
           
 
Consolidated Statement of Changes in Stockholders’ Equity
    5  
           
 
Consolidated Statements of Cash Flows
    6  
           
 
Notes to Consolidated Financial Statements
    7  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
    10  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    13  
           
Item 4T.
Controls and Procedures
    13  
         
Part II – Other Information
       
           
Item 1.
Legal Proceedings
    14  
           
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    14  
           
Item 3.
Defaults Upon Senior Securities
    14  
           
Item 4.
Reserved
    14  
           
Item 5.
Other Information
    14  
           
Item 6.
Exhibits
    15  
         
Signatures
    16  
 
 
2

 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
 
American Commerce Solutions, Inc. and Subsidiary
Consolidated Balance Sheets
 
 
May 31, 2011
 
February 28, 2011
 
Assets
 
(unaudited)
   
(audited)
 
Current assets:
           
Cash
  $ 12,716     $ 29,655  
Accounts receivable, net of allowance of $0 and $0, respectively
    97,881       70,839  
Accounts receivable, factored
    28,834       13,163  
Inventories
    212,808       213,557  
Note receivable, related party, net of unamortized discount of $0 and $0, respectively
    1,009,792       1,009,792  
Due from related party
    561,644       561,644  
Other receivables
    87,137       73,662  
                 
Total current assets
    2,010,812       1,972,312  
     
Property and equipment, net of accumulated depreciation of $2,297,779 and $2,250,218, respectively
    3,025,763       3,071,599  
     
Prepaid loan costs paid with common stock
    5,511       22,047  
Other assets
    11,128       11,128  
                 
    $ 5,053,214     $ 5,077,086  
                 
     
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Current portion of notes payable
  $ 1,305,019     $ 1,308,647  
Current portion of notes payable, related party
    638,125       642,925  
Accounts payable; including related party balances of $91,948 and $77,812, respectively
    261,403       307,371  
Accrued expenses
    179,172       161,195  
Accrued interest
    435,324       411,267  
                 
Total current liabilities
    2,819,043       2,831,405  
                 
     
Notes payable, net of current portion
    10,406       10,406  
Due to stockholders
    1,830,410       1,772,310  
     
Total Liabilities
    4,659,859       4,614,121  
     
Stockholders’ equity:
               
Preferred stock, total authorized 5,000,000 shares:
               
Series A; cumulative and convertible; $.001 par value; 600 shares authorized; 102 shares issued and outstanding; liquidating preference $376,125
           
Series B; cumulative and convertible; $.001 par value; 3,950 shares authorized; 3,944 shares issued and outstanding; liquidating preference $3,944,617
    3       3  
Common stock; $.002 par value; 350,000,000 shares authorized; 329,691,576 and 329,691,576 shares issued and outstanding, respectively
    659,384       659,384  
Additional paid-in capital
    19,155,574       19,155,574  
Stock subscription receivable
    (10,000 )     (10,000 )
Treasury stock, at cost
    (265,526 )     (265,526 )
Accumulated deficit
    (19,146,080 )     (19,076,470 )
                 
Total stockholders’ equity
    393,355       462,965  
                 
    $ 5,053,214     $ 5,077,086  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
3

 
 
American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Operations
Unaudited
 
 
  
Three Months Ended May 31,
 
 
  
2011
   
2010
 
Net sales
  
$
677,586
  
 
$
655,314
  
     
Cost of goods sold
  
 
326,946
  
   
321,491
  
     
Gross profit
  
 
350,640
  
   
333,823
  
     
Selling, general and administrative expenses
  
 
378,388
  
   
377,772
  
     
Loss from operations
  
 
(27,748
   
(43,949
Other income (expense):
  
             
Interest expense
  
 
(43,594
   
(47,771
                 
Interest income
  
 
1,732
  
   
26,685
  
     
Total other (expense)
  
 
(41,862
   
(21,086
     
Loss from continuing operations before income tax
  
$
(69,610
 
$
(65,035
     
Income taxes
  
 
—  
  
   
—  
  
     
Net loss available to common stockholders
  
 
(69,610
   
(65,035
     
Net loss per common share from continuing operations
  
$
(0.00
 
$
(0.00
 
  
             
Net loss per common share from discontinued operations
  
$
(0.00
 
$
(0.00
     
Weighted average number of common shares outstanding
  
 
329,169,576
  
   
283,396,566
  
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
4

 
 
American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended May 31, 2011
Unaudited
 
   
Common Stock
   
Preferred Stock
 
   
Shares
 
Amount
   
Shares
 
Amount
 
Balance, February 28, 2011
   
329,691,576
   
$
659,384
     
3,944
   
$
3
 
                                 
Net loss
                               
                                 
Balance, May 31, 2011
   
329,691,576
   
$
659,384
     
3,944
   
$
3
 
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Treasury Stock
 
Total
 
$
19,155,574
   
$
(19,076,470
)
 
$
(265,526
)
 
$
462,965
 
           
         
(69,610
)
           
(69,610
)
                             
$
19,155,574
   
$
(19,146,080
)
 
$
(265,526
)
 
$
393,355
 
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
5

 

American Commerce Solutions, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended May 31, 2011 and 2010
Unaudited
 
   
Three Months Ended May 31,
 
 
  
2011
   
2010
 
Operating activities:
  
             
Net loss
  
$
(69,610
 
$
(65,035
)
Adjustments to reconcile net loss to net cash used by operating activities:
  
             
Depreciation and amortization
  
 
47,561
  
   
48,287
  
Amortization of loan costs
  
 
16,536
  
   
15,963
  
Amortization of discount on notes receivable
  
 
—  
     
(20,708
Decrease (increase) in allowance for doubtful accounts
  
 
—  
  
   
6,682
 
(Increase) decrease in:
  
             
Accounts receivables
  
 
(27,042
   
(23,585
Inventories
  
 
749
     
13,853
 
Other assets
  
 
—  
  
   
2,618
  
Increase (decrease) in:
  
             
Accounts payable and accrued expenses
  
 
2,165
  
   
(7,882
Deferred income
  
 
—  
     
(14,097
)
 
  
             
     
Net cash used by operating activities
  
 
(29,641
)
   
(43,904
)
 
  
             
     
Investing activities:
  
             
(Increase) decrease in other receivables
  
 
(13,475
)
   
(12,258
Acquisition of property and equipment
  
 
(1,725 
)
   
—  
 
     
Net cash used by investing activities
  
 
(15,200
)
   
(12,258
)
 
  
             
     
Financing activities:
  
             
(Increase) decrease in due from factor
  
 
(15,671
)
   
5,000
 
Proceeds from notes payable and long-term debt
  
 
30,100
  
   
11,625
  
Principal payments on notes payable
  
 
(44,627
)
   
(10,962
)
Increase in due to stockholders
  
 
58,100
  
   
58,100
  
 
  
             
Net cash provided by financing activities
  
 
27,902
  
   
63,763
  
 
  
             
     
Net (decrease) increase in cash
  
 
(16,939
   
7,601
 
     
Cash, beginning of period
  
 
29,655
  
   
10,289
  
 
  
             
Cash, end of period
  
$
12,716
  
 
$
17,890
  
 
  
             
     
Supplemental disclosures of cash flow information and noncash investing and financing activities:
  
             
Cash paid during the period for interest
  
$
38,112
  
 
$
7,567
  
 
During the three months ended May 31, 2011 and 2010, the Company increased notes payable by $6,099 and $6,099, respectively for an accrual of interest.
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
6

 
 
American Commerce Solutions, Inc. and Subsidiary
 
Notes to Consolidated Financial Statements
As of May 31, 2011 and for the
Three Months Ended May 31, 2011 and 2010
 
1. BACKGROUND INFORMATION
 
American Commerce Solutions, Inc., located and operating in West Central Florida, was incorporated in Rhode Island in 1991 under the name Jaque Dubois, Inc., and was re-incorporated in Delaware in 1994. In July 1995, Jaque Dubois, Inc. changed its name to JD American Workwear, Inc. In December 2000, the stockholders voted at the annual stockholders meeting to change the name of JD American Workwear, Inc. to American Commerce Solutions, Inc. (the “Company”).
 
The Company is primarily a holding company with one wholly owned subsidiary; International Machine and Welding, Inc. is engaged in the machining and fabrication of parts used in heavy industry, and parts sales and service for heavy construction equipment.
 
2. GOING CONCERN
 
The Company has incurred substantial operating losses since inception and has used approximately $29,641 of cash in operations for the three months ended May 31, 2011. The Company recorded losses from continuing operations of $69,610 and $65,035 for the three months ended May 31, 2011and 2010, respectively. Current liabilities exceed current assets by $808,231 at May 31, 2011. Additionally, the Company is in default on several notes payable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative operating trends, raise additional capital, and obtain debt financing.
 
Management has revised its business strategy to include expansion into other lines of business through the acquisition of other companies in exchange for the Company’s stock to facilitate manufacturing contracts under negotiation. In conjunction with the anticipated new contracts, management is currently negotiating new debt and equity financing, the proceeds from which would be used to settle outstanding debts at more favorable terms, to finance operations, and to complete additional business acquisitions. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern.
 
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
 
3. RECENT ACCOUNTING PRONOUNCEMENTS
 
Recent accounting pronouncements issued by FASB (including EITF), the AICPA and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
 
4. STOCK BASED COMPENSATION
 
At May 31, 2011, the Company has two stock-based employee compensation plans, both which have been approved by the shareholders.
 
The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
 
The value of each grant is estimated at the grant date using the Black-Scholes model. There were no options granted or exercised during the three months ended May 31, 2011 and 2010.
 
 
7

 
 
5. BASIS OF PRESENTATION
 
In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended May 31, 2011 and 2010, (b) the financial position at May 31, 2011, and (c) cash flows for the three month periods ended May 31, 2011 and 2010, have been made.
 
The unaudited consolidated financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in condensed financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the fiscal year ended February 28, 2011. The results of operations for the three month period ended May 31, 2011 are not necessarily indicative of those to be expected for the entire year.
 
6. ACCOUNTS RECEIVABLE, FACTORED
 
During the three months ended May 31, 2011 and 2010, the Company factored receivables of approximately $279,134 and $508,990, respectively. In connection with the factoring agreement, the Company incurred fees of approximately $6,900 and $17,100 during the three months ended May 31, 2011 and 2010, respectively. As of May 31, 2011 and 2010, certain customers had remitted $300 and $0, respectively, to the Company on factored receivables; the Company has recorded these amounts as due to the factor and included them in accrued expenses on the accompanying consolidated balance sheets. Any and all of the Company’s indebtedness and obligations to the Factoring Company is guaranteed by two stockholders and collateralized by the Company’s inventory and fixed assets.
 
7. INVENTORIES
 
Inventories consist of the following:
 
 
May 31, 2011
 
May 31, 2010
 
Work-in process
 
$
8,673
   
$
9,041
 
Finished goods
   
204,135
     
179,271
 
Raw materials
   
     
 
Total inventories
 
$
212,808
   
$
188,312
 
 
8. RELATED PARTY TRANSACTIONS
 
During the three months ended May 31, 2011 and 2010, two executives who are stockholders of the Company deferred $58,100 and $58,100, respectively, of compensation earned during the period. The balance due to stockholders at May 31, 2011 and 2010, totaled $1,830,410 and $1,598,010, respectively. The amounts are unsecured, non-interest bearing, and have no specific repayment terms; however, the Company does not expect to repay these amounts within the next year.
 
 
8

 

Certain notes to related parties have conversion features, whereby, at the holder’s option, the notes may be converted, in whole or in part upon written notice, into the Company’s common shares at a discount to the fair market value.  The Company considered the value of the beneficial conversion features of the notes, and when deemed material, recorded the beneficial conversion value as deferred financing costs and amortized the amount over the period of the loan, charging interest expense.   The convertible notes are to related parties, who have the majority of the voting rights.  The related parties have waived their conversion rights since the inception of these notes until such time that the Company’s market price of shares rise sufficiently or the Company amends the capital structure (through a reverse split or increase in the authorized shares) or combination of all factors, whereby a conversion of any single note, or portion thereof, will not exceed the authorized shares of the Company.

A note to a related party, dated October 14, 2009 totaling $34,500,  is in default,  A provision in the note, in regards to default, states that voting control of 51% of the maker of the note shall be transferred until such time as the full principal, interest and penalty (10%) has been paid.  The related party has common management to the Company’s controlling vote, whereby the default provision, if exercised, would not change from the existing controlling vote.
 
The above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties.
 
9. SEGMENT INFORMATION
 
The Company had two reportable segments during 2011 and 2010; manufacturing and other. For the three months ended May 31, 2011 and 2010 the Company has included segment reporting.
 
For the three months ended May 31, 2011, information regarding operations by segment is as follows:
 
   
Manufacturing
   
Other (a)
   
Total
Continuing
Operations
 
                   
Revenue
 
$
677,586
         
$
677,586
 
Interest expense
 
$
30,782
     
12,812
     
43,594
 
Depreciation
 
$
47,561
             
47,561
 
Net income (loss)
 
$
59,060
     
(128,670
   
(69,610
Property and equipment, net of accumulated depreciation
 
$
3,025,763
             
3,025,763
 
Segment assets
 
$
3,653,742
     
1,399,472
     
5,053,214
 
 
For the three months ended May 31, 2010, information regarding operations by segment is as follows:
 
   
Manufacturing
   
Other (a)
   
Total
 
                   
Revenue
  $ 655,314           $ 655,314  
Interest expense
  $ 35,311     $ 12,460     $ 47,771  
Depreciation
  $ 48,287     $       $ 48,287  
Net income
  $ 60,529     $ (125,564 )   $ (65,035 )
Property and equipment, net of accumulated depreciation
  $ 3,211,667     $       $ 3,211,667  
 
(a)
The “other” segment is mainly related to the holding company expenses and general overhead, as well as the stock based compensation awards.
 
Segment 1, manufacturing, consists of International Machine and Welding, Inc. and derives its revenues from machining operations, sale of parts and service.
 
The manufacturing segment, International Machine and Welding, Inc. has a broad and diverse base of customers. The segment does not rely on any single customer, the loss of which would have a material adverse effect on the segment. However, this segment does generate a significant amount of revenues from sales and services provided to three different industries.
 
 
9

 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
 
This FILING contains forward-looking statements. The words “anticipated,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “will,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect the Company’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond the Company’s control. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those ANTICIPATED, believed, estimated, or otherwise indicated. Consequently, all of the forward-looking statements made in this FILING are qualified by these cautionary statements and there can be no assurance of the actual results or developments.
 
The Company cautions readers that in addition to important factors described elsewhere, the following important facts, among others, sometimes have affected, and in the future could affect, the Company’s actual results, and could cause the Company’s actual results during 2012 and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company.
 
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 three month periods ended May 31, 2011 and 2010. This discussion and analysis is intended to assist in understanding the financial condition and results of operation of the Company and its subsidiary. This section should be read in conjunction with the consolidated financial statements and the related notes.
 
RESULTS OF OPERATIONS
 
MANUFACTURING SEGMENT
 
The manufacturing subsidiary, International Machine and Welding, Inc., 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.
 
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2011 AND 2010

General
 
The Company’s consolidated net sales increased to $677,586 for the three months ended May 31, 2011, an increase of $22,272 or 3%, from $655,314 for the three months ended May 31, 2010.  Management believes the increase is due to customers requiring necessary repairs previously deferred over the last two years.
 
Gross profit for the consolidated operations increased to $350,640 for the three months ended May 31, 2011 from $333,823 for the three months ended May 31, 2010. Gross profit as a percentage of sales increased during the three months ended May 31, 2011 to 52% from 51% during the three months ended May 31, 2010.
 
 
10

 
 
Consolidated interest expense for the three months ended May 31, 2011 was $43,594 compared to $47,771 for the three months ended May 31, 2010. The decrease in interest expense is due to the Company reducing the overall debt during the three months ended May 31, 2011.
 
Consolidated interest income for the three months ended May 31, 2011 was $1,732 compared to $26,685 for the three months ended May 31, 2010. The decrease in interest income is due to the discount on the note receivable becoming fully amortized during the three months ended May 31, 2011.
 
Selling, general and administrative expenses increased to $378,388 for the three months ended May 31, 2011 from $377,772 for the three months ended May 31, 2010, an increase of $616 or .1%.
 
The Company incurred a net consolidated loss of $69,610 for the three months ended May 31, 2011 compared to $65,035 net loss for the three months ended May 31, 2010.
 
Manufacturing Segment
 
The manufacturing operation, International Machine and Welding, Inc. provided net sales of $677,586 for the three months ended May 31, 2011 compared to $655,314 for the three months ended May 31, 2010. The machining operations provided $178,329 or 26% of net sales with parts and service providing $499,257 or 74% of net sales for the three months ended May 31, 2011 as compared to machining operations contributing $164,759 or 25% of net sales with parts and service providing $490,555 or 75% of net sales for the three months ended May 31, 2010.
 
Gross profit from International Machine and Welding, Inc. was $350,640 for the three months ended May 31, 2011 compared to $333,823 during the three months ended May 31, 2010 providing gross profit margins of 52% and 51%, respectively.
 
Selling, general and administrative expenses for International Machine and Welding, Inc. were $260,797 for the three months ended May 31, 2011 compared to $243,395 for the three months ended May 31, 2010.
 
Interest expense was $30,782 for the three months ended May 31, 2011 compared to $35,311 for the three months ended May 31, 2010. The decrease in interest expense is due to the Company reducing the overall debt.
 
The Company does not have discrete financial information on each of the three manufacturing divisions, nor does the Company make decisions on the divisions separately; therefore they are not reported as segments.
 
LIQUIDITY AND CAPITAL RESOURCES
 
During the three months ended May 31, 2011 and 2010, the Company used net cash for operating activities of $29,641 and $43,904, respectively.
 
During the three months ended May 31, 2011 and 2010, the Company used funds for investing activities of $15,200 and $12,258, respectively.
 
During the three months ended May 31, 2011 and 2010, the Company provided cash from financing activities of $27,902 and $63,763, respectively. The decrease in net cash provided by financing activities is due to the reduced reliance on factoring receivables and reduction in proceeds from lending arrangements, as operations decreased comparative cash requirements.
 
Cash flows from financing activities provided for working capital needs and principal payments on long-term debt through fiscal 2011. As of May 31, 2011, the Company had a working capital deficit of $808,231. To the extent that the cash flows from financing activities 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.
 
Although management has reduced debt, new financing to finance operations and to facilitate additional production is still being sought. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern.
 
 
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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.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The accompanying consolidated financial statements include the activity of the Company and its wholly owned subsidiary. All intercompany transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews its estimates, including but not limited to, recoverability of long-lived assets, recoverability of prepaid expenses and allowance for doubtful accounts, on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates are reasonable; however, actual results could differ from these estimates.
 
We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.
 
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimate on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends. If the financial condition of our customers were to deteriorate, additional allowances may be required.
 
We value our inventories 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. We write down inventory balances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
 
We value our property and equipment at cost. Amortization and depreciation are calculated using the straight-line and accelerated methods of accounting over the estimated useful lives of the assets. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
 
Fair value estimates used in preparation of the consolidated financial statements are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s notes payable is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Recent Accounting Pronouncements” in Part I, Item 1 of this Form 10-Q.
 
 
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
ITEM 4(T).
CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management conducted its evaluation based on the framework in Internal Control – Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at May 31, 2011, such disclosure controls and procedures were not effective.
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our management assessed our internal control over financial reporting based on the Internal Control – Integrated Framework issued by the COSO. Based on the results of this assessment, our management concluded that our internal control over financial reporting was not effective as of May 31, 2011 based on such criteria.
 
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met under all potential conditions, regardless of how remote, and may not prevent or detect all errors and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Limitations on the Effectiveness of Controls
 
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on their evaluation as of the end of the period covered by this report, management concluded that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the first fiscal quarter ended May 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Auditor’s Report on Internal Control over Financial Reporting
 
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
 
 
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PART II
 
ITEM 1.
LEGAL PROCEEDINGS
 
None.
 
ITEM 1A.
RISK FACTORS
 
Not applicable.
 
ITEM 2. 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the three months ended May 31, 2011, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
The Company has defaulted on a total of $1,153,597 of notes payable. The amount of principal payments in arrears was $732,022, with an additional amount of $421,575 of interest due at May 31, 2011. These defaults are the result of a failure to pay in accordance with the terms agreed.
 
ITEM 4. 
RESERVED
 
ITEM 5.
OTHER MATTERS
 
None
 
 
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ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
 
EXHIBIT INDEX
 
 
Incorporated
Documents
  
 
SEC Exhibit Reference
  
 
Sequentially
Numbered
     
31.1
  
Certification of the Chief Financial Officer
  
 
     
31.2
  
Certification of the Chief Executive Officer
  
 
     
32.1
  
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbaenes-Oxley Act of 2002 of the Chief Financial Officer
  
 
     
32.2
  
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbaenes-Oxley Act of 2002 of the Chief Executive Officer
  
 
 
(b) Reports on Form 8-K
 
None
 
 
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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: July 12, 2011
By:
/s/  Daniel L. Hefner
 
   
Daniel L. Hefner, President
 
       
Date: July 12, 2011
By:
/s/   Frank D. Puissegur
 
   
Frank D. Puissegur, CFO and Chief Accounting Officer
 
 
 
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