**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

**FORM10-KSB**

 

**(Mark One)**

 
| **ý** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                              |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                   |
|       | **For  the fiscal year ended February 29, 2004**                                                                                                                                                                                                                                                                                                                                                       |
|       |                                                                                                                                                                                                                                                                                                                                                                                                   |
| **OR**     |
|       |                                                                                                                                                                                                                                                                                                                                                                                                   |
| **o**      | **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                              ** |

 

**Commissionfile No. 33-98682**

 

**AMERICANCOMMERCE SOLUTIONS, INC.**

(Exact name of registrant as specified inits charter)

 
| **Delaware**                                                    |   | **05-0460102**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **1400 Chamber Dr, Bartow, Florida 33830**                      |
| (Address of principal executive offices)  (Zip Code)            |

 

Registrant’stelephone number, including area code:    **(863) 533-0326**

 

Securitiesregistered pursuant to Section 12(b) of the Act:     **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:     **None**

 

Indicate by check mark whether theregistrant (1) has filed all reportsrequired to be filed by Section 13 or15(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 suchreports), and (2) has been subject to such filing requirements for the past 90days. Yes ý No o

 

Check if there is no disclosure ofdelinquent filings pursuant to Item 405of Regulation S-K contained herein,and no disclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-KSB or any amendment to this Form 10-KSB. ý.

 

State the issuer’s revenues for itsmost recent fiscal year: $2,084,205.

 

The aggregate market value of thevoting and non-voting common equity ofthe registrant held by non-affiliatesof the registrant at February 29, 2004 was approximately $1,753,149 based uponthe closing sale price of $.03 for the Registrant’s Common Stock, $.002  par value, as reported by the NationalAssociationof Securities Dealers OTC Bulletin Board on February 29, 2004.

 

As of February 29, 2004 theregistrant had 140,573,824 shares of Common Stock, $.002 par value,outstanding.

 

 

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American Commerce Solutions, Inc.

Annual Report on Form 10-KSB

For the Fiscal Year Ended February 29, 2004

 

TABLE OF CONTENTS

 
| PART I    |                                                                                                               |
|-----------|--------------------------------------------------------------------------------------------------------------------|
|      |                                                                                                               |
| Item 1.   | Description  of Business                                                                                           |   |
| Item 2.   | Description  of Property                                                                                           |   |
| Item 3.   | Legal  Proceedings                                                                                                 |   |
| Item  4.  | Submission  of Matters to a Vote of Security Holders                                                               |   |
|      |                                                                                                               |
| PART II   |                                                                                                               |
|      |                                                                                                               |
| Item  5.  | Market  for Common Equity and Related Stockholder Matters                                                          |   |
| Item  6.  | Management’s  Discussion and Analysis or Plan of Operation                                                    |   |
| Item 7.   | Financial  Statements                                                                                              |   |
| Item  8.  | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                              |   |
| Item 8A.  | Controls and  Procedures                                                                                           |   |
|      |                                                                                                               |
| PART  III |                                                                                                               |
|      |                                                                                                               |
| Item  9.  | Directors,  Executive Officers, Promoters, and Control Persons; Compliance with Section  16(a) of the Exchange Act |   |
| Item 10.  | Executive Compensation                                                                                             |   |
| Item  11. | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                   |   |
| Item  12. | Certain  Relationships and Related Transactions                                                                    |   |
| Item 13.  | Exhibits and  Reports on Form 8-K                                                                                  |   |
| Item  14. | Principal  Accountants Fees and Services                                                                           |   |

 

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This Annual Report on Form 10-KSBcontains forward-looking statementswithin the meaning of the PrivateSecurities Litigation Reform Act of 1995 and are subject to risks, uncertainties,and other factors, which could cause actual results to differ materially fromthose expressed or implied by such forward-looking statements.  See “Item 1. Description of Business—ForwardLookingStatements.”

 

PART I

 

ITEM1.  DESCRIPTIONOF BUSINESS.

 

American Commerce Solutions, Inc.,was incorporated in Rhode Island in May  1991 under the name Jaque Dubois, Inc. and was re-incorporatedin Delaware in 1994.  In July 1995, theCompany’s name was changed to JD American Workwear, Inc.  In December 2000 the shareholders voted tochange the name of the company to American Commerce Solutions, Inc. to moreaccurately portray the activities of the company.

 

American Commerce Solutions, Inc.(the “Company” or “American Commerce”) is a multi-industry holding company forits operating subsidiaries.  As of theclose of its most recently completed fiscal year end, the Company had twowholly owned subsidiaries operating in the manufacturing segment and thefiberglass segment.  The operatingsubsidiaries are International Machine and Welding, Inc. located in Bartow,Florida and Chariot Manufacturing Company, Inc. located in Tampa, Florida.

 

The Company intends to expand itsholdings by acquiring additional subsidiaries to facilitate its businessplan.  The current business plan hasbeen in development since June 2000.

 

InternationalMachine and Welding, Inc. provides specialized machiningservicesfor heavy industry.  Target customers inthe region include mining, agriculture processing, maritime, powergeneration and industrial machinery companies.  Additional operations include heavy equipment service to theconstruction,forestry, waste and scrap industries. The operation provides complete service of the equipment, whichincludes rebuilding undercarriages, engines, transmissions, final drivesand hydraulics.  The effective servicearea forthe operation located in the Southeastern region of the United States is aprimeand lucrative market for such services. Growth in this region of the United States (population,infrastructure, and building) has created long term needs forconstruction equipment.  All of thesemachines require periodic maintenance, and at certain points majoroverhauls.  In addition to its 38,000squarefoot facility, the operation also provides fully equipped field service vehicles somachines do not have to be removed from the work site.

 

International Machine and Welding,Inc. also sells OEM and after-marketrepair parts for heavyequipment.  The operation has anextensive cross-reference listing and network of sources.  One of the major competitive advantages ofthe operationis its ability to determine exactly what the customer needs and fulfill therequirement.  In many cases, thecustomer may not have service manuals or to be able to identify partnumbers.  If a customer has more thanone typeof machine, which is quite common, they may have to contact a number of differentsuppliers to get parts for multiple machines. Our operation identifies the required parts and arranges thenecessary repairs.  As a result, thecustomer only has to make one phone call for all of their needs.  This also makes InternationalMachine and Welding, Inc. an attractive alternative for sales to customersoutside the United States.  Orders canbe accumulated throughout the month and be sent on consolidatedshipments.  This has created a nichemarket for the direct parts sales division.  The operation currently has two customer relationshipsin the Caribbean.  Management believesthat this market has not been fully targeted by its competitors andoffers potential as a source of increased business.

 

ChariotManufacturing Company, Inc., which was acquired on October 11, 2003 from arelated party, manufactures motorcycle trailers with fiberglass bodies.  These trailers are sold both on the retailand dealer levels.  The company alsoprovides non warranty repairs, modification of existing Chariot Trailers.

 

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The Board of Directors of AmericanCommerce Solutions, Inc. has determined that it will seek to acquire additionalfiberglass manufacturing operations and construction operations that utilizeheavy equipment.  Additional segmentsbeing considered are manufacturing supply operations, consumer products andcommercial construction support services.

 

ACQUISITIONSAND DIVESTITURES

 

The Company sold back to its originalfounder the assets and certainliabilities 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 thesetransactions have been reported in their respective Form 10-QSB for the period endedMay 31, 2001 and November 30, 2001 and are incorporated by reference herein.

 

On June 1, 2000, the Companycompleted the purchase of InternationalMachine and Welding, Inc. byacquiring all of the outstanding capital stock of its holdingcompany, Patina Corporation for a total purchase price of $4,446,159.  The acquisition was accounted for using thepurchase method of accounting and, accordingly, International Machine and Welding,Inc.’s results of operations have been included in the consolidated financialstatements since the date of acquisition. The acquisition was funded by the issuance of 9,800 shares ofSeries C 6% Preferred Stock.

 

On June 1, 2000, the Companycompleted the purchase of Rhode Island TruckandEquipment Corp. d/b/a International Paving, Inc. by acquiring all its outstandingcapital stock for a total purchase price of $238,000.  The acquisitionwas funded by the issuance of 200,000 shares of common stock.

 

On June 1, 2001, the Companydiscontinued the operations of its JD AmericanWorkwear,Inc. subsidiary and exchanged certain assets and liabilities with the Presidentof the subsidiary for 725,000 shares of the Company’s common stock and notespayable of $43,115.  On October 31,2001, the Company returned all of the stock of Rhode Island Truck andEquipment Corp. to its original owners in exchange for 155,000 shares of theCompany’s common stock.

 

OnOctober 11, 2003, the Company acquired 100 percent of the outstanding commonstock of Chariot Manufacturing Company, Inc. from a related party for$360,000.  The acquisition was financedthrough the assignment of a note receivable valued at $150,000, $30,000 worthof common stock and a note payable for $180,000.

 

BUSINESSSTRATEGY

 

The Company has adopted a businessstrategy that focuses on expansion through acquisition.  The key elements of acquisition targets mustinclude solid management, profitability, geographical locations compatibilityand/or undervalued companies that can be enhanced by shared services andopportunities.

 

Under the current strategy, theCompany is developing three divisions of its chosen segment: Manufacturing anda new segment within the manufacturing industry:  Fiberglass.

 

MANUFACTURINGSEGMENT

 

The Manufacturing Segment throughInternational Machine and Welding, Inc.offers a broad range of products andservices to heavy industry through its three divisions.  The operations of Division 1 providespecialized machining of very large components and machinery repair to industries suchas aerospace, agricultural processing, chemical, defense, mining, maritime andpower generation.  Our 38,000 square foot facility located inBartow, Florida is one of the only operations in the Southeastcapable of machining components up to 55 feet in length and/or 20 feet indiameter.  Division 2 provides heavyequipment service (parts and labor), which includes repair and bondedrebuilds of engines, tracks, undercarriages, transmissions, final drives andhydraulic systems on heavy equipment.  Theequipment we repair is from the heavy construction industry

 

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includingbulldozers, scrapers, loaders, excavators, large tractors, rollers,etc.  The division provides field service viaequipped service trucks to provide repairs at the customer’s site.  Division 3 sells replacement parts tothe heavy equipment market, directly to the end user with most of the partsexported outside the United States.

 

FIBERGLASSSEGMENT

 

The Fiberglass Segment throughChariot Manufacturing Company, Inc. produces a line of fiberglass trailerssuitable for a wide range of uses.  Someof the uses include the transportation of motorcycles, ATVs, personalwatercraft, small vehicles, vending, mobile fiber optic workstations, utilityand other specialized applications.  Thetrailers are available in both open and enclosed configurations.  The fiberglass unibody construction of theproduct is stronger, yet lighter than conventional aluminum and steeltrailers.  The Chariot trailer has asteel tube sub frame which is tucked up inside the fiberglass body reducingdrag.  Since the body is molded infiberglass, the shape can be optimized to reduce drag.  The overall shape, coupled with the light weightof the trailer also improves gas mileage while towing.  The trailers can be fitted with optionalfeatures such as custom interiors and sleeper options.

 

MANUFACTURINGAND SOURCES OF SUPPLY

** **

Manufacturing Segment

 

Supplies and parts used byInternational Machine and Welding, Inc. arepurchasedfrom several major suppliers including Caterpillar, John Deere, Case and othermajor manufacturers and after market parts suppliers.  The machining operations purchase from many suppliersbased on the need of specific jobs. Althoughthe operations do not have any long-term contracts with any of its suppliers,management believes that it has excellent business relationships with its currentsuppliers and it is not exposed to any significant risk in the event any onesource of supply is discontinued, because there are many suppliers.

 

Fiberglass Segment

 

Likewise, Chariot ManufacturingCompany, Inc. has a ready supply of material available through both seasonedand new suppliers and vendors.

 

MARKETINGAND SALES

 

Manufacturing Segment

 

International Machine and Welding,Inc. operates three divisions at onelocation.  Division 1 sales have traditionally come from industries within a100-mileradius of its facilities requiring specialized machining applications.  Direct salesmen have establishedrelationships with specific customers and the Company has expanded the businessrelationship through quality, rapid turn and value.  While this business is quite lucrative, visibility islimited.  The operationintends to expand its operations in the OEM market, where the subsidiaryprovides components to manufacturers of large machines.  These types of accounts generally involve annualcontracts with three-month rolling schedules. The expansion of the market also is expected to increase the serviceableterritory from the Southeast to include the entire United States.

 

Direct sales personnel who primarilytarget mid-tier accounts handle salesfor Division 2 and 3.  We believe that this broad niche market islargely untappedby the larger factory-sponsored operations which cater specifically to very largeaccounts.  Margins are typically veryslim in these accounts and a large percentage of customer base isrepresented by very few accounts. Because we are an independent repair facility, we can provide service toa much broader base of customers with greater margins than the largefactory-sponsored competitors.

 

5

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FiberglassSegment

 

Chariot Manufacturing Company, Inc.sells through a network of dealers throughout the United States, or directly toindividuals. Inquiries from individuals come from a number of sources includingthe Company’s participation in industry events, the Company’s web site and frompeople who have seen the product on the road and called the Company’s phonenumber, (which is on every trailer produced either in graphic form or moldedinto the fiberglass body).  Manyinquiries result from referrals from existing customers.  The Company has a 28 year history and is wellknown in the industry.  Recently, theCompany has begun to pursue OEM business, where trailers are sold to companiesrather than individuals or dealers. These companies will install their products into the trailer and sellthe package to the end user.

 

COMPETITION

 

Manufacturing Segment

 

The principal competitors of theManufacturing Division consists ofregional companies such as SouthernMachinery, Florida Plating and Machine, Arroyo and Florida Metallizing in themachining operations and national corporations such as Ringhaver Equipment,Caterpillar, and Case repair facilities in the heavy equipment parts andservice category.  Management believesthat the ability to rapidly turn goods or to provide parts on a timely basis givesit a competitive advantage.  We are ableto ship parts directly to the consumer, usually on the same day asthe order or to return all service work within the time specified either bycompleting the work at the customers site or because of immediate turnaroundcapabilities.

 

Fiberglass Segment

 

Chariot Manufacturing’s principalcompetitors include companies such as Pace American, Hallmark, Feather Lightand Wells Cargo.  Chariot iscompetitively priced when compared to comparably equipped trailers.  Chariot is positioned in the market as apremium product.  Many features arestandard equipment on the Chariot, while they are options on competitiveproducts.  Chariot’s aerodynamicstyling, lightweight, unibody construction, balance, resale value and standardfeatures differentiate it from the competition.

 

CUSTOMERDEPENDENCE

 

Manufacturing Segment

 

International Machine and Welding,Inc. has a broad and diverse base ofcustomers.  The division does not rely on any single customer, the loss ofwhich wouldhave a material adverse effect on the segment. This division does generate a significant amount of revenues from salesand services provided to three different industries.  The construction industry accounted forapproximately 34% of the division’s revenues in fiscal  2004 compared to 31.7% in fiscal 2003, while the industrial and miningindustries accounted for approximately 43.5% and 21% in fiscal  2004 compared to 26.6% and 29.3% in fiscal 2003, respectively, of the division’s total revenues.  Due to these concentrations, the results ofoperations of the division could be affected by changes in the economic,regulatory, or other related conditions impacting on these industries.

 

Although thedivision does not rely on a single customer, three of the Company’s customersaccounted for approximately 45.4% of total revenues.  These customers were Vehicare 21.8%, IMC Phospates Company 16.3%and Kovacs 7.3%.

 

FiberglassSegment

 

ChariotManufacturing Company, Inc. has a wide base of customers.  The loss of a single customer or dealerwould not have a material adverse effect on the business.  The primary use of the product is totransport motorcycles.  The motorcycleindustry growth has been strong in recent years.  Sales for the Company’s products, however, are not tied to salesof new motorcycles.

 

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EMPLOYEES

 

At February 29, 2004, the Company andits subsidiaries had 24 full-time employees. Of these workers, two are performing executive, management and marketingfunctions, two are performing accounting, financial and office functions, threeprovide sales functions and the remainder provide support, maintenance orfulfill shop operation requirements. The parent operation has three full time employees.  The Manufacturing segment employs 20 fulltime employees.  Chariot ManufacturingCompany, Inc. employs 1 full time employee while contracting substantially allof the fiberglass activity.

 

FUTUREACQUISITIONS

 

The Company remains dedicated to its basicbusiness plan, which calls for growth through acquisition of strategic businessopportunities.  Although discussions andnegotiations continue with multiple companies, the most anticipatedopportunities remain to be within the fiberglass industry.  As of the filing of this document, we havenot completed the close of AFG.  Allparties remain committed to the completion of the transaction however, finaldocuments nor a letter of intent has been completed as of the date of thisfiling.  The second opportunity is afiberglass recycling company.  Progressis being made daily with all requisite functions, i.e., accounting, legal andstructural, however, this has not been completed as of the date of this filing.

 

FORWARDLOOKING STATEMENTS

 

This Annual Report on Form10-KSB  (including the Exhibits hereto)maycontain  “forward-lookingstatements”  within the meaning of thesafe harbor provisions of the Private Securities Litigation Reform Act of1995, 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 developmentactivities and the opportunities available within its market areas, capitalspending plans, financing sources, projections of financial results or economicperformance, capital structure, the effects of competition, statements ofplans, expectations,or objectives of the Company, and the business of the Company and itssubsidiaries.  These forward-lookingstatements are typically identified by words or phrases such as “believe,”“expect,”  “anticipate,” “plan,” “estimate,”“intend,”  and other similar words and expressions, orfuture or conditional verbs such as “should,” “would,” and “could” and othercharacterizations of future events or circumstances.  In addition, the Company may from time to time makesuch written or oral  “forward-lookingstatements”  in future filings with theSecurities and Exchange Commission (including exhibits thereto), in its reports tostockholders, and in other communications made by or with the approval ofthe Company.

 

These forward-looking statementsreflect the current views of the Company at the time they are made and arebased on information currently available to the management of the Company andupon current expectations, estimates, and projections regarding the Company andits industry, management’s beliefs with respect thereto, and certainassumptions made by management. These forward-looking statements are notguarantees of future performance and are subject to risks, uncertainties, andother factors (many of which are outside the control of the Company), whichcould cause actual results to differ materially from those expressed or impliedby such forward-looking statements. Such forward-looking statements speak only to the date that suchstatements are made, and the Company undertakes no obligation to update anyforward-looking statements, whether as the result of new information, futureevents, the occurrence of unanticipated events, or otherwise.  The following sets forth some, but notnecessarily all, of the factors that may cause the Company’s actual results tovary materially from those which are the subject of any forward-lookingstatements.

 

RISKFACTORS

 

Accumulated Deficit and OperatingLosses and Anticipated Earnings; Explanatory Language in Auditor’s Report.  The Company had an accumulated

 

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deficit at February 29, 2004 of $13,563,062and net loss to common shareholders of $1,644,144 for the year ended February29, 2004.  The Company had anaccumulated deficit of $11,918,918, and net loss to common shareholders of$347,910 for the year ended February 28, 2003. The Company’s financial statements are presented on the basis that theCompany is a going concern, which contemplates the realization of assets andthe satisfaction of liabilities in the ordinary course of business.  While there can be no assurance of thisoutcome, management believes its plan of operation will allow the Company toachieve this goal.

 

Growth Plans and Risk ofExpansion.  The Company adopted and implementeda business strategy, which seeks growth and expansion through the acquisitionof synergistic companies.  Accordingly,the growth and financial performance of the Company will depend, in large part,upon the Company’s ability to identify and locate suitable acquisitions, tomanage such growth and the resultant diverse operations, to manage the marginsof the acquired operations, and to attract, hire, train, and retain qualifiedsupervisory personnel and other operational employees to meet the Company’sneeds as it expands, as well as the availability of sufficient workingcapital.  Difficulties resulting fromthe failure of the Company to manage and control its growth could materiallyadversely affect the Company’s operating results and financial condition.

 

No Assurance of Acquisitions.  Although the Company has had preliminarydiscussions with potential acquisition candidates, the Company has onlycompleted one such transaction in the last fiscal year.  The Company does have current understandingsor arrangements (oral or written) relating to specific acquisitions, but cannot give specific timing to close the potential acquisitions.  Until binding agreements are in place therecan be no assurance that any proposed acquisition will be consummated or thatadequate, acceptable and affordable financing will be available.

 

Furthermore, to the extent thatacquisitions are consummated, the Company’s success or failure will depend uponmanagement’s ability to integrate the acquired business into the company andimplementation of adequate management skills and systems necessary toaccomplish the Company’s strategy. Additionally, the Company is unable to predict whether or when, onceintegrated, any acquisition may achieve comparable levels of revenues, profitability,or productivity as existing Company operations, or otherwise perform asexpected  (including achievement ofexpected synergies or financial benefits). The Company may face competition for desirable acquisitions fromentities that may possess greater resources than the Company.

 

Acquisition Risks. Acquisitionsinvolve a number of special risks, some orall ofwhich could have a material adverse effect on the Company’s results of operationsor financial condition.  Such risksinclude, but are not limited to, the diversion of management’s attentionfrom core operations, difficulties in the integration of acquiredoperations and retention of personnel, customers, andsuppliers, unanticipated problems or legal liabilities, tax and accountingissues,and the inability to obtain all necessary governmental and other approvalsand consents.

 

Need for Additional Financing.  Cash flows from the sale of securitiesprovided the working capital needs and principal payments on long-term debtthrough most of fiscal 2004.  However,the Company will need to obtain additional financing in order to finance itsacquisition and growth strategy.  Therecan be no assurance that debt or equity financing will be available to theCompany on acceptable terms, if at all. If the Company does require additional financing and it cannot beobtained or the terms of such financings are unfavorable, it may have amaterial adverse impact on our operations and profitability, and the Companymay need to curtail its business plan and strategy.

 

Loss of Certain Members of OurManagement Team Could Adversely Affect theCompany.  The Company is dependent to a significantextent on the continued efforts and abilities of our Chairman,Robert E. Maxwell and President and Chief Executive Officer, Daniel L.Hefner.  If the company were to lose theservices of either of these individuals or other key employees orconsultants before a

 

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qualified replacement could be obtained,the business could be materiallyaffected.

 

Expected Volatility in SharePrice.  The market price of our stockhastraded in a wide range. From March 1, 2001 through February 29,2004 the price of our common shares has ranged from $0.01 to $0.625 pershare.  The price of our commonstock may be subject to fluctuations in response to quarter-to-quarter variationsin operating results, creation or elimination of funding opportunities,restriction of the acquisition plans, and favorable or unfavorablecoverage of our officers and Company by the press.

 

ITEM 2. DESCRIPTION OF PROPERTY

 

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 CommerceSolutions.  A note payable to ValricoState Bank, originally at $875,000 encumbers this building.  As of February 29, 2004, the balance on thisnote is $833,981.  This note needs to berefinanced by November 2005.  The noteand mortgage in favor of Valrico State Bank allowed the Company to negotiate asettlement with GE Capital Small Business and other creditors, substantiallyreducing debt service and generating a one time gain of $812,014, which wasrecognized during fiscal year ending February 28, 2003.

 

Chariot Manufacturing Co., Inc. hasits corporate offices at the International Machine and Welding facilities inBartow, Florida.  Its manufacturingoperations are housed in approximately 12,500 square foot temporary facilitylocated in Tampa, Florida.  The landthat the facility is housed on, approximately 1.5 acres, is leased by AFG, Inc.one of Chariot’s key fiberglass suppliers. Since Chariot pays AFG for the product it orders and AFG produces, AFGhas made space available to Chariot, at no cost, to assemble its products.  It is anticipated that the facilities willbe adequate to meet the company’s sales projections until a more permanentfacility can be secured.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

 

Duringthe year ended February 29, 2004, the Company did not submit any matters to avote of its security holders.  However,on June 4, 2003 there was delivered to the Board of Directors of the company, awritten demand from stockholders representing more than fifty percent of thetotal voting shares of forms of the company stock, for the authorized shares ofthe company stock to be increased to 350,000,000 common shares and 5,000,000blank check preferred shares.  Additionaldemand was made for the Board to consider, after due diligence and legalopinion, the redomicile of the corporation from Delaware to Florida.  The Board of Directors voted to approve theincrease in the number of authorized shares. The board has not yet approved the redomicile of the corporation.

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS

 

MARKETINFORMATION

 

Since the April 1996 closing of theCompany’s initial public offering, the Company’s Common Stock has traded in theover-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 thesymbol “JDAW.” In connection with the name change, since February 10, 2001, thecommon stock has traded under the symbol “AACS.” The following table sets forththe range of high and low closing bid quotations of the Common Stock asreported by the OTCBB for each fiscal quarter for the past two fiscalyears.  High and low bid quotationsreflect inter-dealer prices without adjustment for retail mark-ups, markdownsor commissions and may not necessarily represent actual transactions.

 

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|                                                         |   | **Bid Prices** |   |
|--------------------------------------------------------------|--------|----------------|--------|
|                                                         |   | **High**       |   | **Low** | ** ** |
|                                                         |   |           |   |   |   |
| FISCAL 2004                                                  |   |           |   |   |   |
|                                                         |   |           |   |   |   |
| First Quarter (March 1, 2003 through May  31, 2003)          |   | $              | 0.09   |   | $ | 0.02 |   |
| Second Quarter (June 1, 2003 through August  31, 2003)       |   | $              | 0.03   |   | $ | 0.01 |   |
| Third Quarter (September 1, 2003 through  November 30, 2003) |   | $              | 0.05   |   | $ | 0.01 |   |
| Fourth Quarter (December 1, 2003 through  February 29, 2004) |   | $              | 0.04   |   | $ | 0.02 |   |
|                                                         |   |           |   |   |   |
| FISCAL 2003                                                  |   |           |   |   |   |
|                                                         |   |           |   |   |   |
| First Quarter (March 1, 2002 through May  31, 2002)          |   | $              | 0.31   |   | $ | 0.20 |   |
| Second Quarter (June 1, 2002 through August  31, 2002)       |   | $              | 0.27   |   | $ | 0.03 |   |
| Third Quarter (September 1, 2002 through  November 30, 2002) |   | $              | 0.14   |   | $ | 0.03 |   |
| Fourth Quarter (December 1, 2002 through  February 28, 2003) |   | $              | 0.12   |   | $ | 0.04 |   |

 

On February 29, 2004 the closing bidprice of the Company’s Common Stock as reported by the OTCBB was $0.03 andthere were approximately 1,204 shareholders of record.

 

DIVIDENDS

 

The Company has never declared orpaid a dividend on its Common Stock, and does not anticipate paying any cashdividends on its Common Stock in the foreseeable future.  The Company expects to retain, if any, itsfuture earnings for expansion or development of the Company’s business.  The decision to pay dividends, if any, inthe future is within the discretion of the Board of Directors and will dependupon the Company’s earnings, capital requirements, financial condition andother relevant factors such as contractual obligations.  There can be no assurance that dividends canor will ever be paid.

 

EQUITY COMPENSATION PLAN INFORMATION

 

Thefollowing table provides information about our Equity Compensation Plans.

 
| **Plan Category**                                                                        |   | **Number of  securities to be  issued upon  exercise of  outstanding  options** |   | **Weighted  average  price of  outstanding  options** |   | **Number of  securities  remaining  available for  future  issuance** |   |
|------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
| 1995 Stock Option Plan approved by security  holders                                     |   | —                                                                          |   | —                                                |   | 1,500,000                                                             |   |
| Non-Qualified Option/Stock Appreciation Rights Plan approved by  security holders        |   | 362,500                                                                         |   | $                                                     | 0.27   |                                                                  | 57,400 |   |
| Employees Stock Incentive Plan approved by  security holders                             |   | —                                                                          |   | —                                                |   | 5,300,000                                                             |   |
| Non-Employee Directors and Consultants Retainer Stock Plan approved  by security holders |   | —                                                                          |   | —                                                |   | —                                                                |   |
|                                                                                          |        |                                                                                 |        |                                                       |        |                                                                       |        |  |

 

RECENTSALES OF UNREGISTERED SECURITIES

None

 

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION

 

This discussion isintended to further the reader’s understanding of the Company’s financialcondition and results of operations, and should be read in conjunction with theCompany’s consolidated financial statements and related

 

10

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notesincluded elsewhere herein.  Thisdiscussion also contains forward-looking statements.  The Company’s actual results could differ materially from thoseanticipated in these forward-looking statements as a result of the risks anduncertainties set forth elsewhere in this Annual Report and in the Company’sother SEC filings.  Readers arecautioned not to place undue reliance on any forward-looking statements, whichspeak only as of the date hereof.  TheCompany is not party to any transactions that would be considered “off balancesheet” pursuant to disclosure requirements under ITEM 303(c).

 

RESULTS OFOPERATIONS

 

The Company owns two subsidiariesthat operated in the manufacturing segment and the fiberglass segment duringthe fiscal year ended February 29, 2004 and one subsidiary that operated in themanufacturing segment during fiscal year ended February 28, 2003.  To facilitate the readers understanding ofthe Company’s financial performance, this discussion and analysis is presentedon a segment basis.

 

MANUFACTURINGSUBSIDIARY

 

The manufacturing subsidiary,International Machine and Welding, Inc., generates its revenues from threedivisions.  Division 1 providesspecialized machining and repair services to heavy industry and originalequipment manufacturers.  Division 2provides repair and rebuild services on heavy equipment used in constructionand mining as well as sales of used equipment. Division 3 provides parts sales for heavy equipment directly to thecustomer.  The primary market of thissegment is the majority of central and south Florida with parts sales expandingits market internationally.  The currentoperations can be significantly expanded using the 38,000 square foot structureowned by International Machine and Welding, Inc.

 

FIBERGLASSSUBSIDIARY

 

Chariot Manufacturing Company, Inc.,which was acquired on October 11, 2003 from a related party, manufacturesmotorcycle trailers with fiberglass bodies. These trailers are sold both on the retail and dealer levels.  The company also provides non warrantyrepairs, modification of existing Chariot Trailers.

 

FISCAL YEAR2004 COMPARED TO FISCAL YEAR 2003

 

General

 

The Company’s consolidated net salesdecreased to $2,084,205 for the fiscal year ended February 29, 2004, a decreaseof $127,779 or 6%, from $2,211,984 for the fiscal year ended February 28,2003.  This decrease was due to a sloweconomy.

 

Gross profit for the consolidatedoperations decreased to $758,715 for the fiscal year ended February 29, 2004from $789,941 for the fiscal year ended February 28, 2003.  Gross profit as a percentage of salesremained consistent with the prior year at 36%.  The decrease in gross profit was due to a slight decrease insales.

 

Consolidated interest expense infiscal 2004 was $188,915 compared to $301,774 in fiscal 2003.  The overall decrease in interest expense wasdue to the Company paying down a portion of the notes payable during the fiscalyear ended February 29, 2004 and to the decrease in debt that was renegotiatedin the prior year.

 

The Company incurred a netconsolidated loss of $1,644,144 for the year ended February 29, 2004 comparedto a loss of $347,910 for the year ended February 28, 2003.  During the year ended February 28, 2003,there were several one time gains on renegotiation and settlement of debt whichwere factors in determining the loss at February 28, 2003.

 

Selling, general and administrativeexpenses increased to $2,251,488 for fiscal 2004 from $1,664,470 for fiscal2003, an increase of $587,018 or 35%.

 

11

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Theincrease was mainly attributable to increases in the cost of consultants andlegal fees.

 

The Company’s net loss to commonshareholders was $1,644,144 for fiscal 2004 compared to a net loss to commonshareholders of $347,910 for fiscal 2003. This increase in the net loss was largely attributable to the one timegain on forgiveness of debt of $812,014 recorded during fiscal 2003.  As a result of the continued losses, theIndependent Auditors have questioned the Company’s continuation as a goingconcern.

 

Manufacturing Subsidiary

 

The manufacturing operation,International Machine and Welding, Inc. provided net sales of $2,067,455 forthe fiscal year ended February 29, 2004 compared to $2,211,984 for the fiscalyear ended February 28, 2003.  Themachining operations provided $744,906 or 36% of net sales with parts andservice providing  $1,322,549 or 64% ofnet sales for the fiscal year ended February 29, 2004 as compared to machining operations contributing $827,725 or37% of net sales with parts and service providing $1,384,259 or 63% of netsales for the fiscal year ended February 28, 2003.  The overall decrease in net sales is due to slower sales at thebeginning of the year compared to the prior year.

 

Gross profit from the InternationalMachine and Welding, Inc. was $748,557 for the fiscal year ended February 29,2004 compared to $789,941 in fiscal 2003 providing gross profit margins of36.21% and 35.71%, respectively.  Thedecrease in gross profit corresponds to the decrease in net sales.

 

Selling, general and administrative expensesfor International Machine and Welding, Inc. were $852,517 for the fiscal yearended February 29, 2004 compared to $843,513 for the fiscal year ended February28, 2003.

 

Impairment of property and equipmentfor International Machine and Welding, Inc. was $0 for the fiscal year endedFebruary 29, 2004 compared to $80,000 for the fiscal year ended February 28,2003 due to an outside appraisal performed during the prior year.

 

Interest expense was $133,485 for thefiscal year ended February 29, 2004 compared to $221,885 for the fiscal yearended February 28, 2003.  The decreasein interest expense is due to the Company continuing to pay off its notespayable obligations and to the decrease in debt due to the renegotiation in theprior year, and thereby incurring less interest each year.

 

The Company does not have discretefinancial information on each of the three manufacturing divisions, nor doesthe Company make decisions on the divisions separately;  therefore they are not reported as segments.

 

Fiberglass Subsidiary

 

The fiberglass manufacturingoperation, Chariot Manufacturing Company, Inc. was acquired during the yearended February 2004 and provided net sales of $16,750 for the fiscal year endedFebruary 29, 2004.

 

Gross profit from Chariot was $10,158for the fiscal year ended February 29, 2004 providing a gross profit margin of61%.

 

Selling, general and administrativeexpenses were $45,561 for the fiscal year ended February 29, 2004.

 

Non-recurring Income

 

OnNovember 30, 2002 the company received a bank loan of $875,000 which was usedtopay off short and long term debt negotiated by management to allow a one timegainon forgiveness of debt of $812,014.  This debt wasassociated with the June 2000 acquisition of the assets ofInternational Machine and Welding, Inc.

 

12

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LIQUIDITYAND CAPITAL RESOURCES

 

During the fiscal years endedFebruary 29, 2004 and February 28, 2003, the Company used net cash foroperating activities of $667,945 and $504,686, respectively.  Overall, the net loss increased from theprior year.  Accounts receivabledecreased to $120,393 at February 29, 2004 from $169,040 at February 28, 2003,a decrease of $48,647, or 29%.  Therewas a write down of inventory of $102,823 at February 28, 2003 with nocorresponding entry in the current year.

 

During the years ended February 29,2004 and February 28, 2003, the Company (used) provided funds for investingactivities of ($415,695) and $19,348, respectively.  This increase in use of cash from investing activities is mainlydue to the decrease of loans, no sales of fixed assets during 2004 and morefixed asset acquisitions during the year ended February 29, 2004.

 

During the years ended February 29,2004 and February 28, 2003, the Company provided cash from financing activitiesof $1,148,520 and $485,613, respectively. The increase in net cash provided by financing activities is due to anincrease in the cash received from the exercise of stock options and warrants.

 

Cash flows from financing activitiesprovided for working needs and principal payments on long-term debt throughfiscal 2004.  As of February 29, 2004,the Company had a working capital deficit of $737,677.  To the extent that the cash flows fromfinancing activities are insufficient to finance the Company’s anticipatedgrowth, or its other liquidity and capital requirements during the next twelvemonths, the Company will seek additional financing from alternative sourcesincluding bank loans or other bank financing arrangements, other debtfinancing, the sale of equity securities (including those issuable pursuant tothe exercise of outstanding warrants and options), or other financingarrangements.  However, there can be noassurance that any such financing will be available and, if available, that itwill be available on terms favorable or acceptable to the Company.

 

During the year ended February 29,2004, the Company acquired Chariot Manufacturing Company, Inc.  The acquisition resulted in $190,000 ofintangible assets being recognized.  Ofthe $190,000 of acquired intangible assets, $59,455 was assigned to brandrecognition, $44,420 was assigned to customer list and $86,125 was assigned tothe web site development.  Theseintangible assets are being amortized over an average useful life of 5 years,which resulted in amortization expense of $14,778 recognized during the yearended February 29, 2004.

 

SEASONALITY

 

The diversity of operations in themanufacturing segment protects it from seasonal trends except in the sales ofagricultural processing where the majority of the revenue is generated whilethe processors await the next harvest.

 

CRITICALACCOUNTING POLICIES AND ESTIMATES

 

Theaccompanying consolidated financial statements include the activity of theCompany and its wholly owned subsidiaries. All intercompany transactions have been eliminated inconsolidation.  The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amounts of revenues andexpenses during the reporting period. The Company reviews its estimates, including but not limited to,recoverability of long-lived assets, recoverability of prepaid expenses andallowance for doubtful accounts, on a regular basis and makes adjustments basedon historical experiences and existing and expected future conditions.  These evaluations are performed andadjustments are made as information is available.  Management believes that these estimates are reasonable; however,actual results could differ from these estimates.

 

13

----

 

We believe thatthe following critical policies affect our more significant judgments andestimates used in preparation of our consolidated financial statements.

 

Wemaintain allowances for doubtful accounts for estimated losses resulting fromthe inability of our customers to make required payments.  We base our estimate on an analysis of theCompany’s prior collection experience, customer credit worthiness, and currenteconomic trends.  If the financialcondition of our customers were to deteriorate, additional allowances may berequired.

 

Wevalue our inventories at the lower of cost or market.  Cost is determined on a standard cost basis that approximates thefirst-in, first-out method; market is determined based on net realizablevalue.  We write down inventory balancesfor estimated obsolescence or unmarketable inventory equal to the differencebetween the cost of the inventory and the estimated market value based uponassumptions about future demand and market conditions.  If actual market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required.

 

Wevalue our property and equipment at cost. Amortization and depreciation are calculated using the straight-line andaccelerated methods of accounting over the estimated useful lives of theassets.  Maintenance and repairs arecharged 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.

 

Fairvalue estimates used in preparation of the consolidated financial statementsare based upon certain market assumptions and pertinent information availableto management.  The respective carryingvalue of certain on-balance-sheet financial instruments approximated their fairvalues.  These financial instrumentsinclude cash, accounts receivable, accounts payable, and accrued expenses.  Fair values were assumed to approximatecarrying values for these financial instruments since they are short-term innature and their carrying amounts approximate fair values or they arereceivable or payable on demand.  Thefair value of the Company’s notes payable is estimated based upon the quotedmarket prices for the same or similar issues or on the current rates offered tothe Company for debt of the same remaining maturities.

 

Deferred tax assets and liabilities arerecognized for the estimated future tax consequences attributable todifferences between the consolidated financial statements carrying amounts ofexisting assets and liabilities and their respective income tax bases.  Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled.  The effect on deferred taxassets and liabilities of a change in tax rates is recognized as income in theperiod that included the enactment date. See consolidated financial statements footnote 13.

 

**NEWACCOUNTING PRONOUNCEMENTS**

 

InJanuary 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidationof Variable Interest Entities.” This interpretation of Accounting ResearchBulletin 51, “Consolidated Financial Statements,” addresses consolidation bybusiness enterprises of variable interest entities in which an enterpriseabsorbs a majority of the entity’s expected losses, receives a majority of theentity’s expected residual returns, or both, as a result of ownership,contractual or other financial interests in the entity.  The interpretation requires that if abusiness enterprise has a controlling financial interest in a variable interestentity, the assets, liabilities, and results of the activities of the variableinterest entity must be included in the consolidated financial statements withthose of the business enterprise.  TheCompany does not have any variable interest entities whose financial resultsare not included in the consolidated financial statement.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity.” Thisstatement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities and

 

14

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equity.  This statement is effective for financialinstruments entered into or modified after May 31, 2003 and pre-existinginstruments as of the beginning of the first interim period that commencesafter June 15, 2003, except for mandatorily redeemable financialinstruments.  Mandatorily redeemablefinancial instruments are subject to the provisions of this statement beginningon January 1, 2004.  We have not enteredinto or modified any financial instruments subsequent to May 31, 2003 effectedby this statement.  We do not expect theadoption of this statement will have a material impact on our financialcondition or results of operations.

 

ITEM 7. FINANCIAL STATEMENTS

 

American Commerce Solutions, Inc. andSubsidiaries

 

Consolidated Financial Statements

 

As of February 29, 2004 and for the

Years Ended February 29, 2004 and February28, 2003

 

Contents

 
| Independent Auditors’  Report on Consolidated Financial Statements |   |
|-------------------------------------------------------------------------|--------|
|                                                                    |   |
| Consolidated Financial Statements:                                      |   |
|                                                                    |   |
| Consolidated Balance Sheet                                              |   |
| Consolidated  Statements of Operations                                  |   |
| Consolidated  Statements of Changes in Stockholders’ Equity        |   |
| Consolidated  Statements of Cash Flows                                  |   |
| Notes to  Consolidated Financial Statements                             |   |

 

15

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IndependentAuditors’ Report

 

Stockholdersand Board of Directors

AmericanCommerce Solutions, Inc. and Subsidiaries

Bartow,Florida

 

We haveaudited the accompanying consolidated balance sheet of American CommerceSolutions, Inc. and Subsidiaries as of February 29, 2004 and the relatedstatements of operations, changes in stockholders’ equity, and cash flows forthe years ended February 29, 2004 and February 28, 2003.  These consolidated financial statements arethe responsibility of the management of American Commerce Solutions, Inc.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). These standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are freeof material misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallconsolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of American CommerceSolutions, Inc. and Subsidiaries as of February 29, 2004 and the results of itsoperations and its cash flows for the years ended February 29, 2004 andFebruary 28, 2003, in conformity with accounting principles generally acceptedin the United States of America.

 

Theaccompanying consolidated financial statements of American Commerce Solutions,Inc. and Subsidiaries have been prepared assuming that the Company willcontinue as a going concern.  As morefully described in Note 2, the Company has had recurring operating losses sinceinception, has negative working capital as of February 29, 2004, has usedapproximately $668,000 of cash in operations for the year ended February 29,2004, and is in default on several loans. These conditions raise substantial doubt about the Company’s ability tocontinue as a going concern. Management’s plans regarding these matters are also disclosed in Note 2.  The consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

PenderNewkirk & Company

CertifiedPublic Accountants

Tampa,Florida

 

April 16,2004

 

F-1

----

 

American Commerce Solutions, Inc. andSubsidiaries

ConsolidatedBalance Sheet

 

February 29, 2004

 
| Assets                                                                                                                                                      |   |        |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------|
| Current  assets:                                                                                                                                            |   |        |      |
| Cash                                                                                                                                                        |   | $           | 79,363    |   |
| Accounts receivable, net of allowance of  $4,977                                                                                                            |   | 120,393     |      |
| Accounts receivable, factored                                                                                                                               |   | 55,657      |      |
| Inventories                                                                                                                                                 |   | 110,395     |      |
| Other receivables                                                                                                                                           |   | 362,921     |      |
| Other current assets                                                                                                                                        |   | 60,716      |      |
| Total current assets                                                                                                                                        |   | 789,445     |      |
|                                                                                                                                                        |   |        |      |
| Property and equipment, net of accumulated  depreciation                                                                                                    |   | 5,159,037   |      |
|                                                                                                                                                        |   |        |      |
| Other assets:                                                                                                                                               |   |        |      |
| Prepaid loan costs                                                                                                                                          |   | 20,623      |      |
| Intangible assets, net of accumulated  amortization                                                                                                         |   | 175,222     |      |
| Real property held for resale                                                                                                                               |   | 243,150     |      |
| Total other assets                                                                                                                                          |   | 438,995     |      |
|                                                                                                                                                        |   |        |      |
|                                                                                                                                                        |   | $           | 6,387,477 |   |
|                                                                                                                                                        |   |        |      |
| Liabilities and Stockholders’ Equity                                                                                                                   |   |        |      |
| Current liabilities:                                                                                                                                        |   |        |      |
| Current portion of notes payable                                                                                                                            |   | $           | 557,438   |   |
| Accounts payable                                                                                                                                            |   | 431,971     |      |
| Accrued expenses                                                                                                                                            |   | 77,277      |      |
| Accrued interest                                                                                                                                            |   | 184,046     |      |
| Due to stockholders                                                                                                                                         |   | 258,724     |      |
| Deferred revenue                                                                                                                                            |   | 17,666      |      |
| Total current liabilities                                                                                                                                   |   | 1,527,122   |      |
| Notes payable, net of current portion                                                                                                                       |   | 1,194,952   |      |
|                                                                                                                                                        |   |        |      |
| 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 of $376,125       |   |        |      |
| Series B, cumulative and convertible; $.001  par value; 3,950 shares authorized; 3,944 shares issued and outstanding;  liquidating preference of $3,944,617 |   | 3           |      |
| Common stock; $.002 par value; 350,000,000  shares authorized; 141,095,824 shares issued; 140,573,824 shares outstanding                                    |   | 282,192     |      |
| Common stock payable                                                                                                                                        |   | 120,809     |      |
| Additional paid-in capital                                                                                                                                  |   | 17,291,027  |      |
| Stock subscription receivable                                                                                                                               |   | (10,000     | )         |
| Treasury stock, at cost                                                                                                                                     |   | (265,526    | )         |
| Accumulated deficit                                                                                                                                         |   | (13,563,062 | )         |
| Loan costs from issuance of common stock                                                                                                                    |   | (190,040    | )         |
| Total stockholders’ equity                                                                                                                             |   | 3,665,403   |      |
|                                                                                                                                                        |   |        |      |
|                                                                                                                                                        |   | $           | 6,387,477 |   |

 

THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIALSTATEMENTS.

 

F-2

----

 

American Commerce Solutions, Inc. andSubsidiaries

 

Consolidated Statements of Operations

 
|                                                  |   | **Year Ended  February 29,** |       | **Year Ended  February 28,** |       |
|-------------------------------------------------------|--------|------------------------------|------------|------------------------------|------------|
|                                                  |   | **2004**                     |       | **2003**                     | ** ** |
|                                                  |   |                         |       |                         |       |
| Net sales                                             |   | $                            | 2,084,205  |                         | $          | 2,211,984 |   |
| Cost of goods sold                                    |   | 1,325,490                    |       | 1,422,043                    |       |
|                                                  |   |                         |       |                         |       |
| Gross profit                                          |   | 758,715                      |       | 789,941                      |       |
|                                                  |   |                         |       |                         |       |
| Selling, general and administrative  expenses         |   | 2,251,488                    |       | 1,584,470                    |       |
| Impairment of property and equipment                  |   |                         |       | 80,000                       |       |
|                                                  |   |                         |       |                         |       |
|                                                  |   | 2,251,488                    |       | 1,664,470                    |       |
|                                                  |   |                         |       |                         |       |
| Loss from operations                                  |   | (1,492,773                   | )          | (874,529                     | )          |
|                                                  |   |                         |       |                         |       |
| Other (expense) income:                               |   |                         |       |                         |       |
| Other income                                          |   | 26,249                       |       | 24,153                       |       |
| Gain on forgiveness of debt                           |   | 11,295                       |       | 812,014                      |       |
| Loss on sale of assets                                |   |                         |       | (7,774                       | )          |
| Interest expense                                      |   | (188,915                     | )          | (301,774                     | )          |
| Total other (expense) income                          |   | (151,371                     | )          | 526,619                      |       |
|                                                  |   |                         |       |                         |       |
| Net loss                                              |   | $                            | (1,644,144 | )                            | $          | (347,910 | )  |
|                                                  |   |                         |       |                         |       |
| Net loss per common share                             |   | $                            | (.02       | )                            | $          | (.02 | )  |
|                                                  |   |                         |       |                         |       |
| Weighted average number of common shares  outstanding |   | 76,522,038                   |       | 17,991,670                   |       |

 

THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIALSTATEMENTS.

 

F-3

----

 

American Commerce Solutions, Inc. andSubsidiaries

 

Consolidated Statements of Changes inStockholders’ Equity

 

Years Ended February 29, 2004 and February28, 2003

 
|                                                 |   | **Common  Stock** |   | **Preferred  Stock** |       |
|------------------------------------------------------|--------|-------------------|--------|----------------------|------------|
|                                                 |   | **Shares**        |   | **Amount**           | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|                                                 |   |              |   |                 |       |   |   |   |   |
| Balance, February 28, 2002                           |   | 17,351,344        |   | $                    | 34,703     |   | 3,573 |   | $ | 3 |   |
| Common shares issued for services                    |   | 1,415,832         |   | 2,831                |       |   |   |   |   |
| Common shares issued for debt repayment              |   | 10,423,982        |   | 20,848               |       |   |   |   |   |
| Common shares issued for compensation                |   | 550,000           |   | 1,100                |       |   |   |   |   |
| Cash received for stock subscription  receivable     |   |              |   |                 |       |   |   |   |   |
| Preferred shares issued for Series B  dividends      |   |              |   |                 |       | 247 |   |   |   |
| Loan cost from issuance of common stock              |   |              |   |                 |       |   |   |   |   |
| Amortization of loan cost                            |   |              |   |                 |       |   |   |   |   |
| Net loss                                             |   |              |   |                 |       |   |   |   |   |
| Balance, February 28, 2003                           |   | 29,741,158        |   | $                    | 59,482     |   | 3,820 |   | $ | 3 |   |
|                                                 |   |              |   |                 |       |   |   |   |   |
| Issuance of common share options                     |   |              |   |                 |       |   |   |   |   |
| Common shares issued upon exercise of stock  options |   | 88,450,000        |   | 176,900              |       |   |   |   |   |
| Issuance of common shares for cash                   |   | 117,600           |   | 235                  |       |   |   |   |   |
| Common shares issued for services                    |   | 15,639,285        |   | 31,279               |       |   |   |   |   |
| Common shares issued for acquisition                 |   | 2,197,802         |   | 4,396                |       |   |   |   |   |
| Common shares issued for compensation                |   | 4,949,979         |   | 9,900                |       |   |   |   |   |
| Forgiveness of debt with a related party             |   |              |   |                 |       |   |   |   |   |
| Preferred shares issued for Series B  dividends      |   |              |   |                 |       | 226 |   |   |   |
| Loan cost from issuance of common stock              |   |              |   |                 |       |   |   |   |   |
| Amortization of loan cost                            |   |              |   |                 |       |   |   |   |   |
| Net loss                                             |   |              |   |                 |       |   |   |   |   |
| Balance, February 29 2004                            |   | 141,095,824       |   | $                    | 282,192    |   | 4,046 |   | $ | 3 |   |

 
| **Additional  Paid-In  Capital** |       | **Stock  Subscription   Receivable** |   | **Accumulated  Deficit** |   | **Treasury  Stock** |        | **Loan  Costs** |    | **Common  Stock  Payable** |    | **Total**  |           |
|----------------------------------|------------|--------------------------------------|--------|--------------------------|--------|---------------------|-------------|-----------------|---------|----------------------------|---------|------------|----------------|
|                             |       |                                 |   |                     |   |                |        |            |    |                       |    |       |           |
| $                                | 14,405,143 |                                 | $      | (20,000                  | )      | $                   | (11,571,008 | )          | $       | (265,526                   | )  |       |           |   |   | $ | 2,583,315 |   |
| 185,219                          |       |                                 |   |                     |   |                |        |            |    |                       |    | 188,050    |           |
| 510,775                          |       |                                 |   |                     |   |                |        |            |    |                       |    | 531,623    |           |
| 132,000                          |       |                                 |   |                     |   |                |        |            |    |                       |    | 133,100    |           |
|                             |       | 10,000                               |   |                     |   |                |        |            |    |                       |    | 10,000     |           |
|                             |       |                                 |   |                     |   |                |        |            |    |                       |    |       |           |
|                             |       |                                 |   |                     |   |                |        | $               | (89,259 | )                     |    |       | (89,259        | ) |
|                             |       |                                 |   |                     |   |                |        | 27,384          |    |                       |    | 27,384     |           |
|                             |       |                                 |   | (347,910                 | )      |                |        |            |    |                       |    | (347,910   | )              |
| 15,233,137                       |       | (10,000                              | )      | (11,918,918              | )      | (265,526            | )           | (61,875         | )       |                       |    | 3,036,303  |           |
|                             |       |                                 |   |                     |   |                |        |            |    |                       |    |       |           |
| 291,805                          |       |                                 |   |                     |   |                |        |            |    |                       |    | 291,805    |           |
|                             |       |                                 |   |                     |   |                |        |            |    |                       |    |       |           |
| 1,473,570                        |       |                                 |   |                     |   |                |        |            |    |                       |    | 1,650,470  |           |
|                             |       |                                 |   |                     |   |                |        |            |    |                       |    |       |           |
| 4,765                            |       |                                 |   |                     |   |                |        |            |    |                       |    | 5,000      |           |
| 79,296                           |       |                                 |   |                     |   |                |        |            |    | $                          | 120,809 |       | 231,384        |   |
| 25,604                           |       |                                 |   |                     |   |                |        |            |    |                       |    | 30,000     |           |
| 116,325                          |       |                                 |   |                     |   |                |        |            |    |                       |    | 126,225    |           |
| 66,525                           |       |                                 |   |                     |   |                |        |            |    |                       |    | 66,525     |           |
|                             |       |                                 |   |                     |   |                |        |            |    |                       |    |       |           |
|                             |       |                                 |   |                     |   |                |        | (247,033        | )  |                       |    | (247,033   | )              |
|                             |       |                                 |   |                     |   |                |        | 118,868         |    |                       |    | 118,868    |           |
|                             |       |                                 |   | (1,644,144)              |   |                |        |            |    |                       |    | (1,644,144 | )              |
| $                                | 17,291,027 |                                 | $      | (10,000                  | )      | $                   | (13,563,062 | )               | $       | (265,526                   | )       | $          | (190,040  | )  | $ | 120,809 |   | $ | 3,665,403 |   |
|                                  |            |                                      |        |                          |        |                     |             |                 |         |                            |         |            |                |  |  |  |  |  |  |  |  |

 

THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIALSTATEMENTS.

 

F-4

----

 

American Commerce Solutions, Inc. andSubsidiaries

 

ConsolidatedStatements of Cash Flows

 
|                                                                          |   | **Years Ended**          |       |
|-------------------------------------------------------------------------------|--------|--------------------------|------------|
|                                                                          |   | **February  29,   2004** |       | **February  28,  2003** | ** ** |
|                                                                          |   |                     |       |   |   |
| Operating activities                                                          |   |                     |       |   |   |
| Net loss                                                                      |   | $                        | (1,644,144 | ) | $ | (347,910 | )  |
|                                                                          |   |                     |       |   |   |
| Adjustments to reconcile net loss to net  cash used by  operating activities: |   |                     |       |   |   |
| Depreciation and amortization                                                 |   | 339,959                  |       | 312,494 |   |
| Impairment of property and equipment                                          |   |                     |       | 80,000 |   |
| (Recovery) of doubtful accounts                                               |   | (213                     | )          | (18,125 | ) |
| Provision for losses on inventory                                             |   |                     |       | 102,823 |   |
| Stock issued for services and compensation                                    |   | 361,009                  |       | 226,846 |   |
| Options issued to consultants and employees                                   |   | 291,805                  |       |   |   |
| Loss (gain) on disposal of assets                                             |   |                     |       | 7,774 |   |
| Gain on forgiveness of debt                                                   |   | (11,295                  | )          | (812,014 | ) |
| Decrease (increase) in:                                                       |   |                     |       |   |   |
| Accounts receivable                                                           |   | 48,860                   |       | 83,416 |   |
| Inventories                                                                   |   | (23,559                  | )          | (28,544 | ) |
| Other assets                                                                  |   | (63,672                  | )          | (117,069 | ) |
| (Decrease) increase in:                                                       |   |                     |       |   |   |
| Accounts payable and accrued expenses                                         |   | 52,064                   |       | (30,802 | ) |
| Deferred income                                                               |   | (18,759                  | )          | 36,425 |   |
| Total adjustments                                                             |   | 976,199                  |       | (156,776 | ) |
|                                                                          |   |                     |       |   |   |
| Net cash used by operating activities                                         |   | (667,945                 | )          | (504,686 | ) |
|                                                                          |   |                     |       |   |   |
| Investing activities                                                          |   |                     |       |   |   |
| (Decrease) increase in other receivables                                      |   | (363,926                 | )          | 37,189 |   |
| Proceeds from sale of assets                                                  |   |                     |       | 14,000 |   |
| Acquisition of property and equipment                                         |   | (51,769                  | )          | (31,841 | ) |
|                                                                          |   |                     |       |   |   |
| Net cash (used) provided by investing activities                              |   | (415,695                 | )          | 19,348 |   |
|                                                                          |   |                     |       |   |   |
| Financing activities                                                          |   |                     |       |   |   |
| (Decrease) increase in bank overdrafts                                        |   | (14,187                  | )          | 13,909 |   |
| Increase in due from factor                                                   |   | (55,657                  | )          |   |   |
| Increase in due to stockholders                                               |   | 80,330                   |       | 132,599 |   |
| Proceeds from notes payable                                                   |   | 89,159                   |       | 1,135,811 |   |
| Principal payments on notes payable and  capital leases                       |   | (603,195                 | )          | (806,706 | ) |
| Proceeds from sale of common stock                                            |   | 5,000                    |       |   |   |
| Proceeds from exercise of stock options and  warrants                         |   | 1,647,070                |       |   |   |
| Proceeds received on common stock receivable                                  |   | 10,000                   |       |   |   |
|                                                                          |   |                     |       |   |   |
| Net cash provided by financing activities                                     |   | 1,148,520                |       | 485,613 |   |
|                                                                          |   |                     |       |   |   |
|                                                                          |   |                     |       |   |   |
| Net increase in cash                                                          |   | 64,880                   |       | 275 |   |
| Cash, beginning of year                                                       |   | 14,483                   |       | 14,208 |   |
|                                                                          |   |                     |       |   |   |
| Cash, end of year                                                             |   | $                        | 79,363     |   | $ | 14,483 |   |
| Supplemental disclosure of cash flow  information:                            |   |                     |       |   |   |
| Cash paid for interest                                                        |   | $                        | 43,443     |   | $ | 239,430 |   |

 

THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIALSTATEMENTS.

 

F-5

----

 

Supplementalschedule of noncash investing and financing activities:

 

During the year ended February 29,2004, a related party forgave an outstanding payable to the company whichresulted in a gain on the forgiveness of debt of $66,525.  This gain was recorded as a capital contribution.

 

During the year ended February 29,2004, the Company purchased 100 percent of the outstanding common stock ofChariot Manufacturing, Inc. for $360,000 which consisted of the assignmentof a note receivable valued at $150,000, issuance of $30,000 worth of commonstock and the incurrence of a note payable for $180,000.  The fair value of the assets acquired at theacquisition date are as follows:

 
| Equipment         |   | $       | 170,000 |   |
|-------------------|--------|---------|---------|--------|
| Intangible assets |   | 190,000 |    |
| Assets acquired   |   | $       | 360,000 |   |

 

During the year ended February 29,2004, the Company transferred $16,794 from inventory to equipment held forlease.

 

During the year ended February 28,2003, the Company transferred $499,700 from equipment held for resale toproperty and equipment.  Also, theCompany transferred $75,121 from inventory to property and equipment.

 

During the year ended February 28,2003, the Company transferred $15,000 of merchandise from inventory toequipment held for resale.

 

During the year ended February 28,2003, the Company exchanged $381,437 of accrued expenses for a note payable.

 

During the year ended February 28,2003, the Company exchanged $437,830 and $93,793 of debt and related accruedinterest, respectively, for common stock.

 

During the year ended February 28,2003, the Company issued $94,305 of common stockfor loan costs incurred.

 

THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIALSTATEMENTS.

 

F-6

----

American Commerce Solutions, Inc. andSubsidiaries

 

Notes to Consolidated Financial Statements

 

As of February 29, 2004 and for the

Years Ended February 29, 2004 and February28, 2003

 

1.                                       BACKGROUNDINFORMATION

 

AmericanCommerce Solutions, Inc. was incorporated in Rhode Island in 1991 under thename Jaque Dubois, Inc., and was re-incorporated in Delaware in 1994.  In July 1995, Jaque Dubois, Inc. changed itsname to JD American Workwear, Inc. In December 2000, the stockholders voted atthe annual stockholders meeting to change the name of JD American Workwear,Inc. to American Commerce Solutions, Inc. (the “Company”).

 

TheCompany is primarily a holding company with two wholly owned subsidiaries;International Machine and Welding, Inc. is engaged in the machining andfabrication of parts used in industry, and parts sales and service for heavyconstruction equipment; Chariot Manufacturing Company, Inc., which was acquiredon October 11, 2003 from a related party, manufactures motorcycle trailers withfiberglass bodies.

 

2.                                       GOINGCONCERN

 

The Companyhas incurred substantial operating losses since inception and has usedapproximately $667,900 of cash in operations for the year ended February 29,2004.  The Company recorded losses fromcontinuing operations of $1,644,144 and $347,910 for the years ended February29,2004 and February 28, 2003, respectively. Current liabilities exceed current assets by $737,677 at February 29,2004.  Additionally, the Company is indefault on several notes payable.  Theability of the Company to continue as a going concern is dependent upon itsability to reverse negative operating trends, raise additional capital, andobtain debt financing.

 

Managementhas revised its business strategy to include expansion into other lines of businessthrough the acquisition of other companies in exchange for the Company’sstock.  Management is currentlynegotiating new debt financing, the proceeds from which would be used to settleoutstanding debts at more favorable terms, to finance operations, and tocomplete additional business acquisitions. However, there can be no assurance that the Company will be able toraise capital, obtain debt financing, or improve operating results sufficientlyto continue as a going concern.

 

Theaccompanying consolidated financial statements do not include any adjustmentsrelating to the recoverability and classification of recorded assets, or theamounts and classification of liabilities that might be necessary if theCompany is unable to continue as a going concern.

 

3.                                       SIGNIFICANTACCOUNTING POLICIES

 

Thesignificant accounting policies followed are:

 

Theaccompanying consolidated financial statements include the activity of theCompany and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

 

Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amount ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

F-7

----

 

Financialinstruments that potentially subject the Company to concentrations of creditrisk consist primarily of accounts receivable. Accounts receivable consist of billed services or products.  The Company records an allowance fordoubtful accounts to allow for any amounts that may not be recoverable, whichis based on an analysis of the Company’s prior collection experience, customercredit worthiness, and current economic trends.  Based on management’s review of accounts receivable, an allowancefor doubtful accounts of $4,977 is considered adequate at February 29,2004.  Receivables are determined to bepast due based on payment terms of original invoices.  The Company does not charge significant amounts of interest onpast due receivables.  There were noreceivables on non-accrual of interest status at February 29, 2004.

 

TheCompany follows SFAS No. 140, “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities” to account for itsfactoring of accounts receivable by selling and assigning all rights, title,and interest to certain of the Company’s accounts receivable.  The Company receives 80% of all approvedinvoices sold to the Factoring Company, which assumes the credit risk.  Based on the Factoring Company’s collectionsof these invoices the Company may receive additional consideration of up to18%.  The Company records the 80% aspayment against the invoices sold and records 18% as an amount due fromFactoring Company.  Once the invoiceexceeds 120 days outstanding, the remaining 18% of the receivable is recordedas expense.

 

Inventoriesare 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 toobsolescence, excessive levels, deterioration, and other factors in evaluatingnet realizable value.

 

Propertyand equipment are stated at cost. Depreciation and amortization expense are calculated using thestraight-line and accelerated methods of accounting over the followingestimated useful lives of the assets:

 
| Building and improvements      |   | 15 | - | 39 years |   |
|--------------------------------|--------|----|---|----------|--------|
| Machine and equipment          |   | 5  | - | 30 years |   |
| Office furniture and equipment |   | 5  | - | 10 years |   |
| Trucks and vehicles            |   | 5  | - | 7 years  |   |

 

Maintenanceand repairs are charged to operations when incurred.  Betterments and renewals are capitalized.  When property and equipmentare sold orotherwise disposed of, the asset account and related accumulateddepreciation account are relieved, and any gain or loss is included inoperations.  

 

Acquiredidentifiable intangible assets of approximately $190,000 consist of valuesassigned to brand recognition, customer list and web site of ChariotManufacturing Company, Inc. These intangibles are amortized on a straight-linemethod over 5 years.  During the yearended February 29, 2004, approximately $15,000 was recognized as amortizationexpense related to these identifiable intangible assets.

 

Directcosts incurred with the issuance of notes payable are deferredandamortized over the life of the guaranty. As of February 29, 2004 and 2003, the Company incurred amortizationexpense of $118,868 and $30,336, respectively.

 

F-8

----

 

TheCompany records amounts billed to customers for shipping and handling costs assales revenue.  Costs incurred by theCompany for shipping and handling are included in cost of sales.

 

Salesare recorded when products, repairs, or parts are delivered to thecustomer.  Provisions for discounts andrebates to customers, estimated returns, allowances, and other adjustments areprovided for in the same period the related sales are recorded.  No products or parts are delivered with anycontingencies except for defects.

 

TheCompany has adopted SFAS No. 144, “Accounting for the Impairmentor Disposalof Long-Lived Assets.” SFAS No. 144 addresses the financialaccounting and reporting for the impairment of long-lived assets,excluding goodwill and intangible assets, to be held and used or disposedof.  The adoption of SFAS No. 144 didnot have an impact on the Company’s financial position or results of operations.  In accordance with SFAS No. 144, thecarrying values of long-lived assets are periodically reviewed by theCompany and impairments would be recognized if the expected future operatingnon-discounted cash flows derived from an asset were less than itscarrying value and if the carrying value is more than the fair value of theasset.  At February 29, 2004, theCompany did not have any asset that it considered impaired.  At February 28, 2003, the Company recorded$80,000 in asset impairment.

 

TheCompany has adopted Statement of Financial Accounting Standards No. 123,“Accounting for Stock-Based Compensation” (SFAS No. 123) SFAS No. 123 providesthat expense equal to the fair value of all stock-based awards on the date ofgrant be recognized over the vesting period. Alternatively, this statement allows entities to continue to apply theprovisions of Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees” (APB Opinion No. 25), whereby compensation expense isrecorded on the date the options are granted to employees equal to the excessof the market price of the underlying stock over the exercise price.  The Company has elected to continue to applythe provisions of APB Opinion No. 25 and provide pro forma disclosure of theprovisions of SFAS No. 123.

 

AtFebruary 29, 2004, the Company has three stock-based employee compensationplans, all of which have been approved by the shareholders.  The Company accounts for those plans underthe recognition and measurement principles of Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees” and relatedInterpretations.  The Company recognized$205,800 and $181,500 for the years ended February 29, 2004 and February 28,2003, respectively, in stock-based employee compensation cost which isreflected in net loss.  The followingtable illustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of FASB Statement 123,“Accounting for Stock-Based Compensation”, to stock-based employeecompensation.

 

F-9

----

 
|                                                                                                                             |   | **Years  Ended**        |       |
|----------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|
|                                                                                                                             |   | **February  29,  2004** |       | **February  28,  2003** |   |
| Net loss, as reported                                                                                                            |   | $                       | (1,644,144 | ) | $ | (347,910 | ) |
|                                                                                                                             |   |                    |       |   |   |
| Deduct: Total stock based employee  compensation expense determined under fair value based methods for all  awards, net of taxes |   | (150,668                | )          | (195,482 | ) |
|                                                                                                                             |   |                    |       |   |   |
| Pro forma net loss                                                                                                               |   | $                       | (1,794,812 | ) | $ | (543,392 | ) |
|                                                                                                                             |   |                    |       |   |   |
| Net loss per share:                                                                                                              |   |                    |       |   |   |
| As reported                                                                                                                      |   | $                       | (.02       | ) | $ | (.02 | ) |
| Pro forma                                                                                                                        |   | $                       | (.02       | ) | $ | (.02 | ) |

 

Indetermining the pro forma amounts above, the value of each grant is estimatedat the grant date using the Black-Scholes option model with the followingweighted average assumptions:

 
|                      |   | **2004**  |   | **2003**  |   |
|---------------------------|--------|-----------|--------|-----------|--------|
|                      |   |      |   |      |   |
| Dividend rate of          |   | 0         | %      | 0         | %      |
| Risk-free interest rate   |   | 1.04      | %      | 1.75      | %      |
| Expected lives            |   | .08 years |   | .08 years |   |
| Expected price volatility |   | 168       | %      | 124       | %      |

 

Netloss per common share is computed by dividing net loss to commonstockholdersby the weighted average number of shares of common stock outstandingfor each fiscal year.  Common stock equivalentsare not consideredin loss years because they are anti-dilutive.

 

Fairvalue estimates discussed herein are based upon certain marketassumptionsand pertinent information available to management.  The respective carrying value of certain on-balance-sheet financialinstrumentsapproximated their fair values.  Thesefinancial instruments include cash, accounts receivable, accounts payable,and accruedexpenses.  Fair values were assumed toapproximate carrying values for these financial instruments since they are short-termin natureand their carrying amounts approximate fair values or they are receivableor payable on demand.  The fair value ofthe Company’s notes payable is estimated based upon the quoted market prices for thesame orsimilar issues or on the current rates offered to the Company for debt of thesame remaining maturities.  

 

Advertisingcosts (except for costs associated with direct-response advertising) arecharged to operations when incurred. The costs of direct-response advertising are capitalized and amortizedover the period during which future benefits are expected to be received.  Advertising expense for the years endedFebruary 29, 2004 and February 28, 2003 were $7,241 and $640, respectively.

 

Deferredtax assets and liabilities are recognized for the estimatedfuture taxconsequences attributable to differences between the consolidatedfinancial statements carrying amounts of existing assets andliabilities and their respective income tax bases.  Deferred tax assets and liabilities are measured usingenacted tax rates expected

 

F-10

----

 

 

toapply to taxable income in the years in which those temporarydifferencesare expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognizedas income in the period that included the enactment date.

 

TheCompany records stock as issued at the time consideration isreceived orthe obligation is incurred.

 

OnApril 1, 2002, the Company adopted SFAS No. 145, “Rescission ofFASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, andTechnical Corrections.” SFAS No. 145 rescinded the following pronouncements:SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”; SFAS No. 64,“Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”; andSFAS No. 44, “Accounting for Intangible Assets of Motor Carriers.” Inaddition, SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” andmakes technical corrections and amendments to various existingpronouncements.  The adoption of SFAS No.145 resulted in the Company classifying the gain on forgivenessof debt as part of income from operations on the Company’s consolidatedstatements of operations.

 

InJanuary 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidationof Variable Interest Entities.” This interpretation of Accounting ResearchBulletin 51, “Consolidated Financial Statements,” addresses consolidation bybusiness enterprises of variable interest entities in which an enterpriseabsorbs a majority of the entity’s expected losses, receives a majority of theentity’s expected residual returns, or both, as a result of ownership,contractual or other financial interests in the entity.  The interpretation requires that if abusiness enterprise has a controlling financial interest in a variable interestentity, the assets, liabilities, and results of the activities of the variableinterest entity must be included in the consolidated financial statements withthose of the business enterprise.  TheCompany does not have any variable interest entities whose financial resultsare not included in the consolidated financial statement.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity.” Thisstatement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity.  This statement is effective forfinancial instruments entered into or modified after May 31, 2003 andpre-existing instruments as of the beginning of the first interim period thatcommences after June 15, 2003, except for mandatorily redeemable financialinstruments.  Mandatorily redeemablefinancial instruments are subject to the provisions of this statement beginningon January 1, 2004.  We have not enteredinto or modified any financial instruments subsequent to May 31, 2003 effectedby this statement.  We do not expect theadoption of this statement will have a material impact on our financialcondition or results of operations.

 

F-11

----

 

4.                                       ACCOUNTSRECEIVABLE, FACTORED

 

Duringthe year ended February 29, 2004, the Company factored receivables ofapproximately $1,726,100.  In connectionwith the factoring agreement, the Company incurred fees of approximately$49,800 during the year ended February 29, 2004.  As of February 29, 2004, certain vendors had remitted $35,931 tothe Company on factored receivables, the Company has recorded this amount asdue to the factor and is included in accrued expenses on the accompanyingconsolidated balance sheet.  Any and allof the Company’s indebtedness and obligations to the Factoring Company isguaranteed by two stockholders and collateralized by the Company’s inventoryand fixed assets.

 

5.                                       INVENTORIES

 

Inventoriesconsist of the following at February 29, 2004:

 
| Work-in-process |   | $      | 30,632  |   |
|-----------------|--------|--------|---------|--------|
| Finished goods  |   | 79,763 |    |
|            |   |   |    |
| Total inventory |   | $      | 110,395 |   |

 

During theyear ended February 28, 2003, management evaluated its estimate ofthe netrealizable value of inventories based on actual sales.  As a result, a provisionfor loss on inventories of $102,823 was charged to cost of sales during thefourth quarter of the year ended February 28, 2003.

 

During theyear ended February 29, 2004, management determined that $16,794 should bereclassified to property and equipment as the Company could better use theseitems within operations.

 

6.                                       PROPERTYAND EQUIPMENT

 

Propertyand equipment at February 29, 2004 consist of:

 
| Land                           |   | $         | 186,045   |   |
|--------------------------------|--------|-----------|-----------|--------|
| Building and improvements      |   | 2,852,915 |      |
| Machinery and equipment        |   | 2,728,185 |      |
| Office furniture and equipment |   | 47,260    |      |
| Trucks and automobiles         |   | 321,018   |      |
| Equipment held for lease       |   | 172,794   |      |
|                           |   | 6,308,217 |      |
| Less accumulated depreciation  |   | 1,149,180 |      |
|                           |   | $         | 5,159,037 |   |

 

Depreciationexpense for the years ended February 29, 2004 and February 28, 2003was$325,181 and $312,494, respectively. Depreciation expense includes amortization of equipmentheld under a capital lease in the amount of $8,954 for the year endedFebruary 29, 2003.

 

F-12

----

 

7.                                       INTANGIBLEASSETS

 

Thefollowing is a summary of intangible assets at February 29, 2004:

 
|              |   | **Gross  Amount** |    | **Accumulated  Amortization** |   |
|-------------------|--------|-------------------|---------|-------------------------------|--------|
| Web Site          |   | $                 | 86,125  |                          | $      | 6,699 |   |
| Brand Recognition |   | 59,455            |    | 4,624                         |   |
| Customer List     |   | 44,420            |    | 3,455                         |   |
|              |   | $                 | 190,000 |                          | $      | 14,778 |   |

 

Amortizationexpense for the year ended February 29, 2004 was $14,778; estimated amortizationexpense for each of the ensuing years through February 28, 2009 is $38,000,$38,000, $38,000, $38,000 and $23,222, respectively.

 

8.                                       NOTESRECEIVABLE

 

Notesreceivable, included in other receivables, at February 29, 2004 consist of thefollowing:

 
| Note receivable; 10% interest; due on  demand; unsecured  |   | $      | 35,473 |   |
|-----------------------------------------------------------|--------|--------|--------|--------|
|                                                      |   |   |   |
| Notes receivable; 10% interest; due on  demand; unsecured |   | 43,651 |   |
|                                                      |   | $      | 79,124 |   |

 

9.                                       NOTESPAYABLE

 

Notespayable at February 29, 2004 consist of:

 
| Notes payable to the parents of the former  president of the Company; stockholders; 10.0% interest; past maturity;  unsecured                                                                                                                                                                                           |   | $         | 185,291   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|-----------|--------|
| Notes payable to the parents and sister of  the former president of the Company; stockholders; 10.0% interest; past  maturity; unsecured                                                                                                                                                                                |   | 31,697    |      |
| Note payable; 7% interest; past maturity;  unsecured                                                                                                                                                                                                                                                                    |   | 25,000    |      |
| Note payable; 10% interest; past maturity;  unsecured                                                                                                                                                                                                                                                                   |   | 80,000    |      |
| Note payable; related party; 8% interest;  due on demand; unsecured                                                                                                                                                                                                                                                     |   | 25,500    |      |
| Note payable, acquisition; related party;  no interest; due on demand; unsecured                                                                                                                                                                                                                                        |   | 60,500    |      |
| Note payable; related party; 18% interest;  due on demand; unsecured                                                                                                                                                                                                                                                    |   | 1,554     |      |
| Note payable; 10% interest; due on demand;  past maturity; unsecured                                                                                                                                                                                                                                                    |   | 40,000    |      |
| Note payable; related party; 18% interest;  due on demand; unsecured                                                                                                                                                                                                                                                    |   | 4,200     |      |
| Notes payable; related party; 10 - 15%  interest; due on demand; unsecured                                                                                                                                                                                                                                              |   | 39,506    |      |
| Notes payable, individual; matured May  2001; interest payable in the amount of $10,000, in addition to principal;  unsecured                                                                                                                                                                                           |   | 10,000    |      |
| Note payable; 9.0% interest; monthly  principal and interest payment of $670; matures April 1, 2006; collateralized  by a vehicle                                                                                                                                                                                       |   | 15,993    |      |
| Convertible subordinated notes due to  investors; 11.0% interest; the notes are subordinate in rights of payment to  all indebtedness of the Company outstanding as of August 15, 1995 or to be  incurred in the future; matured September 30, 1998; unsecured                                                          |   | 37,500    |      |
| Note payable to Internal Revenue Service  pursuant to a Chapter 11 reorganization plan; 8.0% interest; secured by tax  lien; monthly payments of $1,500 of principal and interest; matures on May  25, 2006                                                                                                             |   | 361,669   |      |
| Note payable to a financial institution;  7.5% interest; monthly principal and interest payments of $8,166;  collateralized by fixed assets, key man life insurance policy, and 1,000,000  shares of common stock owned by a stockholder; guaranteed by a stockholder;  due December 29, 2005 with a three-year balloon |   | 833,980   |      |
|                                                                                                                                                                                                                                                                                                                    |   | 1,752,390 |      |
| Less current portion                                                                                                                                                                                                                                                                                                    |   | 557,438   |      |
|                                                                                                                                                                                                                                                                                                                    |   | $         | 1,194,952 |   |

 

F-13

----

 

As ofFebruary 29, 2004, the notes payable listed above include $409,488 which arecurrently in default.

 

Theaggregate principal maturing in subsequent years are:

 

| **Year Ending February 28,** |   |    |      |
|------------------------------|--------|---------|-----------|
| 2005                         |   | $       | 557,438   |   |
| 2006                         |   | 831,747 |      |
| 2007                         |   | 363,205 |      |
|                         |   | $       | 1,752,390 |   |

 

The abovenotes payable to related parties are not necessarily indicative of the termsand amounts that would have been incurred had comparable agreements been madewith independent parties.

 

10.                                 COMMITMENTSAND CONTINGENCIES

 

The Companyhas an employment agreement with a key employee, the terms of which expired infiscal year 2004.  Such agreement, whichhas been revised from time to time, provides for a minimum salary level,adjusted annually for cost of living increases, normal employment benefits,automobile allowances, stock options, as well as bonuses, which may containminimum and incentive components.  TheCompany is currently renegotiating this employment agreement, and the employeeis continuing to work under the original agreement on a month to month basis.

 

The Companyhas a consulting agreement with an individual which continuesindefinitely.  Such agreement, which maybe revised from time to time, provides for a monthly compensation of $9,000,$108,000 annually, and reimbursement of approved expenses.  Compensation may include stock options,which are exercisable at 85% of the fair market value at a frequency andquantity that will provide the agreed upon compensation.

 

The Companyhas a consulting agreement with an individual which continuesindefinitely.  Such agreement, which maybe revised from time to time, provides for a monthly compensation of $6,000,$72,000 annually, and reimbursement of approved expenses.  Compensation may include stock options,which are exercisable at 85% of the fair market value at a frequency andquantity that will provide the agreed upon compensation.

 

The Companyhas a consulting agreement with an individual which continuesindefinitely.  Such agreement, which maybe revised from time to time, provides for a monthly compensation of $1,500,$18,000 annually.

 

On October11, 2003, the Company acquired 100 percent of the outstanding common stock ofChariot Manufacturing Company, Inc. from a related party.

 

11.                                 CONVERTIBLEPREFERRED STOCK

 

Holders ofSeries A convertible preferred stock vote on a converted basis with the commonstockholders on all matters to be brought to a vote of the stockholders.  Each share of Series A convertible preferredstock can be converted into 1,289 shares of common stock.  Dividends are payable in kind at theCompany’s option at a rate of ten percent annually.  Payments of annual dividends have been deferred by the Company’sBoard of Directors on the outstanding Series A shares because of lossessustained by the Company.  As ofFebruary 29, 2004, preferred dividends in arrears amounted to $118,377, or$1,161 per share.

 

F-14

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The SeriesB convertible preferred stock has rights to receive cumulative six percent inkind dividends in preference to the payment of dividends on all other shares ofcapital stock of the Company.  Nodividends may be declared or paid on any other shares of stock until the fullamount of the cumulative dividends on the Series B preferred stock has beenpaid.  Each share of Series Bconvertible preferred stock can be converted into 1,000 shares of commonstock.  Cumulative dividends amounted to$226,437 and $193,635 at February 29, 2004 and February 28, 2003,respectively.  Dividends may be paid instock through May 31, 2004 at a conversion rate of $1.00 per share.  For the years ended February 29, 2004 andFebruary 28, 2003, 226 and 247 shares of preferred stock were paid inadditional shares, respectively.

 

Holders ofSeries B preferred stock vote on a converted basis with the common stockholderson all matters to be brought to a vote of the stockholders.  The Series B preferred stockholders areentitled to elect one director out of the seven authorized directors of theCompany’s board.  If certain eventsoccur or do not occur, such as the failure to pay dividends to the Series Bpreferred stockholders, the holders of the Series B preferred stock areentitled to elect the smallest number of directors that will constitute amajority of the authorized number of directors, immediately upon giving writtennotice.

 

12.                                 CAPITALIZATION

 

During theyear ended February 29, 2004, the Company amended its articles ofincorporation, increasing the number of authorized shares of common stock from30,000,000 to 350,000,000.

 

TheCompany’s 1995 Stock Option Plan authorizes up to 3,500,000 shares of commonstockfor grants of both incentive stock options and non-qualified stock optionstokey employees, officers, directors, and consultants.  Options granted under the Plan must be exercised within tenyears of the date of grant.  Theexercise price of options granted may not be less than 85 percent of thefair market value of the stock. Additionally, the Company issues stock options to executives under theiremployment agreements.  As of February29, 2004, the Company has 1,500,000 options available for future issuance underthis plan.

 

On July 10,2002, the Company adopted a Non-Qualified Option/Stock Appreciation Rights Planthat authorizes 7,000,000 shares of common stock for grant to key managementemployees or consultants.  Optionsgranted under the plan must be exercised within ten years of the date ofgrant.  The exercise price of optionsshall not be less than par value and shall be determined by the Stock Option PlanCommittee and the Board of Directors. As of February 29, 2004, the Company has 57,400 options available forfuture issuance under this plan.

 

During theyear ended February 29, 2004, the Company adopted an employee stock incentiveplan (the “Plan”) that authorizes up to 20,000,000 shares of common stock forgrants of both incentive stock options and non-qualified stock options todesignated officers, employees, and certain non-employees.  Effective July 2003 and October 2003, theCompany amended this plan to include an additional 20,000,000 and 25,000,000shares of common stock, respectively. Options granted under the Plan must be exercised within 10 years of thedate of grant.  The exercise price ofoptions granted may not be less than 85 percent of the fair market value of thestock.  As of February 29, 2004, theCompany has 5,300,000 options available for future issuance under this plan.

 

During theyear ended February 29, 2004, the Company also adopted a non-employee directorsand consultants retainer stock plan. This plan authorizes up to 5,000,000 shares of common stock to be issuedin the amount of compensation for services to directors and consultants at thedeemed issuance price of not less than 85 percent of the fair market value ofthe stock.

 

F-15

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EffectiveJuly 2003 and October 2003, the Company amended this plan to include anadditional 1,000,000 and 15,000,000 shares of common stock, respectively.  As of February 29, 2004, the Company has issuedall of the authorized options available under this plan.

 

A summaryof the Company’s stock option activity is as follows:

 
|                                   |   | **Number  of Shares** |   | **Weighted-Average  Exercise Price  Per Share** |   |
|----------------------------------------|--------|-----------------------|--------|-------------------------------------------------|--------|
| Options outstanding, February 28, 2002 |   | 112,500               |   | 0.57                                            |   |
| Granted                                |   | 900,000               |   | 0.23                                            |   |
| Exercised                              |   | (750,000              | )      | 0.24                                            |   |
| Expired, forfeited                     |   | 0                     |   | 0.00                                            |   |
|                                   |   |                  |   |                                            |   |
| Options outstanding, February 28, 2003 |   | 262,500               |   | 0.36                                            |   |
|                                   |   |                  |   |                                            |   |
| Granted                                |   | 88,550,000            |   | 0.02                                            |   |
| Exercised                              |   | (88,450,000           | )      | 0.02                                            |   |
| Expired, forfeited                     |   | 0                     |   | 0.00                                            |   |
|                                   |   |                  |   |                                            |   |
| Options outstanding, February 29, 2004 |   | 362,500               |   | 0.27                                            |   |

 

Thefollowing table summarizes information about options outstanding andexercisable as of February 29, 2004:

 
|                          |   | **Outstanding  Options** |   | **Exercisable  Options**               |   |
|-------------------------------|--------|--------------------------|--------|----------------------------------------|--------|
| **Range of  Exercise  Price** |   | **Number  Outstanding**  |   | **Weighted  Average  Remaining  Life** |   | **Weighted  Average  Price** |   | **Weighted  Average  Remaining Life** |   | **Number  Exercisable** |   | **Weighted  Average  Price** |   |
| $0.04-$0.57                   |   | 362,500                  |   | 8.29 years                             |   | $ | 0.27 |   | 8.29 years |   | 362,500 |   | $ | 0.27 |   |
|                               |        |                          |        |                                        |        |  |  |  |  |  |  |  |  |  |  |

 

Theweighted average estimated fair value of stock options granted during 2004 and2003 was $0.02 and $0.23 per share, respectively.

 

13.                                 INCOMETAXES

 

The Companyhas incurred significant operating losses since its inception and,therefore,no tax liabilities have been incurred for the periods presented.  The amount of unused tax losses availableto carry forward and apply against taxable income in future years totaledapproximately $15,708,000.  The losscarry forwards expire beginning in 2007. Due to the Company’s continued losses, management has establisheda valuation allowance equal to the amount of deferred tax asset because itis more likely than not that the Company will not realize this benefit.

 

F-16

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Temporarydifferences giving rise to the deferred tax asset are as follows:

 
| Unused operating loss carry forward                                                    |   | $          | 5,528,900 |   |
|----------------------------------------------------------------------------------------|--------|------------|-----------|--------|
| Excess depreciation for tax purposes over  the amount for financial reporting purposes |   | (607,200   | )         |
| Other                                                                                  |   | 8,800      |      |
|                                                                                   |   | 4,930,500  |      |
| Valuation allowance                                                                    |   | (4,930,500 | )         |
|                                                                                   |   | $          | 0         |   |

 

Differencesbetween the federal benefit computed at a statutory rate and the Company’seffective tax rate and provision are as follows:

 
| Statutory benefit                                    |   | $       | (619,000 | )      |
|------------------------------------------------------|--------|---------|----------|--------|
| State tax benefit, net of federal effect             |   | (60,000 | )        |
| Non-deductible expenses                              |   | 9,200   |     |
| Increase in deferred income tax valuation  allowance |   | 669,800 |     |
|                                                 |   | $       | 0        |   |

 

TheInternal Revenue Code contains provisions that may limit the net operatinglosscarry forwards available for use in any given year if significant changes inownershipinterest of the Company occur.

 

14.                                 FORGIVENESSOF DEBT

 

During theyear ended February 28, 2003, management of the Company negotiatednew debtfinancing, of which the proceeds of $875,000 were used to settle outstandingdebts and finance operations.  TheCompany settled debt in the amounts of $1,374,775 for $562,761, whichresulted in a gain of $812,014.  Thisgainhas been reflected as forgiveness of debt income in the accompanying consolidatedfinancial statements.

 

15.                                 RELATEDPARTY TRANSACTIONS

 

During theyear ended February 29, 2004, two executives who are stockholders ofthe Companydeferred approximately $112,000 of compensation earned during the year.  The balance due to stockholders at February29, 2004 totaled $258,724.  The amounts areunsecured, non-interest bearing, and have no specific repayment terms.

 

During theyear ended February 29, 2004, the Company issued 15,139,285 shares of commonstock to a related company valued at $105,975 in settlement of a payable to anunrelated party.  Also, the Companyissued 3,299,986 shares of common stock to the related company valued at$84,150 for a pledge of assets and guarantee of a loan.  This related company is 100 percent owned bythe president and chief executive officer of the Company.

 

On October11, 2003, the Company acquired 100 percent of the outstanding common stock ofChariot Manufacturing Company, Inc. from a related party for $360,000.  As part of this transaction, the Companyissued the related company 2,197,802 shares of common stock valued at$30,000.  This related company is 100percent owned by the president and chief executive officer of the Company.

 

The Companyalso issued 1,649,993 shares of common stock to a related party, who is anexecutive of the Company and a stockholder, valued at $42,075 for a pledge ofassets and guarantee of a loan.

 

F-17

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The aboveamounts are not necessarily indicative of the amounts that would havebeenincurred had comparable transactions been entered into with independent parties.

 

16.                                 ACQUISITION

 

On October11, 2003, the Company acquired 100 percent of the outstanding common stock ofChariot Manufacturing Company, Inc. from a related party for $360,000.  The acquisition was financed through the assignmentof a note receivable valued at $150,000, the issuance of $30,000 worth ofcommon stock and a note payable for $180,000. As Chariot Manufacturing Company, Inc. manufactures motorcycle trailers with fiberglass bodies, itprovides a vehicle for the Company to enter the fiberglass manufacturing market.  The operations of the Company from October11, 2003 through February 29, 2004 are included in the consolidated financialstatements.

 

The followingtable summarizes the estimated fair values of the assets acquired at the dateof acquisition, there were no outstanding liabilities.

 

**At February 29, 2004**

 

| Equipment             |   | $       | 170,000 |   |
|-----------------------|--------|---------|---------|--------|
| Intangible assets     |   | 190,000 |    |
| Total assets acquired |   | $       | 360,000 |   |

 

Of the$190,000 of acquired intangible assets, $59,455 was assigned to brandrecognition, $44,420 was assigned to customer list and $86,125 was assigned tothe web site development.  Theseintangible assets are being amortized over an average useful life of 5 years.

 

The following arepro forma amounts assuming the acquisition was made on March 1, 2002:

 
|                       |   | **Year Ended  February 29, 2004** |       | **Year Ended  February 28, 2003** |   |
|----------------------------|--------|-----------------------------------|------------|-----------------------------------|--------|
|                       |   | **(unaudited)**                   |       | **(unaudited)**                   |   |
|                       |   |                              |       |                              |   |
| Net sales                  |   | $                                 | 2,256,573  |                              | $      | 2,665,249 |   |
| Net loss                   |   | $                                 | (1,289,219 | )                                 | $      | (482,868 | ) |
| Net loss per common  share |   | $                                 | (.02       | )                                 | $      | (.03 | ) |

 

The year endedFebruary 29, 2004, includes a nonrecurring gain on the disposal of assets of$380,444.

 

F-18

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17.                                 SEGMENTINFORMATION

 

The Companyhas two reportable segments during 2004; manufacturing and fiberglass.  During 2003, the Company only had onereportable segment.  Although both ofthese segments are in the manufacturing industry, they provide different typesof products and services and each segment is subject to different marketing,production and technology strategies. Therefore, for the year ended February 29, 2004 the Company has includedsegment reporting.

 

For theyear ended February 29, 2004, information regarding operations by segment areas follows:

 
|                                                     |   | **Manufacturing** |      | **Fiberglass** |   | **Other** |   | **Total** |       |
|----------------------------------------------------------|--------|-------------------|-----------|----------------|--------|-----------|--------|-----------|------------|
|                                                     |   |              |      |           |   |      |   |      |       |
| Revenue                                                  |   | $                 | 2,067,455 |           | $      | 16,750    |   |      |       | $ | 2,084,205 |   |
|                                                     |   |              |      |           |   |      |   |      |       |
| Interest expense                                         |   | $                 | 133,485   |           | $      | 0         |   | $         | 55,430     |   | $ | 188,915 |   |
|                                                     |   |              |      |           |   |      |   |      |       |
| Depreciation                                             |   | $                 | 318,282   |           | $      | 6,611     |   | $         | 288        |   | $ | 325,181 |   |
|                                                     |   |              |      |           |   |      |   |      |       |
| Net (loss)                                               |   | $                 | (201,316  | )              | $      | (35,402   | )      | $         | (1,407,426 | ) | $ | (1,644,144 | ) |
|                                                     |   |              |      |           |   |      |   |      |       |
| Property and equipment, net of accumulated  depreciation |   | $                 | 4,992,486 |           | $      | 163,389   |   | $         | 3,162      |   | $ | 5,159,037 |   |
|                                                     |   |              |      |           |   |      |   |      |       |
| Segment assets                                           |   | $                 | 5,647,695 |           | $      | 353,779   |   | $         | 386,003    |   | $ | 6,387,477 |   |

 

Segment 1, manufacturing, consists of International Machine and Welding, Inc. and derives its revenues from machining operations, sale of parts and service.  Segment 2, fiberglass, consists of Chariot Manufacturing Company, Inc. and derives its revenues from the manufacture, sale and service of fiberglass trailers.

 

Themanufacturing segment, International Machine and Welding, Inc. has a broad anddiverse base of customers.  The segmentdoes not rely on any single customer, the loss of which would have a materialadverse effect on the segment.  However,this segment does generate a significant amount of revenues from sales andservices provided to three different industries.  The construction industry accounted for approximately 34% of thesegment’s revenues, while the industrial and mining industries accounted forapproximately 43.5% and 26.6%, respectively, of the segment’s total revenues.

 

Althoughthe division does not rely on a single customer, three of the Company’scustomers accounted for approximately 45.4% of total revenues.  These customers were Vehicare 21.8%, IMCPhospate Company 16.3% and Kovacs 7.3%.

 

F-19

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ITEM 8.          CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

NONE

 

ITEM8A. CONTROLS AND PROCEDURES

 

a                                     Evaluationof disclosure controls and procedures.

 

Under thesupervision and with the participation of our Management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of the effectiveness of the design and operations of our disclosurecontrols and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as of February 29, 2004.  Based on this evaluation, our principalexecutive officer and principal financial officer concluded that our disclosurecontrols and procedures were effective such that the material informationrequired to be included in our Securities and Exchange Commission (“SEC”)reports is recorded, processed, summarized and reported within the time periodsspecified in SEC rules and forms relating to American Commerce Solutions, Inc.,including our consolidated subsidiaries, and was made known to them by otherswithin those entities, particularly during the period when this report wasbeing prepared.

 

b                                    Changes ininternal controls over financial reporting.

 

In addition, therewere no significant changes in our internal control over financial reportingthat could significantly affect these controls during the quarter endedFebruary 29, 2004.  We have notidentified any significant deficiency or materials weaknesses in our internalcontrols, and therefore there were no corrective actions taken.

 

Certificationby each Director and executive officer has been executed.

 

PART III

 

ITEM 9.          DIRECTORSAND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE REGISTRANT;COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The following table sets forthinformation about each person who serves asanexecutive officer or director of the Company:

 
| **Name**            |   | **Age** |   | **Positions with the  Company**                  |
|---------------------|--------|---------|--------|--------------------------------------------------|
|                |   |    |   |                                             |
| Robert  E. Maxwell  |   | 68      |   | Chairman  of the Board and Director              |
|                |   |    |   |                                             |
| Frank  D. Puissegur |   | 44      |   | Chief  Financial Officer and Director            |
|                |   |    |   |                                             |
| Daniel  L. Hefner   |   | 53      |   | Chief  Executive Officer, President and Director |

 

Directors of the Company hold officeuntil the earlier of the next annualmeeting of the stockholders and untiltheir successors have been duly elected and qualified, or their death,resignation, or removal.  Two boardmembers were elected to two-year terms at the annual stockholders meetingheld January 21, 2003.  Robert Maxwell andDaniel Hefner were elected to a two-year term. On March 5, 2002 in consent action by shareholders, Norman Birmingham waselected to a two-year term, but subsequently resigned the position.  Our officers are elected annually bythe board of directors to hold office until the next annual meeting of ourboard and their successors have been duly elected and qualified.  There are no family relationships betweenany of our officers and directors.  Setforth belowis a description of the business experience during the past five years ormoreand other biographical information for directors and executive officers identifiedabove:

 

Mr. Maxwell has been a director and theChairman of the Board of Directorsof the Company since June 2000.  Mr. Maxwell serves as a consultant toInternationalMachine and Welding, Inc., a subsidiary of the Company.  He was the owner/operator of Florida Machine andWelding, Inc., located in Bartow, Florida, for the past 24 years until the saleof its assets in June 2000.  Mr. Maxwellhas servedon various bank and charitable boards of directors.

 

Mr. Puissegur joined the Company inJune 2001 as Chief Financial Officerand Director.  He became a Certified public Accountant withhis certificate from

 

35

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the State of Florida and the creation of asole practitioner office in 1982.  Thepracticegrew 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 FloridaInstitutes of Certified Public Accountants and the National and Polk CountyEstate Planning Councils.  The AmericanInstituteof Tax Studies has awarded Mr. Puissegur the designation of “Certified TaxProfessional.” He also holds the designation from the State of Florida as aCertifiedFamily Mediator.

 

Mr. Hefner has been President of theCompany since September, 2002 and ChiefExecutive Officer since March2002.  He previously served as ExecutiveVice Presidentfrom June 2000 to June 2001 and as interim President from June 2001 throughFebruary 2002.  Mr. Hefner has been adirector of the Company since June 2000. Mr. Hefner formerly served as President of International Machine andWelding,Inc. He also serves as President of International Commerce and Finance, Inc. aninvestment/consulting company for manufacturing and technology companies,and he has held this position since August 1999.  Mr. Hefner has been active for the past twelve years as anindependent consultant to individuals or business seeking to begin operationsor to create turnarounds of existing business.  During the same period, Mr. Hefner also operated his own independentrealestate brokerage operation where he served as President and Chief ExecutiveOfficer.  From March to October 1999, Mr. Hefner wasChief Operating Officer for Chronicle Communications, Inc. (OTCBB:CRNC), a Tampa based printer.  CRNCfiled bankruptcyprotection under Chapter 11 of the Federal Bankruptcy Code two months after Mr.Hefner’s departure.

 

AUDIT COMMITTEE

 

The AuditCommittee consists of Frank Puissegur, Andrew Mueller and Robert Maxwell.  The Audit Committee selects the independentauditors; reviews the results and scope of the audit and other servicesprovided by the Company’s independent auditors, and reviews and evaluates theCompany’s internal control functions. The board of directors has determined that Mr. Mueller is the audit committee“financial expert”, as such term is defined under federal securities law, andis independent.  Mr. Mueller is anexpert by virtue of : (i) education and experience as a principal financialofficer, principal accounting officer, controller, public accountant or auditoror experience in one or more positions that involve the performance of similarfunctions; (ii) experience actively supervising a principal financial officer,principal accounting officer, controller, public accountant, auditor or personperforming similar functions; (iii) experience overseeing or assessing theperformance of companies or public accountants with respect to the preparation,auditing or evaluation of financial statements; and (iv) other relevantexperience.

 

ITEM10.  EXECUTIVE COMPENSATION

 

The following summary compensationtable sets forth cash and non-cashcompensation awarded, paid oraccrued, for the past three fiscal years of the Company’s Chief Executive Officers,and all other, if any, whose total annual compensation exceeded $100,000 forthe fiscal year ended February 29, 2004 (collectively, the “ Named ExecutiveOfficers”).

 

SUMMARY COMPENSATION TABLE

 
|                                |   |             |   |                     |   |                                |   | **Compensation  Awards**    |   |    |   |
|-------------------------------------|--------|------------------|--------|--------------------------|--------|-------------------------------------|--------|-----------------------------|--------|---------|--------|
| **Name and  Principal Position**    |   | **Fiscal  Year** |   | **Annual  Compensation** |   | **Securities  Underlying  Options** |   | **All Other  Compensation** |   |
| **Salary**                          |   | **Bonus**        |
|                                |   |             |   |                     |   |                                |   |                        |   |    |   |
| Daniel L. Hefner, CEO and President |   | 2004             |   | $                        | 64,896 |                                | $      | 15,000                      |   | 100,000 |   | $ | 10,800 |   |
|                                |   |             |   |                     |   |                                |   |                        |   |    |   |
| Daniel L. Hefner, CEO and President |   | 2003             |   | $                        | 62,400 |                                | $      | 15,000                      |   | 100,000 |   | $ | 10,800 |   |

 

NoExecutive or employee was compensated over $100,000 for fiscal year 2004 or2003.

 

36

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The Company does not have anyannuity, retirement, pension, deferred orincentive compensation plan orarrangement under which any executive officers are entitled to benefits, nor doesthe Company have any long-term incentive plan pursuant to which performance unitsor other forms of compensation are paid. Executive officers who qualify will be permitted to participate in theCompany’s 1995 Stock Option Plan, which was adopted in February 1995.  See “Stock Option Plan.”Executive officers may participate in group life, health and hospitalizationplans if and when such plans are available generally to all employees.  All other compensation consisted solely ofhealth care premiums.

 

EMPLOYMENTAGREEMENTS

 

The Company signed an employmentagreement with Daniel L.  Hefner on June1,2000 containing a base salary of $60,000; a minimum cash bonusof $15,000 per year and a 4% annual increase of the base pay.  Stock options are granted on the signing andJune 1 of each contract year at the rate of 100,000 common share equivalents.  The contract also provides for a $750 permonth car allowance and the payment of all insurance, fuel andmaintenance costs and all perquisites related to health, dental, life ordisability as may be offered to the executive management staff.  All other provisions of the previouscontract related to capital raises or warrant or exercise revenue were omittedexcept for the termination provisions stated above.

 

DIRECTORCOMPENSATION

 

Directors of the Company who are notemployees or consultants do notreceive any compensation for theirservices as members of the Board of Directors, but are reimbursed forexpenses incurred in connection with their attendance at meetings of the Boardof Directors.

 

COMPENSATIONCOMMITTEE

 

Robert E. Maxwell, Daniel L. Hefnerand Frank Puissegur are members of theCompensation Committee, which reviewsand makes recommendations with respect to compensation of officers, employeesand consultants, including the granting of options under the Company’s 1995Stock Option Plan, the NonQualifying Stock Option Plan approved effective July10,2002 and the Employee Stock Incentive Plan approved effective May 27,2003.

 

EMPLOYEESTOCK 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 stockholdersin July 1995 provides for the issuance of options to employees, officersand, under certain circumstances, directors of and consultants to the Company(“Eligible Participants”).  Optionsgranted under the plan may be either “incentive stock options” (“ISOs”) asdefined 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 appreciationrightsbut does permit the granting of restricted and non-restricted stock and deferredstock awards.  A total of 250,000 sharesof Common Stock were originally reserved for issuance under the Plan;however, in January 1998, the Board of Directors voted to amend the Plan andreserve for issuance under the Plan an additional 500,000 shares, whichamendment was ratified by the stockholders of the Company at the Annual Meeting ofStockholders held April 15, 1998.  Theplan wasfurther amended at an Annual Shareholders meeting December 15, 2000 at whichtimean increase of 1,250,000 shares were ratified. The Plan was also amended on January 21, 2003 by the stockholdersat which time an increase of 1,500,000 shares were ratified for a total of3,500,000 shares.  The CompensationCommittee of the Board of Directors administers the Plan.  The Committee has sole discretionand authority, consistent with the provisions of the Plan, to select theEligible Participants to whom Options will be granted under the Plan, thenumberof shares which will be covered by each Option and the form and terms oftheagreement to be used.

 

Allemployees and officers of the Company (including members of the Committee)areeligible 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.

 

37

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Options.  The Committee is empowered to determine theexercise price of Optionsgranted under the Plan, but the exerciseprice of ISOs must be equal to or greater than the fair market value of ashare of Common Stock on the date the Option is granted (110% with respectto option holders who own at least 10% of the outstanding Common Stock).  The exercise price of NQSOs granted underthe Planmust not be less than 85% of the fair market value of the Common Stock onthedate the Option is granted.  TheCommittee has the authority to determine the time or times at which Optionsgranted under the Plan become exercisable, but the Options expire no later than tenyears from the date of grant (five years with respect to Option holders whoown at least 10% of the outstanding Common Stock of the Company).  The Options are nontransferable, other thanby will and the laws of descent, and generally may be exercised only by anemployee while employed by the Company or within 90 days after termination ofemployment (one year from termination resulting from death or disability).  The compensation committeehas the authority to waive payment of the exercise price of stock optionsissued under the plan.

 

NONQUALIFYINGSTOCK OPTION PLAN

 

On July 10,2002 the Company adopted a Non-qualifying Stock Option/StockAppreciationRights Plan and reserved 7,000,000 common shares of stock for employeesofficers and consultants.  These optionsare granted by the Board at their discretion.  50,000 options were granted during fiscal 2003.

 

EMPLOYEESTOCK INCENTIVE PLAN

 

EffectiveMay 27, 2003, the Company adopted an employee stock incentive plan (the “Plan”)for the year 2003 that authorizes up to 15,000,000 shares of common stock forgrants of both incentive stock options and non-qualified stock options todesignated officers, employees, and certain non-employees.  Effective July 2003 and October 2003, theCompany amended this plan to include an additional 20,000,000 and 25,000,000shares of common stock, respectively. Options granted under the Plan must be exercised within 10 years of thedate of grant.  The exercise price ofoptions granted may not be less than 85 percent of the fair market value of thestock.

 

EffectiveMay 27, 2003, the Company also adopted a non-employee directors and consultantsretainer stock plan for the year 2003. This plan authorizes up to 5,000,000 shares of common stock to be issuedin the amount of compensation for services to directors and consultants at thedeemed issuance price of $.04 per share. Effective July 2003 and October 2003, the Company amended this plan toinclude an additional 1,000,000 and 15,000,000 shares of common stock,respectively and to change the exercise price to not less than 85 percent ofthe fair market value of the stock.

 

At February29, 2004, the Company did not have any long-term incentive plans nor had itawarded any restricted shares to any Named Executive Officer.  The table set forth below containsinformation with respect to the award of stock options during the fiscal yearended February 29, 2004 and 2003 to the Named Executive Officers covered by theSalary Compensation Table.

 

OPTION/SAR GRANTS IN LAST FISCAL YEAR

(individual grants)

 
| **Name**         |   | **Number of  Securities  underlying  Options/SAR’s  Granted** |   | **% of Total  Options/SAR’s  Granted to  Employees in  Fiscal Year** |   | **Exercise  or Base  Price  ($ /Sh)** |   | **Expiration  Date** |          |
|------------------|--------|--------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|---------------------------------------|--------|----------------------|---------------|
| Daniel L. Hefner |   | 100,000                                                            |   | .11                                                                       |   | $                                     | 0.04   |                 | June 1, 2008* |   |
| Daniel L. Hefner |   | 100,000                                                            |   | 11.76                                                                     |   | $                                     | 0.286  |                 | June 1, 2007* |   |
| Daniel L. Hefner |   | 200,000                                                            |   | 23.53                                                                     |   | $                                     | 0.242  |                 | Exercised     |   |
| Barbara Maxwell  |   | 200,000                                                            |   | 23.53                                                                     |   | $                                     | 0.242  |                 | Exercised     |   |
| R. Beimel        |   | 200,000                                                            |   | 23.53                                                                     |   | $                                     | 0.242  |                 | Exercised     |   |
| N. Birmingham    |   | 150,000                                                            |   | 17.65                                                                     |   | $                                     | 0.242  |                 | Exercised     |   |

 

----

*theseoptions are exerciseable immediately.

 

38

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AGGREGATED OPTION/SAR EXERCISES IN LASTFISCAL YEAR

AND FISCAL YEAR-END OPTION/SAR VALUES

 

The following table sets forth, foreach Named Executive Officer in theSummary Compensation Table who holdsstock options, the number of shares acquired pursuant to the exercise ofstock options during fiscal 2004, the number of stock options held onFebruary 29, 2004 and the realizable gain of stock options that are“in-the-money.”

 
| **Name**             |   | **Shares  Acquired or  Exercised (#)** |               | **Value  Realized** |                 | **Number of  Securities Underlying  Unexercised Options  at Fiscal Year End** |   | **Value of  Unexercised  In-the-Money Options  At Fiscal Year End** |   |
|----------------------|--------|----------------------------------------|--------------------|---------------------|----------------------|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
| **Exercisable  (#)** |   | **Unexercisable  (#)**                 | **Exercisable  $** |                | **Unexercisable  $** |
|                 |   |                                   |               |                |                 |                                                                          |   |                                                                |   |   |   |   |   |
| Daniel L. Hefner     |   | 100,000                                |               | 0                   |                 | 100,000                                                                       |   | 0                                                                   |   | 0 | (1) | 0 |   |
|                 |   |                                   |               |                |                 |                                                                          |   |                                                                |   |   |   |   |   |
| Daniel L. Hefner     |   | 100,000                                |               | 0                   |                 | 100,000                                                                       |   | 0                                                                   |   | 0 | (2) | 0 |   |

 

----

(1)                                  Based uponthe closing price of the Common Stock as quoted on the Over The CounterBulletin Board on February 29, 2004 of $0.03 per share.

(2)                                  Based uponthe closing price of the Common Stock as quoted on the Over The CounterBulletin Board on February 28, 2003 of $0.06 per share.

 

ITEM11.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forthcertain information regarding the beneficialownershipof the Company’s outstanding Common Stock as of February 29, 2004, by: (i)eachdirector and nominee for director of the Company, (ii) each Named ExecutiveOfficer,(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 theoutstanding Common Stock.  Except asotherwise indicated, the persons named in the table have sole voting andinvestment power with respect to all of the Common Stock owned by them.

 

15

 
| **Name and Address or  Number in Group**                     |   | **Amount and  Nature of  Beneficial Ownership (1)** |   | **Percentage  of Class (2)** |   |
|--------------------------------------------------------------|--------|-----------------------------------------------------|--------|------------------------------|--------|
| Directors and Executive Officers                             |   |                                                |   |                         |   |
|                                                         |   |                                                |   |                         |   |
| Robert E. Maxwell (3)                                        |   | 723,360                                             |   |                         | **     |
|                                                         |   |                                                |   |                         |   |
| Frank D. Puissegur                                           |   | 0                                                   |   |                         | **     |
|                                                         |   |                                                |   |                         |   |
| Daniel L. Hefner (4)  1400 Chamber Dr.  Bartow, FL           |   | 42,821,674                                          |   | 30.35                        | %      |
|                                                         |   |                                                |   |                         |   |
| All Directors and Executive Officers as a  Group (3 persons) |   | 43,545,034                                          | (5)    | 30.86                        | %      |
|                                                         |   |                                                |   |                         |   |
| International Commerce and Finance, Inc.  Tampa, FL          |   | 39,462,721                                          |   | 27.97                        | %      |

 

----

**                                  less than1%

 

39

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(1)                                  Inaccordance with Rule 13d-3 promulgated pursuant to the Securities Exchange Actof 1934, a person is deemed to be the beneficial owner of a securityfor purposes of the rule if he or she has or shares voting power ordispositive power with respect to such security or has the right to acquiresuch ownership within sixty days.  As usedherein, “voting power” is the power to vote or to direct the votingof shares, and “dispositive power” is the power to dispose or directthe disposition of shares, irrespective of any economic interesttherein.

 

(2)                                  Incalculating the percentage ownership for a given individual or group, the numberof shares of Common Stock outstanding includes unissued shares subject tooptions, warrants, rights or conversion privileges exercisable withinsixty days held by such individual or group, but are not deemed outstandingby any other person or group.

 

(3)                                  Includes723,360 shares of Common Stock held by his spouse Barbara Maxwell.

 

(4)                                  Includes(a) 300,000 shares of Common Stock, which may be acquired pursuant tocurrently exercisable options (b) 3,058,953 shares of Common Stock held personallyand, (c) 39,462,721 shares of Common Stock beneficially owned as thePresident of International Commerce and Finance, Inc.

 

(5)                                  Includes300,000 shares of Common Stock subject to options.

 

The Company has two classes of preferredstock outstanding comprised of 102shares of Series A Preferred Stockand 3,944 shares of Series B Preferred Stock. Each outstanding class of preferred stock has voting rights and isconvertible into Common Stock.  Eachshare of Series A Preferred Stock converts to 1,289 shares ofCommon Stock and votes on an as converted basis.  3,207 shares of Series B Preferred Stock is convertibleinto 641,400 shares of Common Stock and 737 Series B Preferred Shares convertinto 737,000 shares of Common Stock and votes on an as converted basis.

 

Gerald Hoak, owner of 20 shares or19.61% of Series A Preferred Stock, andMerit Capital Associates, owner of 40shares or 39.22% of Series A Preferred Stock are the only owners of morethan 5% of the class.  No director orofficer isthe beneficial owner of any of the Series A or Series B Preferred Stock.

 

Beneficial Voting Power Held

 

The following table sets forth thevoting power in the Company’s equity securities, as of February 29, 2004 heldby: (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 bythe Company to own more than 5% of any class of outstanding equity security ofthe Company.  The voting power set forthin this table is the beneficial voting power held, directly and indirectly, bysuch person as of the date indicated assuming no conversion of the preferredstock (i.e., includes shares that may be acquired within 60 days by reason ofoption or warrant exercise but not those that could be obtained upon conversionof preferred stock).

 
| **Name**                                                     |   | **Percent of  Outstanding  Voting Power Held(1)** |   |
|--------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                         |   |                                              |   |
| Directors and Executive Officers                             |   |                                              |   |
|                                                         |   |                                              |   |
| Robert E. Maxwell                                            |   |                                              | *      |
| Frank Puissegur                                              |   |                                              | *      |
| Daniel L. Hefner (2)                                         |   | 30.35                                             | %      |
| All directors and executive officers as a  group (3 persons) |   | 30.86                                             | %      |
|                                                         |   |                                              |   |
| International Commerce and Finance (3)                       |   | 27.28                                             | %      |

 

----

*                                         Less than1%

 

(1)                                  Based upon140,573,824 outstanding shares of common stock, 102 outstanding

 

40

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sharesof Series A Preferred Stock and 3944 outstanding shares of Series BPreferredStock.  Each share of Common Stock isentitled to one vote per share. Each outstanding share of Series A Preferred Stock is entitled to1,289votes.  3,207 shares of Series BPreferred Stock are entitled to 200 votes per share and 737 shares ofSeries B Preferred are entitled 1,000 votes each.  Accordingly, as of Feb 28, 2004, the Series A Preferred StockandSeries B Preferred Stock are entitled to an aggregate of 131,478 votes and1,378,400 votes, respectively.  Votingrights are calculated in the same manner described in footnote 2 to tableabove disclosing the Security Ownership of Management and CertainBeneficial Owners (“Beneficial Ownership Table”).  Totals could exceed 100% due to suchcalculations and overlapping beneficial voting rights held between holders as setforth herein.

 

(2)                                  Consistingof 300,000 votes upon exercise of currently exercisable options to purchaseCommon Stock, 3,058,953 shares of Common Stock held and 39,462,721shares of Common Stock beneficially owned as President of InternationalCommerce and Finance, Inc.

 

(3)                                  Consistingof 39,462,721 shares of Common Stock.

 

ITEM12.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS

 

STOCKHOLDERSAGREEMENT

 

AStockholders Agreement dated April 9, 1998 was entered into among ULLICO, theCompany,David N. DeBaene, Annette DeBaene, Norman DeBaene, Thomas Lisi, and StevePanneton (each, a “Holder”).  TheStockholders Agreement provides that the Company shall have a right of firstrefusal before any Holder may transfer any shares of Common Stock.  ULLICO has a right of second refusal andco-sale rights, if the Company does not elect to buy all of the securities it isoffered.  If ULLICOenters into an agreement to transfer, sell or otherwise dispose of all ofitsPreferred Stock, Warrants and any Common Stock issued upon conversion orexerciseof the former (such agreement referred to as a “Tag-Along Sale”), each Holder hasthe right to participate in the Tag-Along Sale.  If ULLICO, alone or with another person, accepts an offer fromany party who is unaffiliated with it to purchase any of ULLICO’s shareswhich results in such party having the ability to elect a majority of theCompany’s Board of Directors, then, at the request of ULLICO, each Holder shallsell all shares of Common Stock held by such Holder (referred to as a“Drag-Along Sale”).

 

During theyear ended February 29, 2004, two executives who are stockholders ofthe Companydeferred approximately $112,000 of compensation earned during the year.  The balance due to stockholders at February29, 2004 totaled $258,723.  The amounts areunsecured, non-interest bearing, and have no specific repayment terms.

 

During theyear ended February 29, 2004, the Company issued 15,139,285 shares of commonstock to a related company valued at $105,975 in settlement of a payable to anunrelated party.  Also, the Companyissued 3,299,986 shares of common stock to the related company valued at$84,150 for a pledge of assets and guarantee of a loan.  This related company is 100 percent owned bythe president and chief executive officer of the Company.

 

On October11, 2003, the Company acquired 100 percent of the outstanding common stock ofChariot Manufacturing Company, Inc. from a related party for $360,000.  As part of this transaction, the Companyissued the related company 2,197,802 shares of common stock valued at$30,000.  This related company is 100percent owned by the president and chief executive officer of the Company.

 

The Companyalso issued 1,649,993 shares of common stock to a related party, who is anexecutive of the Company and a stockholder, valued at $42,075 for a pledge ofassets and guarantee of a loan.

 

The aboveamounts are not necessarily indicative of the amounts that would have beenincurred had comparable transactions been entered into with independentparties.

 

41

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ITEM13.  EXHIBITS AND REPORTS ON FORM 8-K

 

List ofExhibits

 

(a) The exhibitsthat are filed with this report or that are incorporated herein by referenceare set forth in the Exhibit Index below:

 

EXHIBIT INDEX

 
| **Sequentially  Incorporated Documents** |   |                                                                                                                                                                   |   | **SEC Exhibit Reference**                                                              |   | **Numbered** |
|------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|--------------|
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 3.1                                      |   | Certificate  of Incorporation of the Registrant, as amended                                                                                                            |   | As  filed with the Registrant’s Form SB-2, on October 27, 1995, File No. 33-98486 |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 3.2                                      |   | By-Laws  of the Registrant, as amended                                                                                                                                 |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486  |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.1                                      |   | Form  of Warrant Agreement                                                                                                                                             |   | As  filed with the Registrant’s Form SB-2, on October 27, 1995, File No. 33-98486 |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.2                                      |   | Form  of Warrant of the Registrant issued in the Registrant’s January 1995 Private  Placement                                                                     |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486  |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.3                                      |   | Form  of Unit Purchase Option issued to Merit Capital Associates, Inc.                                                                                                 |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486  |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.4                                      |   | Form  of 11% Convertible Subordinated Note of the Registrant issued in the  Registrant’s August, 1995 Private Placement                                           |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486  |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.5                                      |   | Form  of Warrant of the Registrant issued in the Registrant’s August, 1995 Private  Placement                                                                     |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486  |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.6                                      |   | Securities  Purchase Agreement dated April 9, 1998                                                                                                                     |   | As  filed with the Registrant’s Form 10KSB on June 13, 1999                       |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.7                                      |   | Certificate  of Designation of Series B Preferred Stock.                                                                                                               |   | As  filed with the Registrant’s Form 10 KSB on June 13, 1999                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.8                                      |   | Stockholders’  Agreement dated April 9, 1998.                                                                                                                     |   | As  filed with the Registrant’s Form 10 KSB on June 13, 1999                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.9                                      |   | Registration  Rights Agreement dated April 9, 1998                                                                                                                     |   | As  filed with the Registrant’s Form 10 KSB on June 13, 1999                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.10                                     |   | Warrant  Certificate issued to ULLICO                                                                                                                                  |   | As  filed with the Registrant’s Form 10 KSB on June 13, 1999                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.11                                     |   | Escrow  Agreement                                                                                                                                                      |   | As  filed with the Registrant’s Form 10 KSB on June 13, 1999                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.12                                     |   | Certificate  of Designations of Series A Preferred Stock                                                                                                               |   | As  filed with the Registrant’s Form 10-KSB on June 11, 1998                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.13                                     |   | Certificate  of Designation of Series C Preferred Stock                                                                                                                |   | As  filed with the Registrant’s Form 10-KSB on June 12, 2000                      |   | N/A          |
|                                     |   |                                                                                                                                                                   |   |                                                                                   |   |         |
| 4.14                                     |   | Amendment  to the Articles of Incorporation of JD American Workwear, Inc. for name  change to American Commerce Solutions, Inc. and the increase in authorized  shares |   | As  filed with the Registrant’s Form10-KSB on June 14, 2001                       |   | N/A          |

 

42

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| 10.2   |   | Employment  Agreement with Steven D. Smith                                                                                |   | As  filed with Registrant’s Form 10-KSB on July 19, 2001                         |   | N/A    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.3   |   | Registrant’s  1995 Stock Option Plan                                                                                 |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486 |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.4   |   | Form  of Option Agreement under the Registrant’s 1995 Stock Option Plan                                              |   | As  filed with the Registrant’s Form SB-2 on October 27, 1995, File No. 33-98486 |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.5   |   | Employment  Agreement with Norman Birmingham                                                                              |   | As  filed with Registrant’s Form 10-KSB on June 12, 2000                         |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.6   |   | Consulting  Agreement with Richard Sullivan                                                                               |   | As  filed with Registrant’s Form 10-KSB on June 12, 2000                         |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.7   |   | Option  to Purchase Businesses between Registrant and International Commerce and  Finance, Inc.                           |   | As  filed with Registrant’s Form 10-KSB on June 12, 2000                         |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.8   |   | Stock  Purchase Agreement between Registrant and Patina Corporation                                                       |   | As  filed with Registrant’s Form 10-KSB on June 12, 2000                         |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.9   |   | Employment  Agreement with David DeBaene January 1, 2001                                                                  |   | As  filed with Registrant’s Form 10-KSB on June 12, 2000                         |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.10  |   | Asset  Sale Agreement Between Registrant and David N. DeBaene June 1, 2001                                                |   | As  filed with Registrant’s Form 10-QSB on July 26, 2001                         |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.11  |   | Stock  Purchase Agreement between Registrant and Rhode Island truck and Equipment,  Corp. October 31, 2001                |   | As  filed with Registrant’s Form 10-QSB on December 14, 2001                     |   | N/A    |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 10.12  |   | Employment  Agreement with Daniel L. Hefner dated June 1, 2000                                                            |   |                                                                                  |   |   |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 14     |   | Code  of Ethics                                                                                                           |   |                                                                                  |   |   |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 31.1   |   | Certification  of the Chief Financial Officer Dated May 26, 2004                                                          |   |                                                                                  |   |   |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 31.2   |   | Certification  of the Chief Executive Officer dated May 26, 2004                                                          |   |                                                                                  |   |   |
|   |   |                                                                                                                      |   |                                                                                  |   |   |
| 32     |   | Certification  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbaenes-Oxley Act of 2002 |   |                                                                                  |   |   |

 

(b)                                 Reports onForm 8-K

 

The Company filed Form 8-K on October24, 2003 to disclose the acquisition of Chariot Manufacturing Company, Inc.from `International Commerce and Finance, Inc., Robert D. Hott, Jr. and GeraldF. Schiedel for total the sum of $360,000 in cash, assignment of notereceivable and Stock.

 

S-8 Filings included by reference

 

43

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EmployeeStock Incentive Plan and Non Employee Directors****and Consultants**R**etainerPlan for 2003 included by reference

 

ITEM14.  PRINCIPAL ACCOUNTANTS FEES ANDSERVCIES

 

Audit Fees

 

During 2004and 2003, we were billed by our accountants, Pender Newkirk & Company,approximately $55,500 and $37,600 for audit and review fees associated with our10-KSB and 10-QSB filings.  Also during2003, we were billed by our accountants, Bella, Hermida, Gillman, Hancock &Mueller Certified Public Accountants approximately $17,500 for audit and reviewfees associated with our 10-KSB and 10-QSB filings.

 

Audit related fees

 

None

 

Tax Fees

 

During 2004and 2003 we were billed by our accountants, **Bella,Hermida, Gillman, Hancock, & Mueller Certified Public Accountants**approximately $3,500 and $0 to prepare our federal and state tax returns.

 

All Other Fees

 

None

 

Audit Committee Pre-Approval Process, Policies and Procedures

 

Our principalauditors have performed their audit procedures in accordance with pre-approvedpolicies and procedures established by our Audit Committee.  Our principal auditors have informed ourAudit Committee of the scope and nature of each service provided.  With respect to the provisions of servicesother than audit, review, or attest services, our principal accountants broughtsuch services to the attention of our Audit Committee, or one or more membersof our Audit Committee for the members of our Board of Directors to whomauthority to grant such approval had been delegated by the Audit Committee,prior to commencing such services.

 

44

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SIGNATURES

 

In accordance with Section 13 or15(d) of the Exchange Act, the registrant caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

 
|                | AMERICAN  COMMERCE SOLUTIONS, INC. |
|---------------------|------------------------------------|
|                |                               |
|                |                               |
| Date:  May 26, 2004 | By:                                | /s/  Daniel L. Hefner |   |
|                |                               | Daniel  L. Hefner, President |

 
| Date:  May 26, 2004 | By:    | /s/  Frank D. Puissegur       |   |
|---------------------|--------|-------------------------------|--------|
|                |   | Frank  D. Puissegur, CFO and  |   |
|                |   | Principal  Accounting Officer |   |

 

 

45

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