#### ** **

#### **UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

#### **Washington, D.C. 20549**

### ** **

### **FORM10-QSB**

 

| **ý**                                                                                                                                                                                                                                                                                 |   | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                       |   |                                                                                   |
| **For the quarterly period ended August  31,2003**                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                       |   |                                                                                   |
| **o**                                                                                                                                                                                                                                                                                      |   | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE EXCHANGE ACT**                   |
|                                                                                                                                                                                                                                                                                       |   |                                                                                   |
| **For the transition period from                        to                      ** |
|                                                                                                                                                                                                                                                                                       |   |                                                                                   |
| **Commission file number:****33-98682**                                                                                                                                                                                                                                                    |

 

**American Commerce Solutions, Inc.**

(Exact name of small business issuer as specified in its charter)

 

| **Delaware**                                                                        |   | **05-0460102**                    |
|-------------------------------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization)                      |   | (IRS Employer Identification No.) |
|                                                                                |   |                              |
| **1400 Chamber Dr., Bartow, Florida 33830**                                         |
| (Address of principal executive offices)                                            |
|                                                                                |   |                              |
| **(863) 533-0326**                                                                  |
| (Issuer’s telephone number)                                                    |
|                                                                                |   |                              |
| **N/A**                                                                             |
| (Former name, former address and former fiscal year, if changed since  last report) |

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act during the past 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.      ý  YES         oNO

 

There were 68,108,758 shares of the Registrant’s $.002 par value commonstock outstanding as of August 31, 2003.

 

Transitional Small Business Disclosure Format(Check one): Yes oNo ý

 

 

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**AmericanCommerce Solutions, Inc.**

 

 

**Contents**

 

 
| Part I – Financial Information |
|-------------------------------------|
|                                |   |   |
|                                | Item 1. | Consolidated Financial Statements |
|                                |   |   |
|                                | Item 2. | Management’s Discussion & Analysis |
|                                |   |   |
|                                | Item 3. | Controls and Procedures |
|                                |   |   |
| Part II – Other Information    |
|                                |   |   |
|                                | Item 1. | Legal Proceedings |
|                                |   |   |
|                                | Item 2. | Changes in Securities |
|                                |   |   |
|                                | Item 3. | Defaults Upon Senior Securities |
|                                |   |   |
|                                | Item 4. | Submission of Matters to a Vote of Security  Holders |
|                                |   |   |
|                                | Item 5. | Other Information |
|                                |   |   |
|                                | Item 6. | Exhibits and Reports on Form 8-K |
|                                |   |   |
| Signatures                          |

 

----

 

**PART I****– FINANCIALINFORMATION**

 

#### **Item 1.**          ConsolidatedFinancial Statements

 

 

***Consolidated Financial Statements***

 

***American Commerce Solutions, Inc. and Subsidiary***

 

*As of August 31, 2003 and for the*

*Three and Six Months Ended August 31, 2003and 2002*

*(unaudited)*

 

----

 

American CommerceSolutions, Inc. and Subsidiary

 

Consolidated FinancialStatements

 

As of August 31, 2003 andfor the

Three**and**Six Months Ended August 31,2003 and 2002

*(unaudited)*

 

 

**Contents**

 

 
| Consolidated Financial Statements: |
|------------------------------------|
|                               |   |
|                               | Consolidated Balance Sheet |
|                               | Consolidated Statements of Operations |
|                               | Consolidated Statements of Cash Flows |
|                               | Notes to Consolidated Financial Statements |

 

----

 

American Commerce Solutions, Inc.and Subsidiary

 

Consolidated Balance Sheet

 

August 31, 2003

*(unaudited)*

 
| **Assets**                                                                                                                                                |   |        |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------|
| Current assets:                                                                                                                                           |   |        |      |
| Cash                                                                                                                                                      |   | $           | 16,619    |   |
| Accounts receivable, net  of allowance of $10,157                                                                                                         |   | 144,302     |      |
| Inventory                                                                                                                                                 |   | 107,330     |      |
| Other receivables                                                                                                                                         |   | 139,660     |      |
| Other current assets                                                                                                                                      |   | 56,044      |      |
| Total current assets                                                                                                                                      |   | 463,955     |      |
|                                                                                                                                                      |   |        |      |
| Property and equipment,  net of depreciation of $982,747                                                                                                  |   | 5,095,319   |      |
|                                                                                                                                                      |   |        |      |
| Other assets:                                                                                                                                             |   |        |      |
| Prepaid loan costs                                                                                                                                        |   | 26,526      |      |
| Long-term receivable                                                                                                                                      |   | 145,657     |      |
| Real property held for  resale                                                                                                                            |   | 243,150     |      |
| Total other assets                                                                                                                                        |   | 415,333     |      |
|                                                                                                                                                      |   | $           | 5,974,607 |   |
|                                                                                                                                                      |   |        |      |
| **Liabilities and Stockholders’ Equity**                                                                                                             |   |        |      |
| Current liabilities:                                                                                                                                      |   |        |      |
| Current portion of notes payable  and capital leases                                                                                                      |   | $           | 727,372   |   |
| Bank overdraft                                                                                                                                            |   | 4,809       |      |
| Accounts payable                                                                                                                                          |   | 673,393     |      |
| Accrued expenses                                                                                                                                          |   | 55,766      |      |
| Accrued interest                                                                                                                                          |   | 170,228     |      |
| Deferred revenue                                                                                                                                          |   | 7,331       |      |
| Due to stockholders                                                                                                                                       |   | 234,294     |      |
| Total current  liabilities                                                                                                                                |   | 1,873,193   |      |
|                                                                                                                                                      |   |        |      |
| Notes payable and  capital leases, net of current portion                                                                                                 |   | 1,203,767   |      |
|                                                                                                                                                      |   |        |      |
| Stockholders’ equity:                                                                                                                                |   |        |      |
| Preferred stock, total  authorized 1,000,000 shares:                                                                                                      |   |        |      |
| Series A; cumulative and  convertible; $.001 par value;  600 shares authorized; 102 shares issued and outstanding; liquidating  preference $376,125       |   |        |      |
| Series B; cumulative and  convertible; $.001 par value;  3,950 shares authorized; 3,829 shares issued and outstanding;  liquidating preference $3,829,420 |   | 3           |      |
| Common stock; $.002 par  value; 75,000,000 shares authorized;  68,108,758 shares issued; 67,586,758 shares outstanding                                    |   | 136,217     |      |
| Common stock payable                                                                                                                                      |   | 247,033     |      |
| Additional paid-in  capital                                                                                                                               |   | 15,738,873  |      |
| Stock receivable                                                                                                                                          |   | (10,000     | )         |
| Treasury stock, at cost                                                                                                                                   |   | (265,526    | )         |
| Accumulated deficit                                                                                                                                       |   | (12,704,106 | )         |
| Loan costs                                                                                                                                                |   | (244,847    | )         |
| Total stockholders’  equity                                                                                                                          |   | 2,897,647   |      |
|                                                                                                                                                      |   | $           | 5,974,607 |   |

 

*The accompanying notes are an integral partof the consolidated financial statements.*

 

1

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American CommerceSolutions, Inc. and Subsidiary

 

Consolidated Statements of Operations

*(unaudited)*

 
|                                                  |   | **Three Months Ended  August 31,** |     | **Six Months Ended  August 31,** |   |
|-------------------------------------------------------|--------|------------------------------------|----------|----------------------------------|--------|
|                                                  |   | **2003**                           |     | **2002**                         |   | **2003** |   | **2002** |   |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Net sales                                             |   | $                                  | 426,650  |                             | $      | 611,953 |   | $ | 895,300 |   | $ | 1,128,009 |   |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Cost of goods sold                                    |   | 252,249                            |     | 363,879                          |   | 543,658 |   | 665,364 |   |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Gross profit                                          |   | 174,401                            |     | 248,074                          |   | 351,642 |   | 462,645 |   |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Selling, general and  administrative expenses         |   | 657,221                            |     | 273,547                          |   | 1,045,387 |   | 889,139 |   |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Loss from operations                                  |   | (310,320                           | )        | (25,473                          | )      | (693,745 | ) | (426,494 | ) |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Other income (expense):                               |   |                               |     |                             |   |   |   |   |   |
| Other income (expense)                                |   | 8,300                              |     | (948                             | )      | 15,345 |   | 7,878 |   |
| Interest expense                                      |   | (59,407                            | )        | (63,223                          | )      | (106,787 | ) | (140,700 | ) |
| Total other income  (expense)                         |   | (51,107                            | )        | (64,171                          | )      | (91,442 | ) | (132,822 | ) |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Net loss                                              |   | $                                  | (533,927 | )                                | $      | (89,644 | ) | (785,187 | ) | $ | (559,316 | ) |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Net loss per common  share                            |   | $                                  | (.01     | )                                | $      | (.01 | ) | $ | (.02 | ) | $ | (.03 | ) |
|                                                  |   |                               |     |                             |   |   |   |   |   |
| Weighted average number  of common shares outstanding |   | 51,852,692                         |     | 17,999,344                       |   | 40,771,589 |   | 17,560,594 |   |

 

 

*The accompanying notes are an integral partof the consolidated financial statements.*

 

2

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American CommerceSolutions, Inc. and Subsidiary

 

Consolidated Statements of Cash Flows

*(unaudited)*

 
|                                                                                                   |   | **Six Months Ended  August 31,** |     |
|--------------------------------------------------------------------------------------------------------|--------|----------------------------------|----------|
|                                                                                                   |   | **2003**                         |     | **2002** |   |
| **Operating activities:**                                                                              |   |                             |     |   |   |
| Net loss                                                                                               |   | $                                | (785,187 | ) | $ | (559,316 | ) |
| Adjustments to reconcile net loss to net  cash provided (used) by operating activities:                |   |                             |     |   |   |
| Depreciation and amortization                                                                          |   | 228,713                          |     | 140,726 |   |
| Stock issued for services                                                                              |   | 446,727                          |     | 273,903 |   |
| Options issued to consultants and  employees                                                           |   | 130,745                          |     |   |   |
| Loss on sale of assets                                                                                 |   |                             |     | 7,774 |   |
| Increase in allowance for doubtful  accounts                                                           |   | 4,967                            |     |   |   |
| Decrease (increase) in:                                                                                |   |                             |     |   |   |
| Accounts receivables                                                                                   |   | 19,771                           |     | 37,511 |   |
| Inventory                                                                                              |   | (3,700                           | )        | (32,239 | ) |
| Other receivables and other assets                                                                     |   | (75,982                          | )        | (134,216 | ) |
| Increase (decrease) in:                                                                                |   |                             |     |   |   |
| Accounts payable and accrued expenses                                                                  |   | 191,630                          |     | 219,031 |   |
| Deferred income                                                                                        |   | (29,094                          | )        |   |   |
| Total adjustments                                                                                      |   | 913,777                          |     | 512,490 |   |
| Net cash provided (used) by operating  activities                                                      |   | 128,590                          |     | (46,826 | ) |
|                                                                                                   |   |                             |     |   |   |
| **Investing activities:**                                                                              |   |                             |     |   |   |
| Decrease in long-term receivables                                                                      |   | (2,982                           | )        |   |   |
| Proceeds from sale of asset                                                                            |   |                             |     | 14,000 |   |
| Acquisition of property and equipment                                                                  |   | (8,412                           | )        | (11,618 | ) |
| Net cash (used) provided by investing  activities                                                      |   | (11,394                          | )        | 2,382 |   |
|                                                                                                   |   |                             |     |   |   |
| **Financing activities:**                                                                              |   |                             |     |   |   |
| (Decrease) increase in bank overdraft                                                                  |   | (9,378                           | )        | 68,693 |   |
| Proceeds from notes payable and long-term  debt                                                        |   | 45,745                           |     | 157,412 |   |
| Principal payments on notes payable and  capital leases                                                |   | (212,327                         | )        | (128,432 | ) |
| Proceeds from advances from stockholders                                                               |   | 55,900                           |     |   |   |
| Proceeds from stock receivable                                                                         |   |                             |     | 10,000 |   |
| Exercise of stock options and warrants                                                                 |   | 5,000                            |     |   |   |
| Net cash (used) provided by financing  activities                                                      |   | (115,060                         | )        | 107,673 |   |
|                                                                                                   |   |                             |     |   |   |
| **Net increase in cash**                                                                               |   | 2,136                            |     | 63,229 |   |
|                                                                                                   |   |                             |     |   |   |
| **Cash, beginning of period**                                                                          |   | 14,483                           |     | 14,208 |   |
|                                                                                                   |   |                             |     |   |   |
| **Cash, end of period**                                                                                |   | $                                | 16,619   |   | $ | 77,437 |   |
|                                                                                                   |   |                             |     |   |   |
| **Supplemental disclosures of cash flow information and  noncash investing and financing activities:** |   |                             |     |   |   |
| Cash paid during the period for interest                                                               |   | $                                | 63,102   |   | $ | 77,587 |   |

 

During the period ended August 31,2003, the Company recorded a common stock payable for loan costs that amountedto $247,033.

 

*The accompanying notes are an integral partof the consolidated financial statements.*

 

3

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American CommerceSolutions, Inc. and Subsidiary

 

Notes to Consolidated Financial Statements

 

As of August 31, 2003 andfor the

Three**and**Six Months Ended August 31,2003 and 2002

*(unaudited)*

 

**1.         Background Information**

 

American Commerce Solutions, Inc. wasincorporated in Rhode Island in 1991 under the name Jaque Dubois, Inc., and wasre-incorporated in Delaware in 1994. In July 1995, Juque Dubois, Inc. changedits name to JD American Workwear, Inc. In December 2000, the stockholders votedat the annual stockholders meeting to change the name of JD American Workwear,Inc. to American Commerce Solutions, Inc. (the “Company”).

 

The Company is primarily a holding companywhose wholly owned subsidiary is engaged in the machining and fabrication ofparts used in industry, and parts sales and service for heavy constructionequipment.

 

**2.         Going Concern**

 

The Company has incurred substantialoperating losses since inception.  TheCompany recorded losses from continuing operations of $785,187 and $559,316 forthe six-month periods ended August 31, 2003 and 2002, respectively.  Current liabilities exceed current assets by$1,409,238 at August 31, 2003. Additionally, the Company has been unable to meet obligations to itscreditors as they have become due and is in default on several notespayable.  The ability of the Company tocontinue as a going concern is dependent upon its ability to reverse negativeoperating trends, raise additional capital, and obtain debt financing.

 

Management has revised its business strategyto include expansion into other lines of business through the acquisition ofother companies in exchange for the Company’s stock. Although management hasreduced debt, new financing to finance operations and to complete additionalbusiness acquisitions is still being sought. 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.

 

The accompanying consolidated financialstatements do not include any adjustments relating to the recoverability andclassification of recorded assets, or the amounts and classification ofliabilities that might be necessary if the Company is unable to continue as agoing concern.

 

4

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**3.         Basisof Presentation**

 

In the opinion of management, all adjustmentsconsisting only of normal recurring adjustments necessary for a fair statementof (a) the results of operations for the three and six month periods ended August31, 2003 and 2002, (b) the financial position at August 31, 2003, and (c) cashflows for the six month periods ended August 31, 2003 and 2002, have been made.

 

The unaudited consolidated financialstatements and notes are presented as permitted by Form 10-QSB. Accordingly,certain information and note disclosures normally included in condensedfinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been omitted.  The accompanying consolidated financialstatements and notes should be read in conjunction with the auditedconsolidated financial statements and notes of the Company for the fiscal yearended February 28, 2003.  The results ofoperations for the three and six month periods ended August 31, 2003 are notnecessarily indicative of those to be expected for the entire year.

 

The Company records a common stock payable at the time consideration isreceived or the obligation is incurred.

 

**4.         CommonStock and Stock Options**

 

Duringthe six month period ended August 31, 2003, the Company issued 75,000 shares ofcommon stock for $3,000 of services.

 

Stock-basedcompensation to non-employees is valued using the Black-Scholes option pricingmodel. During the period ended August 31, 2003, the Company granted 5,642,600options to consultants, all of which were exercised immediately. Totalcompensation recognized in conjunction with the issuance was approximately$46,445 and is included in consulting expense. The Company also received $2,831 when 117,600 options were exercised.

 

5

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The following table summarizes the activity related to all Companystock options for the six months ended August 31, 2003 and the year endedFebruary 28, 2003:

 
|                             |   | **Stock  Options** |   | **Exercise  Price  per Share** |             | **Weighted  Average  Exercise Price  per Share** |   |
|----------------------------------|--------|--------------------|--------|--------------------------------|------------------|--------------------------------------------------|--------|
|                             |   |               |   |                           |             |                                             |   |
| Outstanding at March 1, 2002     |   | 112,500            |   | $                              | 0.05 – 0.57 |                                             | $      | 0.57 |   |
| Granted                          |   | 900,000            |   | $                              | 0.05 – 0.57 |                                             | 0.11   |   |
| Exercised                        |   | (750,000           | )      | $                              | 0.24             |                                             | — |   |
|                             |   |               |   |                           |             |                                             |   |
| Canceled or expired              |   | —             |   | —                         |             | —                                           |   |
| Outstanding at February 28, 2003 |   | 262,500            |   | $                              | 0.05 – .057 |                                             | 0.36   |   |
| Granted                          |   | 37,942,600         |   | $                              | 0.00 – 0.03 |                                             | 0.02   |   |
| Exercised                        |   | (37,842,600        | )      | $                              | 0.00 – 0.03 |                                             | 0.02   |   |
|                             |   |               |   |                           |             |                                             |   |
| Canceled or expired              |   | —             |   | —                         |             | —                                           |   |
| Outstanding at August 31, 2003   |   | 362,500            |   | $                              | 0.05 – 0.57 |                                             | $      | 0.27 |   |
| Exercisable at August 31, 2003   |   | 362,500            |   | $                              | 0.05 – 0.57 |                                             | $      | 0.27 |   |

 

The options expire at various dates ranging from October 2004 throughFebruary 2013.

 

In determining the pro forma amounts below, the value of each grant isestimated at the grant date using the Black-Scholes option model with thefollowing weighted average assumptions for options granted in 2003 and 2002: Dividend rate of 0%; risk-free interest rate of 1.24% and 1.75%,respectively; expected lives of 1 month; and expected price volatility of 165%and 124%, respectively.

 

6

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At August 31, 2003, the Company has two stock-based employeecompensation plans, all of which have been approved by our shareholders. The Company accounts for those plans under the recognition andmeasurement principles of Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” and related Interpretations. TheCompany recognized $57,300 and $84,300 for the three and six month periodsended August 31, 2003, respectively, in stock-based employee compensation costwhich is reflected in net loss.  The following table illustrates theeffect on net income and earnings per share if the Company had applied the fairvalue recognition provisions of FASB Statement 123, “Accounting for Stock-BasedCompensation”, to stock-based employee compensation.

 
|                                                                                                                                   |   | **Three  Months Ended** |     | **Six Months  Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|----------|-----------------------|--------|
|                                                                                                                                   |   | **August 31,  2003**    |     | **August 31,  2002**  |   | **August 31,  2003** |   | **August 31,  2002** |   |
| Net loss, as reported                                                                                                                  |   | $                       | (533,927 | )                     | $      | (89,644 | ) | $ | (785,187 | ) | $ | (559,316 | ) |
|                                                                                                                                   |   |                    |     |                  |   |   |   |   |   |
| Deduct:  Total stock based employee  compensation expense determined under fair value based methods for all  awards, net of taxes |   | (41,926                 | )        | (0                    | )      | (54,613 | ) | (0 | ) |
|                                                                                                                                   |   |                    |     |                  |   |   |   |   |   |
| Pro forma net loss                                                                                                                     |   | $                       | (575,853 | )                     | $      | (89,644 | ) | $ | (839,800 | ) | $ | (559,316 | ) |
|                                                                                                                                   |   |                    |     |                  |   |   |   |   |   |
| Weighted-average common shares outstanding  used for calculation of basic earnings per share                                           |   | 51,852,692              |     | 17,999,344            |   | 40,771,589 |   | 17,560,594 |   |
|                                                                                                                                   |   |                    |     |                  |   |   |   |   |   |
| Total shares used for calculation of  diluted net earnings per share                                                                   |   | 51,852,692              |     | 17,999,344            |   | 40,771,589 |   | 17,560,594 |   |
|                                                                                                                                   |   |                    |     |                  |   |   |   |   |   |
| Basic net loss per share:                                                                                                              |   |                    |     |                  |   |   |   |   |   |
| As reported                                                                                                                            |   | $                       | (.01     | )                     | $      | (.01 | ) | $ | (.02 | ) | $ | (.03 | ) |
| Pro forma                                                                                                                              |   | $                       | (.01     | )                     | $      | (.01 | ) | $ | (.02 | ) | $ | (.03 | ) |
|                                                                                                                                   |   |                    |     |                  |   |   |   |   |   |
| Diluted net loss per share:                                                                                                            |   |                    |     |                  |   |   |   |   |   |
| As reported                                                                                                                            |   | $                       | (.01     | )                     | $      | (.01 | ) | $ | (.02 | ) | $ | (.03 | ) |
| Pro forma                                                                                                                              |   | $                       | (.01     | )                     | $      | (.01 | ) | $ | (.02 | ) | $ | (.03 | ) |

 

7

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**5.   Inventory**

 

Inventory consists of the following at August 31, 2003

 
| Work in process |   | $      | 17,281  |   |
|-----------------|--------|--------|---------|--------|
| Finished goods  |   | 90,049 |    |
|            |   | $      | 107,330 |   |

 

**6.         SubsequentEvents**

 

On September 9, 2003, theCompany awarded options to purchase 5,000,000 shares of common stock to twoconsultants which are immediately exercisable at 85% of their fair market value under the Non-Qualifying StockOption Plan.

 

On September 16, 2003, theCompany amended its Articles of Incorporation to increase the total number ofauthorized shares to 355,000,000 consisting of 350,000,000 shares of commonstock $.002 par value and 5,000,000 shares of preferred stock $.001 par value.

 

On October 8, 2003, theBoard of Directors voted to accept a settlement offer from a related party forapproximately $172,500 of legal fees included in accounts payable and anadditional $93,600 of legal fees billed subsequent to August 31, 2003.  The terms of the agreement provide for adiscount of $66,525 on the amount owed provided that the Company meets thisobligation on the remaining balance of the $93,600, issuance of 15,139,285shares of common stock valued at $105,975, with the balance of $93,600 beingpaid in weekly installments of $10,000 until paid in full.

 

8

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#### **PART I –FINANCIAL INFORMATION**

## ** **

## **Item 2.          Management’sDiscussion & Analysis**

 

THIS FILING CONTAINS FORWARD-LOOKINGSTATEMENTS.  THE WORDS “ANTICIPATED,”“BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,”“COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFYFORWARD-LOOKING STATEMENTS.  THESESTATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS,FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW.  SUCH STATEMENTS REFLECT THE COMPANY’SCURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE ANDINVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERALECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, ANDECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTALREGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONALCUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’SCONTROL.  SHOULD ONE OR MORE OF THESERISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BEINCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSEANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED.  CONSEQUENTLY, ALL OF THE FORWARD-LOOKINGSTATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS ANDTHERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.

 

The Company cautions readers that in addition to important factorsdescribed elsewhere, the following important facts, among others, sometimeshave affected, and in the future could affect, the Company’s actual results,and could cause the Company’s actual results during 2003 and beyond, to differmaterially from those expressed in any forward-looking statements made by, oron behalf of, the Company.

 

ThisManagement’s Discussion and Analysis or Plan of Operation presents a review ofthe consolidated operating results and financial condition of the Company forthe three and six month periods ended August 31, 2003 and 2002. This discussionand analysis is intended to assist in understanding the financial condition andresults of operation of the Company and its subsidiary. This section should beread in conjunction with the consolidated financial statements and the relatednotes.

 

MANUFACTURINGSUBSIDIARY

Themanufacturing subsidiary generates its revenues from three divisions.  Division 1 provides specialized machiningand repair services to heavy industry and original equipment manufacturers.Division 2 provides repair and rebuild services on heavy

 

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equipmentused in construction and mining as well as sales of used equipment. Division 3provides parts sales for heavy equipment directly to the customer. The primarymarket of this division is the majority of central and south Florida with partssales expanding its market internationally. The current operations can besignificantly expanded using the 38,000 square foot structure owned byInternational Machine and Welding, Inc.

 

The Company does not have discrete financial information on eachdivision, nor does the Company make decisions on the divisions separately;therefore, they are not reported as segments.

 

**COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREEMONTHS ENDED AUGUST 31, 2003 AND 2002.**

 

RESULTSOF OPERATIONS

TheCompany owns one subsidiary that operates in the manufacturing sector duringthe three months ended August 31, 2003 and 2002. To facilitate the readersunderstanding of the Company’s financial performance, this discussion andanalysis is presented on a divisional basis.

 

THREEMONTHS ENDED AUGUST 31, 2003 COMPARED TO AUGUST 31, 2002

 

General

The Company’s consolidated net salesdecreased to $426,650 for the three months ended August 31, 2003 a decrease of$185,303 from $611,953 for the three months ended August 31, 2002, a decreaseof 30%. This decrease was due in part to the sluggish economy and in part tore-evaluation of our sales approach to the machining division.

 

Grossprofit for the consolidated operations decreased to $174,401 for the threemonths ended August 31, 2003 from $248,074 for the three months ended August31, 2002. Gross profit increased as a percentage of sales to 40.88% from40.54%.  Consolidated interest expensefor the three months ended August 31, 2003 was $59,407 compared to $63,223 forthe three months ended August 31, 2002. The decrease in interest expense is dueto successful debt refinancing and reduction of debt.  The company incurred a net consolidated loss of $533,927 for thethree months ended August 31, 2003 compared to a loss of $89,644 for the threemonths ended August 31, 2002. The increase in the net consolidated loss is dueto the issuance of options under the Employee Stock Incentive Plan for2003 and the Non Qualifying Stock Option Plan, additional professional fees forlegal services, as well as additional costs incurred in conjunction with therefinance of the long-term debt.

 

Selling, general and administrative expensesincreased to $657,221 for the three months ended August 31, 2003 from $273,547for the three months ended August 31, 2002, an increase of $383,674 or140.25%.  The increase was mainlyattributable to the increase in consulting expenses, professional fees forlegal services, the additional costs incurred for guarantees in connection withthe refinance of the long-term debt and the issuance of

 

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options under the Employee Stock IncentivePlan for 2003 and the Non Qualifying Stock Option Plan.

 

ManufacturingSubsidiary

 

TheManufacturing operation provided net sales of $426,650 for the three monthsended August 31, 2003 compared to $611,953 for the three months ended August31, 2002. The machining operations provided $192,653 or 45.2% of net sales withparts and service providing $233,997 or 54.8% of net sales for the three monthsended August 31, 2003 as compared to machining operations contributing $247,229or 40.4% of net sales with parts and service providing $364,724 or 59.6% of netsales for the three months ended August 31, 2002.  This decrease in net sales is due to a sluggish economy for thefirst half of 2003.

 

Gross profit from theManufacturing operation was $174,401 for the three months ended August 31, 2003compared to $248,074 for the three months ended August 31, 2002 providing grossprofit margins of 40.8% and 40.5%, respectively.  The increase in the gross profit margin is negligible, butreflects consistency in the cost of operations.

 

Selling,general and administrative expenses were $208,398 for the three months endedAugust 31, 2003 compared to $199,537 for the three months ended August 31,2002. Interest expense was $37,462 for the three months ended August 31, 2003compared to $49,840 for the three months ended August 31, 2002.  The decrease in interest expense is due tothe Company refinancing debt, which in turn reduced the amount of interestexpense.

 

SIXMONTHS ENDED AUGUST 31, 2003 COMPARED TO AUGUST 31, 2002

 

General

The Company’s consolidated net salesdecreased to $895,300 for the six months ended August 31, 2003 a decrease of$232,709 from $1,128,009 for the six months ended August 31, 2002, a decreaseof 21%. This decrease was due to the sluggish economy in the general PolkCounty market and changing focus in the machining division..

 

Grossprofit for the consolidated operations decreased to $351,642 for the six monthsended August 31, 2003 from $462,645 for the six months ended August 31, 2002.Gross profit decreased as a percentage of sales to 39.28% from 41.01%. Thischange was due to a reduction in sales due to the sluggish economy.Consolidated interest expense for the six months ended August 31, 2003 was$106,787 compared to $140,700 for the six months ended August 31, 2002. Thedecrease in interest expense is due to successful debt refinancing andreduction of debt.  The Company incurreda net consolidated loss of $785,187 for the six months ended August 31, 2003compared to a loss of $559,316 for the six months ended August 31, 2002. Theincrease in the net consolidated loss is due to the issuance of options underthe Employee Stock Incentive Plan for 2003 and the Non Qualifying StockOption Plan, additional professional fees for legal services, as well asadditional costs incurred in conjunction with the refinance of the long-termdebt.

 

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Selling, general and administrative expensesincreased to $1,045,387 for the six months ended August 31, 2003 from $889,139for the six months ended August 31, 2002, an increase of $156,248 or17.57%.  The increase was mainlyattributable to the issuance of options under the Employee Stock Incentive Planfor 2003 and the Non Qualifying Stock Option Plan, additional professional feesfor legal services, as well as additional costs incurred for guarantees inconnection with the refinance of the long-term debt.

 

ManufacturingSubsidiary

 

TheManufacturing operation provided net sales of $895,300 for the six months endedAugust 31, 2003 compared to $1,128,009 for the six months ended August 31,2002. The machining operations provided $349,210 or 39% of net sales with partsand service providing $546,090 or 61% of net sales for the six months endedAugust 31, 2003 as compared to machining operations contributing $444,832 or39.4% of net sales with parts and service providing $683,177 or 60.6% of net salesfor the six months ended August 31, 2002. The ratio of machining to parts sales and service has remained somewhatconsistent.

 

Gross profit from theManufacturing operation was $351,642 for the six months ended August 31, 2003compared to $462,645 for the six months ended August 31, 2002 providing grossprofit margins of 39% and 41%, respectively. These numbers are strong considering a 30% reduction in revenue wasexperienced for the period.

 

Selling,general and administrative expenses were $402,630 for the six months endedAugust 31, 2003 compared to $421,496 for the six months ended August 31, 2002.Interest expense was $70,390 for the six months ended August 31, 2003 comparedto $97,495 for the six months ended August 31, 2002.  These reductions are the reflection of management controls anddebt reduction for the reporting period.

 

LIQUIDITYAND CAPITAL RESOURCES

 

During the six months ended August 31, 2003and 2002, the Company provided (used) net cash for operating activities of$128,590 and ($46,826), respectively. This increase in cash provided byoperating activities is primarily due to improved cash management, debtreduction and restructuring, and generally tighter control exercised bymanagement.

 

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During the six months endedAugust 31, 2003 and 2002, the Company (used) provided funds for capitalexpenditures of ($11,394) and $2,382, respectively.  Cash flows from operations, loans and the issuance of equity providedfor working capital needs and principal payments on long-term debt throughAugust 31, 2003. To the extent that the cash flows from operations areinsufficient to finance the Company’s anticipated growth, or its otherliquidity and capital requirements during the next twelve months, the Companywill seek additional financing from alternative sources including bank loans orother bank financing arrangements, other debt financing, the sale of equitysecurities (including those issuable pursuant to the exercise of outstandingwarrants and options), or other financing arrangements. However, there can beno assurance that any such financing will be available and, if available, thatit will be available on terms favorable or acceptable to the Company.

 

Management has revised itsbusiness strategy to include expansion into other lines of business through theacquisition of other companies in exchange for the Company’s stock. Althoughmanagement has reduced debt, new financing to finance operations and tocomplete additional business acquisitions is still being sought.  However, there can be no assurance that theCompany will be able to raise capital, obtain debt financing, or improveoperating results sufficiently to continue as a going concern.

 

SEASONALITY

 

The diversity of operationsin the Manufacturing Segment protects it from seasonal trends except in thesales of agricultural processing where the majority of the revenue is generatedwhile the processors await the next harvest.

 

**Critical Accounting Policies and Estimates**

 

Theaccompanying unaudited consolidated financial statements include the activityof the Company and its wholly owned subsidiary. All intercompany transactionshave been eliminated in consolidation. The preparation 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 differfrom those estimates.

 

We believe that the following critical policies affect our moresignificant judgments and estimates used in preparation of our consolidatedfinancial statements.

 

We maintain allowances for doubtful accounts for estimated lossesresulting from the 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.

 

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We value our inventories at the lower of cost or market.  Cost is determined on a standard cost basisthat approximates the first-in, first-out method; market is determined based onnet realizable value.  We write downinventory balances for estimated obsolescence or unmarketable inventory equalto the difference between the cost of the inventory and the estimated marketvalue based upon assumptions about future demand and market conditions.  If actual market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required.

 

We value ourproperty 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 equipmentare sold or otherwise disposed of, the asset account and related accumulateddepreciation account are relieved, and any gain or loss is included inoperations.

 

We recordamounts billed to customers for shipping and handling costs as sales revenue.Costs incurred by us for shipping and handling are included in cost of sales.Sales are recorded when products, repairs, or parts are delivered to thecustomer. Provisions for discounts and rebates to customers, estimated returns,allowances, and other adjustments are provided for in the same period therelated sales are recorded. No products or parts are delivered with anycontingencies except for defects.

 

We haveadopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.” SFAS No. 144 addresses the financial accounting and reporting for theimpairment of long-lived assets, excluding goodwill and intangible assets, tobe held and used or disposed of.   Inaccordance with SFAS No. 144, the carrying values of long-lived assets areperiodically reviewed by the Company and impairments would be recognized if theexpected future operating non-discounted cash flows derived from an asset wereless than its carrying value and if the carrying value is more than the fairvalue of the asset.

 

We haveadopted Financial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (SFAS No. 123), which provides that expense equal to the fairvalue of all stock-based awards on the date of grant be recognized over thevesting period and Alternatively, this statement allows entities to continue toapply the provisions of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees” (APB Opinion No. 25), whereby compensationexpense is recorded on the date the options are granted to employees equal tothe excess of the market price of the underlying stock over the exercise price.We have elected to continue to apply the provisions of APB Opinion No. 25 andprovide pro forma disclosure of the provisions

of SFAS No.123.

 

Fair valueestimates used in preparation of the consolidated financial statements arebased upon certain market assumptions and pertinent information available tomanagement. The respective carrying value of certain on-balance-sheet financialinstruments approximated

 

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their fairvalues. These financial instruments include cash, accounts receivable, accountspayable, and accrued expenses. Fair values were assumed to approximate carryingvalues for these financial instruments since they are short-term in nature andtheir carrying amounts approximate fair values or they are receivable orpayable on demand. The fair value of the Company’s notes payable is estimatedbased upon the quoted market prices for the same or similar issues or on thecurrent rates offered to the Company for debt of the same remaining maturities.

 

Deferred taxassets and liabilities are recognized for the estimated future tax consequencesattributable to differences between the consolidated financial statementscarrying amounts of existing assets and liabilities and their respective incometax bases. Deferred tax assets and liabilities are measured using enacted taxrates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized as income in theperiod that included the enactment date.

 

We recordstock as issued at the time consideration is received or the obligation isincurred.

#### ** **

#### **Item 3.        Controlsand Procedures**

 

(a)           Evaluationof disclosure controls and procedures.

 

Under thesupervision and with the participation of the Company’s management, includingthe Company’s principal executive officer and principal financial officer, theCompany conducted an evaluation of the effectiveness of the design andoperations of its disclosure controls and procedures, as such term is definedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”) as of the end of the period covered by thisreport.  Based on their evaluation, ourprincipal executive officer and principal financial officer concluded that ourdisclosure controls and procedures were effective such that the materialinformation required to be included in our Securities and Exchange Commission(“SEC”) reports is recorded, processed, summarized and reported within the timeperiods specified in SEC rules and forms relating to American CommerceSolutions, Inc. including our consolidated subsidiary.

 

(b)           Changesin internal controls over financial reporting.

 

In addition,there were no significant changes in our internal controls that couldsignificantly affect these controls during the quarter.  We have not identified any significantdeficiency or material weaknesses in our internal controls, and therefore therewere no corrective actions taken.

 

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## **PARTII – OTHER INFORMATION**

## ** **

## **Item1.          Legal Proceedings**

 

None.

 

**Item 2.          Changes in Securities**

 

During the six month period ended August 31, 2003, there was no modificationof any instruments defining the rights of holders of the Company’s common stockand no limitation or qualification of the rights evidenced by the Company’scommon stock as a result of the issuance of any other class of securities orthe modification thereof.

 

On March 11, 2003, 305,000 shares of common stock were issued inconversion of options.  Also on March11, 2003, 95,000 shares of common stock were issued for services valued at$3,400.  On May 8, 2003, 117,600 sharesof common stock were issued in conversion of options for $2,831.

 

On June 2, 2003, 6,000,000 shares of common stock were issued inconversion of options.  On June 10,2003, 6,000,000 shares of common stock were issued in conversion ofoptions.  On June 13, 2003, 200,000shares of common stock were issued in conversion of options.  On June 27, 2003, 6,000,000 shares of commonstock were issued in conversion of options. On July 9, 2003, 2,000,000 shares of common stock were issued inconversion of options.  On July 24, 200310,200,000 shares of common stock were issued in conversion of options.  On August 4, 2003, the Company issued450,000 shares of common stock in exchange for services valued at $3,600.  On August 22, 2003, 7,000,000 shares ofcommon stock were issued in conversion of options.

 

During May 2003, a dividend of 111 shares of Series B preferred stockwas issued in lieu of a cash dividend.

 

#### **Item 3.        DefaultsUpon Senior Securities**

 

The Company has defaulted on a total of$419,488 of notes payable.  The amountof principal payments in arrears was $419,488, with an additional amount of$162,504 of interest due at August 31, 2003. These defaults are the result of a failure to pay in accordance with theterms agreed.

 

#### **Item 4.        Submissionof Matters to a Vote of Security Holders**

 

During the six month period ended August 31, 2003, the Company did notsubmit any matters to a vote of its security holders.  However, on June 4, 2003 there was delivered to the Board ofDirectors of the company, a written demand from stockholders representing morethan fifty percent of the total voting shares of forms of the company stock,for the authorized shares of the company stock to be increased to 350,000,000common shares

 

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and 5,000,000 blank check preferred shares. An additional demand wasmade for the Board to consider, after due diligence and legal opinion, theredomicile of the corporation from Delaware to Florida.

 

#### **Item 5.        Other Matters**

 

The Company does not have any other material information to report withrespect to the six month period ended August 31, 2003.

 

**Item 6.          Exhibits and Reports on Form 8-K**

 

(a)     Exhibitsincluded herewith are:

31.1  Certification of ChiefExecutive Officer and Chief Financial Officer.32.1  Certification Pursuant to 18U.S.C. Section 1350, as Adopted Pursuit to Section 906 of the Sarbanes-OxleyAct of 2002

 

(a)          Reports on Form 8-K –None.

 

(b)         S-8 Filings included byreference

 

(c)          ****Employee Stock Option Plan andNon Employee Directors****andConsultants****Retainer Plan for 2003included by reference

### ** **

### **17**

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### ** **

# SIGNATURES

 

Pursuant tothe requirements of the Securities and Exchange Act of 1934, the registrant hascaused this report to be signed on its behalf by the undersigned, thereto dulyauthorized:

 

 
|   |            | AMERICAN COMMERCE SOLUTIONS, INC. |
|--------|-----------------|-----------------------------------|
|   |            |                              |   |   |
| Dated: | October 9, 2003 |                              | By: | /s/ Daniel L. Hefner |   |
|   |            |                              |   | Daniel L. Hefner, President |

 

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