U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended JULY 31,1999
Commission File Number 000-25967
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 14-1805077
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 WALNUT STREET, CHAMPLAIN, NEW YORK 12919
(Address of principal executive offices) (Zip Code)
(518) 298-2042
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of JULY 31, 1999
Common Stock 10,017,989
<PAGE>
FORM 10-QSB
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
JULY 31, 1999
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as of
July 31, 1999
Consolidated Statements of Income
for the Three-Months and Six-Months
ended July 31, 1999 and 1998
Consolidated Statements of
Stockholders' Deficit
Consolidated Statements of Cash Flow
Notes to Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition
Part II Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote
Of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1.
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
BALANCE SHEET (UNAUDITED)
($US)
<CAPTION>
ASSETS
July 31, 1998 July 31, 1999
<S> <C> <C>
CURRENT
Cash in bank $ 954 $ 29,487
OTHER ASSETS
Non-compete agreements (Note 5) 1 1
--------- ----------
$ 955 $ 29,488
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 301 $12,957
Due to officer (Note 5) - 4,760
Note payable (Note 3) 50,000 50,000
--------- ----------
50,301 67,717
--------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 6)
STOCKHOLDERS' DEFICIT
Preferred stock, $.0001 par value -
25,000,000 shares authorized; none
outstanding
Common stock - $.0001 par value - 50,000,000
shares authorized; 8,726,489 and 10,017,989
outstanding 873 1,002
Additional paid in capital 486,698 842,927
Deficit - accumulated during the
development stage (536,917) (882,158)
---------- ---------
(49,346) (38,229)
---------- ---------
$ 955 $ 29,488
========== =========
See accompanying notes
Approved:
_________________________ Director
</TABLE>
<PAGE>
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
STATEMENT OF LOSS (UNAUDITED)
($US)
<CAPTION>
From the Inception From the Inception
of Incorporation of Incorporation
May 4, 1998 to Six Months Ended May 4, 1998 to
July 31, 1998 July 31, 1999 July 31, 1999
<S> <C> <C> <C>
SALES $ 0 $ 0 $ 0
------------- ------------ ---------
EXPENSES
Officers' compensation (Note 5) 42,667 103,000 257,500
Professional fees (Notes 3 and 8) 492,658 15,070 600,506
Development expenses - 4,499 12,355
Rent and telecommunications 1,572 3,385 6,501
General - 4,286 4,997
Bank charges 20 140 299
------------- ------------ ---------
TOTAL EXPENSES 536,917 130,380 882,158
------------- ------------ ---------
NET LOSS $ (536,917) $ (130,380) $(882,158)
============= ============ ==========
LOSS PER SHARE (BASIC):
Net loss $ (.07) $ (.01)
============= ============
LOSS PER SHARE (DILUTED):
Net loss $ (.07) $ (.01)
============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,578,850 9,894,406
============= ============
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
STATEMENT OF LOSS (UNAUDITED)
($US)
<CAPTION>
From the Inception
of Incorporation
May 4, 1998 to Three Months Ended
July 31, 1998 July 31, 1999
<S> <C> <C>
SALES $ 0 $ 0
------------- ------------
EXPENSES
Officers' compensation (Note 5) 42,667 51,500
Professional fees (Notes 3 and 8) 492,658 13,049
Development expenses - 298
Rent and telecommunications 1,572 1,748
General - 4,209
Bank charges 20 26
------------- ------------
TOTAL EXPENSES 536,917 70,830
------------- ------------
NET LOSS $ (536,917) $ (70,830)
============= ============
LOSS PER SHARE (BASIC)
Net loss $ (.07) $ (.01)
============= ============
LOSS PER SHARE (DILUTED):
Net loss $ (.07) $ (.01)
============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,578,850 10,017,667
============= ============
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED) (NOTES 5 AND 7)
($US)
<CAPTION>
From Inception of Additional Total
Incorporation May 4, 1998 Common Stock Paid-In Stockholders'
to July 31, 1998 Date Shares Value Capital Deficit Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance - May 4, 1998 0 $ 0 $ 0 $ 0 $ 0
Net loss 0 0 0 (536,917) (536,917)
Common stock for
acquisition of assets of
Ameri-can Equipment
Sales & Leasing Inc.,
valued at $.00 per share 5/11/98 50,000 5 (5) 0 0
Common stock for acquisition
of patents and non-compete
agreement, valued at $.00
per share 5/11/98 4,520,239 452 (452) 0 0
Stock options issued to
officer for 50,000 shares,
valued at $.10 per share 5/20/98 0 0 5,000 0 5,000
Stock options issued to
officer for 115,000 shares,
valued at $.10 per share 5/29/98 0 0 11,500 0 11,500
Common stock sold for
$.001 in cash, valued at
$.10 per share 6/1/98 1,941,250 194 193,931 0 194,125
Exercise of options for
42,250 shares at $.0001 6/1/98 42,250 4 0 0 4
Common stock for lock-up
agreement, valued at $.10
per share 6/1/98 6,500 1 649 0 650
Common stock for service
contracts, valued at $.10
per share 6/1/98 251,250 25 25,100 0 25,125
Common stock sold for
$0.0001 in cash, valued
at $.10 per share 6/20/98 1,915,000 192 191,308 0 191,500
Stock options issued
for 500,000 shares for
consulting services,
valued at $.10 per share 7/1/98 0 0 50,000 0 50,000
Officers' compensation
contributed to capital 0 0 9,667 0 9,667
----------- -------- --------- ---------- ----------
Balance - July 31, 1998 8,726,489 $ 873 $486,698 $(536,917) $ (49,346)
=========== ======== ========= ========== =========
</TABLE>
<PAGE>
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)(NOTES 5 AND 7)
($US)
<CAPTION>
Additional Total
Common Stock Paid-In Stockholders'
Date Shares Value Capital Deficit Deficit
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended July 31, 1999
Balance - January 31, 1999 9,726,489 $ 973 $698,431 $(751,778) $ (52,374)
Common stock sold for
$1.00 in cash, valued at
$1.00 per share 3/22/99 2,000 - 2,000 - 2,000
Common stock sold for
$1.00 in cash, valued at
$1.00 per share 3/30/99 5,000 1 4,999 - 5,000
Exercise of options for
250,000 shares at $.0001 4/15/99 250,000 25 - - 25
Common stock sold for
$1.00 in cash, valued at
$1.00 per share 4/21/99 2,000 - 2,000 - 2,000
Common stock sold for
$1.00 in cash, valued at
$1.00 per share 4/28/99 25,000 2 24,998 - 25,000
Common stock sold for
$1.00 in cash, valued at
$1.00 per share 5/4/99 5,000 1 4,999 - 5,000
Common stock sold for
$1.00 in cash, valued at
$1.00 per share 5/5/99 2,000 - 2,000 - 2,000
Common stock sold for
$1.00 in cash valued at
$1.00 per share 5/8/99 500 - 500 - 500
Officers' compensation
contributed to capital 0 0 103,000 - 103,000
Net loss 0 0 0 (130,380) (130,380)
---------- ------ -------- ---------- --------
Balance - July 31, 1999 10,017,989 $1,002 $842,927 $(882,158) $(38,229)
========== ====== ======== ========== =========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
STATEMENT OF CASH FLOWS (UNAUDITED)(NOTE 8)
($US)
<CAPTION>
From the Inception From the Inception
of Incorporation of Incorporation
May 4, 1998 to Six Months Ended May 4, 1998 to
July 31, 1998 July 31, 1999 July 31, 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(536,917) $(130,380) $(882,158)
---------- --------- -----------
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Officers' compensation 42,667 103,000 257,500
Professional fees 492,654 0 492,654
Changes in assets and liabilities:
(Increase) in other assets (1) 0 (1)
Increase (decrease) in accounts payable
and accrued liabilities 301 (68) 12,957
----------- ---------- -----------
TOTAL ADJUSTMENTS 535,621 102,932 763,110
----------- ---------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (1,296) (27,448) (119,048)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of stock 2,250 41,525 143,775
Advances from officer - 4,760 4,760
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,250 46,285 148,535
----------- ---------- -----------
NET INCREASE IN CASH 954 18,837 29,487
CASH AT BEGINNING OF PERIOD 0 10,650 0
---------- ---------- -----------
CASH AT THE END OF PERIOD $ 954 $ 29,487 $ 29,487
========== =========== ===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Company)
STATEMENT OF CASH FLOWS (UNAUDITED)(NOTE 8)
($US)
<CAPTION>
From the Inception
of Incorporation
May 4, 1998 to Three Months Ended
July 31, 1998 July 31, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (536,917) $ (70,830)
---------- ----------
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Officers' compensation 42,667 51,500
Professional fees 492,654 0
Changes in assets and liabilities:
Increase in other assets (1) 0
Increase in accounts payable
and accrued liabilities 301 1,957
---------- ----------
TOTAL ADJUSTMENTS 535,621 53,457
---------- ----------
NET CASH (USED IN) OPERATING ACTIVITIES (1,296) (17,373)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of stock 2,250 7,500
Advances from officer 0 4,760
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,250 12,260
---------- ---------
NET INCREASE (DECREASE) IN CASH 954 (5,113)
CASH AT BEGINNING OF PERIOD 0 34,600
-------- -----------
CASH AT THE END OF PERIOD $ 954 $ 29,487
========= ===========
</TABLE>
<PAGE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Corporation)
NOTES TO THE FINANCIAL STATEMENTS
INFORMATION AS OF JULY 31, 1999 AND FOR
THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
($US)
1. ORGANIZATION
The Company, incorporated on May 4, 1998 in New Hampshire, was formed
to manufacture and sell railway level crossings to the railroad
industry. The Company is devoting all its efforts to establishing a
new business. Planned principal operations have not yet started.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
INFORMATION
a) Earnings Per Share
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," which replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share includes all such dilutive effects and, as such, is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, to conform
to SFAS No. 128 requirements.
b) Stock Based Compensation
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 encourages entities to adopt the fair value
method in place of the provisions of accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees
in amounts based on the price of its stock. The Company has not adopted
the fair value method encouraged by SFAS No. 123 and will continue to
account for such transactions in accordance with APB No. 25.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
d) Revenue Recognition
Revenue is to be recognized when product is shipped FOB shipping
point.
<PAGE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Corporation)
NOTES TO THE FINANCIAL STATEMENTS
INFORMATION AS OF JULY 31, 1999 AND FOR
THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
($US)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
INFORMATION (continued)
e) Income Taxes
The Company will account for income taxes using the asset and
liability method as required by FAS 109. Deferred income taxes will
reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
f) Start-up Costs
Pursuant to AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities", all costs incurred in the organization and start-up
of the Company have been expensed.
g) Average Common Shares Outstanding
The average common shares outstanding is based upon a weighted average
number of common shares outstanding. Since the Company had a loss for the
periods ended July 31, 1998 and July 31, 1999, all stock options were
considered antidilutive.
h) Basis of Presentation
The financial statements are prepared in accordance with generally
accepted accounting principles in the United States.
i) Unaudited Interim Financial Information
The accompanying financial statements are unaudited; however, in the opinion
of management, all adjustments necessary for a fair statement of financial
position and results for the stated periods have been included. These
adjustments are of a normal recurring nature. Selected information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. Results for interim periods are not necessarily indicative of
the results to be expected for an entire fiscal year. It is suggested that
these condensed financial statements be read in conjunction with the audited
financial statements and accompanying notes for the period from the inception
of incorporation May 4, 1998 to January 31, 1999.
3. NOTE PAYABLE
The Company issued a promissory note in the amount of $50,000 as
payment to certain consultants for services rendered. The note bears
interest at 8% per annum and is payable at the earlier of the Company
raising $500,000 of new equity capital or one year from January 1,
1999.
4. INCOME TAXES
The Company has a loss for the periods ended July 31, 1998 and
July 31, 1999, and therefore, the financial statements do not include
a provision for income taxes. No deferred tax asset has been
recognized in the financial statements as it would be fully offset
by a valuation allowance because its ultimate realization is uncertain
due to the Company operating in its development stage.
5. RELATED PARTY TRANSACTIONS
On May 11, 1998 the Company acquired certain assets which comprised of
the rights to the contractual relationship Ameri-Can Equipment Sales
and Leasing Inc. has with Geismar, industry relationships, goodwill,
and application experience in exchange for 50,000 shares of
the Company from Ameri-Can Equipment Sales and Leasing Inc. ("AEL"), a
Canadian corporation. Although "AEL" and the Company at the time of
sale had one hundred percent common ownership, the Company is, in
management's opinion, not a successor company to "AEL". "AEL" is
engaged in a completely different business apart from the Company's
railway communications and signaling business. Additionally, the
Company issued to the principal shareholder 4,520,239 shares of its
$0.0001 par value common stock. These shares were issued in reliance
on the "private placement" exemption under the Securities
Act of 1933, as amended ("the Act), in exchange for certain assets
including the assignment of patents and a non-compete agreement.
Since the assets acquired pursuant to this transaction had no
carrying value at the date of transfer, no value has been reflected
in the accompanying financial statements for the transaction.
<PAGE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Corporation)
NOTES TO THE FINANCIAL STATEMENTS
INFORMATION AS OF JULY 31, 1999 AND FOR
THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
($US)
5. RELATED PARTY TRANSACTIONS (continued)
On June 1, 1998, 1,941,250 shares of the Company's stock was purchased
by officers, directors and management of the Company for $2,054 plus
entering into a non-compete agreement.
In June, 1998 the officer, directors and certain members of the
advisory board entered into a "lock-up agreement" with the Company,
agreeing to withhold from sale, for a period of two years, any shares
of the Company's common stock which they own directly or deemed
to own beneficially. For this agreement they each received 500 shares
which are not locked up. The total number of these shares locked-up is
6,811,489.
On June 20, 1998 the Company adopted the Equity Incentive Plan to
provide directors, officers and certain key employees with additional
incentives. 4,500,000 shares of common stock have been reserved for
issuance pursuant to stock options and stock awards. The exercise
price of all incentive stock options granted may not be less than the
fair market value of the underlying common stock at the date of grant.
The Equity Incentive Plan will be administered by a committee of two
or more non-employee members of the Company's Board of Directors.
On June 20, 1998, 1,915,000 shares of common stock were issued to
certain officers, directors and key employees of the Company at
$.0001 per share.
Options to purchase 500,000 of the Company's common stock have been
granted to certain consultants of the Company. The options have a term
of five years and are vested upon the date of the grant. In April, 1999,
options for 250,000 shares of the Company's common stock were exercised by
the consultants.
The Company has issued stock options to two of its officers. The options
are valid for two years expiring in April, 2000. The total shares under
option are 122,750 at January 31, 1999.
On February 18, 1999, the Company granted options to purchase 1,469,967
to certain officers and directors of the company. The options have a
term of five years and are vested upon the date of grant.
The Company has entered into employment contracts with its executive
officers. The terms of the contracts provide for provisions to
terminate the parties at any time as stipulated under the conditions
of their individual contracts. Mr. Harland's contract is for a term of
five years and he is to be compensated in the amount of $100,000 per
year plus a bonus. Mr. Ross is contracted for two years and is to be
compensated in the amount of $61,000 per year plus quarterly stock
options. Mr. Miziolek is compensated in the amount of $45,000 per
year plus semi-annual stock options. The compensation packages of the
officers shall be reviewed from time to time by the directors of the
Company. The officers have agreed to forgo compensation until the
Company is successful in raising initial financing in the amount
of $1,000,000. The value of these forgone salaries based on the
employment contracts amounted to $9,667 for the period from the
inception of incorporation, May 4, 1998, to July 31, 1998 and
$51,500 and $103,000 for the three months and six months ended
July 31, 1998, respectively, and has been recorded as additional
paid-in capital.
The agreement with Mr. Harland requires the Company to pay $1,000,000 to
Mr. Harland if the agreement is terminated.
During the three months ended July 31, 1999, an officer advanced
$4,760 to the company, which is outstanding at July 31, 1999.
The advance is non-interest bearing.
6. CAPITALIZATION OF COMPANY AND MANAGEMENT'S PLANS
The Company is in the developmental stage and therefore has
no revenue from operations in the current period. Because of this,
the Company faces significant hurtles in regards to financing and
customer acceptance of the Company's products. The Company's
continuation as a going concern is dependent upon its ability to
raise capital from outside sources. The Company has been successful
in raising approximately $144,000 through July 31, 1999 and
anticipates raising an additional funds as required from the sale
of its Common Stock pursuant to Rule 504 Regulation D offering exemption.
These funds have been and will continue to be utilized
to fund the start-up and development of the Company.
<PAGE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Corporation)
NOTES TO THE FINANCIAL STATEMENTS
INFORMATION AS OF JULY 31, 1999 AND FOR
THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
($US)
6. CAPITALIZATION OF THE COMPANY (continued)
The Company has completed it's 10-SB 12G filing registering the Company
as a fully reporting company with the SEC. The Company intends to file
Form SB-2 and register 2,000,000 additional shares of Common Stock for
sale on the OTCBB. The Company is in negations with a Securities
Brokerage firm and expects to conclude negotiations with the broker in
the last quarter of 1999. The Company plans use the proceeds raised
from the sale of its stock to fund and expand operations. Management
believes sufficient finds are or will be available to sustain operations
for at least the twelve months following the latest balance sheet date.
The Company intends to purchase small companies that have products and
services that add value and are strategic to the success of the Company's
growth. It is intended that these acquisitions of small companies will
complement the Company's product and generate ongoing revenue to strengthen
the Company's ability to stabilize its stock for its stockholders. The
Company is presently in preliminary discussions with its first potential
acquisition target, and believes that if successful in raising additional
funding, it will be able to successfully acquire the company. However,
there is no assurance that the company will be successful in filing form SB-2
and registering 2,000,000 shares of common stock for sale on the OTCBB.
Further, if the company is successful, there no assurance that the company
will be able to sell any of it's shares.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern. However,
management believes sufficient funds are or will be available to sustain
operations for at least the twelve months following the latest balance
sheet.
7. USE OF PROCEEDS FROM ISSUANCE OF STOCK
On June 20, 1998, the Company issued 1,915,000 shares of common stock for
$192. The cash was used to fund the start-up activities of the Company.
On November 25, 1998, the Company issued 1,000,000 shares of common stock
for $100,000. The proceeds were used to fund the professional fees
incurred with the start-up and development of the company.
During the six months ended July 31, 1999, excluding 250,000 shares issued
upon the exercise of options, the Company issued 41,500 shares for $41,500.
The 41,500 shares of common stock issued included one option to purchase
one share of common stock at a price of $1.25 and one option for one share at
a price of $1.75. These options are exercisable at any time after May 1,1999,
subject to certain conditions, and expire 60 months from that date. The
proceeds have been and will be used to fund the start-up and development of
the company.
8. SUPPLEMENTAL CASH FLOW INFORMATION
The Company did not make any payments for interest or taxes during the
periods ended July 31, 1998 or 1999.
Noncash investing and financing activities consist of the following:
<TABLE>
<CAPTION>
Period Ended Three Months Ended Six Months Ended
July 31, 1998 July 31, 1999 July 31, 1999
<S> <C> <C> <C>
(a) Officer's compensation recorded as a
contribution to additional paid-in capital $ 9,667 $51,500 $103,000
========= ======= ========
(b) 50,000 shares of common stock issued for
acquisition of assets of Ameri-can Equipment
Sales & Leasing, Inc. $ 0
=========
(c) 4,520,239 shares of common stock issued for
acquisition of patents pending and non-compete
agreement from controlling shareholder $ 0
=========
(d) 1,941,250 shares of common stock issued and
recorded as officers compensation of $16,500
and professional fees of $175,571. The value
of $.10 per share (less cash received of
$2,054) is based on similar stock sales $ 192,071
========
(e) 6,500 shares of common stock issued for lock
up agreement. Shares issued have been valued
at $.10 per share based on similar stock sales $ 650
========
</TABLE>
<PAGE>
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
(A Development Stage Corporation)
NOTES TO THE FINANCIAL STATEMENTS
INFORMATION AS OF JULY 31, 1999 AND FOR
THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
($US)
8. SUPPLEMENTAL CASH FLOW INFORMATION (continued)
Period Ended
July 31, 1999
(f) 251,250 shares of common stock issued for
service contracts and recorded as professional
fee expense. These service contracts were
related to assisting the Company in raising
capital, and these consultants are no longer
utilized by the Company. The value of $.10 per
share has been determined based upon similar
stock sales $ 25,125
========
(g) Note payable issued for consulting services $ 50,000
========
(h) 1,915,000 shares of common stock issued to
consultants and recorded as professional fee
expenses. The value of $.10 per share
(less cash received of $192) is based
upon similar stock sales $191,308
========
(i) Consulting expense recorded as additional
paid in capital for the issuance of stock
options for 500,000 shares. The value of
$.10 per share is based upon similar stock
sales $ 50,000
========
(j) Officers compensation recorded as additional
paid-in capital for the issuance of stock
options for 165,000 shares. The value of $.10
per share is based upon similar stock sales $ 16,500
========
<PAGE>
PART 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 2.
2(a) Plan of Operation
The Company is in the developmental stage and therefore has
no revenue from operations in the current period. Because of this,
the Company faces significant hurtles in regards to financing and
customer acceptance of the Company's products. The Company's
continuation as a going concern is dependent upon its ability to
raise capital from outside sources. The Company has been successful
in raising approximately $144,000 through July 31, 1999 and
anticipates raising an additional funds as required from the sale
of its Common Stock pursuant to Rule 504 Regulation D offering
exemption. These funds have been and will continue to be utilized
to fund the start-up and development of the Company.
The Company has completed it's 10-SB 12G filing registering the Company
as a fully reporting company with the SEC. The Company intends to file Form
SB-2 and register 2,000,000 additional shares of Common Stock for sale on
the OTCBB. The Company is in negations with a Securities Brokerage firm and
expects to conclude negotiations with the broker in the last quarter of 1999.
The Company plans to use the proceeds raised from the sale of its stock to
fund and expand operations. Management believes sufficient funds are or
will be available to sustain operations for at least the twelve months
following the latest balance sheet date. The Company intends to purchase
small companies that have products and services that add value and are
strategic to the success of the Company's growth. It is intended that these
acquisitions of small companies will complement the Company's product
and generate ongoing revenue to strengthen the Company's ability to stabilize
its stock for its stockholders. The Company is presently in preliminary
discussions with its first potential acquisition target, and believes that
if successful in raising additional funding, it will be able to successfully
acquire the company. However, there is no assurance that the company will be
successful in filing form SB-2 and registering 2,000,000 shares of common
stock for sale on the OTCBB. Further, if the company is successful, there
is no assurance that the company will be able to sell any of it's shares.
Management believes sufficient funds are or will be available to sustain
Operations for at least the twelve months following the latest balance sheet
In the current fiscal year of operation the company anticipates to
have raised a total of $200,000 from the sale of its Common Stock pursuant
to Rule 504 Regular D Offering exemption. These funds in part were
utilized to fund the start-up and development of the Company. The Officers
and Directors have not been compensated to date. SEE: Management Compensation
included elsewhere herein.
The prime focus of Ameri-Can Railway Systems Inc. (ARS) is private
wireless network management for railway traffic control and public
safety. ARS designs, develops and commercializes new lines of
railroad equipment products based on modern data acquisition,
signaling, control and communications technologies. The ARS
objective is to build and design "State of the Art," signal systems
that meet customer demands, that are cost competitive, and that are
capable of standing up to the tough conditions of continuous use in
the railway industry.
The Advance Warning System for railway level crossings is the first
commercial product to be offered by ARS, and its technology is the
foundation for an extensive family of wayside warning and wayside to
train signaling products. The following products are in the design
stages and add considerable value for the railway yet are relatively
inexpensive to add onto the system because they use the same multi
channel computer based wireless communications technology that the level
crossing system uses.
Hot box detector: This is a non-contact temperature measurement
system, which will add-on to our sensors on the track which will allow
the bearing journal temperatures to be monitored as the train rolls by
at high speed. This is a major safety issue for the railway since the
detection of a hot bearing can prevent a derailment.
Flat wheel detector: The use of a (vibration) impact sensor can be used
to detect wheel with flat spots. The detection of flat spots will allow
the offending cars to be decommissioned and repaired before additional
damage to the rail occurs.
Wide area networking: Current radio technology can be upgraded to
provide a higher speed communications capability and include
locomotive mobile radios and work equipment monitoring.
Hazardous Materials Monitoring: Constant monitoring of tank cars or
other vessels transporting hazardous materials, e.g. measures of
temperature, pressure, evaporation, volatility, decomposition, and so
forth.
Inter-modal Reefer Monitoring Systems: This is a wireless monitoring
system for refrigerated railway cars (Reefers) which communicate with
each ARS crossing system via wireless radio. This allows the reefers to
report such things as cooling temperature, fuel levels and the
condition of the engine generators that run the refrigerator cars, etc.,
allowing the railway to determine where the cars are located, define the
problem with the refrigerated unit and take the appropriate action to
correct any problems before the goods being transported are damaged.
Railway crossing systems are one of the most important safety systems
used by railroads. Canadian Pacific Railroad has agreed to test the
ARS Advance Crossing System on its main line in Mississauga Ontario
Canada. The audit and certification process is expected to take 90 to
180 days. CN Rail shares signaling information and test results with
CPR under an agreement signed by both railways March 26, 1998
(CPRCNJSAP98-A1). In management's opinion both Canadian railways and
their U.S. subsidiaries railroads will agree to put the system through
their own internal audit procedures, which will take 3 to 6 months. ARS
will offer to sell/lease/rent crossing systems to each of its customers
on a money back guarantee basis to gain approval to install test systems
at all targeted railways as soon as possible. Certification of the ARS
Advance Warning System by selected Class I railways should open the
door for system installations at Class II and Class III railways. Many
Class II and III railways traditionally forego testing if Class I
railway's have certified a technology. However, certification does not
guarantee market acceptance of ARS's technology.
ARS plans to distribute the Advance Warning System through an
exclusive distributorship with Geismar/Modern Track Machinery Inc.
(Geismar/MTM). Ameri-can Equipment Sales and Leasing, Inc., transferred
its contract with Geismar/MTM to sell the level crossing systems to
ARS. The contract is valid until October 1, 2000 and is automatically
renewable for an additional five years unless notice is given by either
party. Geismar/MTM has a worldwide sales network in over 100 countries.
They are a premier manufacturer and distributor of light machinery and
railway systems for the railroad industry. They command 60% of the US
market and over 70% of the Canadian market. The alliance with Geismar/
MTM will enhance the company's ability to penetrate the market. This
relationship facilitates exposure to the key decision-makers at most
U.S. railways and the 60 rapid transit authorities across North America,
and opens to ARS an entrance into the world market. The ARS management
team will support the efforts of Geismar's sales representatives. The
ARS Vice President of Sales and Service will be mandated to build a
field support group to service the railways directly, which will provide
further brand recognition to ARS in the market place. It is anticipated
that the railways will demand a strong technical service group to support
systems sold by Geismar/Modern Track. The Company feels growth in this
area will be ongoing and dependent on future sales.
Market Development and Future Key Customers
ARS will use a multi-step approach to develop business opportunities in
national and international markets:
Identify and rank the decision makers within each customer organization.
Develop relationships among the decision-makers of ARS clients, who will
act as positive references of ARS.
Demonstrate the signal equipment at target accounts to insure a
comprehensive, unified understanding of ARS' advantages, and identify
problems for which ARS could contribute to cost effective solutions.
Publicity and Advertising:
The company will aggressively pursue the leading industry publications
for editorial coverage, publicity and trade advertising.
Railway Age
Progressive Railroading
Modern Railway
The objective will be to create awareness of the company's products.
Geismar/MTM will co-op with ARS on advertising.
Brochures and Technical Briefs:
ARS has developed a web site (http:www.amrailsystems.com) and on line
product brochure using the services of management and funding from
investors to illustrate the Advance Warning System's features and
benefits to railway executives, government transportation authorities
and rail safety lobby groups. The company plans to have Geismar/MTM
representatives distribute these brochures to customers over the web.
In addition, the web site will be used in direct marketing campaigns.
ARS will publish Technical Briefs that provides technical and
operational details. The briefs will be distributed over the web and
in hard copy to the railway's signal engineers to evaluate the system.
Direct Mail:
The company will use direct mail to build awareness of the Advanced
Warning System. The company will target senior officials at each
railway as well as appropriate officials at municipal, state,
provincial and Canadian US federal transportation authorities. By
targeting these government officials, the company hopes to be able to
"pull" product through the distribution channel.
Manufacturing Plan
Manufacturing and assembly will be by contractors for the foreseeable
future, with care taken to ensure that ISO 9000 standards are
maintained. ISO is a series of international standards for Quality
Management Systems. The ISO 9000 family of standards recognizes four
generic product categories, hardware, software, processed materials, and
services. More than 95,000 companies received certification of
compliance in 86 countries.
The salient points are discussed below:
Year 2000
Historically, certain computer programs were written using two digits
rather that four to define the applicable year. Accordingly, the
Company's software may recognize a date using "00" as 1900 rather than
the year 2000, which could result in computer systems failures or
miscalculations, commonly referred to as the Year 2000 ("Y2K") issue.
The Y2K issue can arise at any point in the Company's supply, product
development tools, and financial applications. Incomplete or untimely
resolution of the Y2K issue by the company, key suppliers, customers
and other parties could have a material adverse effect on the
company's results of operations, financial condition and cash flows.
The Company has developed a plan to modify its information technology
to recognize the Year 2000 and has, to the extent necessary, begun
analyzing and converting, where necessary, its critical data
processing systems. Since many of the Company's systems and software
are relatively new, management does not expect Year 2000 issues
related to its own internal systems to be significant and does not
anticipate that it will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be Year
2000 compliant. The Company is planning to initiate formal
communications at the end of the second quarter of 1999 with
certain of its significant equipment suppliers and
service providers to determine the extent to which the Company's
systems may be vulnerable to embedded technology such as micro-
controllers. The Company currently expects the project to be
completed in the third quarter of 1999. There can be no guarantee that
the systems of suppliers or other companies on which the Company
relies will be converted in a timely manner and will not have a
material adverse effect on the Company's systems. To date the Company
has not developed a formal contingency plan. The Company believes it
is taking the steps necessary regarding Year 2000 compliance with
respect to matters within its control. However, no assurance can be
given that the Company's systems will be made Year 2000 compliant in
a timely manner or that the Year 2000 problem will not have a material
adverse effect on the Company's business, prospects, financial condition
and results of operations.
Procurement
All hardware will be specified and procured by ARS engineering staff.
This critical function will be controlled to guarantee that only
optimal hardware from the most reliable vendors is used. A database of
hardware component failures, which occur during manufacturing and test,
will be maintained in order to keep vital statistics on component failure
rate for each part and for each vendor. This Quality Assurance program
will meet ISO9000 standards.
Component Assembly
To avoid the high cost of establishing an assembly plant, this
operation will be contracted out to a qualified assembly house. Future
assembly may require in-house facilities to control production and
reduce product cost.
Functional Testing
ARS's system will be tested by our design engineers who have developed
the product in co-operation with third party contractors that provide
such test and certification services. The tests will be conducted in an
environmentally controlled test chamber at temperature ranges from -40 to
+85 Degree C. In addition, vibration tables will be used to test the
boards and sensors at variable vibration levels to detect assembly and
component mechanical problems. Thermal Cycling is a well-documented
process proven to expose failures in electronic components.
Circuit boards will be monitored during extended temperature cycling
by a computer system, which will record the calibration, drift,
induced noise and functionality over several thermal cycles. Each
board is serialized and this data is saved permanently.
Final Quality Assurance
Contract manufacturers will assembly the ARS system. Company personnel
will approve all product tests, in order to control the final
acceptance and quality assurance operations before shipping.
The manufacturing area will be operated under the principles of "Improved
Product Reliability through Continuous Process Improvement" in accordance
with ISO9000 standards.
Product Research and Development
During the coming fiscal year the company plans to complete the
initial pre-production testing and complete the first rail carrier
system audit and gain certification for the base Advance Crossing
configuration using a single track system. Multiple track systems
will be deployed later on in the fiscal year with the ability to
permanently record (log) and timestamp rail data information and
transfer this to other computers for analysis. Later releases in this
fiscal year will alert vehicular traffic of train direction and speed,
and provide support for Wide Area Network capability and (Internet
communications) protocol.
In future product releases planed over the next two years the entry
level crossing processor will be expanded to include other devices and
functions that can build on the installed user-base. For example, the
following products are in the design stages and add considerable value
for the railway yet are relatively inexpensive to manufacture and add-on
to the system.
Hot box detector: This is a non-contact temperature measurement
system, which will add-on to our sensors on the track to allow
the temperatures of railcar axles bearing to be monitored as the train
rolls by at high speed. This is a major safety issue for the railway
since the detection of a hot bearing can prevent a derailment.
Flat wheel detector: The use of a vibration sensor can be used to
detect wheel with flat spots. The detection of flat spots will allow
the offending cars to be decommissioned and repaired before additional
damage to the rail occurs.
Wide area networking: Current radio technology can be upgraded to
provide a higher speed communications capability and include
locomotive mobile radios and work equipment monitoring.
Hazardous Materials Monitoring: Constant monitoring of tank cars or
other vessels transporting hazardous materials, e.g. measures of
temperature, pressure, evaporation, volatility, decomposition, and so
forth.
Inter-modal Reefer Monitoring Systems: This is a wireless monitoring
system for refrigerated railway cars (Reefers) which communicate with
each ARS crossing system to report operating conditions and allows the
railway to determine where the cars are located.
Purchase or sale of Plant and Significant Equipment: This is not
Anticipated to occur as all manufacture and most assembly is contracted
out.
Significant Changes in Numbers of Employees: Full time employees are
expected to grow to 8 over the next fiscal year.
ARS has applied for patent protection filed on January 23, 1998 for an
Automated Railway Crossing in the USA and will pursue protection
overseas through international patent treaties and local patent
applications in appropriate markets. ARS intends to file for patent
protection in May 2000 on other elements of its planned product line,
related to track condition monitoring, intermodal refrigerated car
monitoring, flat train car wheels and wheel bearing deterioration.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
No Form 8-K was filed during the quarter ended July 31, 1999.
Exhibit 27 - Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Ameri-can Railway Systems, Incorporated
---------------------------------------
(Registrant)
Date September 20, 1999 By /s/ Sydney A. Harland
---------------------------------------
Sydney A. Harland, Chairman,
Chief Executive Officer
(Signature)
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