SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2000
ARS NETWORKS, INCORPORATED
formerly
(AMERI-CAN RAILWAY SYSTEMS, INCORPORATED)
(Name of Small Business Issuer in its charter)
New Hampshire 14-1805077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Walnut Street, Champlain, New York 12919
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (518) 298-2042
Securities registered under Section 12(g) of the Act:
Common Stock, $.0001 Par Value
Check whether the issuer (1) filed all reports required to be filed
by section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes: [X] No: [_]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of the Form 10-KSB or any amendment to this Form 10-KSB [_]
The issuer's revenue for the fiscal year ended January 31, 2000 was $0
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of April
22, 2000: . The aggregate market value of the voting stock held by
non-affiliates of the registrant is approximately 7,300,000 as of April
17, 2000.
State the number of shares outstanding of each of the registrant's
classes of common equity as of the latest practicable date:
Class Outstanding as of January 31,2000
Common Stock 10,608,989
Transitional Small Business Disclosure Format (check one):
Yes [x] No [ ]
Certain statements in this Annual Report that are not historical
facts constitute "forward-looking statements" within the meaning of
the Federal securities laws. Discussions containing such forward-
looking statements may be found in the sections entitled,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well in this Annual Report
generally. In addition, when used in this Annual Report the words"
anticipates," "intends," "seeks," "believes," "plan," "estimates,"
and "expects" and similar expressions as they relate to us or our
management are intended to identify such forward-looking statements.
Such statements are subject to a number of risks and uncertainties.
Our actual results, performance or achievements could differ
materially from the results expressed in, or implied by, these
forward-looking statements. We undertake no obligation to revise
these forward-looking statements to reflect any future events or
circumstances.
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS.................................
ITEM 2. DESCRIPTION OF PROPERTY.................................
ITEM 3. LEGAL PROCEEDINGS.......................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.........................
ITEM 6. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION...................................
ITEM 7. FINANCIAL STATEMENTS....................................
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANT ON ACCOUNTING FINANCIAL DISCLOSURE...........
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.......
ITEM 10. EXECUTIVE COMPENSATION..................................
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT........................
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K........................
SIGNATURES...........................................................
PART I
Item 1. Description of Business
Business Development
ARS Networks, Incorporated formerly Ameri-can Railway Systems,
Incorporated (ARS)(the Company) is a developmental-stage company
incorporated in New Hampshire on May 4, 1998. In return for 50,000
shares of the Company, the Company acquired from Ameri-Can Equipment
Sales and Leasing, Inc. (AEL), a Canadian corporation, certain assets
comprised of the rights to the contractual relationship AEL has with
Geismar/Modern Track Machinery Inc. (Geismar/MTM) industry
relationships, goodwill, know how and application experience on May
11, 1998. Although AEL and the Company at the time of the 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 separate and apart from the Company's
Railway communications and signaling business described below.
<PAGE>
Business of Issuer
The prime focus of ARS's private wireless network is management of
railway traffic, control and public safety. While the ARS system and
its component parts were developed to improve safety at rail
crossings, the ARS system can support numerous applications in real
time data collection, processing, monitoring and information analysis.
The system has evolved into an integrated service information system
that is the foundation of the ARS wireless private network.
Railway signaling and control systems are used to provide advance
warning of oncoming trains, and maintain adequate separation between
trains on the same track and in switching areas where tracks cross or
merge. They also facilitate train movements under centralized
dispatcher control, classify freight cars, and provide warning systems
for rail and highway grade crossings.
The ARS Service Information System is composed of five modules:
Web Sensors that perform the wheel sensing functions ;
Rail Sensor Processors - to control and process the signals from
the sensors, and interface to the communications system;
Digital Communications Sub-System - that may be a data radio,
dedicated wire lines or multi-drop system;
Application (Crossing) Processor - to collect and interpret
sensor data from Remote Sensor Processors and perform the specific
application functions; and,
Optional PC-based Diagnostics and Monitoring System - to maintain
monitor and analyze the application system.
Two important advances have been secured in the ARS system by
eliminating the need for insulated joints used in conventional
systems. Insulated joints work much the same way as a light switch,
turning the crossing on when the train arrives in the crossing zone
and off when the train leaves. (1) In conventional systems a signal is
triggered when the axle of a carriage creates a shunt across the
insulated sections of rail. Because the ARS system does not use
insulated joints it is not prone to false triggering caused by broken
insulation, foreign objects shorting the circuit, or adverse climate
conditions. (2) Traditional competing railway crossing systems use
insulated joints installed in the tracks, which contribute to
shifting rails caused by loose joint bars that bolt the sections of
track together, and battered joints that damage rail car wheels when
they hit defective joints.
Because the ARS system eliminates insulated joints it reduces wheel
damage, premature wheel wear, damaged tracks and, ultimately,
potential derailments. It is estimated that each insulated joint
costs $1,000 per year to maintain. With each crossing requiring at
least one set of joints per track savings on maintenance add up very
quickly.
ARS's first information service system application is the ARS level
grade crossing. Unlike traditional systems ARS can add other
applications to the system such as hot bearing detectors and flat
wheel detectors. ARS then transmits the information recorded over
it's private network to alert railway officials and service providers
of problems related to safety or maintenance.
The ARS system is a boon to railway operating efficiency because it
can give virtually instant feedback on the location of cars and
freight, which includes capturing information and time-stamping it as
trains pass through a crossing. Plus, this innovative system will
allow communication between trains and crossing signals to provide
motorists with more complete information on train movements. Improved
information creates safer conditions and benefits for the railways and
their customers, as well as motorists and pedestrians.
<PAGE>
ARS has completed the design, technical development, and laboratory
testing of the Advanced Warning System and is now in pre-production
testing. Canadian Pacific Railway (CPR), among North America's
largest and most technologically advanced railways, is participating
in a trial of ARS's pre-productions system. In management's opinion
once ARS has successfully completed system testing and CPR has
completed its audit of the system, ARS's system will be approved for
installation along other CPR subsidiaries in Canada and the US as well
as on CN Rail and its US subsidiaries. CPR and CN Rail share signal
system test results with each other under a Joint CPR/CN Safety
Assurance Process Audit Plan agreed to March 26, 1998 (CPRCNJSP98-A1).
However, there is no assurance that even when the required
certification is completed that CPR, CN Rail or any of their
subsidiaries will purchase and install the ARS advanced level crossing
warning system.
"US Freight Transportation Forecast...to 2003", a study conducted by
DRI/McGraw-Hill and quoted in the U.S. Department of Transportation
Quarterly Freight Report in 1996, predicts that rail inter-modal and
air freight will experience the largest percentage revenue gains of
all transportation industries in the coming years. Air freight
revenues will increase by 90% while rail inter-modal is forecast to
grow 61%. Trucking revenue, while still 76% of total transportation
revenue, is expected to decline by 2%, with the loss mainly to rail
and air freight.
Despite growing public pressure, potential civil penalties, and the
threat of government imposed penalties, there are still over 260,000
inadequately protected passive and private crossings in North America.
Passive crossings are those which typically do not have warning lights
or active mechanical arms or other devices to warn of pending rail
traffic. Private crossings are those on private property, often with
extremely low vehicular traffic, and have at most signs warning
oncoming traffic that a rail crossing exists. These crossings remain
unprotected as a result of the extremely high cost of installing and
maintaining available crossing systems. While the railways would like
to provide warning systems at every crossing the expense ($39 billion)
of doing so is clearly beyond their means in a competitive
transportation industry. Substantial government subsidies are
available, but they do not come close to covering the cost of
installing so many crossing systems. However, Congress has
appropriated an additional 5.8 billion dollars in constant 1997
dollars to be spent over the next 23 years for states to improve
safety at rail-highway crossings. (Source: Operation Lifesaver,
Federal Railroad Administration, Rail-Highway Crossing Safety Action
Plan)
On the tracks operated by U.S. railways there are 220,000 passive
and/or private crossings in the USA and 40,000 in Canada. Based on an
average cost per crossing of US $30,000 per installation, the 260,000
passive crossings indicate a market worth US $7,800,000,000 for the
ARS basic system. (Source: Operation Lifesaver)
This estimate does not include the approximately 80,000 public
crossings in the USA and 15,000 in Canada which have some form of
active warning system in place, nor does it include the crossings for
the approximately 60 transit or passenger railways across North
America. (Source: Operation Lifesaver)
The Company visualizes that there is a strong market for a crossing,
advance control system which is substantially cheaper (less than 50
percent) than the presently available systems from the four major
suppliers. This price advantage, combined with the technical
advantages described earlier, in management's opinion provides
a substantial market opportunity. The company does not believe that
traditional customers will readily abandon existing systems due to the
high costs associated with removing already installed systems and
replacing them with new ARS systems. Therefore, the company intends to
focus its marketing efforts on educating the public and traditional
customers, emphasizing the benefits of ARS's technology and addressing
the potential of providing level crossing protection at the 220,000
passive, private and public railway crossing that do not have
automated protection systems at this time.
<PAGE>
There are four major suppliers of railway crossing systems, all of
whom are well connected with the railway industry and government, and
control collectively 80 to 90% of the market today. However, the
crossings systems offered by these competitors remain deeply rooted in
traditional technology developed as far back as 1890. Most train
control and crossing systems currently in use are based on principals
developed in the last century, such as insulated joints. The railways
have continued to use traditional approaches because there has never
been a reliable and cost effective alternative. ARS is confident that
its approach will be successful because railways, their employees and
the population in general are more educated and comfortable with the
use of today's modern computer technology. ARS uses modern day secure
wireless communications and computer technology as the bases for its
level crossing system and the growth of its system approach to support
the railways' need to develop a safer, more efficient railway safety
and communications system. The competitors are:
Safetran Systems Corporation, Minneapolis, MN.
General Railway Signal Corporation, Rochester, NY.
United Switch & Signal Inc., Columbia, SC.
Harmon Industries Inc., Blue Springs, MO.
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.
Government Approval:
The federal government regulated private crossings in the past and
there were no specifications for passive crossings. In 1994 The
Federal Railroad Administration held an informal safety inquiry to
review the concept of defining minimum safety standards for private
crossings, or for certain categories of private crossings, up to and
including standards for closure and consolidation under certain
conditions. The inquiry addressed the allocation of responsibilities
and costs associated with private crossings and the need for dispute
resolution mechanisms regarding that allocation. The FRA has
authority in all matters concerning railroad safety, and can set
standards for private crossings. States and local highway agencies
frequently have no involvement in, or responsibility for, private
crossings. In January 1995, the FRA issued regulations requiring
periodic maintenance, testing, and inspection of automatic warning
devices at all highway crossings over tracks of railroads which are
part of the Nation's general railroad system, including private
crossings.
Every year accidents at railway crossings claim the lives of more than
600 people in North America. Railways are facing significant
potential liabilities as a result of these court rulings. In addition
mounting pressure from the public as well as municipalities, states,
provinces and the federal government in the US and Canada is beginning
to demand that the all passive/private crossings have adequate advance
warning systems.
The Founders of the Company have contributed their knowledge and
expertise to the Company in exchange for 5,250,739 number of common
shares. (SEE DESCRIPTION OF LOCK-UP AGREEMENT)
ARS has completed the design and technical development of the Advance
Warning System, which offers significantly more features and
functionality than envisioned in the original specification. The
laboratory test system has been rigorously tested to insure that the
communications and the wheel counting systems operate accurately at
speeds of up to 175 miles per hour. Canadian Pacific Railway has
agreed to a (no purchase obligation) mainline (high traffic area) test
installation of the ARS pre-production crossing system. Our system
will be installed in parallel with an existing CPR mainline crossing.
Testing of the system by ARS will include recording information
gathered by our system and comparing the information with CPR's
existing crossing system. When ARS completes its testing of the
<PAGE>
crossing system the Company will turn the crossing system over to CPR
to begin their Safety Assurance Process Audit. CPR is not bound to
certify ARS's level crossing system if it does not meet the railways 6
phase rigorous requirements of the audit process. Both CPR and CN
Rail agreed to work together and share information between each other
under an agreement signed March 26,1998 (Joint CPR/CN Rail Safety
Assurance Process Audit Plan,CPRCNJSAP98-A1). In Management's opinion
a successful audit will lead to certification of ARS's level crossing
system. However, certification of the level crossing system
application does not mean that other applications offered by ARS will
automatically receive certification by Canadian Pacific Railway or CN
Rail. All other new applications offered by ARS will be required to
follow the same approval process. ARS began testing the ARS Level
Crossing on Canadian Pacific Railway's main line at the end of
February 1999, live testing of the wheel sensors took approximately
10 months to complete. The entire system is scheduled to be installed
in May of 2000. ARS will live test the entire system for 30 days
before turning the system over to CPR for their review. Upon
successful completion of the certification process, ARS management
believes the ARS Level Crossing System will also be approved for sale
to the U.S. subsidiaries of both CPR and CN Rail. However, there is
no assurance that even when the required certification is completed
that CPR,CN Rail or any of their subsidiaries will purchase and
install the ARS advanced level crossing warning system.
LOCK-UP AGREEMENT
On June 20, 1998, the Directors, Officers Advisors and certain initial
investors to the Company entered into an Lock-up Agreement (the "Lock-
up") with the Company, which lasts for a period of two (2) years from
the date of the first of sales of the Company's stock to the public,
under what is commonly referred to as a Regulation D-Rule 504
offering. The Directors, Officers Advisors agreed not to, directly or
indirectly, offer, sell, grant any options to purchase or otherwise
dispose of any of the 6,811,489 shares of Company Common Stock without
prior written consent of the Company, except that they may transfer
any number of such shares to their children, by gift or otherwise,
provided that any such shares will continue to be subject to the
restriction set forth.
The Company is staffed by seven employees and contractors, none of
which are full time.
Reports to Security Holders:
ARS is a fully-reporting company with the Securities and Exchange
Commission and is approved by the NASD to trade its common stock on
the OTCBB under symbol ARSN. The Company plans to raise approximately
$700,000 to complete its Rule 504 Regulation D offering to support
marketing efforts and the associated working capital requirements.
The Company also plans to file Form SB2 and register at least
5,000,000 additional shares for sale during the upcoming fiscal year.
The Company hopes to raise up to $25,000,000. these funds will be
used to expand operations, continue technical development and procure
small technically viable companies that will contribute to revenue,
cash flows and the future growth of the Company. However there can be
no guarantee that the Company will be successful in raising additional
funds or filing Form SB2 or that a market will continue for the
Company's common stock.
The public may read and copy all materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth St., N.W., Washington, D.C.,
20549 or may obtain a information on the operation of the public
Reference Room by calling the SEC at 1-800-SEC-0330.
<PAGE>
Item 2. Description of Property
The Company maintains its corporate offices are at the following
address:
Ameri-can Railway Systems, Incorporated
100 Walnut Street,
Champlain,
New York 12919
Tel: 518-298- 2042
Fax: 518-298-2813
The company has no investments in property, plant and equipment. Small
warehousing, offices and meeting rooms are available when required at
the above address.
Item 3. Legal Proceedings
A) None
B) None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security-holders through
The solicitation of proxies or otherwise during the fourth quarter
of the current Fiscal Year.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters
In December 1999, the Company's Common Stock was approved for trade
on the NASD "OTCBB-Bulletin Board under the symbol "ARWA", the stock
started trading in February, 2000. On March 23, 2000 the Company
filed Articles of Amendment to the Articles of Incorporation changing
the name of the company from Ameri-can Railway Systems, Incorporated
to ARS Networks, Incorporated. On March 31,2000 the Secretary of
State of New Hampshire approved the name change and the Company filed
Form 8K with the Securities and Exchange Commission. The new trading
symbol is "ARSN".
The Following table sets forth the range of high and low bid
quotations for the Company's Common Stock since it began trading.
- ---------------------------------------------------------------------
SYMBOL TIME PERIOD LOW BID HIGH BID
ARWA /ARSN February 1 - April 19, 2000 1.50 5.75
The above prices were obtained from the National Quotation Bureau,
Inc. The quotations represent inter-dealer quotations without retail
mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
OUTSTANDING SHARES AND SHAREHOLDERS OF RECORD.
As of January 31, 2000, 10,608,989 shares of Common Stock issued and
outstanding which were held of record by 86 persons.
DIVIDENDS.
The Directors may from time to time declare, and the corporation may
pay, Dividends on its outstanding shares in the manner and upon the
terms and Conditions provided by law. However, to date no dividends
have been declared or paid by the Company.
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES.
During the year ended January 31, 2000, the Company sold 187,500
shares for $187,500. Of the 187,500 sold, 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 from the issuance of stock have been and will be used to fund
the development of the Company.
On June 1, 1998, the Company sold 1,983,500 shares for $198. The cash
was used to fund the start-up activities of the company.
On June 20, 1998, the Company sold 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 sold 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.
Item 6. Management's Discussion and Analysis of Financial Condition
and Plan of Operation
The Company has a limited operating history with no revenues. Because
of this, the Company faces significant obstacles 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 $290,000 through January 31, 2000
and anticipates raising an additional funds from the sale of its
Common Stock pursuant to Rule 504 Regulation D offering. These funds
have been and will continue to be utilized to fund the start-up and
development of the Company.
ARS is a fully-reporting company with the Securities and Exchange
Commission and is approved by the NASD to trade its common stock on
the OTCBB under symbol ARSN. The Company plans to raise approximately
$700,000 to complete its REG D 504 offering to support marketing
efforts and the associated working capital requirements. The Company
also plans to file Form SB2 and register at least 5,000,000 additional
shares for sale during the upcoming fiscal year. The Company hopes to
raise up to $25,000,000. These funds will be used to expand operations,
continue technical development and procure small technically viable
companies that will contribute to revenue, cash flows and the future
growth of the Company. However there can be no guarantee that the Company
will be successful in raising additional funds or filing Form SB2 or that
a market will continue for the Company's common stock.
Management, however, believes sufficient funds are or will be
available to sustain operations for at least the twelve months
following the latest balance sheet.
The prime focus of ARS's private wireless network is management of
railway traffic control and public safety. While the ARS system and
its component parts were developed to improve safety at rail
crossings, the ARS system has supports many applications in real time
data collection, processing, monitoring and information analysis.
The system has evolved into an integrated service information
system that is the foundation of the ARS wireless private network.
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 application to be offered by ARS, on it's integrated
service information system. ARS's technology provides a portal for the
integration of an extensive family of wayside warning and wayside to
train communications applications. The ability to integrate other
applications to ARS's system adds considerable value for the railway
and yet are relatively inexpensive to implement. The following
applications can be easily integrated with ARS's system.
<PAGE>
Hot box detector: This is a non-contact temperature measurement
system, which we will integrate as an application on to our
information network. These sensors on the track will allow the bearing
journal temperatures to be accurately 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: ARS's technology can be linked together to
provide a higher speed communications capability to monitor
locomotive and work equipment in dark territories. Dark territories
are sections of railway track where is currently no communication
systems in place.
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
application for refrigerated railway cars (Reefers) which communicate
with each ARS service information 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 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 application 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 railways 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.
<PAGE>
Market Development and Future Key Customers
The Company entered into an agreement for the development of
corporate and product branding, and logo design.
The Company hired a public relations and communications consulting
Firm to direct the Company's investor relations campaign. The term
of the public relations and consulting agreement is for one year
commencing February 9, 2000.
ARS will use a multi-step approach to develop business opportunities
in national and international markets:
1) Identify and rank the decision makers within each customer
organization.
2) Develop relationships among the decision-makers of ARS clients, who
will act as positive references of ARS.
3) 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. The objective
will be to create awareness of the company's products.
Railway Age
Progressive Railroading
Modern Railway
Brochures and Technical Briefs:
ARS has developed a web site (http:www.arsnetworks.com) that provides
on line information about the Company and allows the Company to
communicate with investors, railway executives, government
transportation authorities and rail safety lobby groups. The company
plans to have its distributor representatives direct customers to the
Company's web site. 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.
<PAGE>
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, completed
analyzing and converting, where necessary, its critical data
processing systems. Since many of the Company's systems and software
are relatively new, management is confident that Year 2000 issues
related to its own internal systems are Year 2000 compliant. The
Company has initiated informal communications with 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 did not suffer any adverse
problems during the Year 2000 change over. However, the Company will
continue to monitor it's systems and the systems technology provided
by it's suppliers over the next 12 months to insure that any potential
for Y2K problems are adverted. There can be no guarantee that the
systems of suppliers or other companies on which the Company relies
will not have material adverse effect on the Company's systems. 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 that interface with
it's suppliers and service providers 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 the Company's 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.
<PAGE>
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 of it's service information system and
complete the first rail carrier system audit and gain certification
for the base Advance Crossing application 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 time
stamp rail data information and transfer this to other computers for
analysis. Later releases in upcoming fiscal year will alert vehicular
traffic of train direction and speed, and provide support for Wide
Area Network capability, (Internet communications) protocol.
Future service information system product releases planed over the
next two years at installed level crossing applications will be
expanded to include other devices and functions that can build on the
installed user-base. For example, the following applications add
considerable value for the railway, yet are relatively inexpensive to
add-on to the system.
Hot box detector: This is a non-contact temperature measurement
system, which we will integrate as an application on to our
information network. These sensors on the track will allow the
bearing journal temperatures to be accurately 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: ARS's technology can be linked together to
provide a higher speed communications capability to monitor
locomotive and work equipment in dark territories. Dark territories
are sections of railway track where is currently no communication
systems in place.
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
application for refrigerated railway cars (Reefers) which communicate
with each ARS service information system via wireless radio. This
allows the reefers (refrigerated cars) 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 problems
before the goods being transported are damaged.
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.
<PAGE>
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.
Effect of Recent Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting requirements for derivative
instruments. The Company has not in the past nor does it anticipate
that it will engage in transactions involving derivative instruments,
and therefore, does not expect this pronouncement to have any effect
on the financial statements. SFAS No. 133, as amended by SFAS No.
137, is effective for fiscal years beginning after June 15, 2000.
Item 7. Financial Statements
Please see the attached consolidated financial statements.
Item 8.
Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
On September 24, 1999 the Company dismissed Feldhammer/Fishman as the
Company's Independent Accountants to address the company's need to
work with a national firm. Felderhammer / Fishman were in agreement
with the decision taken by the company. On October 18, 1999 the
company engaged BDO Seidman, LLP as the Company's Independent
Accountants.
From the inception of the company until September 24,1999 there were
no disagreements with Feldhammer / Fishman on any matter of
accounting principals or practices, financial statement disclosure,
or auditing scope or procedure or any reportable events.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
A) Directors and Executive Officers of the Company are:
1) Name Age 2) Position 3)Term, Time Served
- ---------------- ---- ---------------- -------- ------------
Sydney Harland 49 Chairman, CEO 60 mo. 18 mo.
Peter Ross 56 President & COO 24 mo. 18 mo.
Mark Miziolek 42 CFO & Treasurer 24 mo. 18 mo.
Donald Hathaway 63 Director 24 mo. 18 mo.
Patrick Shea 51 Director 24 mo. 18 mo.
Robert Esecson 48 Dir. & Secretary 24 mo. 18 mo.
Peter Hoult 55 Director 24 mo. 18 mo.
John Andrews 46 Director 24 mo. 18 mo.
4) Business Experience:
Sydney A. Harland, M.C.Inst. M., 49, has been Chairman and Chief
Executive Officer of the Company since April 5, 1998. He is a co-
founder of the company. From 1987 to 1998, Mr. Harland was President,
founder and sole shareholder of Ameri-can Equipment Sales and Leasing
Inc., a product development and sales company. From 1995 to the
present he has been a consultant to Ontario Hydro Technologies. He has
over 20 years of business experience, primarily in sales and
marketing, in the railway, telecommunications, nuclear utility and
mining industries. He received a 4-year Electrical Diploma from C.P
Tech., Montreal, Quebec, Canada and studied Business Administration
and Marketing at Dawson College Montreal, Quebec, Canada. He has been
elected a member of the Canadian Institute of Marketing, and the
American Railway Engineering and Maintenance-of-Way Association. Mr.
Harland has assured the Board of Directors that his other business
shall not be in conflict with the interest of the Company.
<PAGE>
Peter Ross, MBA, B.Sc., 56, has been the President and Chief Operating
Officer of the Company since May 28, 1998. From 1996 to 1998, Mr.
Ross was President and Chief Operating Officer of Internet Payment
Inc., a leader in the development of an INTERAC compliant electronic
payments system over the Internet. Peter Ross has over 25 years in
leadership roles in manufacturing, information technology,
telecommunications and management consulting. Mr. Ross received his
MBA, from McGill University, Montreal, Quebec, Canada and a B.Sc.,
from Sir George Williams University, Montreal, Quebec, Canada. Mr.
Ross is a Certified Management Consultant (CMC), and a member of the
Institute of Certified Management Consultants of Ontario.
Mark P. Miziolek, C.G.A., B.Com.,42, has been the Vice President
Finance, Chief Financial Officer and Treasurer of the Company since
May 20,1998. From 1994 to 1998, Mr. Miziolek became the Treasurer and
Chief Financial Officer and later the President, Treasurer & CFO of
Thornmark Holdings Inc./Thornmark Corporation, a privately held
investment holding company with interests in industrial and
residential real estate development and Great Lakes and ocean
shipping. From 1981 to 1994 Mr. Miziolek was first the Assistant
Controller and then the Controller of Upper Lakes Group Inc., one of
Canada's largest dry bulk shipping companies with 21 vessels operating
on the Great Lakes and in 4 vessels in ocean trades. Mr. Miziolek
received a B. Com., from the University of Toronto in 1983 and became
a Certified General Accountant in 1989.
Donald B. Hathaway, B.Eng., B.Sc., MBA, FCMC, 63 has been a Director
of the Company since June 3, 1998. He is a co - founder of the
Company. Don Hathaway is the Managing Director and co-founder, NetFX
Concepts Inc., begun in 1996 to pursue the commercialization of new
and innovative technologies. While pursuing a career in electronics
design and manufacturing, academia and management consulting over the
last thirty years, he has also been an active entrepreneur, with
interests in several small companies. He has been a partner in two
national consulting firms and the president of two others, and he is a
Past President and a Fellow of the Institute of Management Consultants
of Ontario, and a Past President of the Institute of Management
Consultants of Canada. He is active on several other Boards, including
Qnetix Inc. (Chair); Wordwrap Associates Inc. (Chair); Organization
and Systems Design Inc. (Chair); The Uxmal Group; Keystone Enterprizes
Inc. (Secretary); Nu-wave Photonics Inc., and NetFX Concepts Inc. He
is a former Governor of York University and he is currently on the
University of Waterloo Advisory Council and The Financial Post's
selection committee for the Leaders in Management Education Award. He
has a B.Eng. (electrical) from Sir George Williams University (now
Concordia), a B.Sc. in mathematics from the same university, and an
MBA from York University. Mr. Hathaway has assured the Board of
Directors that his other business shall not be in conflict with the
interest of the Company.
Patrick R. Shea, 51 has been a Director of the Company since June 3,
1998 Pat Shea is the President and co-founder of Taima Corporation,
providing in-bound call center and related technical support services
to the high growth internet, hardware and software market. In 1985 Pat
Shea co-founded The PSC Communications Group (PSC), a high tech
systems, consulting and OEM training company. While at PSC, he assumed
the positions of President, CEO and Chairman of the Board. He sold the
company in 1994, but retained executive leadership till he joined
Taima in 1996. The company was renamed to Geotrain in 1997, and
remains one of Ciscos's prime global training partners. He is still a
shareholder and Director of Geotrain. He joined Bell Canada in 1969
and designed and managed numerous communications and systems projects
in networks and telematics. He worked at Royal Trust from 1978 to
1980, leading major initiatives in Information Systems programs. Pat
Shea is actively involved in several investments in the high tech
sector, and serves on the board of various companies. He has a Diploma
in Electronics from the Montreal Institute of Technology (1969). Mr.
Shea has assured the Board of Directors that his other business shall
not be in conflict with the interest of the Company.
<PAGE>
Robert M. Esecson, BS, JD, 48 has been a Director of the Company since
June 3, 1998. Bob Esecson is the founder, Senior Managing Director and
CEO of The Esmarox Group, LLC, an Investment banking and business
advisory firm specializing in comprehensive services to public and
private middle-market companies. The Esmarox Group develops and
implements creative marketing programs and strategic growth/expansion
plans to increase the profitability of client firms. Trained as a
lawyer, and an entrepreneur in his own right, Bob Esecson has a
comprehensive background in finance, management, and consulting
businesses. He has held senior executive positions at a merchant and
investment-banking firm and at several financial services firms. He
earned BS in Management and Accounting from Bentley College in
Waltham, Massachusetts and a JD from the New England School of Law in
Boston. Mr. Esecson has assured the Board of Directors that his other
business shall not be in conflict with the interest of the Company.
Peter J. Hoult, BA., 55, has been a Director of the Company since June
3, 1998. In 1993 Peter Hoult formed the international strategic
marketing and consulting practice which he operates from North
Carolina and Toronto, Ontario. In 1965 he joined Unilever in London,
England as a management trainee while attending the London School of
Economics in the doctoral program.. In 1967 he formed his own market
research company in London with an American partner and conducted
studies in all parts of the world. In 1972 he joined RJR Tobacco as
the International Research Director, and moved through successively
more senior positions to become President and CEO, RJR Canada; and
Executive Vice President US Operations. He joined Northwest Airlines
in 1990 as Executive Vice President Marketing, Sales, and Strategic
Planning. He teaches marketing and strategy at the Fuqua Graduate
School of Business at Duke University in North Carolina, while
continuing to serve his key clients. Peter Hoult graduated from the
University of Reading with an Upper Second Honours degree in
Psychology in 1965 and he has completed the course work for a
doctorate at the London School of Economics. Mr. Hoult has assured the
Board of Directors that his other business shall not be in conflict
with the interest of the Company.
John Andrews, BA, MBA.,42, has been a Director of the company since
June 3, 1998. Mr. Andrews is President and Chief Executive Officer of
Sanga International Inc., a leader in the Java applications
development market. He joined Sanga in 1998 from CSX where he was
Chief Information Officer, CSX as well as President and CEO of CSX
Technology and a Senior Vice President of CSX Transportation. Prior to
joining CSX from GTE in 1993, he was the Vice President and General
Manager of several GTE business units, serving the health, government
and telecommunications industries. During his career at GTE, he also
held positions in field operations, engineering, planning, operations,
finance and information technology. He is a member of the Conference
Board's Council of North American Information Management Executives;
National Defense Transportation Association's Transportation Advisory
Board; NCR's Transportation Board of Directors; Computer World's Board
of Directors North Florida Technology Innovation Corporation's Board;
Harvard School of Government; and BMC Software Corporation's Board of
Advisors. John holds a B.A. degree in Business Administration/Finance
from Whitworth College and an MBA from the University of Puget Sound.
Mr. Andrews has assured the Board of Directors that his other business
shall not be in conflict with the interest of the Company.
5) Directorships Held In Reporting Companies:
Donald B. Hathaway Qnetix Inc. (Chairman), Alberta Stock Exchange
B Significant Consultants/Employees:
1) Name Age 2) Position 3) Term Time Served
- --------------- --- ----------------------- -------- -----------
Shabir Gova 32 VP, Technology 24 mo., 18 mo.
Gary S. Johnson 38 VP Marketing 24 mo., 18 mo.
Susan MacStravick 49 Dir.,Investor Relations 24 mo., 18 mo.
<PAGE>
4) Business Experience:
Shabir Gova B.Sc., P. Eng., 33, has been Vice President, Technology of
the company since April 5, 1998. From 1990 to 1998, Mr. Gova worked
for Shlumberger Systems & Services Canada Limited, and has held the
following positions, Design engineer, Senior Design Engineer, Manager,
Systems Services & Development, Manager, Technology and Development -
Canada, Director, Information Technology - Canada. Mr. Gova, has
progressive experience in Software/ Firmware systems design and
development, Interactive DOS and Windows based software applications
(employing an object-oriented framework) used to remotely program,
read and provide a graphical analysis of data gathered by monitoring
devices. Real time multitasking embedded systems used for high-speed
data acquisition and storage. Graphical User Interfaces used as a
front-end for various existing software applications. C++ Class
Libraries used as the core technology for software under development.
From 1989 to 1990 Mr. Gova was Software Development & Systems Support
Analyst, for IBM Canada Limited. Mr. Gova was responsible for
automation of the SIMM prototype fabrication laboratory. Mr. Gova
received an Honours Bachelor of Applied Science in Systems Design
Engineering, Options in Management Science and Computer Engineering,
from the University of Waterloo, Ontario, Canada. Mr. Gova is a member
of the IEEE.
Gary S. Johnson, MBA, B.Sc., 39, has been Vice President, Marketing of
the company since April 5,1998. From 1996 to 1998, Mr. Johnson was
Marketing Manager, Ontario Hydro Technologies, responsible for
developing technology services marketing opportunities to the electric
utility industry in the U.S., Mexico and Canada. From 1989 to 1996
Mr. Johnson worked for Schlumberger Limited, Electricity Division a
world leader in the metering industry. He started as Product Manager
Core Products and Automatic Meter Reading Technology and by 1994 he
became the Director, Utility Services Group, responsible for P&L, 142
employees, and contracting services to electricity, water and gas
utilities across Canada. From 1988 to 1989, Mr. Johnson was the
Marketing Manager Semi-conductors Philips electronics Limited. Mr.
Johnson received his MBA, and B.Sc. Electrical Engineering from Queens
University in Kingston, Ontario, Canada.
Susan Boyd MacStravick Hon. B. A., 48 has been the Director of
Investor Relations of the company since April 5, 1998. Ms. Boyd
McStravick has been President of Susan Boyd & Associates for 12 years
and has over 20 years of experience in investor relations and
communications, advisor work for the Toronto Stock Exchange, and pre
and post offering phases for new equity issues aimed at gaining
national and international media coverage for Canadian and American
high tech and resource companies. She has organized and orchestrated
international conferences and events.(Ms. Boyd MacStravick received
her Hon. B.A., form University of Toronto 1971, Postgrad Journalism
Diploma, from University of Western Ontario 1972. Ms. Boyd
MacStravick has assured the Board of Directors that her other business
shall not be in conflict with the interest of the Company.
<PAGE>
Item 10. Executive Compensation
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Long Term Comp.
A B C D E F G
Other Restricted Options
Name and Annual Stock Granted
Principal Com- Awards Exercised
Position Year Salary $ Bonus $ pensation $000.1
<S> <C> <C> <C> <C> <C> <C>
Sydney Harland 00 100,000 17,000 0 0 1,130,069
Chairman & CEO
Peter Ross 00 61,000 10,000 0 0 36,023
President and COO
Mark Miziolek 00 45,000 8,000 0 0 15,750
CFO/Treasurer
Sydney Harland 99 75,000 0 0 0 0
Chairman & CEO
Peter Ross 99 45,750 0 0 0 115,000
President and COO
Mark Miziolek 99 33,750 0 0 0 50,000
CFO/Treasurer
</TABLE>
<TABLE>
Aggregated Options/SAR Exercises and Fiscal Year and FY-End Option/SAR Values
<CAPTION>
A B C D E
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR's at Options/SAR's at
FY-End ($) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise (#) Value Realized Unexercisable Unexercisable *
<S> <C> <C> <C> <C>
Sydney Harland 0 0 1,130,069/0 0/0
Chairman & CEO
Peter Ross 0 0 36,023/85,750 0/85,750
President/COO
Mark Miziolek 0 0 15,750/37,000 0/37,000
CFO/Treasurer
* The value per share has been determined to be $1.00 based upon sales to
unrelated third parties.
</TABLE>
Incentive Compensation Plan
<PAGE>
Equity Incentive Plan:
On June 20,1998 the Company adopted the Equity Incentive Plan (the
"Equity Plan"). The purpose of the Equity Plan is to provide
directors, officers and certain key employees with additional
incentives by increasing their proprietary interest in the Company.
As of June 20,1998, there were 4,500,000shares of Common Stock
reserved for issuance under the Equity Plan pursuant to stock options
and stock awards. Options granted under the Equity Plan may be either
Incentive Stock Options (as defined in the Internal Revenue Code of
1986, as amended) or Options which do not qualify as incentive stock
options ("Non-Qualified Options"). The exercise price of all Incentive
Stock Options granted under the Equity Plan may not be less than the
fair market value of the underlying Common Stock at the date of grant.
In the event that an optionee owns more than 10% of the voting power
or value of all classes of stock of the Company, the minimum exercise
price of the Incentive Stock Option may not be less than 110% of the
market value of the underlying Common Stock at the date of grant. No
Option may be exercised after 10 years from the date of grant (5 years
for optionees who are greater than 10% stockholders). The Equity Plan
will be administered by a committee of two or more non-employee
members of the Company's Board of Directors. Options are transferable
only with the written approval of the Committee. An option to purchase
1,969,998 Shares of the Company's Common Stock has been granted to the
Founders, Directors, Executive Officers and certain consultants of the
Company. The options have a term of five (5) years and vested upon
the date of grant. It was resolved to issue to the founders,
Directors, and Officers a pro-rata increase in their respective
shareholdings of twenty-five in response to progress in meeting
corporate goals related to key milestones in the development and
testing of the technology, securing a test site with a major Class I
Railway, in operations, and in the raising of capital. SEE: options
SAR Grants table elsewhere within.
NOTE: see Options/SAR Grants Table re: 500,000 shares granted to
consultants elsewhere within.
Under the Equity Plan, a director who is not otherwise an employee of
the Company ("Non-Employee Director") is granted in July of each year
that he serves as a director, a Non-Qualified option to Purchase
10,000 shares of Common Stock at an exercise price equal to the fair
market value of the underlying Common Stock at the date of grant. Each
option is for a term of ten years and can be exercised immediately.
Except for the foregoing, non-employee directors are not otherwise
eligible to receive options, awards or other rights under the Equity
Plan.
The Equity Plan also provides that the officers, independent
contractors, consultants and employees of the Company may receive,
without payment, awards of Common Stock, cash or a combination thereof
in respect of the attainment of certain performance goals determined
by the Board of Directors, under the Incentive Compensation Plan or
otherwise.
The Equity Plan also provides that stock appreciation and depreciation
rights may be granted in tandem with, or independently of, options
granted under the Equity Incentive Plan (except for non-employee
directors). However, stock appreciation rights granted in tandem with
an Incentive Stock Option may be granted only at the time such option
is granted, and Stock depreciation rights may not be granted in
connection with an Incentive Stock Option.
Under the Equity Plan, participants in the Equity Incentive Plan other
than non-employee directors may be granted the right to exercise
their options by surrendering all or part of the option (to the extent
then exercisable) and receive in exchange an amount payable by the
Company in cash or Common Stock (valued at the then fair market value)
or a combination thereof equal to the excess of the then fair market
value of the shares issuable upon exercise of the option or portion
thereof surrendered over the exercise price of the option or portion
thereof surrendered. Generally, options that are exercisable at death
or disability or termination for cause may be exercised at any time
prior to the expiration of the option but not more than three months
after the date of termination, unless the option has vested.
On June 20, 1998 the Company adopted the Incentive Compensation Plan
(the "Incentive Plan"). The purpose of the Incentive Plan is to
attract, motivate and retain key employees of the Company. Employees
of the Company are eligible to participate in the Incentive Plan. Each
participant shall be eligible to receive a performance award under the
plan as computed on measured performance, equal to a predetermined
percentage of annual salary at the beginning of the Company's fiscal
year. The maximum eligible award by component is: profit performance - 50%,
budget discipline - 30%, subjective - 20%. The profit performance
segment relates directly to the achievement of certain goals
set at the beginning of the year. The budget discipline segment
is based on the approved budget for the year. The subjective segment
relates to the total performance of the participant as determined by
the Chief Executive Officer and/or the Board of Directors. No profit
performance award will be given if the Company does not achieve at
least 80% of its profit plan for the year. The Board of Directors
reserves the right to modify, change and/or delete components or the
entire Incentive Compensation Plan. Consultants and/or other
independent contractors may be eligible to participate in the
Incentive Compensation Plan.
<PAGE>
Option/SAR Grants Table:
NOTE: CERTAIN COMPANY CONSULTANTS WERE GRANTED 500,000 COMMON
SHARES AT $000.1 SUBJECT TO THE TERMS OF THE COMPANYS CONTRACT WITH
IDAHO CONSULTING SERVICES, INC. THE GRANTS EXPIRE JULY 1, 2003 AND
ARE SUBJECT TO A TWO YEAR LOCK-UP AGREEMENT. (SEE: LOCK-UP AGREEMENT
ELSEWHERE WITHIN.)
Options/SAR Grants in last fiscal Year:
<TABLE>
<CAPTION>
A B C D E
Name No. of Securities % Total Options/
Underlying SARs Granted to Exercise
Options/SARs Employees in or Base Expiration
Granted (#) Fiscal Year Price ($/Sh) Date
<S> <C> <C> <C> <C>
Sydney A. Harland 1,130,069 77% $1.01 2/18/04
Chairman & CEO
Peter Ross 36,023 2% $1.01 2/18/04
President & COO
Mark P. Miziolek 15,750 1% $1.01 2/18/04
CFO & Treasurer
Donald Hathaway 187,625 12% $1.01 2/18/04
Director
John Andrews 25,125 2% $1.01 2/18/04
Director
Patrick R. Shea 25,125 2% $1.01 2/18/04
Director
Robert M. Esecson 25,125 2% $1.01 2/18/04
Director
Mr. Peter Hoult 25,125 2% $1.01 2/18/04
Director
</TABLE>
Compensation of Directors:
1) Standard Arrangements:
1. Term
Directors are appointed for a term of twenty-four(24) months, to
commence upon the date of your acceptance of the Appointment.
2. Compensation
Save and except for the share options set out below and 100,000 common
shares of the Company at a nominal value you shall receive no
compensation for your services or efforts as a Director. Provided that
should you, for any reason resign your Directorship prior to the
expiration of the term of your appointment hereunder, the Company has
the right to repurchase and you must sell to the Company all of these
100,000 common shares at their par value.
<PAGE>
3. Expenses
Directors will be forthwith reimbursed by the Company for all expenses
incurred in the course of fulfilling there duties as a Director,
including the full cost of travel, food and hotel accommodation
associated with your attendance at meetings of the Board of Directors.
4. Share Option Plan
Each Director shall be entitled to purchase fifty thousand (50,000)
common shares of the Company at fair market value per share, for each
year of the Term that the Director completes as a Director, however,
the shares which underlay the option referable to any given year do
not vest in the Director until the expiry of that year. Should the
Director resign the position of Director or should his or her
Appointment be terminated prior to the completion of any given year,
then the shares referable to that year shall be forfeited upon
repayment to the Director of the cost of exercising the option for
that year.
5. Attendance at Board Meetings
Directors are required to attend all Board Meeting. Absence from any
two (2) consecutive Board Meetings shall constitute the tendering of
the Directors resignation from the Board.
Under the Equity Plan, a director who is not otherwise an employee of
the Company ("Non-Employee Director") is granted in July of each year
that he serves as a director, a Non-Qualified option to Purchase
10,000 shares of Common Stock at an exercise price equal to the fair
market value of the underlying Common Stock at the date of grant. Each
option is for a term of ten years and can be exercised immediately.
Except for the foregoing, non-employee directors are not otherwise
eligible to receive options, awards or other rights under the Equity
Plan.
Employment Contracts and Termination of Employment and in-control
arrangements.
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
5 years and he is to be compensated in the amount of $100,000 per year
plus bonus. Mr. Ross is contracted for 2 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 $45,00 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
1) Employment Contracts Executive Officers
Sydney Harland see: Exhibits
Peter Ross see: Exhibits
Mark Miziolek see: Exhibits
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Common Stock
(a) security ownership of certain beneficial owners.
(1) (2) (3) (4)
Name and Address Amount and Percent of
Title of of Beneficial Nature of Class
Class Owner Beneficial
Owner
Common Sydney Harland CO-Founder 48.1
2155 Winchester Court 5,650,308 (1)
Burlington Ontario, Canada,
L7P 3M7
Common Donald Hathaway CO-Founder 8.7
5964 Ninth Line, Erin 938,125 (2)
Ontario, Canada, N0B 1T0
(b) Security ownership of management.
(1) (2) (3) (4)
Title of Name and Address Amount and Percent of
Class of Beneficial Nature of Class
Owner Beneficial
Owner
Common Peter Ross Officer 1.7
276 Chartwell, Oakville, 180,273 (3)
Ontario, Canada, L6J 3Z9
Common Mark P. Miziolek CFO & Treasurer 0.7
1450 Bayshire Drive, 78,750 (4)
Oakville, Ontario, Canada,
L6H 6E7
Common John Andrews Director 1.2
109 Lamplighter Lane 125,625 (5)
Pontevedra, Fl 32082
Common Patrick R. Shea Director 1.2
944 North Russell Road, 125,625 (6)
Russell, Ontario. K4R 1C7
Common Robert M. Esecson Director 1.2
5964 Ninth Line, Erin, 125,625 (7)
Ontario, Canada, N0B 1T0
Common Peter Hoult Director 1.2
110 East 55th Street 125,625 (8)
11th floor
NY, NY 10022
Common All officers and directors
as a group 7,349,956 (9) 60.8
(1) Includes 1,130,069 shares under option which can be acquired
within sixty days.
(2) Includes 187,625 shares under option which can be acquired within
sixty days.
(3) Includes 36,023 shares under option which can be acquired within
sixty days.
(4) Includes 15,750 shares under option which can be acquired within
sixty days.
(5) Includes 25,125 shares under option which can be acquired within
sixty days.
(6) Includes 25,125 shares under option which can be acquired within
sixty days.
(7) Includes 25,125 shares under option which can be acquired within
sixty days.
(8) Includes 25,125 shares under option which can be acquired within
sixty days.
(9) Includes 1,469,967 shares under option which can be acquired
within sixty days.
<PAGE>
(c) Changes in control.
Common Stock controlled by the Chief Executive Officer and the other
Co-Founder , both of whom are directors of the Company, own directly
or beneficially 5,270,739 shares of the Company's Common Stock and
control more than 50% of the outstanding Common Stock. Therefore, they
are in a position to elect all of the Company's Directors. The
Company's Directors, in turn, elect all of the Company's executive
officers. Accordingly, the principal shareholder and the other Co-
Founder directly or indirectly will be able to control all of the
affairs of the Company. Therefore there is no situation which would
result in a change in control of the company.
Item 12. Certain Relationships and Related Transactions
On May 11, 1998, in exchange for 50,000 shares of common stock, the
Company acquired certain assets from Ameri-Can Equipment Sales and
Leasing Inc. ("AEL"), a Canadian corporation. These assets included
the rights to certain contractual relationships, industry
relationships, goodwill, and application experience. 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.
On June 1, 1998, 1,941,250 shares of the Company's stock were
purchased by officers, directors and management of the Company for
$2,054 plus entering into a non-compete agreement. The shares were
valued at $.10 per share (less cash received of $2,054) based on
similar stock sales and recorded as officer's compensation of $16,500
and professional fees of $175,571.
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, a total of 6,500 shares were
issued. These shares were valued at $.10 per share based on similar
stock sales and recorded as an expense. The total number of locked-
up shares is 7,173,989 as of January 31, 2000.
On June 20, 1998, 1,915,000 shares of common stock were issued to
certain consultants of the Company at $.0001 per share. These shares
were valued at $.10 per share (less cash received of $192) based on
similar stock sales and recorded as professional fees.
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. The Chairman of the Board of
Directors' ("Chairman") contract is for a term of five years with
compensation in the amount of $100,000 per year plus a bonus. The
President is contracted for two years and is to be compensated in the
amount of $61,000 per year plus quarterly stock options. The Vice
President of Finance 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 agreement with the Chairman requires the Company to pay $1,000,000
to the Chairman if the agreement is terminated.
At January 31, 2000, $4,760 is due to certain directors of the Company
and $15,240 is due to one officer of the Company for telephone
expenses incurred on behalf of the Company. These advances are non-
interest bearing.
<PAGE>
On January 28, 2000, the Company issued 362,500 shares of common stock
to certain officers of the Company, in lieu of unpaid cash
compensation.
On June 20, 1998 the Company adopted the Equity Incentive Plan ("the
Equity Plan") to provide directors, officers and certain key employees
with additional incentives. Under the Equity Plan, 4,500,000 shares
of common stock have been reserved for issuance pursuant to stock
options and stock awards. The Equity Plan provides for the grant of
incentive stock options and non-qualified stock options. 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 Plan is administered by a committee of two or
more non-employee members of the Company's Board of Directors.
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, 2000.
On February 18, 1999, the Company granted options to purchase
1,469,967 shares to certain officers and directors of the Company.
The options have a term of five years and are vested upon the date of
grant. In management's opinion all transactions were made on terms
that are as favorable to the Company as those available in arm's
length transactions in the marketplace.
Item 13. Exhibit and Reports on Form 8-K ( 8K's Incorporated by Reference)
8K Filed September 24, 1999 Dismissing Feldhammer/Fishman as the Company's
Independent Accountants
8k Filed October 18, 1999 engaging BDO Seidman, LLP as the Company's
Independent Accountants
8K filled April 3rd, 2000 the Corporation filed a notice of amendment
to its Certificate of Incorporation with the State of New Hampshire
that changed the name of the Corporation to ARS Networks, Incorporated.
Exhibit 27 - Financial Data Schedule
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: April 25, 2000 Ameri-can Railway Systems, Incorporated.
By: /s/ Sydney A. Harland
-----------------
Sydney A. Harland
Chairman & CEO
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Financial Statements
From the Inception of Incorporation May 4, 1998 to
January 31, 1999 and Year Ended January 31, 2000
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Contents
Independent Auditors' Reports 3-4
Financial Statements
Balance Sheet 5
Statements of Operations 6
Statements of Stockholders' Deficit 7-8
Statements of Cash Flows 9
Notes to Financial Statements 10-20
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Ameri-can Railway Systems, Incorporated
Champlain, New York
We have audited the accompanying balance sheet of Ameri-can
Railway Systems, Incorporated (a development stage company) as of
January 31, 2000, and the related statements of operations,
stockholders' deficit and cash flows for the year then ended and
for the period from May 4, 1998 (inception) to January 31, 2000.
These financial statements are the responsibility of the
company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Ameri-can Railway Systems, Incorporated (a development stage
company) at January 31, 2000, and the results of its operations
and its cash flows for the year then ended and from May 4, 1998
(inception) to January 31, 2000, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Ameri-can Railway Systems Incorporated will continue as a
going concern. As discussed in Note 2 to the financial
statements, Ameri-can Railway Systems, Incorporated is a
development stage company which has incurred losses since
inception and is dependent upon the raising of additional
capital. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
March 22, 2000
Buffalo, New York
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
AMERI-CAN RAILWAY SYSTEMS, INCORPORATED
We have audited the accompanying balance sheet of AMERI-CAN
RAILWAY SYSTEMS, INCORPORATED (a development stage company) as of
January 31, 1999 and the related statements of operations,
stockholders deficit, and cash flows from the inception of
incorporation, May 4, 1998 to January 31, 1999. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AMERI-CAN RAILWAY SYSTEMS, INCORPORATED at January 31, 1999
and the results of its operations and its cash flows from the
inception of incorporation, May 4, 1998 to January 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that AMERI-CAN RAILWAY SYSTEMS INCORPORATED will continue as a
going concern. As discussed in Note 2 to the financial
statements, AMERI-CAN RAILWAY SYSTEMS, INCORPORATED is a
development stage company and is dependent upon the raising of
equity capital, which raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. These financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Feldhammer Fishman
Feldhammer Fishman
Montreal, Quebec
February 1, 1999
<PAGE>
<TABLE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Balance Sheet
January 31, 1999
<S> <C>
Assets
Current
Cash $ 138,579
Other Assets
Non-compete agreements (Note 5) 1
Patent fees 645
-------------
$ 139,225
=============
Liabilities
Current Liabilities
Accounts payable $ 32,341
Accrued fees 66,865
Due to officer and directors (Note 5) 20,000
Obligation under consulting agreement (Note 3) 40,000
-------------
Total Current Liabilities 159,206
-------------
Commitments and Contingencies (Notes 2, 5, and 8)
Stockholders' Deficit (Notes 5, 6 and 7)
Preferred stock, $.0001 par value - 25,000,000 shares -
authorized; none outstanding
Common stock - $.0001 par value - 50,000,000 shares 1,061
authorized; 10,608,989 outstanding
Additional paid in capital 1,209,368
Deficit accumulated during the development stage (1,230,410)
-------------
Total Stockholders' Deficit (19,981)
-------------
$ 139,225
=============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Statement of Operations
<CAPTION>
From the Inception Year Ended From the Inception
of Incorporation January 31, 2000 of Incorporation
May 4, 1998 to May 4, 1998 to
January 31, 1999 January 31, 2000
<S> <C> <C> <C>
Sales $ - $ - $ -
----------- ----------- ------------
Expenses:
Officers' compensation (Note 5) 154,500 241,000 395,500
Professional fees (Note 3) 585,436 205,797 791,233
Rent and telecommunications 3,116 22,178 25,294
Other 8,726 9,657 18,383
----------- ----------- ------------
Total Expenses 751,778 478,632 1,230,410
----------- ----------- ------------
Net Loss $ (751,778) $ (478,632) $(1,230,410)
=========== =========== ============
Loss Per Share (Basic and Diluted):
Net loss $ (.09) $ (.05)
=========== ============
Weighted Average Shares Outstanding
(Basic and Diluted) 8,495,239 9,962,240
=========== ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Statements of Stockholders' Deficit (Notes 5, 6 and 7)
<CAPTION>
Common Stock
Additional
From Inception of Incorporation Paid-In Total
May 4, 1998 to January 31, 1999 Date Shares Value Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance, May 4, 1998 - $ - $ - $ - $ -
Net loss - - - (751,778) (751,778)
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) - -
Common stock for acquisition of
patents and non-compete
agreement, valued at $.00 per
share 5/11/98 4,520,239 452 (452) - -
Stock options issued to officer
for 50,000 shares, valued at $.10
per option 5/20/98 - - 5,000 - 5,000
Stock options issued to officer
for 115,000 shares, valued at
$.10 per option 5/29/98 - - 11,500 - 11,500
Common stock sold for $.001 in
cash, valued at $.10 per share 6/1/98 1,941,250 194 193,931 - 194,125
Exercise of options for 42,250
shares at $.0001 6/1/98 42,250 4 - - 4
Common stock for lock-up
agreement, valued at $.10 per
share 6/1/98 6,500 1 649 - 650
Common stock for service
contracts, valued at $.10 per
share 6/1/98 251,250 25 25,100 - 25,125
Common stock sold for $0.0001 in
cash, valued at $.10 per share 6/20/98 1,915,000 192 191,308 - 191,500
Stock options issued for 500,000
shares for consulting services,
valued at $.10 per option 7/1/98 - - 50,000 - 50,000
Common stock sold for $0.10 in
cash, valued at $.10 per share 11/25/98 1,000,000 100 99,900 - 100,000
Officers' compensation
contributed to capital - - 121,500 - 121,500
----------- ----- --------- ---------- ----------
Balance, January 31, 1999 9,726,489 $973 $698,431 $(751,778) $ (52,374)
=========== ===== ========= ========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Statements of Stockholders' Deficit (Notes 5, 6 and 7)
<CAPTION>
Common Stock
Additional
Paid-In
Year Ended January 31, 2000 Date Shares Value Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
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 in cash 5/8/99 500 - 500 - 500
Common stock sold for $1.00 in
cash, valued at $1.00 per share 1/28/00 81,000 8 80,992 - 81,000
Common stock issued for services
valued at $1.00 per share 1/28/00 82,500 8 82,492 - 82,500
Common stock issued for officers'
compensation, valued at $1.00 per
share 1/28/00 241,000 24 240,976 - 241,000
Common stock issued to officers
for past services, the value of
which was previously recorded in
the financial statements as
additional paid-in capital 1/28/00 121,500 12 (12) - -
Common stock sold for $1.00 in
cash valued at $1.00 per share 1/31/00 65,000 7 64,993 - 65,000
Net loss - - - (478,632) (478,632)
----------- ------- ----------- ------------ ----------
Balance, January 31, 2000 10,608,989 $1,061 $1,209,368 $(1,230,410) $ (19,981)
=========== ======= =========== ============ ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Statements of Cash Flows (Note 9)
<CAPTION>
From the Inception From the Inception
of Incorporation of Incorporation
May 4, 1998 to Year Ended May 4, 1998 to
Year Ended January 31, 1999 January 31, 2000 January 31, 2000
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(751,778) $(478,632) $(1,230,410)
---------- ---------- ------------
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Officers' compensation settled in stock 154,500 241,000 395,500
Professional fees 492,654 82,500 575,154
Changes in assets and liabilities:
(Increase) in other assets (1) (645) (646)
Increase in accounts payable 13,025 19,316 32,341
Increase in accrued fees - 66,865 66,865
---------- ---------- ------------
Total Adjustments 660,178 409,036 1,069,214
---------- ---------- ------------
Net Cash (Used In) Operating Activities (91,600) (69,596) (161,196)
---------- ---------- ------------
Cash Flows From Financing Activities:
Proceeds from the sale of stock 102,250 187,525 289,775
Advances from officer and directors - 20,000 20,000
Payments of obligation under consulting
agreement - (10,000) (10,000)
---------- ---------- ------------
Net Cash Provided By Financing Activities 102,250 197,525 299,775
---------- ---------- ------------
Net Increase In Cash 10,650 127,929 138,579
Cash, beginning of period - 10,650 -
---------- ---------- ------------
Cash, end of period $ 10,650 $ 138,579 $ 138,579
========== ========== ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
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 a development stage company and is devoting all its
efforts to establishing a new business. Planned principal operations
have not yet started. Subsequent to January 31, 2000, the company
changed its name to ARS Networks, Incorporated.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and are presented in
U.S. dollars.
Development Stage Activities
The Company has not earned revenues from its activities through January
31, 2000. As such, the Company is still in a development stage and
falls under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises."
Going Concern and Management's Plans
The Company has a limited operating history with no revenues. Because
of this, the Company faces significant obstacles 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. 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 has been
successful in raising approximately $290,000 through January 31, 2000
and anticipates raising additional funds as required from the sale of
its Common Stock pursuant to Rule 504 Regulation D offering. These
funds have been and will continue to be utilized to fund the start-up
and development of the Company.
The Company plans to use the proceeds raised from the sale of its stock
to fund potential acquisitions and expand operations. 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.
These factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effect on
recoverability and classification of assets or the classification of
liabilities that might result from the outcome of this uncertainty.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
Earnings Per Share
The Company follows SFAS No. 128, "Earnings per Share," which requires
presentation of basic earnings per share and diluted earnings per share
by all entities that have publicly traded common stock or potential
common stock (options, warrants, convertible securities or contingent
stock arrangements). Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per
share gives effect total dilutive potential common shares outstanding
during the period. Assumed exercise of options has not been included in
the calculation of diluted earnings per share since the effect would be
anti-dilutive. Accordingly, basic and diluted net loss per share do not
differ for any period presented.
Stock Based Compensation
The Company accounts for stock options granted to employees under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), as permitted by SFAS No. 123
(SFAS 123"), "Accounting for Stock-Based Compensation." Since the
Company has elected to continue to apply the provisions of APB No. 25,
they have provided the proforma disclosure provisions of SFAS No. 123.
The Company has used the Black-Scholes option-pricing model as
permissible under SFAS No. 123 to estimate the fair value of each stock
option issued to non-employees from the inception of incorporation, May
4, 1998 to January 31, 2000.
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.
Income Taxes
Deferred income taxes are recognized for the tax consequences of
temporary differences between the financial reporting bases and the tax
basis of the Company's assets and liabilities in accordance with SFAS
No. 109. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
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.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
Foreign Currency Translation
The Company remeasures foreign currency denominated monetary assets and
liabilities at year-end exchange rates and non-monetary assets and
liabilities at historical exchange rates. The effects of remeasurement
are included in income. Exchange gains and losses arising from
transactions denominated in foreign currencies are translated at average
exchange rates. The effects of these exchange adjustments are included
in operations for the year ended January 31, 2000 and are immaterial.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No.
130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements.
Total comprehensive loss for the period from inception, May 4, 1998 to
January 31, 1999 and for the year ended January 31, 2000 are the same as
the reported net loss.
Effect of Recent Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting requirements for
derivative instruments. The Company has not in the past nor does it
anticipate that it will engage in transactions involving derivative
instruments, and therefore, does not expect this pronouncement to have
any effect on the financial statements. SFAS No. 133, as amended by SFAS
No. 137, is effective for fiscal years beginning after June 15, 2000.
3. Obligation Under Consulting Agreement
The Company has an obligation under an agreement for business and
financial consulting services. The balance due under the agreement is
$40,000 as of January 31, 2000, of which $10,000 is currently payable
with the remaining $30,000 due when certain financing activities occur.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
4. Income Taxes
The Company did not have taxable income for the period from inception of
incorporation, May 4, 1998 to January 31, 2000 and, therefore, does not
have any current income tax expense.
At January 31, 2000, the significant components of the company's deferred
income tax assets are as follows:
Start up costs deferred for tax purposes,
expensed for financial reporting purposes $ 214,000
Less: Valuation allowance (214,000)
-----------
Net deferred income tax asset $ -
===========
Reconciliation of the effective tax rate to the U.S. statutory rate for
the periods ended January 31, 1999 and 2000 is as follows:
1999 2000
Tax expense at U.S. statutory rate (34.0)% (34.0)%
Nondeductible expenses 31.4 -
Change in Federal valuation allowance 2.6 34.0
------ -----
Effective income tax rate - % - %
====== =====
5. Related Party Transactions
On May 11, 1998, in exchange for 50,000 shares of common stock, the
Company acquired certain assets from Ameri-Can Equipment Sales and
Leasing Inc. ("AEL"), a Canadian corporation. These assets included the
rights to certain contractual relationships, industry relationships,
goodwill, and application experience. 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.
On June 1, 1998, 1,941,250 shares of the Company's stock were purchased
by officers, directors and management of the Company for $2,054 plus
entering into a non-compete agreement. The shares were valued at $.10
per share (less cash received of $2,054) based on similar stock sales and
recorded as officer's compensation of $16,500 and professional fees of
$175,571.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
In June, 1998 the officers, 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, a total of 6,500 shares were issued.
These shares were valued at $.10 per share based on similar stock sales
and recorded as an expense. The total number of locked-up shares is
7,173,989 as of January 31, 2000.
On June 20, 1998, 1,915,000 shares of common stock were issued to certain
consultants of the Company at $.0001 per share. These shares were valued
at $.10 per share (less cash received of $192) based on similar stock
sales and recorded as professional fees.
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. The Chairman of the Board of Directors'
("Chairman") contract is for a term of five years with compensation in
the amount of $100,000 per year plus a bonus. The President is
contracted for two years and is to be compensated in the amount of
$61,000 per year plus quarterly stock options. The Vice President of
Finance 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 agreement with the Chairman requires the Company to pay $1,000,000 to
the Chairman if the agreement is terminated.
At January 31, 2000, $4,760 is due to certain directors of the Company
and $15,240 is due to one officer of the Company for telephone expenses
incurred on behalf of the Company. These advances are non-interest
bearing.
On January 28, 2000, the Company issued 362,500 shares of common stock to
certain officers of the Company, in lieu of unpaid cash compensation.
6. Stock Incentive Plans
(a) On June 20, 1998 the Company adopted the Equity Incentive Plan
("the Equity Plan") to provide directors, officers and certain key
employees with additional incentives. Under the Equity Plan, 4,500,000
shares of common stock have been reserved for issuance pursuant to stock
options and stock awards. The Equity Plan provides for the grant of
incentive stock options and non-qualified stock options. 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 Plan is administered by a committee of two or more non-
employee members of the Company's Board of Directors.
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, 2000.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
On February 18, 1999, the Company granted options to purchase 1,469,967
shares to certain officers and directors of the Company. The options
have a term of five years and are vested upon the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires
that the Company provide pro forma information regarding net income and
earnings per share as if the compensation cost for the Company's stock
option plan had been determined in accordance with the fair value method
prescribed in such statement. The Company estimates the fair value of
each stock option at the grant date by using the Black-Scholes option-
pricing model with the following weighted average assumptions used for
grants as follows:
From the Inception
of Incorporation
May 4, 1998 to Year Ended
January 31, 1999 January 31, 2000
Dividend yield 0% 0%
Expected volatility 0% 0%
Risk free interest rates 5.52% 4.94%
Expected lives 1.9 years 2.5 years
Under the accounting provisions of FASB Statement 123, the Company's net
loss would have been increased by an insignificant amount and there was
no effect on loss per share for the period ended January 31, 1999. For
the year ended January 31, 2000, the net loss would have been increased
by approximately $147,000 and loss per share by $.01.
A summary of the status of the Company's stock option plan as of January
31, 1999 and changes during the period from inception of incorporation,
May 4, 1998 to January 31, 1999, is presented below:
Weighted
Average
Shares Exercise
Price
Outstanding, beginning of period - $ -
Granted 165,000 .0001
Exercised 42,500 .0001
------- -------
Outstanding at end of period 122,500 .0001
Options exercisable at period-end 122,500 .0001
------- -------
Weighted average fair value of options
granted during the period .10
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
A summary of the status of the Company's stock option plan as of
January 31, 2000 and changes during the year ended January 31, 2000 is
presented below:
Weighted
Average
Shares Exercise Price
Outstanding, beginning of period 122,750 $ .0001
Granted 1,469,967 1.01
Exercised - -
---------- -------
Outstanding at end of year 1,592,717 .93
Options exercisable at year-end 1,469,967 .93
-------
Weighted average fair value of options
granted during the period $1.00
The following table summarizes information about stock options
outstanding under the Equity Plan at January 31, 2000:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Number Remaining Average Number Weighted
Exercise Outstanding Contractual Exercise Exercisable Average
Prices at Life Price at Exercise
January 31, January Price
2000 31, 2000
<C> <C> <C> <C> <C> <C>
$.0001 122,750 4 months $ .0001 - $ .0001
$1.00 to $1.01 1,469,967 49 months 1.01 1,469,967 1.01
--------- ----------
1,592,717 1,469,967
========= ==========
</TABLE>
(b) On June 20, 1998 the Company adopted the Incentive Compensation Plan
("the Incentive Plan"). The purpose of the Incentive Plan is to attract,
motivate and retain key employees of the Company. Under the Incentive
Plan, each participant shall be eligible to receive a performance award
as computed on measured performance. Consultants and other independent
contractors may be eligible to participate in the Incentive Plan. No
awards have been made under the Incentive Plan through January 31, 2000
(c) On July 1, 1998, options to purchase 500,000 of the Company's common
stock were granted to certain consultants of the Company. The options
have a term of five years and are vested upon the date of the grant.
These options were valued at $.10 per share based on similar sales and
recorded as professional fees. In April, 1999, options for 250,000
shares of the Company's common stock were exercised by the consultants.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
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 year ended January 31, 2000, the Company sold 187,500 shares
for $187,500. Of the 187,500 sold, 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 from the
issuance of stock have been and will be used to fund the development of
the Company.
8. Commitments
Subsequent to January 31, 2000, the Company entered into agreements for
(i) the development of corporate and product branding, and logo design at
a cost not to exceed approximately $14,000 and (ii) for public relations
and communications consulting. The term of the public relations and
consulting agreement is for one year commencing February 9, 2000 for
$7,000 monthly. In addition, the Company issued 150,000 free trading
shares upon execution of the contract, and is required to issue another
150,000 free trading shares if the Company's stock is $4.00 per share or
over for 45 days.
This agreement will be automatically extended for an additional year
unless terminated by the Company during the contract term. Either party
may terminate this agreement with 30 days written notice to the other
party after the first ninety days.
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
9. Supplemental Cash Flow Information
The Company did not make any payments for interest or taxes during the
period from inception of incorporation, May 4, 1998 to January 31, 1999
and the year ended January 31, 2000.
Noncash investing and financing activities consist of the following
during the period from inception of incorporation, May 4, 1998 to January
31, 1999 and the year ended January 31, 2000:
Period Ended Year Ended
January 31, January 31,
1999 2000
(a) 241,000 shares of common
stock issued and recorded as
officer's compensation. The
value of $1.00 per share is
based on similar stock sales $ - $241,000
(b) 82,500 shares of common
stock issued to consultants
and recorded as professional
fee expense. The value of
$1.00 per share is based upon
similar stock sales $ - $ 82,500
(c) Officer's compensation
recorded as a contribution to
additional paid-in capital $121,500 $ -
(d) 50,000 shares of common
stock issued for acquisition
of assets of Ameri-can
Equipment Sales & Leasing,
Inc. $ - $ -
(e) 4,520,239 shares of
common stock issued for
acquisition of patents
pending and non-compete
agreement from controlling
shareholder $ - $ -
(f) 1,941,250 shares of
common stock issued and
recorded as officer's
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 $ -
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
Period Ended Year Ended
January 31, January 31,
1999 2000
(g) 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 $ -
(h) 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 $ -
(i) Officer's 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 sale $ 16,500 $ -
(j) 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 $ -
(k) 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 $ -
(l) Obligation under
consulting agreement issued
for consulting services $ 50,000 $ -
<PAGE>
Ameri-can Railway Systems, Incorporated
(A Development Stage Company)
Notes to Financial Statements
Reconciliation of common stock and additional paid-in capital in the
statement of stockholders' deficit to proceeds from sale of stock in the
statement of cash flows:
<TABLE>
<CAPTION>
From the
Inception of From the
Incorporation, Inception
May 4, 1998 to Year Ended of
January 31, January 31, Incorporation
1999 2000 May 4, 1998 to
January 31, 2000
<S> <C> <C> <C>
Common stock $ 973 $ 88 $ 1,061
Additional paid in capital 698,431 510,937 1,209,368
---------- ----------- ----------
699,404 511,025 1,210,429
Less:
Noncash transactions (a) through
(k), previously described (597,154) (323,500) (920,654)
---------- ----------- ----------
Proceeds from sale of stock $ 102,250 $ 187,525 $ 289,775
========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 138,579
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 138,579
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 139,225
<CURRENT-LIABILITIES> 159,206
<BONDS> 0
0
0
<COMMON> 1061
<OTHER-SE> (21,042)
<TOTAL-LIABILITY-AND-EQUITY> 139,225
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 478,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (478,632)
<INCOME-TAX> 0
<INCOME-CONTINUING> (478,632)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (478,632)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
