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| AACS.OB > SEC Filings for AACS.OB > Form 10-Q on 20-Oct-2009 | All Recent SEC Filings |
20-Oct-2009
Quarterly Report
This FILING contains forward-looking statements. The words "anticipated," "believe," "expect," "plan," "intend," "seek," "estimate," "project," "will," "could," "may," and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect the Company's current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond the Company's control. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those ANTICIPATED, believed, estimated, or otherwise indicated. Consequently, all of the forward-looking statements made in this FILING are qualified by these cautionary statements and there can be no assurance of the actual results or developments.
The Company cautions readers that in addition to important factors described elsewhere, the following important facts, among others, sometimes have affected, and in the future could affect, the Company's actual results, and could cause the Company's actual results during 2010 and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company.
This Management's Discussion and Analysis or Plan of Operation presents a review of the consolidated operating results and financial condition of the Company for the three and six month periods ended August 31, 2009 and 2008. This discussion and analysis is intended to assist in understanding the financial condition and results of operation of the Company and its subsidiaries. This section should be read in conjunction with the consolidated financial statements and the related notes.
RESULTS OF OPERATIONS
The Company owns two subsidiaries that operated in the manufacturing segment and the fiberglass segment during the six months ended August 31, 2009 and 2008. Effective June 1, 2009, the Company sold its fiberglass subsidiary, so only operations through May 31, 2009 have been included in the six month analysis. To facilitate the readers understanding of the Company's financial performance, this discussion and analysis is presented on a segment basis.
MANUFACTURING SUBSIDIARY
The manufacturing subsidiary, International Machine and Welding, Inc., generates its revenues from three divisions. Division 1 provides specialized machining and repair services to heavy industry and original equipment manufacturers. Division 2 provides repair and rebuild services on heavy equipment used in construction and mining. Division 3 provides parts sales for heavy equipment directly to the customer. The primary market of this segment is the majority of central and south Florida with parts sales expanding its market internationally. The current operations can be significantly expanded using the 30,500 square foot structure owned by International Machine and Welding, Inc.
FIBERGLASS SUBSIDIARY
Chariot Manufacturing Company manufactures a variety of fiberglass parts, as well as, motorcycle trailers with fiberglass bodies and other fiberglass parts by contract with affiliate owned, Tampa Fiberglass, Inc. These trailers are sold both on the retail and dealer levels. The company also provides non warranty repairs, modification of existing Chariot Trailers. Effective June 1, 2009, Chariot was sold and was classified as a discontinued operation for the period March 1, 2009 through May 31, 2009.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2009 AND 2008.
Consolidated
The Company's consolidated net sales increased to $549,477 for the three months ended August 31, 2009, an increase of $8,847 or 2%, from $540,630 for the three months ended August 31, 2008.
Gross profit for the consolidated operations increased to $272,363 for the three months ended August 31, 2009 from $263,064 for the three months ended August 31, 2008. Gross profit as a percentage of sales was 50% and 49% for the three month periods ended August 31, 2009 and 2008, respectively. The increase in gross profit was due to a higher gross profit margin related to International Machine and Welding, Inc.'s product mix.
Consolidated interest expense, net for the three months ended August 31, 2009 was $17,650 as compared to $48,360 for same period in 2008 for a decrease of $30,710 or 64%. The decrease in interest expense, net is due to the Company issuing a note receivable on June 1, 2009 and recording interest income.
Selling, general and administrative expenses decreased to $395,544 for the three months ended August 31, 2009 as compared to $405,204 for the three months ended August 31, 2008, a decrease of $9,660 or 2%.
The Company incurred a net consolidated loss from continuing operations of $154,073 for the three months ended August 31, 2009 compared to a loss of $189,945 for the three months ended August 31, 2008. The decrease in the consolidated net loss from continuing operations is primarily due to the net of the increase in revenues and decrease in general and administrative expenses and interest income. As a result of the continued losses, the Independent Auditors have questioned the Company's continuation as a going concern.
Manufacturing Subsidiary
The manufacturing operation, International Machine and Welding, Inc. provided net sales of $549,477 for the three months ended August 31, 2009 compared to $540,630 for the three months ended August 31, 2008. The machining operations provided $155,037 or 28% of net sales with parts and service providing $394,440 or 72% of net sales for the three months ended August 31, 2009 as compared to machining operations contributing $191,165 or 35% of net sales with parts and service providing $349,465 or 65% of net sales for the three months ended August 31, 2008. The overall increase in net sales is due to an increase in new customer accounts, which has increased sales.
Gross profit from the International Machine and Welding, Inc. was $272,363 for the three months ended August 31, 2009 compared to $263,064 for the same period in 2008 providing gross profit margins of 50% and 49%, respectively. The increase in the gross profit margin is due to an increased markup monitored by management.
Selling, general and administrative expenses for International Machine and Welding, Inc. were $239,242 for the three months ended August 31, 2009 compared to $238,254 for the three months ended August 31, 2008.
Interest expense, net was $34,761 for the three months ended August 31, 2009 compared to $38,572 for the same period ended 2008. The decrease in interest expense, net is due to the continual decrease in principle balances on notes payable for the three months ended August 31, 2009.
The Company does not have discrete financial information on each of the three manufacturing divisions, nor does the Company make decisions on the divisions separately; therefore they are not reported as segments.
Fiberglass Subsidiary (Discontinued Operations)
The fiberglass manufacturing operation, Chariot Manufacturing Company, Inc. was sold effective June 1, 2009, and therefore, had no operations for the three months ended August 31, 2009.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2009 AND 2008.
Consolidated
The Company's consolidated net sales increased to $1,185,170 for the six months ended August 31, 2009, an increase of $134,664 or 13%, from $1,050,506 for the six months ended August 31, 2008. The overall increase in net sales is due to a significant increase in sales in the manufacturing operation through the addition of new customers.
Gross profit for the consolidated operations increased to $590,343 for the six months ended August 31, 2009 from $498,534 for the six months ended August 31, 2008. Gross profit as a percentage of sales was 50% and 47% for the six month periods ended August 31, 2009 and 2008, respectively. The increase in gross profit was due to a higher gross profit margin related to International Machine and Welding, Inc.'s product mix.
Consolidated interest expense, net for the six months ended August 31, 2009 was $65,794 as compared to $100,076 for same period in 2008 for a decrease of $34,282 or 34%. The decrease in interest expense, net is due to the Company issuing a note receivable on June 1, 2009 and recording interest income.
Selling, general and administrative expenses decreased to $807,782 for the six months ended August 31, 2009 as compared to $867,963 for the six months ended August 31, 2008, a decrease of $60,181 or 7%.
The Company incurred a net consolidated loss from continuing operations of $296,885 for the six months ended August 31, 2009 compared to a loss of $459,353 for the six months ended August 31, 2008. The decrease in the consolidated net loss from continuing operations is primarily due to the net of the increase in revenues and decrease in general and administrative expenses. As a result of the continued losses, the Independent Auditors have questioned the Company's continuation as a going concern.
Manufacturing Subsidiary
The manufacturing operation, International Machine and Welding, Inc. provided net sales of $1,185,170 for the six months ended August 31, 2009 compared to $1,050,506 for the six months ended August 31, 2008. The machining operations provided $349,581 or 29% of net sales with parts and service providing $835,589 or 71% of net sales for the six months ended August 31, 2009 as compared to machining operations contributing $387,848 or 37% of net sales with parts and service providing $662,658 or 63% of net sales for the six months ended August 31, 2008. The overall increase in net sales is due to an increase in new customer accounts, which has increased sales.
Gross profit from the International Machine and Welding, Inc. was $590,343 for the six months ended August 31, 2009 compared to $498,534 for the same period in 2008 providing gross profit margins of 50% and 47%, respectively. The increase in the gross profit margin is due to an increased markup monitored by management.
Selling, general and administrative expenses for International Machine and Welding, Inc. were $475,327 for the six months ended August 31, 2009 compared to $482,551 for the six months ended August 31, 2008.
Interest expense, net was $71,172 for the six months ended August 31, 2009 compared to $73,995 for the same period ended 2008. The decrease in interest expense, net is due to the continual decrease in principle balances on notes payable for the six months ended August 31, 2009.
The Company does not have discrete financial information on each of the three manufacturing divisions, nor does the Company make decisions on the divisions separately; therefore they are not reported as segments.
Fiberglass Subsidiary (Discontinued Operations)
The fiberglass manufacturing operation, Chariot Manufacturing Company, Inc. provided net sales of $57,834 for the six months ended August 31, 2009 as compared to $138,696 for the same period in 2008. The decrease in net sales is due to the sale of Chariot on June 1, 2009.
Gross profit from Chariot was $13,573 for the six months ended August 31, 2009 providing a gross profit margin of 23% as compared to $2,846 providing a gross profit margin of 2% for the same period in 2008. The increase in gross profit and the related gross profit margin was due to the addition of new customers, who are purchasing products that have a higher gross profit margin.
Selling, general and administrative expenses were $75,197 for the six months ended August 31, 2009 as compared to $180,152 for the same period in 2008. The decrease in selling, general and administrative expenses was mainly due to the Company moving its operations to a new location that is owned by a related party. The related party is not requiring the Company to pay rent. Also, the intangible assets were fully amortized during prior periods, and therefore there was no amortization expense during this period. Finally, the operations were sold as of June 1, 2009.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended August 31, 2009 and 2008, the Company used net cash from operating activities of $231,363 and $278,065, respectively. The decrease in cash used from operating activities is mainly due to the sale of the fiberglass subsidiary.
During the six months ended August 31, 2009 and 2008, the Company provided
(used) cash for investing activities of $5,600 and $(13,182), respectively. The
increase in net cash provided by investing activities is primarily due to the
sale of property and equipment in 2009.
During the six months ended August 31, 2009 and 2008, the Company provided cash from financing activities of $239,916 and $289,931, respectively. The decrease in net cash provided from financing activities is due to a decrease in the amount of proceeds from the issuance of notes payable and long term debt during the six months ended August 31, 2009.
Cash flows from loans provided for working capital needs and principal payments on long-term debt through August 31, 2009. As of August 31, 2009, working capital deficit was $954,000. To the extent that the cash flows from operations are insufficient to finance the Company's anticipated growth, or its other liquidity and capital requirements during the next twelve months, the Company will seek additional financing from alternative sources including bank loans or other bank financing arrangements, other debt financing, the sale of equity securities (including those issuable pursuant to the exercise of outstanding warrants and options), or other financing arrangements. However, there can be no assurance that any such financing will be available and, if available, that it will be available on terms favorable or acceptable to the Company.
Management has revised its business strategy to include the manufacture of additional products. Although management has reduced debt, new financing to finance operations and to facilitate additional production is still being sought. However, there can be no assurance that the Company will be able to raise capital, obtain debt financing, or improve operating results sufficiently to continue as a going concern.
Seasonality
The diversity of operations in the Manufacturing Segment protects it from seasonal trends except in the sales of agricultural processing equipment whereby the majority of the revenue is generated while the processors await the next harvest.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States for interim financial information. All intercompany transactions have been eliminated in consolidation. The preparation of consolidated unaudited financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews its estimates, including but not limited to, recoverability of long-lived assets, recoverability of prepaid expenses and allowance for doubtful accounts, on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates are reasonable; however, actual results could differ from these estimates.
We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated unaudited financial statements.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimate on an analysis of the Company's prior collection experience, customer credit worthiness, and current economic trends. If the financial condition of our customers were to deteriorate, additional allowances may be required.
We value our inventories at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out method; market is determined based on net realizable value. We write down inventory balances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
We value our property and equipment at cost. Amortization and depreciation are calculated using the straight-line and accelerated methods of accounting over the estimated useful lives of the assets. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
Fair value estimates used in preparation of the consolidated unaudited financial statements are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company's notes payable is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated unaudited financial statements carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that included the enactment date.
On May 28, 2009, FASB issued SFAS No. 165, "Subsequent Events." The objective of this statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 has not had a material impact on the financial reporting of the Company.
In accordance with SFAS 165, the Company has evaluated subsequent events through October 20, 2009, the date of issuance of the Financial Statements. During the period from September 1, 2009 to October 20, 2009, the Company did not have any material recognizable subsequent events.
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