SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2001.
Commission file number 0-29657
American Electric Automobile Company, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 33-0727323
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7270 Woodbine Avenue, Suite 200, Markham, Ontario L3R 4B9
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(Address of Principal Executive Offices) (ZIP Code)
(905) 947-9925
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(Issuer's Telephone Number, Including Area Code)
Not applicable
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(Former Name, Former Address and Former Fiscal Year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed 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 [ ]
There were 6,348,816 shares of Common stock issued and outstanding as of June
30, 2001.
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
American Electric Automobile Company Inc.
We have reviewed the accompanying consolidated balance sheet as of June 30,
2001, and the related consolidated statements of operations for the three and
six months ended June 30, 2001, and consolidated statement of cash flows for the
six months ended June 30, 2001 of American Electric Automobile Company, Inc.,
and Subsidiary. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As discussed in Note 7 to the financial
statements, the Company has recurring losses from operations and has a net
capital deficiency that raises substantial doubt about its ability to continue
as a going concern. Management's plans are also described in Note 7. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Moore Stephens, P.C.
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Moore Stephens, P.C.
Certified Public Accountants
New York, New York
August 17, 2001
1
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
6/30/01 12/31/00
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 6,552 $ 107
Accounts receivable 2,025 -
Inventories 41,275 36,511
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TOTAL CURRENT ASSETS 49,852 36,618
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PROPERTY AND EQUIPMENT, NET 12,925 20,819
OTHER ASSETS
Notes receivable from related parties 47,024 2,252
Prepaid expenses and deposits 4,669 6,168
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TOTAL OTHER ASSETS 51,693 8,420
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TOTAL ASSETS $ 114,470 $ 65,857
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LIABILITIES AND STOCKHOLDERS' DFECIT
CURRENT LIABILITIES
Cash overdraft $ - $ 13,899
Accounts payable and accrued expenses 111,941 29,020
Accounts payable - related parties 21,655 17,206
Income tax payable - 800
Notes payable - related party 13,089 29,700
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TOTAL CURRENT LIABILITIES $ 146,685 $ 90,625
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STOCKHOLDERS' DEFICIT
Preferred stock, $.0001 par value, 20,000,000 shares authorized - -
none issued and outstanding
Common Stock, $.0001 par value, 50,000,000 shares authorized, 638 569
and 6,384,816 shares issued and outstanding
Additional paid-in capital 972,720 912,889
Accumulated deficit during development stage (1,005,573) (813,478)
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(32,215) 99,980
Less: subscription receivable - (124,748)
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TOTAL STOCKHOLDERS' DEFICIT $ (32,215) $ (24,768)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 114,470 $ 65,857
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2
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
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NET REVENUES $ - $ 101 $ - $ 101
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COST OF REVENUES - - - -
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GROSS MARGIN - 101 - 101
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OPERATING EXPENSES
Legal and professional fees 53,750 52,512 (6,135) 39,227
General and administrative 144,097 63,452 104,195 45,690
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TOTAL OPERATING EXPENSES 197,847 115,964 98,060 84,917
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LOSS FROM OPERATIONS (197,847) (115,863) (98,060) (84,816)
OTHER INCOME (EXPENSES)
Interest Income 7,403 -
Interest expense: related party (1,752) (132) (697) (1,055)
Gain (loss) on investment 100 - 100
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TOTAL OTHER INCOME (EXPENSES) 5,751 (132) (597) (1,055)
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NET LOSS (192,096) (115,995) (98,657) (85,871)
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Net loss per common share - basic and diluted $ (0.03) $ (0.06) $ (0.02) $ (0.04)
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Weighted average number common shares 6,063,317 1,813,311 6,384,816 2,141,533
outstanding ================================ ==================================
3
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(192,096) $(115,995)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,319
Write off of asset 5,111
Stock issued for services 59,900
Increase (decrease) in:
Accounts receivable (2,025) 5,945
Notes receivable (44,772)
Inventories (4,764) (30,645)
Prepaid expenses and deposits 1,499 (12,361)
Increase (decrease) in:
Accounts payable and accrued expenses 82,921 (9,836)
Accounts payable - related parties 4,449 11,171
Income taxes payable (800) (4,340)
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Net cash used in operating activities (88,258) (156,061)
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CASHFLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (35) (14,333)
Proceeds from sale of equipment 500
Investment (16,000)
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Net cash used in investing activities 465 (30,333)
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CASHFLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable (16,611) (10,000)
Cash overdraft (13,899)
Proceeds from issuance of common stock 124,748 204,960
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Net cash provided from financing activities 94,238 194,960
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Net Increase in cash and cash equivalents $ 6,445 $ 8,566
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Cash and cash equivalents - beginning of period 107 1,941
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Cash and cash equivalents - end of period $ 6,552 $ 10,507
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4
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements for the Three amd Six Months
Ended June 30, 2001 (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary in order to make
the financial statements not misleading have been included. Results for the
three and six months ended June 30, 2001, respectively, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001.
For further information, refer to the financial statements and footnotes for the
year ended December 31, 2000 included in the Company's Form 10-KSB filed on
April 16, 2001.
2. Summary of Significant Accounting Policies
a. Management Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of any 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.
b. Inventories
Inventories of automobiles and conversion parts of gas to electric are stated at
cost on a specific identification basis.
c. Accounts receivable
Currently the Company has no credit sales for the six and three months ended
June 30, 2001. The Company has recorded a GST tax recoverable of approximately
$2,000. The Company will apply this amount to any future GST tax payables in
future operations.
d. Notes receivable - related party
The Company has notes and interest receivable from the majority shareholder of
approximately $30,500. Also, a commonly managed related party currently owes the
Company an approximate amount of $14,900.
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e. Accounts and notes payable - related party
The Company owes as of June 30, 2001 approximately $12,700 to an entity which is
affiliated to a former director of the Company. The amount of $21,500 is owed to
a commonly managed related party.
3. Investments
The Company's 45% interest in American Electric Automobile Company (ASIA), Inc.
(a joint venture) had been written down to zero at December 31, 2000. In January
2001, the Company sold its investment in this joint venture to a former officer
of the Company for $100.
4. Income Taxes
For the three and six months ended June 30, 2001 the deferred tax assets
generated by net operating losses have been offset by a valuation allowance of a
like amount, as the Company believes that it is more likely than not that
the losses will not be utilized.
5. Loss per Share
Loss per common and common equivalent share is computed based on the weighted
average number of common shares outstanding. There are no common stock
equivalents outstanding at June 30, 2001.
6. Commitments and Contingencies
In February of 2001 the Company entered into a consulting services agreement.
Compensation under the agreement will be the sum of $55,000 through December 31,
2001 and 300,000 shares of restricted common stock.
7. Going concern
The Company's financial statements for the three and six months ended June 30,
2001 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company has incurred a net loss of $192,096 and
$98,757 for the six and three months ended June 30, 2001, respectively, and has
accumulated losses since inception of $1,005,573. In addition, the Company has a
working capital deficiency of $96,833 at June 30, 2001, an increase of
approximately $42,200 from the deficiency of $54,600 at March 31, 2001. The
ability of the Company to continue as a going concern is dependent upon the
Company's ability to attain a satisfactory level of profitability and obtain
suitable, adequate financing. Management has discussed the necessity to raise
additional financing for the corporation in order to cover past expenses as well
as to finance future operations of electric vehicle and boat operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
8. Subsequent Events
In July 2001, the board of directors approved the issuance of 193,750 shares of
restricted common stock to members of the board for management services and
directors fees valued at $15,500.
9. New Authoratative Pronouncements
The Financial Accounting Standards board (FASB) has issued Statement No. 141
Business Combinations and Statement No. 142, Goodwill and Other Intangible
Assets in July 2001.
Those Statements will change the accounting for business combinations and
goodwill in two significant ways. First, Statement 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interest method will be prohibited.
Second, Statement 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Thus, amortization of goodwill including
goodwill recorded in the past business combinations, will cease upon adoption of
that Statement, which for companies with calendar year ends, will be January 1,
2002.
The Company expects that adoption of the new statement will not have a material
impact on its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND OR PLAN OF OPERATION
CERTAIN FORWARD-LOOKING INFORMATION
Information provided in this Quarterly Report on Form 10QSB may contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 that are not historical facts and information. These
statements represent the Company's expectations or beliefs, including, but not
limited to, statements concerning future and operating results, statements
concerning industry performance, the Company's operations, economic performance,
financial conditions, margins and growth in sales of the Company's products,
capital expenditures, financing needs, as well assumptions related to the
forgoing. For this purpose, any statements contained in this Quarterly Report
that are not statements of historical fact may be deemed to be forward-looking
statements. These forward-looking statements are based on current expectations
and involve various risks and uncertainties that could cause actual results and
outcomes for future periods to differ materially from any forward-looking
statement or views expressed herein. The Company's financial performance and the
forward-looking statements contained herein are further qualified by other risks
including those set forth from time to time in the documents filed by the
Company with the Securities and Exchange Commission, including the Company's
most recent Form 10SB.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Net revenues were $101 for the quarter ended June 30, 2000 and $0 for the
quarter ended June 30, 2001. Net sales were low due to the fact that there was
inadequate funding to carry out any significant production along with any
effective marketing campaigns.
Total operating expenses for the Company increased by $13,143 over the same
period last year, which is 15% percent above the amount of $84,917 of total
operating expenses for the quarter ended June 30, 2000. The principal reason
for the increase was the increase in general operating expenses resulting from
the Company's filing and reporting requirements as a reporting company under the
Securities Exchange Act of 1934, as amended, including the payment of certain
legal and professional fees as well as general and administrative expenses. In
addition, the management of the Company received share compensation for
management services valued at $14,500.
Net Loss for the quarter ended June 30, 2001 was $98,757, compared to a net loss
of $85,771 for the similar period in 2000. The principal reasons for this are
the combined impact of the factors discussed immediately above: the
increase in operating, legal and administrative expenses. However, even without
these expenses, the Company would not have had a profit, as revenues were $0 for
this quarter.
SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Net revenues were $101 for the six months ended June 30, 2000 and $0 for the
same period ending June 30, 2001. As indicated above, net sales were low due to
the fact that there was inadequate funding to carryout any significant
production along with any effective marketing campaigns.
Total operating expenses for the Company increased by $81,883 over the same
period last year when total operating expenses were $115,964. The principal
reason for the increase was the increase in general operating expenses resulting
from the Company's filing and reporting requirements as a reporting company
under the Securities Exchange Act of 1934, as amended, including the payment of
certain legal and professional fees as well as general and administrative
expenses. In addition, the management of the Company and the subsidiary, CEAC
received share compensation for management services valued at $59,000 during
this six month period.
Net Loss for the six months ended June 30, 2001 was $192,096, compared to a net
loss of $115,995 for the similar period in 2000. As discussed above, the
principal reasons for this are the increase in operating, legal and
administrative expenses. However, even without these expenses, the Company would
not have had a profit, as revenues were only $101 for this period.
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
The Company will need additional capital in order to continue its operations in
both the electric car and electric boat arenas as well as to finance the
administrative costs including but not limited to legal and accounting fees. The
Company's management is seeking additional capital, however, there is no
assurance that this needed capital can be raised, or raised on terms acceptable
to the Company.
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RISK FACTORS
1. Limited History of Operations. The Company was organized in May of 1996 and
has had limited operations to date. Therefore its operations are subject to the
risks inherent in new business enterprises. The likelihood of the success of the
Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the start up
of a new business and the competitive environment in which the Company operates.
The Company has had no significant revenues to date.
2. Insufficient Operating Revenues. Time lapse to the Company's Operational
Stage will depend upon the continued availability of investment capital to fully
fund subsequent projects. If operating revenues are insufficient to continue the
Company's operations, additional funds would have to be raised through equity or
debt financing. The Company has no commitments for any additional debt or equity
financing and there can be no assurance that any such commitments will be
obtained on favorable terms, if at all.
3. Competition. Competition in the Electric Automobile Industry may be expected
to intensify. General Motors started leasing its first Electric Auto in December
1996. Several of the other major automobile manufacturers also have announced
that they have entered or intend to enter the market. In addition, there are
several established electric boat manufacturers in the United States which the
Company will be competing against.
4. Dependence on Management. Because the Company is a new business and has
no significant operating history, it will be heavily dependent upon the
services and experiences of its officers. The loss of the service of any
officer could adversely affect the conduct of the Company's business.
5. Industry and Economic Factors. The Automobile and boat industries in which
the Company expects to operate are subject to constant changes based upon
changes in public taste as well as the condition of the general economy. Factors
beyond the control of the Company or those on whom it intends to rely could
cause the Company to fail.
6. Control of the Company. The Officers, Directors and Principal Shareholder
Group own more than 50% of the Common Shares of the Company. Therefore, the
Control Group will either control or significantly influence a voting control of
the Company. Pursuant to the laws of Delaware, a majority of all shareholders
entitled to vote at any regularly called shareholders meeting, may act, as a
majority, without notice or meeting, giving notice to other shareholders only
after such action may have been taken. While there are some limits upon this
right of the majority, Investors should understand that Management commands a
voting majority in control of the Company.
7. Dividends. The Company has paid no dividends on its Common Shares since
its inception. The Company does not anticipate paying any dividends on its
Common Stock until and unless such profit is realized and may not pay out any
dividends thereafter.
8. Government Regulation. The automobile industry in general is heavily
regulated both as to crash survival and motor emissions. The Company expects to
have no problems with the latter and, because of the use of bodies that have
already been approved for gasoline engine use, less severe problems with the
former. In addition, the Company shall be manufacturing electric boats in
compliance with all regulatory requirements.
9. Potential Conflicts of Interest. The officers and directors are associated
with other firms and are involved in a range of business activities which may
have business dealings with the Company at some point in time. Due to these
affiliations and the fact that some officers are expected to devote only a
portion of their time to the business of the Company, there are potential
inherent conflicts of interest in their acting as directors and as officers.
Each of the officers and directors is or may become an officer, director,
controlling shareholder, partner or participant in other entities engaged in a
variety of businesses. These existing and potential conflicts of interest are
irreconcilable and could involve the participating officers and directors in
litigation brought by the Company's shareholders or by the shareholders of other
entities with which the officers and directors are currently, or may become,
affiliated. To help alleviate this position somewhat, Management has adopted a
policy of full disclosure with respect to business transactions with any entity
in which any or all of the officers or directors are affiliated, either directly
or indirectly. An officer or director may continue any business activity in
which such officer or director engaged prior to joining the Company.
10. Going Concern. As of June 30, 2001 the Company had a stockholders' deficit
of $32,215. The independent accountants have raised a "going concern" question
on the review for the quarter ended June 30, 2001.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 7, 2001, the Company received notice that a legal proceeding had
been commenced in San Diego Superior Court by EFM Venture Group Inc. against the
Company's wholly owned subsidiary, California Electric Automobile Company Inc.
EFM Venture Group Inc. is controlled by the former President of CEAC, Edward
Myers. EFM was claiming a Writ of Possession on three EVs owned by the
subsidiary, or alternatively, a Temporary Restraining Order preventing CEAC from
transferring any of the three vehicles without the consent of EFM. The claim is
based on promissory notes totaling $12,700 which CEAC wrote to EFM when Myers
was still its President. The notes were signed by Edward Myers and Betty N.
Myers as officers of CEAC. Edward Myers beneficially owns more than 5% of the
common shares of the Company.
The Company successfully defended this proceeding which resulted in EFM
dismissing its action against CEAC on June 21, 2001.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
Item 6. Exhibits and Reports on Form 8-K
2.1 Plan of Acquisition of California Electric Automobile Company, Inc.*
3.1 (i) Articles of Incorporation*
3.1 (ii) By-Laws*
4.1 Instruments defining the rights of holders*
11.1 Computation of per share earnings 06/30/2001
* Filed by reference to a Form 10SB filed on February 23, 2000.
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC.
/s/ PIERRE QUILLIAM
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Date: August 17, 2001 By Pierre Quilliam
President and CEO
/s/ STEPHEN M. COHEN
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By Stephen M. Cohen
Secretary/Treasurer