10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended May 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _______, 20    , to ______, 20 .

Commission File Number 33-98682

American Commerce Solutions, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	05-0460102
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1400 Chamber Drive, Bartow, Florida 33830

(Address of Principal Executive Offices)

(863) 533-0326

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(g) of the Act:

$0.001 par value preferred stock	Over the Counter Bulletin Board
$0.002 par value common stock	Over the Counter Bulletin Board

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months.    Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  x

As of July 12, 2012, the Registrant had 349,896,576 outstanding shares of its common stock, $0.002 par value.

Documents incorporated by reference: none

AMERICAN COMMERCE SOLUTIONS, INC.

FORM 10-Q—INDEX

Part I – Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statement of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4T.	Controls and Procedures	15
Part II – Other Information
Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Reserved	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
Signatures		19

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PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
	May 31,			February 29,
	2012			2012
ASSETS	(unaudited)			(audited)
CURRENT ASSETS:
Cash	$	35,383		$	8,078
Accounts receivable		85,866			109,897
Accounts receivable, factored		30,568			15,004
Inventories		235,018			277,077
Note receivable, related party		1,009,792			1,009,792
Due from related party		561,644			561,644
Other receivables		139,200			123,951
Prepaid expenses		4,966			4,966
Total Current Assets		2,102,437			2,110,409
Property and equipment, net of accumulated depreciation of $2,482,571 and $2,446,010, respectively		2,872,654			2,918,692
OTHER ASSETS:
Prepaid loan costs paid with common stock		5,234			-
Other assets		10,080			11,564
Total Other Assets		15,314			11,564
TOTAL ASSETS	$	4,990,405		$	5,040,665
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable	$	906,480		$	1,047,753
Accounts payable; including related party balances of $18,905 and $41,633, respectively		163,339			229,280
Accrued expenses		105,997			161,087
Accrued interest		298,351			286,082
Total Current Liabilities		1,474,167			1,724,202
LONG-TERM LIABILITIES:
Notes payable, net of current portion		2,369			3,828
Notes payable, related party, net of current portion		857,495			815,998
Due to stockholders		2,062,810			2,004,710
Total Long-Term Liabilities		2,922,674			2,824,536
Total liabilities		4,396,841			4,548,738
STOCKHOLDERS' EQUITY
Preferred stock, total authorized 5,000,000 shares:
Series A; cumulative and convertible; $0.001 par value; 600 shares authorized
102 shares issued and outstanding; liquidating preference $376,125		-			-
Series B; cumulative and convertible; $0.001 par value; 3,950 shares authorized
3,944 shares issued and outstanding; liquidating preference $3,944,617		3			3
Common stock; $0.002 par value; 350,000,000 shares authorized; 349,896,576 and
331,869,576 shares issued; 349,196,576 and 331,169,576 shares outstanding, respectively		699,794			663,794
Additional paid-in capital		19,136,164			19,154,164
Stock subscription receivable		(10,000	)		(10,000	)
Treasury stock, at cost		(265,526	)		(265,526	)
Accumulated deficit		(18,966,871	)		(19,050,508	)
Total Stockholders' Equity		593,564			491,927
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,990,405		$	5,040,665

See notes to the unaudited financial statements

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AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	For the Three Months Ended May 31,
	2012			2011
REVENUE:
Net sales	$	652,946		$	677,586
COST OF GOODS SOLD		303,091			326,946
GROSS MARGIN		349,855			350,640
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		370,076			378,388
LOSS FROM OPERATIONS		(20,221	)		(27,748	)
OTHER INCOME (EXPENSE)
Forgiveness of debt		133,011			-
Interest expense		(32,416	)		(43,594	)
Interest income		3,263			1,732
TOTAL OTHER INCOME (EXPENSE)		103,858			(41,862	)
NET INCOME (LOSS)	$	83,637		$	(69,610	)
NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED	$	0.00		$	(0.00	)
WEIGHTED AVERAGE NUMBER OF COMMON  SHARES OUTSTANDING, BASIC AND DILUTED		346,430,446			329,169,576

See notes to the unaudited financial statements

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AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY

STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)

									Capital in									Total
	Common Stock				Preferred Stock				Excess of			Accumulated			Treasury			Stockholders'
	Shares		Amount		Shares		Amount		Par Value			Deficit			Stock			Deficit
Balance, February 29, 2012		331,869,576	$	663,794		3,944	$	3	$	19,154,164		$	(19,050,508	)	$	(265,526	)	$	501,927
Common shares issued for pledge of assets		18,000,000		36,000		-		-		(18,000	)		-			-			18,000
Net loss		-		-		-		-		-			83,637			-			83,637
Balance, May 31, 2012		349,869,576	$	699,794		3,944	$	3	$	19,136,164		$	(18,966,871	)	$	(265,526	)	$	603,564

See notes to the unaudited financial statements

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AMERICAN COMMERCE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	For the Three Months Ended May 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	83,637		$	(69,610	)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization		46,264			47,561
Amortization of loan costs		15,701			16,536
Gain on forgiveness of debt		(133,012	)		-
Loss on disposal of equipment		1,917			-
Issuance of common stock for guaranty		18,000			-
(Increase) decrease in:
Accounts receivables		24,031			(27,042	)
Inventories		42,059			749
Other assets		(19,451	)		-
Increase (decrease) in:
Accounts payable and accrued expenses		(108,097	)		2,165
Net cash used by operating activities		(28,951	)		(29,641	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other receivables		(15,249	)		(13,475	)
Acquisition of property and equipment		(2,143	)		(1,725	)
Net cash used by investing activities		(17,392	)		(15,200	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due from factor		(15,564	)		(15,671	)
Proceeds from notes payable and long-term debt		44,804			30,100
Principal payments on notes payable		(13,692	)		(44,627	)
Increase in due to stockholders		58,100			58,100
		73,648			27,902
Net increase (decrease) in cash and cash equivalents		27,305			(16,939	)
Cash, beginning of period		8,078			29,655
Cash, end of period	$	35,383		$	12,716
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	26,046		$	38,112
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Increase in notes payable for accrued interest	$	665		$	6,099

See notes to the unaudited financial statements

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American Commerce Solutions, Inc. and Subsidiary

Notes to Consolidated Financial Statements

As of May 31, 2012 and for the

Three Months Ended May 31, 2012 and 2011

1. BACKGROUND INFORMATION

American Commerce Solutions, Inc., located and operating in West Central Florida, was incorporated in Rhode Island in 1991 under the name Jaque Dubois, Inc., and was re-incorporated in Delaware in 1994. In July 1995, Jaque Dubois, Inc. changed its name to JD American Workwear, Inc. In December 2000, the stockholders voted at the annual stockholders meeting to change the name of JD American Workwear, Inc. to American Commerce Solutions, Inc. (the “Company”).

The Company is primarily a holding company with one wholly owned subsidiary; International Machine and Welding, Inc. is engaged in the machining and fabrication of parts used in heavy industry, and parts sales and service for heavy construction equipment.

2. GOING CONCERN

The Company has incurred substantial operating losses since inception and has used approximately $29,000 of cash in operations for the three months ended May 31, 2012. Additionally, the Company is in default on several notes payable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative operating trends, raise additional capital, and obtain debt financing.

Management has revised its business strategy to include expansion into other lines of business through the acquisition of other companies in exchange for the Company’s stock to facilitate manufacturing contracts under negotiation. In conjunction with the anticipated new contracts, management is currently negotiating new debt and equity financing, the proceeds from which would be used to settle outstanding debts at more favorable terms, to finance operations, and to complete additional business acquisitions. 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.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

3. RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements issued by FASB (including EITF), the AICPA and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

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4. STOCK BASED COMPENSATION

At May 31, 2012, the Company has two stock-based employee compensation plans, both which have been approved by the shareholders.

The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

The value of each grant is estimated at the grant date using the Black-Scholes model. There were no options granted or exercised during the three months ended May 31, 2012 and 2011.

5. BASIS OF PRESENTATION

In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended May 31, 2012 and 2011, (b) the financial position at May 31, 2012, and (c) cash flows for the three month periods ended May 31, 2012 and 2011, have been made.

The unaudited consolidated financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in condensed financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the fiscal year ended February 29, 2012. The results of operations for the three month period ended May 31, 2012 are not necessarily indicative of those to be expected for the entire year.

6. ACCOUNTS RECEIVABLE, FACTORED

During the three months ended May 31, 2012 and 2011, the Company factored receivables of approximately $248,000 and $279,100, respectively. In connection with the factoring agreement, the Company incurred fees of approximately $6,100 and $6,900 during the three months ended May 31, 2012 and 2011, respectively. As of May 31, 2012 and 2011, certain customers had remitted $0 and $300, respectively, to the Company on factored receivables; the Company has recorded these amounts as due to the factor and included them in accrued expenses on the accompanying consolidated balance sheets. Any and all of the Company’s indebtedness and obligations to the Factoring Company is guaranteed by two stockholders and collateralized by the Company’s inventory and fixed assets.

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7. INVENTORIES

Inventories consist of the following:

	May 31, 2012		May 31, 2011
Work-in process	$	12,491	$	8,673
Finished goods		222,527		204,135
Raw materials		—		—
Total inventories	$	235,018	$	212,808

8. RELATED PARTY TRANSACTIONS

During the three months ended May 31, 2012 and 2011, two executives who are stockholders of the Company deferred $58,100 and $58,100, respectively, of compensation earned during the period. The balance due to stockholders at May 31, 2012 and 2011, totaled $2,062,810 and $1,830,410, respectively. The amounts are unsecured, non-interest bearing, and have no specific repayment terms; however, the Company does not expect to repay these amounts within the next year.

Certain notes to related parties have conversion features, whereby, at the holder’s option, the notes may be converted, in whole or in part upon written notice, into the Company’s common shares at a discount to the fair market value.  The Company considered the value of the beneficial conversion features of the notes, and when deemed material, recorded the beneficial conversion value as deferred financing costs and amortized the amount over the period of the loan, charging interest expense.   The convertible notes are to related parties, who have the majority of the voting rights.  The related parties have waived their conversion rights since the inception of these notes until such time that the Company’s market price of shares rise sufficiently or the Company amends the capital structure (through a reverse split or increase in the authorized shares) or combination of all factors, whereby a conversion of any single note, or portion thereof, will not exceed the authorized shares of the Company.

The above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties.

9. LOANS PAYABLE

During the quarter ended May 31, 2012 the Company recognized a forgiveness of debt for a discharge of debts owed to an unrelated party due to expiration of statutory period. The recognized forgiveness totaled $131,011.

10. SEGMENT INFORMATION

The Company had two reportable segments during 2012 and 2011; manufacturing and other. For the three months ended May 31, 2012 and 2011 the Company has included segment reporting.

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For the three months ended May 31, 2012, information regarding operations by segment is as follows:

	Manufacturing		Other (a)			Total Continuing Operations
Revenue	$	652,946				$	652,946
Interest expense	$	19,314		13,102			32,416
Depreciation	$	46,264					46,264
Net income (loss)	$	205,602		(121,965	)		83,637
Property and equipment, net of accumulated depreciation	$	2,872,654					2,872,654
Segment assets	$	3,539,105		1,451,300			4,990,405

For the three months ended May 31, 2011, information regarding operations by segment is as follows:

	Manufacturing		Other (a)			Total Continuing Operations
Revenue	$	677,586				$	677,586
Interest expense	$	30,782		12,812			43,594
Depreciation	$	47,561					47,561
Net income (loss)	$	59,060		(128,670	)		(69,610	)
Property and equipment, net of accumulated depreciation	$	3,025,763					3,025,763
Segment assets	$	3,653,742		1,399,472			5,053,214

(a) The “other” segment is mainly related to the holding company expenses and general overhead, as well as the stock based compensation awards.

Segment 1, manufacturing, consists of International Machine and Welding, Inc. and derives its revenues from machining operations, sale of parts and service.

The manufacturing segment, International Machine and Welding, Inc. has a broad and diverse base of customers. The segment does not rely on any single customer, the loss of which would have a material adverse effect on the segment. However, this segment does generate a significant amount of revenues from sales and services provided to three different industries.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

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 2013 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 month periods ended May 31, 2012 and 2011. This discussion and analysis is intended to assist in understanding the financial condition and results of operation of the Company and its subsidiary. This section should be read in conjunction with the consolidated financial statements and the related notes.

RESULTS OF OPERATIONS

MANUFACTURING SEGMENT

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 as well as sales of used equipment. 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 38,000 square foot structure owned by International Machine and Welding, Inc.

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2012 AND 2011

General

The Company’s consolidated net sales decreased to $652,946 for the three months ended May 31, 2012, a decrease of $24,640 or 4%, from $677,586 for the three months ended May 31, 2011.  Management believes the decrease is due to changes in the construction industry as machines are between their life cycles.

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Gross profit for the consolidated operations decreased to $349,855 for the three months ended May 31, 2012 from $350,640 for the three months ended May 31, 2011. Gross profit as a percentage of sales increased during the three months ended May 31, 2012 to 54% from 52% during the three months ended May 31, 2010.

Consolidated interest expense for the three months ended May 31, 2012 was $32,416 compared to $43,594 for the three months ended May 31, 2010. The decrease in interest expense is due to the Company negotiating lower interest rates and making timely payments.

Consolidated interest income for the three months ended May 31, 2012 was $3,263 compared to $1,732 for the three months ended May 31, 2011.

Selling, general and administrative expenses decreased to $370,076 for the three months ended May 31, 2012 from $378,388 for the three months ended May 31, 2011, a decrease of $8,312 or 2%.

The Company incurred net consolidated income of $83,637 for the three months ended May 31, 2012 compared to $69,610 net loss for the three months ended May 31, 2011.

Manufacturing Segment

The manufacturing operation, International Machine and Welding, Inc. provided net sales of $652,946 for the three months ended May 31, 2012 compared to $677,586 for the three months ended May 31, 2011. The machining operations provided $228,724 or 35% of net sales with parts and service providing $424,222 or 65% of net sales for the three months ended May 31, 2012 as compared to machining operations contributing $178,329 or 26% of net sales with parts and service providing $499,257 or 74% of net sales for the three months ended May 31, 2011.

Gross profit from International Machine and Welding, Inc. was $349,855 for the three months ended May 31, 2012 compared to $350,640 during the three months ended May 31, 2011 providing gross profit margins of 54% and 52%, respectively.

Selling, general and administrative expenses for International Machine and Welding, Inc. were $258,406 for the three months ended May 31, 2012 compared to $260,797 for the three months ended May 31, 2011.

Interest expense was $19,314 for the three months ended May 31, 2012 compared to $30,782 for the three months ended May 31, 2011. The decrease in interest expense is due to the Company reducing the overall debt.

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.

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LIQUIDITY AND CAPITAL RESOURCES

During the three months ended May 31, 2012 and 2011, the Company used net cash for operating activities of $28,951 and $29,641, respectively.

During the three months ended May 31, 2012 and 2011, the Company used funds for investing activities of $17,392 and $15,200, respectively.

During the three months ended May 31, 2012 and 2011, the Company provided cash from financing activities of $73,648 and $27,902, respectively. The increase in net cash provided by financing activities is due to the reduced principle payments on notes payable and the increase in the proceeds from the notes payable.

Cash flows from financing activities provided for working capital needs and principal payments on long-term debt through fiscal 2012.  To the extent that the cash flows from financing activities 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.

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 where the majority of the revenue is generated while the processors await the next harvest.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accompanying consolidated financial statements include the activity of the Company and its wholly owned subsidiary. All intercompany transactions have been eliminated in consolidation. The preparation of consolidated 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated 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 financial statements.

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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 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.

NEW ACCOUNTING PRONOUNCEMENTS

For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Recent Accounting Pronouncements” in Part I, Item 1 of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 4(T). CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Management conducted its evaluation based on the framework in Internal Control – Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at May 31, 2012, such disclosure controls and procedures were not effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rue 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our management assessed our internal control over financial reporting based on the Internal Control – Integrated Framework issued by the COSO. Based on the results of this assessment, our management concluded that our internal control over financial reporting was not effective as of May 31, 2012 based on such criteria.

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met under all potential conditions, regardless of how remote, and may not prevent or detect all errors and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

15

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on their evaluationas of the end of the period covered by this report, management concluded that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the first fiscal quarter ended May 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Auditor’s Report on Internal Control over Financial Reporting

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

16

PART II

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1.A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended May 31, 2012, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has defaulted on a total of $548,251 of notes payable. The amount of principal payments in arrears was $259,991 with an additional amount of $288,260 of interest due at May 31, 2012. These defaults are the result of a failure to pay in accordance with the terms agreed.

ITEM 4. RESERVED

ITEM 5. OTHER MATTERS

None

17

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT INDEX

Incorporated Documents	SEC Exhibit Reference	Sequentially Numbered
	Certification of the Chief Financial Officer	31.1
	Certification of the Chief Executive Officer	31.2
	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbaenes-Oxley Act of 2002 of the Chief Financial Officer	32.1
	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbaenes-Oxley Act of 2002 of the Chief Executive Officer	32.2

XBRL Instance Document	101.INS **
XBRL Taxonomy Extension Schema Document	101.SCH **
XBRL Taxonomy Extension Calculation Linkbase Document	101.CAL **
XBRL Taxonomy Extension Definition Linkbase Document	101.DEF **
XBRL Taxonomy Extension Label Linkbase Document	101.LAB **
XBRL Taxonomy Extension Presentation Linkbase Document	101.PRE **

(b) Reports on Form 8-K

None

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

18

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMERICAN COMMERCE SOLUTIONS, INC.
Date: July 12, 2012	By:	/S/ DANIEL L. HEFNER
		Daniel L. Hefner, President
Date: July 12, 2012	By:	/S/ FRANK D. PUISSEGUR
		Frank D. Puissegur, CFO and Chief Accounting Officer

19

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

AND RULE 13A-14 OF THE EXCHANGE ACT OF 1934

CERTIFICATION

I,Frank D. Puissegur, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of American Commerce Solutions, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 12, 2012	/s/ Frank D. Puissegur
	Frank D. Puissegur
	Chief Financial Officer (Principal Financial Officer) and Director

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

AND RULE 13A-14 OF THE EXCHANGE ACT OF 1934

CERTIFICATION

I, Daniel L. Hefner, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of American Commerce Solutions, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 12, 2012	/s/ Daniel L. Hefner
	Daniel L. Hefner
	Chief Executive Officer, President and Director

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of American Commerce Solutions, Inc. (the "Company") on Form 10-Q for the period ended May 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank D. Puissegur, Chief Financial Officer (Principal Financial Officer) and Director of the Company, certify, pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 12, 2012	/s/ Frank D. Puissegur
	Frank D. Puissegur
	Chief Financial Officer (Principal Financial Officer) and Director

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of American Commerce Solutions, Inc., (the "Company") on Form 10-Q for the period ended May 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel L. Hefner, Chief Executive Officer, President and Director of the Company, certify, pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 12, 2012	/s/ Daniel L. Hefner
	Daniel L. Hefner
	Chief Executive Officer, President and Director

XML

RECENT ACCOUNTING PRONOUNCEMENTS

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 3. RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements issued by FASB (including EITF), the AICPA and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

XML

GOING CONCERN

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 2. GOING CONCERN

The Company has incurred substantial operating losses since inception and has used approximately $29,000 of cash in operations for the three months ended May 31, 2012. Additionally, the Company is in default on several notes payable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon its ability to reverse negative operating trends, raise additional capital, and obtain debt financing.

Management has revised its business strategy to include expansion into other lines of business through the acquisition of other companies in exchange for the Company’s stock to facilitate manufacturing contracts under negotiation. In conjunction with the anticipated new contracts, management is currently negotiating new debt and equity financing, the proceeds from which would be used to settle outstanding debts at more favorable terms, to finance operations, and to complete additional business acquisitions. 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.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

XML

CONSOLIDATED BALANCE SHEETS (USD $)	May 31, 2012	Feb. 29, 2012
Assets
Cash	$ 35,383	$ 8,078
Accounts receivable	85,866	109,897
Accounts receivable, factored	30,568	15,004
Inventories	235,018	277,077
Note receivable, related party,	1,009,792	1,009,792
Due from related party	561,644	561,644
Other receivables	139,200	123,951
Prepaid expenses	4,966	4,966
Total current assets	2,102,437	2,110,409
Property and equipment, net of accumulated depreciation of $2,482,571 and $2,446,010, respectively	2,872,654	2,918,692
Prepaid loan costs paid with common stock	5,234
Other assets	10,080	11,564
Total Other Assets	15,314	11,564
TOTAL ASSETS	4,990,405	5,040,665
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable	906,480	1,047,753
Accounts payable; including related party balances of $18,905 and $41,633, respectively	163,339	229,280
Accrued expenses	105,997	161,087
Accrued interest	298,351	286,082
Total current liabilities	1,474,167	1,724,202
Notes payable, net of current portion	2,369	3,828
Notes payable, related party, net of current portion	857,495	815,998
Due to stockholders	2,062,810	2,004,710
Total Long-Term Liabilities	2,922,674	2,824,536
Total Liabilities	4,396,841	4,548,738
STOCKHOLDERS' EQUITY
Preferred stock, total authorized 5,000,000 shares:
Series A; cumulative and convertible; $0.001 par value; 600 shares authorized 102 shares issued and outstanding; liquidating preference $376,125
Series B; cumulative and convertible; $0.001 par value; 3,950 shares authorized 3,944 shares issued and outstanding; liquidating preference $3,944,617	3	3
Common stock; $0.002 par value; 350,000,000 shares authorized; 349,896,576 and 331,869,576 shares issued; 349,196,576 and 331,169,576 shares outstanding, respectively	699,794	663,794
Additional paid-in capital	19,136,164	19,154,164
Stock subscription receivable	(10,000)	(10,000)
Treasury stock, at cost	(265,526)	(265,526)
Accumulated deficit	(18,966,871)	(19,050,508)
Total stockholders' equity	593,564	491,927
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 4,990,405	$ 5,040,665

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)	3 Months Ended
	May 31, 2012	May 31, 2011
Operating activities:
Net loss	$ 83,637	$ (69,610)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	46,264	47,561
Amortization of loan costs	15,701	16,536
Gain on forgiveness of debt	(133,012)
Loss on disposal of equipment	1,917
Issuance of common stock for guaranty	18,000
(Increase) decrease in:
Accounts receivables	24,031	(27,042)
Inventories	42,059	749
Other assets	(19,451)
Increase (decrease) in:
Accounts payable and accrued expenses	(108,097)	2,165
Net cash provided (used) by operating activities	(28,951)	(29,641)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other receivables	(15,249)	(13,475)
Acquisition of property and equipment	(2,143)	(1,725)
Net cash used by investing activities	(17,392)	(15,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in due from factor	(15,564)	(15,671)
Proceeds from notes payable and long-term debt	44,804	30,100
Principal payments on notes payable	(13,692)	(44,627)
Increase in due to stockholders	58,100	58,100
Net cash provided by financing activities	73,648	27,902
Net (decrease) increase in cash	27,305	(16,939)
Cash, beginning of period	8,078	29,655
Cash, end of period	35,383	12,716
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest	26,046	38,112
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Increase in notes payable for accrued interest	$ 665	$ 6,099

XML

BACKGROUND INFORMATION

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 1. BACKGROUND INFORMATION

American Commerce Solutions, Inc., located and operating in West Central Florida, was incorporated in Rhode Island in 1991 under the name Jaque Dubois, Inc., and was re-incorporated in Delaware in 1994. In July 1995, Jaque Dubois, Inc. changed its name to JD American Workwear, Inc. In December 2000, the stockholders voted at the annual stockholders meeting to change the name of JD American Workwear, Inc. to American Commerce Solutions, Inc. (the “Company”).

The Company is primarily a holding company with one wholly owned subsidiary; International Machine and Welding, Inc. is engaged in the machining and fabrication of parts used in heavy industry, and parts sales and service for heavy construction equipment.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	May 31, 2012	Feb. 29, 2012
Current assets:
Property and equipment, net of accumulated depreciation	$ 2,482,571	$ 2,446,010
Current liabilities:
Accounts payable; including related party balances	18,905	41,633
Stockholders' equity:
Preferred stock shares authorized	5,000,000	5,000,000
Series A; cumulative and convertible stock par value	$ 0.001	$ 0.001
Series A; cumulative and convertible Preferred stock shares authorized	600	600
Series A; cumulative and convertible stock issued	102	102
Series A; cumulative and convertible stock outstanding	102	102
Series A; cumulative and convertible stock liquidating preference	376,125	376,125
Series B; cumulative and convertible stock par value	$ 0.001	$ 0.001
Series B; cumulative and convertible Preferred stock shares authorized	3,950	3,950
Series B; cumulative and convertible stock issued	3,944	3,944
Series B; cumulative and convertible stock outstanding	3,944	3,944
Series B; cumulative and convertible stock liquidating preference	$ 3,944,617	$ 3,944,617
Common stock par value	$ 0.002	$ 0.002
Common stock authorized	350,000,000	350,000,000
Common stock issued	349,896,576	331,869,576
Common stock outstanding	349,196,576	331,169,576

XML

Document and Entity Information	3 Months Ended
	May 31, 2012	Jul. 12, 2012
Document And Entity Information
Entity Registrant Name	AMERICAN COMMERCE SOLUTIONS Inc,
Entity Central Index Key	0000949982
Document Type	10-Q
Document Period End Date	May 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--02-29
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		349,896,576
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $)	3 Months Ended
	May 31, 2012	May 31, 2011
Income Statement [Abstract]
Net sales	$ 652,946	$ 677,586
COST OF GOODS SOLD	303,091	326,946
GROSS MARGIN	349,855	350,640
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	370,076	378,388
LOSS FROM OPERATIONS	(20,221)	(27,748)
OTHER INCOME (EXPENSE)
Forgiveness of debt	133,011
Interest expense	(32,416)	(43,594)
Interest income	3,263	1,732
TOTAL OTHER INCOME (EXPENSE)	103,858	(41,862)
NET INCOME (LOSS)	$ 83,637	$ (69,610)
NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED	$ 0.00	$ 0.00
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED	346,430,446	329,169,576

XML

ACCOUNTS RECEIVABLE, FACTORED

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 6. ACCOUNTS RECEIVABLE, FACTORED

During the three months ended May 31, 2012 and 2011, the Company factored receivables of approximately $248,000 and $279,100, respectively. In connection with the factoring agreement, the Company incurred fees of approximately $6,100 and $6,900 during the three months ended May 31, 2012 and 2011, respectively. As of May 31, 2012 and 2011, certain customers had remitted $0 and $300, respectively, to the Company on factored receivables; the Company has recorded these amounts as due to the factor and included them in accrued expenses on the accompanying consolidated balance sheets. Any and all of the Company’s indebtedness and obligations to the Factoring Company is guaranteed by two stockholders and collateralized by the Company’s inventory and fixed assets.

XML

BASIS OF PRESENTATION

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 5. BASIS OF PRESENTATION

In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended May 31, 2012 and 2011, (b) the financial position at May 31, 2012, and (c) cash flows for the three month periods ended May 31, 2012 and 2011, have been made.

The unaudited consolidated financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in condensed financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes of the Company for the fiscal year ended February 29, 2012. The results of operations for the three month period ended May 31, 2012 are not necessarily indicative of those to be expected for the entire year.

XML

LOANS PAYABLE

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 9. LOANS PAYABLE

During the quarter ended May 31, 2012 the Company recognized a forgiveness of debt for a discharge of debts owed to an unrelated party due to expiration of statutory period. The recognized forgiveness totaled $131,011.

XML

INVENTORIES

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 7. INVENTORIES

Inventories consist of the following:

	May 31, 2012		May 31, 2011
Work-in process	$	12,491	$	8,673
Finished goods		222,527		204,135
Raw materials		—		—
Total inventories	$	235,018	$	212,808

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RELATED PARTY TRANSACTIONS

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 8. RELATED PARTY TRANSACTIONS

During the three months ended May 31, 2012 and 2011, two executives who are stockholders of the Company deferred $58,100 and $58,100, respectively, of compensation earned during the period. The balance due to stockholders at May 31, 2012 and 2011, totaled $2,062,810 and $1,830,410, respectively. The amounts are unsecured, non-interest bearing, and have no specific repayment terms; however, the Company does not expect to repay these amounts within the next year.

Certain notes to related parties have conversion features, whereby, at the holder’s option, the notes may be converted, in whole or in part upon written notice, into the Company’s common shares at a discount to the fair market value.  The Company considered the value of the beneficial conversion features of the notes, and when deemed material, recorded the beneficial conversion value as deferred financing costs and amortized the amount over the period of the loan, charging interest expense.   The convertible notes are to related parties, who have the majority of the voting rights.  The related parties have waived their conversion rights since the inception of these notes until such time that the Company’s market price of shares rise sufficiently or the Company amends the capital structure (through a reverse split or increase in the authorized shares) or combination of all factors, whereby a conversion of any single note, or portion thereof, will not exceed the authorized shares of the Company.

The above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties.

XML

SEGMENT INFORMATION

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 10. SEGMENT INFORMATION

The Company had two reportable segments during 2012 and 2011; manufacturing and other. For the three months ended May 31, 2012 and 2011 the Company has included segment reporting.

For the three months ended May 31, 2012, information regarding operations by segment is as follows:

	Manufacturing		Other (a)			Total Continuing Operations
Revenue	$	652,946				$	652,946
Interest expense	$	19,314		13,102			32,416
Depreciation	$	46,264					46,264
Net income (loss)	$	205,602		(121,965	)		83,637
Property and equipment, net of accumulated depreciation	$	2,872,654					2,872,654
Segment assets	$	3,539,105		1,451,300			4,990,405

For the three months ended May 31, 2011, information regarding operations by segment is as follows:

	Manufacturing		Other (a)			Total Continuing Operations
Revenue	$	677,586				$	677,586
Interest expense	$	30,782		12,812			43,594
Depreciation	$	47,561					47,561
Net income (loss)	$	59,060		(128,670	)		(69,610	)
Property and equipment, net of accumulated depreciation	$	3,025,763					3,025,763
Segment assets	$	3,653,742		1,399,472			5,053,214

(a) The “other” segment is mainly related to the holding company expenses and general overhead, as well as the stock based compensation awards.

Segment 1, manufacturing, consists of International Machine and Welding, Inc. and derives its revenues from machining operations, sale of parts and service.

The manufacturing segment, International Machine and Welding, Inc. has a broad and diverse base of customers. The segment does not rely on any single customer, the loss of which would have a material adverse effect on the segment. However, this segment does generate a significant amount of revenues from sales and services provided to three different industries.

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STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED) (USD $)	Common Stock	Preferred Stock	Capital In Excess Of Par Value	Retained Earnings / Accumulated Deficit	Treasury Stock	Total
Beginning Balance, Amount at Feb. 29, 2012	$ 663,794	$ 3	$ 19,154,164	$ (19,050,508)	$ (265,526)	$ 491,927
Beginning Balance, Shares at Feb. 29, 2012	331,869,576	3,944
Common shares issued for pledge of assets, Amount	36,000		(18,000)			18,000
Common shares issued for pledge of assets, Shares	18,000,000
Net loss				83,637		83,637
Ending Balance, Amount at May. 31, 2012	$ 699,794	$ 3	$ 19,136,164	$ (18,966,871)	$ (265,526)	$ 593,564
Ending Balance, Shares at May. 31, 2012	349,869,576	3,944

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STOCK BASED COMPENSATION

3 Months Ended

May 31, 2012

Notes to Financial Statements

Note 4. STOCK BASED COMPENSATION

At May 31, 2012, the Company has two stock-based employee compensation plans, both which have been approved by the shareholders.

The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

The value of each grant is estimated at the grant date using the Black-Scholes model. There were no options granted or exercised during the three months ended May 31, 2012 and 2011.