Ameramex International Inc - Quarter Report: 2019 September (Form 10-Q)

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2019

Commission File Number: 000-56054

AMERAMEX INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

3930 Esplanade, Chico, CA 95973

(Address of principal executive offices)

(530) 895-8955

Registrant’s telephone number, including area code

Former address if changed since last report

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   ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes  ☐ No

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

IF an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐  Yes    ☒ No

There are 753,415,879 shares of common stock outstanding as of November 12, 2019.  

 TABLE OF CONTENTS

PART I–FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS

AMERAMEX INTERNATIONAL, INC.

BALANCE SHEETS

AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

AMERAMEX INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

AMERAMEX INTERNATIONAL, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

AMERAMEX INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements. 

AMERAMEX INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(UNAUDITED) 

Note 1 - Organization and Basis of Presentation 

Organization and Line of Business

AmeraMex International, Inc., (the “Company”) was incorporated on May 29, 1990 under the laws of the state of Nevada. The Company sells, leases and rents new and refurbished heavy equipment primarily in the U.S. The Company operates under the name of Hamre Equipment.

Note 2 – Summary of Significant Accounting Policies

Liquidity Considerations

At September 30, 2019, the Company had working capital of approximately $4.8 million. We expect to generate sufficient cash flows from operations to meet our obligations, and we expect to continue to obtain financing for equipment purchases in the normal course of business. We believe that our expected cash flows from our long term rentals and operations plus availability under our credit facilities will be sufficient to operate in the normal course of business for the next 12 months.

Basis of Presentation

The unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, within the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the results for the interim periods presented and of the financial condition as of the date of the interim balance sheet. The financial data and the other information disclosed in these notes to the interim financial statements related to the three and six-month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 and notes thereto that are included in the Company’s Registration Statement on Form 10, as amended. 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved. Significant estimates in these unaudited interim financial statements include the allowance for doubtful accounts, inventory reserve, valuation allowance for deferred taxes, and estimated useful life of property and equipment.

Line of Credit Issuance Costs

We capitalize and amortize direct issue costs incurred in connection with our line of credit arrangements. Included in Other Assets in the accompanying balance sheet at September 30, 2019 are unamortized loan fees of $161,719. During the nine months ended September 30, 2019, the Company amortized $34,531 in loan fees.

AMERAMEX INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(UNAUDITED) 

Concentrations

For the nine months ended September 30, 2019, 22% of sales was due to two customers. For the nine months ended September 30, 2018, 13% of sales was due to one customer. The loss of one or more of these customers would have a negative impact on the Company’s financial results.

For the nine months ended September 30, 2019, 61% of purchases was due to three vendors, one of which accounted for 31% of purchases. For the nine months ended September 30, 2018, 48% of purchases was due to three vendors, one of which accounted for 24% of purchases. The loss of one or more of these vendors would have a negative impact on the Company’s financial results.

As of September 30, 2019, the Company has three customers comprising 65% of net accounts receivable. As of December 31, 2018, the Company has three customers comprising 53% of net accounts receivable . A loss of one of these customers would have a material effect on the Company.

As of September 30, 2019, the Company has three vendors comprising 65% of accounts payable. As of December 31, 2018, the Company has two vendors comprising 29% of accounts payable. A loss of one of these vendors would have a material effect on the Company.

Note 3 – Inventory

Inventory as of September 30, 2019 and December 31, 2018 consisted of the following:

All of the inventory is used as collateral for the lines of credit and notes payable (see Notes 6 and 7).

Note 4 – Property and Equipment

Property and equipment includes assets held for internal use; as of September 30, 2019 and December 31, 2018, such consisted of the following:

Depreciation expense for the nine months ended September 30, 2019 and 2018 was $146,737 and $131,409, respectively.

All of the property and equipment is used as collateral for the lines of credit and notes payable (see Notes 6 and 7).

AMERAMEX INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(UNAUDITED) 

Note 5 – Rental Equipment

Rental equipment as of September 30, 2019 and December 31, 2018 consisted of the following:

Depreciation expense for the nine months ended September 30, 2019 and 2018 was $712,240 and $648,252, respectively.

All of the rental equipment is used as collateral for the lines of credit and notes payable (see Notes 6 and 7).

Note 6 – Lines of Credit

The Company has a line of credit with a finance company that provides for borrowing and refinancing up to $6.5 million, as amended. This credit facility expires March 22, 2022. The line of credit is secured by substantially all of the Company assets, other than those specifically secured by an existing agreement detailed in the following paragraph and bears interest at a rate of 10%, per annum, calculated on a 30/360 basis. Principal only becomes due and payable if the Company reaches the maximum balance under the credit facility, for which management does not expect to reach. If the maximum balance is reached, the principal becomes payable at 1.25% of the outstanding principal balance per month. Principal balance shall never exceed 75% of capital borrowed against in order to satisfy covenants. At September 30, 2019, the amount outstanding under this line of credit was $6,303,576 with $196,424 available for borrowing.

The Company has a line of credit with a finance company that provides for borrowing up to $500,000. The agreement may be terminated at any time with 45 days notice. The line of credit is secured by the equipment purchased and is interest free if paid within 180 days from the finance date. After the applicable free interest period, the interest calculates as follows; 30 day LIBOR plus 6.75% - rate after Free Period to Day 365; 30 day LIBOR plus 7.00% - Rate Day 366 to 720; 30 Day LIBOR plus 7.25% - Rate Day 721 to 1095; 30 Day LIBOR plus 12.00% - Matured Rate Day 1096 and above. At September 30, 2019, the amount outstanding under this line of credit agreement was $361,472 with $138,528 available for borrowing.

AMERAMEX INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(UNAUDITED) 

Note 7 – Notes Payable

Notes payable as of September 30, 2019 and December 31, 2018 consisted of the following: 

AMERAMEX INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(UNAUDITED) 
 

Note 8 – Related-Party Transactions

Related-Party Note Payable

The Company has a note payable to the Company’s President. The note is interest bearing at 10% per annum, unsecured and payable upon demand. The balance of the note at September 30, 2019 and December 31, 2018 was $320,205 and $353,643, respectively. During the nine months ended September 30, 2019, $33,438 was repaid on this note payable. During the nine months ended September 30, 2018, $13,329 was repaid on this note payable.

Lease

The Company leases a building and real property in Chico, California under a five-year lease agreement from a trust whose trustee is the Company’s President. The lease provided for monthly lease payments of $9,800 per month, and expired on December 1, 2017. The Company is currently leasing the building and real property at the same rate on a month-to-month lease. Rent expense during the nine months ended September 30, 2019 and 2018, was $88,200 and $78,400, respectively. 

Note 9 – Stockholders’ Equity

The Company has authorized 5,000,000 shares of $0.001 par value blank check preferred stock, of which no shares were issued and outstanding as of September 30, 2019 and December 31, 2018.

The Company has authorized 1,000,000,000 shares of $0.001 par value common stock, of which 753,415,879 were issued and outstanding as of September 30, 2019 and December 31, 2018.

During the nine months ended September 30, 2019, the Company did not issue any stock.

  AMERAMEX INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

(UNAUDITED) 

Note 10 – Revenues

During the three and nine months ended September 30, 2019 and 2018, revenues and costs related to domestic and foreign sales of equipment are as follows: 

During the nine months ended September 30, 2019 and 2018, there were no foreign rentals of equipment.

Note 11 – Commitments and Contingencies

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company's financial position. There are no pending legal proceedings that are expected to be material to our cash flow and operating results.

See Note 8 for related party operating lease.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

FORWARD LOOKING STATEMENTS

Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Overview of the Business

We sell, lease, and rent heavy equipment to companies within four industries: construction (light and infrastructure), shipping logistics, mining, and commercial farming. With customers in the United States, Canada, Latin America, Asia and Africa, we have over 30 years of experience in heavy equipment sales and service and inventories of top-of-the-line equipment from manufacturers such as Taylor Machine Works Inc. and Terex Heavy Equipment. We were originally incorporated as Hamre Equipment Company, Inc. in California on November 17, 1989. We merged into AmeraMex International, Inc., a Nevada corporation, on May 29, 1990. 

Results of Operations

Operating Results for the Nine Month Period Ended September 30, 2019 as Compared to the Nine Month Period Ended September 30, 2018

We had revenue of $11,219,161 for the nine month period ending September 30, 2019 as compared to revenue of $7,721,230 for the nine month period ending September 30, 2018, a 45% increase. Sales of Equipment and Other Revenues for the nine month period ending September 30, 2019 were $9,395,942 and made up 84% of our Total Revenues. For the nine month period ending September 30, 2018, Sales of Equipment and Other Revenues made up $5,717,992, or 74%, of Total Revenues. The remaining portion of Total Revenues, Rentals and Leases, for the respective periods were $1,823,219, or 16%, in 2019 and in 2018, Rentals and Leases made up 26% of Total Revenues and totaled $2,003,238. Sales of Equipment and Other Revenues saw a larger number for the nine month period ending September 30, 2019 because we had multiple equipment sales to one of our long time regional customers. Rentals and Leases decreased due to an early buyout option under a lease contract which had revenues in September 30, 2018 of $400,000, none of which were included in September 30, 2019.

We had costs of revenue of $8,754,208 for the nine month period ending September 30, 2019 as compared to costs of $5,339,763 for the nine month period ending September 30, 2018. Our costs increased by $3,414,445, or 64%, while our revenues increased by 45%. We experienced a decline in gross profit as a percentage of Sales of Equipment and Other Revenues from 42% during the nine months ended September 30, 2018 to 26% as we had smaller margin from our parts and equipment sales due to competitive pressures.

We experienced an increase in operating expenses from $852,062 in the nine month period ending September 30, 2018 as compared to $1,096,328 in the nine month period ending September 30, 2019. This is an increase of approximately 29%.

From the nine month period ending September 30, 2018, to the nine month period ending September 30, 2019, our Interest Expense decreased from $614,257 to $487,345. This decrease is due to the debt refinancing that occurred in March 2019. We had a loss tied to this Early Extinguishment of debt in the amount of $566,838. We anticipate our overall cost of borrowings will decrease in the future.

We had a net profit of $255,040 for the nine month period ending September 30, 2019 as compared to net income of $741,582 for the nine month period ending September 30, 2018. In connection with the refinancing of our debt, we incurred early termination fees and were required to pay unearned interest along with repayment of outstanding principal balances. The total costs resulted in a loss from early extinguishment of debt of $566,838, which resulted in a net loss for the six month period ending June 30, 2019. Without those fees, net profit for the nine month period ending September 30, 2019 would have been $821,872 which is a 10% increase over the same time frame the previous year.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Seasonality

Our operating results are not affected by seasonality.

Inflation

Our business and operating results are not affected in any material way by inflation. 

Critical Accounting Policies

The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” suggesting that companies provide additional disclosure and commentary on their most critical accounting policies. In Financial Reporting Release No. 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The nature of our business generally does not call for the preparation or use of estimates.

Liquidity and Capital Resources

Cash Flows

During the nine months ended September 30, 2019, we used Net Cash from Operating Activities of $962,646, largely due to increases in inventory for sales orders in the latter half of 2019, offset by depreciation and amortization of $893,508 and a loss tied to the Early Extinguishment of debt in the amount of $566,838.

We used Net Cash for Property and Equipment of $160,390, and Rental Equipment of $135,699. We did not have significant increases in lease equipment requirements.

We received Proceeds from our two lines of credit of $6.3 million, which we used to retire many of our existing notes payable and purchase more equipment for resale. Overall Net Cash Provided by Financing Activities provided $1,198,605, which was primarily used to fund inventories.

Liquidity

At September 30, 2019, we had working capital of approximately $4.8 million. We expect to generate sufficient cash flows from operations to meet our obligations, and to continue to obtain financing for equipment purchases in the normal course of business at lower overall costs of borrowings. We believe that our expected cash flows from operations and our commitments for the above referenced credit facility will be sufficient to operate in the normal course of business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of our President and Chief Financial Officer performed an evaluation (the “Evaluation”) of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our President and Chief Financial Officer concluded that, as of September 30, 2019, due to the presence of material weaknesses, our disclosure controls and procedures were ineffective.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal controls over financial reporting for our Company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, 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 and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failure. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

We assessed the effectiveness of our internal control over financial reporting as of September 30, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission’s Internal Control-Integrated Framework. As a result of this assessment, we have determined that our internal control over financial reporting was ineffective as of September 30, 2019 with material weaknesses present in our internal control over financial reporting continuing to exist at September 30, 2019. We have established an audit committee of our Board of Directors comprised of three independent directors. We have updated accounting policies and procedures and have segregation of duties but with such a small accounting department and one person handling multiple procedures, it is challenging to find every error.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control Over Financial Reporting

An evaluation was performed under the supervision of our management, including our President and Chief Financial Officer, of whether any change in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended September 30, 2019. Based on that evaluation, our management, including our President and Chief Financial Officer, concluded that there was a change in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. This change was to establish an audit committee of our board of directors comprised of three independent directors. 

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no legal proceedings which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.

ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

During the periods presented, we did not issue any shares of common or preferred stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

 ITEM 6. EXHIBITS

SIGNATURES

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.