Date Filed: April 30, 2004 SEC File No.333-9837
Nevada 7350 75-2930903
State of Incorporation Primary Standard Industrial I.R.S. Employer
Classification Code Number Identification Number
Approximate date of proposed sale to the public: As soon as this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 , check the following box.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the box.
CALCULATION OF REGISTRATION FEE
Title of class of Amount to be Proposed Proposed maximum Amount of Registration securities to be registered Maximum offering aggregate offering Fee registered price per unit price Common Stock 1,400,000 $0.125 $175,000 $22.17
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
This is our initial public offering so there is no public market for our shares.
An investment in our Company is risky, especially given its young age. Only people who can afford to lose the money they invest in our Company should invest in our shares. A FULL DISCUSSION OF THE RISKS OF OWNING OUR SHARES BEGINS AT PAGE 2 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of our shares or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Price to Public Underwriting Discount Proceeds to Issuer
and Commissions
Per Share $0.125 None $0.125
Total Maximum $175,000 None $175,000
We will sell the shares ourselves and do not plan to use underwriters or pay any commissions. We will be selling our shares using our best efforts and no one has agreed to buy any of our shares. There is no minimum amount of shares we must sell so no money raised from the sale of our stock will go into escrow, trust or another similar arrangement. The offering will remain open until 180 days after our registration statement has been declared effective by the Securities and Exchange Commission. We may extend the offering for an additional 90 days in our discretion if we think it will generate enough additional sales to justify such extension.
The information in this prospectus is not complete and may be changed. We may not sell these shares until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUMMARY OF THE OFFERING...........................................................................................1
RISK FACTORS......................................................................................................2
We are a development stage company, with no significant history of operations
you can examine to know if we have the ability
To successfully conduct business................................................................2
Even if we sell all of the shares offered, we will not have significant funds so that a
financial reversal could wipe out any reserves we might otherwise have..........................2
Because this is a "best efforts" offering, we have no assurances that any of our stock
will be sold....................................................................................2
We have no history of profits and no assurances of profits ever developing...............................2
Our success will depend greatly upon our directors and officer...........................................3
Our management will have voting control of us, even if all of the shares
offered are sold.......................................................................4
Because we only have one director, the compensation of our officer is in the sole
discretion of two people........................................................................4
Because the price at which the shares are offered is higher than our current per share
value, immediate dilution of value of our stock will occur......................................4
Because we have issued shares that may become eligible for resale under Rule 144,
a large amount of our stock could be sold, potentially depressing our
stock price.....................................................................................4
Because we do not expect to pay dividends on our common stock in the foreseeable
future, shareholders may have no way to recoup any of their investment..........................4
There is no public market for our shares and should be considered an
illiquid investment....................................................................5
Our stock will probably be subject to the penny stock regulations and may be more
difficult to sell than other registered stock...................................................5
USE OF PROCEEDS...................................................................................................6
DETERMINATION OF OFFERING PRICE...................................................................................6
DILUTION .........................................................................................................6
PLAN OF DISTRIBUTION..............................................................................................8
LEGAL PROCEEDINGS.................................................................................................9
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......................................................9
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................10
DESCRIPTION OF SECURITIES........................................................................................10
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.........................................................................................11
DESCRIPTION OF BUSINESS..........................................................................................12
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........................................................14
DESCRIPTION OF PROPERTY..........................................................................................16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................17
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.........................................................18
EXECUTIVE COMPENSATION...........................................................................................18
FINANCIAL STATEMENTS.............................................................................................20
THE COMPANY: Dallas Railroad Company is a corporation formed under
the laws of Nevada on March 5, 2001, whose principal
executive offices are located in Dallas, TX. We are a
development stage company with only minimal revenues.
We expect to use the net proceeds of this offering to
renovate a 1928 Pullman Railroad car and pay off some
portion of our loans that we incurred to purchase the car
and for general working capital purposes. Our plan is to
lease the railcar to both public and private groups for a
fee. We maintain our executive offices at 2603 Fairmount
Street, Suite 200, Dallas, TX, 75201.
SECURITIES OFFERED: We are offering up to a maximum of 1,400,000 shares of
common stock, $0.001 par value per share. The shares
are offered at $0.125 per share for total gross offering
proceeds of $175,000, assuming the maximum amount is
sold.
PRICE OF The shares are offered at $0.125 per share for total gross
SECURITIES OFFERED: offering proceeds of $175,000, assuming the maximum
amount is sold
SHARES OF COMMON 1,400,000 shares
STOCK OUTSTANDING
AS OF THE DATE OF THIS
PROSPECTUS:
SHARES OF COMMON 2,400,000 shares
STOCK OUTSTANDING
AFTER OFFERING,
ASSUMING MAXIMUM
AMOUNT SOLD:
SUMMARY FINANCIAL The following summary financial information is provided
INFORMATION: for the 12 months ending December 31, 2002 and the 12
months ending December 31, 2003:
Dec. 31, 2003 Dec 31, 2002
Total Assets: $107,729 $91,653
Total Debt: $ 75,902 $61,190
Total Shareholders Equity: $25,827 $30,463
Total Revenues: $ 0 $ 0
Total Expenses: $ 16,636 $23,025
Net Loss ($ 4,636) ($23,025)
TERMS OF THE OFFERING: There is no minimum offering. Accordingly, as shares are
sold, we will use the money raised for our activities. The
offering will remain open until 180 days after the
registration statement is declared effective by the
Securities and Exchange Commission, unless we decide
to cease selling efforts prior to this date. We may extend
1
the offering for an additional 90 days in our discretion if
we think it will generate enough additional sales to justify
such extension.
USE OF PROCEEDS: We intend to use the net proceeds of this offering
primarily to repay our railcar loans we incurred to acquire
the car, renovate the car to Amtrak operating standards,
market the car for lease, build a web site and for general
working capital.
PLAN OF DISTRIBUTION: This is a best efforts underwriting, with no commitment by
anyone to purchase any shares. The shares will be
offered and sold by our principal executive officer and
directors so no underwriters will be used. However, we
hope to have a market maker apply to have prices for our
shares quoted on the bulletin board maintained by the
National Association of Securities Dealers after we
complete our offering.
An investment in the shares involves a high degree of risk, including a risk of loss of an investor's entire investment in Dallas Railroad Company. Prospective investors should consider carefully, in addition to the other information contained in this prospectus, the following risk factors before purchasing any shares.
We are a development stage company, with no significant history of operations that you can examine to know if we have the ability to successfully conduct business. We were incorporated on March 5, 2001, and are a start up company with very little operating history or revenues. As a result, we have no meaningful financial history that you can review to see if we have made money in the past. Although past performance is no guarantee of future success, if we had a long financial record, you could determine whether we are capable of implementing our business plan and increasing the value of our stock.
Even if we sell all of the shares offered, we will not have significant funds so that a financial reversal could wipe out any reserves we might otherwise have. We are only seeking to raise $175,000. As a result, we will still be considered an extremely small company, even if we sell all of the stock we are trying to sell. Because we will have so little money, any financial reversal could totally wipe out any reserve we had hoped to have.
Because this is a "best efforts" offering, we have no assurances that any of our stock will be sold so that those people who do purchase our stock may have a greater proportionate risk to lose their money. This offering is being conducted on a "best efforts" basis, meaning that no underwriter has agreed to buy our shares. As such, we have no assurances as to what level of proceeds, if any, will be obtained. To fully implement our business plan for the next 12 months, we need to receive the $175,000 sought to be raised. In the event we fail to obtain all or substantially all of the proceeds sought in this offering, our ability to effectuate our business plan will be materially adversely affected, and investors may lose all or substantially all of their investment.
If we are unable to have our car refurbished to comply with Amtrak & VIA (Via Rail Canada, Canada's national passenger rail service), regulations, we may not be able to use our car on as many rail lines as we plan and thus make less money than we have planned from our operations. We hope to conduct sufficient repairs and renovations on our car so that we will be able to comply with Amtrak and VIA regulations and, therefore, be able to rent our car for use on either Amtrak or VIA lines. If we are not successful in attaining these standards, we will not be able to use our car on Amtrak or VIA lines, thus severely limiting the amount and type of track on which we can operate our car.
We have no underwriters so no other 3rd party with a financial interest has reviewed this offering for fairness. We are offering these shares through our officer and directors and are not using an underwriter. As a result, no other person sophisticated in financial affairs has reviewed this offering to determine if it is fair or if our business plan makes financial sense. Consequently, the shares may be priced too high for what they are intrinsically worth.
We have no history of profits and no assurances of profits ever developing. As with most development stage companies, we have experienced losses since inception. If only limited funds are raised in this offering, the risk of our financial failure is high. We have been dependent upon loans from members of management to sustain our development activities to date. In our discretion, if we receive the maximum proceeds sought to be raised, the entire principal amount of this loan, including interest, will probably be repaid.
Our success will depend greatly upon our President and Chairman of the Board so that his failure to work for us, regardless of the reason, could seriously damage our company. Craig Stewart is serving as our sole executive officer and director. If Mr. Stewart stopped working for us, we have no other person currently identified who could take over operation of our company. As a result, loss of his services may hamper our ability to implement our business plan, and could cause our stock to become worthless. We will be heavily dependent upon Mr. Stewart's entrepreneurial skills and business experience to successfully implement our business plan. We do not have an employment agreement with Mr. Stewart and there is no assurance that he will continue to manage our affairs in the future. At present, we do not have enough money to pay Mr. Stewart to work full time for our company; his inability to devote full time and attention to the affairs of Dallas Railroad Company could hinder our growth. However if our annual rental revenues exceed $25,000, we expect to pay our president, Mr. Stewart a salary of $100 monthly beginning at that time. We could lose the services of Mr. Stewart, or he could decide to join a competitor or otherwise compete with us directly or indirectly, having a negative affect on our business and potentially causing the price of our stock to be worthless. Mr. Stewart has limited experience in the railcar leasing business. Mr. Stewart is not experienced in leasing passenger railroad cars by trade. We will likely need to rely on others who understand that business better than Mr. Stewart. Because of this lack of experience, we may overestimate the marketability of our product and may underestimate the costs and difficulties of leasing our railcar. These difficulties could prevent us from accurately determining the feasibility of our business plan, limiting our profitability, if any, and decreasing the value of our stock.
Our management and related persons will have voting control of us, even if all of the shares offered are sold so that persons buying our shares will not have an effective voice in our management. Our President and director owns 150,000 shares of our outstanding common stock. In addition, our former president, Doug Nichols, the son in law of our director, owns 800,000 shares of our common stock. After completion of this offering, assuming all of the shares offered hereby are sold, our management and persons affiliated with our management will continue to control at least 39.6% of our voting securities, without
giving effect to (I) any stock options plan that could be adopted by management and approved by a majority of the shareholders, (ii) any additional issuances of our common stock or other securities to management and/or others, in our management’s sole discretion or (iii) any additional stock purchases by management of this offering. As a result, our management and an affiliated person will effectively control our affairs, including the election of all of our board of directors, the issuance of additional shares of common stock for a stock option plan or otherwise, the distribution and timing of dividends, if any, and all other matters. As a result, purchasers of the shares will have little, if any, control of our company.
Because we only have one director, the compensation of our only officer, Mr. Stewart is in his sole discretion so that there is limited control of his ability to establish his compensation. Because Craig Stewart is our sole director, he will control our board of directors. As a result, Mr. Stewart will be entitled to establish the amount of his compensation, including the amount of any bonuses paid to him. In addition, because we do not have any independent directors, there will be no oversight of the reasonableness of any bonuses paid to Craig Stewart or other officers, if added.
Because the price at which the shares are offered is higher than our current per share value, immediate dilution of value of our stock will occur. The offering itself involves immediate and substantial dilution to investors, as more particularly described in the dilution section. Any securities issued in the future, including issuances to management, could reduce the proportionate ownership, economic interests and voting rights of any holders of shares of our common stock purchased in this offering.
Because we have issued shares that may soon become eligible for resale under Rule 144, a large amount of our stock could be sold, potentially depressing our stock price. All of our presently outstanding shares of common stock aggregating 1,000,000 shares of common stock, are "restricted securities" as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant thereto or otherwise pursuant to an effective registration statement or an exemption from registration, if available. Rule 144, as amended, generally provides that a person who has satisfied a one year holding period for such restricted securities may sell, within any three-month period (provided we are current in our reporting obligations under the Exchange Act) subject to certain manner of resale provisions, an amount of restricted securities which does not exceed the greater of 1% of a company's outstanding common stock or the average weekly trading volume in such securities during the four calendar weeks prior to such sale. Douglas R. Nichols, owns an aggregate of 800,000 restricted shares and Craig Stewart, our director and president owns 150,000 restricted shares, for which the one year holding period expired on March 6, 2002. In addition, all of our other shareholders' common stock is immediately eligible to use Rule 144. A sale of shares by such security holders, whether pursuant to Rule 144 or otherwise, would most likely have a depressing effect upon the price of our common stock in any market that might develop.
Because we do not expect to pay dividends on our common stock in the foreseeable future, shareholders may have no way to recoup any of their investment. We intend for the foreseeable future to retain earnings, if any, for the future operation and expansion of our business and do not anticipate paying dividends on our shares of common stock for the foreseeable future. As a result, the only way investors may realize a profit on their purchase of our shares is if they can sell our shares at a profit in the future, of which there can be no assurance.
There is no public market for our shares, they should be considered an illiquid investment that may not necessarily be sold in the near future. There is currently no market for any of our shares and no assurances are given that a public market for such
securities will develop or be sustained if developed. While we plan, following the termination of this offering, to take affirmative steps to request or encourage one or more broker/dealers to act as a market maker for our securities, no such efforts have yet been undertaken and no assurances are given that any such efforts will prove successful. As such, investors may not be able to readily dispose of any shares purchased hereby.
Our stock will be subject to the penny stock regulations and may be more difficult to sell than other registered stock so that an investor may not be able to easily sell their shares in the future. Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Commission. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker- dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. As our shares immediately following this offering will likely be subject to such penny stock rules, investors in this offering will in all likelihood find it more difficult to sell their securities.
The net proceeds to our company from the sale of the shares offered hereby, assuming all of the shares offered are sold, of which no assurances are given, are estimated to be $173,000, giving effect to the estimated expenses of the offering of approximately $2000.
The following table sets forth the anticipated use of the net proceeds of this offering in the event that 1,400,000, 700,000 or 350,000 shares offered hereby are sold. We may not be able to sell all the shares and thus generate $175,000. Our receipt of no or nominal proceeds will have a material adverse effect upon our investors and us.
Number of shares 350,000 Shares 700,000 Shares 1,400,000 Shares sold Sold Sold Sold Gross offering $43,750 $87,500 $175,000 proceeds Offering expenses $2,000 $2,000 $2,000 Net offering $41,750 $85,500 $173,000 proceeds USES OF NET OFFERING PROCEEDS Repayment of loan $0.00 $20,000 $70,000 from directors Mechanical $35,000 $45,000 $70,000 renovation of Pullman car1 Cosmetic renovation $3,000 $8,000 $8,000 of Pullman car Marketing expenses $1,000 $1,000 $1,000 Development of web $1,000 $1,000 $1,000 site Working Capital $1,750 $10,500 $23,000 TOTAL $74,750 $85,500 $173,000
Generally the railcar is in very good condition, both cosmetically and mechanically as it has been maintained to the high standards of Class 1 railroads for the last 70+ years. Therefore, we believe our estimates to be conservative.
_________________
1The mechanical renovation required on the car includes essential mechanical upgrades of the wheel assembly in the amount of approximately $25,000 based on estimates from John's Trains, Inc. and discussions with several experienced private railcar owners.
If we raise less than $43,750 from this offering, we will spend those funds we have available on the following items, arranged in order of priority: offering expenses, mechanical renovations, marketing expenses and then web site development.
Douglas R. Nichols, a control person and Craig Stewart, our President and sole director, have collectively loaned us $75,902 as of December 31, 2003 to purchase our 1928 Pullman Railcar and to help fund our ongoing expenses to date. We have reached an agreement with Messrs. Nichols and Stewart whereby we must sell at least 50% of the shares offered before they will be repaid any amounts out of the proceeds from this offering. To the extent we sell more than 50%, we will proportionately increase the amount of the proceeds we will use to repay Messrs. Nichols and Stewart up to $70,000 of the amount loaned if we sell all the shares.
Because we are selling the shares strictly through the efforts of our officer and director, the above numbers do not include any deductions for selling commissions.
In the event we receive the maximum proceeds of $175,000, our management believes that the net proceeds therefrom will provide us with sufficient funds to meet our cash requirements for approximately twelve (12) months following the receipt of this maximum amount.
There is no established public market for the shares of common stock being registered. As a result, the offering price and other terms and conditions relative to the shares of common stock offered hereby have been arbitrarily determined by us and do not necessarily bear any relationship to assets, earnings, book value or any other objective criteria of value. In addition, no investment banker, appraiser or other independent, third party has been consulted concerning the offering price for the shares or the fairness of the price used for the shares.
At December 31 2003, we had a net tangible book value of $0.026 per share. Our only sale of stock to date was 950,000 shares at $0.07 per share to our director and a control person on March 14, 2001 and a sale on March 6, 2001, of 50,000 shares at $0.07 to three other individuals. The following table sets forth the dilution to persons purchasing shares in this offering without taking into account any changes in our net tangible book value, except the sale of 1,400,000 shares at the offering price and receipt of $175,000, less offering expenses estimated to be $2,000. The net tangible book value per share is determined by subtracting total liabilities from our tangible assets, then dividing by the total number of shares of common stock outstanding.
If we sell 100,000 shares the dilution to the new investors will be $0.092; if we sell 350,000 shares the dilution would be $0.074; if we sell 700,000 shares the dilution would be $0.06; and if we sell 1,400,000 shares the dilution would be $0.042 per share.
12/31/03 100,000 350,000 700,000 1,400,000
shares shares shares shares
sold sold sold sold
Public offering price per n/a $0.125 $0.125 $0.125 $0.125
share
Net tangible book value $0.026 n/a n/a n/a n/a
per share of
common stock before the
offering(1)
Pro forma net tangible n/a $0.033 $0.051 $0.065 $0.083
book value per share
of common stock after
the offering
Increase to net tangible n/a $0.007 $0.025 $0.039 $0.057
book value per share
attributable to purchase
of common stock by new
investors
Dilution to new investors n/a $0.092 $0.074 $0.06 $0.042
We are offering up to a maximum of 1,400,000 shares at a price of $0.125 per share to be sold by our director, Craig Stewart. Since our shares are sold through our executive officer and director, no compensation will be paid with respect to such sales. In addition, because the offering is conducted on a "best efforts" basis, there is no assurance that any of the shares offered hereby will be sold.
The offering will remain open until 180 days after this registration statement becomes effective, unless we determine, in our sole discretion, to cease selling efforts. In addition, we may extend the offering for an additional 90 days in our discretion if we think extending the offering will generate enough additional sales of the shares to justify such extension. If we do extend the offering, we will provide written notification to all offerees of the extension. Our officer, directors and stockholders and their affiliates may purchase shares in this offering without limit. Any purchases by Douglas Nichols or Craig Stewart will be done on the same terms as offered to the public and will be made with a view to investment and not resale.
There is no minimum number of shares that must be sold to complete the offering. As a result, there will no escrow of any of the proceeds of this offering. Accordingly, we will have use of such funds once we accept a subscription and funds have cleared. Such funds shall be non-refundable except as may be required by applicable law.
Because our railcar is currently functional, we do not need to receive significant amounts under this offering to continue our operations as we have in the past; however, the receipt of proceeds from this offering should allow us to accelerate our business plan.
There are no legal proceedings currently pending or threatened against us.
Mr. Craig Stewart, age 66, is President, Chief Executive Officer, Chief Financial Officer, Secretary, and Chairman of our Board. Mr. Stewart graduated from the University of Wisconsin in 1961. Mr. Stewart became president of Douglas Stewart Company in 1967 and served in that capacity until 1999, when Mr. Stewart sold his interest in Douglas Stewart Company. Douglas Stewart Company was a college bookstore supplier. After leaving Douglas Stewart Company, Mr. Stewart founded Stewart Partners, a Dallas based real estate investment firm where he still serves as partner. Mr. Stewart is Mr. Nichols' father-in-law.
Mr. Douglas R. Nichols, age 51, a control person, received his BA from Allegheny College in 1974. During the last five years, Mr. Nichols has been the president of First London Securities Corporation, a NASD member firm and its parent DGN Securities Corporation. Mr. Nichols is also a shareholder of DGN Securities Corporation, a corporation whose primary purpose is to serve as the corporate owner of First London Securities Corporation.
Mr. Nichols assisted with the purchase of two Pullman railcars with the Lake Shore Railway Historical Society in the late 1960's. Mr. Nichols has been a director of RailAmerica, since June 1996. RailAmerica is the world's largest operator of short line railroads and its stock is traded on the New York Stock Exchange. Mr Nichols has also been a director of Armanino Foods of Distinction, since June 2001, whose stock is traded on NASDAQ. Mr. Nichols' is also a member of the McKinney Area Transit Authority, a private non profit operator of vintage streetcars in Dallas Texas and managing partner of 2600 State Street Investors and 2603 Fairmount Investors, which are commercial real estate operations based in Dallas Texas. Mr. Nichols is Craig Stewart's son-in-law. During the period from our inception to December 1, 2002, Mr. Nichols served as our President and director. Effective December 1, 2002, Mr. Nichols resigned both positions with our company but continues to be our largest shareholder.
Our Director will serve for one year periods unless removed in accordance with our bylaws.
The following table sets forth certain information with respect to the beneficial ownership of our common stock, before and after giving effect to the sale of the maximum number of shares of common stock offered, by our directors, officers and Persons who own more than 5% of our outstanding common stock. All shareholders have sole voting and investment power over the shares beneficially owned.
Beneficial Ownership
of Common Stock1
-----------------
Shares Owned Percentage of Class
------------ -------------------
Before Offering After Offering
--------------- --------------
Douglas R. Nichols 800,000 80% 33%
2603 Fairmount Street
Dallas TX 75201
Craig Stewart 150,000 15% 6.25%`
6215 Oram Street
Dallas TX 75214
- --------- -------
All directors and 950,000 95% 39.58%
officers and 5%
shareholders as a
group
1There are no persons who hold any options to acquire any shares of our common stock.
Common Stock
Dallas Railroad Company is authorized to issue 20,000,000 shares of common stock, $0.001 par value per share, of which 1,000,000 shares were issued and outstanding when this offering was commenced. We have received an opinion of counsel, included as an exhibit to the registration statement of which this prospectus is a part, opining as to the legality of the shares being offered. The outstanding shares of common stock are fully paid and non- assessable. The holders of common stock are entitled to one vote per share for the election of directors and with respect to all other matters submitted to a vote of stockholders. Shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of such shares voting for the election of directors can elect 100% of the directors if they choose to do so. Our common stock does not have preemptive rights, meaning that our common shareholders' ownership interest would be diluted if additional shares of common stock are subsequently issued and the existing shareholders are not granted the right, in the discretion of the Board of Directors, to maintain their ownership interest in our company. This lack of protection from dilution to minority shareholders could allow our Board of Directors to issue additional shares of our common stock to persons friendly with our existing management, thus preventing any change in control of our company.
Upon any liquidation, dissolution or winding-up of our company, our assets, after the payment of debts and liabilities and any liquidation preferences of, and unpaid dividends on,
any class of preferred stock then outstanding, will be distributed pro-rata to the holders of the common stock. The holders of the common stock do not have preemptive or conversion rights to subscribe for any our securities and have no right to require us to redeem or purchase their shares.
The holders of Common Stock are entitled to share equally in dividends, if, as, and when declared by our Board of Directors, out of funds legally available there, subject to the priorities given to any class of preferred stock which may be issued.
Preferred Stock
Dallas Railroad Company is authorized to issue 10,000,000 shares of preferred stock, $0.01 par value per share. We had no preferred shares issued and outstanding when this offering was commenced. However, the majority of our shareholders may later determine to issue our preferred stock. If done, the preferred stock may be created and issued in one or more series and with such designations, rights, preference and restrictions as shall be stated and expressed in the resolution(s) providing for the creation and issuance of such preferred stock. If preferred stock is issued and we are subsequently liquidated or dissolved, the preferred stock would be entitled to our assets, to the exclusion of the common stockholders, to the full extent of the preferred stockholders' interest in our company.
Although we have no present intent to do so, we could issue shares of preferred stock with such terms and privileges that a third party acquisition of our company could be difficult or impossible, thus entrenching our existing management in control of our company indefinitely.
Dividend Policy
To date, we have not paid any dividends. The payment of dividends, if any, on our common stock in the future is within the sole discretion of our Board of Directors and will depend upon our earnings, capital requirements, financial condition, and other relevant factors. Our Board of Directors does not intend to declare any dividends on the common stock in the foreseeable future, but instead intends to retain all earnings, if any, for use in our business operations.
Transfer Agent and Registrar
We have not currently decided who we are going to use as a transfer agent. If we are successful in establishing a public market for our common stock, we will then name a transfer agent. We may take such steps as are necessary to become our own transfer agent.
Article V of our Bylaws provides that we shall indemnify our officers or directors against expenses incurred in connection with the defense of any action in which they are made parties by reason of being our officers or directors, except in relation to matters as to which such director or officer shall be adjudged in such action to be liable for negligence or misconduct in the performance of his duty. One of our officers or directors could take the position that this duty on our behalf to indemnify the director or officer may include the duty to indemnify the officer or director for the violation of securities laws.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to our
Articles of Incorporation, Bylaws, Nevada law or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or payed by one of our directors, officers or controlling persons, and the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
General
Dallas Railroad Company, was incorporated under the laws of the State of Nevada on March 5, 2001, and is in its early developmental and promotional stages. We acquired our railcar in February 2001. The sale was closed in a cash transaction with CSX Transportation and the car was delivered March 30, 2001. Our general plan is to rent railroad passenger cars for trips throughout North America, through a web page to be developed and other marketing and consulting options. Our primary activities to date have consisted of purchasing a 1928 Pullman railroad passenger car and conducting an initial round of financing raised from our founders, Messrs. Nichols and Stewart and beginning the process of designing and implementing our business plan. In April, 2001, our only sales occurred when First London Securities rented the car for $750 for a daytime excursion for 30 people. Through the proceeds raised from this offering, we expect to be able to market our railcar through print ads in railroad trade magazines, on the internet, travel professionals and word of mouth. Dallas Railroad Company is a member of AAPRCO, which is an organization of private railcar owners, whose purpose is to help members market their services and assist in solving repair problems. Pullman and Budd were the primary passenger railcar builders in the first half of the 20th century and as a result, maintenance and repair issues are similar from car to car. AAPRCO, through its website,WWW.AAPRCO.COM and periodicals such as Private Varnish address many maintenance and marketing issues. We also expect to perform certain cosmetic and mechanical upgrades, at John's Trains in Dallas. and to design and implement our website and establish relationships with travel advisors in hopes of their hiring our car for their clients travel and entertainment needs. The marketing of the railcar, logistics, finances and contracting of rehabilitation work will be supervised by our president, Mr. Stewart.
We currently do not have any written agreements or contracts with any of our vendors, suppliers, customers, consultants or subcontractors. All business is being done on an as needed basis and is agreed upon on a job by job basis.
Our car is subject to Amtrak's mechanical standards and periodic inspections. Our car will be rehabilitated at John's Trains in Dallas Texas. John Radovich is the proprietor of John's Trains and will work on the car at his shop. Mr. Radovich has 10 of his own railroad cars and is well versed in the mechanics of railroad passenger cars, having been an owner for more than 20 years. We will also contract with local craftsmen for the interior work. While we will keep the car historically accurate, we are not subject to any historic or special interest groups standards.
The railroad car will need to be certified by Amtrak before it can be hauled by Amtrak's trains. This certification also satisfies VIA's requirements. We have estimated the necessary mechanical repairs to be $70,000. Our current insurance policy meets or exceeds Amtrak and VIA insurance requirements. While the Amtrak and VIA travel is projected by management to
be an important component of our business plan, we do not believe it would affect our operations and liquidity, as we would concentrate our efforts on the other area of potential business.
The rental railroad car business is served by approximately 60 cars according to Private Varnish Magazine's 2002 annual Directory. These cars come in a variety of configurations, ranging from all coach seating to all bedrooms without any lounge area. Most renters have capacity requirements that limit the type of car that can fill their needs. Our car with bedroom, kitchen, dining, lounge, shower and rear platform facilities will cater to the upper end of the overnight market and should compete effectively for the daytime business user due to our relatively high seating capacity. In management's opinion pricing is difficult to compare as there are many variables ranging from services provided, food and beverage needs, duration of trip, number of layovers, and staffing. We expect to have an inherent advantage in trips originating from Dallas, as we expect to be the only Amtrak certified car available for lease in the area. Trips on railcars are relatively expensive and as a rule of thumb range from approximately $2,000 to $5,000 per day.
We believe that we can be competitive in pricing as our initial purchase price and cost structure is low and the services provided, such as trip planning, accommodations, meals, beverages, amenities, and entertainment will be comparable or better than our competitors. Also, our railcar with its rich history and excellent floor plan provides a unique traveling experience that few of our competitors can provide. In general, most private railcar operators provide similar services with the variable being the level of the quality of the food and beverage served as dictated by the customer.
Management is not aware of a supply of refurbished cars similar to ours that are about to enter the market which in turn could disrupt our competitive position.
All trips contracted with Amtrak or VIA are per their published rate schedules. These are standard fares and are not negotiable. AAPRCO has negotiated these rates for its members, which are less than the fares non-AAPRCO members must pay. Our car will be staffed with a valet, who is also the cook and is versed in the maintenance and operation of the car, which is consistent with all applicable government, railroad, and Amtrak or VIA requirements. This person is also charged with complying with all laws and regulations. Our insurance includes $1,000,000 liability and physical damage coverage. Our carrier specializes in railroad car insurance and insures many of our competitors. Our liability is to the extent of our deductible, which is $2500. Our cost of such a trip includes labor, any repairs, diesel fuel for the generator if operated, transportation, flowers, laundry, food, beverage and any sundries. The cost to the customer includes all of the above, plus a markup. With the exception of the transportation expense and possibly repairs, costs are not very high. Maintenance and operation of the railcar will be performed by John's Trains, Inc.
We foresee our market to be corporate, convention travelers and families taking longer trips. Initially most trips will originate from the Dallas area and be round trip in nature. While some private railcars will operate over 100,000 miles a year, we would hope to lease the railcar 5 - 10 times annually. This level of activity would more than provide the company with all necessary revenue to cover all normal repairs, maintenance and operating expenses.
The railcar is subject to Amtrak certification standards that include an annual inspection. The railcar is also subject to visual inspection at the point of departure of each trip. We are not subject to any licensing or registration.
Our primary goal is to lease the Pullman to maximize revenues. The costs for any given trip are fairly easy to calculate in advance with the exception of any unscheduled repairs or maintenance. Therefore the lease price that generates a profit is also easy to determine. Most of our expenses, exclusive of a trip are fixed in nature. These include insurance, scheduled maintenance, web site maintenance, management and debt service, if any. Trip expenses are calculated by the railroads and Amtrak, pursuant to handling and distance covered in the request for price. If we are successful in executing our business plan and actively leasing the Pullman we will investigate the addition of another Pullman to operate in tandem with the Philadelphia or on its own. We can lease additional cars from several known sources and thereby couple two, three or more cars together to accommodate larger groups that would require more sleeping, dining and lounge facilities.
We will market our railcar through our website, various online free railroad sites, print ads in travel and rail enthusiast magazines, word of mouth, and the AAPRCO annual charter directory. We can also contract with travel professionals on a commission basis. We will market our railcar by offering a variety of different rental opportunities to prospective customers. Such as:
1. Stationary rental for a dinner and/or cocktail party.
2. Long distance rentals behind scheduled Amtrak or VIA Passenger trains. This is expected by our management to be our main source of revenue. These trips can be from 2 days to 2 or more months in duration. The car can be uncoupled from the scheduled train at numerous stations along the way and the passengers can use the car as a hotel while they visit that area. The Amtrak and VIA systems comprise more than 30,000 miles of travel and 1000 stations which provide, in management's opinion, a vast number of opportunities for business and tourist travel.
3. Special event charters would include trips to the Super Bowl, Mardi Gras, collegiate or professional sporting events, trade shows, conventions and reunions. With these trips the car could be rented to one group or we could sell space on an individual basis, or rent the car to a reseller, such as a travel agency or railroad club, who would sell the space on an individual basis.
4. Charters on freight only tracks are popular. We would rent a locomotive and crew from a shortline railroad and take a trip along their tracks. These so called rare mileage trips are popular, as noted in many Trains and Private Varnish ads and articles. with serious rail enthusiasts who are looking for a new and different rail travel experience.
5. We can also sell tickets on a space basis for regularly scheduled trips to popular destinations. These trips would be done on a speculative basis.
6. Theme charter trips such as blues, jazz, country music, wine and food, architecture, historical, museum or golf, for example, all provide marketing opportunities that are conducive for group charters.
Website. We currently have one domain name registered,WWW.DALLASRAILROAD.COM. It is our plan to develop this website to offer various charter packages, basic pricing information, and amenities offered. Contact information will also be provided on this site.
Over the next twelve months we expect our ongoing quarterly expenses will include rent of $450, general and administrative expenses of approximately $1700, railcar insurance expense of $750, depreciation of $2500, interest expense of $700, web site development of $250, and marketing expense of $250.
No amount of the proceeds raised from this offering will be used to pay salaries. In addition, no shares given under this offering will be used to pay any salaries, past or present. If our annual gross rental revenues exceed $25,000, we expect to begin at that time to pay our president, Mr. Stewart a salary of $100 monthly.
Our business plan, if we are successful in generating net profits from our activities, is to increase our marketing effort, possibly purchase an additional railroad car and attempt to grow our company in an orderly way. If we are successful in raising the entire $175,000 proposed to be raised in this offering, we expect it to be sufficient to allow us to conduct business for at least a one year period.
If we raise less than $175,000, our plan is to reduce any repayment of the loans and reduce expenditures on the interior upgrade. The interior upgrades, such as new window treatments, artwork, painting, and carpeting are cosmetic in nature, and would improve the appearance, but they are not essential to our business operation. The mechanical upgrades of the wheel assemblies are estimated at $30,000 by John's Trains Inc. This work will replace any worn components and should last at least 10 years or over 500,000 miles.
If we raise less than $43,750 from this offering, we will spend those funds we have available on the following items, arranged in order of priority: offering expenses, mechanical renovations, marketing expenses and then web site development.
Our expected sources of income are from the rental of the car to individuals, groups, corporations, non profit organizations, and travel agents on a short and long term basis. We expect our expenses to include $35,000 to $70,000 in car rehabilitation, $3,000 in insurance, $1,000 in marketing expense, $1,000 for internet website development to an as yet undetermined vendor, $2,000 offering costs to printers, legal and accountants and $1,750 to $23,000 in working capital for general expenses as may arise. Our expenses per trip will include labor, transportation expense, food and beverage, and repairs or maintenance as may be required. These costs are contingent upon the length and duration of any given trip and any extras stipulated by the customer. We will recognize revenues as earned.
We have begun work on the car. $35,000 will be allocated to mechanical upgrades on the wheel assemblies couplers and frames, and $2,000 for offering costs. If we raise only $43,750, we could not pay off any loans and would not have any money available for general expenses. We would be able to operate the car but would need additional funds to effectively market it, develop our website and have cash available for any additional repairs.
Our cash position at December 31, 2003 was $18,165. As of December 31, 2003, our president has invested $10,500 in equity of the company and has loaned us $5,200 and a control person, Mr. Nichols, has invested $56,000 in equity of the company and has loaned us $70,702. Our prepaid expenses at December 31, 2003 totaled $7,991 consisting of insurance, prepaid repairs and prepaid storage.
Our financial statements reflect a $95,720 cost which includes the $94,600 purchase price and the cost of transportation to move our car to Dallas. The $1,365 spent on furniture was the purchase and installation of an antique 1920's art deco buffet in the lounge. Our
depreciation expense of $15,512 is calculated by our auditors using a five to ten year life on a straight line basis.
We had $16,636 of expenses for the 12 month period ending December 31, 2003 with these expenses including amounts for interest, depreciation expense, insurance, AAPRCO annual membership dues, repairs and maintenance, and miscellaneous other expenses. Our loss for the 12 months ending December 31, 2003 was $4,636 and our accumulated deficit is $44,623 since inception.
We had zero revenues during the 12 month period ending December 31, 2003 as compared to $0 for the period ending December 31, 2002. This lack in revenues was primarily due to the fact that our car was being serviced in Texas and therefore was not available for lease. We had $12,000 in consulting income for the 12 month period ending December 31, 2002. During 2003, we provided consulting services to DGN Securities, a company partially owned by Douglas Nichols, our major shareholder, for which we were paid $12,000. The consulting services we provided consisted of general business advice from our President as well as direction as to how our plan of renting out our rail car might assist DGN in the development of its business relationships.
Our financial transactions to date have been the sale of 950,000 common shares to our director and control person at $0.07 per share and the issuance of 50,000 shares at $0.07 to three individuals, Steven Holmes, in exchange for legal services, Debbie Taylor, in exchange for bookkeeping and edgarizing services, and Michael Young in exchange for management consulting services.
We believe that our one employee can operate this business, since much of the work will be contracted out. Mr. Stewart estimates working an average of 5 - 15 hours per week. We do not anticipate hiring any more employees over the next twelve months, however if revenues justify the same, we may hire more employees.
We have not had any cash or stock paid to our director for services rendered to our company.
We are conducting this offering, in part, because we believe that an early registration of our equity securities will minimize some of the barriers to capital formation that otherwise exist. By having a registration statement in place and by being a reporting company under the federal securities laws, we believe that we will be in a better position, either to conduct a future public offering of our securities or to undertake a private placement with registration rights, than if we were a privately held company. Registering our shares may help minimize the liquidity discounts we may otherwise have to take in a future financing because investors should have a high degree of confidence that the Rule 144(c)(1) public information requirement will be satisfied and a public market will exist to effect Rule 144(g) broker transactions.
We believe that the cost of registering our securities, and undertaking the required disclosure obligations will be more than offset by being able to get better terms for future financing efforts. No specific investors have been identified, but our management has general knowledge of an investor class interested in investing in companies that have some measure of liquidity.
In March 2001, we acquired our 1928 Pullman business railcar. Our car was originally the Michigan Southern business car #1 and was used as transportation and offices for the railroad's top executives. The railcar is 85 feet long, 10 feet wide, and weighs 115 tons. The railcar's floor plan consists of 4 bedrooms, 4 bathrooms with showers, a dining room capable of seating up to 10, a lounge area that seats up to 14, a fully equipped kitchen and a rear brass railed outdoor platform that will seat 4. The car has electric heat and air conditioning, carries 250 gallons of water, has its own self contained sewage treatment equipment and a 65- kilowatt electric generating system for use when the car is not in passenger train service. The interior upgrades we would like to perform include items such as new window treatments, artwork, painting and carpeting are cosmetic in nature and would improve the appearance or our car but are not essential to our business operation. Our car has a rich history, having served the top executives of the Michigan Central, New York Central, Penn Central, Conrail and CSX railroads. The Philadelphia is a good car for charter due to its fairly rare combination of sleeping, shower, kitchen, dining, lounge and rear outdoor platform facilities.
Our car is currently located in Dallas Texas at John's Trains, 800 Jaguar Lane and is in good mechanical and cosmetic condition. We own our railcar free of any liens or other encumbrances. There are no material agreements regarding any third party use or ownership of the car. We advanced $2,600 to John's Train's which we have booked as prepaid rent.
Our principal office is presently at 2603 Fairmount, Suite 200, which is the location of our founder's business. If this arrangement were to be terminated, we could use our railcar for our corporate headquarters. We presently do not pay any rent or have a lease as our business does not require any space for staff or other facilities up to this time.
Our Pullman car is the only property we will require to operate our business for the foreseeable future. If sufficient demand exists, we could add additional cars, but we do not have any present plans to do so.
On March 30, 2001, we signed a promissory note with control person Douglas R. Nichols, whereby Mr. Nichols agreed to loan us up to $100,000, in his sole and absolute discretion. In March, 2001, 800,000 shares of the Company's common stock, valued at $56,000, was issued as partial payment of this note. In addition, we signed another promissory note with our president and director Craig Stewart, whereby Mr. Stewart agreed to loan us up to $15,000, in his sole and absolute discretion. In March, 2001, 150,000 shares of the Company's common stock, valued at $10,500, were issued as partial payment of this note. As of December 31, 2003, the total amount due and owing with respect to both of these notes is $75,902. The loan proceeds were used by the company to purchase our 1928 Pullman. The interest rate on the notes is 5% per annum. The notes are dated March 30, 2001, and are due on demand by Messrs. Nichols and Stewart but if no demand is made then principal and interest are due on or before March 31, 2007. Both Messrs. Nichols and Stewart have told us that they do not intend to seek repayment of their loans prior to March 31, 2005 and, if not repaid sooner, expect to renew the loans at that time so that they would mature on March 31, 2007. If we sell at least 50% of the shares, we will repay Messrs. Nichols and Stewart $20,000 of the amount due to them and will proportionately increase the amount we repay up to $70,000 including interest, of such borrowed amount if we sell all of the shares.
We believe the terms of the loan from Messrs. Nichols and Stewart are more favorable than might otherwise be available to a company with few assets and no operating history; many commercial banks would not even consider such a loan. We believe the interest rate of 5% we are paying on the note is lower than the market rate for loans of this size and type.
We do not have any plans to acquire any assets from related parties. We have not engaged any promoters.
First London Securities rented the car for $750 for a daytime function for 30 people. Our largest shareholder, Mr. Nichols, is also president of First London Securities Corporation.
Our management and control person founded our corporation. Our management also inspected, evaluated, bid on, purchased and delivered our car. Our management has also assessed the work required to refurbish the car and interviewed potential contractors. Our management has written and edgarized this registration statement and selected and worked with the auditors and attorneys who will assist in making our filings with the Securities and Exchange Commission. Our management analyzed and procured insurance, performed labor on the car, bought and supervised the installation of furniture, joined AAPRCO and have educated themselves in the restoration, operation and leasing of the car.
This is our initial public offering so there is currently no public trading market for our common stock. We hope to have a market maker apply to have our common stock prices listed on the bulletin board maintained by National Association of Securities Dealers. To be eligible to have our common stock quoted on the bulletin board, we will be required to file with the Securities and Exchange Commission periodic reports required by the Securities and Exchange Act of 1934 and thus be a "reporting" company, a step we will attempt to accomplish after the effective date of this registration statement.
None of our common stock is subject to outstanding options or rights to purchase nor do we have any securities that are convertible into our common stock. We have not agreed to register any of our stock for anyone nor do we presently have in effect employee stock options or benefit plans that would involve the issuing of additional shares of our common stock. As of December 31, 2003, there were 1,000,000 shares issued and outstanding. All of these shares were issued under section 4 (2 of the Securities Act of 1933) and are, therefore, restricted securities and subject to the re-sale restrictions of Rule 144. As of December 31, 2003, we had five shareholders, only two of whom, our director and control person, own more than 5%.
We have never paid dividends and do not expect to declare any in the foreseeable future. Instead, we expect to retain all earnings for our growth. Although we have no specific limitations on our ability to pay dividends, the corporate law of Nevada, the State under which we are organized, limits our ability to pay dividends to those instances in which we have earnings and profits. If we are unable to achieve earnings and profits in a sufficient amount to satisfy the statutory requirements of Nevada, no dividends will be made, even if our Board of Directors wanted to pay dividends. Investors should not purchase shares in this offering if their intent is to receive dividends.
The following table shows the compensation of the named executive officers since the inception of our company in 2001:
Long Term Compensation
Annual Compensation Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Name Year Sal- Bonus Other Restricted Securities LTIP All Other
and ary Annual Stock underlying Payout Compen-
Principal Compen- Awards Options/ s ($) sation
Position sation ($) SARs (#)
Douglas 2001 0 0 0 0 0 0 0
R.
Nichols,
President
Douglas 2002 0 0 0 0 0 0 0
R.
Nichols,
President
Craig 2001 0 0 0 0 0 0 0
Stewart,
Director
Craig 2002 0 0 0 0 0 0 0
Stewart,
Director
President
Craig 2003 0 0 0 0 0 0 0
Stewart,
Director
President
We presently pay no salaries, however if our annual gross rental revenues exceed $25,000, we expect to pay Mr. Stewart a salary of $100 monthly beginning at that time
On March 30, 2001, we signed a promissory note with Douglas R. Nichols, whereby Mr. Nichols agreed to loan up to $100,000, in his sole and absolute discretion. In March 2001, 800,000 shares of the Company's common stock, valued at $56,000, was issued as partial payment of the note. In addition, we signed a promissory note with our President and Director Craig Stewart, whereby Mr. Stewart agreed to loan us up to $15,000, in his sole and absolute discretion. In March, 2001, 150,000 shares of the Company's common stock, valued at $10,500, were issued as partial payment of the note. As of December 31, 2003, the total amount due and owing with respect to both of these notes is $75,902.
No officer or director has received any remuneration from us other than as set forth above. Although we have no current plan in existence, we may adopt a plan to pay or accrue
compensation to our officers and directors for services rendered. We have no stock option, retirement, incentive or profit sharing plan or program for the benefit of officers, directors or employees but our Board of Directors may recommend the adoption of one or more of such programs in the future.
The following are our financial statements, with independent auditors' report, for the period ending December 31, 2002 and for the period ending December 31, 2003.
Page
Report of Certified Public Accountants F-2
Balance Sheets as of December 31, 2003 and 2002 F-3
Statements of Operations for the Years Ended December 31, 2003 and 2002,
and for the Period March 5, 2001 (Inception) to December 31, 2003 F-4
Statements of Stockholders' Equity for the Period March 5, 2001 (Inception) to
December 31, 2003, and the Years Ended December 31, 2003 and 2002 F-5
Statements of Cash Flows for the Years Ended December 31, 2003 and 2002,
and for the Period March 5, 2001 (Inception) to December 31, 2003 F-6
Notes to Financial Statement F-7
505 N. Big Spring, Suite 603 1931 E. 37th Street, Suite 7 4049 St. Christopher
Midland, Texas 79701 Odessa, Texas 79762 Dallas, Texas 75287
(915) 686-9381 (915) 363-0067 (972) 862-3975
Fax (915) 684-6722 Fax (915) 363-0376 Fax (972) 862-7894
Stockholders and Board of Directors
Dallas Railroad Company, Inc.
Dallas, Texas 75201
We have audited the accompanying balance sheets of Dallas Railroad Company, Inc. (a development stage company) as of December 31, 2003 and 2002, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2003 and 2002, and for the period from March 5, 2001, (inception) to December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dallas Railroad Company, Inc. (a development stage company) at December 31, 2003 and 2002, and the results of its operations and its cash flows for the years ended December 31, 2003 and 2002, and for the period from March 5, 2001, (inception) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
Killman, Murrell & Co., P.C.
Dallas, Texas
March 10, 2004
2003 2002
CURRENT ASSETS
Cash $ 18,165 $ 569
Prepaid Expenses 7,991 9,511
TOTAL CURRENT ASSETS 26,156 10,080
RAILCAR, FURNITURE AND FIXTURES
Railcar 95,720 95,720
Furniture & Fixtures 1,365 1,365
97,085 97,085
Less Accumulated Depreciation (15,512) (15,512)
NET RAILCAR, FURNITURE & FIXTURES 81,573 81,573
TOTAL ASSETS $ 107,729 $ 91,653
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Deferred Revenues $ 6,000 $ -
STOCKHOLDERS' PAYABLE 75,902 61,190
STOCKHOLDERS' EQUITY
Common Stock $0.001 Par Value; Authorized 20,000,000
Shares; Issued and Outstanding 1,000,000 Shares 1,000 1,000
Paid-In-Capital 69,450 69,450
Deficit Accumulated During the Development Stage (44,623) (39,987)
TOTAL STOCKHOLDERS' EQUITY 25,827 30,463
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 107,729 $ 91,653
March 5,2001
Years Ended December 31, (Inception) to
2003 2002 December 31,
2003
REVENUES $ - $ - $ 750
GENERAL AND ADMINISTRATIVE
EXPENSES 13,299 20,289 50,135
LOSS BEFORE OTHER
EXPENSE AND INCOME TAX (13,299) (20,289) (49,385)
OTHER INCOME (EXPENSE)
Consulting Income 12,000 - 12,000
Interest Expense (3,337) (2,736) (7,238)
(LOSS) BEFORE INCOME TAX (4,636) (23,025) (44,623)
INCOME TAX - Note 4 - - -
NET (LOSS) $ (4,636) $ (23,025) $ (44,623)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 1,000,000 1,000,000
(LOSS) PER COMMON SHARE $ (.00) $ (0.02)
Common Stock
Number of Paid-In- Retained
Shares Amount Capital (Deficit) Total
BALANCE, MARCH 5, 2001
(Inception) - $ - $ - $ - $ -
Issuance of Common Stock for
Debt Reduction, Consulting,
and Legal Services 1,000,000 1,000 69,450 - -
Net (Loss) - - - (16,962) (16,962)
BALANCE, DECEMBER 31, 2001 1,000,000 1,000 69,450 (16,962) 53,488
Net (Loss) - - - (23,025) (23,025)
BALANCE, DECEMBER 31, 2002 1,000,000 1,000 69,450 (39,987) 30,463
Net (Loss) - - - (4,636) (4,636)
BALANCE, DECEMBER 31, 2003 1,000,000 $ 1,000 $ 69,450 $ (44,623) $ 25,827
March 5,
2001
Years Ended December 31,
(Inception) to
2003 2002 December
31, 2003
CASH FLOW FROM OPERATING
ACTIVITIES
Net Income (Loss) $ (4,636) $ (23,025) $ (44,623)
Adjustment to Reconcile Net Income
(Loss) to Net Cash
Depreciation - 9,845 15,512
Issuance of Common Stock for
Consulting and Legal Services - - 3,950
Changes in Current Assets and Liabilities
Prepaid Expense 1,520 (5,358) (7,991)
Deferred Revenue 6,000 - 6,000
NET CASH FLOW PROVIDED
(USED) BY OPERATING
ACTIVITIES 2,884 (18,538) (27,152)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Railcar, Furniture and Fixtures - - (97,085)
NET CASH FLOW PROVIDED
BY INVESTING ACTIVITIES - - (97,085)
CASH FLOW FROM FINANCING ACTIVITIES
Loan From Stockholders 14,712 18,525 142,402
NET CASH FLOW PROVIDED
BY FINACING ACTIVITIES 14,712 18,525 142,402
NET INCREASE (DECREASE) IN CASH 17,596 (13) 18,165
CASH AT BEGINNING OF PERIOD 569 582 -
CASH AT END OF PERIOD $ 18,165 $ 569 $ 18,165
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest $ - $ - $ -
Income Tax $ - $ - $ -
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING ACTIVITIES
Issuance of Common Stock - - 1,000
Paid-In-Capital - - 65,500
Decrease in Stockholders' Payable - - (66,500)
$ - $ - $ -
NOTE 1: DEVELOPMENT STAGE COMPANY
Dallas Railroad Company, Inc. (a development stage company) (the “Company”) was incorporated under the laws of the State of Nevada on March 5, 2001. In March 2001, the Company acquired a 1928 Pullman Business Car to be renovated and offered for lease on a short or long-term basis to the general public, corporations, and charitable organizations for trips or on a stationary basis. The Company has been in the development stage since inception and is devoting substantially all of its efforts to financial planning, raising capital, renovating, and marketing.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Year End
The Company has elected a December 31 year end.
Revenue Recognition
Revenue from leasing the railcar and the related costs of sales are recognized as incurred on the accrual method of accounting.
Railcar, Furniture and Fixtures
Railcar, furniture and fixtures are carried at cost, which was equal to its fair value at the time of acquisition. Depreciation is computed principally on the straight-line method using estimated useful lives of ten years for the railcar and improvements to the railcar and five years for the furniture and fixtures. The railcar is being depreciated over a period of ten years, which is an estimate of its useful life based on the age of the railcar and the period which services are expected to be rendered. The railcar was not in service during the year ended 2003; therefore, there is no charge to depreciation for the year ended December 31, 2003.
Major renewals and betterments are added to the property and equipment accounts while the cost of repairs and maintenance is charged against income in the period incurred. Cost of assets, retired or otherwise disposed of, and the applicable accumulated depreciation is removed from the accounts, and the resultant gain or loss, if any, is reflected in operations.
Income Taxes
The Company provides for income taxes by utilizing the asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could vary from the estimates that were used.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average number of common shares outstanding during each respective year. Common stock equivalents that would have had an anti-dilutive effect were excluded from the calculation.
Cash and Cash Equivalents
For the purpose of reporting cash flows, the Company considers cash in operating bank accounts, demand deposits, and cash on hand as cash and cash equivalents.
Financial Instruments
The Company’s financial instruments include cash, cash equivalents, other current assets, and stockholders’ payable. The carrying amounts of these financial instruments have been estimated by management to approximate fair value.
Reclassifications
Certain reclassifications were made to the 2002 financial statement presentation in order to conform to the 2003 financial statement presentation.
NOTE 3: RELATED PARY TRANSACTIONS
The following is a summary of transactions with officers and directors of the Company.
– In March 2001, a major shareholder of the Company extended a five percent (5%) demand note to the Company in the amount of $100,000. If no demand is made, the note is due and payable in full, including interest, on March 31, 2007. The amount due on the note payable at December 31, 2003 and December 31, 2002, was $70,702 and $56,243, including $6,538 and $3,454 of accrued interest, respectively. In March 2001, 800,000 shares of the Company’s common stock, valued at $56,000, was issued as partial payment of the note.
– In March 2001, a director of the Company loaned the Company $15,000 on a five percent (5%) demand note. If no demand is made, the note is due and payable in full, including interest, on March 31, 2007. The amount due on the note payable at December 31, 2003 and December 31, 2002, was $5,200 and $4,947, including $700 and $447 of accrued interest, respectively. In March 2001, 150,000 shares of the Company’s common stock, valued at $10,500, were issued as partial payment of the note.
– The Company charged consulting fees to a major shareholder of the Company in the amount of $18,000. $12,000 was charged for consulting services for the year ended December 31, 2003 and the balance was deferred to 2004.
NOTE 4: FEDERAL INCOME TAXES
Total income tax benefit (expense) is less than the amount computed by multiplying losses before income taxes by the statutory federal income tax rate. The reasons for these differences and the related tax effects at December 31, 2003 and 2002, are:
2003 2002
Tax Benefit at Statutory Rates (34%) $ 1,576 $ 7,829
Differences Resulting From Non-Deductible Expenses - 4,737
Net Operating Carryforward Benefit Valuation Allowance (1,576) (12,566)
Net Income Tax Benefit $ - $ -
The components of the deferred tax assets are as follows:
Deferred Tax Assets
Net Operating Loss Carryforward $ 22,697 $ 21,121
Depreciation (7,525) (7,525)
Total Deferred Tax Asset 15,172 13,596
Less Valuation Allowance (15,172) (13,596)
$ - $ -
There were no deferred tax liabilities at December 31, 2003.
At December 31, 2003, federal tax net operating loss carryforwards were approximately $66,000 and were available to offset future taxable income. Net operating loss carryforwards begin to expire in 2021.
NOTE 5: SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances at various financial institutions. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 2003, the Company’s cash balances did not exceed the federally insured limit.
NOTE 6: NEW ACCOUNTING PRONOUNCEMENTS
The following recent accounting pronouncements:
•FASB Statements
•Number 145, Rescission of ASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
• Number 146, Accounting for Costs Associated with Exit or Disposal Activities.
• Number 147, Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9.
• Number 148,Accounting for Stock-Based Compensation - Transition and Disclousre - an amendment of FASB Statement No. 123.
• Number 149,Amendment of Statement No. 133 on Derivative Investments and Hedging Activities.
• Number 150,Financial Investments with Characteristics of Both Liabilities and Equity.
•and FASB Interpretations
• Number 45,Grantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees on Indebtedness of Others - and Interpretation of FASB Statements No. 5, 57, and 107 and recission of FASB Interpretation of No. 34
• Number 46, Consolidation of Variable Interest Entities 0 an Interpretation of ARB No. 51.
are not currently expected to have a material effect on our financial statements.
We hereby consent to the inclusion in this Amendment No. 2 of the Registration Statement on Form SB–2, of our report dated March 10, 2004 on the balance sheets as of December 31, 2003 and 2002, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2003 and 2002, and for the period from March 5, 2001 (Inception) to December 31, 2003, of Dallas Railroad Company, Inc. We also consent to the reference to our firm under the caption “Experts” in the Prospectus, which is part of the Registration Statement.
/s/ Killman, Murrell & Company, P.C.
KILLMAN, MURRELL & COMPANY, P.C.
Dallas, Texas
March 10, 2004
Indemnification of directors and officers
Article Eight of the Articles of Incorporation and Article Nine of the Bylaws of the Company provide that the Company shall indemnify, to the maximum extent allowed by Nevada law, any person who is or was a Director, Officer, agent or employee of the corporation, and any person who serves or served at the Company's request as a Director, Officer, agent, employee, partner or trustee of another corporation, partnership, joint venture, trust or other enterprise. An officer or director of the Company could take the position that this duty on behalf of the Company to indemnify the director or officer may include the duty to indemnify the officer or director for the violation of securities laws.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the Company's Articles of Incorporation, Bylaws, Nevada law or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or payed by a director, officer or controlling person of the Company and the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Changes in and disagreements with Accountants on Accounting and Financial Disclosure
We have never changed our accountants and have never had any disagreements with our accountants over any financial disclosure regarding our company.
The following is an itemized list of the estimate by the Company of the expenses of the offering:
Type of Expense Amount
--------------- ------
Printing $ 250.00
Accounting Fees $ 750.00
Attorney's Fees and Filing Fees $ 800.00
Mailing $ 200.00
Federal/State Taxes $ .00
Trustee/Transfer Agent Fees $ .00
TOTAL $2,000.00
RECENT SALES OF UNREGISTERED SECURITIES
On or about March 5, 2001, the Company was incorporated under the laws of the State of Nevada. On March 30, 2001, we signed a promissory note with Douglas R. Nichols, whereby Mr. Nichols agreed to loan us up to $100,000, in his sole and absolute discretion. In March 2001, 800,000 shares of the Company's common stock, valued at $56,000, was issued as partial payment of the note. In addition, we signed a promissory note with our president and director Craig Stewart, whereby Mr. Stewart agreed to loan us up to $15,000. In March 2001, 150,000 shares of the Company's common stock, valued at $10,500, were issued as partial payment of the note. The federal exemption we relied upon in issuing the securities was Section 4(2) of the Securities Act. The Section 4(2) exemption was available to us because we did not solicit any investment in the company and instead simply issued shares to our founders, Mr. Nichols and Mr. Stewart. In addition, given Mr. Nichols' and Mr. Stewart's involvement in the establishment of the company, they had access to such information as they deemed necessary to fully evaluate an investment in our company. In addition, the issuance of the shares of stock to Messrs. Nichols and Stewart were exempt under the laws of the State of Texas, the State in which Mr. Nichols and Mr. Stewart reside, pursuant to Section 5 I. (a) of the Texas Securities Act. Section 5 I. (a) of the Texas Securities Act provides that the provisions of the Texas Securities Act shall not apply to the sale of any security by the issuer thereof so long as the total number of security holders of the issuer thereof does not exceed thirty-five (35) persons after taking such sale into account; and such sale is made without any public solicitation or advertisements:
On March 6, 2001, Steven Holmes was issued a total of 20,000 shares at $0.07 per share for a total of $1,400 of our common stock for legal services. On March 6, 2001, Debbie Taylor was issued a total of 15,000 shares at $0.07 per shares for a total of $1,050 for bookkeeping and edgarizing. On March 6, 2001, Michael Young was issued a total of 15,000 shares for a total of $1,050 for management consulting services.
Exhibits
Attached to this registration are the exhibits required by Item 601 of Regulation S-B.
The Company does not presently anticipate using an underwriter in conducting this offering; if the company changes its plan and utilizes an underwriter, the Company will provide to the underwriter, at the closing specified in any underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the Company's Articles of Incorporation, Bylaws, Nevada law or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or payed by a director, officer or controlling person of the Company and the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Dallas, State of Texas on April 30, 2004.
(Registrant) Dallas Railroad Company
By (Signature and Title): /s/ Craig Stewart
-----------------
Craig Stewart, President
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
(Signature) /s/ Craig Stewart
Craig Stewart
(Title) President and Director
(Date) April 30, 2004
Date Filed: April 30, 2004 SEC File No.333-98373
EXHIBIT NO. SEC REFERENCE TITLE OF DOCUMENT LOCATION
NUMBER
1 3 Charter and Bylaws Original Filing
2 5 Opinion and consent of Hoge This Filing
Carter Holmes & Gameros pllc
Attorneys and Counselors at Law
3 15 and 23 Killman, Murrell & Company, P.C. This Filing
Certified Public Accountants
4 23 Consent of Hoge Carter & Holmes This Filing
pllc (See Exhibit 2)
5 10 Promissory notes from Company to Original filing
Doug Nichols and Craig Stewart
6 10 Bill of Sale for Railcar Original filing
STEVEN B. HOLMES TELEPHONE (214) 765-6000
FACSIMILE (214) 292.9354
E-MAIL SHOLMES@CARTER-HOLMES.COM
April 30, 2002
Board of Directors
Dallas Railroad Company
2603 Fairmount, Suite 200
Dallas, Texas 75201
Re: Dallas Railroad Company Registration Statement on Form SB-2
Gentlemen:
We have been retained by Dallas Railroad Company (the "Company") in connection with the Registration Statement (the "Registration Statement") on Form SB-2, to be filed by the Company with the Securities and Exchange Commission relating to the offering of securities of the Company. You have requested that we render our opinion as to whether or not the securities proposed to be issued on terms set forth in the Registration Statement will be validly issued, fully paid, and non-assessable.
In connection with the request, we have examined the following:
1. Articles of Incorporation of the Company;
2. Bylaws of the Company;
3. The Registration Statement; and
4. Unanimous consent resolutions of the Company's Board of Directors.
We have examined such other corporate records and documents and have made such other examinations as we have deemed relevant.
Based on the above examination, we are of the opinion that the securities of the Company to be issued pursuant to the Registration Statement are validly authorized and, when issued in accordance with the terms set forth in the Registration Statement, will be validly issued, and fully paid, and non-assessable under the corporate laws of the State of Nevada.
We consent to our name being used in the Registration Statement as having rendered the foregoing opinion and as having represented the Company in connection with the Registration Statement.
Sincerely,
HOGE CARTER HOLMES & GAMEROS pllc
/s/ Steven B. Holmes
Steven B. Holmes
SBH
We hereby consent to the inclusion in this Registration Statement on Form SB-2, Amendment #1, of our report dated March 10, 2004, on the balance sheet as of December 31, 2003 and 2002, and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 2003 and 2002, and for the period from March 5, 2001 (inception) to December 31, 2003 of Dallas Railroad Company. We also consent to the reference to our firm under the caption "Experts" in the Prospectus, which is part of this Registration Statement.
Dallas, Texas
April 30, 2004
/s/ KILLMAN, MURRELL & COMPANY P.C.
KILLMAN, MURRELL & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS