UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
----------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM__________________TO_____________________
COMMISSION FILE NUMBER 33-14751-D
-----------
FIRST AMERICAN RAILWAYS, INC.
-----------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0443800
------ -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2445 HOLLYWOOD BLVD., HOLLYWOOD, FLORIDA 33020
---------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (954) 920-0606
----------------------------------------
(PREVIOUSLY REPORTED ON FORM 10-KT DATED AUGUST 9, 1996)
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court. Yes[ ] No [ ] NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date:
AT AUGUST 5, 1996 9,050,278 SHARES OF COMMON STOCK,
PAR VALUE $.001 PER SHARE
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
-----
(SIX MONTHS ENDED JUNE 30, 1996)
PART I - FINANCIAL INFORMATION
------------------------------
PAGE
----
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Plan of Operation 7
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
===============================================================================================
ASSETS
CURRENT
Cash $ 11,930,645 $ -
Restricted cash 829,924 -
- -----------------------------------------------------------------------------------------------
Cash and cash items 12,760,569 -
Prepaids and other 144,500 1,680
- -----------------------------------------------------------------------------------------------
Total current assets 12,905,069 1,680
Equipment 12,722 5,992
Asset held for future use 840,000 -
Deposit to related party - 350,000
Deferred loan costs 966,430 -
- -----------------------------------------------------------------------------------------------
$ 14,724,221 $ 357,672
===============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT
Accounts payable $ 13,683 $ 196,076
Accrued liabilities 142,676 120,970
Notes payable to related parties and others - 265,000
- -----------------------------------------------------------------------------------------------
Total current liabilities 156,359 582,046
Convertible notes payable, net 8,250,682 -
- -----------------------------------------------------------------------------------------------
Total liabilities 8,407,041 582,046
- -----------------------------------------------------------------------------------------------
Commitments and contingencies - -
- -----------------------------------------------------------------------------------------------
Stockholders' equity (deficit)
Preferred stock, ($.001 par value, 500,000 shares authorized) - -
Common stock, ($.001 par value, 100,000,000 shares authorized),
9,050,275 and 4,275,000 shares issued and outstanding 9,050 4,275
Additional paid-in capital 8,406,746 1,110,760
Deficit accumulated during the development stage (2,098,616) (1,339,409)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 6,317,180 (224,374)
- -----------------------------------------------------------------------------------------------
$ 14,724,221 $ 357,672
===============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE FROM
FEBRUARY 14, 1994
(INCORPORATION)
THROUGH FOR THE SIX MONTHS FOR THE THREE MONTHS
JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
1996 1996 1995 1996 1995
======================================================================================================
EXPENSES:
Salaries and payroll taxes $ 762,434 $ 157,635 $ 164,251 $ 88,386 $ 89,118
Professional fees 30,790 26,875 2,416 14,425 2,208
General and administrative 380,394 179,064 69,747 105,923 49,728
Interest, net 207,164 188,085 517 187,461 517
Consulting fees 86,637 27,265 32,013 27,265 18,825
Amortization of deferred
loan costs 121,399 121,399 - 121,399 -
Depreciation 3,235 1,055 780 525 571
Expenses from offerings
not completed 506,563 57,829 172,592 21,829 110,114
- ------------------------------------------------------------------------------------------------------
Total expenses 2,098,616 759,207 442,316 567,213 271,081
- ------------------------------------------------------------------------------------------------------
Net loss, representing deficit
accumulated during the
development stage $(2,098,616) $ (759,207) $(442,316) $ (567,213) $ (271,081)
======================================================================================================
Weighted average number of
common shares outstanding - 6,193,452 4,275,000 7,736,905 4,275,000
======================================================================================================
Net loss per common share - ($.12) ($.10) ($.07) ($.06)
======================================================================================================
The Company had no operating activities from February 14, 1994 (incorporation)
through April 30, 1994.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
CUMULATIVE FROM
FEBRUARY 14, 1994
(INCORPORATION) FOR THE
THROUGH SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1996 1995
===================================================================================================================
OPERATING ACTIVITIES:
Net loss $ (2,098,616) (759,207) (442,316)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Salaries forgiven 136,000 -- --
Depreciation 3,235 1,055 780
Amortization of deferred loan costs 121,399 121,399 --
Write-off of deferred offering costs 25,000 -- --
Increase in restricted cash (829,924) (829,924) --
Increase in prepaids and other (144,500) (142,820) (1,000)
Increase (decrease) in accounts payable 13,683 (182,393) 24,924
Increase in accrued liabilities 142,676 21,706 518
- -------------------------------------------------------------------------------------------------------------------
Total adjustments (532,431) (1,010,977) 25,222
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (2,631,047) (1,770,184) (417,094)
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Deposit for purchase of railcar from related party (350,000) -- --
Capital expenditures (505,957) (497,785) (1,137)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (855,957) (497,785) (1,137)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings from related parties 338,388 68,388 50,000
Repayments of notes payable to related parties and others (338,388) (333,388) --
Net proceeds from issuance of notes payable 8,695,682 8,695,682 --
Repayment of notes payable (445,000) (445,000) --
Payment of loan costs (1,087,829) (1,087,829) --
Net proceeds from issuance of common stock 8,279,796 7,300,761 --
Payment of offering costs (25,000) -- --
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,417,649 14,198,614 50,000
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash 11,930,645 11,930,645 (368,231)
Cash at beginning of period -- -- 368,231
- -------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 11,930,645 $ 11,930,645 $ --
===================================================================================================================
Supplemental Disclosures:
Cash paid for interest $ 125,341 $ 125,341 $ --
Application of deposit to related party for
purchase of asset held for future use $ 350,000 $ 350,000 $ --
===================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL The financial information included herein is unaudited.
STATEMENTS Certain information and footnote disclosures normally
included in the financial statements have been condensed or
omitted pursuant to the rules and regulations of the
Securities and Exchange Commission, although the Company
believes that the disclosures made are adequate to make the
information presented not misleading. These financial
statements should be read in conjunction with the financial
statements and related notes contained in the Company's
1995 Annual Report on Form 10-KT. Other than as indicated
herein, there have been no significant changes from the
financial data published in said report. In the opinion of
management, such unaudited information reflects all
adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the unaudited
information shown.
Results for the interim period presented herein are not
necessarily indicative of results expected for the full
year.
6
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. PLAN OF OPERATION
First American Railways, Inc. (the "Company") is in its developmental
stage, and it has had no rail operations; however, the Company has taken
significant steps to commence operations of the Florida Fun-Train including
purchasing its first passenger car, entering into a track rights agreement
(which provides for limited exclusivity rights) with Florida East Coast Railroad
Company ("FEC"), entering into a memorandum of understanding (which contains
limited exclusivity rights) with CSXT Transportation, Inc. ("CSXT") for track
use (which the Company is currently negotiating to reduce to a final contract),
negotiating a letter of intent with the Greater Orlando Aviation Authority to
locate a terminal at the Orlando International Airport, negotiating with Rader
Railcar, Inc. ("RRI"), (which is owned by a director of the Company) for the
construction of the railcars for the Florida Fun-Train, entering the final
design phase of two station terminals, contracting with an outside consultant
for the preparation of a definite marketing strategy and conducting discussions
with major wholesale travel, tour companies, tourist attractions and hotels for
the marketing of the Company's services. The Company anticipates commencing
promotional rail service for the Florida Fun-Train in the Summer 1997 and full
rail service in the Fall 1997. Until full service is commenced, the Company does
not expect to generate any material revenues; nevertheless, during the next
twelve months the Company expects to have significant capital expenditures for
railcar construction, terminal construction, and track and leasehold
improvements, and significant operating expenses for salaries, marketing and
track use (when rail service commences).
The Company plans to use its current available funds (i) to pay the
expenses in connection with the commencement of the operation of the Florida
Fun-Train and (ii) provide working capital to support the Florida Fun-Train's
initial operations to the extent that cash flow from such operation is
insufficient.
The Company intends to commence operations of the Florida Fun-Train in
the Fall 1997. The track rights for the use of the subject route for the Florida
Fun-Train are held by the FEC (between Ft. Lauderdale and West Palm Beach) and
the CSXT (between West Palm Beach and Orlando). The Company has entered into a
ten year agreement with FEC for these rights. This agreement provides that the
Company will pay FEC $18 per train-mile (with a stipulated train size of 15
cars) once the Fun-Train commences operation, with a minimum payment of $500,000
per year. The Company has also entered into a Memorandum of Understanding with
CSXT for use of its portion of the subject route. This latter understanding is
expected to be reduced to a more formal agreement which is expected to require
the Company to pay the greater of (i) $20 per train-mile, or (ii) 16% of the
applicable ticket revenue of the Florida Fun-Train.
7
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
During this development stage, the Company intends to purchase
additional Fun-Train railcars pursuant to a construction agreement expected to
be negotiated with RRI. The Company expects to spend a maximum of approximately
$9.2 million to purchase up to 12 railcars and make exterior modifications to
three diesel locomotives. The Company expects to lease the three diesel
locomotives prior to commencing operations, and it estimates, based on current
available information, that diesel locomotives are generally available for lease
for approximately $14,000 per month per locomotive.
Before the Florida Fun-Train rail operations can commence, the Company
must construct or otherwise obtain the use of terminals at each end of the
proposed route. The Company is currently in negotiations in this regard, and in
this connection the Company is in the process of finalizing its cost estimates
and determining the extent of governmental support for these activities, if any.
Also, during the 12 months ending June 30, 1997, the Company expects to increase
its work force from the eight persons currently employed by the Company (six of
whom are management). The Company will be required to hire approximately thirty
additional employees; however, the exact number of employees is dependent on the
Company's decision with respect to "outsourcing", its marketing and rail
operations functions, etc.
DEVELOPMENT STAGE ACTIVITIES AND LIQUIDITY
GENERAL: Neither the Company nor its predecessor by merger, First
American Railways, Inc., a Florida corporation, have had any revenue from
operations, and the Company has had accumulated losses of approximately $2.1
million (unaudited) for the period from February 14, 1994 (incorporation)
through June 30, 1996. The Company expects such losses to continue at least
through commencement of its full rail operations in the Fall 1997, and perhaps
thereafter. Since inception the Company's (and its predecessor's) activities
have been funded by the private placement of its securities and by borrowings,
the net cash proceeds from which have totaled $15,417,649; of this amount,
approximately $507,000 in cash was used to pay the expenses of offerings not
completed, and approximately $850,000 in cash was used to purchase a rail car
for future use.
THREE AND SIX MONTHS ENDED JUNE 30, 1995: The Company explored various
financing alternatives; however, no additional capital was raised during this
period. The Company borrowed an additional $50,000 in order to support its
operations. During the three and six months ended June 30, 1995, the Company had
a net loss of approximately $271,000 and $442,000, respective-ly, of which
approximately $110,000 and $173,000, respectively, were expenses of offerings
not completed. In addition, a significant amount of other expenses, principally
the salaries of officers and employees, were expended in connection with capital
raising activities.
8
THREE AND SIX MONTHS ENDED JUNE 30, 1996: In March 1996, the Company
completed a private placement of securities in which it sold an aggregate
375,004 shares of common stock and issued $500,000 in convertible notes, bearing
interest at 10% per annum, for aggregate net proceeds of $393,709. In April-May
1996, the Company completed a private placement of securities, in which it sold
3,950,271 Series A Warrants, exercisable at $3.50 per share, and 4,050,271
shares of Common Stock valued at $8,250,683 and issued $8,250,682 (principal
amount) in Notes, bearing interest at 10% per annum, for aggregate net proceeds
of $14,514,905 (of which $416,300 was not cash consideration, but represented
the conversion of the principal and accrued interest on certain secured notes
issued in the March 1996 private placement into securities sold in the April-May
1996 private placement).
The Company used $783,388 of the proceeds to repay $333,388 in notes
payable to related parties and others, and $445,000 to repay notes payable from
the financing completed in March 1996. In addition, in June 1996 the Company
made a payment of $536,000 to RRI representing the final payment (plus interest)
due on the first railcar purchased. In addition, a significant portion of the
proceeds of the May 1996 private placement (approximately $830,000) were
escrowed to pay the first year's interest on the Notes sold in that private
placement.
During the three and six months ended June 30, 1996, the Company had a
net loss of approximately $567,000 and $759,000, respectively. The major
components of the loss for the three months ended June 30, 1996, were interest
expense of approximately $187,000 resulting primarily from the April-May private
placement and the amortization of approximately $121,000 deferred loan costs
relating to the notes payable that were repaid in May 1996.
To date the Company has not generated any revenue and as of June 30,
1996 it had accumulated losses of approximately $2.1 million (unaudited). At
June 30, 1996, the Company had working capital approximately of $12.7 million
and stockholders' equity of approximately $6.3 million (unaudited).
LIQUIDITY: The Company's future cash requirements will be significant.
The Company expects that the proceeds from the Private Placements, in
conjunction with other leasing and financing opportunities, to be sufficient to
enable the Company to commence operations of the Florida Fun-Train in the Fall
1997. There can be no assurance, however, that operations will in fact commence
as scheduled, nor that unanticipated problems may arise which may necessitate
the need for additional financing until the Company can generate revenues
sufficient to meet operating expenses. Further, there can be no assurance that
the Company will not experience adverse changes in its business prospects, its
proposed operations, or in the transportation or tourism industries, or the U.S.
economy, generally.
9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
(i) Form 8-K dated May 9, 1996, reporting Item 1. "Changes in
Control", Item 2. "Acquisition or Disposition of Assets",
and Item 5. "Other Events", which included the following
financial statements:
/bullet/ Financial statements for First American Railways, Inc., a
Florida corporation, covering the year ended April 30,
1995 and the nine month periods ended January 31, 1996 and
1995 (unaudited).
/bullet/ Unaudited pro forma combined financial statements of the
Registrant giving effect to the acquisition of First
American Railways, Inc., a Florida corporation, by merger.
(ii) Form 8-K dated May 13, 1996, reporting Item 4. "Changes
in Registrant's Certifying Accountant."
(iii) Form 8-KA dated June 12, 1996, amending Form 8-K dated
May 9, 1996, to supply financial statements for the period
ended May 10, 1996, which reflected (i) the merger whereby
the Registrant acquired First American Railways, Inc., a
Florida corporation, and changed its name to "First
American Railways, Inc.", and (ii) the consummation of an
associated private offering of securities.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this Form 10-QSB report to be signed on its behalf by the undersigned
hereunto duly authorized.
FIRST AMERICAN RAILWAYS, INC.
BY: /S/ ALLEN C. HARPER
-------------------------------------
Allen C. Harper, Chairman of the
Board of Directors and Chief
Executive Officer
BY: /S/ WILLIAM T. NANOVSKY
--------------------------------------
William T. Nanovsky, Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATED: AUGUST 19, 1996
11