Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2012
Commission file number
000-54648
LAS VEGAS RAILWAY EXPRESS, INC.
(Exact name of Registrant as Specified in its Charter)
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Delaware
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56-2646797
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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6650 Via Austi Parkway, Suite 170
Las Vegas, NV 89119
(Address of principal executive offices)
702-583-6715
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.0001 PAR VALUE
(Title of Class)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes [ ] No [ X ]
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
Aggregate market value of Common Stock held by non-affiliates based on the closing price of the registrant's Common Stock on the OTCBB on September 30, 2011 was $3,321,267.
Number of outstanding shares of common stock as of June 22, 2012 was 83,362,303.
Documents Incorporated by Reference: None.
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LAS VEGAS RAILWAY EXPRESS, INC.
TABLE OF CONTENTS
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PART I
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PAGE
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Item 1.
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Business
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4
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| Item 1A | Risk Factors | 10 |
| Item 1B | Unresolved Staff Comments | 14 |
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Item 2
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Properties
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14
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Item 3.
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Legal Proceedings
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14
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Item 4.
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Mine Safety Disclosures
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14
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PART II
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14
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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14
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Item 6.
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Selected Financial Data
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15
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Item 7.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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16
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk.
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19
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Item 8.
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Financial Statements and Supplemental Data
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20
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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36
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Item 9A.
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Controls and Procedures
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36
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Item 9B.
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Other Information
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37
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PART III
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37
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Item 10.
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Directors, Executive Officers and Corporate Governance
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37
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Item 11.
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Executive Compensation
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41
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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43
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Item 13.
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Certain Relationships and Related Transactions and Director Independence.
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44
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Item 14.
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Principal Accounting Fees and Services
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44
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PART IV
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44
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Item 15.
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Exhibits and Financial Statement Schedules
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45
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SIGNATURES
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46
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LAS VEGAS RAILWAY EXPRESS, INC.
EXPLANATORY NOTE
Las Vegas Railway Express, Inc. (the “Company”, “we”, “us”, or “our”) is filing this Amendment No. 1 to its Annual Report on Form 10-K/A (the "Amended 10-K") to amend its Annual Report on Form 10-K for the year ended March 31, 2012, filed with the Securities and Exchange Commission (the "SEC") on July 10, 2012 (the "Original 10-K"). This Amended 10-K restates, for reasons described below, the balance sheets as of March 31, 2012 and 2011 and its related statements of operations, stockholders’ deficit and cash flows for the years ended March 31, 2012.
The accompanying balance sheets as of March 31, 2012 and 2011 and related statements of operations, stockholders’ deficit and cash flows for the year ended March 31, 2012 have been restated for the following errors:
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(1)
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Reflect a correction in the presentation of common stock subscribed related to the purchase of the train business, from a liability to stockholders’ equity. The nature of this account is such that it will not be settled with cash or other assets, but rather it will be settled by issuance of a fixed number of Company’s common stock. Accordingly it should be classified in stockholders’ equity.
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(2)
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Certain of the warrants outstanding had elements that qualified them as derivative liabilities instead of equity. And two of the notes payable also had embedded elements that required bifurcation and statement as derivative liabilities. Accordingly, we obtained a third party valuation of the warrants and embedded derivatives and reclassified them as derivative liabilities.
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(3)
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The Company made corrections to the way it accounts for stock based compensation.
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(4)
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Finally, the Company has determined that since goodwill is amortized for income taxes, but not for books, there exists a temporary difference in the carrying amount of this asset between book and tax. Furthermore, as it cannot be concluded that this difference can be absorbed by the Company’s net operating loss carryforward, it is necessary to record a deferred income tax liability.
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Amendments to the Original 10-K
For the convenience of the reader, this Amended 10-K sets forth the Original 10-K, as modified and superseded where necessary to
reflect the restatement. The following items have been amended principally as a result of, and to reflect, the restatement:
• Part II — Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
• Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations;• Part II — Item 8. Financial Statements and Supplementary Data;
• Part II — Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure;
• Part II — Item 9A. Controls and Procedures;
• Part III — Item 14. Principal Accountant Fees and Services; and
• Part IV — Item 15. Exhibits and Financial Statement Schedules.
In accordance with applicable SEC rules, this Amended 10-K includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing. Except for the items noted above, no other information included in the Original 10-K is being amended by this Amended 10-K. The Amended 10-K continues to speak as of the date of the Original 10-K, and we have not updated the filing to reflect events occurring subsequently to the Original 10-K date, other than those associated with the restatement of the Company's financial statements. Accordingly, this Amended 10-K should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original 10-K.
PART I
Item 1. Business
History
Las Vegas Railway Express, Inc. (the “Company”, “we”, “us”, or “our”) was formed as a Delaware corporation in March 9, 2007 as Corporate Outfitters, Inc., a development stage company whose business plan involved establishing itself as a specialized brand promotional merchandising company. On November 3, 2008, pursuant to a common stock purchase agreement, the Company acquired all of the outstanding capital stock of Liberty Capital Asset Management. In connection with the acquisition, the Company changed its name to Liberty Capital Asset Management, Inc. and changed its business plan to one of acquiring pools of non-performing loans and restructuring the financial parameters such that the defaulted borrower can return to making payments in a timely manner. On January 21, 2010, the Company acquired all of the assets of Las Vegas Railway Express, a Nevada corporation. In connection with the acquisition, the Company changed its name to Las Vegas Railway Express, Inc. and changed its business plan to one of developing passenger rail transportation and ancillary ticketing and reservation services between the Los Angeles area and Las Vegas, Nevada.
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Company Overview
The Company’s plan is to establish a rail passenger train service between Las Vegas and Los Angeles using existing railroad lines currently utilized by two Class I railroads, Burlington Northern and Union Pacific. The development concept is to provide a Las Vegas style experience on the train (which we plan to call the “X” Train), which would traverse the planned route in approximately 5 hours. We plan to operate a single travel route marketed primarily to a leisure traveler from the Southern California basin enabling us to sell rail travel as a stand-alone operation with hotel rooms and other travel related services. Our unique travel option will offer a diversified product that will set us apart from travel related options of automobile and air.
The Company is in discussions with both the Union Pacific Railroad and the BNSF Railway seeking to secure rail trackage rights agreements. The Company has reached a preliminary agreement with Union Pacific Railroad awaiting finalization of the BNSF agreement and certain capital planning issues. An updated capacity planning and feasibility analysis has substantially been completed for Union Pacific and is in final discussion with BNSF. A series of passenger railcars has been negotiated to be acquired under an agreement with Transportation Management Services. The Company has executed a Memorandum of Understanding (or MOU) with the Plaza Hotel as a Las Vegas station site and has a similar pending agreement with the City of Fullerton for use of that station for the Los Angeles terminus of the service. The Company has executed an MOU with AMTRAK outlining duties and responsibilities of each party.
The Company estimates that it will need to obtain $35MM in additional capital to begin operations of our train service. The Company intends to seek to raise these funds through the public or private sale of equity and/or debt securities. There is no assurance such funding will be available on terms acceptable to the Company, or at all. If the Company succeeds in raising such funds, it intends to use them for railcar purchase, design, refurbishment and outfitting, Las Vegas depot design and construction, lease payments, UP and BNSF mileage fees, salaries and other professional fees and also information technology and corporate infrastructure development. Subject to obtaining needed funding, the Company estimates that the train service will start in 3rd quarter of 2013.
The Company’s common stock is currently quoted on the OTCBB under the symbol XTRN. The company website is www.vegasxtrain.com. The contents of this site are not incorporated in this Memorandum.
The Company maintains offices at 6650 Via Austi Parkway, Suite 170, Las Vegas, Nevada 89119.
Marketplace
There has been no regular passenger rail service between these two demographic areas for 13 years. The only major highway between Los Angeles and Las Vegas is Interstate 15 (I-15). Over 12 million people travel this corridor from LA to Las Vegas every year and as the LA population grows, so will the traffic on this highway. The forecast for traffic on I-15 is expected to be 17 million by 2030. It is congested and becoming increasingly so, with motor vehicle travelers experiencing substantial delays during peak travel times (e.g., Friday and Sunday afternoons to 6 hours or more). With increasing fuel costs, increasingly restrictive highway capacity, and reduced air travel from LA to Las Vegas, a rail transportation product with a Vegas motif, is a viable alternative.
The Southern California traveler represents a third of all visitors to Las Vegas and 95% of these travelers use their automobile to travel to Las Vegas. If we capture 237,000 of these drivers (2.0% of the total marketplace) in Year 1, it will fill our product to its initial capacity and achieve profitability with additional capacity being added through Year 5.
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Travel from Southern California to Las Vegas constitutes a major portion of visitor activity and is a financial foundation for the economy of the Las Vegas region. About a third of all Vegas visitors are Californians, according to a survey by the Las Vegas Convention and Visitors Authority in 2010. Statistics collected by the Center for Business and Economic Research at UNLV show that of 44.5 million annual visitors that drove into the Las Vegas Valley in 2010, 27% arrived from Southern California.
Products and Services
Class 1 Railroad Access
The Burlington Northern Santa Fe Railroad and the Union Pacific Railroad are the two largest Class 1 railroads in the United States and own the railroad right of way between Los Angeles, California and Las Vegas, Nevada, where we plan to have the “X” Train operate its service. The first step in allowing any passenger train service along their infrastructure is the completion of capacity planning and logistics studies in order for the Class I railroads to align the introduction of passenger service with their existing freight business. Final scheduling of the “X” Train time slot will be finalized by the third quarter of 2012.
AMTRAK
We entered into an arrangement with AMTRAK in September 2009 in connection with our goal of reinstating passenger rail service on the Las Vegas/Los Angeles rail corridor. AMTRAK had planned, but abandoned the service when their Federal funding did not materialize in 2006. We then began negotiations with AMTRAK to take over their position to run service on the route. Now, almost 3 years later, we have executed with AMTRAK the first of several agreements on this route and they have agreed to provide locomotive engineers, conductors, train servicing, maintenance, ticketing services, and a host of other services associated with the operations of The “X” Train.
Train Operations
The proposed route of The “X” Train is approximately 300 miles with the end points being Fullerton, California and then direct to Las Vegas, Nevada, The railroad Rights-of-Way (ROW) over which passenger train service could operate between Las Vegas and Los Angeles, California include privately and publicly owned segments. The privately-held portions are owned either by BNSF Railway (BNSF) or by Union Pacific Railroad (UPRR).
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Las Vegas Railway Express, Inc. has negotiated a trackage rights agreement with Union Pacific Railroad allowing our “X” Train access to their portion of our route. This agreement from Union Pacific Railroad is pending execution subject to the concurrence of the Burlington Northern Santa Fe Railroad by 3rd quarter of 2012.
Our agreements with the owners of the track where our route will travel and our willingness to pay the owners a competitive market rate gives our “X” Train the status needed to meet our scheduled travel times. In railroad terms, the owners of the track will allow our “X” Train to pass slower and longer freight trains by moving to the numerous sidings along the route. Further, such track owners will ensure immediate maintenance of any and all track maintenance and other services that we would rely on for prompt and safe service.
In addition, the Class 1 railroads have completed their capacity planning analysis. These projects are performed by the railroad companies and include a specific time and destination study of the exact consist we will be running on the proposed existing rail infrastructure in our route..
Haulage Agreements
Our agreement with AMTRAK would provide us with trained T&E crews, consulting and inspection services during design, development and construction and daily inspections services to ensure safe and reliable operations. In addition to the stated services, our agreement and operating partnership would bring the following strengths:
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Experience in operating passenger rail service
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Existing contracts with Class I railroads
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Liability insurance caps
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Experienced crew and maintenance teams
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Established ticketing infrastructure on- line for cross marketing opportunities
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Established relationships with host railroads
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AMTRAK will not be involved in any customer service operations related to our stated customer service standards.
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Fullerton Station
As the Los Angeles departure and arrival points of our service, Fullerton was chosen for a number of reasons.
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Within 26 miles from LA |
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Located in the sixth largest population county in the United States
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Links to Los Angeles County via public roads, bus and rail routes
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Very affluent
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Tourism-centric
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Connection to MetroLink services where there are over 15,000 daily boarding’s with easy connection to Union Station passengers
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Strategic marketing and ridership partnership opportunities with MetroLink
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| ● | Proximity to Disneyland for Las Vegas marketing efforts |
Las Vegas Station
Our Las Vegas arrival statement will be located within the Downtown Las Vegas gaming and resort district boarding and connected to the recently remodeled Plaza Hotel and Casino. Adjacent to Union Pacific’s main line and Symphony Plaza, our re-modeled station (formally AMTRAK’s Las Vegas station for its Dessert Wind) was chosen for:
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Its parking and local transportation ease of ingress and egress
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| ● | Location along the Union Pacific Railroad mainline |
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10 minutes from over 150,000 hotel rooms
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Impact of ridership views along the famous Las Vegas “Strip”
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Strategic alliances with Fremont Street Experience, Downtown Redevelopment Agency and Las Vegas Convention and Visitors Agency
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Low cost proximity to traveling staff accommodations
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These are examples of specifications and drawing disclosures of the train and station concept that will help you understand what constitutes a complete design of the train, which are provided as examples only. Actual designs will vary from these illustrations.
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Our Business Strategy
Capture And Divert Current Automobile Travelers. 95% of the 12,000,000 annual visitors from the Southern California/Los Angeles market drive to Las Vegas. In order to fill the initial “X” Train, we need only to divert/convert 237,000 from their car to the train or just 2.0% of the total annual drivers. The two demographic areas have significantly grown their population bases without the needed automobile infrastructure growing with it. 95% of all Las Vegas travelers from the Southern California basin drive to Las Vegas using the I-15 corridor.
Operating Partnerships with Host Railroads to Deliver on Time Performance. Our agreements and our ability to pay a “market rate” with the two host railroad companies will be designed to ensure we and they will have no issues with their freight business and that they will ensure a high on-time result.
Operating Partnerships with Los Angeles based commuter Rail services. Metrolink. The “X” Train is leveraging various relationships in the Los Angeles Metro area and one of them is the co- marketing plan with Metrolink. Metrolink operates commuter passenger rail service in the greater Los Angeles metro area and services over 12 million riders annually. Metrolink has 55 local train stations which share the same right of way and/or connect to X Train planned station at Fullerton, California. By joint venturing a marketing plan with Metrolink, “X” Train gains access to its ridership for travel to Las Vegas.
Metrolink is looking to expand its weekend ridership and the “X” Train is a viable candidate. Discussions have already begun with Metrolink towards forging a joint marketing and operations plan for “X” Train to have access to the 55 stations in the Metrolink network.
Capacity Management. We plan to start out with two (2) roundtrips a week. We anticipate that our capacity will be nearly 1,200 passengers a day. If demand fluctuates, we anticipate that we will have the ability to add or subtract cars to meet the demands of each day. In year 2 of our Business Plan we plan to add two additional trains to our schedule and by year 5 we anticipate having 10 trains running on this route.
Low Operating Costs. Most transportation travel companies have very high fixed and variable costs associated with operating their businesses and can comprise up to 70% of all of their operating costs. Our model projects a stabilized cost associated with hauling our train comprised of negotiated rates with the host railroads. Corporate overhead is minimal.
Competition
Las Vegas Railway Express’ “X” Train will have no conventional passenger rail service competing against our product. The 2012 Nevada State Rail Plan (www.nvrailplan.com) reviewed all the proposals for rail services for the year and Las Vegas Railway Express, Inc. was among the recommended projects.
There are two proposed high speed rail alternatives:
DesertXpress - Private Las Vegas Company
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High-speed rail
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Las Vegas to Victorville, CA (85 miles from Los Angeles)
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Requires right-of-way acquisition
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$6 billion to construct new rail system
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7-10 years to complete if funded
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Mag-Lev - American Mag-Lev Sponsor
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High-speed magnetic levitation technology
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Las Vegas to Anaheim, CA (25 miles from Los Angeles)
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Requires right-of-way acquisition
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$15 billion to construct
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15 years to complete if funded
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Intellectual Property
None.
Employees
As of March 31, 2012, we had 5 full-time employees, of whom 1 was in an administrative position and 4 were in management.
Item 1A. Risk Factors
Risk Factors
Investing in our Common Stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before making an investment decision. If any of the possible adverse events described below actually occurs, our business, results of operations or financial condition would likely suffer. In such an event, the market price of our Common Stock could decline and you could lose all or part of your investment.
We have a history of losses and a large accumulated deficit and we may not be able to achieve profitability in the future.
We have net losses of $2,006,033 and $1,791,983 for the years ended March 31, 2012 and 2011, respectively. As of March 31, 2012, we have an accumulated deficit of $11,809,532. There can be no assurance that we will be profitable in the future. If we are not profitable and cannot obtain sufficient capital we may have to cease our operations.
Changes in government policy could negatively impact demand for the Company’s services, impair its ability to price its services or increase its costs or liability exposure.
Changes in United States government policies could change the macroeconomic environment and affect demand for the Company’s services. Developments and changes in laws and regulations as well as increased economic regulation of the rail industry through legislative action and revised rules and standards applied by the U.S. Surface Transportation Board in various areas, including rates, services and access to facilities could adversely impact the Company’s ability to determine prices for rail services and significantly affect the revenues, costs and profitability of the Company’s business. Additionally, because of the significant costs to maintain its rail network, an increase in expenditures related to the maintenance of the rails owned by the Class I railroads could hinder the Company’s ability to maintain, improve or expand the rail network, facilities and equipment in order to accept or handle our Company’s increased demand. Federal or state spending on infrastructure improvements or incentives that favor other modes of transportation could also adversely affect the Company’s revenues.
The Company’s success depends on its ability to continue to comply with the significant federal, state and local governmental regulations to which it is subject.
The Company is subject to a significant amount of governmental laws and regulation with respect to its and practices, taxes, railroad operations and a variety of health, safety, labor, environmental and other matters. Failure to comply with applicable laws and regulations could have a material adverse effect on the Company. Governments may change the legislative and/or regulatory framework within which the Company operates without providing the Company with any recourse for any adverse effects that the change may have on its business. Federal legislation enacted in 2008 mandates the implementation of positive train control technology by December 31, 2015, on certain mainline track where intercity and commuter passenger railroads operate and where toxic-by-inhalation hazardous materials are transported. This type of technology is new and deploying it across our host railroads’ infrastructure may pose significant operating and implementation risks and could require significant capital expenditures.
As part of the Class I railroad operations, the Company will traverse rails that frequently transports chemicals and other hazardous materials, which could expose it to the risk of significant claims, losses and penalties.
The “host” or Class I railroads are required to transport these commodities to the extent of its common carrier obligation. An accidental release of these commodities could result in a significant loss of life and extensive property damage as well as environmental remediation obligations. The associated costs could have an adverse effect on the Company’s operating results, financial condition or liquidity. In addition, insurance premiums charged for some or all of the coverage currently maintained by the Company could increase dramatically or certain coverage may not be available to the Company in the future if there is a catastrophic event related to rail transportation of these commodities.
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Downturns in the economy could adversely affect demand for the Company’s services.
Significant, extended negative changes in domestic and global economic conditions that impact the customers transported by the Company and may have an adverse effect on the Company’s operating results, financial condition or liquidity. Declines in economic growth and the United States travel industry all could result in reduced revenues in one or more business units.
Negative changes in general economic conditions could lead to disruptions in the credit markets, increase credit risks and could adversely affect the Company’s financial condition or liquidity.
Challenging economic conditions may not only affect revenues due to reduced demand for many goods and services, but could result in payment delays and increased credit risk. Railroads are capital-intensive and may need to finance a portion of the building and maintenance of infrastructure as well as locomotives and other rail equipment. Economic slowdowns and related credit market disruptions may adversely affect the Company’s cost structure, its timely access to capital to meet financing needs and costs of its financings. Declines in the securities and credit markets could also affect the Company’s pension fund and railroad retirement tax rates, which in turn could increase funding requirements.
The Company is subject to stringent environmental laws and regulations, which may impose significant costs on its business operations.
The Company’s operations are subject to extensive federal, state and local environmental laws and regulations concerning, among other things, emissions to the air; discharges to waters; the generation, handling, storage, transportation and disposal of waste and hazardous materials; and the cleanup of hazardous material or petroleum releases. Changes to or limits on carbon dioxide emissions could result in significant capital expenditures to comply with these regulations with respect to the Company’s diesel locomotives, equipment, vehicles and machinery and its maintenance yards. Emission regulations could also adversely affect fuel efficiency and increase operating costs. Further, local concerns on emissions and other forms of pollution could inhibit the Company’s ability to build facilities in strategic locations to facilitate growth and efficient operations. In addition, many land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in discharges onto the property. The Company’s subsidiaries have been and may continue to be subject to allegations or findings to the effect that they have violated, or are strictly liable under, these laws or regulations. The Company’s operating results, financial condition or liquidity could be adversely affected as a result of any of the foregoing, and it may be required to incur significant expenses to investigate and remediate environmental contamination.
Fuel supply availability and fuel prices may adversely affect the Company’s results of operations, financial condition or liquidity.
Fuel supply availability could be impacted as a result of limitations in refining capacity, disruptions to the supply chain, rising global demand and international political and economic factors. A significant reduction in fuel availability could impact the Company’s ability to provide transportation services at current levels, increase fuel costs and impact the economy. Each of these factors could have an adverse effect on the Company’s operating results, financial condition or liquidity. If the price of fuel increases substantially, the Company may be able to offset a significant portion of these higher fuel costs through a fuel surcharge program or increase in ticket prices, which may result in loss of customers.
Severe weather and natural disasters could disrupt normal business operations, which would result in increased costs and liabilities and decreases in revenues.
The Company’s success will be dependent on its ability to operate its railroad system efficiently. Severe weather and natural disasters, such as tornados, flooding and earthquakes, could cause significant business interruptions and result in increased costs and liabilities and decreased revenues. In addition, damages to or loss of use of significant aspects of the Company’s infrastructure due to natural or man-made disruptions could have an adverse effect on the Company’s operating results, financial condition or liquidity for an extended period of time until repairs or replacements could be made. Additionally, during natural disasters, the Company’s workforce may be unavailable, which could result in further delays. Extreme swings in weather could also negatively affect the performance of locomotives and rolling stock.
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The Company’s operational dependencies may adversely affect results of operations, financial condition or liquidity.
Due to the integrated nature of the United States’ freight transportation infrastructure, the Company’s operations may be negatively affected by service disruptions of other entities such as ports and other railroads which interchange with the Company and its Class I railroad partners. A significant prolonged service disruption of one or more of these entities could have an adverse effect on the Company’s results of operations, financial condition or liquidity.
Acts of terrorism or war, as well as the threat of war, may cause significant disruptions in the Company’s business operations.
Terrorist attacks and any government response to those types of attacks and war or risk of war may adversely affect the Company’s results of operations, financial condition or liquidity. The Company’s use of the Class I railroad rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror, which could cause significant business interruption and result in increased costs and liabilities and decreased revenues, which could have an adverse effect on operating results and financial condition. Such effects could be magnified if releases of hazardous materials are involved. Any act of terror, retaliatory strike, sustained military campaign or war or risk of war may have an adverse impact on the Company’s operating results and financial condition by causing unpredictable operating or financial conditions, including disruptions of our host railroads or connecting rail lines, loss of critical customers or partners, volatility or sustained increase of fuel prices, fuel shortages, general economic decline and instability or weakness of financial markets. In addition, insurance premiums charged for some or all of the coverage currently maintained by the Company could increase dramatically, the coverage available may not adequately compensate it for certain types of incidents and certain coverage’s may not be available to the Company in the future.
The Company depends on the stability and availability of its information technology systems.
The Company relies on information technology in all aspects of its business. A significant disruption or failure of its information technology systems could result in service interruptions, revenue collections, safety failures, security violations, regulatory compliance failures and the inability to protect corporate information assets against intruders or other operational difficulties. Although the Company has taken steps to mitigate these risks, a significant disruption could adversely affect the Company’s results of operations, financial condition or liquidity. Additionally, if the Company is unable to acquire or implement new technology, it may suffer a competitive disadvantage, which could also have an adverse effect on the Company’s results of operations, financial condition or liquidity.
The Company is subject to various claims and lawsuits, and increases in the amount or severity of these claims and lawsuits could adversely affect the Company’s operating results, financial condition and liquidity.
As part of its railroad operations, the Company’s Class I railroad partners are exposed to various claims and litigation related to commercial disputes, personal injury, property damage, environmental liability and other matters. Personal injury claims by our employees and those of the host railroads are subject to the Federal Employees’ Liability Act (FELA), rather than state workers’ compensation laws. The Company believes that the FELA system, which includes unscheduled awards and a reliance on the jury system, can contribute to increased expenses. Other proceedings include claims by third parties for punitive as well as compensatory damages, and a few proceedings purport to be class actions. Developments in legislative and judicial standards, material changes to litigation trends, or a catastrophic rail accident or series of accidents involving any or all of property damage, personal injury, and environmental liability could have a material adverse effect on the Company’s operating results, financial condition and liquidity.
Most of the Company’s host railroad employees are represented by unions, and failure to negotiate reasonable collective bargaining agreements may result in strikes, work stoppages or substantially higher ongoing labor costs.
A significant majority of the Class I railroads employees are union-represented. These union employees work under collective bargaining agreements with various labor organizations. Wages, health and welfare benefits, work rules and other issues have traditionally been addressed through industry-wide negotiations. These negotiations have generally taken place over an extended period of time and have previously not resulted in any extended work stoppages. The existing agreements have remained in effect and will continue to remain in effect until new agreements are reached or the Railway Labor Act’s procedures (which include mediation, cooling-off periods and the possibility of presidential intervention) are exhausted. While the negotiations have not yet resulted in any extended work stoppages, if the Company or our Class I railroad partners are unable to negotiate acceptable new agreements, it could result in strikes by the affected workers, loss of business and increased operating costs as a result of higher wages or benefits paid to union members, any of which could have an adverse effect on the Company’s operating results, financial condition or liquidity.
12
The unavailability of qualified personnel could adversely affect the Company’s operations.
Changes in demographics, training requirements and the unavailability of qualified personnel, particularly engineers and trainmen, could negatively impact the Company’s ability to meet demand for rail service. Recruiting and retaining qualified personnel, particularly those with expertise in the railroad industry, are vital to operations. Although the Company has adequate personnel for the current business environment, unpredictable increases in demand for rail services may exacerbate the risk of not having sufficient numbers of trained personnel, which could have a negative impact on operational efficiency and otherwise have a material adverse effect on the Company’s operating results, financial condition or liquidity.
Our independent registered public accounting firm, in their report on the audited financial statements for the year ended March 31, 2012, states that there is a substantial doubt that we will be able to continue as a going concern.
Our auditors' report on our audited March 31, 2012 financial statements, and Note 2 to such financial statements, reflect the fact that without raising additional financing through loans or stock sales, it would be unlikely for us to continue as a going concern. The business plan requires extensive infrastructure and capital expenditures prior to commencement of revenue generating operations. There can be no assurance that we will be able to raise additional capital and if we are unable to do so we may have to cease operations.
The Company has identified material weaknesses in internal control over financial reporting.
The Company has concluded that its internal control over financial reporting as of March 31, 2012 is ineffective because of material weakness identified related to inadequate technical accounting review of transactions which resulted in a restatement of the 2012 and 2011 financial statements. A failure to implement improved internal controls, or difficulties encountered in their implementation or execution, could cause the Company future delays in its reporting obligations and could have a negative effect on the Company and the trading price of the Company’s common stock. See “Item 9A. Controls and Procedures,” for more information on the status of the Company’s internal control over financial reporting.
RISKS RELATING TO OUR COMMON STOCK
We have not paid dividends on common stock in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock would depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
There is a limited market for our common stock which may make it more difficult to dispose of your stock.
Our common stock is currently quoted on the Over the Counter Bulletin Board under the symbol "XTRN". There is a limited trading market for our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.
A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could fall. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Our common stock is subject to the "Penny Stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted Rule 3a51-1 which establishes the definition of a "penny stock", for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
|
●
|
that a broker or dealer approve a person's account for transactions in penny stocks; and
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|
●
|
that the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
|
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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●
|
obtain financial information and investment experience objectives of the person; and
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|
●
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
13
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
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●
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sets forth the basis on which the broker or dealer made the suitability determination; and
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●
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
As an issuer of “penny stock”, the protection provided by the federal securities laws relating to forward looking statements does not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
As of March 31, 2012, we lease approximately 2,600 square feet of general office space in premises located at 6650 Via Austi Parkway, Suite 170, Las Vegas, Nevada. Our lease for this space expires in February 2013 and provides for monthly payments of $5,800.
Item 3. Legal Proceedings.
In the ordinary course of business, the Company may be or has been involved in legal proceedings from time to time. As of the date of this annual report on Form 10-K, there have been no material changes to any legal proceedings relating to the Company which previously were not reported.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is currently quoted on the Over-The-Counter Bulletin Board under the symbol “XTRN”. On June 6, 2012, the last trade of our stock was at the price of $0.065 per share. The following table sets forth the high and low prices per share of our common stock for each period indicated. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
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Common Shares
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||||||||
|
Year Ended March 31, 2012:
|
High
|
Low
|
||||||
|
Quarter Ended June 30, 2011
|
$ | 0.27 | $ | 0.15 | ||||
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Quarter Ended September 30, 2011
|
$ | 0.19 | $ | 0.095 | ||||
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Quarter Ended December 31, 2011
|
$ | 0.13 | $ | 0.07 | ||||
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Quarter Ended March 31, 2012
|
$ | 0.11 | $ | 0.06 | ||||
|
Year Ended March 31, 2011:
|
High
|
Low
|
||||||
|
Quarter Ended June 30, 2010
|
$ | 0.25 | $ | 0.13 | ||||
|
Quarter Ended September 30, 2010
|
$ | 0.35 | $ | 0.18 | ||||
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Quarter Ended December 31, 2010
|
$ | 0.33 | $ | 0.08 | ||||
|
Quarter Ended March 31, 2011
|
$ | 0.29 | $ | 0.11 | ||||
14
Number of Stockholders
As of March 31, 2012, there were 188 stockholders of record of our common stock.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
Equity Compensation Plan Information as of March 31, 2012
|
Equity Compensation Plan Information
|
||||||||||||
|
Plan category
|
Number of
securities to
be issued
upon
exercise of outstanding
options,
warrants
and rights
(a)
|
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
Number of
securities
remaining
available for
future
issuance
under equity compensation
plans
(excluding
securities
reflected in
column (a))
(c)
|
|||||||||
|
Equity compensation plans approved by security holders
|
-
|
$
|
-
|
20,000,000
|
||||||||
|
Equity compensation plans not approved by security holders
|
2,000,000
|
$ |
0.14
|
-
|
||||||||
|
Total
|
2,000,000 |
$
|
-
|
20,000,000
|
||||||||
Recent Sales of Unregistered Securities.
On May 3, 2012, Las Vegas Railway Express, Inc. (the “Company”) entered into an a subscription agreement with an accredited investor, pursuant to which the Company sold 3,000,000 shares of common stock for an aggregate purchase price of $150,000. On May 23, 2012 the Company sold 1,500,000 shares of common stock for an aggregate purchase price of $75,000 and on May 31, 2012 the Company sold 8,300,000 shares of common stock for an aggregate purchase price of $415,000. In connection with the foregoing, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
Purchases of Equity Securities by the Issuer and Affiliated Purchaser
None.
Item 6. Selected Financial Data
Not applicable.
Forward-Looking Statements
Statements contained in this Form 10-K that are not historical facts are forward-looking statements. In addition, words such as “believes,” “anticipates,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements or events, or timing of events, to differ materially from any future results, performance or achievements or events, or timing of events, expressed or implied by such forward-looking statements. We cannot assure that we will be able to anticipate or respond timely to the changes that could adversely affect our operating results in one or more fiscal quarters. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of our securities.
15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere herein.
Overview
Las Vegas Railway Express, Inc. (the "Company”, “Las Vegas Railway”, “we”, “our” or “us”), a Delaware corporation, is a company whose plan is to re-establish a conventional rail passenger train service between Las Vegas and Los Angeles using existing freight railroad lines. The development concept is to provide a Las Vegas style experience on the train, which would traverse the planned route in approximately 5:00 hours. We plan to operate a single travel route marketed primarily to a leisure traveler from the Southern California basin enabling us to sell rail travel as a stand-alone operation bundled with hotel rooms and other travel related services. Our unique travel option will offer a diversified product that will set us apart from travel related options of automobile and air.
Critical Accounting Policies
The preparation of our financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, workers' compensation costs, collectibles of accounts receivable, and impairment of goodwill and intangible assets, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the financial statements. There have been no material changes to these policies during the fiscal year.
Intangible Assets:
Goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from the acquisition of the train business on November 23, 2009. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. On March 31, 2012, as required by the Intangible topic of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company conducted an analysis of the goodwill on its single reporting unit using the Company’s market capitalization (based on Level 1 inputs). For the fiscal years ending March 31, 2012 and 2011, our assessment for impairment found that due to the continued progress toward the measurement goals of the business plan that there is no impairment of goodwill. The Company has no accumulated impairment losses on goodwill.
Income Taxes:
The Company accounts for income taxes under FASB ASC 740 "Income Taxes." Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes. A full valuation allowance for deferred tax assets has been provided because the Company believes it is not more likely than not that the deferred tax asset will be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods.
The Company’s goodwill is deductible for tax but not for book. This difference creates a deferred tax liability, which cannot be matched with the Company’s deferred tax asset. As a result, the Company cannot net it with its net operating loss carryforward and therefore records a deferred tax liability to reflect the future non-deductibility of its goodwill asset. The deferred tax liability at March 31, 2012 and 2011 was $42,343 and $0, respectively.
The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of March 31, 2012 and 2011, the Company has not established a liability for uncertain tax positions.
Stock-Based Compensation:
The Company issues stock, options and warrants as share-based compensation to employees and non-employees.
The Company accounts for its stock-based compensation to employees in accordance FASB ASC 718. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.
16
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.
The Company values compensatory stock based on the market price on the measurement date. As described above, for employees this is the date of grant, and for non-employees, this is the date of service completion.
The Company values stock options and warrants that do not qualify as derivative instruments using the Black-Scholes option pricing model. There were no warrants or options granted during the years ended March 31, 2012 or 2011 for which the Company used the Black-Scholes model.
Certain compensatory warrants qualify as derivative instruments and are valued using the binomial lattice method. See Note 7 to the financial statements below regarding accounting for derivative liabilities.
Fair Value of Financial Instruments:
The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2012. The amounts shown for notes payable approximate fair value because current interest rates and terms offered to the Company for similar debt are substantially the same.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value, in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.
The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. These assumptions may have a significant effect on our estimates of fair value, and the use of different assumptions as well as changes in market conditions could have a material effect on our results of operations or financial condition.
17
Results of Operations
The following are the results of our continuing operations for the year ended March 31, 2012 compared to the year ended March 31, 2011.
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Year Ended
|
||||||||||||||||
|
March 31,
|
March 31,
|
|||||||||||||||
|
2012
|
2011
|
$ Change
|
% Change
|
|||||||||||||
|
(Restated)
|
||||||||||||||||
|
Operating Expenses:
|
||||||||||||||||
|
Compensation and payroll taxes
|
$ | 1,222,013 | $ | 780,849 | $ | 441,164 | 56.5 | % | ||||||||
|
Selling, general and administrative
|
233,577 | 314,835 | (81,258 | ) | -25.8 | % | ||||||||||
|
Professional fees
|
268,731 | 752,052 | (483,321 | ) | -64.3 | % | ||||||||||
|
Depreciation expense
|
320 | - | 320 | 100.0 | % | |||||||||||
|
Total expenses
|
1,724,641 | 1,847,736 | (123,095 | ) | -6.7 | % | ||||||||||
|
Loss from continuing operations
|
(1,724,641 | ) | (1,847,736 | ) | 123,095 | -6.7 | % | |||||||||
|
Other (expense) income
|
||||||||||||||||
|
Interest income
|
- | 3,000 | (3,000 | ) | -100.0 | % | ||||||||||
|
Interest expense
|
(295,131 | ) | (198,813 | ) | (96,318 | ) | 48.4 | % | ||||||||
|
Change in derivative liability
|
37,086 | - | 37,086 | 100.0 | % | |||||||||||
|
Loss on disposition of assets
|
- | (2,965 | ) | 2,965 | -100.0 | % | ||||||||||
|
Gain on extinguishment of debt
|
- | 238,374 | (238,374 | ) | -100.0 | % | ||||||||||
|
Total other (expense) income
|
(258,045 | ) | 39,596 | (297,641 | ) | -751.7 | % | |||||||||
|
Net loss from continuing operations before tax provision
|
(1,982,686 | ) | (1,808,140 | ) | (174,546 | ) | 9.7 | % | ||||||||
|
Provision for income taxes
|
42,343 | - | 42,343 | 100.0 | % | |||||||||||
|
Net loss from continuing operations
|
(2,025,029 | ) | (1,808,140 | ) | (216,889 | ) | 12.0 | % | ||||||||
|
Discontinued operations:
|
||||||||||||||||
|
Income from discontinued operations
|
18,996 | 16,157 | 2,839 | 17.6 | % | |||||||||||
|
Net loss
|
$ | (2,006,033 | ) | $ | (1,791,983 | ) | $ | (214,050 | ) | 11.9 | % | |||||
Revenue
During the years ended March 31, 2012 and 2011, our railcar operations have yet to generate any revenue.
Operating Expenses
Compensation and payroll taxes increased by $441,164, or 56.5%, during the year ended March 31, 2012 as compared to 2011. The increase in compensation expense is related to the hiring of additional full-time employees to replace consultants that were previously used, including our Chief Executive Officer and Chief Operating Officer. Accordingly, we had a reduction of our professional fee expenses during the year ended March 31, 2012 of $483,321. Selling, general and administrative expenses decreased by $81,258, or 25.8% during 2012 primarily due to higher costs in 2011 associated with travel expenses related to raising capital, as well as higher expenses associated with officers auto allowances and rent expense.
Other (Expense) Income
Interest expense increased by $96,318, or 48%, during 2012 primarily due to the increase in debt outstanding during the period, as well as the issuance of warrants in connection with debt during 2012. Our change in derivative liability amounted to $37,086 during 2012 resulted in the decrease in the valuation of derivative transactions entered into during 2012. There was no corresponding amount during 2011, as we had no derivatives during that timeframe.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support asset growth, satisfy disbursement needs, maintain reserve requirements and otherwise operate on an ongoing basis. The Company has no operating revenues and is currently dependent on financing and sale of stock to fund operations.
We have experienced net losses and negative cash flows from operations since our inception. We have sustained losses from continuing operations of $2,006,033 and $1,791,983 for the years ended March 31, 2012 and 2011, respectively.
We continue to actively pursue various funding options, including equity offerings and debt financings, to obtain additional funds to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be able to consummate any fund raising transactions on terms acceptable to us or at all.
18
We believe that the successful growth and operation of our business is dependent upon our ability to do any or all of the following:
|
●
|
obtain adequate sources of debt or equity financing to pay unfunded operating expenses and fund long-term business operations; and
|
|
●
|
manage or control working capital requirements by controlling operating expenses.
|
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Although a substantial portion of the Company’s cumulative net loss is attributable to discontinued operations, management believes that it will need additional equity or debt financing to be able to implement the business plan. These matters raise substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that we will be successful in achieving our long-term plans as set forth above, or that such plans, if consummated, will enable us to obtain profitable operations or continue in the long-term.
The Company raised $ 383,254 during the year ended March 31, 2012 from private offerings of stock. The Company also received an additional $788,333 from the issuance of debt.
On April 27, 2012 the Company commenced a private offering of common stock to raise interim funds (up to $1.5MM) through a private offering memorandum. As of June 22, 2012, the Company has received gross proceeds of $1,120,000 from the sale of 22,400,000 shares of common stock. The Company anticipates this will provide the Company with sufficient operating cash for at least one year. The Company intends to seek such funding through private or public sales of equity and/or debt securities. There is no assurance such funding will be available on terms acceptable to the Company, or at all.
Cash Flows
Net cash used in operating activities for the years ended March 31, 2012 and 2011 was $1,131,068 and $1,407,834, respectively. The primary sources of cash used in operating activities for the years ended March 31, 2012 and 2011 were from net losses of $2,006,033 and $1,791,983. The non-cash components of operating expenses during the years ended March 31, 2012 and 2011 primarily related to share based compensation expenses $685,881 and $625,993, respectively, as well as amortization of debt discounts of $257,653 and $166,930, respectively.
Net cash used for investing activities during the year ended March 31, 2012 was $3,200 and $0 for the purchase of a copier. We had no capital expenditures during 2011.
Net cash provided by financing activities for the years ended March 31, 2012 and 2011 were $1,171,587 and $1,418,276, respectively. In 2012, the Company sold stock for $383,254 and issued debt of $788,333. In 2011, the Company sold stock for $ 1,269,001 and issued debt of $175,000. During the years ended March 31, 2012 and 2011, $0 and $20,725, respectively, was paid on related party payables.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
19
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Las Vegas Railway Express, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheet of Las Vegas Railway Express, Inc. (“Company”), as of March 31, 2012, and the related statement of operations, stockholders’ deficit and cash flows for the year ended March 31, 2012. 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 audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Las Vegas Railway Express, Inc. as of March 31, 2012, and the result of its operations and its cash flows for the year ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Las Vegas Railway Express, Inc. will continue as a going concern. As described in Note 2 to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficiency, has no revenues and has a negative working capital. These factors among others raise substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As described in Note 2 to the financial statements, the Company has restated its financial statements for 2012.
/s/ BDO USA, LLP
Los Angeles, California
June 10, 2013
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Las Vegas Railway Express, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheet of Las Vegas Railway Express, Inc., as of March 31, 2011, and the related statement of operations, stockholders’ equity (deficit) and cash flows for the year ended March 31, 2011. 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 audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation of the financial statements. We believe that our audit provides 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 Las Vegas Railway Express, Inc. as of March 31, 2011, and the result of its operations and its cash flows for the year ended March 31, 2011, in conformity with accounting principles generally accepted (GAAP) in the United States of America.
The accompanying financial statements have been prepared assuming that Las Vegas Railway Express, Inc. will continue as a going concern. As discussed in Note 2 to the financial statements, Las Vegas Railway Express, Inc. suffered recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As described in Note 2 to the financial statements, the Company has restated its financial statements for 2011.
Hamilton, PC
/s/ Hamilton, PC
Denver, Colorado
July 10, 2012, except as to Note 2 which is as of June 10, 2013
21
LAS VEGAS RAILWAY EXPRESS, INC.
BALANCE SHEETS
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
| (Restated) | (Restated) | |||||||
|
Assets
|
||||||||
|
Current assets
|
||||||||
|
Cash
|
$ | 53,632 | $ | 16,313 | ||||
|
Other current assets
|
47,028 | - | ||||||
|
Total current assets
|
100,660 | 16,313 | ||||||
|
Property and equipment, net of accumulated depreciation
|
2,880 | - | ||||||
|
Other assets
|
||||||||
|
Goodwill
|
843,697 | 843,697 | ||||||
|
Total other assets
|
843,697 | 843,697 | ||||||
|
Total assets
|
$ | 947,237 | $ | 860,010 | ||||
|
Liabilities and Stockholders' Equity (Deficit)
|
||||||||
|
|
||||||||
|
Current liabilities
|
||||||||
|
Short term notes payable
|
$ | 785,116 | $ | - | ||||
|
Accounts payable and accrued expenses
|
236,009 | 169,955 | ||||||
|
Derivative liability
|
170,499 | - | ||||||
|
Liabilities to be disposed of, current
|
905,950 | 999,122 | ||||||
|
Total current liabilities
|
2,097,574 | 1,169,077 | ||||||
|
Deferred tax liability
|
42,343 | - | ||||||
|
Total liabilities
|
2,139,917 | 1,169,077 | ||||||
|
Commitments
|
||||||||
|
Stockholders' deficiency
|
||||||||
|
Common stock subscribed
|
640,000 | 850,000 | ||||||
|
Common stock, $0.0001 par value, 200,000,000 shares authorized, 48,653,350 and 39,201,498 shares issued and outstanding as of March 31, 2012 and 2011, respectively
|
4,865 | 3,920 | ||||||
|
Additional paid-in capital
|
9,971,987 | 8,640,512 | ||||||
|
Accumulated deficit
|
(11,809,532 | ) | (9,803,499 | ) | ||||
|
Total stockholders' deficiency
|
(1,192,680 | ) | (309,067 | ) | ||||
|
Total liabilities and stockholders' deficiency
|
$ | 947,237 | $ | 860,010 | ||||
|
See accompanying notes to financial statements
|
||||||||
22
LAS VEGAS RAILWAY EXPRESS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
|
Year Ended
|
||||||||
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
| (Restated) | ||||||||
|
Operating Expenses:
|
||||||||
|
Compensation and payroll taxes
|
$ | 1,222,013 | $ | 780,849 | ||||
|
Selling, general and administrative
|
233,577 | 314,835 | ||||||
|
Professional fees
|
268,731 | 752,052 | ||||||
|
Depreciation expense
|
320 | - | ||||||
|
Total expenses
|
1,724,641 | 1,847,736 | ||||||
|
Loss from continuing operations
|
(1,724,641 | ) | (1,847,736 | ) | ||||
|
Other (expense) income
|
||||||||
|
Interest income
|
- | 3,000 | ||||||
|
Interest expense
|
(295,131 | ) | (198,813 | ) | ||||
|
Change in derivative liability
|
37,086 | - | ||||||
|
Loss on disposition of assets
|
- | (2,965 | ) | |||||
|
Gain on extinguishment of debt
|
- | 238,374 | ||||||
|
Total other (expense) income
|
(258,045 | ) | 39,596 | |||||
|
Net loss from continuing operations before tax provision
|
(1,982,686 | ) | (1,808,140 | ) | ||||
|
Provision for income taxes
|
42,343 | - | ||||||
|
Net loss from continuing operations
|
(2,025,029 | ) | (1,808,140 | ) | ||||
|
Discontinued operations:
|
||||||||
|
Income from discontinued operations
|
18,996 | 16,157 | ||||||
|
Net loss
|
$ | (2,006,033 | ) | $ | (1,791,983 | ) | ||
|
Net (loss) per share, continuing operations, basic and diluted
|
$ | (0.05 | ) | $ | (0.05 | ) | ||
|
Net income (loss) per share, discontinued operations, basic and diluted
|
$ | - | $ | - | ||||
|
Net (loss) per share basic and diluted
|
$ | (0.05 | ) | $ | (0.05 | ) | ||
|
Weighted average number of common
|
||||||||
|
shares outstanding, basic and diluted
|
43,680,249 | 36,253,005 | ||||||
|
See accompanying notes to financial statements
|
||||||||
23
LAS VEGAS RAILWAY EXPRESS, INC.
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
Additional
|
||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Accumulated
|
||||||||||||||||||||||
|
Shares
|
Amount
|
Subscriptions
|
Capital
|
Deficit
|
Total
|
|||||||||||||||||||
|
Balance, March 31, 2010
|
22,889,686 | $ | 2,289 | $ | 640,000 | $ | 6,464,307 | $ | (8,011,516 | ) | $ | (904,920 | ) | |||||||||||
|
Stock issued for cash
|
8,049,411 | 805 | 1,268,196 | 1,269,001 | ||||||||||||||||||||
|
Stock issued from subscriptions payable
|
4,000,000 | 400 | 159,600 | 160,000 | ||||||||||||||||||||
|
Stock issued for services
|
2,388,416 | 239 | 210,000 | 267,655 | 477,894 | |||||||||||||||||||
|
Stock issued for compensation
|
454,615 | 45 | 67,532 | 67,577 | ||||||||||||||||||||
|
Stock issued for debt
|
1,451,174 | 145 | 154,287 | 154,432 | ||||||||||||||||||||
|
Stock issued for debt discount
|
2,400,000 | 240 | 299,760 | 300,000 | ||||||||||||||||||||
|
Recission of stock issued for debt
|
(2,431,804 | ) | (243 | ) | (121,347 | ) | - | (121,590 | ) | |||||||||||||||
|
Stock based compensation
|
80,522 | 80,522 | ||||||||||||||||||||||
|
Net loss
|
- | - | - | (1,791,983 | ) | (1,791,983 | ) | |||||||||||||||||
|
Balance, March 31, 2011 (restated)
|
39,201,498 | 3,920 | 850,000 | 8,640,512 | (9,803,499 | ) | (309,067 | ) | ||||||||||||||||
|
Stock issued for cash
|
3,785,023 | 379 | 382,875 | 383,254 | ||||||||||||||||||||
|
Stock issued from subscriptions payable
|
600,000 | 60 | (210,000 | ) | 209,940 | - | ||||||||||||||||||
|
Stock issued for services
|
982,741 | 98 | 127,395 | 127,493 | ||||||||||||||||||||
|
Stock issued for compensation (restated)
|
4,334,268 | 433 | 514,933 | 515,366 | ||||||||||||||||||||
|
Warrants issued for debt discount (restated)
|
53,285 | 53,285 | ||||||||||||||||||||||
|
Stock based compensation
|
- | - | 80,522 | - | 80,522 | |||||||||||||||||||
|
Recission of stock issued to former officer
|
(250,000 | ) | (25 | ) | (37,475 | ) | (37,500 | ) | ||||||||||||||||
|
Net loss (restated)
|
- | - | - | (2,006,033 | ) | (2,006,033 | ) | |||||||||||||||||
|
Balance, March 31, 2012 (Restated)
|
48,653,530 | $ | 4,865 | $ | 640,000 | $ | 9,971,987 | $ | (11,809,532 | ) | $ | (1,192,680 | ) | |||||||||||
See accompanying notes to financial statements.
24
LAS VEGAS RAILWAY EXPRESS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
| (Restated) | ||||||||
|
Cash flows from operating activities
|
||||||||
|
Net loss
|
$ | (2,006,033 | ) | $ | (1,791,983 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
320 | - | ||||||
|
Amortization of discounts on note payable
|
257,653 | 166,930 | ||||||
|
Gain on extinguishment of debt
|
- | (238,374 | ) | |||||
|
Loss on disposition of assets
|
- | 2,965 | ||||||
|
Deferred tax provision
|
42,343 | - | ||||||
|
Change in value of derivative liability
|
(37,086 | ) | - | |||||
|
Stock issued and subscribed for services
|
127,493 | 477,894 | ||||||
|
Stock issued for compensation
|
477,866 | 67,577 | ||||||
|
Stock option compensation
|
80,522 | 80,522 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Other current assets
|
(47,028 | ) | 50,000 | |||||
|
Liabilities of discontinued operations, net
|
(93,172 | ) | (349,438 | ) | ||||
|
Accounts payable and accrued expenses
|
66,054 | 126,073 | ||||||
|
Net cash used in operating activities
|
(1,131,068 | ) | (1,407,834 | ) | ||||
|
|
||||||||
|
Cash flows from investing activities
|
||||||||
|
Purchases of property and equipment
|
(3,200 | ) | - | |||||
|
Net cash used in investing activities
|
(3,200 | ) | - | |||||
|
Cash flows from financing activities
|
||||||||
|
Proceeds from sale of stock
|
383,254 | 1,269,001 | ||||||
|
Payments on related party notes payables
|
- | (20,725 | ) | |||||
|
Proceeds from notes payable
|
788,333 | 175,000 | ||||||
|
Payments on note payable
|
- | (5,000 | ) | |||||
|
Net cash provided by financing activities
|
1,171,587 | 1,418,276 | ||||||
|
Net change in cash
|
37,319 | 10,442 | ||||||
|
Cash, beginning of the year
|
16,313 | 5,871 | ||||||
|
Cash, end of the year
|
$ | 53,632 | $ | 16,313 | ||||
|
Supplemental disclosure of cash flow information:
|
||||||||
|
Interest paid
|
- | 28,850 | ||||||
|
Income taxes paid
|
- | - | ||||||
|
Supplemental disclosure of non-cash investing and financing transactions:
|
||||||||
|
Warrants issued for debt
|
53,285 | 160,000 | ||||||
|
Stock issued for debt
|
- | 154,432 | ||||||
|
Recission of stock previously issued for debt
|
- | 121,590 | ||||||
See accompanying notes to financial statements
25
LAS VEGAS RAILWAY EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 and 2011
(1) Description of Business:
Las Vegas Railway Express, Inc. (the “Company”, “we”, “us”, or “our”) was formed as a Delaware corporation in March 9, 2007 as Corporate Outfitters, Inc., a development stage company. On November 3, 2008, pursuant to a common stock purchase agreement, the Company acquired 100% of the outstanding capital stock of Liberty Capital Asset Management, a Nevada corporation, formed in July of 2008 as a holding company for all the assets of CD Banc LLC in contemplation of the company going public via a reverse merger into a publicly trading corporation.
CD Banc LLC was formed in 2003 as a Nevada limited liability corporation with the purpose of acquiring real estate assets and holding them for long-term appreciation.
The Company business plan is to re-establish a conventional passenger train service between the Las Vegas and Los Angeles metropolitan areas. On January 21, 2010, the Company completed a share exchange and asset purchase agreement with Las Vegas Railway Express, a Nevada Corporation, and subsequently changed its name from Liberty Capital Asset Management, Inc. to Las Vegas Railway Express, Inc.
(2) Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America.
Restatement:
The accompanying financial statements as of March 31, 2012 and 2011 and for the year ended March 31, 2012have been restated to reflect a correction in the presentation of common stock subscribed related to the purchase of the train business, from a liability to stockholders’ equity. The nature of this account is such that it will not be settled with cash or other assets, but rather it will be settled by issuance of a fixed number of the Company’s common stock. Accordingly it should be classified in stockholders’ equity.
Additionally, the Company has determined that certain of the warrants outstanding had elements that qualified them as derivative liabilities instead of equity. And two of its notes payable also had embedded elements that required bifurcation and statement as derivative liabilities. Accordingly, it obtained a third party valuation of the warrants and embedded derivatives and reclassified them as derivative liabilities.
Additionally, the Company made corrections to the way it accounts for stock based compensation
Finally, the Company has determined that since goodwill is amortized for income taxes, but not for books, there exists a temporary difference in the carrying amount of this asset between book and tax. Furthermore, as it cannot be concluded that this difference can be absorbed by the Company’s net operating loss carryforward, it is necessary to record a deferred income tax liability.
The impact of the restatements described above is as follows.
26
|
As of March 31, 2012:
|
||||||||||||
|
As Previously
|
||||||||||||
|
Reported
|
Adjustments
|
Restated
|
||||||||||
|
Notes payable
|
$ | 788,333 | $ | (3,217 | ) | $ | 785,116 | |||||
|
Derivative liability
|
- | 170,499 | 170,499 | |||||||||
|
Stock subscription payable
|
640,000 | (640,000 | ) | - | ||||||||
|
Total current liabilities
|
2,570,292 | (472,718 | ) | 2,097,574 | ||||||||
|
Deferred tax liability
|
- | 42,343 | 42,343 | |||||||||
|
Total liabilities
|
2,570,292 | (430,375 | ) | 2,139,917 | ||||||||
|
Common stock subscribed
|
- | 640,000 | 640,000 | |||||||||
|
Additional paid in capital
|
9,995,692 | (23,705 | ) | 9,971,987 | ||||||||
|
Retained earnings
|
(11,623,612 | ) | (185,920 | ) | (11,809,532 | ) | ||||||
|
Total stockholders' deficit
|
(1,623,055 | ) | (430,375 | ) | (1,192,680 | ) | ||||||
|
For the year ended March 31, 2012:
|
||||||||||||
|
As Previously
|
||||||||||||
|
Reported
|
Adjustments
|
Restated
|
||||||||||
|
Operating Expenses:
|
||||||||||||
|
Compensation and payroll taxes
|
$ | 1,128,689 | $ | 93,324 | $ | 1,222,013 | ||||||
|
Selling, general and administrative
|
233,577 | - | 233,577 | |||||||||
|
Professional fees
|
268,731 | - | 268,731 | |||||||||
|
Depreciation expense
|
320 | - | 320 | |||||||||
|
Total expenses
|
1,631,317 | 93,324 | 1,724,641 | |||||||||
|
Loss from operations
|
(1,631,317 | ) | (93,324 | ) | (1,724,641 | ) | ||||||
|
Other income (expense):
|
||||||||||||
|
Change in derivative liability
|
- | 37,086 | 37,086 | |||||||||
|
Interest income (expense)
|
(207,792 | ) | (87,339 | ) | (295,131 | ) | ||||||
|
Total other income (expense)
|
(207,792 | ) | (50,253 | ) | (258,045 | ) | ||||||
|
Net loss from continuing operations before tax provision
|
(1,839,109 | ) | (143,577 | ) | (1,982,686 | ) | ||||||
|
Provision for income taxes
|
- | 42,343 | 42,343 | |||||||||
|
Net loss from continuing operations
|
(1,839,109 | ) | (185,920 | ) | (2,025,029 | ) | ||||||
|
Discontinued operations:
|
||||||||||||
|
Income (loss) from discontinued operations, net of income tax
|
18,996 | 18,996 | ||||||||||
|
Net loss
|
$ | (1,820,113 | ) | $ | (185,920 | ) | $ | (2,006,033 | ) | |||
| As of March 31, 2011: | As Previously | |||||||||||
| Reported | Adjustments | Restated | ||||||||||
| Stock subscription payable | $ | 640,000 | $ | (640,000 | ) | $ | - | |||||
| Total liabilities | 1,809,077 | (640,000 | ) | 1,169,077 | ||||||||
| Common stock subscribed | 210,000 | 640,000 | 850,000 | |||||||||
| Total stockholders' deficit | (949,067 | ) | 640,000 | (309,067 | ) | |||||||
27
Going Concern:
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has net losses of $2,006,033 and $1,791,983 for the years ended March 31, 2012 and 2011, respectively. Although a substantial portion of the Company’s cumulative net loss is attributable to discontinued operations, management believes that it will need additional equity or debt financing to be able to implement the business plan. The Company has no operating revenues and is currently dependent on external debt financing and/or sale of equities to fund operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
Management is attempting to raise additional equity to sustain operations until it can market its services and achieves profitability. The successful outcome of future activities cannot be determined at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.
The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties:
The Company operates in an industry that is subject to intense competition and potential government regulations. Significant changes in regulations and the ability of the Company to establish contracts with rail services providers could have a materially adverse impact on the Company’s operations.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods.
Cash and Cash Equivalents:
The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents.
Property and Equipment:
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from three to thirty years. Total depreciation expense related to property and equipment was $320 and $0 for the years ended March 31, 2012 and 2011, respectively. Maintenance and repairs are charged to operations when incurred. Major betterments and renewals are capitalized. Gains or losses are recognized upon sale or disposition of assets.
Intangible Assets:
Goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from the acquisition of the train business on November 23, 2009. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. On March 31, 2012, as required by the "Intangible - Goodwill and Other" topic of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company conducted an analysis of the goodwill on its single reporting unit using the Company’s market capitalization (based on Level 1 inputs). For the fiscal years ending March 31, 2012 and 2011, our assessment for impairment found that due to the continued progress toward the measurement goals of the business plan that there is no impairment of goodwill. The Company has no accumulated impairment losses on goodwill.
Basic and Diluted Loss Per Share:
In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per common share is computed by dividing the net loss available to common stockholders after reducing net income by preferred stock dividends, by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Common stock equivalents have not been included in the earnings per share computation for the years ended March 31, 2012 and 2011 as the amounts are anti-dilutive. As of March 31, 2012 and 2011, the Company had 2,000,000 outstanding options which were excluded from the computation of net income per share because they are anti-dilutive. As of March 31, 2012, the Company also had convertible debt that was convertible into 3,000,000 shares of common stock which was excluded from the computation. As of March 31, 2012, the Company had 1,500,000 outstanding warrants which were also excluded from the computation because they were anti-dilutive.
28
Income Taxes:
The Company accounts for income taxes under FASB ASC 740 "Income Taxes." Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes. A full valuation allowance for deferred tax assets has been provided because the Company believes it is not more likely than not that the deferred tax asset will be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods.
The Company’s goodwill is deductible for tax but not for book. This difference creates a deferred tax liability, which cannot be matched with the Company’s deferred tax asset. As a result, the Company cannot net it with its net operating loss carryforward and therefore records a deferred tax liability to reflect the future non-deductibility of its goodwill asset. The deferred tax liability at March 31, 2012 and 2011 was $42,343 and $0, respectively.
The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of March 31, 2012 and 2011, the Company has not established a liability for uncertain tax positions.
Stock-Based Compensation:
The Company issues stock, options and warrants as share-based compensation to employees and non-employees.
The Company accounts for its share-based compensation to employees in accordance FASB ASC 718. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.
The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.
The Company values compensatory stock based on the market price on the measurement date. As described above, for employees this is the date of grant, and for non-employees, this is the date of service completion.
The Company values stock options and warrants that do not qualify as derivative instruments using the Black-Scholes option pricing model. There were no warrants or options granted during the years ended March 31, 2012 or 2011 for which the Company used the Black-Scholes model.
Certain compensatory warrants qualify as derivative instruments and are valued using the binomial lattice method. See Note 7 below regarding accounting for derivative liabilities.
Fair Value of Financial Instruments:
The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2012. The amounts shown for notes payable approximate fair value because current interest rates and terms offered to the Company for similar debt are substantially the same.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value, in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. FASB ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.
29
The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. These assumptions may have a significant effect on our estimates of fair value, and the use of different assumptions as well as changes in market conditions could have a material effect on our results of operations or financial condition.
New Accounting Pronouncements:
Issued
In December 2011, the FASB issued Account Standards Update (“ASU”) 2011-12, “Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05,” to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance will not have a material impact on the Company’s financial position, results of operations or cash flows.
In December 2011, the FASB issued ASU 2011-10, “Derecognition of in Substance Real Estate—a Scope Clarification” to clarify that when a parent (reporting entity) ceases to have a controlling financial interest (as described in ASC subtopic 810-10, Consolidation) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in subtopic 360-20, Property, Plant and Equipment, to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. Under this new guidance, even if the reporting entity ceases to have a controlling financial interest under subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. This amendment is applicable to us prospectively for deconsolidation events occurring after June 15, 2012. The adoption of this accounting standard update will become effective for the reporting period beginning July 1, 2012. The adoption of this guidance will not have a material impact on the Company’s financial position, results of operations, or cash flows.
Other recent accounting pronouncements did not, or are not believed by management to, have a material impact on the Company's present or future financial statements
(4) Property and Equipment:
Property and equipment consisted of the following as of March 31, 2012 and 2011,
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Furniture and fixtures
|
$ | 112,413 | $ | 112,413 | ||||
|
Equipment
|
177,023 | 173,823 | ||||||
|
Leasehold improvements
|
63,250 | 63,250 | ||||||
|
Software
|
30,722 | 30,722 | ||||||
| 383,408 | 380,208 | |||||||
|
Less: accumulated depreciation
|
(188,689 | ) | (188,369 | ) | ||||
|
Less: impairment of assets
|
(191,839 | ) | (191,839 | ) | ||||
| $ | 2,880 | $ | - | |||||
30
(5) Notes payable:
A summary of notes payable is as follows:
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Notes payable - discontinued operations
|
||||||||
|
Secured promissory notes, dated June 25, 2008, to two
|
$ | 126,005 | $ | 126,005 | ||||
|
investors, bearing interest at 10% per annum, payable
|
||||||||
|
September 1, 2010.
|
||||||||
|
Unsecured promissory notes payable dated October 1, 2009
|
||||||||
| 22,055 | 24,055 | |||||||
|
Notes included in liabilities from discontinued operations
|
$ | 148,060 | $ | 150,060 | ||||
|
Notes payable - current operations
|
||||||||
|
Unsecured promissory note, dated April 4, 2011, to
|
||||||||
|
an investor bearing interest at 8% per annum, payable on
|
||||||||
|
April 4, 2012.
|
$ | 97,266 | $ | - | ||||
|
Secured promissory notes, dated May 17, 2011 through
|
||||||||
|
May 17, 2012 to an investor bearing interest at 8% per annum,
|
||||||||
|
payable on May 17, 2012.
|
12,850 | - | ||||||
|
Secured promissory note, dated August 15, 2011, to an
|
||||||||
|
investor, bearing interest at 10% per annum, payable
|
||||||||
|
February 11, 2012.
|
100,000 | - | ||||||
|
Secured promissory note, dated September 30, 2011, to
|
||||||||
|
an investor bearing interest at 10% per annum, payable on
|
||||||||
|
March 28, 2012.
|
50,000 | - | ||||||
|
Secured promissory notes, dated October 8, 2011,
|
||||||||
|
to three investors bearing interest at 10% per annum,
|
||||||||
|
payable on April 10, 2012.
|
225,000 | - | ||||||
|
Secured promissory note, dated January 25, 2012, to
|
||||||||
|
an investor bearing interest at 10% per annum, payable on
|
||||||||
|
demand, convertible to common shares at $0.10 per share.
|
100,000 | - | ||||||
|
Secured promissory note, dated February 24, 2012, to an
|
||||||||
|
investor bearing interest at 10% per annum, payable on
|
||||||||
|
demand, convertible to common shares at $0.10 per share.
|
200,000 | - | ||||||
|
Total outstanding notes payable from continuing operations
|
$ | 785,116 | $ | - | ||||
The Company is in default on notes payable made to investors that are included in liabilities of discontinued operations. As of March 31, 2012, there has been no demand made for repayment of the notes or accrued interest.
31
(6) Commitments and Contingencies:
Operating Leases
The Company leases its facilities under a rental agreement that expires in January 31, 2013. The rental agreement includes common area maintenance, property taxes and insurance. It also provided eight months abatement of the base rent.
Future annual minimum payments under operating leases are as follows:
|
Years ending March 31,
|
||||
|
2013
|
$ | 58,400 | ||
|
Total
|
$ | 58,400 | ||
Rental expense under operating leases for the years ended March 31, 2012 and 2011 was $51,522 and $59,234, respectively.
Litigation
In the ordinary course of business, the Company may be or has been involved in legal proceedings from time to time. As of the date of this annual report on Form 10-K, there have been no material changes to any legal proceedings relating to the Company which previously were not reported.
(7) Derivative Instruments:
The Company has certain warrants and notes payable with elements that qualify as derivatives. The warrants have anti-dilution clauses that prevent calculation of the ultimate number of shares that may be issued upon exercise, and two of the notes payable had a variable conversion feature that similarly prevented the calculation of the number of shares into which they were convertible.
The derivative liability, as it relates to the different instruments, is shown in the following table.
|
Year Ended March 31, 2012
|
||||||||||||
|
Conversion Feature
|
||||||||||||
|
of
|
||||||||||||
|
Warrants
|
Notes Payable
|
Total
|
||||||||||
|
Beginning balance, March 31, 2011
|
$ | - | $ | - | $ | - | ||||||
|
Additional issuances
|
171,877 | 35,708 | 207,585 | |||||||||
|
Exercised/converted
|
- | - | - | |||||||||
|
Change in derivative liability
|
(37,086 | ) | - | (37,086 | ) | |||||||
|
Ending balance, March 31, 2012
|
$ | 134,791 | $ | 35,708 | $ | 170,499 | ||||||
(8) Equity:
The Company is authorized to issue 200,000,000 shares of common stock. There were 48,653,530 and 39,201,498 shares of common stock outstanding as of March 31, 2012 and 2011, respectively. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the Board of Directors out of funds legally available subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock into any other securities.
During the year ended March 31, 2012, the Company issued, in a private placement, 3,785,023 shares of its common stock, for a total of $383,254. During the year ended March 31, 2011, the Company issued 8,049,411 shares of common stock for a total of $1,269,001.
During the year ended March 31, 2012, the Company issued 982,741 shares of its common stock for consulting services totaling $127,493. During the year ended March 31, 2011, the Company issued 2,388,416 shares of common stock for consulting services totaling $477,894. The fair value of the consulting services was determined by the closing price of the stock on date of issuance.
During the year ended March 31, 2012, the Company issued 4,334,268 shares of its common stock as compensation for employees valued at $515,366. During the year end March 31, 2011, the Company issued 454,615 shares of its common stock as compensation for employees valued at $67,577. The fair value of the employee services was determined by the closing price of the stock on date of issuance or the employment agreement in force at the date of issuance.
32
During the year ended March 31, 2011, the Company issued 4,000,000 shares of its common stock as part of its Asset Purchase Agreement in the acquisition of railway assets. Stock is issued upon the completion of certain agreements. The remaining 16,000,000 shares are to be issued upon the completion of the agreements, which are deemed necessary for the continued operation of the Company’s proposed railway service.
(9) Stock Option Plan:
The Company’s 2011 Stock Option Plan provides for the grant of 20,000,000 incentive or non-statutory stock options to purchase common stock. Employees, who share the responsibility for the management growth or protection of the business of the Company and certain Non-Employee (“Selected Persons”), are eligible to receive options which are approved by a committee of the Board of Directors. These options vest over five years and are exercisable for a ten-year period from the date of the grant.
The Company has recorded employee shared based compensation of $558,388 and $148,099 for March 31, 2012 and 2011, respectively. As of March 31, 2012 and 2011, the Company had 2,000,000 options outstanding. The fair value for these options was estimated at the date of grant, November 1, 2008 using a Black-Scholes option pricing model with the following weighted-average assumptions for an estimated 2.5 year term; risk free rate of 3.5%; no dividend yield; volatility factors of the expected market price of the Company’s common stock of (51%), the market value of the Company’s stock on grant date was $0.45.
At March 31, 2012, the Company had approximately $80,522 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately 2 years. No options were exercised during the years ended March 31, 2012.
A summary of the Company’s stock option activity follows:
|
March 31, 2012
|
March 31, 2011
|
|||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||
|
Average
|
Average
|
|||||||||||||
|
Exercise
|
Exercise
|
|||||||||||||
|
Options
|
Price
|
Options
|
Price
|
|||||||||||
|
Outstanding - March 31, 2011
|
2,000,000
|
$
|
0.50
|
2,000,000
|
$
|
0.50
|
||||||||
|
Granted
|
-
|
-
|
-
|
-
|
||||||||||
|
Exercised
|
-
|
-
|
-
|
-
|
||||||||||
|
Cancelled
|
-
|
-
|
-
|
-
|
||||||||||
|
Outstanding - March 31, 2012
|
2,000,000
|
$
|
0.50
|
2,000,000
|
$
|
0.50
|
||||||||
|
Exercisable - end of year
|
1,600,000
|
$
|
0.50
|
1,200,000
|
$
|
0.50
|
||||||||
33
(10) Income Taxes:
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carry forwards. The tax effects of significant items comprising the Company’s deferred taxes as of March 31, 2012 and 2011 are as follows.
|
March 31,
|
March 31,
|
|||||||
|
Deferred tax assets
|
2012
|
2011
|
||||||
|
Net operating loss carryforward
|
$ | 6,243,339 | $ | 5,577,000 | ||||
|
Stock option compensation
|
27,377 | - | ||||||
|
Warrants issued in connection with debt
|
18,117 | - | ||||||
|
Total deferred tax assets
|
(6,288,833 | ) | (5,577,000 | ) | ||||
|
Net deferred tax assets
|
$ | - | $ | - | ||||
|
Deferred tax liabilities
|
||||||||
|
Goodwill
|
$ | 42,343 | $ | - | ||||
|
Net deferred tax liabilities
|
$ | 42,343 | $ | - | ||||
A reconciliation of the provision for income taxes with the expected income tax computed by applying the Federal statutory income tax rate to income before provision for income taxes for the years ended March 31, 2012 and 2011 are as follows.
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Income tax benefit computed at the Federal statutory rate of 34%
|
$ | (682,051 | ) | $ | (487,000 | ) | ||
|
Increase in valuation allowance
|
669,442 | 487,000 | ||||||
|
Other
|
12,609 | - | ||||||
|
Amortization of goodwill
|
42,343 | - | ||||||
|
Provision for income taxes
|
$ | 42,343 | $ | - | ||||
ASC 740 requires that the tax benefit of net operating losses carry forwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry forward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a 100% valuation allowance against the asset amounts.
Any uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities. The Company has no liabilities related to uncertain tax positions or unrecognized benefits as of the year end March 31, 2012 or 2011. The Company has not accrued for interest or penalties associated with unrecognized tax liabilities.
As of March 31, 2012, the Company had federal net operating loss carry forwards of approximately $18.3 million, which may be available to offset future taxable income for tax purposes. These net operating loss carry forwards begin to expire in 2027 through 2032. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.
(11) Related-Party Transactions:
Michael A. Barron, our CEO and President, is a 100% owner and President of Allegheny Nevada Holdings Corporation, “Allegheny”. The Company is indebted to Allegheny by a certain promissory note, dated January 6, 2009, of which Allegheny loaned the Company funds for working capital needs. Said Agreement was amended on October 1, 2009 and a portion was converted to 1,564,719 shares of the Company’s common stock at $0.05 per share. As of January 15, 2011, the amendment was rescinded, returning the shares to the Company and restoring the note balance. No gain or loss was recognized in the amendment or rescission. As of March 31, 2012 and 2011, the balance of the note was $89,186 and $107,563, respectively.
On November 23, 2009, the Company entered into an Asset Purchase Agreement with Las Vegas Railway Express, a Nevada Corporation, of which Allegheny is owner of 28.6% and Mr. Barron is a 28.6% owner, independent of Allegheny. On January 21, 2010, by shareholder approval the Company acquired Las Vegas Railway Express for 20,000,000 shares of the Company’s stock, of which 4,000,000 has been issued on April 23, 2010. The remaining 16,000,000 shares are to be issued upon the completion of certain agreements. These agreements are deemed necessary for the continued operation of the Company’s proposed railway service.
As of March 31, 2012 and 2011, Allegheny Nevada Holdings had a beneficial ownership in the Company of 4.12% and 0%, respectively.
As of March 31, 2012 and 2011, Mr. Barron had accrued wages of $71,563 and $65,734, respectively.
34
Dianne David Barron, our Company’s Manager of Station Development is the spouse of our Chief Executive Officer, Michael A. Barron.
Joseph Cosio-Barron, former President, Secretary and Director of the Company is a 100% owner of CBS Consultants “CBS”, a Nevada Corporation. CBS had a 22.9% ownership of Las Vegas Railway Express at the time of acquisition on October 1, 2009, the Company entered into a promissory note with Mr. Cosio-Barron for $86,709. The Company converted 867,085 shares of the Company’s stock at $0.05 per share, resulting in a balance at March 31, 2012 and 2011 of $46,102 and $57,198, respectively. As of March 31, 2012 and 2011, Mr. Cosio-Barron had accrued wages of $57,800 and $51,971, respectively.
(12) Discontinued Operations:
As discussed in Note 1, prior to January 21, 2010, the Company had been actively engaged in acquiring underperforming mortgage loan portfolios and generating revenues from re-performing, sale of loans and fee revenue. As of January 21, 2010, the Company changed its primary business and abandoned the prior business. Accordingly, the assets and liabilities and results of operation related to this business have been classified as discontinued operations in the financial statements for all periods presented. As a result, the prior period comparative financial statements have been restated. Prior to this decision, the loan business represented substantially all of the Company’s operating revenue.
Prior to the Company’s corporate restructuring in 2010, the Company had several accounts payable dating back to 2008 and prior (the “Liberty Capital Payables”). All of these Liberty Capital Payables were related to business operations which were discontinued in January 2010. In 2012, the Company updated its internal review of the status of the Liberty Capital Payables and recorded a $47,330 gain resulting from relief of liabilities that were cleared based on expiration of Nevada statutes of limitations. The gain is reflected as a gain from discontinued operations. There was no tax impact as the prior tax assets had a 100% valuation allowance resulting in no balance sheet or income statement adjustments for taxes.
The following table summarizes results from discontinued operations for the years ended March 31, 2012 and 2011:
|
Year Ended
|
||||||||
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Revenues
|
$ | 4,315 | $ | 52,506 | ||||
|
Cost of sales
|
- | - | ||||||
|
Gross profit
|
4,315 | 52,506 | ||||||
|
Operating Expenses:
|
||||||||
|
Selling, general and administrative
|
- | 4,528 | ||||||
|
Total expenses
|
- | 4,528 | ||||||
|
Loss from discontinued operations
|
4,315 | 47,978 | ||||||
|
Other (expense) income
|
||||||||
|
Interest expense
|
(32,649 | ) | (31,831 | ) | ||||
|
Write down of payables
|
47,330 | - | ||||||
|
Total other (expense) income
|
14,681 | (31,831 | ) | |||||
|
Net income from discontinued operations
|
$ | 18,996 | $ | 16,147 | ||||
The following table summarizes the liabilities classified as discontinued operations in the accompanying balance sheets.
|
March 31,
|
March 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Accounts payable and accrued expenses
|
$ | 622,603 | $ | 684,302 | ||||
|
Notes payable
|
148,060 | 150,060 | ||||||
|
Notes payable, related party
|
135,287 | 164,760 | ||||||
| $ | 905,950 | $ | 999,122 | |||||
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through July 9, 2012.
35
(13) Subsequent Event
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through July 9, 2012.
On April 11, 2012 the Company entered into Promissory Note Conversion Agreement with Jameson Capital LLC pursuant to which a promissory note with accrued interest in the total amount of $15,602.85 was converted to restricted common stock at the price of $0.05 per share totaling 312,057 shares.
On April 24, 2012 the Company issued 400,000 shares of common stock for Directors’ compensation.
On April 30, 2012 the Company entered into a Promissory Note Conversion Agreement with American Pension Services, Inc. Administrator for Gilbert H. Lamphere pursuant to which two promissory notes, in the total value of $300,000 were converted to restricted common stock at the price of $0.10 per share totaling 3,000,000 shares.
On April 30, 2012 the Company entered into a Promissory Note Conversion Agreement with Gilbert H. Lamphere pursuant to which two promissory notes, in the total value of $150,000, were converted to restricted common stock at the price of $0.10 per share totaling 1,500,000 shares.
On May 22, 2012 the Company issued 500,000 shares of Common Stock for Directors’ compensation and 1,000,000 shares were issued pursuant to an employment agreement.
On May 31, 2012 the Company issued 4,996,716 shares of common stock by Promissory Note Conversion Agreements with three entities and converting these notes and accrued interest at the price of $0.05 per share.
On June 4, 2012 the Company issued 600,000 shares of common stock for debt of $30,000.
On April 27, 2012 the Company commenced a private offering under a Private Placement Memorandum under Regulation D of the Securities Act of 1933 of up to aggregate number of 30,000,000 shares of common stock at the price of $0.05 totaling up to $1,500,000 worth of common stock. As of June 22, 2012 the Company issued 22,400,000 shares of common stock for an aggregate purchase price of $1,120,000.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
On December 10, 2012, Hamilton, PC (“Hamilton”) was dismissed as the Company’s independent registered public accounting firm. Hamilton’s dismissal was approved by the Company’s board of directors. Hamilton’s audit reports on the Company’s financial statements for the fiscal years ended March 31, 2012 and 2011 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that, the audit reports included an explanatory paragraph with respect to the uncertainty as to the Company’s ability to continue as a going concern. During the years ended March 31, 2012 and 2011 and during the subsequent interim period preceding the date of Hamilton’s dismissal, there were (i) no disagreements with Hamilton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, and (ii) no reportable events (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
On December 10, 2012, the Company engaged BDO USA, LLP (“BDO”) to serve as its independent registered public accounting firm. During the years ended March 31, 2012 and 2011 and during the subsequent interim period preceding the date of BDO’s engagement, the Company did not consult with BDO regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s financial statements. The decision to engage BDO was approved by the Company’s board of directors.
Item 9A. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended ( the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Disclosure Controls. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Evaluation of Disclosure Controls and Procedures. As of March 31, 2012, the end of the fiscal year covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and our chief financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our CEO and CFO concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not operating effectively as of March 31, 2012. Our disclosure controls and procedures were not effective because of the “material weakness” described below under “Management’s Annual Report on Internal Control over Financial Reporting”.
36
Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, with the participation of the CEO and CFO, evaluated the effectiveness of the Company’s internal control over financial reporting as of March 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, concluded that, there was a material weakness in the design and operating effectiveness of certain accounting and financial reporting processes, as described more fully below. Due to this material weakness management concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2012.
A "material weakness" is defined as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is defined as a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial information reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.
Material Weakness in Accounting and Financial Reporting.
The Company did not maintain effective control over its annual financial statement reporting process which resulted in a restatement of the 2012 and 2011 financial statements. This restatement was a direct result of inadequate technical accounting review of transactions due to our inability to staff our accounting department with experienced US GAAP and SEC reporting personnel. A material weakness in financial reporting impacts the Company’s ability to timely report financial information in conformity with U.S. generally accepted accounting principles (“GAAP”), which could affect all significant financial statement accounts and disclosures. To remediate this material weakness in internal control over financial reporting, we have engaged a consultant with US GAAP and SEC reporting expertise to review our accounting prior to the issuance of financial statements.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting. During the fourth quarter of the year ended March 31, 2012, the Company discovered the material weakness in internal control over financial reporting disclosed above which materially affected our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Goverance
Directors and Executive Officers
The following table sets forth information regarding our executive officers and directors:
|
Name
|
Age
|
Office
|
|
Gilbert H. Lamphere
|
60
|
Chairman of the Board of Directors
|
|
Michael A. Barron
|
61
|
Chief Executive Officer, President and Director
|
|
Wanda Witoslawski
|
47
|
Chief Financial Officer, Secretary and Treasurer
|
|
John D. McPherson
|
65
|
Director
|
|
John H. Marino
|
73
|
Director
|
|
Thomas Mulligan
|
61
|
Director
|
Directors hold office for a period of one year from their election at the annual meeting of stockholders and until their successors is duly elected and qualified. Officers are elected by, and serve at the discretion of, the Board of Directors. None of the above individuals has any family relationship with any other.
37
Set forth below is a brief description of the background and business experience of each of our executive officers and directors.
Gilbert H. Lamphere – Chairman, 60
Mr. Lamphere has served as our Chairman since October 1, 2011. Mr. Lamphere serves on the Board of Directors of CSX Corporation and has served on the board of Canadian National Railway, Chaired the Board of the Illinois Central Railroad and served on the board of Florida East Coast Railway (350 miles down East Coast of Florida). He was also instrumental in the investment and oversight of Mid-South Rail. Mid-South, Illinois Central and Canadian National became successively the most efficient railroads with the lowest operating ratios in North America. He is the Managing Director of Lamphere Capital Management, a private investment firm which he founded in 1999 and Chairman of FlatWorld Acquisition Corp., a publicly traded private equity company. He has served as a director of numerous other public companies, including Carlyle Industries, Inc., Cleveland-Cliffs, Inc., R.P. Scherer Corporation, Global Natural Resources Corporation and Recognition International, Inc. Earlier in his career, Mr. Lamphere was Vice President of Mergers and Acquisitions at Morgan Stanley. Mr. Lamphere’s railroad industry knowledge and experience qualify him to serve on our board of directors.
Michael A. Barron – President and Chief Executive Officer, 61
Mr. Barron has been a developer of new business enterprises for nearly 30 years. Mr. Barron began his career in 1971 where he was the Senior Planner for the City of Monterey and was the HUD liaison for the City’s downtown redevelopment project. He master planned the city’s redevelopment of famous Cannery Row, Fisherman’s Wharf, and was Secretary of the Architectural Review Committee. Mr. Barron was the founder of Citidata, the first electronic provider of computerized real estate multiple listing service (MLS) information in the nation from 1975 to 1979. Citidata became the nation’s largest provider of electronic real estate information and was sold to Moore Industries in 1979. In June 1979, TRW hired Mr. Barron to develop its real estate information services division (TRW/REIS) that acquired 11 companies in the field and eventually became the world’s largest repository of real estate property information - Experian. In November 1988, he founded and served as President, until 1992, of Finet Holdings Corporation (NASDAQ:FNCM), a publicly traded mortgage broker and banking business specializing in e-mortgage financing on site in real estate offices and remote loan origination via the Internet (www.finet.com). The company was publicly traded and maintained a market capitalization of $500 million. From March 1995-1998, Mr. Barron pioneered the first nationwide commercially deployed video conference mortgage financing platform for Intel Corporation which as a licensed mortgage banker and broker in 20 states funded over $1 billion in closed loans. He later went on to serve as CEO for Shearson Home Loans and founded Liberty Capital, a $100 million asset management company based in Las Vegas, Nevada. Mr. Barron holds a B.S. degree from California Polytechnic University. Michael A. Barron has served as Director on Las Vegas Railway Express’ Board of Directors since inception. Mr. Barron’s experience as our president and chief executive officer quality him to serve on our board of directors.
Wanda Witoslawski - Chief Financial Officer, 47
Prior to joining the Company, Ms. Witoslawski was Controller for Ocean West Enterprises 1999-2005 and managed the mortgage banking function of that California mortgage bank. Her duties included accounting responsibility for over 200 branch offices, management of a $100 million mortgage bank warehouse line, payroll, general ledger and corporate accounting for SEC filings of the publicly traded company. Upon acquisition of Ocean West by Shearson Home Loans in 2005, she became Controller of publicly traded Shearson conducting the accounting operation for a staff of 1,350 employees including payroll, branch accounting and credit line management for over $200 million in warehouse banking credit. She assisted the CEO and President in the acquisition of five mortgage companies and development of a 250 office branch system with funding in excess of $1 billion per year, controlled the expense accounting & managed Shearson’s eighteen consecutive quarters of profitability. Upon Shearson’s exit from mortgage banking in 2007, she joined the principals Mr. Barron and Mr. Cosio-Barron as Controller at Liberty Capital Asset Management, an investor in acquiring defaulted mortgage pools, managing public accounting documents for SEC filings and the financial supervision over the liquidation of over 4,000 mortgage loans the company had acquired. She has a Master’s Degree in Economics from the University of Gdansk, Poland, a diploma in Marketing from Kensington College of Business, London, England and a diploma in professional accounting from Learning Tree University, Irvine, CA. Ms. Witoslawski is fluent in English, Polish and Russian.
John D. McPherson – Director, 65
Mr. McPherson has served as a director of the Company since January 15, 2012. Mr. McPherson joined the Board of Directors of CSX Corporation in July 2008. He served as President and COO of Florida East Coast Railway, a wholly-owned subsidiary of Florida East Coast Industries, Inc., from 1999 until his retirement in 2007. From 1993-1998, Mr. McPherson served as Senior Vice President - Operations, and from 1998-1999, he served as President and CEO of the Illinois Central Railroad. Illinois Central became the most efficient railroad with the lowest operating ratio in North America. Prior to joining the Illinois Central Railroad, Mr. McPherson served in various capacities at Santa Fe Railroad for 25 years. As a result of his extensive career in the rail industry, Mr. McPherson serves as an expert in railroad operations. From 1997-2007, Mr. McPherson served as a member of the board of directors of TTX Company, a railcar provider and freight car management services joint venture of North American railroads. Mr. McPherson’s railroad industry knowledge and experience qualifies him to serve on the Company’s board of directors.
38
John H. Marino, Director, 73
Mr. Marino has served as a director of the Company since January 15, 2012. Mr. Marino has recently joined the company as Vice President – Rail Operations where he supervises the Company’s activities with the Class 1 railroads, Amtrak, railcar procurement, and railset maintenance. Mr. Marino also serves as President of Transportation Management Services, Inc., a position he has held since 1983. From April 1992 until July 1996, he served as President and Chief Operating Officer of Rail America NYSE:RA, a publicly traded company and the largest short line railroad company in America. Mr. Marino co-founded Huron & Eastern Railway Company, Inc., a subsidiary of Rail America, and from 1986 until April 1996, served as its President and one of its directors. Mr. Marino also served as the President of Huron Transportation Group from its formation in January 1987 until its merger with Rail America Services Corporation in December 1993. He has served as President and Chief Executive Officer of several short line railroads, as an officer of the Reading Railroad and with the United States Railway Association, Washington, D.C. Mr. Marino received his B.S. degree in civil engineering from Princeton University in 1961 and his M.S. degree in transportation engineering from Purdue University in 1963. From 1963 to 1968, he served as an officer with the United States Army Corps of Engineers. Mr. Marino’s railroad industry knowledge and experience qualify him to serve on the Company’s board of directors.
Thomas Mulligan –Director, 61
Mr. Mulligan was an Operations Executive at Union Pacific with more than 38 years of experience where he was the Director of Passenger Rail Operations. He has experience in management, transportation, dispatching, budgeting and operations administration at the division, district and corporate level. Many of his responsibilities included rules compliance, contract negotiations, budget control, expense control, strategic planning and has been the corporate liaison for freight and passenger rail operations. Tom has an excellent record for identifying opportunities for improving operations, cost control and raising customer satisfaction. Mr. Mulligan was a member on the Railroad Safety Advisory Committee for the Federal Railroad Administration and was formally assigned by Governor Mike Johanns to serve on the Nebraska Transit and Rail Advisory Council from 2004 to 2006. This committee completed the current rail Corridor Transit Study that is used by the Nebraska State Legislature for commuter rail solutions in Eastern Nebraska.* He is a current member on the Board of Directors of the Omaha YMCA – Bulter Gast branch and served from 1994 to 1999 as a Trustee on Special Improvement District Board #236 (Candlewood). He currently serves as a Council member for the City of Omaha and was elected as Director for the Board of Directors of LVRE, Inc. on May 8, 2012. Mr. Mulligan’s railroad industry knowledge and experience qualify him to serve on the Company’s board of directors.
Code of Ethics
The Company has not yet adopted a Code of Ethics that applies to the Company’s principal executive officer, principal financial officer and principal accounting officer, but expects to in the near future.
Section 16(a) Beneficial Ownership Compliance
Our officers, directors and shareholders owning greater than ten percent (10%) of our shares are required to file beneficial ownership reports pursuant to Section 16(a) of the Securities and Exchange Act (the “Exchange Act”). To the Company’s knowledge, all such reporting obligations were complied with during the year ended March 31, 2012, except that, Form 3’s for Mr. John McPherson, Mr. Joseph Cosio-Barron, and Mr. Michael A. Barron were filed late.
Committees of the Board
The Board of Directors is in the process of forming two committees: audit and compensation committee. The Company does not have an audit committee financial expert, because of the small size and early stage of the Company
Nominating Committee
We do not have a separately designated nominating committee because the board makes all decisions regarding director nominations.
39
Involvement in Certain Legal Proceedings
Except as set forth below, to our knowledge, during the last ten years, none of our directors and executive officers have:
|
·
|
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
|
|
·
|
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
|
|
·
|
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
|
|
·
|
Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
|
|
·
|
Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Shearson Financial Network, a mortgage company, filed for Chapter 11 bankruptcy protection in 2008. Michael A. Barron was CEO of the company at the time.
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a pending or completed action, suit or proceeding if the officer or director acted in good faith and in a manner the officer or director reasonably believed to be in the best interests of the corporation.
Our certificate of incorporation provides that, except in certain specified instances, our directors shall not be personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors, except for the following:
|
●
|
any breach of their duty of loyalty to our company or our stockholders;
|
|
●
|
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
|
|
●
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; and
|
|
●
|
any transaction from which the director derived an improper personal benefit.
|
In addition, our certificate of incorporation and bylaws obligate us to indemnify our directors and officers against expenses and other amounts reasonably incurred in connection with any proceeding arising from the fact that such person is or was an agent of ours. Our bylaws also authorize us to purchase and maintain insurance on behalf of any of our directors or officers against any liability asserted against that person in that capacity, whether or not we would have the power to indemnify that person under the provisions of the Delaware General Corporation Law. We expect to continue to enter into agreements to indemnify our directors and officers as determined by our Board of Directors. These agreements provide for indemnification of related expenses including attorneys' fees, judgments, fines, and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract any retain qualified persons as directors and officers.
The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding, which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
Insofar as the provisions of our certificate of incorporation or bylaws provide for indemnification of directors or officers for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, we have been informed that in the opinion of the Commission this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
40
Family Relationships
There are no family relationships between any of our directors or executive officers and any other directors or executive officers.
Item 11. Executive Compensation.
SUMMARY COMPENSATION TABLE
Annual Compensation
|
Name and Principal
Position
|
Year
|
Salary
|
Bonus
|
Other
|
Long-term
Compensation
Shares Granted
|
All Other
Compensation
|
Total
|
||||||||||||||||||
|
Michael A. Barron,
|
2012
|
$
|
180,000
|
$
|
-
|
$
|
-
|
-
|
$
|
12,000
|
$
|
192,000
|
|||||||||||||
|
CEO, President
|
2011
|
$
|
180,000
|
-
|
-
|
-
|
12,000
|
$
|
192,000
|
||||||||||||||||
|
and Director
|
-
|
-
|
|||||||||||||||||||||||
|
Wanda Witoslawski
|
2012
|
$
|
120,000
|
-
|
-
|
-
|
$
|
6,000
|
$
|
126,000
|
|||||||||||||||
|
(appointed CFO on May 19, 2011)
|
2011
|
$ |
67,000
|
-
|
-
|
3,000,000
|
-
|
$ |
67,000
|
||||||||||||||||
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Employment Agreements
Our employment agreement with Michael Barron requires him to perform the duties of Chief Executive Officer at an annual salary of $180,000.00. Base salary will be increased to $300,000.00 based upon receipt of significant corporate or public funding. In addition, Mr. Barron is entitled to receive an incentive or performance bonus as follows: 1) Upon the company’s execution of a definitive agreement with AMTRAK, Executive shall be granted 1,000,000 shares, 2) Upon the company’s execution of a definitive agreement with BNSF, Executive shall be granted 500,000 shares, 3) Upon the company’s execution of a definitive agreement with Union Pacific, Executive shall be granted 500,000 shares, 4) Upon the company’s execution of a definitive agreement with a rail car provider, Executive shall be granted 500,000 shares, 5) Upon the company’s completion of its operation of its first train between Los Angeles and Las Vegas, Executive shall be granted 1,500,000 shares. He is also entitled to a car allowance of $1,000 per month. His employment agreement provides that if we terminate him without cause, he is entitled to receive a lump sum payment equal to twice his annual salary plus the present value of a performance bonus computed on the basis that we achieve all of LVRE’s performance targets. Mr. Barron’s employment agreement commenced as of February 1, 2012.
Our employment agreement with Wanda Witoslawski requires her to perform the duties of Chief Financial Officer and Treasurer of the Company for the duration of the employment agreement. During the term of this Agreement, the Company agrees to pay Executive a base salary at the rate of $120,000.00 per year. Base salary will be increased to $200,000.00 per year based only upon receipt of significant corporate or public funding. Additionally, a total of 1 million shares per year will be vested quarterly, in arrears, for a total period of 3 years for a total of 3 million shares. In addition, Mrs. Witoslawski is entitled to receive an incentive or performance bonus as follows: 1) Upon the company‘s execution of a definitive agreement with AMTRAK, Executive shall be granted 500,000 shares, 2) Upon the company’s execution of a definitive agreement with BNSF, Executive shall be granted 250,000 shares, 3) Upon the company’s execution of a definitive agreement with Union Pacific, Executive shall be granted 250,000 shares, 4) Upon the company’s execution of a definitive agreement with a rail car provider, Executive shall be granted 250,000 shares, 5) Upon the company’s completion of its operation of its first train between Los Angeles and Las Vegas, Executive shall be granted 750,000 shares. She is also entitled to a car allowance of $500 per month. Her employment agreement provides that if we terminate her without cause, she is entitled to receive a lump sum payment equal to twice her annual salary plus the present value of a performance bonus computed on the basis that we achieve all of our performance targets. Mrs. Witoslawski’s employment agreement commenced as of February 1, 2012.
41
Director Compensation for Year Ended March 31, 2012
The following table sets forth director compensation for the year ended March 31, 2012 (excluding compensation to our executive officers set forth in the summary compensation table above).
|
Name
(a)
|
Fees
Earned or
Paid in
Cash
($)
(b)
|
Stock
Awards
($)
(c)
|
Total
($)
(h)
|
|||||||||
|
Gilbert H. Lamphere
|
6,000
|
12,000
|
18,000
|
|||||||||
|
John D. McPherson
|
3,000
|
50,000
|
53,000
|
|||||||||
|
John H. Marino
|
3,000
|
50,000
|
53,000
|
|||||||||
|
Thomas Mulligan
|
0
|
0
|
0
|
|||||||||
We currently compensate our directors for being a Board member the equivalent of an initial 500,000 shares of common stock plus $12,000 annual fee for each member.
Outstanding Equity Awards at 2012 Fiscal Year-End
The following table sets forth outstanding equity awards to our named executive officers as of March 31, 2012:
|
OPTION AWARDS
|
STOCK AWARDS
|
|||||||||||||||||||||||||||||||||||
|
Name
(a)
|
Number of Securities Underlying Unexercised Options
(#)
Exercisable
(b)
|
Number of
Securities Underlying Unexercised
Options
(#) Unexercisable
(c)
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
(d)
|
Option Exercise Price
($)
(e)
|
Option Expiration Date
(f)
|
Number of Shares or Units of Stock That Have Not Vested
(#)
(g)
|
Market Value of Shares or Units of Stock That Have Not Vested
($)
(h)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(i)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(j)
|
|||||||||||||||||||||||||||
|
Michael A. Barron
|
1,000,000
|
-
|
-
|
$
|
0.50
|
10/31/13
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Joseph Cosio-Barron
|
1,000,000
|
-
|
-
|
$
|
0.50
|
10/31/13
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
42
Stock Option Plan
Our Board of Directors has adopted a stock option plan and reserved an aggregate of 20,000,000 shares of common stock for grants of restricted stock and stock options under the plan. The purpose of the plan is to enhance the long-term stockholder value of the Company by offering opportunities to officers, directors, employees and consultants of the Company to participate in our growth and success and to encourage them to remain in the service of the Company and acquire and maintain stock ownership in the Company.
The plan is currently administered by our Board of Directors, which has the authority to select individuals who are to receive grants under the plan and to specify the terms and conditions of each restricted stock grant and each option to be granted, the vesting provisions, the option term and the exercise price. Unless otherwise provided by the Board of Directors, an option granted under the plan expires 10 years from the date of grant (5 years in the case of an incentive option granted to a holder of 10% or more of the shares of the Company’s outstanding common stock) or, if earlier, three months after the optionee’s termination of employment or service. Options granted under the plan are not generally transferable by the optionee except by will or the laws of descent and distribution and generally are exercisable during the lifetime of the optionee only by such optionee. The plan is subject to the approval of the stockholders within 12 months after the date of its adoption.
The plan will remain in effect for 10 years after the date of its adoption by our Board of Directors. The plan may be amended by the Board of Directors without the consent of the “Company’s stockholders, except that any amendment, although effective when made, will be subject to stockholder approval if required by any Federal or state law or regulation or by the rules of any stock exchange or any automated quotation system on which the Company’s common stock may then be listed or quoted. The number of shares received under the plan and the number of shares subject to outstanding options are subject to adjustment in the event of stock splits, stock dividends and other extraordinary corporate events.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of March 31, 2012 by (a) each of the Company's directors and executive officers, (b) all of the Company's directors and executive officers as a group and (c) each person known by the Company to be the beneficial owner of more than five percent of its outstanding common stock.
|
Name and Address of Beneficial Owner (1)
|
Number of Shares
Beneficially Owned (2)
|
% of Common
Stock Beneficially Owned (3)
|
||||||
|
Gilbert H. Lamphere, Chairman (5)
|
100,000 | 0.21 | % | |||||
|
Allegheny Nevada Holdings Corporation (6)
|
1,98,866 | 4.07 | % | |||||
|
Michael A. Barron, CEO and President (1)
|
2,642,857 | 5.43 | % | |||||
|
JMW Fund LLC (4)
|
2,584,477 | 5.38 | % | |||||
|
John D. McPherson, Director
|
600,000 | 1.23 | % | |||||
|
John Marino, Director
|
1,000,000 | 2.06 | % | |||||
|
Wanda Witoslawski, CFO, Secretary and Treasurer
|
1,000,000 | 2.06 | % | |||||
|
Officers and Directors as a group
|
5,342,857 | 10.99 | % | |||||
|
(1)
|
The address of each of the beneficial owners is 6650 Via Austi Parkway, Suite 170, Las Vegas Nevada 89119, except as indicated.
|
|
|
(2)
|
In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable, or become exercisable within 60 days are deemed outstanding. However, such shares are not deemed outstanding for purposes of computing the percentage ownership of any other person.
|
|
|
(3)
|
Based on 48,653,530 shares outstanding as of March 31, 2012.
|
|
|
(4)
|
The address is 4 Richland Place, Pasadena, CA 91103
|
|
|
(5)
|
The address is 220 East 42nd St., 29th Floor, New York, NY 10017
|
|
|
(6)
|
The address is 6650 Via Austi Parkway Suite 170 Las Vegas, Nevada 89119
|
Item 13. Certain Relationships and Related Transactions and Director Independence
Four of our directors are independent directors, using the NASDAQ definition of independence.
Certain officers and directors have a beneficial ownership and are officers and directors companies which are or have been parties to financial transactions. We may be subject to various conflicts of interest in our relationship with Mr. Barron and Mr. Cosio-Barron and their other business enterprises. The following is a description of transactions and relationships between us, our executive officers and our directors and each of their affiliates.
Michael A. Barron, our CEO and President, is a 100% owner and President of Allegheny Nevada Holdings Corporation, “Allegheny”. The Company is indebted to Allegheny by a certain promissory note, dated January 6, 2009, of which Allegheny loaned the Company funds for working capital needs. Said Agreement was amended on October 1, 2009 and a portion was converted to 1,564,719 shares of the Company’s common stock at $0.05 per share. As of March 31, 2012 and 2011, the balance of the note was $89,186 and $107,562.62, respectively.
43
On November 23, 2009, the Company entered into an Asset Purchase Agreement with Las Vegas Railway Express, a Nevada Corporation, of which Allegheny is owner of 28.6% and Mr. Barron is a 28.6% owner, independent of Allegheny. On January 21, 2010, by shareholder approval the Company acquired Las Vegas Railway Express for 20,000,000 shares of the Company’s stock, of which 4,000,000 has been issued on April 23, 2010. The remaining shares, 16,000,000 are to be issued upon the completion of certain milestone operating agreements, by and between the Company. These agreements are deemed necessary for the continued operation of the Company’s proposed railway service. As of March 31, 2012, Allegheny Nevada Holdings has a 4.07% beneficial ownership in the Company.
As of March 31, 2012 and 2011, Mr. Barron had accrued wages of $71,563 and $65,734, respectively.
Joseph Cosio-Barron, former President, Secretary and Director of the Company is a 100% owner of CBS Consultants “CBS”, a Nevada Corporation. CBS had a 22.9% ownership of Las Vegas Railway Express at the time of acquisition on October 1, 2009, the Company entered into a promissory note with Mr. Cosio-Barron for $86,709. The Company converted 867,085 shares of the Company’s stock at $0.05 per share, resulting in a balance at March 31, 2012 and 2011 of $46,102 and $57,198, respectively. As of March 31, 2012 and 2011, Mr. Cosio-Barron had accrued wages of $57,800 and $51,971, respectively.
Item 14. Principal Accountant Fees and Services
In accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit and review of our annual financial statements, and can include fees for the audit and review of our annual financial statements included in a registration statement filed under the Securities Act as well as issuance of consents and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements except those not required by statute or regulation. ”Audit-related fees” are fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements, including attestation services that are not required by statute or regulation, due diligence and services related to acquisitions. “Tax fees” are fees for tax compliance, tax advice and tax planning, and “all other fees” are fees for any services not included in the first three categories. The fees reported for 2012 only include fees paid to BDO, our current auditor and for 2011 to Hamilton, our predecessor auditor.
Audit Fees
The aggregate fees billed by the Company's auditors for the professional services rendered in connection with the audit of the Company's annual financial statements, and reviews of the financial statements included in the Company's Forms 10-Qs for fiscal 2012 and 2011 were approximately $57,645 and $81,000, respectively.
Audit Related Fees
There were no audit related fees for the fiscal years ended March 31, 2012 and 2011.
Tax Fees
There were no fees for the fiscal years ended March 31, 2012 and 2011 for professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees
None
44
PART IV
|
Item 15.
|
Exhibits and Financial Statement Schedules.
|
|
(1)
|
Financial Statements: The following financial statements are included in Item 8 of this report:
|
||
| ● |
Balance Sheets as of March 31, 2012 and 2011.
|
||
| ● |
Statements of Operations for the fiscal years ended March 31, 2012 and 2011.
|
||
| ● |
Statements of Cash Flows for the fiscal years ended March 31, 2012 and 2011.
|
||
| ● |
Statement of Stockholders’ Equity (Deficit) for the fiscal years ended March 31, 2012 and 2011.
|
||
| ● |
Notes to Consolidated Financial Statements.
|
||
| ● |
Reports of Independent Registered Public Accounting Firms.
|
||
(3) Exhibits:
|
Exhibit No.
|
Description
|
|
|
3.2
|
Articles of Incorporation (incorporated herein by reference to Form SB-2, filed on July 31, 2007.)
|
|
|
3.3
|
By-Laws of the Registrant (incorporated herein by reference to Form SB-2, filed on July 31, 2007.)
|
|
|
3.4A
|
Amended By-Laws of the Registrant dated November 3, 2008 (incorporated herein as referenced on Form 10-K, as filed on June 30, 2010.)
|
|
|
3.4B
|
Amended Articles of Incorporation (incorporated herein as referenced on Form 10-K, as filed on June 30, 2010.)
|
|
|
3.5
|
Amended Articles of Incorporation as dated March 19, 2010 (incorporated herein as referenced on Form 10-K, as filed on June 30, 2010.)
|
|
|
3.6
|
Certificate of Merger, as dated March 19, 2010, by and between Liberty Capital Asset Management, Inc. and Las Vegas Railway Express (incorporated herein as referenced on Form 10-K, as filed on June 30, 2010.)
|
|
|
3.7
|
Amended Articles of Incorporation as dated April 19, 2010 (incorporated herein as referenced on Form 10-K, as filed on June 30, 2010.)
|
|
|
3.8
|
Amended By-Laws of the Registrant (incorporated herein as referenced on Form 10-K, as filed on June 30, 2010.)
|
|
|
10.1
|
Advisory Agreement, by and between E/W Capital and Las Vegas Railway Express, Inc., dated July 1, 2010 (incorporated herein as referenced to Exhibit 12 on Form 8-K, as filed July 8, 2010)
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|
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10.2
|
Employment Agreement with Michael A. Barron, dated February 1, 2012
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10.3
|
Employment Agreement with Wanda Witoslawski, dated February 1, 2012
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10.4
|
Memorandum of Understanding with T-UPR (The Plaza Hotel & Casino), dated May 1, 2012.
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10.5
|
Union Pacific Railroad Company Public Project Reimbursement Agreement, dated December 1, 2010.
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10.6
|
Memorandum of Understanding with National Railroad Passenger Corporation, dated January 13, 2011.
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31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
| 32.2 |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101 INS
|
XBRL Instance Document**
|
|
101 SCH
|
XBRL Schema Document**
|
|
101 CAL
|
XBRL Calculation Linkbase Document**
|
|
101 LAB
|
XBRL Labels Linkbase Document**
|
|
101 PRE
|
XBRL Presentation Linkbase Document**
|
|
101 DEF
|
XBRL Definition Linkbase Document**
|
** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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By :/s/ Michael A. Barron
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June 10, 2013
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|
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Chief Executive Officer
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||
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(Principal Executive)
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||
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By: /s/Wanda Witoslawski
|
June 10, 2013
|
|
|
Chief Financial Officer
|
||
|
(Principal Financial and Accounting Officer)
|
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on June 28, 2012.
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LAS VEGAS RAILWAY EXPRESS, INC.
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By:
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/s/Michael A. Barron
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Michael A. Barron, Chief Executive Officer
Principal Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
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Name
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Title | Date | ||
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/s/Michael A. Barron
|
Chief Executive Officer, Director |
June 10, 2013
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||
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Michael A. Barron
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||||
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/s/Wanda Witoslawski
|
Chief Financial Officer |
June 10, 2013
|
||
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Wanda Witoslawski
|
||||
| /s/John D. McPherson | Chairman |
June 10, 2013
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||
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John D. McPherson
|
||||
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|
||||
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/s/John H. Marino
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Director
|
June 10, 2013
|
||
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John H. Marino
|
||||
|
|
||||
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/s/Gilbert H. Lamphere
|
Director |
June 10, 2013
|
||
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Gilbert H. Lamphere
|
|
|||
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/s/Thomas Mulligan
|
Director |
June 10, 2013
|
||
|
Thomas Mulligan
|
|
|
||
|
/s/ John O’Connor
|
Director | June 10, 2013 | ||
| John O'Connor | ||||
| /s/ George Rebensdorf | Director | June 10, 2013 | ||
| George Rebensdorf | ||||