<PAGE> 1
SECURITIES & EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NO. 0-19798
AMERICAN RESOURCE CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0216081
(State of incorporation) (I.R.S. employer identification no.)
100 DRAKE'S LANDING ROAD, SUITE 250
GREENBRAE, CALIFORNIA 94904-2496
(Address of principal offices) (Zip code)
Telephone: (415) 461-6868
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports 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 .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PROCEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes X No
--- ---
As of December 30, 1994 there were 13,225,234 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement issued in connection
with the 1994 Annual Meeting of Stockholders are incorporated by reference into
Part III.
1
<PAGE> 2
AMERICAN RESOURCE CORPORATION, INC.
PART II - FINANICAL INFORMATION
Item 8 to the registrant's Annual Report on Form 10-K for the period ended
December 31, 1994 is hereby amended and restated as set forth below.
Item 8. Financial Statements and Supplementary Data
The amended information required by this Item is attached as Appendix A which
is hereby incorporated by reference.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to its report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN RESOURCE CORPORATION, INC.
-----------------------------------
(Registrant)
Date: May 20, 1996 /s/ Bruce K. Thiesen
---------------- -----------------------------------
Bruce K. Thiesen
Chief Financial Officer
Principal Accounting officer
3
<PAGE> 4
AMERICAN RESOURCE CORPORATION, INC.
APPENDIX A
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements
Report of Independent Accountants....................................................... A-2
Consolidated Balance Sheets at December 31, 1994 and 1993............................... A-3
Consolidated Statements of Operations for the years ended December 31 1994
and 1993 and the periods ending December 31, 1992 and February 18, 1992.............. A-4
Consolidated Statements of Shareholders' Equity for the years ending
December 31, 1994 and 1993 and the periods ending December 31, 1992
and February 18, 1992............................................................... A-5
Consolidated Statements of Cash Flows for the years ending December 31, 1994
and 1993 and the periods ending December 31, 1992 and February 18, 1992.............. A-6
Notes to Consolidated Financial Statements.............................................. A-7
Unaudited Selected Quarterly Financial Data............................................. A-33
</TABLE>
A-1
<PAGE> 5
[MCDOUGAL & WILLIAMS LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
American Resource Corporation, Inc.
We have audited the accompanying consolidated balance sheets of
American Resource Corporation, Inc., (formerly New Gold, Inc.)(the "Company")
and Subsidiaries as of December 31, 1994 and 1993, and the related statements
of consolidated operations, shareholders' equity and cash flows for the years
ended December 31, 1994 and 1993 and for the periods ended December 31, 1992
and February 18, 1992. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 4 to the consolidated financial statements, certain
errors were discovered by management of the Company during the current year.
Accordingly, the consolidated financial statements have been restated to
reflect correction of these errors.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Resource Corporation, Inc. at December 31, 1994 and 1993, and the
results of their operations and their cash flows for the years ended December
31, 1994 and 1993 and for the periods ended December 31, 1992 and February 18,
1992, in conformity with generally accepted accounting principles.
McDougal & Williams
Reno, Nevada
April 7, 1995, except for
Note 4, as to which the date is
February 26, 1996
A-2
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
AMERICAN RESOURCE CORPORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
- ---------------------------------------------------------------------------------------------------------------
AS RESTATED AS RESTATED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,520,841 $ 521,055
Receivables:
Trade 193,150 33,580
Related parties 3,266,014
Other 405,812 1,101,369
Inventories:
Finished products 86,752 17,493
Ore and in-process 1,007,984 336,573
Supplies 544,736 210,938
Deferred financing costs 769,968
Prepaids and other assets 1,140,424 312,451
- ---------------------------------------------------------------------------------------------------------------
Total current assets 5,899,699 6,569,441
- ---------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Mineral properties and mine development 16,104,381 12,581,475
Property, plant and equipment 16,467,735 19,249,586
Accumulated depreciation, depletion and amortization (5,716,723) (3,989,111)
- ---------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 26,855,393 27,841,950
- ---------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS:
Investment in mining interests 1,170,120
Deferred financing cost - long-term 768,510 515,543
Other assets 979,500 109,480
- ---------------------------------------------------------------------------------------------------------------
Total investments and other assets 1,748,010 1,795,143
- ---------------------------------------------------------------------------------------------------------------
$ 34,503,102 $ 36,206,534
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade $ 2,357,337 $ 2,459,242
Accounts payable to related party 70,644 179,402
Accrued liabilities:
Payroll and other compensation 530,257 240,904
Reclamation 209,933 534,253
Other taxes 234,327 390,359
Interest 375,421 612,614
Other 586,780 1,579,177
Convertible notes payable 200,000 7,775,000
Current portion of long-term debt 2,543,410 4,966,474
Other liabilities 154,000
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 7,262,109 18,737,425
- ---------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 13,229,761 2,846,416
Reclamation and other long-term obligations 1,024,849 394,100
- ---------------------------------------------------------------------------------------------------------------
Total long-term liabilities 14,254,610 3,240,516
- ---------------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARIES 564,754 22
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY: (shares in 000's)
Capital stock (issued 13,476 shares in 1994 and 7,419 shares in 1993) 134,764 74,192
Other capital 76,575,862 49,074,908
Accumulated deficit (64,288,997) (34,920,529)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 12,421,629 14,228,571
- ---------------------------------------------------------------------------------------------------------------
$ 34,503,102 $ 36,206,534
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
A-3
<PAGE> 7
CONSOLIDATED STATEMENTS OF OPERATIONS
AMERICAN RESOURCE CORPORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------ ----------------------------
JANUARY 1 TO JANUARY 1 TO FEBRUARY 18 TO JANUARY 1 TO
DECEMBER 31 DECEMBER 31 DECEMBER 31 FEBRUARY 18
- -------------------------------------------------------------------------------------------------------------------------
AS RESTATED AS RESTATED
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 1,817,667 $ 5,078,880 $ 354,161 $ 9,548
Interest and dividends 199,380 10,030 315,246
Other income 230,940 536,795 132,096
- -------------------------------------------------------------------------------------------------------------------------
2,247,987 5,625,705 801,503 9,548
- -------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Production costs 6,385,566 8,023,238 788,604 88,333
Depreciation, depletion and amortization 1,694,908 3,706,351 331,476 6,177
Administrative and general 5,583,165 6,179,721 4,504,522 54,656
Exploration 3,028,745 2,902,998 2,190,314 94,602
Amortization of deferred debt financing costs 478,268 2,013,058 253,773
Interest expense 1,439,146 1,996,298
Other expense 288,820 145,520 601,728
Net loss on disposal of assets 198,175 189,224 5,813 894
Write-downs of mining properties and investments 16,786,531 1,208,644 5,974,000 50,597
Equity share of loss from investment in mining interests 549,155
- -------------------------------------------------------------------------------------------------------------------------
35,883,324 26,914,207 14,650,230 295,259
- -------------------------------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS:
Professional fees 167,207
Administrative and general 18,696
Interest and finance charges 109,140
Interest income (2,629)
- -------------------------------------------------------------------------------------------------------------------------
292,414
- -------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS & MINORITY INTEREST (33,635,337) (21,288,502) (13,848,727) (578,125)
EXTRAORDINARY ITEMS:
Equity Share Of Gain On The Forgiveness Of Debt 216,700
Extraordinary Gain On The Forgiveness Of Debt 1,762,437
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST (33,635,337) (21,071,802) (13,848,727) 1,184,312
MINORITY INTEREST SHARE OF LOSS 4,266,869
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(29,368,468) $(21,071,802) $(13,848,727) $ 1,184,312
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS:
Loss Before Extraordinary Items & Minority Interest $ (2.89) $ (4.03) $ (43.11) (15.52)
Equity Share Of Gain On The Forgiveness Of Debt 0.04
Extraordinary Gain On The Forgiveness Of Debt 47.31
Minority Interest Share of Loss 0.36
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ (2.53) $ (3.99) $ (43.11) $ 31.79
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES USED IN THE COMPUTATION 11,621,799 5,287,545 321,251 37,257
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Shares and per share data has been restated to reflect a 1 for 10 reverse stock
split of the common stock effective December 17, 1993. Net loss per share for
the periods prior to February 18, 1992 are not meaningful due to the
restructuring of debt, the related issuance of new common stock and fresh
start reporting.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
A-4
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMERICAN RESOURCE CORPORATION, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 AND THE PERIODS ENDING
DECEMBER 31, AND FEBRUARY 18, 1992
<TABLE>
<CAPTION>
Common Stock Other Accumulated
Shares Amount Capital Deficit Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES,
DECEMBER 31, 1991 37,257 $ 373 $ 2,244,587 $ (6,688,632) $ (4,443,672)
Net income for the period through
February 18, 1992 (pre-confirmation) 1,184,312 1,184,312
Effects of reorganization:
Effect of "Fresh Start" accounting (5,504,320) 5,504,320
Common stock issued in
settlement of claims 1,126,446 11,264 10,424,754 10,436,018
Common stock subscriptions 1,320,393 1,320,393
Common stock subscriptions receivable (939,697) (939,697)
Equity financing costs (1,593,524) (1,593,524)
- --------------------------------------------------------------------------------------------------------------------------
BALANCES,
FEBRUARY 18, 1992 1,163,703 11,637 5,952,193 5,963,830
- --------------------------------------------------------------------------------------------------------------------------
SUCESSOR COMPANY
BALANCES,
FEBRUARY 18, 1992 1,163,703 11,637 5,952,193 5,963,830
Net loss(post-confirmation)
from February 18 through
December 31, 1992 (13,848,727) (13,848,727)
Common stock issued 3,007,640 29,146 20,003,939 20,033,085
Common stock subscriptions 305,610 305,610
Common stock subscriptions receivable 930 938,767 939,697
Equity financing costs (1,228,211) (1,228,211)
- --------------------------------------------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1992 4,171,343 41,713 25,972,298 (13,848,727) 12,165,284
Net loss (as restated) (21,071,802) (21,071,802)
Common stock issued 3,247,827 32,479 24,211,102 24,243,581
Common stock subscriptions 1,458,873 1,458,873
Equity financing costs (2,567,365) (2,567,365)
- --------------------------------------------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1993 (AS RESTATED) 7,419,170 74,192 49,074,908 (34,920,529) 14,228,571
Net loss (as restated) (29,368,468) (29,368,468)
Common stock issued 6,057,240 60,572 27,874,590 27,935,162
Common stock subscriptions 75,000 75,000
Equity financing costs (448,636) (448,636)
- --------------------------------------------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1994 (AS RESTATED) 13,476,410 $ 134,764 $ 76,575,862 $(64,288,997) $ 12,421,629
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
A-5
<PAGE> 9
STATEMENTS OF CONSOLIDATED CASH FLOWS
AMERICAN RESOURCE CORPORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- ----------------------------
JANUARY 1 TO JANUARY 1 TO FEBRUARY 18 TO JANUARY 1 TO
DECEMBER 31 DECEMBER 31 DECEMBER 31 FEBRUARY 18
- -------------------------------------------------------------------------------------------------------------------------
AS RESTATED AS RESTATED
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) $(29,368,468) $(21,071,802) $(13,848,727) $ 1,184,312
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 1,694,908 3,706,351 331,476 6,177
Amortization of deferred debt financing costs 478,268 2,013,058 253,773
Write-downs of mining properties and investments 16,786,531 1,208,644 5,974,000 50,597
Minority Interest share of lOSS (4,266,869)
Gain on extinguishment of debt (1,762,437)
Equity loss from investment in mining interests 332,455
Loss on disposal of assets 198,175 189,224 5,813 894
Loss on Central Bank bonds 109,690
Expenses paid by issuing common shares 1,595,132 100,000 (685)
Effect of changes in operating working capital items:
Receivables 546,843 198,579 (46,324) (121,658)
Receivables-related parties 876,011 (1,650,578) (1,517,530)
Inventories (1,065,722) (282,646) (306,488) (13,870)
Prepaids and other assets (779,348) (151,125) (1,052,975) 48,202
Accounts payable and other liabilities (489,563) 1,303,218 3,595,530 (199,012)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by operations (15,389,234) (12,499,800) (6,511,452) (807,480)
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Increase in investments and deposits (372,111) (291,076) (511,020)
Additions to property, plant and equipment (9,324,117) (5,852,637) (11,368,794) (2,393)
Acquisitions, net of cash acquired (1,382,290)
Bond investment acquired in acquisitions (6,003,127)
Proceeds from Joint Ventures 600,000
Proceeds from bond maturities 1,545,183 4,397,127
Proceeds from sale of assets 27,308 33,825 6,390 5,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (9,068,920) (5,946,995) (13,479,424) 2,607
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings 19,100,000 11,625,422 7,569,085
Debt repayments (7,776,600) (3,272,551) (141,770)
Current portion of long-term debt 3,375
Proceeds from debtor certificates 5,249,000
Proceeds from warrants exercised 6,211,909
Common stock issued 15,094,395 5,093,277 10,153,471
Common stock issued by subsidiary 3,021,000
Common stock subscribed 1,458,873 305,610 390,000
Increase in capital raising and deferred financing costs (3,001,177) (3,223,317) (2,255,761) (620,977)
Change in due to/from related parties 45,000 40,468 172,489
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 26,437,618 17,938,613 15,671,103 5,193,887
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,979,464 (508,182) (4,319,773) 4,389,014
CASH INCREASE FROM CONSOLIDATION OF SUBSIDIARY 20,322
CASH AND EQUIVALENTS, BEGINNING OF THE PERIOD 521,055 1,029,237 5,349,010 959,996
- -------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF THE PERIOD $ 2,520,841 $ 521,055 $ 1,029,237 $ 5,349,010
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
A-6
<PAGE> 10
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
The Company was incorporated under the laws of the State of Nevada as New Gold,
Inc. in 1985, principally to acquire mineral properties and to carry on the
business of extracting, processing, and marketing the resulting products. The
Company's principal product is gold, but it also produces zeolite, an industrial
minerals product.
Since emerging from bankruptcy as a reorganized company (as discussed in Note 2
below) the Company has incurred substantial losses and a significant working
capital deficit. The Company's future is heavily reliant upon its ability to
explore and develop some of the properties acquired during 1992, 1993 and 1994.
The Company has entered into joint venture agreements on certain properties in
South America which allow the venture partners to earn an interest in the
related properties in exchange for their funding exploration and evaluation of
the properties. The Company continues to be active in discussions with various
parties that have indicated an interest in jointly developing several of the
Company's other properties. The Company also believes that it can expect some
cashflow from its two operating locations, which, combined with capital
infusions that are currently being negotiated, there will be sufficient capital
to fund its requirements. Because of the uncertainties regarding success of
exploration, the ability to raise capital and to attain profitable operations in
the future, the recovery of the Company's investments and its future as a going
concern are not assured.
On December 17, 1993, the Company's common stock was reverse split by the issue
of one new share of common stock for every ten shares of pre reverse split
common stock. All references to stock in the financial statements, including
these notes, relate to the number of shares of common stock adjusted for the
reverse split on December 17, 1993.
See Note 4 for discussion of Company's ability to continue as a going concern.
2. REORGANIZATION
On November 21, 1990, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. The Company also filed a
disclosure statement and a plan of reorganization with the Bankruptcy Court and
continued to operate as Debtor-in-Possession. An amended plan of reorganization
was filed on December 31, 1991. The Bankruptcy Court approved the amended plan
on February 18, 1992, and the Company emerged from bankruptcy as a reorganized
debtor and changed its name to American Resource Corporation, Inc. The final
decree closing the case was filed on February 10, 1993.
The approved plan amended the Articles of Incorporation to authorize 100,000,000
shares (10,000,000 post December 17, 1993 10 for 1 common stock reverse split)
of common stock (See Note 10). Pursuant to the approved amended plan, the
following transactions occurred during the year ended December 31, 1992,
resulting in the issuance of common stock.
- Existing shareholders of the Company received one share of
common stock in exchange for every 20 shares of Company common
stock then held.
- Secured debt claims for notes payable and accrued interest
were exchanged for one share of common stock for every ten
dollars or fraction thereof of allowed claim. In addition,
they received warrants exercisable into shares of common stock
on the same basis as debtor certificate holders.
- Unsecured creditors claims did not bear interest and were
satisfied through the issuance of one share of common stock
for every fifty dollars or fraction thereof
A-7
<PAGE> 11
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
of the allowed claim or by payment in cash at the rate of
twenty percent of allowed claim. The majority of the allowed
claims were satisfied with common stock.
- Debtor certificates were issued by the Company for cash of
$9,070,800 out of the approved limit of $10,000,000. The
certificates earned interest at twelve percent per annum. The
certificates and earned interest of $186,924 were exchanged
for common stock at the rate of one share for each ten dollars
plus warrants.
- Certain costs and expenses related to the reorganization were
satisfied through the issuance of five shares of common stock
for every ten dollars of amounts due.
The Company adopted Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), issued by the
American Institute of Certified Public Accountants and has presented financial
statements as a Debtor-in-Possession from January 1, 1992 through February 18,
1992. The Company also adopted "fresh start" accounting as of February 18, 1992
following the guidelines of SOP 90-7. Fresh start accounting requires the
reorganized value of the emerging entity be allocated to the assets in
conformity with the purchase method of accounting for business combinations (as
defined by Accounting Principles Board Opinion No. 16.)
The fresh start reporting equity value of approximately $5.50 per share of
common stock was determined by the Company with the assistance of its financial
advisor during Chapter 11 reorganization. The significant factors used in the
determination of this value were the valuation of significant mineral properties
and mining plant and equipment.
Pursuant to SOP 90-7, the Company reallocated the reorganization value as of
February 18, 1992, applying the purchase method of accounting. The reallocation
has resulted in a gain on forgiveness of debt which had the effect of increasing
net income by $1,762,437. The change in net income had the effect of reducing
the amount of the accumulated deficit eliminated in conjunction with the
application of fresh start reporting.
Under fresh start reporting, the final consolidated statement of financial
position as of February 18, 1992, became the opening consolidated statement of
financial position of the emerged Company.
A-8
<PAGE> 12
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following schedule shows the Company's Condensed Balance Sheet prior to
giving effect to the plan of reorganization, the entries made to record the
effects of the plan and fresh start accounting, and the resulting Condensed
Balance Sheet.
<TABLE>
<CAPTION>
Adjustments to Record Plan of Reorganization
-----------------------------------------------
Pre- Exchange Reorganized
Confirmation Approved of Fresh Statement
February 10 Transactions Stock Start February 18
------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 5,349,010 $ $ $ $ 5,349,010
Accounts receivable, net 127,355 127,355
Accounts receivable, related 99,011 99,011
parties
Prepaid and other assets 13,870 13,870
------------ ------------ ------------ ------------ ------------
Total current assets 5,589,246 5,589,246
Mineral properties 638,900 638,900
Property and equipment 427,065 427,065
Other assets 1,805,843 (1,545,645) 260,198
------------ ------------ ------------ ------------ ------------
Total assets $ 8,461,054 $ (1,545,645) $ 0 $ 0 $ 6,915,409
============ ============ ============ ============ ============
LIABILITIES & EQUITY (DEFICIT)
Accounts payable $ 741,982 $ (398,448) $ $ $ 343,534
Due to related party 172,489 172,489
Accrued reclamation 435,556 435,556
Debtor certificates 10,185,224 (10,185,224)
Liabilities subject to compromise 2,667,449 (2,667,449)
------------ ------------ ------------ ------------ ------------
Total liabilities 14,202,700 (13,251,121) 0 0 951,579
------------ ------------ ------------ ------------ ------------
Common stock 6,282 11,504 (7,079) 10,707
Additional paid-in capital 1,518,829 9,931,535 7,079 (5,504,320) 5,953,123
Accumulated deficit (7,266,757) 1,762,437 5,504,320
------------ ------------ ------------ ------------ ------------
Total stockholders' equity (deficit) (5,741,646) 11,705,476 5,963,830
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit) $ 8,461,054 $ (1,545,645) $ 0 $ 0 $ 6,915,409
============ ============ ============ ============ ============
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
The Company adopted Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" (SOP 90-7), issued by the American
Institute of Certified Public Accountants and has presented financial statements
as a Debtor-in-Possession from January 1, 1992 through February 18, 1992. The
Company also adopted "fresh start" accounting as of February 18, 1992 following
the guidelines of SOP 90-7. Fresh start accounting requires the reorganized
value of the emerging entity be allocated to the assets in conformity with the
purchase method of accounting for business combinations (as defined by
Accounting Principles Board Opinion No. 16.) The Consolidated Financial
Statements prior to February 18, 1992 are generally not comparable to
Consolidated Financial Statements subsequent to February 18, 1992 and are
separated by a vertical black line (See Note 2).
The accounting and reporting policies of the Company conform to generally
accepted accounting principles. Certain amounts in the financial statements for
prior periods have been reclassified to conform to the current period financial
statement presentation. The following is a summary of the more significant of
such Company policies.
A-9
<PAGE> 13
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Principles of Consolidation
The consolidated financial statements include American Resource Corporation,
Inc., its subsidiaries and their undivided interests in joint ventures after
elimination of intercompany accounts. Undivided interests in joint ventures are
reported using pro-rata consolidation which includes the Company's proportionate
share of assets, liabilities, income and expenses. Investments in less than 50%
owned entities over which the Company exercises significant influence are
reported using the equity method of accounting.
Cash and Cash Equivalents
Included are all highly liquid investments with a maturity of three months or
less at the date of purchase. The Company places its cash and cash equivalents
in operating and money market accounts in excess of federally insured limits.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost of
inventory consumed or sold is determined primarily using average cost.
Exploration
Acquisitions of exploration properties are recorded at cost. Exploration costs
are expensed as incurred. Acquisition costs of a property determined not to be
economically feasible are expensed in the period that determination is made.
Mineral Properties and Mine Development Costs
Mineral properties are recorded at cost of acquisition. Mine development and
pre-operating costs relating to new mining properties and major expansion
projects at existing mines are capitalized until commercial production
commences. Mine development costs to maintain production at existing mines are
expensed as incurred as production costs. Depletion and amortization expense
related to mineral property costs are computed using the units-of-production
method with estimated proven and probable ore reserves being the basis. Proven
and probable reserves reflect estimated quantities of economically recoverable
minerals which the Company believes can be produced in the future from known
mineral deposits.
Property Evaluation
Recoverability of investments in mineral properties and related plant and
equipment is evaluated at least annually. Evaluation of operating properties
utilizes estimated future cash flows from proven and probable reserves based on
current and projected estimates of production costs and metals prices, and if
applicable, include future capital requirements. Evaluation of non-operating
properties incorporates the use of estimates of expected development costs of
known mineralization, costs to hold the property, future capital cost estimates
to bring the property into production and expected production costs and metals
prices. Future costs and metals prices are estimated using historical and
current information as a basis for the projections. Investments in mineral
properties in excess of expected future cash flows that are deemed to be other
than temporary are written off when that determination is made. Properties which
have not been explored or evaluated enough to determine if mineral values are
sufficient to make development of the property feasible, are carried at original
cost.
Plant and Equipment
Plant and equipment are recorded at cost. Depreciation of major plant facilities
including capitalized interest is principally computed using the units of
production method described above. Depreciation of other plant and equipment is
computed principally using straight-line or accelerated methods over the
estimated life of the asset. Amortization of assets acquired through capitalized
leases is included in depreciation, depletion and amortization expense for the
period. Costs of normal maintenance and repairs are expensed as incurred.
A-10
<PAGE> 14
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Reclamation Costs
Costs expected to be incurred for reclamation are estimated using current
environmental and regulatory requirements and are accrued and expensed over the
estimated life of the property, principally using the units-of-production
method.
Deferred Financing Costs
Costs incurred in obtaining financing through the issuance of promissory notes
are amortized and expensed over the life of the note. The unamortized portion of
deferred costs of this nature for convertible promissory notes that are
converted into common stock are charged to contributed capital. Costs incurred
to issue common stock through private placements are charged to other capital.
Product Sales
Revenue is recognized from product sales as products are delivered to customers.
Foreign Currency
The U.S. dollar is the functional and the reporting currency. Transactions and
balances denominated in a foreign currency are translated into U.S. dollars.
Transactions are translated using average or actual rates. Monetary balances are
translated at the rate of exchange at the balance sheet date and non-monetary
balances are translated at historical rates. Resulting gains and losses are
included in income in the reporting period. Certain transactions of subsidiaries
in Uruguay, a country with a highly inflationary economy, are recorded in New
Uruguayan pesos. Resulting balances are translated into U.S. dollars as stated.
All significant transactions of foreign subsidiaries are recorded in U.S.
dollars. As such, the resulting gains and losses, if any, are negligible. The
Company uses zero balance foreign dollar accounts to minimize foreign currency
exchange exposure.
Net Income (Loss) Per Share
The number of shares used to calculate per share information for the periods
presented are based on the weighted average number of common shares and common
share equivalents outstanding during each period.
Accounting for Income Taxes
The Company adopted SFAS No. 109 "Accounting for Income Taxes" on February 18,
1992, the date the Company emerged from bankruptcy.. The adoption of SFAS No.
109 had no cumulative effect on the Company's financial position or on net loss
for the periods ended December 31 or February 18, 1992. The Company uses an
asset and liability approach for financial accounting and reporting for income
taxes. If the required accounting results in a net deferred asset, some or all
of which may not be realized, the Company establishes a valuation allowance to
reduce the net asset.
Accounting for Acquisition Funded by Equity Securities
The fair value of equity securities issued as consideration for the acquisition
of property or other assets is based upon recent transactions in those
securities. The number of securities issued and any restrictions on free trading
of the securities is also included in the determination of the fair value for
each issue, and is subsequently compared to the fair value of the assets
acquired.
A-11
<PAGE> 15
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. RESTATED FINANCIAL STATEMENTS [PRIOR PERIOD ADJUSTMENTS]
Due to uncertainties regarding the Company's success in exploration, the ability
to raise capital and to attain profitable operation in the future, the recovery
of the Company's investments and its future as a going concern was not
reasonably assured. During 1995, the Company significantly improved its
liquidity and overall financial position with the proceeds from the sales of
equity securities received from the sale if its wholly-owned subsidiary,
Recursos Americanos Argentinos. In addition, the Company received a conditional
commitment for a $25 million project gold loan facility for development of its
San Gregorio property in Uruguay. Accordingly, management believes the
uncertainty regarding the Company's ability to continue as a going concern no
longer exists.
During the third quarter of 1995, the Company's new management became aware of
certain aspects of several transactions entered into by the Company under its
former management and began a review and investigation of these transactions and
the relationships between former management and the counterparties to such
transactions. Due to the relationships of certain of the parties referred to
below with the Company, the Company's former management or other affiliates,
terms of certain of the transactions below may not have been the same as those
that would have resulted from transactions among wholly unrelated parties.
The Company has established that certain aspects of these transactions require
the Company to restate the consolidated financial statements and to include
additional disclosures regarding the affiliations certain parties had with the
Company, the Company's former management or other affiliates.
Financial Statement Restatement: Depreciation, depletion and amortization
expense of the Company's Mahoma project in southern Uruguay reflected in these
consolidated financial statements was not computed correctly. Also, results of
the Company's evaluation of its recoverability of the December 31, 1994 net book
value and estimated reclamation costs for the Mahoma project were not correctly
reflected. The effect of the restatements for these errors is summarized below:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------------------- -------------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Write-downs of property,
plant and equipment $ 13,159,186 $ 16,786,531 $ 1,208,644 $ 1,208,644
Depreciation, depletion and
amortization expense 1,633,690 1,694,908 1,757,056 3,706,351
Production costs 6,355,666 6,385,566 7,644,138 8,023,238
Net loss (25,650,005) (29,368,468) (18,743,407) (21,071,802)
Net loss per share (2.21) (2.53) (3.55) (3.99)
Accumulated deficit (58,242,139) (64,288,997) (32,592,134) (34,920,529)
</TABLE>
Due to the restatement of property, plant and equipment and depreciation,
depletion and amortization, net deferred tax assets at December 31, 1994 and
December 31, 1993 have also been restated. The net deferred tax assets after
valuation allowance as previously reported and as restated are comprised of the
following:
A-12
<PAGE> 16
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------------------- -------------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Deferred tax assets
Mineral property
write-downs $ 6,486,593 $ 7,314,808 $ 2,304,256 $ 2,558,899
Tax loss carryforwards 14,986,097 14,986,097 7,787,069 7,787,069
Allowance for bad debt 17,550 17,550 17,550 17,550
------------ ------------ ------------ ------------
21,490,240 22,318,455 10,108,875 10,363,518
Deferred tax liabilities (43,421) (43,421) (1,983) (1,983)
------------ ------------ ------------ ------------
Net deferred tax assets 21,446,819 22,275,034 10,106,892 10,361,535
Valuation allowance (21,446,819) (22,275,034) (10,106,892) (10,361,535)
------------ ------------ ------------ ------------
Net deferred tax assets
after valuation allowance $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
Geographic information as previously reported and as restated is as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
---------------------------- ----------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
U. S. $ 1,691,278 $ 1,691,278 $ 1,998,938 $ 1,998,938
South America 556,709 556,709 3,626,767 3,626,767
------------ ------------ ------------ ------------
$ 2,247,987 $ 2,247,987 $ 5,625,705 $ 5,625,705
============ ============ ============ ============
Operating loss: (1)
U. S. $(15,837,076) $(15,837,076) $ (1,801,070) $ (1,801,070)
South America (7,010,188) (10,728,652) (6,970,987) (9,299,382)
------------ ------------ ------------ ------------
$(22,847,264) $(26,565,728) $ (8,772,057) $(11,100,452)
============ ============ ============ ============
Identifiable assets:
U. S. $ 13,815,708 $ 13,815,708 $ 28,036,527 $ 28,036,528
South America 26,325,252 20,687,394 10,119,302 8,170,006
------------ ------------ ------------ ------------
$ 40,140,960 $ 34,503,102 $ 38,155,829 $ 36,206,534
============ ============ ============ ============
Exploration:
U. S. $ 168,816 $ 168,816 $ 287,471 $ 287,471
South America 2,859,929 2,859,929 2,615,527 2,615,527
------------ ------------ ------------ ------------
$ 3,028,745 $ 3,028,745 $ 2,902,998 $ 2,902,998
============ ============ ============ ============
Depreciation, depletion and
amortization:
U. S. $ 760,761 $ 760,761 $ 265,905 $ 265,905
South America 872,929 934,147 1,491,151 3,440,446
------------ ------------ ------------ ------------
$ 1,633,690 $ 1,694,908 $ 1,757,056 $ 3,706,351
============ ============ ============ ============
Additions to property, plant
and equipment:
U. S. $ 5,397,107 $ 5,397,107 $ 2,802,279 $ 2,802,279
South America 3,927,010 3,927,010 9,007,723 9,007,723
------------ ------------ ------------ ------------
$ 9,324,117 $ 9,324,117 $ 11,810,002 $ 11,810,002
============ ============ ============ ============
</TABLE>
(1) The Company also incurred net corporate and other costs amounting to
$7,069,609 and $10,188,050 in 1994 and 1993, respectively.
A-13
<PAGE> 17
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Disclosure Related to Transactions Entered into by Former Management: A summary
of the transactions reviewed and investigated by new management and the
additional disclosures is presented below:
Tarot Transaction: Tarot Financial Investments, Inc. ("Tarot"), a Panamanian
holding company, entered into a purchase contract with Bond Gold Limited ("Bond
Gold") on January 22, 1992 to acquire all the outstanding shares of the capital
stock of Compania Minera de San Jose de Uruguay, a Cayman Islands corporation
("CMSJ CI") (the "CMSJ Purchase Contract"), which in turn controlled its
wholly-owned subsidiary, Compania Minera de San Jose, a Uruguayan corporation
("CMSJ SA"). CMSJ SA either directly or through one or more subsidiaries, owned
the Mahoma mine property, mineral exploration lands and other facilities and
equipment in southern Uruguay. On January 31, 1992, the Company entered into an
option agreement (the "Tarot Transaction") to purchase all the outstanding
shares of the capital stock of Tarot (the "Tarot Shares") with Mr. Hansueli
Gasser. Mr. Gasser represented himself to the Company as the owner of the Tarot
Shares. The Tarot Transaction required the delivery of 1,000,000 shares of the
Company's common stock to Mr. Gasser or his designees and the delivery of the
Tarot Shares to the Company. Mr. Gasser ultimately requested the shares of the
Company's common stock to be designated as follows:
<TABLE>
<CAPTION>
Common Shares
-------------
<S> <C>
Dellwood Holdings Ltd. 255,000
Belgrove Holdings Ltd. 220,000
Rayka Holdings Ltd. 260,000
Aramorfa, S.A. 265,000
---------
1,000,000
=========
</TABLE>
The Company placed a value of $5 million ($5.00 per share) on the shares to be
issued to Mr. Gasser or his designees and capitalized this amount as a direct
acquisition cost of Tarot. This value was determined by former management using
an approximate discount rate of fifty percent on the then current share price of
the Company's unrestricted common stock. None of the 1,000,000 shares of the
Company's common stock were delivered to Mr. Gasser or his designees in 1992,
and Mr. Gasser did not deliver the Tarot Shares to the Company. During 1993 or
1994, 475,000 shares of the Company's common stock were delivered by the Company
to Mr. Gasser registered in the names of Dellwood Holdings Ltd. ("Dellwood") and
Belgrove Holdings Ltd. As of February 26, 1996, 525,000 shares remain in the
Company's possession and the Tarot Shares have not been received by the Company.
The Company has not restricted the voting (or other shareholder rights) for
these 525,000 shares, and has told Mr. Gasser it is prepared and willing to
deliver them to Mr. Gasser upon receipt of the Tarot Shares.
Since February 1992, the Mahoma Mine and all other CMSJ SA assets have been in
the care, custody and control of the Company, and the Company has at all times
dealt with CMSJ SA as its owner. The Company has performed all of the
obligations of Tarot under the CMSJ Purchase Contract, has in its possession the
CMSJ SA bearer shares and has been at full economic risk for the mining
operations, including reclamation liabilities. New management has been actively
trying to conclude this transaction since August 1995. The CMSJ SA results of
operations, which have been a loss for each year since the Company entered into
the Tarot Transaction, have been included with the Company's consolidated
results of operations.
Goldfield Acquisition: In November 1991, the Company entered into an agreement
with Woodhill Consultants Limited ("Woodhill"), under which Woodhill granted to
the Company the right to acquire Woodhill's option rights to the Goldfield Joint
Venture with Red Rock Mining (USA) Inc. ("Goldfield") in exchange for $500,000
in promissory notes. Mr. Norman M. Ewart was a Woodhill director and consultant
in 1991, and named a director and officer of the Company in December 1992.
A-14
<PAGE> 18
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In January 1992, Woodhill assigned the agreement, subject to the Company's
rights, to Harris Mining, Ltd. ("Harris"). On February 18, 1992, the Company
exercised its option by issuing to Harris a $1 million short-term note payable
and to Harris designees 1,000,000 shares of its common stock and 1,000,000
warrants to purchase an additional 1,000,000 shares of the Company's common
stock at $10.00 per share, exercisable at any time on or before February 28,
1997. Former management placed a value of $5 million ($5.00 per share) on the
shares to be issued to Harris or its designees, determining this value by using
an approximate discount rate of fifty percent on the then current share price
for the Company's unrestricted common stock, and capitalized the approximate
$6.5 million of consideration to Woodhill and Harris as a direct acquisition
cost of its interest in Goldfield. In February 1993, in consideration for
retiring the short-term note payable of $1 million plus accrued interest of ten
percent per annum, the Company issued 109,300 shares of the Company's restricted
common stock.
In November 1993, the Company reduced the exercise price of the warrants to
$7.50 each. In 1992, the Company recorded a $5.7 million write-down of its
investment in Goldfield. American Pacific Minerals Ltd. ("APML") increased its
interest in the Goldfield mine from fifty percent to one hundred percent in 1994
and the Company recorded a $12 million write-down of its investment in Goldfield
that same year (See Note 7).
The 1,000,000 shares of the common stock were issued to Harris designees as
follows:
<TABLE>
<CAPTION>
Common Shares
-------------
<S> <C>
Dellwood Holdings Ltd. 180,000
Belgrove Ltd. 185,000
Hillsborough Investments Ltd. 175,000
Pasco Holdings Ltd. 150,000
Fabry SA 175,000
Clearview Ltd. 135,000
---------
1,000,000
=========
</TABLE>
The 1,000,000 warrants were issued to Harris designees as follows:
<TABLE>
<CAPTION>
Warrants
--------
<S> <C>
Harris Mining, Ltd. 190,000
Parkgate Properties Ltd. 180,000
Guyane Investments Ltd. 75,000
Clearview Ltd. 55,000
Valois Holdings, Ltd. 175,000
Rona Investments 150,000
Theodore Holdings Ltd. 175,000
---------
1,000,000
=========
</TABLE>
Dellwood Debt: On September 10, 1993, the Company received $800,000 in cash from
Dellwood. Ten days later, $500,000 of this amount was repaid to Dellwood through
New World Trust and the remaining $300,000 plus accrued interest was recorded as
a note due on demand until it was paid in February 1996.
Bolir Acquisition: On February 28, 1992, ARC acquired mineral exploration
properties in Uruguay through the purchase of one hundred percent of the capital
stock of Bolir, SA ("Bolir") from Florecer Corporation ("Florecer"). The
original cost to the Company to acquire Bolir was 50,000 shares of ARC's
restricted common
A-15
<PAGE> 19
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
stock valued at $250,000. On March 30, 1992, shares of ARC were issued to
Florecer and then transferred to the following individuals on July 10, 1992:
<TABLE>
<CAPTION>
Common Shares
-------------
<S> <C>
Mike Schwabe 12,500
Jack Crawford 5,000
George Young 10,000
Tony Healey 10,000
Stephen Everett 12,500
------
50,000
======
</TABLE>
As previously reported by the Company in its September 28, 1993 Proxy Statement,
Messrs. Schwabe, Crawford and Young were officers and shareholders of Florecer
in February 1992. Mr. Young was named an officer of the Company and to its Board
of Directors in April 1992; Mr. Schwabe was named an officer of the Company in
March 1992; and Mr. Crawford joined the Company as an employee in March 1992.
Acquisition of Mahoma Plant: In February 1992, the Company signed an $8.25
million turn-key construction contract with Bardem Machinery and Equipment
Limited, ("Bardem"), c/o Kwan Wong Tan and Fong for the Mahoma Plant and
facilities. Mr. Young signed this contract under power of attorney on behalf of
Bardem. James Askew Associates, Inc. ("Askew"), an unrelated party, was named as
a subcontractor to perform technical services under this agreement. Bardem
purchased a used gold plant from Pacific Goldmines NL ("Pacific") for $1.5
million under the above contract. ARC made the $1.5 million payment to Pacific
on Bardem's behalf.
Askew personnel arrived on site in April 1992 and the plant arrived in Uruguay
in June 1992. At about the same time, ARC canceled the turn-key contract with
Bardem. Bardem ultimately requested payment under the turn-key contract in the
aggregate amount of $3.8 million, including the $1.5 million paid by the Company
to Pacific on Bardem's behalf. The Bardem demand letter, dated June 1, 1992,
stipulated that ARC accept that it was buying the plant "at site in Australia
and prior to any renovation". ARC ultimately paid Bardem and Pacific
approximately $2.4 million (including $100,000 interest) and $1.5 million,
respectively. ARC also paid another subcontractor, Metallurgy International Pty
Ltd., $1.1 million for refurbishment and shipment of the gold plant to Uruguay.
The Askew contract terminated in September 1992 and CMSJ personnel completed the
construction and commissioning. New management has not been able to determine
the basis for the contract settlement amount of $3.9 million.
Mr. Ewart was a consultant to Bardem when ARC acquired the equipment from
Bardem. As discussed above (see Goldfield Acquisition), in December 1992, Mr.
Ewart was named an officer and director of ARC. As previously reported by the
Company in its September 28, 1993 Proxy Statement, the Company entered into a
consulting agreement with Mr. Ewart dated as of February 28, 1992, to provide
for the consulting services of Mr. Ewart in relation but not limited to capital
structure, accounting and cost control procedures. The agreement was effective
through September 1992, although both parties continued to perform thereunder
until March 1, 1993, when Mr. Ewart entered into an employment agreement with
the Company which provided for payment to Mr. Ewart of $15,000 per month. Mr.
Ewart received $135,000 in consulting fees from the Company during 1992 under
this agreement. In 1990 and 1994, Mr. Ewart was an officer, director and
minority shareholder of Pacific. It has not been determined whether Mr. Ewart
had affiliations with Pacific in 1992.
Cameron Glover was named Chairman of ARC's Board of Directors in February 1992.
In 1990 and 1994, Mr. Glover was a minority shareholder of Pacific. It has not
been determined whether Mr. Glover was a shareholder of Pacific in 1992.
A-16
<PAGE> 20
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. ACQUISITIONS AND INVESTMENTS
In April, 1993, the Company purchased 100% of the shares of STEL (BVI) Inc.,
100% of the shares of STEL S.A., 100% of the shares of Dalvan S.A. and 95% of
the shares of Glendora S.A. from CMP (BVI) Inc.(collectively "STEL") for
$4,530,000. A note payable to CMP (BVI) Inc. for $4,323,974 ($4,530,000 face
value less imputed interest of $206,026 using the Company's cost of capital) was
issued by the Company. The purchase note required an initial payment of
$1,500,000, four installment payments with interest at 6% and a royalty of 1.5%
on the gross sale price of the gold produced from the properties acquired in
this purchase in excess of 500,000 ounces of gold. The four installments were
payable $1,000,000 in October, 1993, $1,000,000 in April, 1994, $500,000 in
December, 1994 and $530,000 in March, 1995. The note was fully paid in January,
1994. The acquisition was accounted for using the purchase method of accounting.
STEL owns the right to explore and mine on mineral properties in northern
Uruguay in South America, part of which is known as the San Gregorio Gold
Project.
In February, 1993, the Company purchased from Walhalla Mining Company NL Inc.,
an Australian company, ("Walhalla") 1,662,366 shares of common stock of American
Pacific Minerals Ltd. ("APM") formerly known as Red Rock Mining Corporation and
certain warrants that automatically converted into 75,001 shares of APM's common
stock, on February 15, 1993, together representing approximately 42% of the
outstanding common shares of APM for consideration of: (i) cash payments of US
$200,000 and CAN $50,000: (ii) a Convertible Subordinated Note (the "First
Note") in the principal amount of US $840,111 ($890,978 face value less imputed
interest of $50,867 using the Company's cost of capital), payable in five equal
installments due on January 31, 1993 (paid subsequent to the closing of the
transaction), April 30, 1993, July 31, 1993, October 31, 1993 and January 30,
1994 (this note was repaid during 1993); and (iii) a Non-Assignable Convertible
Subordinated Note (the "Second Note") in the principal amount of US $362,554
($671,889 face value less imputed interest of $309,335 using the Company's cost
of capital), payable 50% seven days after written demand by the holder any time
after January 24, 1998, but not later than March 31, 1998, and the balance on
March 31, 1998. In addition, the Company received 31,563 shares of APM's common
stock from an affiliate under the terms of the purchase agreement and acquired a
further 35,942 shares in the open market. At December 31, 1993, the Company
owned 1,804,872 shares of APM's common stock constituting approximately 43% of
APM's outstanding shares of common stock. The acquisition was accounted for as
an equity investment.
APM, through a wholly owned subsidiary, held a 50% joint interest in the
Goldfield open pit heap leach gold mining project ("the Goldfield mine") in
Goldfield, Nevada. The Company owned the other 50% joint venture interest in the
Goldfield mine.
In the first half of 1994, the Company increased its interest in APM from 43% to
approximately 60.6% of the outstanding common stock by purchasing an additional
12 million shares at $.50 per share. In addition, it sold its 50% interest in
the Goldfield mine to APM for 12 million shares valued at $.47 per share which
increased its investment in APM to approximately 74%. The transaction was
accounted for using the current net book value of the Company's 50 percent
interest. At the same time, APM repaid all amounts due to the Company.. As a
result of the increase in ownership, the Company began including APM in the
Company's consolidated financial statements effective January 1, 1994. The
following unaudited Pro Forma Consolidated Balance Sheet at December 31, 1993
and the unaudited Pro Forma Statement of Consolidated Operations for the year
ended December 31, 1993 reflect the consolidated financial position and the
consolidated results of operations of the Company and APM, accounted for as if
the acquisition had occurred on January 1, 1993. The pro forma information
should be read in conjunction with the historical financial information and does
not necessarily reflect the results of operations as they would have been if the
Company and the acquired entity were a combined entity during the periods
presented, and is not necessarily indicative of results which may be obtained in
the future.
A-17
<PAGE> 21
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1993
-----------------
Pro Forma Adjustments
----------------------------
As Related Unaudited
Restated Acquisition Transactions Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and equivalents $ 521,055 $ 5,720,123 $ 300,199 $ 6,541,377
Receivables:
Trade and other 1,134,949 -- -- 1,134,949
Related party 3,266,014 -- (3,242,880) 23,134
Inventories 565,004 -- -- 565,004
Other current assets 1,082,419 136,454 (68,227) 1,150,646
------------ ------------ ------------ ------------
Total current assets 6,569,441 5,856,577 (3,010,908) 9,415,110
Property, plant and equipment 27,841,950 14,327,248 (8,039,110) 34,130,088
Investments and other assets 1,795,143 46,012 -- 1,841,155
------------ ------------ ------------ ------------
$ 36,206,534 $ 20,229,837 $(11,050,018) $ 45,386,353
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Accounts payable-trade $ 2,459,242 $ 395,799 $ (186,949) $ 2,668,092
Accounts payable-related party 179,402 -- -- 179,402
Accrued and other liabilities 3,357,307 966,784 (409,286) 3,914,805
Convertible notes payable 7,775,000 -- (362,554) 7,412,446
Current portion long-term debt 4,966,474 643,862 (130,409) 5,479,927
------------ ------------ ------------ ------------
Total current liabilities 18,737,425 2,006,445 (1,089,198) 19,654,672
Long-term and other liabilities 3,240,516 102,043 448,978 3,791,537
Minority Interest 22 -- 4,711,551 4,711,573
------------ ------------ ------------ ------------
21,977,963 2,108,488 4,071,331 28,157,782
------------ ------------ ------------ ------------
Shareholders' equity:
Capital 49,149,100 26,618,043 (23,618,043) 52,149,100
Accumulated deficit (34,920,529) (8,496,694) 8,496,694 (34,920,529)
------------ ------------ ------------ ------------
14,228,571 18,121,349 (15,121,349) 17,228,571
------------ ------------ ------------ ------------
$ 36,206,534 $ 20,229,837 $(11,050,018) $ 45,386,353
============ ============ ============ ============
</TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1993
------------------------------------
<TABLE>
<CAPTION>
As Proforma Unaudited
Restated Adjustments Proforma
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Gold sales $ 5,078,880 $ 1,083,301 $ 6,162,181
Other income 546,825 66,976 613,801
------------ ------------ ------------
5,625,705 1,150,277 6,775,982
------------ ------------ ------------
EXPENSES:
Production cost - gold 8,023,238 1,075,164 9,098,402
Depreciation, depletion and amortization 3,706,351 68,538 3,774,889
Administrative and general 6,179,721 875,721 7,055,442
Exploration 2,902,998 44,984 2,947,982
Amortization of deferred debt financing costs 2,013,058 2,013,058
Interest expense 1,996,298 56,731 2,053,029
Write-downs of mining properties 1,208,644 1,208,644
Other expenses 549,155 (549,155)
334,744 296,224 630,968
------------ ------------ ------------
26,914,207 1,868,207 28,782,414
------------ ------------ ------------
Loss from operations (21,288,502) (717,930) (22,006,432)
Minority interest 329,442 329,442
------------ ------------ ------------
Loss before extraordinary items $(21,288,502) $ (388,488) $(21,676,990)
============ ============ ============
Loss per share before extraordinary items $ (4.03) $ (3.79)
============ ============
Average shares used in computation 5,287,545 429,500 5,717,045
============ ============ ============
</TABLE>
A-18
<PAGE> 22
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In February 1992, the Company acquired 100% of the capital stock of Tarot
Financial Investments Inc. ("Tarot"), a company incorporated in Panama. At the
time of the acquisition, Tarot was party to an agreement to acquire all of the
outstanding shares of capital stock of Compania Minera San Jose de Uruguay
("CMSJ") which held substantial gold mineral properties in Uruguay through a
wholly-owned subsidiary Compania Minera San Jose S.A. ("CMSJ, S. A."). Tarot was
a party to an agreement to acquire all of the shares of CMSJ from Bond Gold
Limited and its parent, Bond International Gold, Inc. (collectively, "Bond").
The cost to acquire Tarot and its subsidiaries was $7,898,449. The Company paid
an option fee of $1,000,000 to Bond on behalf of Mr. Hansueli Gasser, the sole
shareholder of Tarot, for the right to acquire all of the shares of Tarot. The
Company exercised its right to acquire all of the shares of Tarot by issuing
1,000,000 shares of its restricted common shares to Mr. Gasser or his designee
(See Note 4). Tarot exercised its right to acquire all of the shares of CMSJ in
consideration for $500,000 paid to Bond by Tarot, $1,000,000 paid to Bond on
behalf of Tarot by the Company and by a note payable to Bond for $1,898,449
($2,500,000 face value less calculated imputed interest of $601,551 using the
Company's cost of capital) issued by Tarot. This note is secured by the shares
of CMSJ (See Note 8). There were no significant operations in the acquired
entities in the periods from January 1 to February 18, 1992 or from February 18,
1992 to the acquisition on February 28, 1992.
The Company also acquired other mineral exploration properties in Uruguay
through the purchase of all of the capital stock of Bolir, SA ("Bolir") in
February 1992, from Florecer Corporation. The cost to acquire Bolir was
$250,000, which the Company paid by issuing 50,000 of its restricted common
shares to the shareholders of Florecer. At the time of the acquisition, Bolir
held an option to acquire all of the capital stock of Brimol, SA ("Brimol") who
also held gold mineral exploration properties in Uruguay. The cost to acquire
Brimol was $437,394. The Company advanced $200,000 to Bolir which was used as
the initial payment to purchase all of the common stock of Brimol SA from
Compania Minera Aguilar SA ("Aguilar"). A note payable to Aguilar for $237,394
($300,000 face value less calculated imputed interest of $62,606 using the
Company's cost of capital) was issued by Bolir (See Note 8). Installment
payments on this note have been suspended while investigation regarding the
ownership of rights to certain properties that were represented as being
included in the purchase are concluded.
Beginning in April 1992, the Company began acquiring rights to explore and to
subsequently develop several properties in Argentina through differing
agreements entered into by its 100% owned subsidiary Recursos Americanos
Argentinos ("RAA"). During 1993 and 1994, RAA continued to acquire rights to
explore and to evaluate properties in Argentina. Some properties were abandoned
based on evaluation results which were unsatisfactory and the associated
acquisition costs were written-off (See Note 6). Joint Venture partners were
secured to assist in the evaluation of other properties that would entitle them
to earn an interest in the property by funding the required exploration and
periodic payments on the property. RAA has certain future expenditure
requirements to retain the ability to explore, develop, operate or purchase the
various properties.
6. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31
----------------------------
1994 1993
----------- -----------
<S> <C> <C>
Trade $ 193,150 $ 33,580
Related Parties (See Note 11) -- 3,266,014
Other, net of allowances 577,710 1,178,449
Provision for bad debts (171,898) (77,080)
----------- -----------
$ 598,962 $ 4,400,963
=========== ===========
</TABLE>
A-19
<PAGE> 23
\AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. PROPERTY, PLANT AND EQUIPMENT
Mineral properties, mine development and other property and equipment are
comprised of the following:
<TABLE>
<CAPTION>
December 31
----------------------------
1994 1993
------------ ------------
As Restated As Restated
<S> <C> <C>
Mineral properties and mine development costs $ 16,104,381 $ 12,581,475
Plant and equipment 15,073,486 18,822,782
Capitalized leased assets 1,394,249 426,804
------------ ------------
32,572,116 31,831,061
Less accumulated depreciation, depletion
and amortization (5,716,723) (3,989,111)
------------ ------------
$ 26,855,393 $ 27,841,950
============ ============
Supplemental information:
Capitalized interest included in plant
and equipment $ 737,253 $ 687,848
Assets acquired through capital leases:
Accumulated depreciation, depletion
and amortization 86,802 6,725
Depreciation, depletion and amortization
expense 74,660 104,731
</TABLE>
Additions to property, plant and equipment include capitalized interest costs of
$49,405 in 1994 and $154,976 in 1993. The amounts for mineral properties and
mine development costs at December 31, 1994 and 1993 are net costs after
recording the following write-downs:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Goldfield mine $12,000,000 $ --
Mahoma mine 3,627,345 --
Exploration properties 1,148,750 1,024,894
Other mining interests 10,436 183,750
----------- -----------
$16,786,531 $ 1,208,644
=========== ===========
</TABLE>
Based on the Company's assessment of the recoverable value of its investment in
the Goldfield mine and the Mahoma mine, it recorded a write-downs of $12,000,000
an $3,627,345, respectively. The write-downs reflects revised estimates, of
future cash flows and gold mineralization that the Company believes would
qualify as proven and probable reserves, anticipated sales prices and operating
costs. Write-downs of exploration properties relate to abandoned properties or
properties where exploration and evaluation efforts concluded the carrying value
of the property was not supportable. The write-down of other mining interests
relates to certain investments and other mining related assets for which the
Company concluded that it would not recover its investment.
A-20
<PAGE> 24
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INVESTMENT IN MINING INTERESTS
The Company acquired a 43% interest in the common stock of APM in February 1993
(See Note 5), and used the equity method to account for its investment. The
equity method of accounting requires the original investment be recorded at cost
and adjusted for the Company's share of undistributed earnings or losses. The
following table summarizes the unaudited financial position and results of
operations of APM for the year ended December 31, 1993:
<TABLE>
<CAPTION>
Amounts in $ Thousands December 31, 1993
------------------------------------------- -------------------------------
<S> <C>
Condensed Balance Sheet:
Current assets $ 230
Non-current assets 8,683
Current liabilities 5,206
Non-current liabilities 51
Net equity 3,656
Condensed Statement of Operations
Loss before extraordinary item $1,302
Extraordinary gain 500
Net loss 802
</TABLE>
In 1994, the Company increased its interest in APM to approximately 74% (See
Note 5) and began including APM in the Company's consolidated financial
statements.
A-21
<PAGE> 25
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. LONG TERM DEBT
Notes payable and accrued interest were comprised of the following:
<TABLE>
<CAPTION>
Principal Balance Accrued Interest
at December 31, at December 31,
-----------------------------------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Convertible secured notes; interest at 10%;
secured by certain mineral properties; due as
follows:
December 31, 1993 $ -- $ 350,000 $ -- $ --
June 30, 1994 -- 3,150,000 -- --
December 31, 1994 200,000 4,175,000 10,623 --
Convertible note; interest at 12%; interest
and principal due September 30, 1994 -- 100,000 -- 13,166
Note payable; interest imputed at 12%;
secured by the shares of Compania Minera San
Jose de Uruguay; due in five installments from
February, 1993 to August, 1995 which vary
based upon the sales price of gold produced
from the properties acquired with this debt,
with maximum total installments of $2,500,000 914,747 1,639,923 37,517 234,196
Note payable; interest imputed at 12%; secured by
100% of the shares of Brimol S.A.; due in $100,000
annual installments beginning March, 1993 and
ending March, 1995. Payment has been suspended
pending resolution of a dispute (See Note 4) 237,394 237,394 76,995 61,890
Secured bank note; interest at 5% above;
LIBOR; secured by the shares of Compania
Minera San Jose S.A -- 80,421 -- --
Note payable; interest at 10%; due in nine
monthly installments from September, 1993 -- 7,909 -- --
Note payable; interest imputed at 6.85%;
due in four annual installments of $50,000
(prior to 1994, balances are 50% prorata of the
obligation. Installments at 50% are $25,000) 90,589 65,788 -- --
Note payable; interest at 12%; due on
January 13, 1994 -- 750,000 -- 87,040
Demand notes; interest at 10% to 12%; due on
30 days notice 300,000 880,000 37,562 35,115
----------- ----------- ----------- -----------
Sub-totals $ 1,742,730 $11,436,435 $ 162,697 $ 431,407
----------- ----------- ----------- -----------
</TABLE>
A-22
<PAGE> 26
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principle Balance Accrued Interest
at December 31, at December 31,
------------------------- -------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance from previous page brought forward $ 1,742,730 $11,436,435 $ 162,697 $ 431,407
Installment note; interest at 12% [including 6%
imputed interest]; secured by the shares of
STEL (BVI) Inc. and its subsidiaries; remaining
installments due in 1994 and 1995 -- 1,923,631 -- 133,251
Convertible, non-assignable, subordinated
unsecured note; inputed interest at 12%; 50%
due by March 31, 1998 or on 7 days notice
after January 24, 1998 -- 362,554 -- 41,936
Installment purchase contract; interest at 4.5%
above three month LIBOR; due in twelve equal
quarterly installments through June 1996 1,339,399 1,757,537 39,682 6,020
Convertible secured notes; regular interest at
9% and additional interest equal to 6.67% of
cash flow, as defined, of the Goldfield Joint
venture; secured by personal property of the
Joint Venture; due serially on December 31, 1997,
1998 and 1999 2,000,000 -- 30,082 --
Convertible secured note; interest at 8%;
secured by the shares of STEL (BVI) Inc and
its subsidiaries and their mineral properties
known as "the San Gregrio Property"; due
December 31, 1996 3,500,000 -- -- --
Convertible notes; interest at 10% to 11%;
due March 31, 1999 to May 17, 1999 6,600,000 -- 134,630 --
Capital lease obligations (See Note 17) 791,042 107,733 8,330 --
----------- ----------- ----------- -----------
15,973,171 15,587,890 375,421 612,614
Less: Current convertible notes payable 200,000 7,775,000
Current portion of long term debt 2,543,410 4,966,474
----------- ----------- ----------- -----------
$13,229,761 $ 2,846,416 $ 375,421 $ 612,614
=========== =========== =========== ===========
</TABLE>
Aggregate maturities of long-term debt (excluding capital lease obligations) for
the next five years are as follows: 1995 - $2,396,229; 1996 - $4,185,900; 1997 -
$666,667; 1998 - $666,667; and 1999 - $7,266,666.
The notes due December 31, 1994 are convertible into common shares of the
Company at the lesser of $10.00 per share or at 90% of the average bid and offer
price of the shares for the ten trading days preceding notice of
A-23
<PAGE> 27
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
conversion. The holders can elect to receive interest in the form of common
shares at $10.00 per share. The notes due December 31, 1996 are convertible
either into common stock of the Company at $8.00 per share or into a net smelter
return royalty on mineral production from the property known as the "San
Gregorio Property." The notes due serially on December 31, 1997, 1998 and 1999
are convertible into common shares of the Company's subsidiary, APM, at 85% of
the average share price for twenty trading days preceding notice of conversion.
The Company, in March 1994, converted $430,000 of 12% demand notes, plus $33,683
of accrued interest and a fee amounting to $23,184, into 77,281 of its common
shares at $6.30 per share. In March 1994, the Company converted $5,500,000 of
its convertible notes due June 30, 1994 and December 31, 1994, plus accrued
interest of $46,712, into 808,264 shares of its common stock at $6.86 per share,
and in May 1994, the Company converted an additional $350,000 of this
convertible debt into 84,770 shares of its common stock at $4.13 per share. In
April 1994, the Company converted $7,000,000 of 14% convertible debt, issued in
1994 and due December 31, 1998, into 1,750,000 of its common shares at $4.00 per
share. In July 1994, the Company converted $100,000 of its convertible
promissory notes due September 30, 1994, plus accrued interest of $19,529 into
30,000 of its common shares at $3.97 per share. In December 1994, the Company
recorded a subscription for 17,647 shares of common stock at a conversion rate
of $4.25 per share related to the conversion of $75,000 of convertible
promissory notes due December 31, 1994. The shares were issued in 1995 (See Note
11).
10. INCOME TAXES
The Company's net deferred tax assets at December 31, 1994 and 1993, were
$22,275,034 and $10,361,535 respectively, before a valuation allowance as
follows:
<TABLE>
<CAPTION>
December 31
--------------------------------
1994 1993
------------ ------------
AS RESTATED AS RESTATED
<S> <C> <C>
Deferred Tax Assets:
Mineral property write-downs $ 7,314,808 $ 2,558,899
Tax loss carry-forwards 14,986,097 7,787,069
Allowance for bad debt 17,550 17,550
------------ ------------
22,318,455 $ 10,363,518
Deferred Tax Liabilities 43,421 1,983
------------ ------------
Net deferred tax assets 22,275,034 10,361,535
Valuation allowance (22,275,034) (10,361,535)
------------ ------------
Net deferred tax asset after valuation allowance $ -- $ --
============ ============
</TABLE>
A valuation allowance must be provided when it is more likely than not that the
deferred tax asset will not be realized. The Company has provided a valuation
allowance against the entire December 31, 1994 and 1993 net deferred tax asset.
In subsequent periods, the Company may reduce the valuation allowance, provided
that utilization of the deferred tax asset is more likely than not. As a result
of this valuation allowance, no income tax expense or benefit for the periods
ended December 31, 1994, 1993, and 1992, and February 18, 1992 has been
represented.
Pursuant to SFAS No. 109, the Company was required to apply the purchase method
of accounting in a different manner than that reflected in the Company's
Consolidated Statements of Financial Position prior to February 18, 1992. That
application did not result in a material change to the basis of the underlying
assets.
A-24
<PAGE> 28
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Availability of Amount of NOLs
At February 18, 1992, the Company had net operating loss ("NOL") carry forwards
for financial reporting and federal income tax purposes of approximately
$6,350,000 (see following discussion regarding Annual Limitation (defined
herein) of NOL utilization). For financial reporting and tax reporting purposes,
these NOL carry forwards expire between 1994 and 2009. For financial reporting
purposes, benefits realized from NOL carry forwards existing as of the date of
reorganization will be recorded as a direct addition to capital in excess of par
value.
On February 18, 1992, the Company completed its bankruptcy reorganization,
emerging with substantial NOLs. If a loss corporation, such as the Company,
undergoes an "ownership change" within the meaning of section 382(g) of the
Internal Revenue Code of 1986, as amended, that event will generally limit the
corporation's right to use its then-existing NOL and tax credit carry forwards,
(the "Annual Limitation") for both regular tax and alternative minimum tax
purposes, during each future year to a small percentage of the fair market value
of such corporation's stock immediately before the ownership change. In the case
of a loss corporation issuing stock in a bankruptcy proceeding (such as the
Company), the Annual Limitation is increased by any enhancement in fair market
value of the loss corporation's stock resulting from the surrender or
cancellation of creditor's claims in the proceeding. An ownership change
occurred with respect to the Company upon consummation of its plan of
reorganization, resulting in an Annual Limitation of approximately $400,000. Any
unused portion of the current Annual Limitation may be carried forward to the
following year.
11. STOCKHOLDERS EQUITY
On February 18, 1992, the Company's plan of reorganization under Chapter 11 of
the U.S. Bankruptcy Code was confirmed (See Note 2). Under the provisions of the
plan, a one-for-twenty reverse stock split was effected. Accordingly, common
shares outstanding were decreased and the recorded amounts of the par value of
the shares and additional paid-in capital were adjusted. On December 17, 1993,
the Company effected a one for ten reverse stock split resulting in a reduction
in the number of common shares outstanding and in the number of warrants to
purchase shares of common stock. The par value and the contributed capital of
the shares outstanding and the exercise price of warrants were adjusted.
Authorized shares of 10,000,000 after the December 17, 1993 reverse split were
increased to 25,000,000 at a Special Shareholder's Meeting held on February 14,
1994. Unless otherwise indicated, all references in the financial statements
regarding shares of common stock and related per share amounts have been
adjusted to give retroactive effect to the common stock reverse splits. Debtor
certificates (See Note 2) were issued to fund the Company's activities while
operating under Chapter 11, which were converted into shares of common stock
accompanied by warrants to acquire additional shares upon confirmation of the
Plan of Reorganization.
Warrants to purchase an additional 1,666,645 shares of common stock were
outstanding as follows:
<TABLE>
<CAPTION>
Warrants Outstanding at December 31, 1994
-----------------------------------------
Class Number Exercise Price Expiration Date
----- ------ -------------- ---------------
<S> <C> <C> <C>
A 297,940 $ 12.33 June 30, 1995
B1 122,329 15.75 June 30, 1995
B2 117,730 21.46 June 30, 1995
B3 128,646 27.17 June 30, 1995
Unclassified 1,000,000 7.50 February 28, 1997
</TABLE>
A-25
<PAGE> 29
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Class A and B warrants include an antidilution provision which requires an
exercise price adjustment of the warrants to reflect, with certain exceptions,
the issue of additional common stock or common stock equivalents.
Also upon confirmation of the Plan, the Certificate of Incorporation was amended
to authorize 100,000,000 shares of new common stock (10,000,000 shares after
December 17, 1993 reverse split) with a par value of $.01 per share and to
prohibit the issuance of non-voting equity securities. Fifteen percent of the
common stock at the time of approval of the reorganization plan was reserved for
issuance under stock option plans that the Board of Directors approved in 1993.
The plan includes a formula that adjusts annually the number of shares available
for issue under the plan provisions. Options to purchase 249,000 shares of
common stock had been granted under the option plan at December 31, 1994, and an
additional 369,000 options were granted in February, 1995 (See Note 12). No
other class of capital stock is authorized. At December 31, 1994, 1993 and 1992,
and February 18, 1992, the Company held subscriptions to capital stock for
17,647, 186,680, 48,000 and 132,039 shares respectively. Contributed capital at
December 31, 1994, 1993 and 1992, and February 18, 1992 include $75,000,
$1,458,873, $305,610 and $380,696 respectively, for these fully paid
subscriptions to common shares that were issued in the subsequent period. In
addition, contributed capital has been reduced for shares issued and outstanding
at February 18, 1992 that were not fully paid until March 1992.
Shareholders equity at December 31, 1993 includes the issue of 150,000 shares to
settle a debt of the Company. The shares were held in escrow pending sale of a
sufficient number of shares to provide proceeds of $565,000 the amount due by
the Company. During 1994, 113,000 of these shares were sold to settle the debt
and the remaining 37,000 shares were returned and added back to the authorized
but unissued share total.
12. RELATED PARTY TRANSACTIONS
Accounts receivable from related parties consist of the following:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
American Pacific Minerals Ltd. $ -- $3,242,880
East West Minerals, Inc. -- 23,134
---------- ----------
$ -- $3,266,014
========== ==========
</TABLE>
During 1993 and early in 1994, the Company made certain payments on behalf of
APM and made additional contributions to the Goldfield Joint Venture on behalf
of APM. The Company also borrowed amounts from APM. Accrued interest at December
31, 1993 included $23,983 owed to APM on these borrowings. In February 1994, the
net advances were repaid to the Company and its 50% interest in Goldfield was
sold to APM in exchange for 12 million shares of APM common stock and the
Company also purchased an additional 12 million shares increasing its interest
in APM to approximately 74% (See Note 5). All transactions between the Company
and APM are now eliminated in consolidation.
The Company contracted with Glover Mining Inc. for the services of its director,
Cameron Glover, who was also Chairman and a director of the Company. The
contract provided for consulting fees of $15,000 per month for a three year
period ending March, 1995. The contract was terminated in 1994 when Mr. Glover
resigned as Chairman and replaced with a consulting agreement calling for fees
of $7,500 per month which was also terminated due to the death of Mr. Glover in
September 1994. All directors and consulting fees due were paid in 1994. The
Company was indebted to Glover Mining Inc. for consulting service fees of
$30,000 at December 31, 1993, and to Cameron Glover for approximately $44,130
and $149,000 for charges in connection with his travel and capital raising
efforts at December 31, 1994 and 1993 respectively.
A-26
<PAGE> 30
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Mineral Resources Development, Inc. ("MRDI"), of which Mr. Ian B. Smith, a
Director of the Company, is President, has performed feasibility studies and
provided other consulting services on behalf of the Company with respect to
certain of its mining prospects and projects. During 1994, the Company paid
$250,122 to MRDI for these services.
13. EMPLOYEE BENEFIT PLANS
The Company established a voluntary defined contribution 401(k) plan during 1994
that covers all domestic employees twenty-one years of age or older that have
completed three months of service that are not covered by a collective
bargaining agreement. The plan allows for employer matching contributions,
however, the Company did not make any contributions during 1994.
The Company granted 249,000 options to purchase common shares at a exercise
price of $4.75 during 1994 as provided for by the "1993 Long Term Incentive
Plan", of which 239,000 options are outstanding and exercisable at December 31,
1994. The plan authorizes the grant of nonqualified or incentive stock options.
Incentive stock options available for delivery are limited to 1,000,000 shares.
At December 31, 1994, an additional 2,788,959 shares were available for future
grants. An additional 369,000 options with an exercise price of $4.625 were
granted in February, 1995. These options are exercisable when granted.
14. OTHER COMMITMENTS AND CONTINGENCIES
The Company has three zeolite properties which are all subject to a production
royalty of $1.50 per ton of zeolite produced and sold up to a total royalty of
$10,000,000, payable to the company which originally developed the resource or
its successor. The royalty rate per ton is adjustable based on changes in the
Consumer Price Index.
In addition, the Company is committed to pay to the State of Arizona 5% of the
gross value of all minerals and mineral products removed from the Bowie, Arizona
property. All royalty payments relating to the zeolite properties have been paid
or included in accrued expenses as of December 31, 1994 and 1993. Payments of
royalties and percentage of gross value of minerals removed in relation to these
properties are based on actual minerals produced and sold.
The Butcher Boy mine property is subject to two leases. One lease requires the
Company to make a semi-annual lease payment of $10,000 or to pay a royalty on
production equal to 10% of net smelter returns, and $.25 per cubic yard of any
sand, gravel or rock produced and sold from the Butcher Boy mine in Nevada,
whichever is greater. The other lease requires a royalty payment equal to the
greater of 10% of the gross value of all substances removed from the properties
or an advance minimum royalty of $6,000 per year. Payments of these mineral
leases would cease if the Company chose not to continue leasing the property.
Payments of percentage of gross value of minerals removed in relation to these
properties are based on actual minerals produced and sold. Production ceased at
the property in July, 1993 and all minerals produced have been sold and related
royalties have been paid. The Company continues to maintain the leases and to
provide care and maintenance on the property. The property is for sale and an
offer was received in July 1994. No proceeds have been received in conjunction
with the offer and therefore the sale is still pending.
The Company had guaranteed payment of $322,074 related to the purchase of
drilling equipment by a vendor who provides drilling services for exploration
efforts in South America. The purchase called for two installments of $160,224
each, plus interest at 9.75 percent annually, due on December 9, 1993 and 1994.
The payment due in 1993 was made but the second payment has not been made by the
vendor.
A-27
<PAGE> 31
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Some of the Company's mining interest in Argentina were acquired with the
assistance of an Argentine national to whom significant fees were paid by the
Company. A dispute presently exists between this individual and the Company
regarding amounts due to him and amounts due from him. No provisions have been
made in the financial statements at December 31, 1994 regarding this dispute,
because the Company does not believe that the final resolution will be material
in amount.
In July 1994, Oscar E. and Marieanne B. Margraf ("Margraf"), who have control of
mining claims on property adjacent to the Goldfield mine in Nevada, on part of
which the Company has a Mining Surface Use Agreement with Margraf, filed an
action (Case No. 4781) in the Fifth Judicial District Court of the State of
Nevada in and for the County of Esmeralda alleging that the Company trespassed
on those mining claims. Margraf is asking for actual and punitive damages and
has asked the Court to void the above mentioned Mining Surface Use Agreement
which allows the Company to use property adjacent to the Goldfield Joint Venture
holdings to enlarge the pit and for a road to facilitate the use of the pit. The
Company believes that the suit has little or no merit and the Company will
vigorously contest it.
Also See Note 19 for additional commitments and contingencies arising subsequent
to December 31, 1994
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted SFAS No 107 "Disclosure about Fair Value of Financial
Instruments" effective December 31, 1992. The carrying value and the estimated
fair value of the Company's financial instruments at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
December 31 1994 December 31 1993
---------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents $ 2,520,841 $ 2,520,841 $ 521,055 $ 521,055
Convertible notes payable 200,000 200,000 7,775,000 7,775,000
Long-term debt 15,773,171 15,773,171 7,812,890 7,812,890
</TABLE>
For cash and equivalents, the carrying amount is a reasonable estimate of fair
value.
The carrying value of convertible notes payable and long term debt is a
reasonable estimate of the fair value of each class of financial instrument,
based on rates offered to the Company on similar debt.
The estimated fair value of other financial instruments included in working
capital are reasonable estimates of their fair value due to the short term
nature of those current assets and liabilities
A-28
<PAGE> 32
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. ADDITIONAL CASH FLOW INFORMATION
The following table presents supplemental cash flow information regarding the
Company's non-cash investing and financing activities:
<TABLE>
<CAPTION>
Year ended December 31, 1992 Period ended
------------------------- -------------------------
1994 1993 December 31 February 18
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest paid, net of amount capitalized $ 1,681,942 $ 823,137 $ -- $ --
Issuance of common stock for:
Acquisitions 10,400,000
Property 57,500
Creditor payments 1,565,000 3,811 11,357,107
Payment of accrued interest 191,049 42,500
Payment of accrued commisions 1,878,930 1,211,298 148,000
Payment of other accrued expenses 60,938 93,424 125,000
Conversion of notes payable 13,880,000 8,413,400
Acquisitions by issuance of notes payable 4,026,639
Property & equipment acquired by issuance
of notes payable 579,788 1,931,032 2,235,843
Equipment acquired by issuance
of capital lease 822,619 3,354 972,947
Net book value of terminated capital leases 517,509 1,254,250
Debt releived on termination of capital leases 366,068
Capitalized interest added by accrued liabilities 443,995
Investment reduction by consolidation
of former investee (1,170,120)
Effect of consolidation of former investee:
Cash and equivalents 20,322
Noncash working capital (3,578,447)
Plant, property and equipment, net 7,564,153
Investments and other long-term assets 37,850
Long-term liabilities (1,064,474)
Shareholders' equity (2,979,404)
</TABLE>
17. LEASE COMMITMENTS
The Company leases various facilities and equipment pursuant to capital and
operating leases that expire at various dates through 1998.
A-29
<PAGE> 33
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1994, capital and non-cancelable operating leases with initial
or remaining terms in excess of one year call for minimum future payments as
follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1995 $ 408,781 $ 449,289
1996 311,567 89,473
1997 126,000 8,718
1998 52,500 --
1999 and thereafter -- --
-------------- ----------------
Total minimum payments 898,848 $ 547,480
================
Less amounts representing interest (107,806)
--------------
Present value of net minimum payments $ 791,042
==============
</TABLE>
Rental expenses for each period represented in the Statement of Consolidated
Operations are as follows:
<TABLE>
<CAPTION>
Minimum Rentals
---------------
<S> <C>
Periods ending: February 18, 1992 $ 8,386
December 31, 1992 186,490
Years ended: December 31, 1993 1,517,767
December 31, 1994 404,449
</TABLE>
18. SUBSEQUENT EVENTS
In January 1995, the holder of the $3,500,000 convertible secured note, due
December 31, 1996, gave notice alleging default under terms of the Loan
Agreement. In response, the Company filed a notice of dispute denying that an
event of default had occurred. The Escrow Agreement provides for the dispute to
be resolved through binding arbitration. The principal issue is whether the
Company has complied with a condition of the agreement requiring the Company to
do all things necessary to ensure that all permitting is in place for the
project, known as "the San Gregorio Property," and that construction be
commenced on the project or the property by December 31, 1994. The Company
believes it is not in default, but should the arbitrators rule to the contrary,
the holder may demand acceleration of the note and/or delivery of the collateral
which is comprised of the shares of Stel (BVI) Inc. and its subsidiaries and
their mineral properties known as "the San Gregorio Property".
In April 1995, an action was commenced against the Company by the Estate of
Saxon Kent Glover. Cameron Kent Glover, a Director and former Chairman of the
Company, was on an inspection tour of the Argentine properties of the Company.
The deceased was accompanying his father. There were 5 other passengers and 2
crew on this plane. The airplane in which all of these individuals were
passengers, crashed, killing all aboard, including the crew. The complaint
alleges that the Company was negligent and breached its duty of care to the
deceased in its selection, employment, and supervision of the air carrier,
resulting in the death of the deceased. The complaint requests damages of
$20,015,000 This action is at a preliminary stage and accordingly, the Company
is not able to estimate the possible loss or range of possible loss.
A-30
<PAGE> 34
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
19. GEOGRAPHIC AND SEGMENT INFORMATION
The Company is primarily engaged in mining for gold and industrial minerals and
related activities. Other activity includes corporate investments and other
corporation activities. The current mining and related activities in South
America are in Uruguay and Argentina. Operating profit or loss is represented by
operating revenues less operating expenses and excludes income taxes and
corporate income and expenses and extraordinary gains. Identifiable assets are
those assets used in each segment or location of the Company's activities.
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
For Years Ended December 31 For the 1992 Periods Ended
-------------------------------- --------------------------------
1994 1993 December 31 February 18
------------ ------------ ------------ ------------
AS RESTATED AS RESTATED
<S> <C> <C> <C> <C>
Revenues:
U. S. A $ 1,691,278 $ 1,998,938 $ 497,196 $ 9,548
South America 556,709 3,626,767 304,307
------------ ------------ ------------ ------------
$ 2,247,987 $ 5,625,705 $ 801,503 $ 9,548
============ ============ ============ ============
Operating loss: (1) (2)
U. S. A $(15,837,076) $ (1,801,070) $ (6,760,364) $ (136,453)
South America (10,728,652) (9,299,382)
------------ ------------ ------------ ------------
$(26,565,728) $(11,100,452) $ (6,760,364) $ (136,453)
============ ============ ============ ============
Indentifiable Assets:
U. S. A $ 13,815,708 $ 28,036,528 $ 13,684,536 $ 6,915,409
South America 20,687,394 8,170,006 15,273,864
------------ ------------ ------------ ------------
$ 34,503,102 $ 36,206,534 $ 28,958,400 $ 6,915,409
============ ============ ============ ============
Exploration:
U. S. A $ 168,816 $ 287,471 $ 961,837 $ 94,602
South America 2,859,929 2,615,527 1,228,477
------------ ------------ ------------ ------------
$ 3,028,745 $ 2,902,998 $ 2,190,314 $ 94,602
============ ============ ============ ============
Depreciation, Depletion and
Amortization:
U. S. A $ 760,761 $ 265,905 $ 157,310 $ 6,117
South America 934,147 3,440,446 174,166
------------ ------------ ------------ ------------
$ 1,694,908 $ 3,706,351 $ 331,476 $ 6,117
============ ============ ============ ============
Additions to Property, Plant
and Equipment:
U. S. A $ 5,397,107 $ 2,802,279 $ 15,062,807 $ 2,393
South America 3,927,010 9,007,723 11,655,522
------------ ------------ ------------ ------------
$ 9,324,117 $ 11,810,002 $ 26,718,329 $ 2,393
============ ============ ============ ============
</TABLE>
(1) Includes write-downs of mining properties of $4,776,095 and $1,208,644
in 1994 and 1993 respectively in South America and $12,010,436 and none
in 1994 and 1993 respectively and $5,774,000 and $50,597 in the periods
ended December 31 and February 18, 1992.
(2) Operating loss includes exploration costs which are disclosed
seperately.
A-31
<PAGE> 35
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT INFORMATION
<TABLE>
<CAPTION>
For Years Ended December 31 For the 1992 Periods Ended
-------------------------------- --------------------------------
1994 1993 December 31 February 18
------------ ------------ ------------ ------------
AS RESTATED AS RESTATED
<S> <C> <C> <C> <C>
Revenues:
Gold $ 1,630,404 $ 4,946,429 $ 249,389 $ --
Industrial minerals 187,263 132,451 104,772 9,548
Corporate and other 430,320 546,825 447,342
------------ ------------ ------------ ------------
$ 2,247,987 $ 5,625,705 $ 801,503 $ 9,548
============ ============ ============ ============
Operating income(loss):
Gold [1] $(23,559,118) $ (8,080,787) $ (6,703,568) $ (103,941)
Industrial minerals[2] 22,137 (117,688) (56,796) (32,512)
Exploration (3,028,745) (2,902,998) (2,190,314) (94,602)
------------ ------------ ------------ ------------
Operating (loss) (26,565,726) (11,101,473) (8,950,678) (231,055)
Corporate and other (7,069,611) (10,187,029) (4,898,049) (347,070)
------------ ------------ ------------ ------------
Loss Before Extraordinary
Item & Minority Interest $(33,635,337) $(21,288,502) $(13,848,727) $ (578,125)
============ ============ ============ ============
Indentifiable Assets:
Gold $ 29,451,458 $ 27,992,369 $ 20,454,603 $ 538,674
Industrial minerals 323,243 264,165 314,273 304,064
Corporate and other 4,728,401 7,950,000 8,189,524 6,072,671
------------ ------------ ------------ ------------
$ 34,503,102 $ 36,206,534 $ 28,958,400 $ 6,915,409
============ ============ ============ ============
Exploration:
Gold $ 3,024,288 $ 2,902,998 $ 2,190,314 $ 94,602
Industrial minerals 4,457
------------ ------------ ------------ ------------
$ 3,028,745 $ 2,902,998 $ 2,190,314 $ 94,602
============ ============ ============ ============
Depreciation, Depletion and
Amortization:
Gold $ 1,659,025 $ 3,673,463 $ 308,032 $ 1,384
Industrial minerals 15,017 15,016 12,548 4,793
Corporate and other 20,866 17,872 10,896
------------ ------------ ------------ ------------
$ 1,694,908 $ 3,706,351 $ 331,476 $ 6,177
============ ============ ============ ============
Additions to Property, Plant
and Equipment:
Gold $ 9,324,117 $ 10,418,384 $ 26,638,255 $ 2,393
Industrial minerals 1,624 1
Corporate and other 1,391,618 78,450 1
------------ ------------ ------------ ------------
$ 9,324,117 $ 11,810,002 $ 26,718,329 $ 2,395
============ ============ ============ ============
</TABLE>
(1) Includes write-downs of mining properties of $16,786,531 and $1,208,644
in 1994 and 1993 respectively, and and $5,774,000 and $50,597 in the
periods ended December 31 and February 18, 1992.
(2) Includes write-downs of mining properties of $10,436 in 1994.
A-32
<PAGE> 36
UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
(000's except for per share amounts)
<TABLE>
<CAPTION>
1994 31-Mar 30-Jun 30-Sep 31-Dec Year
- ---- ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Revenue $ 561 $ 298 $ 840 $ 549 $ 2,248
Operating loss (1,071) (2,813) (2,501) (20,181) (26,566)
Loss before extraordinary
gains & minority interest (2,650) (4,722) (4,111) (22,152) (33,635)
Net Loss (2,451) (4,702) (3,856) (18,359) (29,368)
Per share:
Loss before extraordinary
items and minority interest (0.33) (0.40) (0.31) (1.85) (2.89)
Net Loss (0.30) (0.40) (0.29) (1.54) (2.53)
<CAPTION>
1993 31-Mar 30-Jun 30-Sep 31-Dec Year
- ---- ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Revenue $ 1,834 $ 812 $ 2,110 $ 870 $ 5,626
Operating (loss) (2,133) (2,193) (2,591) (4,183) (11,100)
Loss before extraordinary
gains & minority interest (4,603) (4,795) (4,752) (7,139) (21,289)
Extraordinary gains -- 217 -- 217
Net loss (4,603) (4,795) (4,535) (7,139) (21,072)
Per share:
Before extraordinary gains (1.05) (0.91) (0.89) (1.18) (4.03)
Extraordinary gains -- -- 0.04 -- 0.04
Net loss (1.05) (0.91) (0.85) (1.18) (3.99)
</TABLE>
A-33
