<PAGE> 1
PAGE 1 OF 14
THERE ARE NO EXHIBITS
SECURITIES & EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 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
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 March 31, 1996 there were 13,529,922 shares outstanding.
1
<PAGE> 2
AMERICAN RESOURCE CORPORATION, INC.
Index
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE> 3
AMERICAN RESOURCE CORPORATION
Part 1. Financial Information
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Condensed Consolidated Balance Sheet (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
AS RESTATED AS RESTATED
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 8,727,680 $ 2,203,337
Receivables, net:
Trade 64,033 71,870
Other 558,924 468,939
Inventories:
Finished products 431,366 504,884
Ore and in-process 174,507 618,611
Supplies 367,498 370,540
Equity securities available for sale 26,621,069 25,433,407
Prepaids and other assets 208,118 225,579
------------ ------------
Total current assets 37,153,195 29,897,167
------------ ------------
Net property, plant and equipment 21,030,069 16,201,968
------------ ------------
Investments and other assets:
Deferred financing costs 91,314 --
Receivable from affiliated party 3,370,515 3,370,515
Other assets 1,273,650 1,275,016
------------ ------------
Total investments and other assets 4,735,479 4,645,531
------------ ------------
$ 62,918,743 $ 50,744,666
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable - trade $ 1,993,763 $ 1,409,155
Accrued liabilites:
Payroll and other compensation 256,577 639,379
Reclamation 2,083,311 2,195,567
Income taxes payable 250,000 --
Interest 82,486 131,212
Other 901,590 952,896
Current portion of long-term debt 642,742 1,050,747
Deferred taxes 3,354,568 2,658,844
------------ ------------
Total current liabilities 9,565,037 9,037,800
------------ ------------
Long-term liabilities:
Long-term debt 3,000,000 2,000,000
Reclamation and other long-term obligations 1,214,016 1,214,016
------------ ------------
Total long-term liabilities 4,214,016 3,214,016
------------ ------------
Commitments and contingencies
------------ ------------
Shareholders' equity: (shares in 000's)
Capital stock (authorized 25,000; issued 13,530
in 1996 and 1995) 135,299 135,299
Other capital 76,753,434 76,753,434
Unrealized holding gain on equity securities available for
sale, net of tax 17,033,743 16,126,782
Accumulated deficit (44,782,786) (54,522,665)
------------ ------------
Total shareholders' equity 49,139,690 38,492,850
------------ ------------
$ 62,918,743 $ 50,744,666
============ ============
</TABLE>
3
<PAGE> 4
AMERICAN RESOURCE CORPORATION
Part 1. Financial Information
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Condensed Consolidated Statement of Operations (unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1996
AS RESTATED 1995
------------ ------------
<S> <C> <C>
Revenues and other income:
Product sales $ 1,731,415 $ 1,860,930
Gain on sales of equity securities 12,623,137 --
Interest 137,125 20,996
Other income 41,219 215,325
------------ ------------
14,532,896 2,097,251
------------ ------------
Costs and expenses:
Production costs 1,748,099 2,966,466
General and administrative 2,176,821 1,150,777
Exploration 135,555 570,459
Depreciation, depletion and amortization 159,209 944,498
Interest expense 76,798 378,960
Amortization of deferred financing costs -- 71,685
Other expense 39,174 29,134
------------ ------------
4,335,656 6,111,979
------------ ------------
Income (loss) before income taxes and minority interest 10,197,240 (4,014,728)
Income tax expense 457,361 --
------------ ------------
Income (loss) before minority interest 9,739,879 (4,014,728)
Minority interest share of loss -- 470,541
------------ ------------
Net income (loss) $ 9,739,879 $ (3,544,187)
============ ============
Per share amounts:
Income (loss) before minority interest $ 0.72 $ (0.30)
Minority interest share of loss -- 0.04
------------ ------------
Net income (loss) $ 0.72 $ (0.26)
============ ============
Weighted average shares outstanding 13,529,922 13,491,116
============ ============
</TABLE>
4
<PAGE> 5
AMERICAN RESOURCE CORPORATION
Part 1. Financial Information
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Condensed Consolidated Statement of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1996
AS RESTATED 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 9,739,879 $ (3,544,187)
Reconciliation to net cash used for operating activities:
Depreciation, depletion and amortization 159,209 944,498
Amortization of deferred financing costs -- 71,685
Gain on sales of equity securities (12,623,137) --
Loss on asset disposals -- 7,268
Loss on cancellation of operating lease -- 41,599
Minority interest share of loss -- (470,541)
Effect of changes in operating working capital items:
Receivables (82,148) (598,899)
Inventories 520,664 136,019
Deferred taxes 207,361 --
Prepaids and other assets 17,461 (252,074)
Accounts payable and accrued liabilities (71,731) 427,698
------------ ------------
Net cash used for operating activities (2,132,442) (3,236,934)
------------ ------------
Investment activities:
Additions to property, plant and equipment (3,983,828) (945,974)
Proceeds from asset sales -- 35,593
Proceeds from sales of equity securities 13,157,400 --
Decrease in other long-term assets, net 1,367 78,486
------------ ------------
Net cash provided by (used for) investment activities 9,174,939 (831,895)
------------ ------------
Financing activities:
Common stock issued by subsidiary -- 21,000
Borrowings 82,229 2,500,000
Debt repayments (600,383) (310,469)
Deferred financing and other costs paid -- (125,000)
Increase in other long-term liabilities -- 7,931
------------ ------------
Net cash provided by (used for) financing activities (518,154) 2,093,462
------------ ------------
Net increase (decrease) in cash and equivalents 6,524,343 (1,975,367)
Cash and equivalents, beginning of the period 2,203,337 2,520,841
------------ ------------
Cash and equivalents, end of the period $ 8,727,680 $ 545,474
============ ============
</TABLE>
5
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AMERICAN RESOURCE CORPORATION
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: INTERIM FINANCIAL STATEMENTS
The accompanying consolidated interim financial statements have not been
audited. In the opinion of the Company's management, the interim financial
statements include all adjustments necessary for the fair presentation of the
results for the interim periods. These adjustments are of a normal recurring
nature. The financial statements, prepared in accordance with the regulations of
the Securities and Exchange Commission (the "SEC"), should be read in
conjunction with the Company's 1995 Annual Report on Form 10-K/A, Amendment
No. 1. Results of operations for the interim periods are not necessarily
indicative of results for the full year.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
was issued by the Financial Accounting Standards Board (FASB) in March 1995.
SFAS No. 121 requires, for fiscal years beginning after December 15, 1995, that
an entity review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and that an impairment loss be recognized as the amount by which the
carrying amount of the asset exceeds the fair value of the asset. The Company
adopted SFAS No. 121 effective January 1, 1996. The adoption did not have an
effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") was issued by the Financial Accounting Standards
Board in October 1995. SFAS No. 123 establishes, for fiscal years beginning
after December 15, 1995, financial and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages, but does not require, the
adoption of a fair-value-based method of accounting for such plans, in place of
current accounting standards. Companies electing to continue their existing
accounting method must make pro forma disclosures of net income as if the
fair-value-based method of accounting had been applied. The Company has elected
to continue with its existing accounting method and in accordance with SFAS No.
123, will have pro forma disclosures of net income in its financial statements
for the year ending December 31, 1996.
NOTE 2: PROPOSED MERGER WITH REA GOLD
On March 5, 1996, the Company entered into a merger agreement with Rea Gold
Corporation ("Rea"). Under the terms of the proposed merger, the Company's
shareholders will receive 2.24 shares for each ARC share held, subject to an
adjustment in the event that the Northern Orion shares held by the Company on
January 10, 1996 (and the proceeds of any sale of such shares before the merger)
have a value (on a per share basis) that varies (plus or minus) by more than 10
percent of the value of Cdn$4.62 negotiated on January 10, 1996. W. James Hogan,
currently President and CEO of Rea, will become the Chairman of the combined
companies ("New Rea"). Ian B. Smith, Chairman, President and CEO of the Company,
will become the President and CEO of New Rea. The proposed merger is subject to
completion of regulatory and shareholder approvals. Completion of the proposed
merger transaction, which is presently projected for June 1996, will result in
ARC shareholders holding approximately 40 percent of New Rea, subject to change
based on ultimate share exchange ratio adjustments. There is no assurance that
the merger with Rea will be completed.
NOTE 3: AMERICAN PACIFIC MINERALS LTD.
In December 1995, the Company sold its 78 percent interest in American Pacific
Minerals Ltd. ("APML"). APML owns, through its subsidiary company, American
Pacific Minerals (U.S.A) Inc. ("APM USA"), the Goldfield mining properties
located near Goldfield, Nevada. Pursuant to an operator and service agreement,
the Company continues to manage the Goldfield properties for APM USA.
Additionally, the Company continues to be obligated to advance APM USA funds
for the costs related to the closure and reclamation of the Goldfield mine.
Prior to using its own funds,
6
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AMERICAN RESOURCE CORPORATION
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
ARC will use expected proceeds from sales of gold obtained in the reclamation
process to pay for the costs related to the closure and reclamation.
During the three months ended March 31, 1996, the Company advanced approximately
$13,000 to APM USA for general corporate costs.
During 1995 the results of APML, a majority-owned subsidiary at the time, were
consolidated with those of the Company. Included in the Company's results of
operations for the three months ended March 31, 1995 are APML revenues and
expenses of $1.0 million and $2.8 million, respectively.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Mineral properties and mine development costs $ 13,826,798 $ 12,454,686
Plant and equipment 11,505,175 7,861,165
------------ ------------
25,331,973 20,315,851
Less accumulated depreciation, depletion
and amortization (4,301,904) (4,113,883
------------ ------------
Net property, plant and equipment $ 21,030,069 $ 16,201,968
============ ============
</TABLE>
NOTE 5: LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
10% convertible notes (at $5.50 per share), due serially
in December 1997, 1998 and 1999 $ 2,000,000 $ 2,000,000
1% plus LIBOR note, $100,000 due June 15, 1996;
$1,000,000 due in four equal installments
December 1997 to December 2000 1,100,000 --
4.5% plus LIBOR installment purchase contract due in
equal quarterly installments through November 1996
secured by equipment 489,474 639,103
10% demand note -- 300,000
12% (imputed) note, secured by 100% of the shares of
Brimol SA, due in two $50,000 installments,
February 1996 and August 1996 44,415 91,517
Notes due local suppliers 8,853 20,127
----------- -----------
3,642,742 3,050,747
Less current portion (642,742) (1,050,747)
----------- -----------
Long-term debt $ 3,000,000 $ 2,000,000
=========== ===========
</TABLE>
7
<PAGE> 8
AMERICAN RESOURCE CORPORATION
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 6: INCOME TAXES
Deferred tax assets and liabilities at March 31, 1996 are summarized as follows
(as restated):
<TABLE>
<S> <C>
Deferred tax assets . . . . . . . . . . . . . . . . . . $ 20,416,594
Valuation allowance . . . . . . . . . . . . . . . . . . (14,599,147)
------------
Deferred tax assets, net of valuation allowance . . . . 5,817,447
------------
Deferred tax liability . . . . . . . . . . . . . . . . (9,172,015)
------------
Net deferred tax liability . . . . . . . . . . . . . . $ (3,354,568)
============
</TABLE>
The net deferred tax asset of $5.8 million at March 31, 1996 has been recorded
based on management's projected utilization of NOL's to offset estimated taxable
income from sales of Northern Orion shares through March 31, 1996 and the sale
of the remaining 5.4 million Northern Orion shares, net of estimated operating
losses in 1996. At March 31, 1996, the Company held 5.4 million shares of
Northern Orion with an estimated fair value of $26.6 million, based on the
closing market price quoted on the Toronto Stock Exchange for registered
Northern Orion shares. The deferred tax liability of $9.2 million represents
the taxes on the unrealized holding gain on the Northern Orion shares at March
31, 1996. The related tax effect is presented as an offset to the separate
component of shareholders' equity for unrealized holding gain on equity
securities available for sale. Income tax expense for the three months ended
March 31, 1996 is comprised of the following:
<TABLE>
<S> <C>
Current tax expense . . . . . . . . . . . . . . $250,000
Deferred tax expense . . . . . . . . . . . . . 207,361
--------
$457,361
========
</TABLE>
Current tax expense relates to alternative minimum tax incurred due to the
limitation on the utilization of NOL's. The NOL's were utilized to partially
offset taxable income from the sale of Northern Orion shares during the period.
Deferred tax expense is primarily attributable to the decreased deferred tax
assets at March 31, 1996 resulting from the sale of Northern Orion shares,
utilization of NOL's and restrictions limiting the use of the remaining NOL's.
The valuation allowance decreased $3.5 million during the three months ended
March 31, 1996 primarily due to the utilization of NOL's from the sales of
Northern Orion shares during the period and changes in management's projected
utilization of NOL's as discussed above.
NOTE 7: SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents supplemental cash flow information regarding the
Company's non-cash investing and financing activities:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1996 1995
---------- ------------
<S> <C> <C>
Interest paid $ 95,598 $ 99,578
Issuance of note for purchase of land surface rights 1,100,000 --
Issuance of note payable for cancellation of operating lease -- 41,599
</TABLE>
NOTE 8: COMMITMENTS
The Company is currently developing the San Gregorio Project. The award of a
$16.5 million lump-sum turn-key engineering and construction contract for the
San Gregorio gold processing plant will be finalized upon funding of a $25
million project gold loan facility commitment from a financial institution. This
is expected in May 1996. As of April 30, 1996, commitments to other San Gregorio
Project vendors and contractors totaled approximately $6 million.
NOTE 9: LITIGATION AND OTHER CONTINGENCIES
In 1995, seven related lawsuits were filed against the Company in the California
Superior Court, County of Marin. All of the actions arise out of an airplane
crash in September 1994 in Argentina.
The crash occurred during a tour by a London investment banking firm of
Argentine and Uruguayan properties owned by subsidiaries of the Company. Cameron
Glover, who was a director and consultant to the Company, took part in the tour.
There were a total of seven passengers and two crew members, all of whom were
killed. The complaints generally allege that the Company was negligent with
respect to the operation and maintenance of the aircraft and the selection of
the charter company, and that the Company has vicarious liability for the
charter company's conduct. The Company contends that it did not select the
charter company, that the charter company was at most an independent contractor,
and that the Company cannot be held liable for the charter company's maintenance
or operation of the airplane. Three of these lawsuits each request damages of
$20,015,000; the other lawsuits seek unspecified damages. The Company has
notified its insurance carrier of the commencement of the actions; however, the
Company's insurance coverage for an occurrence of this type is limited to $1
million, including defense costs.
Management disagrees with the plaintiffs' claims and is vigorously defending the
Company against these lawsuits. The Company is unable at this time to accurately
assess the probability of unfavorable outcomes or to estimate the potential
recovery to the plaintiffs if unfavorable outcomes were to occur. No provision
for liability has been made in the Company's consolidated financial statements.
8
<PAGE> 9
AMERICAN RESOURCE CORPORATION
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
All of the Company's mining and processing operations are subject to reclamation
requirements and environmental regulations. Management believes the accrual
recorded for closure costs and known reclamation requirements is adequate at
March 31, 1996. The accrual is comprised of:
<TABLE>
<CAPTION>
Current Long-term Total
---------- ---------- ----------
<S> <C> <C> <C>
Goldfield (net of recoveries) $1,109,199 $1,198,994 $2,308,193
Mahoma 941,672 -- 941,672
Other 32,440 -- 32,440
---------- ---------- ----------
Total $2,083,311 $1,198,994 $3,282,305
========== ========== ==========
</TABLE>
Contouring of the mined areas at Goldfield has been completed and seeding will
commence in the fall of 1996. After leaching is terminated in early 1997, the
leach pad will be rinsed for a period of up to one year with contouring,
topsoiling and seeding to follow. The State of Nevada will then monitor the
property over three growing seasons to determine the success of the reclamation
program. Final reclamation activity at Mahoma commenced in March 1996 and is
anticipated to be completed within four months. Neutralization of the tailings
area, which is expected to last one year, will be initiated in June 1996.
Reclamation at Cerro San Carlos was completed in April 1996.
9
<PAGE> 10
AMERICAN RESOURCE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
General
On March 5, 1996, the Company entered into a merger agreement with Rea. Under
the terms of the proposed merger, the Company's shareholders will receive 2.24
shares for each ARC share held, subject to an adjustment in the event that the
Northern Orion shares held by the Company on January 10, 1996 (and the proceeds
of any sale of such shares before the merger) have a value (on a per share
basis) that varies (plus or minus) by more than 10 percent of the value of
Cdn$4.62 negotiated on January 10, 1996. As of April 30, 1996, the share
exchange ratio is 2.43 Rea shares for each ARC share.
W. James Hogan, currently President and CEO of Rea, will become the Chairman of
New Rea. Ian B. Smith, Chairman, President and CEO of the Company, will become
the President and CEO of New Rea. The proposed merger is subject to completion
of regulatory and shareholder approvals. Completion of the proposed merger
transaction, which is presently projected for June 1996, will result in ARC
shareholders holding approximately 40 percent of New Rea, subject to change
based on ultimate share exchange ratio adjustments. There is no assurance that
the merger with Rea will be completed.
Results of Operations
The Company's net income for the three months ended March 31, 1996 was $9.7
million or $.72 per share compared to a loss of $3.5 million or $.26 per share
for the three months ended March 31, 1995. The primary reason for the
improvement in 1996 is the sale of shares of Northern Orion stock. Additionally,
1995 results include a loss of $1.8 million from APML, which was sold in
December 1995.
Revenues and other income were $14.5 million for the three months ended March
31, 1996, including $12.6 million of gain on the sales of shares of Northern
Orion stock, $1.7 million of gold sales from Mahoma and $0.2 million of interest
and other income. Revenues and other income for the comparable period of 1995
were $2.1 million and included $1 million and $.8 million of gold sales from
Goldfield and Mahoma, respectively, and $0.2 million of interest and other
income.
During the three months ended March 31, 1996, gold production came from ore
mined at Cerro San Carlos and other stockpiled ore. Mining ceased in February
and milling ceased in April. Cleanup, reclamation and closure activities, which
began in late 1995, will continue into early 1997. During the three months ended
March 31, 1995, production at Mahoma had recently resumed, after being suspended
for most of 1994, and production at Goldfield was intermittent. During the three
months ended March 31, 1996, 4,323 ounces of gold were sold at an average price
of $398 per ounce compared to the sale of 4,820 ounces of gold at an average
price of $378 per ounce during the comparable period of 1995.
Production costs for the three months ended March 31, 1996 and 1995 were $1.7
million and $3.0 million, respectively. Production costs for the three months
ended March 31, 1995 include $2.1 million for Goldfield operations.
Depreciation, depletion and amortization expense, which is primarily computed
using the units-of production method, was $.2 million and $.9 million for the
periods ended March 31, 1996 and 1995, respectively. The decrease in 1996
compared to 1995 is primarily attributable to the closure and sale of the
Goldfield mine in 1995.
Exploration expense for the three months ended March 31, 1996 of $135,000, was
$.4 million less than in the corresponding period of 1995. The decrease was
primarily the result of the Company's June 1995 sale of Recursos Americanos
Argentinos (RAA), the Company's Argentine subsidiary. RAA, primarily an
exploration company, incurred $.4 million of exploration expenses during the
three months ended March 31, 1995.
Interest expense declined $.3 million in the period ended March 31, 1996
compared to the corresponding period of 1995. The decline is the result of the
debt reduction in the second half of 1995.
10
<PAGE> 11
AMERICAN RESOURCE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
At March 31, 1996, the Company has a net deferred tax liability of $3.4 million
comprised on net deferred tax assets of $5.8 million and a deferred tax
liability of $9.2 million. The net deferred tax asset of $5.8 million has been
recognized based on management's expected utilization of NOL's to offset
projected taxable income from sales of Northern Orion shares sold through March
31, 1996 and the sale of the remaining 5.4 million shares of Northern Orion held
by the Company, net of estimated operating losses for 1996. At March 31, 1996,
5.4 million shares of Northern Orion were held with an estimated fair value of
$26.6 million, based on the closing market price quoted on the Toronto Stock
Exchange for registered Northern Orion shares. The deferred tax liability of
$9.2 million at March 31, 1996 represents the taxes on the unrealized holding
gain on the Northern Orion Shares at March 31, 1996. The related tax effect is
presented as an offset to the separate component of shareholders' equity for
unrealized holding gain on equity securities available for sale. Income tax
expense for the three months ended March 31, 1996 is comprised of the following:
<TABLE>
<S> <C>
Current tax expense $250,000
Deferred tax expense 207,361
--------
$457,361
========
</TABLE>
Current tax expense relates to alternative minimum tax incurred due to the
limitation on the utilization of NOL's. The NOL's were utilized to partially
offset taxable income from the sale of Northern Orion shares during the period.
Deferred tax expense is primarily attributable to the decreased deferred tax
assets at March 31, 1996 resulting from the sale of Northern Orion shares,
utilization of NOL's and restrictions limiting the use of the remaining NOL's.
Reclamation Activities
All of the Company's mining and processing operations are subject to reclamation
requirements and environmental regulations. Management believes the accrual
recorded for closure costs and known reclamation requirements is adequate at
March 31, 1996. The accrual is comprised of:
<TABLE>
<CAPTION>
Current Long-term Total
---------- ---------- ----------
<S> <C> <C> <C>
Goldfield (net of recoveries) $1,109,199 $1,198,994 $2,308,193
Mahoma 941,672 -- 941,672
Other 32,440 -- 32,440
---------- ---------- ----------
Total $2,083,311 $1,198,994 $3,282,305
========== ========== ==========
</TABLE>
Contouring of the mined areas at Goldfield has been completed and seeding will
commence in the fall of 1996. After leaching is terminated in early 1997, the
leach pad will be rinsed for a period of up to one year with contouring,
topsoiling and seeding to follow. The State of Nevada will then monitor the
property over three growing seasons to determine the success of the reclamation
program. Final reclamation activity at Mahoma commenced in March 1996 and is
anticipated to be completed within four months. Neutralization of the tailings
area, which is expected to last one year, will be initiated in June 1996.
Reclamation at Cerro San Carlos was completed in April 1996.
Liquidity and Capital Resources
The Company is currently developing the San Gregorio Project. The projected cost
for the plant, facilities, equipment, financing and working capital is
approximately $41.9 million. The Company intends to fund the cost of the San
Gregorio Project with a combination of debt and equity. The Company has received
a commitment from a financial institution for a $25 million project gold loan
facility for the construction of the mine, processing and auxiliary facilities.
Under the terms of the proposed project gold loan facility, the Company is
required to repay principal and interest in four years starting no later than
June 30, 1997. The loan is conditional upon the lender's acquisition of
political risk insurance.
11
<PAGE> 12
AMERICAN RESOURCE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Subsequent to March 31, 1996, the Company issued $8 million in convertible notes
to offshore private investors. Under the terms of the convertible notes, the
debt will be automatically converted into the Company's common stock at $5.75
per share upon approval of the proposed merger by the shareholders of the
Company and Rea. If the proposed merger is not approved by the shareholders, the
holders of the convertible notes may elect to receive payment of the outstanding
principal earlier than the March 1997 maturity date. If the holders of the
convertible notes so elect, the outstanding principal will be paid at the
Company's option, in cash or an equivalent value of restricted Northern Orion
shares, at a price that is 95 percent of the average price of Northern Orion
shares during the 20 days immediately preceding the payment date. Such early
payment will be made no later than 110 days after failure of the shareholders to
approve the proposed merger.
The Company's net working capital increased to $27.6 million at March 31, 1996
from $20.9 million at December 31, 1995. Included in working capital at March
31, 1996 and December 31, 1995 is the estimated fair value of investments in
equity securities available for sale of $26.6 million (5.4 million shares) and
$25.4 million (8.1 million shares), respectively, based on the closing market
prices of registered Northern Orion shares on the applicable exchanges at those
dates (prior to listing on the Toronto Stock Exchange in February 1996, Northern
Orion shares were only listed on the Vancouver Stock Exchange). Other summarized
financial data relating to the Company's liquidity and financial condition
follows ($000):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
AS RESTATED AS RESTATED
----------- -----------
<S> <C> <C>
Cash and equivalents $8,728 $2,203
Current liabilities (including current portion
of long-term debt) 9,565 9,038
Long-term liabilities 4,214 3,214
Current ratio 3.88 3.31
Debt-to-equity ratio 28% 32%
</TABLE>
The improved liquidity and financial condition at March 31, 1996 is attributable
to the Company's sales of approximately 2.7 million shares of its unregistered
Northern Orion shares during the three months ended March 31, 1996. Proceeds
received on these sales were $13.2 million. The Company sold an additional 1.4
million shares of Northern Orion stock in April 1996. The fair value of the
Company's remaining 3.9 million shares at April 30, 1996 is approximately $17
million. The Company's sales of its Northern Orion stock have been to two
investment dealers on behalf of private offshore investors.
Long-term debt has increased to $3.6 million at March 31, 1996 from $3.1 million
at December 31, 1995. Payments of approximately $600,000 to reduce long-term
debt were offset by the issuance of a $1.1 million note payable to a landholder
for land surface rights at San Gregorio
Since the Mahoma mine is under closure and reclamation and the San Gregorio
Project is under development, the Company's 1996 results of operations will
reflect a net loss before considering the gains from the sale of shares of
Northern Orion stock.
12
<PAGE> 13
AMERICAN RESOURCE CORPORATION, INC.
Part II. Other Information
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings.
In 1995, seven related lawsuits were filed against the Company in the California
Superior Court, County of Marin. All of the actions arise out of an airplane
crash in September 1994 in Argentina.
The crash occurred during a tour by a London investment banking firm of
Argentine and Uruguayan properties owned by subsidiaries of the Company. Cameron
Glover, who was a director and consultant to the Company, took part in the tour.
There were a total of seven passengers and two crew members, all of whom were
killed. The complaints generally allege that the Company was negligent with
respect to the operation and maintenance of the aircraft and the selection of
the charter company, and that the Company has vicarious liability for the
charter company's conduct. The Company contends that it did not select the
charter company, that the charter company was at most an independent contractor,
and that the Company cannot be held liable for the charter company's maintenance
or operation of the airplane. Three of these lawsuits each request damages of
$20,015,000; the other lawsuits seek unspecified damages. The Company has
notified its insurance carrier of the commencement of the actions; however, the
Company's insurance coverage for an occurrence of this type is limited to $1
million, including defense costs.
Management disagrees with the plaintiffs' claims and is vigorously defending the
Company against these lawsuits. The Company is unable at this time to accurately
assess the probability of unfavorable outcomes or to estimate the potential
recovery to the plaintiffs if unfavorable outcomes were to occur. No provision
for liability has been made in the Company's consolidated financial statements.
On June 3, 1996, legal counsel on behalf of Mr. Michael J. Savage threatened
action regarding, among other things, alleged misrepresentations and omissions
by the Company in the sale of APML; management intends to vigorously defend the
Company, if any action is commenced, and is of the opinion that the allegations
contained in the letter are without merit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Merger Agreement and Plan of Reorganization, dated March 5, 1996
among Rea Gold Corporation, American Resource Corporation, Inc., Rea
Gold (US) Corporation and Rea America Corp. (incorporated by reference
to exhibit 2.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 filed on March 29, 1996).
27 Financial Data Schedule
(b) Report on Form 8-K.
A Form 8-K, dated January 24, 1996, was filed reporting on Item 5:
"Other Events".
A Form 8-K, dated March 18, 1996, was filed reporting on Item 2:
"Changes in Control of the Registrant".
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to its report on Form 10-Q to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCE CORPORATION, INC.
-----------------------------------
(Registrant)
Date: June 4, 1996 /s/ Bruce K. Thiesen
-----------------------------------
Bruce K. Thiesen
Chief Financial Officer
Principal Accounting Officer
14
