<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, 1993
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 31, 1993 there were 7,419,170 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement issued in connection
with the 1993 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, 1993 and 1992............................... A-3
Consolidated Statements of Operations for the years ended December 31 1993,
and 1991 and the periods ended December 31, 1992 and February 18, 1992............... A-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993 and 1991 and the periods ended December 31, 1992
and February 18, 1992............................................................... A-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993
and 1991 and the periods ended December 31, 1992 and February 18, 1992............... A-6
Notes to Consolidated Financial Statements.............................................. A-7
Unaudited Selected Quarterly Financial Data............................................. A-35
</TABLE>
A-1
<PAGE> 5
[MCDOUGAL & WILLIAMS LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
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, 1993 and 1992, and the related statements
of consolidated operations, shareholders' equity and cash flows for the year
ended December 31, 1993 and for the periods ended December 31, 1992 and
February 18, 1992 and the year ended December 31, 1991. 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, 1993 and 1992, and the
results of their operations and their cash flows for the year ended December
31, 1993 and the periods ended December 31, 1992 and February 18, 1992, and the
year ended December 31, 1991, in conformity with generally accepted accounting
principles.
/s/McDougal & Williams
- -----------------------
Reno, Nevada
March 29, 1994, 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,
--------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
As Restated
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 521,055 $ 1,029,237
Receivables:
Trade 33,580 32,759
Related parties 3,266,014 1,616,541
Bonds -- 1,606,000
Other 1,101,369 140,920
Inventories:
Finished products 17,493 160,885
Ore and in-process 336,573 30,890
Supplies 210,938 128,583
Deferred financing costs 769,968 837,263
Prepaids and other assets 312,451 1,052,975
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 6,569,441 6,636,053
- ------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Mineral properties and mine development 12,581,475 4,837,128
Property, plant and equipment 19,249,586 17,134,936
Accumulated depreciation, depletion and amortization (3,989,111) (305,449)
- ------------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 27,841,950 21,666,615
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS:
Investment in mining interests 1,170,120 259,102
Deferred financing cost - long-term 515,543 248,979
Other assets 109,480 147,651
- ------------------------------------------------------------------------------------------------------------------------------
Total investments and other assets 1,795,143 655,732
- ------------------------------------------------------------------------------------------------------------------------------
$ 36,206,534 $ 28,958,400
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade $ 2,459,242 $ 1,460,703
Accounts payable to related party 179,402 212,957
Accrued liabilities:
Payroll and other compensation 240,904 14,946
Reclamation 534,253 159,621
Other taxes 390,359 596,784
Interest 612,614 329,071
Other 1,579,177 3,382,929
Convertible notes payable 7,775,000 6,200,000
Current portion of long-term debt 4,966,474 1,752,559
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,737,425 14,109,570
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Long-term debt 2,846,416 2,668,546
Reclamation and other long-term obligations 394,100 15,000
- ------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 3,240,516 2,683,546
- ------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARIES 22 --
------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY: (shares in 000's)
Capital stock (issued 7,419 shares in 1993 and 4,171 shares in 1992) 74,192 41,713
Other capital 49,074,908 25,972,298
Accumulated deficit (34,920,529) (13,848,727)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 14,228,571 12,165,284
- ------------------------------------------------------------------------------------------------------------------------------
$ 36,206,534 $ 28,958,400
- ------------------------------------------------------------------------------------------------------------------------------
</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>
1993 1992 1991
------------ -------------------------------- ------------
JANUARY 1 TO FEBRUARY 18 TO JANUARY 1 TO JANUARY 1 TO
DECEMBER 31 DECEMBER 31 FEBRUARY 18 DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------------
AS RESTATED
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 5,078,880 $ 354,161 $ 9,548 $ 267,286
Interest and dividends 10,030 315,246 -- --
Other income 536,795 132,096 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
5,625,705 801,503 9,548 267,286
- ----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Production costs 8,023,238 788,604 88,333 658,971
Depreciation, depletion and amortization 3,706,351 331,476 6,177 39,101
Administrative and general 6,179,721 4,504,522 54,656 298,363
Exploration 2,902,998 2,190,314 94,602 237,799
Amortization of deferred debt financing costs 2,013,058 253,773 -- --
Interest expense 1,996,298 -- -- 956
Other expense 145,520 601,728 -- --
Net loss on disposal of assets 189,224 5,813 894 --
Write-downs of mining properties and investments 1,208,644 5,974,000 50,597 --
Equity share of loss from investment in mining interests 549,155 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
26,914,207 14,650,230 295,259 1,235,190
- ----------------------------------------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS:
Professional fees -- -- 167,207 287,735
Administrative and general -- -- 18,696 836,828
Interest and finance charges -- -- 109,140 77,170
Interest income -- -- (2,629) (4,626)
- ----------------------------------------------------------------------------------------------------------------------------------
-- -- 292,414 1,197,107
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS (21,288,502) (13,848,727) (578,125) (2,165,011)
EXTRAORDINARY ITEMS:
Equity Share Of Gain On The Forgiveness Of Debt 216,700 -- -- --
Extraordinary Gain On The Forgiveness Of Debt -- -- 1,762,437 --
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(21,071,802) $(13,848,727) $ 1,184,312 $ (2,165,011)
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS:
Loss Before Extraordinary Items & Minority Interest $ (4.03) $ (43.11) (15.52) (58.11)
Equity Share Of Gain On The Forgiveness Of Debt 0.04 -- -- --
Extraordinary Gain On The Forgiveness Of Debt -- -- 47.31 --
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ (3.99) $ (43.11) $ 31.79 (58.11)
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES USED IN THE COMPUTATION 5,287,545 321,251 37,257 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 PERIODS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, FEBRUARY 18, 1992
AND DECEMBER 31, 1991
<TABLE>
<CAPTION>
Common Stock Other Accumulated
Shares Amount Capital Deficit Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1990 37,257 $ 373 $ 2,244,587 $ (4,523,621) $ (2,278,661)
Net loss (2,165,011) (2,165,011)
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-5
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERICAN RESOURCE CORPORATION, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1993 1992 1991
------------ ---------------------------- ------------
January 1 to February 18 to January 1 to January 1 to
December 31 December 31 February 18 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
As Restated
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) $(21,071,802) $(13,848,727) $ 1,184,312 $ (2,165,011)
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 3,706,351 331,476 6,177 39,101
Amortization of deferred debt financing costs 2,013,058 253,773 -- --
Write-downs of mining properties and investments 1,208,644 5,974,000 50,597 --
Gain on extinguishment of debt -- -- (1,762,437) --
Equity loss from investment in mining interests 332,455 -- -- --
Loss (gain) on disposal of assets 189,224 5,813 894 --
Loss on Central Bank bonds 109,690 -- -- --
Expenses paid by issuing common shares 1,595,132 100,000 (685) 11,650
Effect of changes in operating working capital items:
Receivables 198,579 (46,324) (121,658) 8,828
Receivables-related parties (1,650,578) (1,517,530) -- (23,236)
Inventories (282,646) (306,488) (13,870) --
Prepaids and other assets (151,125) (1,052,975) 48,202 21,272
Accounts payable and other liabilities 1,303,218 1,117,169 (192,165) 992,695
Accrued liabilities -- 2,478,361 (6,847) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used by operations (12,499,800) (6,511,452) (807,480) (1,114,701)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Decrease (increase) in investments and deposits (291,076) (511,020) -- (51,000)
Additions to property, plant and equipment (5,852,637) (11,368,794) (2,393) (57,572)
Acquisitions, net of cash acquired (1,382,290) -- -- --
Bond investment acquired in acquisitions -- (6,003,127) -- --
Proceeds from bond maturities 1,545,183 4,397,127 -- --
Cash acquired in acquisitions -- -- -- --
Proceeds from sale of assets 33,825 6,390 5,000 25,500
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investment activities (5,946,995) (13,479,424) 2,607 (83,072)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings 11,625,422 7,569,085 -- --
Debt repayments (3,272,551) (141,770) -- (5,803)
Current portion of long-term debt -- -- 3,375 --
Proceeds from debtor certificates -- -- 5,249,000 2,644,600
Proceeds from warrants exercised 6,211,909 -- -- --
Common stock issued 5,093,277 10,153,471 -- --
Common stock subscribed 1,458,873 305,610 390,000 --
Increase in capital raising and deferred financing costs (3,223,317) (2,255,761) (620,977) (401,929)
Change in due to/from related parties 45,000 40,468 172,489 (80,807)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 17,938,613 15,671,103 5,193,887 2,156,061
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (508,182) (4,319,773) 4,389,014 958,288
CASH AND EQUIVALENTS, BEGINNING OF THE PERIOD 1,029,237 5,349,010 959,996 1,708
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF THE PERIOD $ 521,055 $ 1,029,237 $ 5,349,010 $ 959,996
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized $ 823,137 $ -- $ -- $ 956
Non-cash items:
Creditor payments by issuance of common stock 1,000,000 3,811 11,357,107 --
Acquisitions by issuance of common stock -- 10,400,000 -- --
Interest paid by issuance of common stock -- 42,500 -- --
Commissions paid by issuance of common stock 1,211,298 148,000 -- --
Accrued expenses paid by issuance of common stock 93,424 125,000 -- --
Property acquired by accrued liabilities -- 1,254,250 -- --
Capitalized interest added by accrued liabilities -- 443,995 -- --
Property acquired by capital lease 3,354 972,947 -- --
Net book value of terminated capital lease assets 517,509 -- -- --
Debt relieved on termination of capital leases 366,068 -- -- --
Property acquired by issuance of common stock 57,500 -- -- --
Notes payable converted into common shares 8,413,400 -- -- --
Property acquired by issuance of notes payable 1,931,032 2,235,843 -- --
Acquisitions by issuance of notes payable 4,026,639 -- -- --
Property acquired by issuance of debtor certificates -- -- -- 46,500
Notes payable by issuance of debtor certificates -- -- -- 325,000
Acquisitions by issuance of debtor certificates -- -- -- 500,000
</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 and 1993. 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 is also active in discussions with various parties that
have indicated an interest in jointly developing several of the Company's other
properties. 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. See Note 4 for discussion of Company's ability to continue as a going
concern.
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.
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 Notes 11 and 17). 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 200 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.
A-7
<PAGE> 11
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- 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 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 18 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 parties 99,011 99,011
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) 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 policies of the Company conform to generally accepted accounting
principles. The following is a summary of the more significant of such 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.
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 is evaluated at lease
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 no 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
A-10
<PAGE> 14
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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.
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.
Reclassification
Certain amounts in prior periods presented have been reclassified to conform to
the December 31, 1993 presentation.
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 Post-retirement Benefits
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers
Accounting or Post-retirement Benefits other than Pensions" was issued by the
Financial Accounting Standards Board (FASB) in December 1990. The Company
adopted SFAS No. 106 effective January 1, 1993. SFAS No. 106 requires accrual of
expected cost of providing those benefits, a departure from the current practice
of using the cash basis for recording the cost. The Company does not presently
provide post-retirement benefits and therefore no financial statement impact was
recorded when SFAS No. 106 was adopted.
A-11
<PAGE> 15
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Accounting for Income Taxes
SFAS No. 109 "Accounting for Income Taxes" was issued by the FASB in February
1992 and was adopted by the Company effective on February 18, 1992. The
statement requires, among other things, an asset and liability approach for
financial accounting and reporting for income taxes. 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.
Accounting for Post-Employment Benefits
SFAS No. 112, "Employer Accounting for Post-Employment Benefits" was issued by
the FASB in November 1992. The Company adopted SFAS No. 112 effective January 1,
1993. SFAS No. 112 requires accrual for the expected cost of providing these
benefits. The Company currently has no post-employment benefits that would
require the recognition of an additional liability and therefore, the adoption
of the statement did not have any impact on the Company.
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.
4. RESTATED FINANCIAL STATEMENTS
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.
A-12
<PAGE> 16
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Financial Statement Restatement: Depreciation, depletion and amortization
expense and estimated reclamation costs of the Company's Mahoma project in
southern Uruguay reflected in prior period consolidated financial statements was
not computed correctly. The effect of the restatements for these errors is
summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------ ------------
<S> <C> <C>
Write-downs of property, plant and
equipment $ 1,208,664 $ 1,208,664
Depreciation, depletion and
amortization expense 1,757,056 3,706,351
Production costs 7,644,138 8,023,238
Net loss (18,743,407) (21,071,802)
Net loss per share (3.55) (3.99)
Accumulated deficit (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, 1993 have
also been restated. The net deferred tax assets after valuation allowance as
previously reported and as restated are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
-------------- ------------
<S> <C> <C>
Deferred tax assets
Mineral property
write-downs $ 2,304,256 $ 2,558,899
Tax loss carryforwards 7,787,069 7,787,069
Allowance for bad debt 17,550 17,550
------------ ------------
10,108,875 10,363,518
Deferred tax liabilities (1,983) (1,983)
------------ ------------
Net deferred tax assets 10,106,892 10,361,535
Valuation allowance (10,106,892) (10,361,535)
------------ ------------
Net deferred tax assets
after valuation allowance $ -- $ --
============ ============
</TABLE>
A-13
<PAGE> 17
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Geographic information as previously reported and as restated is as follows:
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------
As Previously
Reported As Restated
------------- ------------
<S> <C> <C>
Revenues:
U. S $ 1,998,938 $ 1,998,938
South America 3,626,767 3,626,767
------------ ------------
$ 5,625,705 $ 5,625,705
============ ============
Operating loss: (1)
U. S $ (1,801,070) $ (1,801,070)
South America (6,970,987) (9,299,382)
------------ ------------
$ (8,772,057) $(11,100,452)
============ ============
Identifiable assets:
U. S $ 28,036,527 $ 28,036,528
South America 10,119,302 8,170,006
------------ ------------
$ 38,155,829 $ 36,206,534
============ ============
Exploration:
U. S $ 287,471 $ 287,471
South America 2,615,527 2,615,527
------------ ------------
$ 2,902,998 $ 2,902,998
============ ============
Depreciation, depletion and
amortization:
U. S $ 265,905 $ 265,905
South America 1,491,151 3,440,446
------------ ------------
$ 1,757,056 $ 3,706,351
============ ============
Additions to property, plant
and equipment:
U. S $ 2,802,279 $ 2,802,279
South America 9,007,723 9,007,723
------------ ------------
$ 11,810,002 $ 11,810,002
============ ============
</TABLE>
The Company also incurred net corporate and other costs amounting to $10,188,050
in 1993.
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.
A-14
<PAGE> 18
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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.
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.
A-15
<PAGE> 19
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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.
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 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.
A-16
<PAGE> 20
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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.
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. 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.
In February, 1993, the Company purchased from Walhalla Mining Company NL Inc.,
an Australian company, ("Walhalla")
A-17
<PAGE> 21
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1,662,366 shares of common stock of Red Rock Mining Corporation ("Red Rock") and
certain warrants that automatically converted into 75,001 shares of Red Rock's
common stock, on February 15, 1993, together representing approximately 42% of
the outstanding common shares of Red Rock 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. The acquisition was accounted for as an equity
investment.
In addition, the Company received 31,563 shares of Red Rock'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 Red Rock's common stock constituting approximately 43% of
the outstanding shares of common stock of Red Rock. In 1994, the Company
increased its interest in Red Rock (See Note 18).
During 1993 and 1992, the Company made acquisitions of property plant and
equipment in addition to development at certain properties totaling over $11
million and $26 million respectively.
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 interest in the Goldfield Joint Venture
("Goldfield") with Red Rock Mining (USA) Inc., a wholly-owned subsidiary of Red
Rock in exchange for $500,000 in promissory notes. In January 1992, Woodhill
assigned the agreement, subject to the Company's rights, to Harris Mining, Ltd.
On February 18, 1992, the Company exercised its option by issuing to Harris
Mining, Ltd. 1,000,000 restricted shares of its common stock, a short-term note
payable of $1,000,000 and 1,000,000 warrants to purchase an additional 1,000,000
shares of the Company's restricted common stock at $10.00 per share, exercisable
at any time on or before February 28, 1997. On February 26, 1992, the Company
and its venture partner each purchased a 5% net profits interest ("NPI") in the
joint venture from Walhalla Mining Company, eliminating the 10% NPI in the
property. The cost assigned to the right to earn the 50% interest in the project
including the purchase of the 5% NPI was $6,594,250. By exercising the option,
the Company obtained the right to acquire up to a 50% interest in the mining
project located in south-central Nevada by funding up to $2,000,000 in
development expenditures or by attaining 120,000 tons of production within a
ninety-day continuous period by December 31, 1992. The Company also agreed to
spend up to $500,000 in direct exploration costs. The Company completed the
requirements of the option in October, 1992 and earned its 50% interest in
Goldfield. The option also gave the Company the right to purchase the remaining
50% interest for $5,000,000 at any time during the year following earning its
50% interest, and to act as Manager and Operator of the project for a fee of 7%
of the operating expenditures of the project.
Development of Goldfield commenced during 1992 and some limited start-up
sequencing activities and trial mining activities had commenced by December 31,
1992. The limited start-up activities involved relocating existing stockpiles of
marginally low - grade gold bearing material. Since significant mining
activities had not yet commenced that would provide higher grade economic ore,
the stockpile material was processed to assist in metallurgical testing. Some of
the material was
A-18
<PAGE> 22
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
also used in a limited operating break-in after mechanical completion of the
crushing and conveying facilities.
In addition to the marginal low grade stockpiled material, there were tailings
from previous mining operations that needed to be moved to an environmentally
safe lined containment area. Much of this material was placed on the newly
constructed heap leach facilities where the material was processed related to
the operating break-in and the metallurgical evaluation. These limited start-up
activities related to facility testing and start-up commenced early in 1993, on
an intermittent basis at substantially less than design capacity. Production
activities approached sustainable levels of plant design and intended capacity
during June, 1993. The mine was deemed to have commenced commercial operations
in July, 1993.
Poor equipment availability due to start-up mechanical failures contributed to
insufficient cash flow to sustain operating levels that were cost effective, and
as a result, mining activity was suspended in August, 1993. Leaching of existing
ore on the leach pad continued to provide diminishing levels of gold production,
but were minimal by the end of 1993. Most of the mining equipment was leased and
agreements with the vendors were made so that the majority of the equipment
could be returned with payments stopping in October, 1993. A net loss of
approximately $302,000 ($151,000 was the Company's 50% share) for returning the
equipment was incurred in 1993.
A revised operating plan has developed that will require expansion of certain
components of the facility and replacement equipment that is suitable for the
methods and volume contained in the revised plan. Capital expenditures for 1994
are expected to be approximately $4.5 million and mining operations are expected
to reach designed capacity during 1994. Design and construction activities began
in the first quarter of 1994.
In February, 1994, the Company agreed to sell its 50% interest in Goldfield to
Red Rock for 12 million shares of Red Rock common stock and purchased an
additional 12.0 million shares for $6.0 million in cash. Red Rock repaid all
amounts due to the Company. As a result of these transactions, the Company now
owns approximately 60.6% of the outstanding common stock of Red Rock and expects
this interest to increase to approximately 74% on approval by Red Rock
shareholders of the acquisition of the Company's 50% interest in Goldfield (See
Note 18).
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 10).
A-19
<PAGE> 23
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Mahoma Project was one of the properties owned and operated by CMSJ, SA and
was developed during 1992 and was in the start-up sequencing phase at December
31, 1992. In the first quarter of 1993, the Mahoma Project commenced open pit
mining operations, using contract miners within a one mile radius of the
crushing and carbon in pulp ("CIP") processing plant. The plant has a capacity
of 300 tons of material milled per day. Operations were temporarily suspended
due to heavy rains, to change mining contractors and to finalize regulatory
permits.
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 10).
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, RAA continued to acquire rights to explore and
to evaluate properties in Argentina. Some properties were abandoned based on
poor evaluation results. 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 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,
------------------------------
1993 1992
----------- -----------
<S> <C> <C>
Trade $ 33,580 $ 32,759
Related Parties (See Note 12) 3,266,014 1,616,541
Bonds -- 1,606,000
Other (net of allowances) 1,178,449 192,349
Provision for bad debt (77,080) (51,429)
----------- -----------
$ 4,400,963 $ 3,396,220
=========== ===========
</TABLE>
When the Company acquired CMSJ, SA in 1992, CMSJ, SA had an agreement with the
Uruguayan Central Bank ("UCB") and CMSJ de Uruguay ("CMSJ") its parent company
whereby CMSJ had agreed to invest capital in the mining industry in Uruguay in
exchange for Uruguayan Treasury Bonds ("UTB") that would mature in relationship
to the amounts invested in Uruguay. The UTB's were interest bearing and could be
collected upon verification of the capital expenditures in the country. All
remaining amounts receivable under this agreement were collected during 1993.
A-20
<PAGE> 24
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,
------------------------------
1993 1992
----------- ------------
AS RESTATED
<S> <C> <C>
Mineral properties and mine
development costs $12,581,475 $ 4,837,128
Plant and equipment 18,822,782 5,290,819
Capitalized leased assets 426,804 1,152,950
Construction and mine
development in progress 10,691,167
----------- -----------
31,831,061 21,972,064
Less: Accumulated Depreciation,
depletion and amortization 3,989,111 305,449
----------- -----------
$27,841,950 $21,666,615
=========== ===========
</TABLE>
Additions to property, plant and equipment include capitalized interest costs of
$154,976 and $571,493 in 1993 and 1992 respectively. The amounts for mineral
properties and mine development costs of $12,581,475 and $4,837,128 at December
31, 1993 and 1992, respectively, are the net costs after writing down the
projects during the year. In 1992, the Goldfield Joint Venture in Nevada was
written down $5,674,000 and Section 17 (Fortune Cookie) in Nevada was written
down $100,000. This action has been taken to reduce the carrying value of these
assets to amounts which the Company regards as appropriate. In 1993, the
write-down of mineral properties of $1,024,894 related to properties abandoned
or properties where exploration and evaluation efforts concluded the carrying
value of the property was not supportable. Write-downs related to the recovery
of investments in other mining interests totaled $183,750. Total write-downs for
the year were $1,208,644. The amount of the write-down is included in the
consolidated statements of operations under write-downs of mining properties and
investments.
Accumulated depreciation, depletion and amortization includes $6,725 and
$100,000 of amortization of assets acquired through capitalized leases at
December 31, 1993 and 1992 respectively. Depreciation, depletion and
amortization expense for the periods ended December 31, 1993 and 1992
respectively includes $104,731 and $100,000 of amortization for assets acquired
through capital leases.
8. MINING TECHNOLOGY
The Company purchased certain mining extraction technology in January, 1991 from
a related party, Singtech Investment, Ltd. A director of the Company was a
director of Singtech Investments, Ltd. The obligation for the purchase was
satisfied upon confirmation of the Company's plan of reorganization by issuance
of 20,000 shares of common stock valued at $10.00 per share. Due to the probable
sale of the project on which the technology was to have been utilized, the
$200,000 investment was written off in 1992.
A-21
<PAGE> 25
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
9. INVESTMENT IN MINING INTERESTS
The Company acquired a 43% interest in the common stock of Red Rock in February
1993 (See Note 5), and uses 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
Company increased its interest in Red Rock in early 1994 (See Note 18).
The following table summarizes the unaudited financial position and results of
operations of Red Rock 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>
A-22
<PAGE> 26
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
10. 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,
--------------- ---------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Convertible promissory notes with interest at 10%
per annum, secured by certain mineral properties
payable quarterly in arrears, with principal amounts
due:
June 30, 1993 $ $2,700,000 $ $ 65,000
December 31, 1993 350,000 3,500,000 25,000
June 30, 1994 3,150,000
December 31, 1994 4,175,000
Convertible promissory notes with interest at 12%
per annum is payable at maturity along with
principal amounts due September 30, 1994. 100,000 613,400 13,166 9,241
Note payable in five installments (including
interest imputed at 12%) in varying amounts
beginning February 28, 1993 and ending
August 31, 1995, depending upon the sales
price of gold produced from the properties
acquired in this purchase, with maximum or
cumulative installments of $2,500,000. The
note is secured by 100% of the shares of
Compania Minera San Jose de Uruguay 1,639,923 1,898,449 234,196 201,228
Note payable in annual installments of $100,000
(including interest imputed at 12%) beginning
March 15, 1993 and ending March 15, 1995. The
note is secured by 100% of the shares of Brimol
S.A. 237,394 237,394 61,890 23,762
Note payable to a bank secured by amounts due
from maturing governmental bonds. Amounts
advanced are discounted from face value of the
bonds depending upon maturity date. 717,027
Note payable to bank with interest at LIBOR plus
5% secured by the shares of Compania Minera San
Jose S.A. 80,421
Note payable in nine monthly installments beginning
September 15, 1993 with interest at 10% per annum. 7,909
Note payable in four annual installments of
$25,000 beginning on July 14, 1993 with
interest calculated using the Applicable
Federal Rate as defined in Section 483 of
the Internal Revenue Code of 1986 on July 14, 1992. 65,788 100,000 2,657
---------- ---------- ---------- ----------
Sub total $9,806,435 $9,766,270 $ 309,252 $ 326,888
</TABLE>
A-23
<PAGE> 27
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Balance Accrued Interest
at December 31, at December 31,
--------------- ---------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance from previous page brought forward $ 9,806,435 $ 9,766,270 $ 309,252 $ 326,888
Installment purchase contract payable in
twenty-five installments, the first twelve
at $13,000 per month and the next twelve at
$17,500 per month with a final payment of
$160,000. The Company has the option to stop
making installments and make a final payment
of $489,500 less 90% of all previous installments. 476,500 2,183
Note payable with interest at 12% per annum,
payable on January 13, 1994. 750,000 87,040
Demand notes payable, due on 30 days notice
with annual interest at:
12 % 580,000 24,457
10 % 300,000 10,658
Note payable in three installments with
interest at 12% (including 6% imputed
interest) due in 1994 and 1995. The notes
secured by the share of STEL (BVI) Inc. and
its subsidiaries. 1,923,631 133,251
Non-assignable convertible subordinated
unsecured note payable 50% seven days after
written demand any time after January 24,
1998, but not later than March 31, 1998,
with 12% imputed interest. 362,554 41,936
Installment contract purchase payable in
twelve quarterly installments of equal
installments through June 1996, plus
interest at 4.5% above the 3 month LIBOR
published rate. 1,757,537 6,020
Capital lease obligations (See Note 16) 107,733 378,335
----------- -----------
15,587,890 10,621,105
Less:
Current convertible notes payable 7,775,000 6,200,000
Current portion of other long term debt 4,966,474 1,752,559
----------- ----------- ----------- -----------
$ 2,846,416 $ 2,668,546 $ 612,614 $ 329,071
=========== =========== =========== ===========
</TABLE>
Payments of principal under the above long term notes (excluding capital lease
obligations) are due as follows:
<TABLE>
<S> <C>
1994 $12,539,469
1995 2,235,185
1996 342,949
1997 --
1998 362,554
-----------
$15,480,157
===========
</TABLE>
The notes due June 30, 1994, are convertible into shares of common stock at the
rate of $10.00 per share at any time. The notes due December 31, 1994 are also
convertible into shares at $10.00 per share at anytime until March 31, 1993.
Thereafter, the conversion rate is the lesser of
A-24
<PAGE> 28
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
$10.00 or 90% of the average bid and offer price of the shares if the average
share price is below $10.00. The holders can elect to receive interest in the
form of common shares at $10.00 per share. The notes due September 30, 1994 are
convertible into common stock at the average price on the date issued. The
average conversion price for these notes is $6.60 per share. The note due
December 31, 1993, was paid in cash in January 1994.
11. INCOME TAXES
The Company's net deferred tax assets at December 31, 1993 and 1992, were
$10,361,535 and $8,244,054 respectively, before a valuation allowance as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1993 1992
------------ ------------
AS RESTATED
<S> <C> <C>
Deferred Tax Asset
Mineral property write downs $ 2,558,899 $ 2,232,594
Tax loss carry forwards 7,787,069 5,986,500
Allowance for bad debt 17,550 17,550
Book over tax depreciation and
amortization 7,410
------------ ------------
Total deferred tax assets 10,363,518 8,244,054
------------ ------------
Deferred Tax Liabilities 1,983
------------ ------------
Net deferred tax assets 10,361,535 8,244,054
Valuation allowance (10,361,535) (8,244,054)
------------ ------------
Net deferred tax asset,
net of 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, 1993 and 1992 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, 1993 and 1992 and February 18, 1992 and December 31, 1991 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.
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 2008. 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.
A-25
<PAGE> 29
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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.
12. SHAREHOLDERS' 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 (See Note 18). 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 at December 31, 1993.
Warrants outstanding at December 31, 1993:
<TABLE>
<CAPTION>
Class Number Exercise Price Expiration Date
----- ------ -------------- ---------------
<S> <C> <C> <C>
A 297,940 $16.42 June 30, 1994
B1 122,329 21.75 June 30, 1994
B2 117,730 30.64 June 30, 1994
B3 128,646 39.53 June 30, 1994
Unclassified 1,000,000 7.50 February 28, 1997
</TABLE>
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.
No shares had been issued under the option plan at December 31, 1993. No other
class of capital stock is authorized.
A-26
<PAGE> 30
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
At December 31, 1993 and 1992, and February 18, 1992, the Company held
subscriptions to capital stock for 186,680, 48,000 and 132,039 shares
respectively. Contributed capital at December 31, 1993 and 1992, and February
18, 1992 include $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 are being held in escrow pending sale
of a sufficient number of shares to provide proceeds of $565,000 the amount due
by the Company. Any of these shares which are not required to be sold to settle
the debt together with any surplus sale proceeds will be returned to the Company
by the escrow agent. The shares returned will be canceled (See Note 15).
13. RELATED PARTY TRANSACTIONS
Accounts receivable from related parties consist of the following:
<TABLE>
<CAPTION>
1993 1992
---- ----
December 31, December 31, February 18,
------------ ------------ ------------
<S> <C> <C> <C>
Red Rock Mining Corporation $3,242,880 $1,579,663 $ 11,236
East West Minerals, Inc. 23,134 36,878 87,775
---------- ---------- ----------
Total $3,266,014 $1,616,541 $ 99,011
========== ========== ==========
</TABLE>
In February of 1992, the Company acquired the option to earn up to a 50%
interest in Goldfield; and to become an equal partner with Red Rock Mining (USA)
Inc. During 1991, the Company made certain payments on behalf of both the joint
venture and its partner, which were to be reimbursed in 1992. The Company made
additional contributions to the Goldfield Joint Venture on behalf of Red Rock
during 1993 and borrowed amounts from Red Rock. Accrued interest of $23,983 at
December 31, 1993 on borrowed amounts is included in accrued in liabilities. In
February, 1994, the net advances were repaid to the Company and its 50% interest
in Goldfield was sold to Red Rock in exchange for 12 million shares of Red Rock
common stock valued at $.50 per share (See Notes 5 and 18).
In March 1991, the Company entered into an agreement with East West Minerals,
Inc. ("EWM") to purchase certain mining rights in exchange for 20,000 shares of
the common stock valued at $5.00 per share. Shares were issued upon confirmation
of the Company's plan of reorganization. Evaluation of the property was
conducted during 1992 with results which caused the Company to write off its
investment in the property.
During 1992, the Company entered into a capital lease with EWM to acquire
certain mining equipment with an agreed upon value of $46,887. The lease called
for payments totaling $56,600, all of which were paid during 1992.
The Company contracts with Glover Mining Inc. for the services of its director,
Cameron Glover, who is also a director of the Company. The contract provides
consulting fees of $15,000 per month for a 3 year period ending March, 1995. The
Company was indebted to Glover Mining Inc. for $30,000 at December 31, 1993 and
to Cameron Glover for $149,402 and $100,000 for fees
A-27
<PAGE> 31
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
and for charges in connection with his travel and capital raising efforts at
December 31, 1993 and 1992 respectively.
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
Glover Mining Inc. $ 30,000 $112,957
Cameron Glover 149,402 100,000
-------- --------
Total $179,402 $212,957
======== ========
</TABLE>
During 1992 and 1993, the Company entered into, a revised agreement with GMI for
the acquisition of equipment originally valued at $240,000. The final terms of
the equipment purchase were in the form of a capital lease. Under terms of the
lease total payments of $300,000 were made to GMI and title to the assets
transferred to the Company.
14. 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,
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 has 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 calls for two installments of $160,224
each, plus interest at 9.75 percent annually, due on December 9, 1993 and 1994.
No payments have been made by the vendor or the Company against this obligation.
Also See Note 18 for additional commitments the Company made subsequent to
December 31, 1993.
15. ADDITIONAL CASH FLOW INFORMATION
In addition to the supplemental non-cash information presented on the Statements
of Consolidated Cash Flows, shares were issued in settlement of a debt of
$565,000. The shares issued are to be
A-28
<PAGE> 32
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
held in escrow pending the sale of all or some of them under instructions from
the creditor until proceeds total $565,000. Any shares not required to be sold
to settle the debt will be returned to the Company by the escrow agent for
cancellation. Any surplus sale proceeds will also be returned to the Company by
the escrow agent (See Note 12).
16. 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, 1993 are as
follows:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
------------------- ------------------
<S> <C> <C>
Convertible notes payable $ 9,385,421 $ 9,385,421
Long-term debt 5,403,589 5,403,589
</TABLE>
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.
17. LEASE COMMITMENTS
The Company leases various facilities and equipment pursuant to capital and
operating leases that expire at various dates through 1996. At December 31,
1993, 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>
1994 $107,022 $295,514
1995 6,049 181,072
1996 984
1997
1998
-------- --------
Total minimum payments 113,071 $477,570
========
Less amounts representing interest 5,338
--------
Present value of net minimum payments $107,733
========
</TABLE>
Rental expenses for each period represented in the Statement of Consolidated
Operations are as follows:
<TABLE>
<CAPTION>
Minimum Rentals
---------------
<S> <C> <C>
Year Ended: December 31, 1991 $ 131,162
Periods Ended: February 18, 1992 8,386
December 31, 1992 186,490
Year Ended: December 31, 1993 1,517,767
</TABLE>
A-29
<PAGE> 33
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
18. SUBSEQUENT EVENTS
The one for ten reverse stock split on December 17, 1993 had reduced the
authorized number of shares from 100,000,000 to 10,000,000. At a special
shareholders meeting held on February 14, 1994, the shareholders approved an
increase in the authorized number of shares of common stock that the Company can
issue to 25,000,000 from 10,000,000 shares.
In February, 1994, the Company increased its interest in Red Rock from 43% to
approximately 60.6% of the outstanding common stock by purchasing an additional
12 million shares at $.50 per share and agreed to sell its 50% interest in
Goldfield to Red Rock for 12 million shares valued at $.50 per share (subject to
Red Rock shareholder approval at its annual shareholders meeting to be held on
May 13, 1994), which will increase its investment in Red Rock to approximately
74%. The transactions will be accounted for using the purchase method of
accounting. At the same time, Red Rock repaid all amounts due to the Company.
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 Red Rock, accounted for as
a purchase, as if the acquisition had occurred on January 1, 1993.
The pro forma information that follows 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-30
<PAGE> 34
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------
As Related Unaudited
Restated Acquisition Transactions Pro Forma
--------------- -------------- ----------------- -----------------
(1)
<S> <C> <C> <C> <C>
ASSETS:
Cash and equivalents $ 521,100 $ 5,720,100 $ 3,000,000 (2) $ 6,541,400
3,315,000 (3)
(6,000,000)(5)
(14,800)(4)
Receivables:
Trade and other 1,134,900 1,134,900
Related party 3,266,000 (3,242,900)(3) 23,100
Inventories 565,000 565,000
Other current assets 1,082,400 136,500 (68,200)(4) 1,150,700
------------ ------------ ------------ ------------
Total current assets 6,569,400 5,856,600 (3,010,900) 9,415,100
Property, plant and equipment 27,842,000 14,327,200 (621,200)(4) 34,138,200
6,000,000 (5)
(13,409,800)(6)
Investments and other assets 1,795,100 46,000 (8,100)(4) 1,833,000
------------ ------------ ------------ ------------
$ 36,206,500 $ 20,229,800 $(11,050,000) $ 45,386,300
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Accounts payable-trade $ 2,459,200 $ 395,800 $ (186,900)(4) $ 2,668,100
Accounts payable related party 179,400 179,400
Accrued and other liabilities 3,357,300 966,800 (344,000)(4) 3,914,800
(65,300)(4)
Convertible notes payable 7,775,000 (362,600)(3) 7,412,400
Current portion long-term debt 4,966,500 643,900 (130,400)(4) 5,480,000
------------ ------------ ------------ ------------
Total current liabilities 18,737,400 2,006,500 (1,089,200) 19,654,700
Long -term and other 3,240,500 102,000 500,000 (3) 3,791,500
liabilities
(51,000)(4)
Minority Interest 4,711,500 (6) 4,711,500
------------ ------------ ------------ ------------
21,977,900 2,108,500 4,071,300 28,157,700
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY:
Capital 49,149,100 26,618,000 3,000,000 (2) 52,149,100
(26,618,000)(6)
Accumulated deficit (34,920,500) (8,496,700) 8,496,700 (34,920,500)
------------ ------------ ------------ ------------
14,228,600 18,121,300 (15,121,300) 17,228,600
------------ ------------ ------------ ------------
$ 36,206,500 $ 20,229,800 $(11,050,000) $ 47,386,300
============ ============ ============ ============
</TABLE>
(1) Consolidation of Red Rock December 31, 1993 proforma balances which
include its acquisition of ARC's 50% interest in Goldfield and its
related financing transactions.
(2) Proceeds from issuance of common shares (429,500 shares for
$3,000,000).
(3) Settlement of related party accounts.
(4) Disposal of 50% prorata share in Goldfield.
(5) Purchase of 12,000,000 shares of Red Rock for $6,000,000.
(6) Elimination of equity in Red Rock and recognition of minority interest.
A-31
<PAGE> 35
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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: (1)
Gold sales $ 5,078,900 $ 1,083,300 $ 6,162,200
Other income 546,800 67,000 613,800
------------ ------------ ------------
5,625,700 1,150,300 6,776,000
------------ ------------ ------------
Expenses:
Production cost - gold 8,023,200 1,075,200 9,098,400
Depreciation, depletion and amortization 3,706,400 68,500 3,774,900
Administrative and general 6,179,700 875,700 7,055,400
Exploration 2,903,000 45,000 2,948,000
Amortization of deferred debt financing 2,013,100 2,013,100
costs
Interest expense 1,996,300 56,700 2,053,000
Write-downs of mining properties 1,208,600 1,208,600
Equity share of loss from investment in
mining Interests 549,200 (549,200)(2)
Other expenses 334,700 296,200 630,900
------------ ------------ ------------
26,914,200 1,868,100 28,782,300)
------------ ------------ ------------
Loss from operations (21,288,500) (717,800) (22,006,300)
Minority interest 329,400(3) 329,400
------------ ------------ ------------
Loss before extraordinary items $(21,288,500) $ (388,400) $(21,676,900)
============ ============ ============
Loss per share before extraordinary items $ (4.03) $ (3.79)
============ ============
Average shares used in computation 5,287,545 429,500(4) 5,717,045
============ ============ ============
</TABLE>
(1) Results of operation for Red Rock for the twelve months ended December
31, 1993. (Except for items included in Notes 3 and 4)
(2) Elimination of equity in income of Red Rock for the year ended December
31, 1993
(3) Recognition of minority interest in Red Rock.
(4) Issuance of 429,500 common shares for $3,000,000.
A-32
<PAGE> 36
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>
1993 For 1992 Periods Ended 1991
---- --- ------------------ ----
December 31 December 31 February 18 December 31
----------- ----------- ----------- -----------
AS RESTATED
<S> <C> <C> <C> <C>
Revenues:
U.S.A $ 1,998,938 $ 497,196 $ 9,548 $ 267,286
South America 3,626,767 304,307
------------ ------------ ------------ ------------
$ 5,625,705 $ 801,503 $ 9,548 $ 267,286
============ ============ ============ ============
Operating (loss) (1) (2)
U.S.A $ (1,801,070) $ (7,722,201) $ (231,055) $ (668,585)
South America (9,299,382) (1,228,477)
------------ ------------ ------------ ------------
$(11,100,452) $ (8,950,678) $ (231,055) (668,585)
============ ============ ============ ============
Identifiable Assets:
U.S.A $ 28,036,528 $ 13,684,536 $ 6,915,409 $ 2,908,649
South America 8,170,006 15,273,864
------------ ------------ ------------ ------------
$ 36,206,534 $ 28,958,400 $ 6,915,409 $ 2,908,649
============ ============ ============ ============
Exploration: (2)
U.S.A $ 287,471 $ 961,837 $ 94,602 $ 237,799
South America 2,615,527 1,228,477
------------ ------------ ------------ ------------
$ 2,902,998 $ 2,190,314 $ 94,602 $ 237,799
============ ============ ============ ============
Depreciation, Depletion and
Amortization:
U.S.A $ 265,905 $ 157,310 $ 6,117 $ 39,101
South America 3,440,446 174,166
------------ ------------ ------------ ------------
$ 3,706,351 $ 331,476 $ 6,117 $ 39,101
============ ============ ============ ============
Additions to Property
Plant and Equipment
U.S.A $ 2,802,279 $ 15,062,807 $ 2,393 $ 824,572
South America 9,007,723 11,655,522
------------ ------------ ------------ ------------
$ 11,810,002 $ 26,718,329 $ 2,393 $ 824,572
============ ============ ============ ============
</TABLE>
(1) Includes write-downs of mining properties of $1,208,644 in 1993 for
South America, and $5,774,000 in the period ended December 31, 1992 for
U.S.A.
(2) Operating loss includes exploration costs which are disclosed
separately.
A-33
<PAGE> 37
AMERICAN RESOURCE CORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(2) Operating loss includes exploration costs which are disclosed
separately.
SEGMENT INFORMATION
<TABLE>
<CAPTION>
1993 For 1992 Periods Ended 1991
---- ----------------------- ----
December 31 December 31 February 18 December 31
----------- ----------- ----------- -----------
AS RESTATED
<S> <C> <C> <C> <C>
Revenues:
Gold $ 4,946,429 $ 249,389 $ $ 115,395
Industrial Minerals 132,451 104,772 9,548 151,891
Corporate and other 546,825 447,342
------------ ------------ ------------ ------------
$ 5,625,705 $ 801,503 $ 9,548 $ 267,286
============ ============= ============ ============
Operating (loss)
Gold (1) $ (8,080,766) $ (6,703,568) $ (103,941) $ (467,328)
Industrial Minerals (117,688) (56,796) (32,512) 36,542
Exploration (2,902,998) (2,190,314) (94,602) (237,799)
------------ ------------ ------------ ------------
Operating (loss) (11,101,452) (8,950,678) (231,055) (668,585)
Corporate and other (10,187.050) (4,898,049) (347,070) (1,496,426)
------------ ------------ ------------ ------------
Loss Before Extraordinary Item $(21,288,502) $(13,848,727) $ (578,125) $ (2,165,011)
============ ============ ============ ============
Identifiable Assets:
Gold $ 27,992,369 $ 20,454,603 $ 538,674 $ 589,655
Industrial Minerals 264,165 314,273 304,064 322,353
Corporate and Other 7,950,000 8,189,524 6,072,671 1,996,641
------------ ------------ ------------ ------------
$ 36,206,534 $ 28,958,400 $ 6,915,409 $ 2,908,649
============ ============ ============ ============
Exploration Expenses:
Gold $ 2,902,998 $ 2,190,314 $ 94,602 $ 227,594
Industrial Minerals 10,205
------------ ------------ ------------ ------------
$ 2,902,998 $ 2,190,314 $ 94,602 $ 237,799
============ ============ ============ ============
Depreciation, Depletion
and Amortization
Gold $ 3,673,463 $ 308,032 $ 1,384 $ 38,409
Industrial Minerals 15,016 12,548 4,793 692
Corporate and Other 17,872 10,896
------------ ------------ ------------ ------------
$ 3,706,351 $ 331,476 $ 6,177 $ 39,101
============ ============ ============ ============
Additions to Property
Plant and Equipment
Gold $ 10,418,384 $ 26,638,255 $ 2,393 $ 804,639
Industrial Minerals 1,624 19,933
Corporate and Other 1,391,618 78,450
------------ ------------ ------------ ------------
$ 11,810,002 $ 26,718,329 $ 2,393 $ 824,572
============ ============ ============ ============
</TABLE>
(1) Includes write-downs of mining properties of $1,208,644 in 1993,
$5,774,000 in the period ended December 31, 1992 and $50,597 in the
period ended February 18, 1992.
A-34
<PAGE> 38
UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(000's except per share data)
<TABLE>
<CAPTION>
Periods Ended
----------------------------------------------------------------
1993 Mar. 31 Jun. 30 Sep. 30 Dec. 31 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 (4,603) (4,795) (4,752) (7,139) (21,289)
Extraordinary gains -- -- 217 -- 217
Loss per share before
extraordinary gains (1.05) (0.91) (0.89) (1.18) (4.03)
Extraordinary gains -- -- 0.04 -- 0.04
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1992 Feb. 18* Mar. 31* Jun. 30 Sep. 30 Dec. 31 Period
-------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 9 $ 3 $ 54 $ 54 $ 243 $ 354
Operating loss (286) (493) (1,366) (1,610) (10,380) (13,849)
Loss before extraordinary
gain (578) (493) (1,366) (1,610) (10,380) (13,849)
Extraordinary gain 1,762 -- -- -- -- --
Loss per share before
extraordinary gain (1.55) (0.02) (0.04) (0.04) (0.26) (0.43)
Extraordinary gain 4.73 -- -- -- -- --
-------------------------------------------------------------------------------
</TABLE>
* In 1992, the quarter ending March 31 began on February 18, coinciding with
implementing fresh start accounting. The amounts totaling for the year 1992,
include Mar 31, Jun 30, Sep 30, and Dec 31.
A-35
