SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
Commission file number 0-18865
----------------
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
----------------
UTAH 87-0401400
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------
102 West 500 South
Suite 400
Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 363-8961
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of August 18, 1997, the Registrant had outstanding 1,841,486 shares of
Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Part I Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1997 and March 31, 1997.......1
Condensed Consolidated Statements of Operations - Three Months
Ended June 30, 1997 and 1996...................................................3
Statements of Stockholders' Equity.............................................4
Condensed Consolidated Statements of Cash Flows - Three Months Ended
June 30, 1997 and 1996.........................................................5
Notes to Condensed Consolidated Financial Statements - June 30, 1997...........7
Item 2: Management's Discussion and Analysis or Plan of Operations.........17
Part II Other Information
Item 1. Legal Proceedings..................................................19
Item 2. Changes in Securities..............................................19
Item 3. Defaults upon Senior Securities....................................19
Item 4. Submission of Matters to a Vote of Security Holders................19
Item 5. Other Information .................................................19
Item 6. Exhibits and Reports on Form 8-K...................................19
i
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheets
ASSETS
June 30, March 31,
1997 1997
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 29,879 $ 47,850
Accounts receivable 51,423 41,349
Real estate inventories 949,554 932,439
Merchandise inventory 417,827 291,169
Prepaid and other current assets 17,732 23,682
Current portion of contract receivable 472 472
---------------- ----------------
Total Current Assets 1,466,887 1,336,961
---------------- ----------------
PROPERTY AND EQUIPMENT
Model home 134,788 133,954
Furniture, fixtures and equipment 147,193 146,412
Vehicles 43,252 17,852
---------------- ----------------
Total depreciable assets 325,233 298,218
Less: accumulated depreciation (106,260) (97,965)
---------------- ----------------
Net Property and Equipment 218,973 200,253
---------------- ----------------
OTHER ASSETS
Land held for development (Note 2) 11,775,878 11,475,016
Goodwill (Note 9) 248,697 252,912
Long-term portion of contract receivable 55,993 55,993
Deposits 1,970 1,970
---------------- ----------------
Total Other Assets 12,082,538 11,785,891
---------------- ----------------
TOTAL ASSETS $ 13,768,398 $ 13,323,105
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
1997 1997
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,251,872 $ 1,151,894
Accrued expenses and other current liabilities 1,272,680 1,108,635
Current portion of notes payable (Note 3) 1,166,363 1,213,866
Current portion of capital lease obligations (Note 4) 12,238 12,238
---------------- ----------------
Total Current Liabilities 3,703,153 3,486,633
---------------- ----------------
LONG-TERM DEBT
Commission payable 90,000 90,000
Long-term portion of notes payable (Note 3) 6,628,077 6,356,331
Long-term portion of capital lease obligations (Note 4) 11,673 13,394
Notes payable, related parties (Note 9) 647,014 319,039
---------------- ----------------
Total Long-Term Debt 7,376,764 6,778,764
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST (Note 1) - -
---------------- -----------
PREFERRED STOCK, par value $0.001 per share; 100,000 and 100,000 Series D
shares; and 500,000 and -0- series E shares, issued and
outstanding, respectively. (Note 6) - -
---------------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 102,220
Series B shares, 150,000 Series C shares (Note 6) 252 252
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 1,851,486
and 1,835,486 shares issued 1,695,666 and 1,674,666
shares outstanding, respectively
(See Note 7) 1,851 1,835
Additional paid-in capital 13,051,705 13,021,721
Accumulated deficit (10,365,327) (9,966,100)
---------------- ----------------
Total Stockholders' Equity 2,688,481 3,057,708
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,768,398 $ 13,323,105
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Three Months Ended
June 30,
1997 1996
INCOME
<S> <C> <C>
Sales - real estate $ 11,000 $ -
Sales - merchandise 161,161 133,000
---------------- ----------------
Total Income 172,161 133,000
---------------- ----------------
COSTS OF SALES
Cost of sales - real estate 11,000 76,582
Cost of sales - merchandise 78,140 -
---------------- -------------
Total Cost of Sales 89,140 76,582
---------------- ----------------
Gross Profit 83,021 56,418
---------------- ----------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 12,510 1,005
General expenses 499,625 319,123
---------------- ----------------
Total General and Administrative Expenses 512,135 320,128
---------------- ----------------
Net Loss (429,114) (263,710)
---------------- ----------------
OTHER INCOME AND (EXPENSES)
Interest income 782 2,038
Other Income 45,448 2,906
Gain on sale of assets - 236,583
Interest expense (16,343) (7,080)
---------------- ----------------
Total Other Income and (Expenses) 29,887 234,447
---------------- ----------------
Net (Loss) Before Income Tax and
Minority Interest (399,227) (29,263)
Minority Interest (Note 1) - -
---------------- -------------
Net Loss Before Income Tax (399,227) (29,263)
Less: Provisions for (Income Tax) - -
---------------- -------------
NET LOSS $ (399,227) $ (29,263)
================ ================
LOSS PER SHARE $ (0.22) $ (0.00)
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Statements of Stockholders' Equity
Additional
Common Stock Preferred Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 1,835,486 $ 1,835 252,220 $ 252 $ 11,910,212 $ (8,941,298)
Capital contributions by stock
issuances of a subsidiary - - - - 1,111,509 -
Net loss - - - - - (1,024,802)
----------- ---------- ------------- ----------- --------------- --------------
Balance, March 31, 1997 1,835,486 1,835 252,220 252 13,021,721 (9,966,100)
Common stock issued for
services (Unaudited) 16,000 16 - - 29,984 -
Net loss (Unaudited) - - - - - (399,227)
----------- ---------- ------------- ----------- --------------- --------------
Balance, June 30, 1997
(Unaudited) 1,851,486 $ 1,851 252,220 $ 252 $13,051,705 $ (10,365,327)
========= ========== ============= =========== =========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Three Months Ended
June 30,
1997 1996
OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $ (399,227) $ (29,263)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,510 1,005
Common stock issued for services 30,000 -
Changes in operating assets and liabilities:
(Increase) Decrease in inventory (143,773) 61,354
(Increase) Decrease in notes and accounts
receivable (10,074) (18,625)
Increase (Decrease) in other current assets 5,950 39,119
Increase (Decrease) in accounts payable and
other current liabilities 264,023 (300,058)
---------------- -------------------
Net Cash Provided (Used) by Operating Activities (240,591) (246,468)
---------------- -------------------
INVESTING ACTIVITIES
Purchases of property and equipment (27,015) -
Investment in land held for development (300,862) (413,839)
---------------- -------------------
Net Cash Provided (Used) by Investing Activities (327,877) (413,839)
---------------- -------------------
FINANCING ACTIVITIES
Repayment of notes payable, related parties (50,000) -
Payments on long-term debt and capital lease obligations (47,503) (28,168)
Long-term borrowings 270,025 2,000,000
Contributions from subsidiary - 900,000
Borrowings from related parties 377,975 -
---------------- ---------------
Net Cash Provided (Used) by Financing Activities 550,497 2,871,832
---------------- -------------------
INCREASE (DECREASE) IN CASH (17,971) 2,211,525
CASH, BEGINNING OF PERIOD 47,850 790,744
---------------- -------------------
CASH, END OF PERIOD $ 29,879 $ 3,002,269
================ ===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended
June 30,
1997 1996
CASH PAID FOR
<S> <C> <C>
Interest $ 16,343 $ 7,080
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ 30,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Resources and Development Company (the Company) was
formed as a Utah company on March 31, 1983 under the name Leasing
Technologies Incorporated for the purpose of leasing equipment.
The Company has significantly increased its investing activities
which include startup companies, real estate development, and/or
other projects. Operations include related and non related party
transactions. In March 1997, the shareholders of the Company
approved a name change to American Resources and Development
Corporation. In addition, the shareholders also approved a
reverse split of its common stock on a 1 share for 20 share
basis. The accompanying consolidated financial statements reflect
this reverse split retroactively.
b. Property and Equipment
Property and equipment are recorded at cost. When assets are
retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period.
The costs of maintenance and repairs are charged to income as
incurred. Renewals and betterments are capitalized and
depreciated over their estimated useful lives.
c. Depreciation
Depreciation is computed using the declining-balance method over
the estimated useful life of the assets (usually three years).
d. Net Loss Per Common Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the period.
The common stock equivalents are anti-dilutive and, accordingly,
are not used in the net loss per common share computation.
7
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Income Taxes
Income taxes consist of Federal Income and State Franchise taxes.
The Company has elected a March 31 fiscal year-end for both book
and income tax purposes.
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No.109 (SFAS No.
109), "Accounting for Income Taxes," which requires the asset and
liability method of accounting for tax deferrals.
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
g. Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of commitments
and contingencies, and the reported revenues and expenses.
h. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times,
may exceed federally insured limits.
The Company builds and develops real property in Southern
Utah. In the normal course of business the Company extends
secured credit to its customers.
i. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company (formerly Leasing
Technologies Incorporated) and its subsidiaries, Golf Ventures,
Inc. (GVI), Fan-Tastic, Inc. (FTI), and Finally Communities, Inc.
(FCI).
All significant intercompany transactions have been eliminated in
the consolidated financial statements. The only significant
intercompany transactions are loans made by the Company to GVI.
The notes receivable on the books of the Company and the accrued
interest receivable have been eliminated against the liability on
the books of the subsidiaries and the related accrued interest
payable. The interest income accrued by the Company has been
eliminated against the interest expense accrued by the
subsidiary.
j. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
8
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. Profit Recognition and Capitalization of Costs Related to Real
Estate
Income on real estate is recognized in accordance with the
provisions os FASB-66. Revenue and profits from the sale of land
and other real estate have been recognized using the full accrual
method for all periods presented. As such, each sale has been
determined to have been consummated, with the buyers initial and
continuing investment determined to show adequate demonstration of
commitment to pay. In addition, all outstanding remaining
receivables related to these transactions are not subject to the
future subordination and the Company no longer has a substantial
continuing involvement with the property with the buyer
substantially assuming the usual risks and rewards of ownership of
the property.
Acquisition, development and construction costs, including
property taxes and interest on associated debt and selling costs,
are capitalized. Such costs are specifically allocated to the
related opponents or, if relating to multiple components,
allocated on a pro rata basis as appropriate. Estimates are
reviewed periodically and revised as needed. The respective real
estate projects are also periodically reviewed to determine the
that carrying amount does not exceed the net realizable value. To
date, no allowance has had to be provided for estimated
impairments of value based on evaluation of the projects.
l. Notes Receivable
Notes receivable are shown net of the allowance for bad debts of
$5,000 at June 30, 1997.
m. Goodwill
Goodwill resulting from the acquisition of FTI are amortized
using the straight-line method over a 15 year period.
NOTE 2 - LAND HELD FOR DEVELOPMENT
On March 30, 1990 the Company purchased 486 acres of undeveloped
land from Karl Stucki and the Stucki Family Trust for $3,004,356,
and on July 31, 1990 the Company purchased 130 acres from Dynamic
American Company for $610,000 which makes up the Red Hawk real
estate development. On December 28, 1992, this real estate
development, together with Cotton Manor/Cotton Acres was
transferred to Golf Ventures, Inc. (GVI) in exchange for 3,273,728
shares of GVI common stock. The Red Hawk land (616 acres) is
undeveloped, and in order for GVI to realize its investment,
adequate financing will need to be obtained.
9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 2 - LAND HELD FOR DEVELOPMENT (CONTINUED)
For the years ended March 31, 1997, the Company capitalized
$1,093,468 in construction period interest costs. The cost of the
land is less than the estimated net realizable value of the land.
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable are comprised of the following:
June 30, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
Convertible subordinated debentures,
due June 30, 1997 bearing interest at
12% per annum. Interest payable
quarterly, secured by land. $ 185,000 $ 185,000
Promissory note payments through August
15, 2016 at $30,524 per year including
interest at 10% per annum. 201,890 201,890
Trust deed note payable, secured by land.
Interest accrued at 8% per annum. Payable
$100,000 per year plus the accrued interest
for that year. 355,890 355,890
Note payable, unsecured, bearing interest at 12%,
payable in monthly installments of $13,193, plus
interest. 79,160 105,546
Trust deed note, secured by land and 50,000 shares of the
Company's common stock. Interest accrued at 15% per annum.
Principal and interest due May 31, 1996. 80,575 80,575
Promissory note secured by land. Interest accrued at 10% per
annum, payable in shares of the Company's common stock. $120,000
plus a percentage of the proceeds of lot sales payable annually
beginning on February 1, 1991 through February 1, 1997 at which
time the balance will be due as a balloon payment. $2,000 from
each
Red Hawk lot sale also applies to the note. 646,502 646,502
---------------- ----------------
Balance forward $ 1,549,017 $ 1,575,403
---------------- ----------------
</TABLE>
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
Balance forward $ 1,549,017 $ 1,575,403
Promissory note secured by land, bearing interest at 10.5%.
Interest payable monthly with principal and any accrued interest
payable in full on June
10, 1999. 3,649,630 3,440,805
Purchase contract and note secured by land, bearing interest at
10%. Monthly installments of $25,000 due through May 15, 1998
with remaining
principal and accrued interest due in full. 2,227,681 2,246,823
Mortgage note payable secured by real estate
bearing interest at 11.5%. Due in monthly
installment of $911. 90,839 90,915
Mortgage note payable secured by real estate
bearing interest at 8.125%. Due in monthly
installments of $919. 116,622 116,800
Mortgage note payable secured by real estate
bearing interest at 8.125%. Due in monthly
installments of $879. 99,451 99,451
Mortgage note payable secured by real estate
bearing interest at 9.5%. Due in monthly
Installments of $191. 20,500 -
Mortgage note payable secured by real estate
bearing interest at 10.5%. Due in monthly
installments of $207, balance due in 59 months. 20,700 -
Promissory note secured by vehicle, bearing
interest at 11%. Due in monthly installments
of $405. 20,000 -
------ -
Subtotal 7,794,440 7,570,197
Less current portion 1,166,363 1,213,866
---------------- ----------------
Long-term portion $ 6,628,077 $ 6,356,331
================ ================
</TABLE>
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements (Continued)
June 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE (CONTINUED)
Maturities of long-term debt are as follows:
March 31, 1998 $ 1,166,363 $ 1,213,866
1999 2,503,862 2,282,797
2000 3,569,305 3,557,065
2001 85,958 73,718
2002 31,799 19,559
Thereafter 437,153 423,192
---------------- ----------------
$ 7,794,440 $ 7,570,197
================ ================
NOTE 4 - CAPITAL LEASES
Property and equipment under capital leases as of
June 30, 1997 is summarized as follows:
Property and equipment $ 35,255
Less accumulated depreciation (13,938)
Net property and equipment under capital lease $ 21,317
================
At June 30, 1997, the Company and its subsidiaries have capital
leases obligations as follows:
Year End
March 31,
1998 $ 13,709
1999 13,492
2000 302
----------------
Total minimum lease payments 27,503
Less interest and taxes 3,592
Present value of net minimum lease payments 23,911
Less current portion 12,238
Long-term portion of capital lease obligations $ 11,673
================
NOTE 5 - INCOME TAXES
The Company had net operating loss carry-forwards available to
offset future taxable income. The Company has net operating loss
carry-forwards of approximately $12,500,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2007.
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 5 - INCOME TAXES (CONTINUED)
Deferred income taxes payable are made up of the estimated federal
and state income taxes on items of income and expense which due to
temporary differences between books and taxes are deferred. The
temporary differences are primarily caused by the use of the
equity method for reporting investment in subsidiaries. The
deferred tax asset is offset in full by a valuation allowance
because it can not be reasonably determined that the net operating
loss will be useable.
NOTE 6 - PREFERRED STOCK
The shareholders of the Company have authorized 10,000,000 shares
of preferred stock with a par value of $0.001. The terms of the
preferred stock are to be determined when issued by the board of
directors of the Company.
SERIES B:
At March 31, 1997, there are 102,220 shares of series B preferred
stock issue and outstanding. The holders of these series B
preferred shares are entitled to an annual cumulative cash
dividend of not less than sixty cents per share. At March
31, 1997, there is a total of $251,450 of accrued and unpaid
dividends related to the series B preferred stock which have been
included in the accompanying consolidated financial statements.
These series B preferred shares were convertible into shares of
the Company's common stock which conversion option expired
March 31, 1995.
SERIES C:
In September 1991, the Company purchased the Cotton Manor real
estate project as follows:
Cash $ 23,601
Debt assumed 431,449
Promissory note 1,387,000
Series C preferred stock 750,000
----------
$ 2,592,050
============
The Company delivered to the seller, 150,000 shares of authorized
but previously unissued Series C preferred stock, which for the
purpose of the agreement were valued at $5.00 per share or a total
of $750,000. The shares of Series C preferred stock may be
redeemed by the Company at any time prior to September 3, 1997, by
the Company paying to the seller or its assigns, the sum of $5.50
cash per share if redeemed within 12 months from the date hereof;
$6.00 cash per share if redeemed between 12 and 24 months from the
date hereof; and $6.50 if redeemed between 24 and 36 months from
the date hereof; and $7.00 cash per share if redeemed between 36
and 48 months from the date hereof; and $7.50 cash per share if
redeemed within 48 and 60 months from the date hereof. Prior to
the Company redeeming the preferred shares to be issued to the
seller hereunder and prior to the third day of September, 1997,
the seller will have the right to convert any remaining shares of
preferred stock into shares of the Company's common stock at the
rate of 5 shares of common stock for each share of preferred stock
converted.
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 6 - PREFERRED STOCK (CONTINUED)
CLASS D:
As discussed in Note 9, the Company issued 100,000 shares of
Series D preferred stock in exchange for 80% of the issued and
outstanding common stock of FTI. This Series D preferred stock
entitles the holder to dividends on the same basis had their
shares been converted into common stock. In addition, after June
30, 2000 but before September 30, 2000, holders of these Series D
shares of preferred stock shall have the right to convert such
shares into shares of common stock of the Company at the rate of
the number of the Company's common stock equal to the number that
is represented by the total net income of FTI for the three year
period ended March 31, 2000 divided by $1,000,000 times ten
divided by seventy percent of the average trading price of the
Company's common stock on June 30, 2000. Or, after June 30, 2000
but before September 30, 2000, holders of these Series D preferred
shares may convert such shares into shares of FTI if the total net
income of FTI for the three year period ended March 31, 2000 is
equal to or exceeds $1,000,000 at a rate equal to that number of
FTI common stock that is equal to 61.5% of the outstanding common
stock of FTI as of June 30, 2000, divided by 100,000.
CLASS E:
As discussed in Note 11, the Company issued 500,000 shares of
Series E preferred stock in exchange for 100% of the issued and
outstanding common stock of FCI. 25,000 shares of the preferred
stock are immediately convertible into 25,400 shares common stock.
The balance of the preferred shares will be convertible into
common stock in the proportion of actual net profits of FCI to
$5,000,000 for the two years ended March 31, 1999. The Series E
preferred shares have no voting rights or dividends.
Because of the conversion provisions of these Series D and E
preferred shares, they have been reflected separately from equity
in the accompanying consolidated financial statements.
NOTE 7 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which have
been offered to the holders of the Series B preferred stock and
the debentures. The shares have not been accepted by the holders
of those investments as of the date of the consolidated financial
statements.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is leasing its principle place of business on a month-
to-month basis for $2,229. The Company shares this office space
with GVI.
FTI leases office and warehouse space in Salt Lake City, Utah and
leases space for six retail stores in various locations. Lease
commitments for the years ended March 31, 1998 through March 31,
2002 are $77,721, $59,653, $35,256 and $20,566, respectively.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 9 - ACQUISITION OF FAN-TASTIC, INC.
As discussed in Note 1, the Company acquired 80% of the issued and
outstanding common stock of Fan-Tastic, Inc. (FTI) in exchange
for the issuance of 100,000 shares of the Company's Series D
preferred stock. FTI is a franchiser and owner of retail
entertainment and sports stores doing business as Fan-A Mania. The
acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based
on their fair market value at the date of acquisition. The
acquired interest was valued at $252,912, which represents
liabilities assumed in excess of assets acquired which has been
reflected as goodwill. In addition, the FTI acquisition involves
contingent consideration based on FTI achieving specified
earnings (see Note 6). The additional cost of contingent
consideration shall be recognized in the period that the
contingency is resolved.
Notes payable to related parties at June 30, 1997 as reflected in
the accompanying consolidated financial statements consists of the
$269,039 payable to the former 20% common stock shareholders of
FTI. These balances are not expected to be repaid in the current
period and therefore have been reflected as long-term in the
accompanying consolidated financial statements.
NOTE 10 - GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. In order to carry
out its operating plans, the Company will need to obtain
additional funding from outside sources. The Company has received
funds from a private placement and plans to continue making
private placements of its Subsidiary's preferred and common stock.
There is no assurance that the Company will be able to obtain
sufficient funds from other sources as needed or that such funds,
if available, will be obtainable on terms satisfactory to the
Company. Management also intends to renegotiate the terms of its
debt for a longer repayment period.
NOTE 11 - ACQUISITION OF FINALLY COMMUNITIES, INC.
In May 1997, the Company organized a corporation to develop and
sell vacation ownership interest in various resorts initially
located in the State of Arkansas and develop and market other new
vacation products. The unrelated party will serve as president of
the new corporation and will receive 500,000 shares of the
Company's newly issued Series E convertible preferred stock with
25,400 of those preferred shares immediately convertible into
common stock of the Company. The balance of the Series E
preferred stock is convertible into common stock of the Company
after June 30, 1999. According to the terms of the agreement, the
Company arranged for a loan of $50,000 to be made to the
new corporation. (See Note 6)
NOTE 12 - SUBSEQUENT EVENT
From time to time since December, 1992, there have been
intercompany transactions between American Resources and
Development Company (hereinafter "ARDCO") and Golf Ventures, Inc.
(hereinafter "GVI"). These transactions have included the exchange
of funds, services rendered by employees and the exchange of other
assets. At the time of these transactions, no formal determination
15
<PAGE>
was made by the Companies whether these transactions constituted
debt or equity transactions. On July 8, 1997, GVI issued to ARDCO
823,343 shares of its common stock with respect to the
intercompany transactions between the two entities. The Board of
Directors of each company is currently reviewing those
transactions and will determine shortly whether or not the
resolution of the issues on July 8, 1997, was appropriate under
all of the circumstances.
16
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
RESULTS OF OPERATIONS
For the Quarter Ended June 30, 1997, Compared to the Quarter Ended June 30,
1996.
Total revenue for the quarter ended June 30, 1997 increased
$39,161, or 29%, to $172,161, compared with $133,000 for the quarter ended June
30, 1996. During the current period Fan-tastic's sales of merchandise were
$161,161. Additionally a lot was sold from the Cotton Manor Phase 4, a townhome
PUD project. The lot was sold to Bruce Frodsham, Vice President of the Company
for $11,000, the approximate cost of the lot to the Company. During the
comparable prior year period, 5 lots were sold from Cotton Acres at an average
price of $26,600. The sales volume is dependent upon the number of completed
lots and condominiums in inventory. During the past year there has been very
little capital available for development and therefore there has been little
inventory available for sale.
Cost of sales increased by $12,558, or 16%, to $89,140 for the
quarter ended March 31, 1997 from $76,582 for same quarter in 1996. The increase
is related to the $78,140 cost of sales for the Fan-Tastic retail sales of
$161,161. The change related to the cost of real estate sales was a decrease of
$65,582, 86%, and is directly related to the number of units sold during each
period. Correspondingly gross profit increased to $83,021, 48% of total sales,
during the current period compared to $56,418, 42% in the prior period.
General and administrative expenses increased $180,461, 57%, to
$499,584 for the quarter ended June 30, 1997 from $319,123 for the quarter ended
June 30, 1996. The increase was attributable to the $93,947 of general and
administrative expenses incurred by Fan-Tastic and costs incurred by GVI in
developing an internet website and promotional literature, and related printed
material.
The Company experienced a net loss of $399,186 in the current
period compared with a net loss of $29,263 in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had total assets of $13,768,398,
total liabilities of $11,079,917 and total stockholders equity of $3,403,112
compared with total assets of $13,323,105, total liabilities of $10,265,397 and
total stockholders equity of $3,057,708 at March 31, 1997. The increase in total
assets of $445,293, 3% is due primarily to $201,968 of capitalized development
related interest in GVI and increases in store merchandise inventories and real
estate inventories of $143,773. Total liabilities at June 30, 1997 increased
$814,520, 8%, from March 31, 1997. The increase is due to increases in long term
debt of $271,746, 4%, an increase in related party debt of $327,975, 103% and an
increase in current liabilities of $216,520, 6%, explained below.
17
<PAGE>
As of June 30, 1997, the Company had total current assets of
$1,466,887 and total current liabilities of $3,703,153 which results in a
current ratio of 0.40:1, compared to a current ratio of 0.38:1 as of March 31,
1997. Current liabilities at June 30, 1997 increased $216,520, 6%, over March
31, 1997 due to an increase in accounts payable of $99,978, 9%, and an increase
in accrued expenses of $164,045, 15%. Both increases are related to the decrease
in cash flowing into the Company from decreases in the sale of real estate and
borrowings during the period. These decreases have severely limited the
Company's ability to pay its current obligations. Current assets increased
$129,926, 10% due to increase in store merchandise inventory of $126,658, 43%,
resulting from Fan-Tastic's desires to raise store inventory levels after the
Company's acquisition of FanTastic.
The Company has historically satisfied its cash needs through
the sale of real estate in Cotton Manor and Cotton Acres and private placements
of securities and secured borrowings. During the quarter ended June 30, 1997,
the GVI sold one lot in the Cotton Manor PUD development. This figure is
substantially lower than prior periods, but lot sales should increase as the
development of 19 lots in Phase 10 of Cotton Acres are completed and sales are
initiated in late August 1997. However, management can give no assurance that
cash flow from the sale of lots will be sufficient to fund the Company's
operations.
Completion of Phase I in Red Hawk and the subsequent sale of
lots in Phase I will depend largely on the ability of the GVI with assistance
from the Company, to raise additional funds, preferably long term financing on
acceptable terms and conditions. The Company and GVI are pursuing development
loans in the $10,000,000 to $14,000,000 range and looking for a potential
merger, and, or acquisitions. GVI will also continue to develop and sell lots
and townhomes in the Cotton Manor/Acres developments as financing becomes
available. These sales will not be sufficient to financially support the
Company's overhead and the Red Hawk project. The Company's ongoing overhead and
land obligations are approximately $75,000 per month. Additionally, GVI has
approximately $900,000 of long-term debt due during 1998. If the Company does
not receive sufficient financing for the Red Hawk project, the Company intends
to meet its obligations through private or public offerings of common and/or
preferred stock for cash and additional borrowings. No assurance can be given
that the Company will succeed in obtraining sufficient financing for Red Hawk
or, if unsuccessful, that it will raise sufficient cash to meet its obligations
through the sale of securities or additional borrowings. The Fan-Tastic and
Finally subsidiaries should be able to generate sufficient funds through sales
to sustain operations.
18
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
Date: August 19, 1997 By: /Karl Badger
------------
Karl Badger, President
and Chief Executive Officer
20
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