UNITED STATES
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 September 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 November 18, 1997, the Registrant had outstanding 1,868,706 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 - September 30, 1997
and March 31, 1997..................................................1
Condensed Consolidated Statements of Operations - Six
months ended September 30, 1997 and 1996 and Three Months
Ended September 30, 1997 and 1996...................................3
Statements of Stockholders' Equity..................................4
Condensed Consolidated Statements of Cash Flows - Six
months ended September 30, 1997 and 1996 and Three
Months Ended September 30, 1997 and 1996............................5
Notes to Condensed Consolidated Financial Statements -
September 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
September 30, March 31,
1997 1997
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 40,161 $ 47,850
Accounts receivable 77,120 41,349
Real estate inventories 753,131 932,439
Merchandise inventory 588,779 291,169
Prepaid and other current assets 20,130 23,682
Current portion of contract receivable 1,955 472
---------------- ----------------
Total Current Assets 1,481,276 1,336,961
---------------- ----------------
PROPERTY AND EQUIPMENT
Model home and condominiums 180,988 133,954
Furniture, fixtures and equipment 155,235 146,412
Vehicles 43,252 17,852
---------------- ----------------
Total depreciable assets 379,475 298,218
Less: accumulated depreciation (116,770) (97,965)
---------------- ----------------
Net Property and Equipment 262,705 200,253
---------------- ----------------
OTHER ASSETS
Land held for development (Note 2) 12,085,277 11,475,016
Goodwill 244,552 252,912
Long-term portion of contract receivable 55,993 55,993
Deposits 1,970 1,970
---------------- ----------------
Total Other Assets 12,387,792 11,785,891
---------------- ----------------
TOTAL ASSETS $ 14,131,773 $ 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
September 30, March 31,
1997 1997
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,259,475 $ 1,151,894
Accrued expenses and other current liabilities 1,225,415 1,108,635
Current portion of notes payable (Note 3) 1,225,123 1,213,866
Current portion of capital lease obligations 14,556 12,238
---------------- ----------------
Total Current Liabilities 3,724,569 3,486,633
---------------- ----------------
LONG-TERM DEBT
Commission payable 90,000 90,000
Long-term portion of notes payable (Note 3) 6,563,144 6,356,331
Long-term portion of capital lease obligations 7,369 13,394
Notes payable, related parties (Note 9) 1,006,649 319,039
---------------- ----------------
Total Long-Term Debt 7,667,162 6,778,764
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
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
1,851 1,835
Additional paid-in capital 13,194,871 13,021,721
Accumulated deficit (10,456,932) (9,966,100)
---------------- ----------------
Total Stockholders' Equity 2,740,042 3,057,708
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,131,773 $ 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 Six Months Ended For the Three Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
INCOME
<S> <C> <C> <C> <C>
Sales - real estate $ 333,311 $161,000 $ 322,311 $ 28,000
Sales - merchandise 382,124 - 220,963 -
------- ------- ------- -----------
Total Income 715,435 161,000 543,274 28,000
COSTS OF SALES
Cost of sales - real estate 187,748 92,484 176,748 15,902
Cost of sales - merchandise 173,966 - 95,826 -
------- ------ ------ ------
Total Cost of Sales 361,714 92,484 272,574 15,902
Gross Profit 353,721 68,516 270,700 12,098
------- ------ ------- ------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 27,164 1,874 14,654 869
General expenses 819,873 677,892 320,248 358,769
------- ------- ------- -------
Total General and Administrative Expenses 847,037 679,766 334,902 359,638
Net Loss (493,316) (611,250) (64,202) (347,540)
-------- -------- ------- --------
OTHER INCOME AND (EXPENSES)
Interest income 2,265 25,228 1,483 23,190
Other Income 54,743 9,249 9,295 6,343
Gain on sale of assets - 177,778 - (58,805)
Interest expense (54,524) (13,030) (38,181) (5,950)
------- ------- ------- ------
Total Other Income and (Expenses) 2,484 199,225 (27,403) (35,222)
Net (Loss) Before Income Tax and
Minority Interest (490,832) (412,025) (91,605) (382,762)
Minority Interest (Note 1) - - - -
--------- -------- ------- --------
Net Loss Before Income Tax (490,832) (412,025) (91,605) (382,762)
Less: Provisions for (Income Tax) - - - -
--------- -------- ------- --------
NET LOSS $ (490,832) $ (412,025) $ (91,605) $ (382,762)
========== ========== ========== ==========
LOSS PER SHARE $ (.27) $ (.25) $ (.05) $ (.23)
========== ========== ========== ==========
</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)
Stock issuance of a - - - - - -
subsidiary for payment
of interest
interest 143,166
Common stock issued for
services 16,000 16 - - 29,984 0
(Unaudited)
Net loss (Unaudited - - - - - (490,832)
Balance, September 30, 1997
(Unaudited) 1,851,486 $ 1,851 252,220 $ 252 $13,194,871 $(10,456,932)
========= ======== ======== ======= =========== ============
</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 Six Months Ended For the Three Months Ended
September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income (Loss) (490,832) (412,025) (91,605) (382,762)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 27,164 1,874 12,510 869
Common stock issued for services and
interest 30,000 30,000
Changes in operating assets and liabilities:
(Increase) Decrease in inventory (118,302) 74,045 25,471 12,691
(Increase) Decrease in notes and
accounts receivable (35,771) (4,625) (25,697) 14,000
(Increase) Decrease in other current
assets 2,069 97,143 (3,881) 58,024
Increase (Decrease) in accounts
payable 107,581 (134,372) 7,603 26,034
Increase (Decrease) in other current
liabilities 206,780 (112,618) 42,735 27,034
------- -------- ------ ------
Net Cash Provided (Used) by
Operating Activities (271,311) (490,578) (2,864) (244,110)
-------- -------- ------ --------
INVESTING ACTIVITIES
Purchases of property and
equipment (8,823) (5,988) (8,042) (5,988)
Investment in land held for
development (364,261) (1,302,606) (124,599) (888,767)
-------- ---------- -------- --------
Net Cash Provided (Used) by
Investing Activities (373,084) (1,308,594) (132,641) (894,755)
-------- ---------- -------- --------
FINANCING ACTIVITIES
Repayment of notes payable, related
parties
Stock offering costs (209,000) (109,000)
Payments on long-term debt and capital
lease obligations (61,170) (500,714) (9,130) (472,546)
Common stock of subsidiary issued for
cash 1,007,402 7,402
Long-term borrowings 245,266 2,558,805 30,282 558,805
Contributions from subsidiary
Borrowings from related parties
452,610 - 124,635 -
----------- ------- -------- -------
Net Cash Provided (Used) by
Financing Activities 636,706 2,856,493 145,787 (15,339)
----------- ---------- -------- -------
INCREASE (DECREASE) IN CASH
(7,689) 1,057,321 - (1,154,204)
CASH, BEGINNING OF PERIOD
47,850 790,744 29,879 3,002,269
------------ --------- ------ -------
CASH, END OF PERIOD
40,161 1,848,065 40,161 1,848,065
============ ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Six Months Ended
September 30,
1997 1996
CASH PAID FOR
Interest $ 51,329 $ 14,012
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ 30,000 $ -
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
September 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
A. Quarterly Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. The accompanying consolidated unaudited condensed
financial statements have been prepared in accordance with the
instructions to Form 10-Q but do not include all of the information
and footnotes required by generally accepted accounting principles
and should therefore, be read in conjunction with the Company's
fiscal 1997 Annual Report to Shareholders. These statements do
include all normal recurring adjustments which the Company believes
necessary for a fair presentation of the statements. The interim
operating results are not necessarily indicative of the results for a
full year.
B. 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.
C. 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.
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
September 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. 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.
F. 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.
G. 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.
H. 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.
I. 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
September 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. 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.
K. 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
September 30, 1997 and 1996
NOTE 2 - LAND HELD FOR DEVELOPMENT (CONTINUED)
For the year 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:
September 30, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
Convertible subordinated debentures,
due June 30, 1996 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, 1995. However, the note
holder has not demanded full payment and is
accepting partial payments. 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
September 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
September 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. 2,225,669 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. 19,927 -
Mortgage note payable secured by real estate
bearing interest at 10.5%. Due in monthly
installments of $207, balance due in 59 months. 20,079 -
Promissory note secured by vehicle, bearing
interest at 11%. Due in monthly installments
of $405. 17,033 -
------ ---------
Subtotal 7,788,267 7,570,197
Less current portion 1,225,123 1,213,866
---------------- ----------------
Long-term portion $ 6,563,144 $ 6,356,331
================ ================
</TABLE>
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements (Continued)
September 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE (CONTINUED)
Maturities of long-term debt are as follows:
March 31, 1998 $ 1,225,123 $ 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 372,220 423,192
---------------- ----------------
$ 7,788,267 $ 7,570,197
================ ================
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
NOTE 4 - 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
September 30, 1997 and 1996
NOTE 4 - 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 September 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 September 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 5 - 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.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
NOTE 6 - ACQUISITIONS
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 4. The additional cost of
contingent consideration shall be recognized in the period that
the contingency is resolved.
Notes payable to related parties at September 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.
The company also arranged a 12% interest bearing loan for FTI from
a major shareholder. The balance of this loan at September 30,
1997 was $353,000.
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.
NOTE 7 - 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. Management is also
negotiating a merger with a resort golf course developer for the
merger of its GVI subsidiary. This merger would provide
significant debt relief for the Company.
NOTE 8 - 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. The Company and GVI are currently
negotiating a settlement of all past intercompany transactions
and to compensate the Company for services rendered in assisting
with the merger of GVI with a major golf resort developer. If
consumated, the Company would receive an additional 715,000
shares of GVI stock.
In August 1997 the Company's Board of Directors approved the 1997
American Resources and Development Company Stock Option Plan (Option Plan).
Under the Option Plan, 500,000 shares of the Company's common stock are reserved
for issuance to Directors and employees. Options are granted at a price and with
vesting terms as determined by the Board of Directors. In October 1997 the Board
of Directors granted options to purchase 140,000 shares of stock at $2.00. These
options are exercisable beginning March 31, 1998, are excercisable over
staggered periods and expire after ten years.
16
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
RESULTS OF OPERATIONS
For the six months ended September 30, 1997, compared to the six months ended
September 30, 1996:
Total revenue for the six months ended September 30, 1997
increased $554,435 over the comparable period in 1996. Fan-Tastic and Finally
Communities, contributed $382,124 and $16,765, respectively of this increase as
new subsidiaries of the Company. The remaining increase of $155,546 was due to
additional real estate lot sales for Golf Ventures. The sales increase for Golf
Ventures was primarily due to additional inventory becoming available as a
result of additional funds provided by a lender.
Gross profit increased $285,205 due to the increase in sales.
Fan-Tastic had a gross profit of $208,158 or 54.5% of sales, on its retail sales
of $345,340 and franchise fees and royalties of $36,784. Gross profit from real
estate sales was $145,563 for the six months ended September 1997 or 43.7%% of
total sales as opposed to 42.6% for the prior comparable period.
General and administrative expenses increased by $141,981 or
21% for the six months ended September 30, 1997 as compared to the six months
ended September 30, 1996. This increase was due to the Company's new
subsidiaries, Fan-Tastic and Finally Communinites, general and administrative
expenses of $162,737 for the six months ended September 30, 1997.
The Company had a net gain on other income and expenses of $2,484
compared to $199,225 for the six months ended September 30, 1997 and 1996,
respectively. This decrease in net gain was primarily due to a gain on sale of
assets in a subsidiary in 1996 as opposed to no gain in the comparable period in
the six months ended September 30, 1997.
The Company experienced a net loss of $490,832 for the six months
ended September 30, 1997 compared with a net loss of $412,025 in the comparable
1996 period. The loss for the three months ended September 30, 1997 was $91,605
as opposed to the loss of $399,227 for the three months ended June 30, 1997. The
larger loss for the three months ended June 30, 1997 was primarily due to only
$11,000 in real estate sales from its subsidiary Golf Ventures as opposed to
$305,546 in real estate sales for the three months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had total assets of
$14,131,773, total liabilities of $11,391,731 and total stockholders equity of
$2,740,042 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 $808,668, 6% is due primarily to $610,261 of
capitalized development related interest and improvement in GVI and net
increases in store merchandise inventories and real estate inventories of
$118,302. Store merchandise inventories increased as Fan-Tastic prepared for the
Christmas retail sales. Total liabilities at September 30, 1997 increased
$1,126,334,11%, from March 31, 1997. The increase is due to increases in long
term debt of $116,813 an increase in related party debt of $687,610, and an
increase in current liabilities of $327,936. The related party debt increase was
comprised of a $235,000 real estate purchase by Finally Communities from a
shareholder and $452,610 of debt from a major shareholder to the Company and its
subsidiaries.
17
<PAGE>
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. 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 Golf Ventures to raise
additional funds, preferably long term financing on acceptable terms and
conditions. The Company and Golf Ventures are currently negotiating the merger
of Golf Ventures with a larger golf resort developer that will help provide the
capital needed to complete the Red Hawk development. Golf Ventures 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, Golf Ventures 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 obtaining
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.
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: November 20, 1997 By:/s/ Karl Badger
------------
Karl Badger, President
and Chief Executive Officer
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