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 December 31, 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 318
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 February 16, 1998, the Registrant had outstanding 1,878,706 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 - December 31, 1997 and
March 31, 1997................................................................1
Condensed Consolidated Statements of Operations - Nine months ended
December 31, 1997 and 1996 and Three Months
Ended December 31, 1997 and 1996..............................................3
Statements of Stockholders' Equity.............................................4
Condensed Consolidated Statements of Cash Flows - Nine months ended
December 31, 1997 and 1996 and Three Months Ended
December 31, 1997 and 1996....................................................5
Notes to Condensed Consolidated Financial Statements - December 31, 1997.......7
Item 2: Management's Discussion and Analysis or Plan of Operation..........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
December 31, March 31,
1997 1997
(Unaudited)
------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 76,166 $ 47,850
Marketable securities 692,886 --
Accounts receivable 131,522 41,349
Real estate inventories -- 932,439
Merchandise inventory 581,169 291,169
Notes receivable 75,000 --
Prepaid and other current assets 33,130 23,682
Current portion of contract receivable -- 472
------------ ------------
Total Current Assets 1,589,873 1,336,961
------------ ------------
PROPERTY AND EQUIPMENT
Model home and condominiums 46,200 133,954
Furniture, fixtures and equipment 181,828 146,412
Vehicles 43,252 17,852
------------ ------------
Total depreciable assets 271,280 298,218
Less: accumulated depreciation (120,501) (97,965)
------------ ------------
Net Property and Equipment 150,779 200,253
------------ ------------
OTHER ASSETS
Land held for development 246,000 11,475,016
Goodwill 240,407 252,912
Long-term portion of contract receivable -- 55,993
Deposits 1,970 1,970
------------ ------------
Total Other Assets 488,377 11,785,891
------------ ------------
TOTAL ASSETS $ 2,229,029 $ 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
December 31, March 31,
1997 1997
(Unaudited)
------------ -------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 398,604 $ 1,151,894
Accrued expenses and other current liabilities 659,929 1,108,635
Current portion of notes payable) 405,476 1,213,866
Current portion of notes payable, related parties 377,337 --
Current portion of capital lease obligations 14,556 12,238
------------ -------------
Total Current Liabilities 1,855,902 3,486,633
------------ -------------
LONG-TERM DEBT
Commission payable -- 90,000
Long-term portion of notes payable -- 6,356,331
Long-term portion of capital lease obligations 4,262 13,394
Notes payable, related parties 673,087 319,039
------------ -------------
Total Long-Term Debt 677,349 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. -- --
------------ -------------
STOCKHOLDERS' EQUITY
Equity in investment 692,886 --
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 252 252
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 1,868,486
and 1,835,486 shares issued 1,707,666 and 1,674,666
shares outstanding, respectively 868 1,835
Additional paid-in capital 4,851,832 13,021,721
Accumulated deficit (5,851,060) (9,966,100)
------------ -------------
Total Stockholders' Equity (304,222) 3,057,708
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,229,029 $ 13,323,105
============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
<CAPTION>
Fort the Nine Months Ended For the Three Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
INCOME
<S> <C> <C> <C> <C>
Sales - real estate $ 411,126 $ 274,000 $ 77,815 $ 113,000
Sales - merchandise 860,202 -- 478,078 --
---------- ---------- ---------- ----------
Total Income 1,271,328 274,000 555,893 113,000
COSTS OF SALES
Cost of sales - real estate 222,579 160,422 34,831 67,938
Cost of sales - merchandise 427,641 -- 253,675 --
---------- ---------- ---------- ----------
Total Cost of Sales 650,220 160,422 288,506 67,938
---------- ---------- ---------- ----------
Gross Profit 621,108 113,578 267,387 45,062
---------- ---------- ---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 39,475 2,912 12,311 1,038
General expenses 1,185,037 1,043,397 365,164 272,414
---------- ---------- ---------- ----------
Total General and Administrative Expenses 1,224,512 1,046,309 377,475 273,452
---------- ---------- ---------- ----------
Net Loss (603,404) (932,731) (110,088) (228,390)
---------- ---------- ---------- ----------
OTHER INCOME AND (EXPENSES)
Interest income 2,265 35,026 -- 9,798
Other Income 56,205 15,892 1,462 6,641
Gain on sale of assets 63,712 191,101 63,712 13,323
Interest expense (91,606) (18,880) (37,082) (5,850)
---------- ---------- ---------- ----------
Total Other Income and (Expenses) 30,576 223,139 28,092 23,912
---------- ---------- ---------- ----------
Net (Loss) Before Income Tax and
Minority Interest (572,828) (709,592) (81,996) (204,478)
Minority Interest (Note 1) -- -- -- --
---------- ---------- ---------- ----------
Net Loss Before Income Tax (572,828) (709,592) (81,996) (204,478)
Less: Provisions for (Income Tax) -- -- -- --
---------- ---------- ---------- ----------
NET LOSS (572,828) (709,592) $ (81,996) $ (204,478)
========== ========== ========== ==========
LOSS PER SHARE $ (.31) (.39) $ (.04) (.11)
========== ========== ========== ==========
</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 Equity in Accumulated
Shares Amount Shares Amount Capital Investment Deficit
<S> <C> <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 -- -- -- -- 143,166 --
Common stock issued for
services (Unaudited) 33,000 33 -- -- 87,627 --
Expense recognized for vested
stock options 5,833
Elimination of GVI equity
balances (8,406,498) 4,687,868
Equity in GVI investment 692,886
Net loss (Unaudited) (572,828)
Balance, December 31, 1997
(Unaudited) $ 1,868,486 $ 1,868 $ 252,220 $ 252 $ 4,851,849 $ 692,886 (5,851,060)
=========== =========== =========== =========== =========== =========== ===========
</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 Nine Months Ended For the Three Months Ended
December 31, December 31,
1996 1997 1996 1997
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income (Loss) $(572,828) $(709,592) $(81,996) $(204,478)
Adjustments to reconcile net income to
net cash provided by operating activities,
net effect of GVI merger:
Depreciation and amortization 39,475 2,912 12,311 1,038
Common stock issued for services and interest 85,000 -- 55,000 --
Changes in operating assets and liabilities:
(Increase) Decrease in inventory (110,692) 7,610 187,045 113,000
(Increase) Decrease in notes and accounts
receivable (165,172) 19,625 (129,401) 24,250
(Increase) Decrease in other current assets 2,069 59,024 -- 58,024
Increase (Decrease) in accounts payable 144,975 47,818 37,394 8,852
Increase (Decrease) in other current liabilities 258,768 262,210 51,988 189,053
--------------------------------------------------------
Net Cash Provided (Used) by Operating Activities (318,405) (130,958) (47,094) 189,739
--------------------------------------------------------
INVESTING ACTIVITIES
Reduction in cash from GVI merger (10,047) -- (10,047) --
Purchases of property and equipment (53,272) (9,608) (42,049) (3,620)
Investment in land held for development (417,892) (3,498,966) (47,631) (2,196,360)
--------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (481,211) (3,508,574) (99,727) (2,199,980)
--------------------------------------------------------
FINANCING ACTIVITIES
Preferred stock of subsidiary redeemed -- (12,500) -- (12,500)
Stock offering costs -- (209,000) -- (209,000)
Payments on long-term debt and capital
lease obligations (63,390) (736,342) (2,220) (235,628)
Common stock of subsidiary issued for cash -- 1,046,521 -- --
Long-term borrowings 309,937 2,833,805 85,000 275,000
Contributions from subsidiary
Borrowings from related parties 581,385 -- 100,046 --
--------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 827,932 2,922,484 182,826 235,872
--------------------------------------------------------
INCREASE (DECREASE) IN CASH 28,316 (717,048) 36,005 (1,774,369)
CASH, AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,850 790,744 40,161 1,848,065
--------------------------------------------------------
CASH, AND CASH EQUIVALENTS, END OF PERIOD $ 76,166 $ 73,696 $ 76,166 $ 73,696
========================================================
</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 Nine Months Ended
December 31,
1997 1996
CASH PAID FOR
<S> <C> <C>
Interest $ 91,606 $ 18,880
Income taxes $ -- $ --
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ 85,000 $ --
</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
December 31, 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-QSB 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 financial statements in Form 10-KSB. 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 Company. 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, except five
years for leasehold improvements).
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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, (SFAS 128), which is required
to be adopted on December 31, 1997. SFAS 128 requires a change in the
method currently used to compute earnings per share and to restate
all prior periods to disclose diluted net income per common share in
addition to its current basic net income per common share. Basic net
loss per common share and diluted net loss per common share amounts,
calculated in accordance with SFAS 128, were $.04 and $0.11 for the
third quarters ended December 31, 1997 and 1996, and $.31 and $.39
for the nine months ended December 31, 1997 and 1996, respectively.
7
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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.
In the normal course of business the Company extends 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). GVI is
not included in the consolidated balance sheet as of December 31,
1997 because of its merger with U.S. Golf Communities (see Note 2.)
All significant intercompany transactions have been eliminated in the
consolidated financial statements.
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
December 31, 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
of 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. Revenue Recognition for Franchise Operations
Franchise fees are recognized as revenue when all material services
relating to the sale have been substantially performed by FTI.
Material services relating to the franchise sale include assistance
in the selection of a site and franchisee training.
L. Goodwill
Goodwill resulting from the acquisition of FTI are amortized using
the straight-line method over a 15 year period.
NOTE 2. MERGER OF GOLF VENTURES, INC..
In November 1997 Golf Venture, Inc. merged with U.S. Golf
Communities. U.S. Golf Communities is the controlling company in this
merger and subsequent to the merger the combined company's name will
be changed to Golf Communities of America (GCA). This merger resulted
in a less than 20% American Resources's ownership in GVI. Therefore,
subsequent to the merger the Company's investment in GVI is reflected
as an investment in accordance with Financial Accounting Standards
Board Statement No. 121. Pro forma results of operations if the GVI
merger would have occurred at the beginning of fiscal 1997 would
resulted in a decrease in net loss of $170,501 and $685,917 for the
nine months ended December 31, 1997 and year ended March 31, 1997
respectively, and $.09 and $.37 per share for the same periods. The
following pro forma balance sheet reflects the effect of this merger.
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Unaudited Pro Forma Consolidated Balance Sheet
December 31, 1997
<CAPTION>
Consolidation Balance Sheet
Prior to GVI After
Merger Adjustments GVI Merger
------ ----------- ----------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 86,213 $ (10,047) $ 76,166
Marketable securities -- 692,886 692,886
Accounts receivable 131,522 -- 131,522
Inventory, real estate 753,131 (753,131) --
Inventory, merchandise 581,169 -- 581,169
Notes receivable 75,000 -- 75,000
Prepaid and other current assets 33,130 -- 33,130
Current portion of contract receivable 1,955 (1,955) --
----------------------------------------
Total Current Assets 1,662,120 (72,247) 1,589,873
PROPERTY AND EQUIPMENT
Model home and condominiums 180,988 (134,788) 46,200
Furniture, fixtures and equipment 197,284 (15,456) 181,828
Vehicles 43,252 -- 43,252
----------------------------------------
Total depreciable assets 421,524 (150,244) 271,280
Less: accumulated depreciation (124,936) 4,435 (120,501)
----------------------------------------
Net property and equipment 296,588 (145,809) 150,779
OTHER ASSETS
Land held for development 12,132,908 (11,886,908) 246,000
Goodwill 240,407 -- 240,407
Long-term portion of contract receivable
55,993 (55,993) --
Deposit 1,970 -- 1,970
----------------------------------------
Total Other Assets 12,431,278 (11,942,901) 488,377
----------------------------------------
TOTAL ASSETS $14,389,986 $(12,160,957) $2,229,029
========================================
</TABLE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Unaudited Pro Forma Consolidating Balance Sheet
December 31, 1997
(Continued)
<CAPTION>
Consolidation Balance Sheet
Prior to GVI After
Merger Adjustments GVI Merger
------ ----------- ----------
CURRENT LIABILITIES
<S> <C> <C> <C>
Accounts payable $1,296,869 $ (898,265) 398,604
Accrued expenses and other current
liabilities 1,367,403 (707,474) 659,929
Current portion of notes payable 1,309,400 (903,924) 405,476
Current portion of notes payable, related
parties 377,337 -- 377,337
Current portion of capital lease obligations 14,556 -- 14,556
-------------------------------------------
Total Current Liabilities 4,365,565 (2,509,663) 1,855,902
LONG-TERM DEBT
Long-term portion of notes payable 6,550,550 (6,550,550) --
Long-term portion of capital lease
obligations 4,262 -- 4,262
Notes payable, related parties 748,087 (75,000) 673,087
Total Long-Term Debt 7,302,899 (6,625,550) 677,349
MINORITY INTEREST
PREFERRED STOCK
STOCKHOLDERS' EQUITY
Preferred stock 252 -- 252
Common stock 1,868 -- 1,868
Equity in investments -- 692,886 692,886
Additional paid-in capital 13,258,330 (8,406,498) 4,851,832
Accumulated deficit (10,538,928) 4,687,868 (5,851,060)
-------------------------------------------
Total Stockholders' Equity 2,721,522 (3,025,744) (304,222)
-------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,389,986 $(12,160,957) $ 2,229,029
===========================================
</TABLE>
NOTE 3 - 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
December 31, 1997 and 1996
NOTE 3 - 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 4 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable are comprised of the following:
December 31, 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
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
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
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
---------- ----------
Balance forward $ 264,160 $1,575,403
---------- ----------
</TABLE>
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 4 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
Balance forward $ 264,160 $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 -- 3,440,805
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 -- 2,246,823
Mortgage note payable secured by real estate
bearing interest at 11.5%. Due in monthly
installment of $911 -- 90,915
Mortgage note payable secured by real estate
bearing interest at 8.125%. Due in monthly
installments of $919 -- 116,800
Mortgage note payable secured by real estate
bearing interest at 8.125%. Due in monthly
installments of $879 -- 99,451
Promissory note secured by GVI stock, bearing
interest at 12%. Interest due monthly with the
entire balance due on April 24, 1998 85,000 --
Mortgage note payable secured by real estate
bearing interest at 9.5%. Due in monthly
Installments of $191 19,867 --
Mortgage note payable secured by real estate
bearing interest at 10.5%. Due in monthly
installments of $207, balance due in 59 months 20,010 --
Promissory note secured by vehicle, bearing
interest at 11%. Due in monthly installments
of $405 16,439 --
---------- ----------
Subtotal 405,476 7,570,197
Less current portion 405,476 1,213,866
---------- ----------
Long-term portion $ -- $6,356,331
========== ==========
</TABLE>
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997 and 1996
NOTE 4 - NOTES PAYABLE (CONTINUED)
Maturities of long-term debt are as follows:
March 31, 1998 $ 405,476 $ 1,213,866
1999 -- 2,282,797
2000 -- 3,557,065
2001 -- 73,718
2002 -- 19,559
Thereafter -- 423,192
---------------- ----------------
$ 405,476 $ 7,570,197
================ ================
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
Notes payable, related parties are comprised of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
<S> <C> <C>
Note payable to a shareholder secured by assets of
the Company. Interest payable monthly at 12% with monthly
principal payments of $9,428 beginning April 1, 1998
until paid in full $358,000 $ 50,000
Note payable to a shareholder secured by assets
of the Company. Interest payable monthly at 18% with no
stated principal payments required 137,725 --
Note payable to a shareholder at 12% interest secured
by assets of the Company. The balance was in default as of
December 31, 1997 and new payment terms are
currently being negotiated 67,485 --
Notes payable to the 20% stockholders of FTI (Includes 2
officers and directors. Interest rates average 9.5%.
No stated principal payments are required. 262,214 269,039
Note payable from Finally Communities to a company
in which an officer of Finally Communities has
ownership. Finally Communities is currently in default
on this note and new payment terms are currently being
negotiated 225,000 --
Less current portion 377,337 --
-------- --------
Long-term portion $673,087 $319,039
======== ========
</TABLE>
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. The obligation for Series C
Preferred Stock was previously assumed by Golf Ventures, Inc.
However, because the Series C Preferred Stock was never legally
transferred to Golf Ventures, the Company is contingenly liable for
this stock.
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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 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 9, 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 of 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.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 8 - STOCK OPTIONS
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, over staggered periods and
expire after ten years. Compensation expense of $1,458 per month will be
recognized for 40,000 of the options issued over a 4 year vesting period and
$1,458 per month will be recognized for 100,000 of the options over a 10 year
vesting period.
In December 1997 the Board of Directors granted options to purchase 39,000
shares of stock at $2.00. These options are exercisable beginning March 31,
1998, are exercisable over staggered periods and expire after ten years. No
compensation expense was recognized as the option price was greater than the
fair market value of the stock at the date of the option grant.
Pro forma net income and net income per common share was determined as if the
Company had accounted for its employee stock options under the fair value method
of Statement of Financial Accounting Standards No. 123.
Pro forma expense in year 1 would be $30,904 and $5,646 in year 2 and 3,
respectively with an increase in pro forma expenses per shar of $.016 cents in
year 1 and $.003 in years 2 and 3.
For the pro forma disclosures, the options' estimated fair value was amortized
over their expected ten-year life. The fair value for these options was
estimated at the date of grant using an option pricing model which was designed
to estimate the fair value of options which, unlike employee stock options, can
be traded at any time and are fully transferable. In addition, such models
require the input of highly subjective assumptions, including the expected
volatility of the stock price. Therefore, in management's opinion, the existing
models do not provide a reliable single measure of the value of employee stock
options. The following weighted-average assumptions were used to estimate the
fair value of these options.
---------------------------------------------------------------------
1997
Expected dividend yield 0%
Expected stock price volatility 70%
Risk-free interest rate 6.5%
Expected life of options (in years) 10
---------------------------------------------------------------------
NOTE 9 - ACQUISITIONS
As discussed in Note 6, 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.
However, in the calculation of earnings per share, amortization of an
estimated contingent amount is considered. Assuming earnings of
$700,000 by FTI over the three year contingent period $1,000,000 of
additional goodwill would be recorded which would result in
additional amortization of $66,667, or 3.5 cents per year over 15
years. The former shareholders of FTI received options to purchase
150,000 shares of common stock at $2.00 per share. These options
shall vest on June 30, 1999 if net income of FTI for the two-year
period ended March 31, 1999 equals or exceeds $550,000. These options
expire on June 30, 2000. No value was recorded for these options
because of the contingency involving future earnings.
In May 1997, the Company issued 500,000 shares of Series E preferred
stock in exchange for 100% of the issued and outstanding common stock
of Finally Communities, Inc. (FCI) FCI is a new corporation with no
prior operations organized 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. An
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 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 additional cost of contingent
consideration shall be recognized in the period that the contingency
is resolved. However, in the calculation of earnings per share,
amortization of an estimated contingent amount is considered.
Assuming earnings of $500,000 by FCA over the two year contingent
period and a stock value of $3.00 per share $150,000 of additional
goodwill would be recorded which would result in additional
amortization of $10,000 or .5 cents per year over 15 years
NOTE 10 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The merger of the Company's
former subsidiary, GVI, provided substantial debt relief. At December
31, 1997 the Company's current ratio was approximately 84 current
assets to 1 current liabilities. Management intends to improve its
financial structure and provide operating capital through the
conversion of debt and preferred stock, private placement of the
Company's common stock, and sale of the Company's investment in GVI.
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.
NOTE 11 - SUBSEQUENT EVENTS
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 consummated, the Company would
receive additional shares of GVI stock.
In December 1997, the Company entered into a letter of intent for the purchase
of a screen printing and embroidery company ("the Printing Company"). Under
terms of the letter of intent, the Company would purchase this company through
issuance of $2.3 million of its common stock, cash payments of $300,000 which
will be used for the company's operations and assumption of capitalized leases
of approximately $75,000. Seventy-five thousand of the cash payment had been
advanced to this company at December 31, 1997 in the form of a note receivable.
Two thirds of the stock subject to issuance will be subject to earnout
consideration. The success of this purchase is subject to negotiating terms of a
definitive purchase agreement and completion of final due dilignece.
16
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
RESULTS OF OPERATIONS
For the nine months ended December 31, 1997, compared to the nine months ended
December 31, 1996:
Total revenue for the nine months ended December 31, 1997
increased $997,328 over the comparable period in 1996. Fan-Tastic and Finally
Communities, contributed $860,202 and $51,007, respectively of this increase as
new subsidiaries of the Company. The remaining increase of $86,129 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 $507,530 due to the increase in sales.
Fan-Tastic had a gross profit of $432,561 or 51% of sales, on its retail sales
of $780,702 and franchise fees and royalties of $79,500. Gross profit from real
estate sales was $188,547 for the nine months ended December 31, 1997 or 45.9%
of total sales as opposed to 42.5% for the prior comparable period.
General and administrative expenses increased by $143,536 or
14% for the nine months ended December 31, 1997 as compared to the nine months
ended December 31, 1996. This increase was due to the Company's new
subsidiaries, Fan-Tastic and Finally Communities, general and administrative
expenses of $206,371 for the nine months ended December 31, 1997.
The Company had a net gain on other income and expenses of
$30,576 compared to $223,139 for the nine months ended December 31, 1997 and
1996, respectively. This decrease in net gain was primarily due to a $191,101
gain on sale of assets in a subsidiary in 1996 as opposed to a $63,712 gain in
the comparable period in the six months ended December 31, 1997 and interest
expense of $91,606 compared to $18,880 for the nine months ended December 31,
1997 and 1996, respectively.
The Company experienced a net loss of $572,828 for the nine
months ended December 31, 1997 compared with a net loss of $709,592 in the
comparable 1996 period. The loss for the three months ended December 31, 1997
was $81,996 as opposed to the loss of $204,478 for the three months ended
December 31, 1997. The larger loss for the three months ended December 31, 1996
was primarily due greater earnings from Fan-Tastic of $20,218 due to holiday
season sales with no comparable earnings in the three months ended December 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had total assets of
$2,229,029, total liabilities of $2,533,251 and total stockholders equity of
$(301,222) 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
significant changes in assets, liabilities and stockholders equity is due to the
merger of the Company's former consolidated subsidiary, Golf Ventures, Inc.,
with U.S. Golf Communities. As a result of this merger the Company no longer
includes Golf Ventures in its consolidation. The merger of the Company's former
subsidiary, GVI, provided substantial debt relief. At December 31, 1997 the
Company's current ratio was approximately 84 current assets to 1 current
liabilities. Management intends to improve its financial structure and provide
operating capital through the conversion of debt and preferred stock, private
placement of the Company's common stock and sale of the Company's investment in
GVI. In addition, the Company will need to raise additional capital to
successfully complete its purchase of a screen printing and embroidery company
(see note 11 of the financial statements.) The Company plans on obtaining these
funds through private placement of the Company's common stock and sale of the
Company's investment in GVI. 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.
17
<PAGE>
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: February 20, 1998 By: /s/Tim Papenfuss
------------
Tim Papenfuss
Chief Financial Officer
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