UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[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 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 April 16, 1998, the Registrant had outstanding 1,890,481 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............................................................ 3
Condensed Consolidated Statements of Operations - Six months ended
September 30, 1997 and 1996 and Three Months Ended September 30,
1997 and 1996............................................................. 5
Statements of Stockholders' Equity......................................... 6
Condensed Consolidated Statements of Cash Flows - Six months ended
September 30, 1997 and 1996 and Three Months Ended
September 30, 1997 and 1996............................................... 7
Notes to Condensed Consolidated Financial Statements - September 30, 1997.. 9
Item 2: Management's Discussion and Analysis or Plan of Operation....... 19
Part II Other Information
Item 1. Legal Proceedings............................................... 22
Item 2. Changes in Securities........................................... 22
Item 3. Defaults upon Senior Securities................................. 22
Item 4. Submission of Matters to a Vote of Security Holders............. 22
Item 5. Other Information .............................................. 22
Item 6. Exhibits and Reports on Form 8-K................................ 22
i
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
CONSOLIDATED FINANCIAL STATEMENT
(Unaudited)
September 30, 1997 and March 31, 1997
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheets
ASSETS
<CAPTION>
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.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
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 1,225,445 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
Current portion, notes payable - related parties 231,000 -
------------------ ---------------
Total Current Liabilities 3,955,599 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 775,619 319,039
------------------ ---------------
Total Long-Term Debt 7,436,132 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.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT
Consolidated Statements of Operations
<CAPTION>
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
--------------- --------------- ---------------- ---------------
COST 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 of 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 $ (0.27) $ (0.25) $ (0.05) $ (0.23)
=============== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT
Statements of Stockholders' Equity
<CAPTION>
Common Stock Preferred Stock Additional
--------------------------- ----------------------------- 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 - - - - 143,166 -
Common stock issued for services
(unaudited) 16,000 16 - - 29,984 -
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.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
<CAPTION>
For the Six Months Ended For the Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- --------------- --------------- --------------
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
Stock offering costs - (209,000) - (209,000)
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
Borrowings from related parties 452,610 - 124,635 -
-------------- --------------- --------------- --------------
Net Cash Provided (Used) by Financing Activities 636,706 2,856,493 145,787 (115,339)
-------------- --------------- --------------- --------------
INCREASE (DECREASE) IN CASH (7,689) 1,057,321 10,282 (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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
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.
<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 te 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 (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.
<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.
<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 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 that
the 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 will be 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 he 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.
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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
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 15 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 ccrued 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
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
Balance forward $ 5,198,647 $ 5,016,208
----------------- ------------------
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE (Continued)
Balance forward $ 5,198,647 $ 5,016,208
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
installments of $911. 90,839 90,915
Mortgage note payable secured by real estate
bearing interest at 11.5%. 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
================= ==================
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
================= ==================
</TABLE>
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 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 issued 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.
<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 100,00 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, 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 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
additional cost of contingent consideration shall be recognized
in the period the contingency is resolved. The Series E preferred
shares have no voting rights or dividends.
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.
Because of he 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.
<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 he 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. This goodwill was entirely offset with a valuation
allowance to reflect the uncertainty as to the recoverability of
the 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.
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.
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.
A note payable of $231,000 from FCA to a company in which an
officer of FCA has ownership was signed in May 1997 for property
purchased by FCA for development. FCA was in default on this note
at September 30 and new payment terms are currently being
negotiated.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
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 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 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.
In March 1998, the Company sold Finally Communities to the
President (Buyer) of Finally Communities. Under terms of this
agreement, the Buyer purchased all of the assets and stock of
Finally Communities in exchange for all Company stock he received
under the May 1997 purchase of Finally by the Company and the
assumption of all Finally Communities debt. The sale is effective
as of January as of January 1, 1998 and is expected to result in
a gain on sale and discontinued operations of approximately
$30,000.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1997 and 1996
NOTE 8 - SUBSEQUENT EVENTS (Continued)
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 the Printing 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 $175,000. One hundred forty
five thousand of the cash payment had been advanced to the
Printing Company at April 10, 1998 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 diligence.
In addition, in March 1998, the Company entered into an
acquisition letter of intent with a company that designs and
markets licensed branded apparel (the Apparel Company). Under
terms of the letter of intent, the owner of the Apparel Company
would receive $3.2 million in Company stock; 5% of this stock
would be issued at the acquisition date and the remaining stock
would be issued over 3 years based on contingent earnout
consideration. Under terms of this letter of intent, the Company
is contractually obligated to provide $100,000 to buyout a
partner in the Apparel Company and $200,000 for working capital
purposes for the Apparel Company. An additional $500,000 is
payable to the Apparel Company's former partners from guaranteed
sub-licensee royalties although the Company is obligated for the
$500,000 if no sub-licensee royalties are paid. 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. The success of this purchase is subject to negotiating terms
of a definitive purchase agreement and completion of final due
diligence.
<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 $382,762 for the three months ended September 30, 1996.
The larger loss for the three months September 30, 1996 was primarily due to
only $28,000 in real estate sales from its subsidiary Golf Ventures as opposed
to $333,311 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
19
<PAGE>
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, 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, or 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 shareholder to the Company and its subsidiaries for
working capital purposes.
At December 31, 1997, the Company had total assets of $2,229,029, total
liabilities of $2,533,251 and total stockholders equity of $(304,222) 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 securities in GVI. The
related party debt increase of $731,385 was comprised of a $235,000 real estate
purchase by Finally Communities to a company in which an officer has ownership.
Finally Communities was in default on this at December 31, 1998. The Company
also received $452,610 of debt from a shareholder, payable at 12% and 18%
interest, to fund operations. Of this debt, 67,485 was debt with Finally
Commuities. The remainder of new debt with this shareholder of $385,125 requires
interest only payments until April of 1998 at which thime monthly payments of
$9,428 are required. In March 1998, the Company sold Finally Communities to the
President (Buyer) of Finally Communities. Under terms of this agreement, the
Buyer purchased all of the assets and stock of Finally Communities in exchange
for all Company stock he received under the May 1997 purchase of Finally by the
Company and the assumption of all Finally Communities debt.
In addition, the Company will need to raise additional capital to successfully
complete certain acquisitions. 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 the Printing 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 $175,000. Two thirds of
the stock subject to issuance will be subject to earnout consideration. One
Hundred forty-five thousand of the cash payment had been advanced to the
Printing Company at April 6, 1998 in the form of a note receivable. The success
of this purchase is subject to negotiating terms of a definitive purchase
agreement and completion of final due diligence. As of April 6, 1998 the Company
was contractually committed to provide another $155,000 to the Printing Company.
The $155,000 of funds advanced to the Printing Company through April 6, 1998
were obtained primarily through debt issuances of $120,000 with a shareholder.
20
<PAGE>
In addition, in March 1998, the Company entered into an acquisition letter of
intent with a company that designs and markets licensed branded apparel (the
Apparel Company). Under terms of the letter of intent, the owner of the Apparel
Company would receive $3.2 million in Company stock; 5% of this stock would be
issued at the acquisition date and the remaining stock would be issued over 3
years based on contingent earnout consideration. Under terms of this letter of
intent the Company is contractually obligated to provide $100,000 to buyout a
partner in the Apparel Company and $200,000 for working capital purposes for the
Apparel Company. An additional $500,000 is payable to the Apparel Company's
former partners from guaranteed sub-licensee royalties although the Company is
obligated for the $500,000 if no sub-licensee royalties are paid.. 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. The success of this purchase
is subject to negotiating terms of a definitive purchase agreement and
completion of final due diligence.
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.
21
<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.
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: April 28, 1998 By: /s/Tim Papenfuss
------------
Tim Papenfuss
Chief Financial Officer
22
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