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 June 30, 1997;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
Commission file number 0-18865
----------------
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
----------------
UTAH 87-0401400
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------
102 West 500 South
Suite 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 - June 30, 1997 and
March 31, 1997.......................................................... 3
Condensed Consolidated Statements of Operations - Three Months
Ended June 30, 1997 and 1996.......................................... 5
Statements of Stockholders' Equity....................................... 7
Condensed Consolidated Statements of Cash Flows - Three Months
Ended June 30, 1997 and 1996.......................................... 8
Notes to Condensed Consolidated Financial Statements - June 30, 1997..... 10
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
2
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
CONSOLIDATED FINANCIAL STATEMENT
(Unaudited)
June 30, 1997
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheets
ASSETS
------
<CAPTION>
June 30, March 31,
1997 1997
------------------ ---------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 29,879 $ 47,850
Accounts receivable 51,423 41,349
Real estate inventories 949,554 932,439
Merchandise inventory 417,827 291,169
Prepaid and other current assets 17,732 23,682
Current portion of contract receivable 472 472
------------------ ---------------
Total Current Assets 1,466,887 1,336,961
------------------ ---------------
PROPERTY AND EQUIPMENT
Model home and condominiums 134,788 133,954
Furniture, fixtures and equipment 147,193 146,412
Vehicles 43,252 17,852
------------------ ---------------
Total Depreciable Assets 325,233 298,218
Less: accumulated depreciation (106,260) (97,965)
------------------ ---------------
Net Property and Equipment 218,973 200,253
------------------ ---------------
OTHER ASSETS
Land held for development (Note 2) 12,006,878 11,475,016
Goodwill 248,697 252,912
Long-term portion of contract receivable 55,993 55,993
Deposits 1,970 1,970
------------------ ---------------
Total Other Assets 12,313,538 11,785,891
------------------ ---------------
TOTAL ASSETS $ 13,999,398 $ 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>
June 30, March 31,
1997 1997
------------------ ---------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,251,872 $ 1,151,894
Accrued expenses and other current liabilities 1,272,680 1,108,635
Current portion of notes payable (Note 3) 1,166,363 1,213,866
Current portion of notes payable - related party 231,000 -
Current portion of capital lease obligations 12,238 12,238
------------------ ---------------
Total Current Liabilities 3,934,153 3,486,633
------------------ ---------------
LONG-TERM DEBT
Commission payable 90,000 90,000
Long-term portion of notes payable (Note 3) 6,628,077 6,356,331
Long-term portion of capital lease obligations 11,673 13,394
Notes payable, related parties 647,014 319,039
------------------ ---------------
Total Long-Term Debt 7,376,764 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 13,051,705 13,021,721
Accumulated deficit (10,365,327) (9,966,102)
------------------ ---------------
Total Stockholders' Equity 2,688,481 3,057,708
------------------ ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,999,398 $ 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 Three Months Ended
June 30,
1997 1996
------------------ ---------------
INCOME
<S> <C> <C>
Sales - real estate $ 11,000 $ -
Sales - merchandise 161,161 133,000
------------------ ---------------
Total Income 172,161 133,000
------------------ ---------------
COST OF SALES
Cost of sales - real estate 11,000 76,582
Cost of sales - merchandise 78,140 -
------------------ ---------------
Total Cost of Sales 89,140 76,582
------------------ ---------------
Gross Profit 83,021 56,418
------------------ ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 12,510 1,005
General expenses 499,625 319,123
------------------ ---------------
Total General and Administrative Expenses 512,135 320,128
------------------ ---------------
Net Loss (429,114) (263,710)
------------------ ---------------
OTHER INCOME AND (EXPENSES)
Interest income 782 2,038
Other income 45,448 2,906
Gain on sale of assets - 236,583
Interest expense (16,343) (7,080)
------------------ ---------------
Total Other Income and (Expenses) 29,887 234,447
------------------ ---------------
Net (loss) before income tax and minority interest (399,227) (29,263)
Minority interest (Note 1) - -
------------------ ---------------
Net loss before income tax (399,227) (29,263)
Less: provisions for (income tax) - -
NET LOSS $ (399,227) $ (29,263)
================== ===============
LOSS PER SHARE $ (0.22) $ (0.00)
================== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<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)
Common stock issued for services
(unaudited) 16,000 16 - - 29,984 -
Net loss (unaudited) - - - - - (399,227)
------------ ----------- ----------- ------------- -------------- ---------------
Balance, June 30, 1997
(unaudited) 1,851,486 $ 1,851 $ 252,220 $ 252 $ 13,051,705 $ (10,365,327)
============ =========== =========== ============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
<CAPTION>
June 30,
---------------------------------------
1997 1996
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (399,227) $ (29,263)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,510 1,005
Common sock issued for services 30,000 -
Changes in operating assets and liabilities:
(Increase) decrease in inventory (143,773) 61,354
(Increase) decrease in notes and accounts receivable (10,074) (18,625)
Increase (decrease) in other current assets 5,950 39,119
Increase (decrease) in accounts payable and
other current liabilities 264,023 (300,058)
----------------- -----------------
Net Cash Provided (Used) by Operating Activities (240,591) (246,468)
----------------- -----------------
INVESTING ACTIVITIES
Purchases of property and equipment (27,015) -
Investment in land held for development (300,862) (413,839)
----------------- -----------------
Net Cash Provided (Used) by Investing Activities (327,877) (413,839)
----------------- -----------------
FINANCING ACTIVITIES
Repayment of notes payable, related parties (50,000) -
Payments on long-term debt and capital lease obligations (47,503) (28,168)
Long-term borrowings 270,025 2,000,000
Contributions from subsidiary - 900,000
Borrowings from related parties 377,975 -
----------------- -----------------
Net Cash Provided (Used) by Financing Activities 550,497 2,871,832
----------------- -----------------
INCREASE (DECREASE) IN CASH (17,971) 2,211,525
CASH, BEGINNING OF PERIOD 47,850 790,744
----------------- -----------------
CASH, END OF PERIOD $ 29,879 $ 3,002,269
================= =================
CASH PAID FOR
Interest $ 16,343 $ 7,080
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 30,000 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Resources and Development Company (Company) was formed
as a Utah company on March 31, 1983 under the name Leasing
Technologies Incorporated for the purpose of leasing equipment.
The Company has significantly increased its investing activities
which include startup companies, real estate development, and/or
other projects. Operations include related and non-related party
transactions. In March 1997, the shareholders of the Company
approved a name change to American Resources and development
Corporation. In addition, the shareholders also approved a
reverse split of its common stock on a 1 share for 20 share
basis. The accompanying consolidated financial statements reflect
this reverse split retroactively.
b. Property and Equipment
Property and equipment are recorded at cost. When assets are
retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period.
The costs of maintenance and repairs are charged to income as
incurred. Renewals and betterments are capitalized and
depreciated over their estimated useful lives.
c. Depreciation
Depreciation is computed using the declining-balance method over
the estimated useful life of the assets (usually three years).
d. Net Loss Per Common Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the period.
The common stock equivalents are anti-dilutive and, accordingly,
are not used in the net loss per common share computation.
e. Income Taxes
Income taxes consist of Federal Income and State Franchise taxes.
The Company has elected a March 31 fiscal year-end for both book
and income tax purposes.
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No.
109), "Accounting for Income Taxes," which requires the asset and
liability method of accounting for tax deferrals.
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of commitments
and contingencies, and the reported revenues and expenses.
h. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times,
may exceed federally insured limits.
The Company builds and develops real property in Southern Utah.
In the normal course of business the Company extends secured
credit to its customers.
i. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company (formerly Leasing
Technologies Incorporated) and its subsidiaries, Golf Ventures,
Inc. (GVI), Fan-Tastic, Inc. (FTI) and Finally Communities, Inc.
(FCI).
All significant intercompany transactions have been eliminated in
the consolidated financial statements. The only significant
intercompany transactions are loans made by the Company to GVI.
The notes receivable on the books of the Company and the accrued
interest receivable on the books of the Company and the accrued
interest receivable have been eliminated against the liability on
the books of the subsidiaries and the related accrued interest
payable. The interest income accrued by the Company has been
eliminated against the interest expense accrued by the
subsidiary.
j. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
k. 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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Profit Recognition and Capitalization of Costs Related to
Real Estate (continued)
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.
l. Notes Receivable
Notes receivable are shown net of the allowance for bad debts of
$5,000 at June 30, 1997.
m. Goodwill
Goodwill resulting from the acquisition of FTI are amortized
using the straight-line method over a 15 year period.
NOTE 2 - LAND HELD FOR DEVELOPMENT
On March 30, 1990, the Company purchased 486 acres of undeveloped
land from Karl Stucki and the Stucki Family Trust for $3,004,356,
and on July 31, 1990, the Company purchased 130 acres from
Dynamic American Company for $610,000 which makes up the Red Hawk
real estate development. On December 28, 1992, this real estate
development, together with Cotton Manor/Cotton Acres was
transferred to Golf Ventures, Inc. (GVI) in exchange for
3,273,728 shares of GVI common stock. The Red Hawk land (616
acres) is undeveloped, and in order for GVI to realize its
investment, adequate financing will need to be obtained.
For the years ended March 31, 1997, the Company capitalized
$1,093,468 in construction period interest costs. The cost of the
land is less than the estimated net realizable value of the land.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
----------------- ------------------
(Unaudited)
<S> <C> <C>
Convertible subordinated debentures, due June 30,
1997 bearing interest at 12% per annum.
Interest payable quarterly, secured by land. $ 185,000 $ 185,000
Promissory note payments through August 15,
2016 at $30,524 per year including interest at
10% per annum. 201,890 201,890
Trust deed note payable, secured by land.
Interest accrued at 85 per annum. Payable
$100,000 per year plus the accrued interest
for that year. 355,890 355,890
Note payable, unsecured, bearing interest at 12%,
payable in monthly installments of $13,193,
plus interest. 79,160 105,546
Trust deed note, secured by land and 50,000
shares of the Company's common stock. Interest
accrued at 15% per annum. Principal and interest
due May 31, 1996. 80,575 80,575
Promissory note secured by land. Interest accrued
at 10% per annum, payable in shares of the Company's
common stock. $120,000 plus a percentage of the
proceeds of lot sales payable annually beginning
on February 1, 1991 through February 1, 1997 at which
time the balance will be due as a balloon payment.
$2,000 from each Red Hawk lot sale also applies to the note. 646,502 646,502
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
June 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. 2,227,681 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 8.125%. Due in monthly
installments of $919. 116,622 116,800
Mortgage note payable secured by real estate
bearing interest at 8.125%. Due in monthly
installments of $879. 99,451 99,451
Mortgage note payable secured by real estate
bearing interest at 9.5%. Due in monthly
installments of $191. 20,500 -
Mortgage note payable secured by real estate
bearing interest at 10.5%. Due in monthly
installments of $207, balance due in 59 months. 20,700 -
Promissory note secured by vehicle, bearing
interest at 11%. Due in monthly installments
of $405. 20,000 -
----------------- ------------------
Subtotal 7,794,440 7,570,197
Less current portion 1,166,363 1,213,866
----------------- ------------------
Long-term portion $ 6,628,077 $ 6,356,331
================= ==================
Maturities of long-term debt are as follows:
March 31, 1998 $ 1,166,363 $ 1,213,866
1999 2,503,862 2,282,797
2000 3,569,305 3,557,065
2001 85,958 73,718
2002 31,799 19,559
Thereafter 437,153 423,192
----------------- ------------------
$ 7,794,440 $ 7,570,197
================= ==================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 4 - CAPITAL LEASES
Property and equipment under capital leases as of June 30, 1997
is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment $ 35,255
Less accumulated depreciation (13,938)
----------
Net property and equipment under capital lease $ 21,317
==========
</TABLE>
At June 30, 1997, the Company and its subsidiaries have capital
lease obligations as follows:
<TABLE>
<CAPTION>
Year End
March 31,
1998 $ 13,709
1999 13,492
2000 302
----------
<S> <C>
Total minimum lease payments 27,503
Less interest and taxes 3,592
----------
Present value of net minimum lease payments 23,911
Less current portion 12,238
----------
Long-term portion of capital lease obligations $ 11,673
==========
</TABLE>
NOTE 5 - INCOME TAXES
The Company had net operating loss carryforwards available to
offset future taxable income. The Company has net operating loss
carryforwards of approximately $12,500,000 to offset future tax
liabilities. The loss carryforwards will begin to expire in 2007.
Deferred income taxes payable are made up of the estimated
federal and state income taxes on items of income and expense
which due to temporary differences between books and taxes are
deferred. The temporary differences are primarily caused by the
use of the equity method for reporting investment in
subsidiaries. The deferred tax asset is offset in full by a
valuation allowance because it cannot be reasonably determined
that the net operating loss will be useable.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
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 were 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 were 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
June 30, 1997 and 1996
NOTE 6 - PREFERRED STOCK (Continued)
CLASS D:
As discussed in Note 9, the Company issued 100,000 shares of
Series D preferred stock in exchange for 80% of the issued and
outstanding common stock of FTI. This Series D preferred stock
entitles the holder to dividends on the same basis had their
shares been converted into common stock. In addition, after June
30, 2000 but before September 30, 2000, holders of these Series D
shares of preferred stock shall have the right to convert such
shares into shares of common stock of the Company at the rate of
the number of the Company's common stock equal to the number that
is represented by the total net income of FTI for the three year
period ended March 31, 2000 divided by $1,000,000 times ten,
divided by seventy percent of the average trading price of the
Company's common stock on June 30, 2000. Or, after June 30, 2000,
but before September 30, 2000, holders of these Series D
preferred shares may convert such shares into shares of FTI if
the total net income of FTI for the three year period ended March
31, 2000 is equal to or exceeds $1,000,000 at a rate equal to
that number of FTI common stock that is equal to 61.5% of the
outstanding common stock of FTI as of June 30, 2000, divided by
100,000
CLASS E:
As discussed in Note 11, the Company issued 500,000 shares of
Series E preferred stock in exchange for 100% of the issued and
outstanding common stock of FCI. 25,000 shares of the preferred
stock are immediately convertible into 25,400 shares 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.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is leasing its principle place of business on a
month-to-month basis for $2,229. The Company shares this office
space with GVI.
FTI leases office and warehouse space in Salt Lake City, Utah and
leases space for six retail stores in various locations. Lease
commitments for the years ended March 31, 1998 through March 31,
2002 are $77,721, $59,653, $35,256 and $20,566, respectively.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 9 - ACQUISITION OF FAN-TASTIC, INC.
As discussed in Note 1, the Company acquired 80% of the issued
and outstanding common stock of Fan-Tastic, Inc. (FTI) in
exchange for the issuance of 100,000 shares of the Company's
Series D preferred stock. FTI is a franchiser and owner of retail
entertainment and sports stores doing business as Fan-A Mania.
The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based on
their fair market value at the date of acquisition. The acquired
interest was valued at $252,912, which represents liabilities
assumed in excess of assets acquired which has been reflected as
goodwill. 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 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.
NOTE 10 - GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. In order to carry
out its operating plans, the Company will need to obtain
additional funding from outside sources. The Company has received
funds from a private placement and plans to continue making
private placements of its Subsidiary's preferred and common
stock. There is no assurance that the Company will be able to
obtain sufficient funds from other sources as needed or that such
funds, if available, will be obtainable on terms satisfactory to
the Company. Management also intends to renegotiate the terms of
its debt for a longer repayment period.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 11 - ACQUISITION OF FINALLY COMMUNITIES, INC.
In May 1997, the Company organized a corporation to develop and
sell vacation ownership interest in various resorts initially
located in the State of Arkansas and develop and market other new
vacation products. The unrelated party will serve as president of
the new corporation and will receive 500,000 shares of the
Company's newly issued Series E convertible preferred stock with
25,400 of those preferred shares immediately convertible into
common stock of the Company. The balance of the Series E
preferred stock is convertible into common stock of the Company
after June 30, 1999. According to the terms of the agreement, the
Company arranged for a loan of $50,000 to be made to the new
corporation (see Note 6).
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 July 31 and new payment terms are currently being negotiated.
NOTE 12 - SUBSEQUENT EVENT
From time to time since December 1992, there have been
intercompany transactions between American Resources and
Development Company (hereinafter "ARDCO") and Golf Ventures, Inc.
(hereinafter "GVI"). These transactions have included the
exchange of funds, services rendered by employees and the
exchange of other assets. At the time of these transactions, no
formal determination was made by the Companies whether these
transactions constituted debt or equity transactions. On July 8,
1997, GVI issued to ARDCO 823,343 shares of its common stock with
respect to the intercompany transactions between the two
entities. These shares were canceled by GVI in August 1997, and
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 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.
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 by 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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1997 and 1996
NOTE 12 - SUBSEQUENT EVENT (Continued)
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 Quarter Ended June 30, 1997, Compared to the Quarter Ended June 30,
1996.
Total revenue for the quarter ended June 30, 1997 increased $39,161, or
29%, to $172,161, compared with $133,000 for the quarter ended June 30, 1996.
During the current period Fan-tastic's sales of merchandise were $161,161.
Additionally a lot was sold from the Cotton Manor Phase 4, a townhome PUD
project. The lot was sold to Bruce Frodsham, Vice President of the Company for
$11,000, the approximate cost of the lot to the Company. During the comparable
prior year period, 5 lots were sold from Cotton Acres at an average price of
$26,600. The sales volume is dependent upon the number of completed lots and
condominiums in inventory. During the past year there has been very little
capital available for development and therefore there has been little inventory
available for sale.
Cost of sales increased by $12,558, or 16%, to $89,140 for the quarter
ended March 31, 1997 from $76,582 for same quarter in 1996. The increase is
related to the $78,140 cost of sales for the Fan-Tastic retail sales of
$161,161. The change related to the cost of real estate sales was a decrease of
$65,582, 86%, and is directly related to the number of units sold during each
period. Correspondingly gross profit increased to $83,021, 48% of total sales,
during the current period compared to $56,418, 42% in the prior period.
General and administrative expenses increased $180,461, 57%, to
$499,625 for the quarter ended June 30, 1997 from $319,123 for the quarter ended
June 30, 1996. The increase was attributable to the $93,947 of general and
administrative expenses incurred by Fan-Tastic and costs incurred by GVI in
developing an internet website and promotional literature, and related printed
material.
The Company experienced a net loss of $399,227 in the current period
compared with a net loss of $29,263 in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had total assets of $13,999,398, total
liabilities of $11,310,917 and total stockholders equity of $2,688,481 compared
with total assets of $13,323,105, total liabilities of $10,265,397 and total
stockholders equity of $3,057,708 at March 31, 1997. The increase in total
assets of $445,293 is due primarily to $201,968 of capitalized development
related interest in GVI, $246,000 land held for development from Finally
Communities, increases in store merchandise inventories and real estate
inventories of $143,773. Total liabilities at June 30, 1997 increased $1,045,520
from March 31, 1997. The increase is due to increases in long term debt of
$271,746, 4%, an increase in related party debt of $327,975, 103% and an
increase in current liabilities of $447,520 explained below.
As of June 30, 1997, the Company had total current assets of $1,466,887
and total current liabilities of $3,934,153 which results in a current ratio of
0.37:1, compared to a current ratio of 0.38:1 as of March 31, 1997. Current
liabilities at June 30, 1997 increased $447,520 over March 31, 1997 due to an
increase in accounts payable of $99,978, 9%, an increase in accrued expenses of
$164,045, 15% and $231,000 of current portion of notes payable, related parties.
19
<PAGE>
The increases are related to the decrease in cash flowing into the Company from
decreases in the sale of real estate and borrowings during the period and from
Finally Communities signing a note payable with related parties for the
acquisition of land held for development. These decreases have severely limited
the Company's ability to pay its current obligations. Current assets increased
$129,926, 10% due to increase in store merchandise inventory of $126,658, 43%,
resulting from Fan-Tastic's desires to raise store inventory levels after the
Company's acquisition of FanTastic.
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.
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
20
<PAGE>
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
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