SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998;
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.)
---------------
3855 South 500 West
Suite R
Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 363-8961
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of August 18, 1998, the Registrant had outstanding 3,215,596 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, 1998
and March 31, 1998.................................................3
Condensed Consolidated Statements of Operations - Three Months
Ended June 30, 1998 and 1997.......................................5
Statements of Stockholders' Equity.................................6
Condensed Consolidated Statements of Cash Flows - Three
Months Ended June 30, 1998 and 1997................................7
Notes to Condensed Consolidated Financial Statements -
June 30, 1998......................................................8
Item 2: Management's Discussion and Analysis or Plan of Operations........26
Part II Other Information
Item 1. Legal Proceedings.................................................28
Item 2. Changes in Securities.............................................28
Item 3. Defaults upon Senior Securities...................................28
Item 4. Submission of Matters to a Vote of Security Holders...............28
Item 5. Other Information ................................................28
Item 6. Exhibits and Reports on Form 8-K..................................28
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
June 30, March 31,
1998 1998
----------------- -------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 16,649 $ 14,663
Accounts receivable 299,044 221,875
Inventory (Note 1) 362,987 437,003
Marketable securities 643,087 622,182
Notes receivable, Quade, Inc. (Note 12) 40,000 -
Prepaid and other current assets 36,628 44,882
----------------- -------------
Total Current Assets 1,398,395 1,340,605
----------------- -------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 421,492 383,638
Capital leases 1,003,507 859,185
----------------- -------------
Total depreciable assets 1,424,999 1,242,823
Less: accumulated depreciation (195,060) (118,889)
----------------- -------------
Net Property and Equipment 1,229,939 1,123,934
----------------- -------------
OTHER ASSETS
Investments (Note 1) 1,400,750 1,077,500
Goodwill (Note 1) 1,796,050 1,826,492
Deposits 68,105 68,104
----------------- -------------
Total Other Assets 3,264,905 2,972,096
----------------- -------------
TOTAL ASSETS $ 5,893,239 $ 5,436,635
================= =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
1998 1998
----------------- -------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 708,510 $ 688,021
Accrued expenses and other current liabilities 418,691 393,494
Current portion of notes payable (Note 3) 620,543 419,781
Current portion of notes payable, related parties (Note 4) 229,974 184,974
Current portion of capital lease obligations (Note 5) 239,088 303,475
----------------- -------------
Total Current Liabilities 2,216,806 1,989,745
----------------- -------------
LONG-TERM DEBT
Reserve for discontinued operations 450,782 450,782
Notes payable (Note 3) 14,155 14,155
Capital lease obligations (Note 5) 645,184 579,963
Notes payable, related parties (Note 4) 1,150,739 1,091,536
----------------- -------------
Total Long-Term Debt 2,260,860 2,136,436
----------------- -------------
Total Liabilities 4,477,666 4,126,181
----------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Unrealized gain on marketable securities and investments 471,655 -
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 94,953
Series B shares, 150,000 Series C shares 245 245
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 2,965,263 and
2,929,263 shares issued and outstanding. (Note 8) 2,965 2,929
Additional paid-in capital 7,071,224 7,026,260
Accumulated deficit (6,130,516) (5,718,980)
----------------- -------------
Total Stockholders' Equity 1,415,573 1,310,454
----------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,893,239 $ 5,436,635
================= =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT
Consolidated Statements of Operations
For the Three Months Ended
June 30,
1998 1997
------------------ ---------------
INCOME
<S> <C> <C>
Sales - merchandise $ 809,034 $ 161,161
Cost of sales - merchandise 499,870 78,140
------------------ ---------------
Gross Profit 309,164 83,021
------------------ ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 104,945 7,274
General expenses 552,230 246,338
------------------ ---------------
Total General and Administrative Expenses 657,175 253,612
------------------ ---------------
Net Loss (348,011) (170,591)
------------------ ---------------
OTHER INCOME AND (EXPENSES)
Interest income 5
Other income 24,112 40,818
Gain on sale of assets 19,405 -
Interest expense (107,042) (4,305)
------------------ ---------------
Total Other Income and (Expenses) (63,525) 36,518
------------------ ---------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (411,536) (134,073)
------------------ ----------------
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC - (253,206)
------------------ ---------------
Net loss before income tax (411,536) (387,279)
Less: provisions for (income tax) - -
------------------ ---------------
NET LOSS $ (411,536) $ (387,279)
================== ===============
LOSS PER SHARE $ (0.14) $ (0.21)
================== ===============
NET LOSS PER SHARE OF COMMON
STOCK-CONTINUING OPERATIONS $ (0.14) $ (0.07)
================== ===============
NET INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ 0.0 $ (0.14)
================== ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,949,834 1,864,113
================== ===============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCE AND DEVELOPMENT COMPANY
Consolidated Statement of Stockholders' Equity
March 31, 1998 and 1997
Additional
Common Stock Preferred Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 1,835,486 $1,835 252,220 $ 252 $ 11,910,212 $ (8,941,298)
Capital contributions by stock
issuances of a subsidiary - - - - 1,111,509 -
Net loss - - - - - (1,024,802)
--------- ------ ------- ----- ------------ -------------
Balance, March 31, 1997 1,835,486 1,835 252,220 252 13,021,721 (9,966,100)
Stock issuance of a subsidiary
for payment of interest - - - - 143,166 -
Preferred B stock conversion
into common stock 11,995 12 (7,267) (7) - -
Common stock issued for
services 399,000 399 - - 388,261 -
Expense recognized for
vested stock options - - - - 52,498 -
Eliminate GVI equity for
merger with U.S. Golf
Communities (Note 2) - - - - (8,406,498) 4,687,868
Stock issued for cash 24,000 24 - - 29,976 -
Stock issued for PPW
acquisition (Note 2) 258,782 259 - - 1,293,651 -
Stock issued to FTI
shareholders (Note 2) 400,000 400 - - 499,600 -
Stock options issued to FTI
shareholders - - - - 3,885 -
Net loss - - - - - (440,748)
Balance, March 31, 1998 2,929,263 $2,929 244,953 $ 245 $ 7,026,260 $ (5,718,980)
Stock issued for cash 36,000 36 - - 44,964 -
Net loss - - - - - (411,536)
Balance, June 30, 1998 2,965,263 $2,965 - - $ 7,071,224 $ (6,130,516)
========= ======== ======== ======== ============ ===============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
June 30,
1998 1997
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (411,536) $ (395,012)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 104,945 8,295
Common sock issued for services - 30,000
Changes in operating assets and liabilities:
(Increase) decrease in inventory 74,016 (143,773)
(Increase) decrease in notes and accounts receivable (117,169) (10,074)
Increase (decrease) in other current assets 8,254 5,950
Increase (decrease) in accounts payable and
other current liabilities (53,149) 264,023
----------------- -----------------
Net Cash Provided (Used) by Operating Activities (394,639) (240,591)
----------------- -----------------
INVESTING ACTIVITIES
Purchases of property and equipment (37,854) (27,015)
Investment in land held for development - (300,862)
Sale of marketable securities, net of gain 121,705 -
----------------- -----------------
Net Cash Provided (Used) by Investing Activities 83,851 (327,877)
----------------- -----------------
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (57,759) (97,503)
Proceeds from notes payable 325,533 648,000
Common stock issued for cash 45,000 -
----------------- -----------------
Net Cash Provided (Used) by Financing Activities 312,774 550,497
----------------- -----------------
INCREASE (DECREASE) IN CASH 1,986 (17,971)
CASH, BEGINNING OF PERIOD 14,663 47,850
----------------- -----------------
CASH, END OF PERIOD $ 16,649 $ 29,879
================= =================
CASH PAID FOR
Interest $ 99,824 $ 16,343
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 30,000 $ 30,000
Equipment purchase through capital
lease obligation 144,312 -
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
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 1998 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
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 have
been restated to reflect this reverse split retroactively.
Effective March 17, 1997, the Company acquired 80% of the issued
and outstanding common stock of Fan-Tastic, Inc. (FTI), a Utah
corporation, in exchange for 100,000 shares of the Company's
class "D" preferred stock. Effective March 31, 1998, the Company
acquired the remaining 20% of the issued and outstanding common
stock of FTI. This acquisition has been accounted for using the
purchase method in the accompanying consolidated financial
statements. See Note 2 for further discussion regarding this
transaction.
Effective March 31, 1998, the Company acquired over 80% of the
issued and outstanding common stock of Pacific Printing and
Embroidery. As a result, its operations are not included in the
consolidated statement of operations for the year ending March
31, 1998.
c. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company and its subsidiaries,
Fan-Tastic, Inc. (FTI), Pacific Printing and Embroidery L.L.C.
(PPW). The operations of Golf Ventures, Inc. (GVI), and Finally
Communities, Inc. (FCC) are included in the statement of
operations and cash flows at March 31, 1997. (Note 2)
8
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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. 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.
g. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
h. Property and Equipment
Property, equipment and capital leases are recorded at cost and
are depreciated or amortized over the estimated useful life of
the related assets, generally three to seven years. 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.
9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Financial Instruments
Statement of Financial Accounting Standards No. 107, " Disclosures
about Fair Value of Financial Instruments" requires disclosure of
the fair value of financial instruments held by the Company, SFAS
107 defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The following methods and
assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term
nature.
Marketable securities represent 395,746 and 497,746 shares of GVI
unrestricted stock at June 30 and March 31, 1998, respectively,
which are classified as marketable securities available for sale
and are carried at market value. Any change in market value from
period to period will be reported as a separate component of
stockholders' equity until realized.
Investments represent 862,000 shares of GVI restricted stock at
March 31, 1998, which are classified as investments available for
sale. Any change in market value from period to period will be
reported as a separate component of stockholders' equity until
realized.
There was an unrealized gain of $471,665 in marketable securities
and investment securities at June 30, 1998 due to a $.375 increase
in GVI per share value at June 30, 1998 compared to the Company's
recorded cost for GVI shares.
j. 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.
k. 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
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
per common share in addition to its current basic net income per
common share. Basic net loss from continuing operations per
common share and diluted net loss from continuing operations per
common share amounts, calculated in accordance with SFAS 128,
were ($0.14) and ($0.07) for the quarters ended June 30, 1998 and
1997, respectively. Basic net loss from discontinued operations
per common share and diluted net loss from discontinued
operations per common share ) for the quarters ended June 30,
1998 and 1997 was $0.0 and $(0.14), respectively. Weighted
average common shares outstanding were 2,949,834 and 1,864,113
for the quarters ended June 30, 1998 and 1997, respectively.
l. Revenue Recognition
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.
Revenue for contract screenprinting and embroidery are recognized
when the goods have shipped.
m. Goodwill
The excess of the Company's acquisition cost over the fair value
of the net assets of the FTI acquisition resulted in a write-down
of goodwill of $756,797 for the year ended March 31, 1998. On
March 31, 1998, the Company also recognized goodwill of
$1,826,492 from the purchase of Pacific Print Works (aka Pacific
Printing and Embroidery LLC ). The Company recognizes goodwill
from the excess of the purchase price of its acquisitions over
the fair value of the net assets acquired.
The Company evaluates the recoverability of goodwill and reviews
the amortization period on an annual basis. Several factors are
used to evaluate goodwill, including but not limited to:
management's plans for future operations, recent operating
results and projected, undiscounted cash flows. The primary
method is projected, undiscounted cash flows.
NOTE 2 - MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, 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' 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 have resulted in a decrease
in net loss of$172,728 and $685,918 for the years ended March 31,
1998 and 1997, respectively, and $0.83 and ($0.37) per share for
the same periods. The following pro forma balance sheet reflects
the effect of this merger.
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
In connection with the Company's management services relating to
the merger of GVI with U.S. Golf Communities and to settle all
claims, and obligations with the Company, GVI issued 862,000
shares of its restricted common stock to the Company in July of
1998. A gain of $1,720,387, net of expenses, was recognized for
the year ended March 31, 1998. This gain was recognized for fiscal
1998 because it related to prior year activities.
<TABLE>
<CAPTION>
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 12,132,098 (11,886,098) 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 12,430,468 (11,942,091) 488,377
------------------ ----------------- -----------------
TOTAL ASSETS $ 14,389,176 $ (12,160,147) $ 2,229,0290
================== ================= =================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
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
Notes payable 6,550,550 (6,550,550) -
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
------------------ ------------------ -----------------
STOCKHOLDERS' EQUITY
Preferred stock 252 - 252
Common stock 1,868 - 1,868
Additional paid-in capital 13,258,330 (8,406,498) 4,851,832
Accumulated deficit (10,539,738) 5,381,564 (5,158,174)
------------------ ------------------ -----------------
Total Stockholders' Equity 2,720,712 (3,024,934) (304,222)
------------------ ------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,389,176 $ (12,160,147) $ 2,229,029
================== ================== =================
</TABLE>
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Fan-Tastic, Inc.
In March 1997, 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. The FTI acquisition involved contingent consideration
based on FTI achieving specified earnings but was amended in June
1998, effective as of March 31, 1998, as the Company purchased
the remaining 20% of the issued and outstanding common stock of
FTI and eliminated the contingent consideration by issuing the
FTI shareholders 400,000 shares of the Company's common stock and
by vesting options to purchase 150,000 shares of the Company's
common stock at $2.00 a share. These stock options expire on June
30, 2000. The Company recognized $500,000 for the shares issued
to FTI shareholders and $3,855 for the value of the options. The
fair value for these options was estimated at the date of the
vesting using an option pricing model which was designed to
estimate the fair value of options which, unlike these stock
options, can be traded at any time and are fully transferable.
The assumptions as described in Note 9 were used to estimate the
fair value of these options in addition to a trading price on the
Company's stock of $1.25 per share. The $503,855 value for the
shares issued and the options was included in the $756,797
writedown of goodwill for fiscal 1998.
For the year ended March 31, 1997, FTI sustained net losses of
$(101,314) on gross revenues of $875,532.
Unaudited proforma summary information combining the results of
operations of the Company and FTI as if the acquisition had
occurred at the beginning of fiscal 1997, after giving effect to
certain adjustments, including amortization of goodwill. This
proforma summary does not necessarily reflect the results of
operations as they would have been if the Company and FTI had
constituted a single entity during such periods.
For the
Year ended
March 31, 1997
Net revenue $ 1,149,532
Net loss $ (1,142,977)
Net loss per share $ (0.62)
Finally Communities, Inc.
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 was 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. The seller of FCI remained as President after the
acquisition.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Finally Communities, Inc. (Continued)
From May 1997 through December 31, 1997, FCI had real estate sales
of $67,772, cost of sales of $27,771, general expenses of $69,307
and interest expense of $1,081. In March 1998, the Company's Board
of Directors sold its shares in FCI to the original seller for the
return of the stock previously issued to the original seller. A
$30,387 gain was recorded from the disposal of FCI.
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
In December 1997, the Company entered into a letter of intent for
the purchase of a contract screen printing and embroidery company,
Pacific Print Works (PPW). At March 31, 1998, $115,000 had been
advanced to PPW in the form of a note receivable. In May 1998, the
Company acquired over 80% of the outstanding shares of PPW. The
merger is effective as of March 31, 1998 as the Board of Directors
of PPW had agreed to transfer control of PPW effective March 31,
1998, except for restrictions based on significant changes to
operations. 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. Liabilities
assumed in excess of assets acquired was $532,582 and 258,782
shares of the Company's common stock were issued to PPW
shareholders with a guaranteed share value of $5.00 resulting in
goodwill of $1,826,492. Depending on PPW's performance over the
next three years, additional shares of the Company's common stock
will be issued for this acquisition if minimum earnings levels are
met.
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
---- --- ---- ------- -------
1999 $179,480 $ 538,200 28,754 86,261
2000 269,020 807,300 28,754 86,261
2001 357,900 1,073,700 28,754 86,261
Earnings before income taxes above the low level but below the
high level will result in common shares being issued based on the
percentage of actual earnings to the high earnings multiplied by
the maximum shares issuable for that year. For example, in fiscal
1999, earnings of $300,000 would result in 48,083 shares of common
stock being issued to the PPW shareholders.
The following tables set forth certain unaudited pro forma
condensed combined financial information for the Company and PPW
accounted for under the purchase method of accounting.
The pro forma condensed combined balance sheet was prepared using
the historical balance sheets of the Company and PPW as of March
31, 1998. The pro forma condensed combined statements of
operations for each of the two years ended March 31, 1998 and 1997
were prepared using the historical statements of operations of the
Company and PPW.
The pro forma condensed combined financial information was
included for comparative purposes only and does not purport to be
indicative of the results of operations or financial position that
actually would have been obtained if the merger had been effected
at the dates indicated of the financial position or results of
operations that may be obtained in the future.
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 4,962 $ 9,699 $ - $ 14,663
Marketable Securities 622,182 - - 622,182
Accounts receivable 51,444 170,431 - 221,875
Inventory, merchandise 321,934 115,071 - 437,003
Notes receivable 115,000 (115,000) - -
Prepaid and other current
assets 41,289 3,593 - 44,882
---------------- ---------------- ------------- ---------------
Total Current Assets 1,156,811 183,794 - 1,340,605
---------------- ---------------- ------------- ---------------
PROPERTY AND
EQUIPMENT
Furniture, fixtures and
equipment 158,242 271,413 (46,017) 383,638
Leased equipment 40,650 921,713 (103,178) 859,185
---------------- ---------------- ------------- ---------------
Total depreciable assets 198,892 1,193,126 (149,195) 1,242,823
Less: accumulated
depreciation (118,889) (149,195) 149,195 (118,889)
---------------- ---------------- ------------- ---------------
Net Property and
Equipment 80,003 1,043,931 - 1,123,934
---------------- ---------------- ------------- ---------------
OTHER ASSETS
Investments 1,077,500 - - 1,077,500
Goodwill 1,826,492 1,826,492
Deposit 1,970 66,134 - 68,104
---------------- ---------------- ------------- ---------------
Total Other Assets 1,079,470 66,134 1,826,492 2,972,096
---------------- ----------------- --------------- ---------------
TOTAL ASSETS $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
================ ================ =============== ===============
</TABLE>
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2- MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
---------------- -------------- -------------- ---------------
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 391,985 $ 296,036 $ - $ 688,021
Accrued expenses and
other current liabilities 288,415 105,079 - 393,494
Current portion of notes payable 382,635 162,146 - 544,781
Current portion of notes
payable - related parties 23,974 36,000 - 59,974
Current portion of capital
lease obligations 19,450 284,025 - 303,475
---------------- -------------- -------------- ---------------
Total Current Liabilities 1,106,459 883,286 - 1,989,745
---------------- -------------- -------------- ---------------
LONG-TERM DEBT
Reserve For Discontinued Operations 138,000 - - 138,000
Long-term portion of notes payable 14,155 - - 14,155
Long-term portion of capital
lease obligations 13,638 566,325 - 579,963
Accrued interest on preferred stock 312,782 - - 312,782
Notes payable, related parties 714,699 376,837 - 1,091,536
---------------- -------------- -------------- ---------------
Total Long-Term Debt 1,193,274 943,162 - 2,136,436
---------------- -------------- -------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock 245 - - 245
Common stock 2,670 13,080 (12,821) 2,929
Equity in investments 622,182 - - 622,182
Additional paid-in capital 5,732,609 - 1,293,644 7,026,253
Accumulated deficit (6,341,155) (545,669) 545,669 (6,341,155)
---------------- -------------- -------------- ---------------
Total Stockholders' Equity 16,551 (532,589) 1,826,492 1,310,454
---------------- -------------- -------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
================ ============== ============== ===============
</TABLE>
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
------------- ------------- ------------- --------------
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,389,970 $ - $ 2,389,970
Sales - merchandise and franchise fees 1,093,110 - - 1,093,110
------------- ------------- ------------- --------------
Total Sales 1,093,110 2,389,970 - 3,483,080
------------- ------------- ------------- --------------
COST OF SALES
Cost of sales - screenprinting and embroidery - 1,784,167 - 1,784,167
Cost of sales - merchandise 774,405 - - 774,405
------------- ------------- ------------- --------------
Total Cost of Sales 774,405 1,784,167 - 2,558,572
------------- ------------- ------------- --------------
Gross Profit 318,705 605,803 - 924,508
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 1,447,285 771,624 121,229 2,340,138
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation 31,814 194,523 - 226,337
------------- ------------- ------------- --------------
Total Expenses 2,329,071 966,147 121,229 3,416,447
------------- ------------- ------------- --------------
Loss From Operations (2,010,366) (360,344) (121,229) (2,491,939)
------------- ------------- ------------- --------------
Other Income and (Expenses)
Other income 15,387 1,847 - 17,234
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (183,385) - (316,724)
------------- ------------- ------------- --------------
Total Other Income and Expenses 21,959 (181,538) - (159,579)
------------- ------------- ------------- --------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- --------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- --------------
INCOME TAXES - - - -
------------- ------------- ------------- --------------
Net Loss $ (440,748) $ (541,882) $ (121,229) $ (1,103,859)
============= ============= ============= ==============
Loss Per Share $ (0.57) $ (2.07) $ - $ (0.80)
============= ============= ============= ==============
</TABLE>
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations (Continued)
For the Year ended March 31, 1997
(Unaudited)
American Pro Forma
Resources PPW Adjustments Combined
------------- ------------- ------------- --------------
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,926,410 $ - $ 2,926,410
------------- ------------- ------------- --------------
Total Sales - 2,926,410 - 2,926,410
------------- ------------- ------------- --------------
COST OF SALES
Cost of sales - screenprinting and
embroidery - 2,209,410 - 2,209,410
------------- ------------- ------------- --------------
Total Cost of Sales - 2,209,410 - 2,209,410
------------- ------------- ------------- --------------
Gross profit - 717,000 - 717,000
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 519,185 944,015 121,229 1,584,429
Writedown of goodwill - - - -
Sales and marketing expenses - - - -
Depreciation 3,124 74,815 - 77,939
------------- ------------- ------------- --------------
Total Expenses 522,309 1,018,830 121,229 1,662,368
------------- ------------- ------------- --------------
Loss from operations (522,309) (301,830) (121,229) (945,368)
------------- ------------- -------------- --------------
Other income and (Expenses)
Other revenue - 49,750 - 49,750
Interest income 168 - - 168
Gain on sale of assets 215,375 - - 215,375
Interest expense (32,118) (58,350) - (90,468)
------------- ------------- ------------- --------------
Total Other Income and Expenses 183,425 (8,600) - 174,825
------------- ------------- ------------- --------------
Loss before income taxes and discontinued
operations
Loss from discontinued operations (685,918) - - (685,918)
------------- ------------- ------------- --------------
Total Discontinued operations (685,918) - - (685,918)
------------- ------------- ------------- --------------
Income Taxes - - - -
------------- ------------- ------------- --------------
Net Loss $ (1,024,802) $ (310,430) $ (121,229) $ (1,456,461)
============= ============= ============= ==============
Net loss per Share $ (0.56) $ (1.20) $ (0.97)
============= ============= ============= ==============
</TABLE>
19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
<TABLE>
<CAPTION>
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
June 30,
1998
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest $63,009
Promissory note, secured by vehicle, bearing interest at
11%. Due in monthly installments of $405, including interest. 16,856
Convertible subordinated debentures, due June 30, 1996
bearing interest at 12% per annum. Interest payable
quarterly, secured by land. 185,000
Note payable with interest at 25%. Interest payable in July with
the entire note due October 24, 1998. Secured by Company
and GVI stock. 150,000
Note payable to a bank with interest at 3% above prime per annum.
Secured by accounts receivable and due August 31, 1998. 219,833
--------------
Subtotal 634,698
Less current portion 620,543
Long-term portion $ 14,155
==============
Maturities of long-term debt are as follows:
March 31, 1999 $ 620,543
March 31, 2000 4,193
March 31, 2001 4,592
March 31, 2002 4,600
March 31, 2003 770
--------------
$ 634,698
==============
</TABLE>
20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
<TABLE>
<CAPTION>
NOTE 4 - NOTES PAYABLE, RELATED PARTIES
June 30,
1998
<S> <C>
Note payable to Banque SCS, secured by GVI common stock. Interest
at 14% with monthly principal and interest payments of $6,000
with a final balloon payment July 2001. (Banque SCS is a
shareholder although it disclaims beneficial ownership
of the shares $ 358,000
Promissory notes to Banque SCS, secured by GVI stock, bearing
interest at 12%. Interest due monthly with the entire balance due
on April 24, 1998. Holder of note has agreed to sell GVI
stock securing note until note is paid in full. 170,000
Note payable to Banque SCS, secured by GVI common stock. An
additional $300,000 was borrowed from Banque SCS in July
1998. Interest at 16% due monthly with the entire loan due
December 7, 1999. 40,000
Note payable to a shareholder, secured by assets of the Company.
Interest payable monthly at 18% with no stated principal
payments required. 135,491
Notes payable to the former owners of FTI (includes officers and
directors of the Company). Interest rates average 9.5%.
Unsecured due upon demand. 271,214
Notes payable to the former shareholders of PPW (includes an
officer and director of the Company). Interest rates average
12%. Unsecured due upon demand. 406,008
Subtotal 1,380,713
------------------
Less current portion (229,974)
Long-term portion $ 1,150,739
==================
</TABLE>
21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 5 - CAPITAL LEASES
Property and equipment payments under capital leases as of March
31, 1998 is summarized as follows:
Year End
March 31,
1999 $ 368,389
2000 295,451
2001 253,347
2002 90,898
------------------
Total minimum lease payments 1,008,085
Less interest and taxes 124,647
------------------
Present value of net minimum lease
payments 883,438
Less current portion 303,475
Long-term portion of capital lease
obligations $ 579,963
==================
NOTE 6 - INCOME TAXES
The Company had net operating loss carry-forwards available to
offset future taxable income. The Company has net operating loss
carry-forwards of approximately $5,700,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2008.
Deferred income taxes payable are made up of the estimated federal
and state income taxes on items of income and expense which due to
temporary differences between books and taxes are deferred. The
temporary differences are primarily caused by the use of the
equity method for reporting investment in subsidiaries. The
deferred tax asset is offset in full by a valuation allowance
because it can not be reasonably determined that the net operating
loss will be useable.
22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 7 - 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, 1998, there are 94,953 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,
1998, there is a total of $312,782 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 D:
As discussed in Note 2, the Company issued 100,000 shares of
Series D preferred stock in exchange for 80% of the issued and
outstanding common stock of FTI. Effective March 31, 1998, the
Series D stock was converted into common stock (Note 2).
NOTE 8 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which have
been offered to the holders of the Series B preferred stock and
the debentures. The shares have not been accepted by the holders
of those investments as of the date of the consolidated financial
statements.
NOTE 9 - 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 July 1998, the Board of
Directors changed the terms of the 100,000 options vesting over 10
years. 25,000 of these options were fully vested and the remainder
of the options were canceled. As a result, compensation expense of
$52,498 was recognized for the year ended March 31, 1998 for the
vesting of these options.
23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 9 - STOCK OPTIONS (Continued)
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 years
2 and 3, respectively, with an increase in pro forma expenses per
share of $0.016 in year 1 and $0.003 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
24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1998 and 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES
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, 1999 through March 31,
2004 are $368,885, $373,374, $380,077, $112,011 and $30,216,
respectively.
NOTE 11 - 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 debt funding and plans to
continue making private stock and debt placements in addition to
selling its 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. Management also intends to
renegotiate the terms of its debt for a longer repayment period.
NOTE 12 - SUBSEQUENT EVENTS
In 1997, Quade, Inc., acquired from the U.S. Polo Association ("US
Polo") the exclusive master licenses rights to the US Polo name
for the United States and Canada. For the last year Quade, Inc.,
has been developing this property including signing agreements
with four sub-licensees, and serving as licensee for knit tops
including t-shirts, fleece and polo shirts.
On March, 17, 1998, the Company signed a Letter of Intent to
acquire one hundred percent (100%) of the outstanding common stock
of Quade, Inc. On July 23, 1998 the Company completed its purchase
of Quade, Inc. by issuing 213,333 shares of its common stock and
by loaning Quade $115,000, of which $40,000 had been loaned by
June 30, 1998. These shares include 32,000 shares that have a
guarantee of $5.00 per share based on the average asking price of
the Company's common stock for the six months ended March 31,
1999. The Company will also pay $100,000 to a former partner of
Quade, Inc. by December 31, 1998 and an additional $714,000.00 is
payable to Quade's former partner from guaranteed sub-licensee
royalties, even in the event no sub-licensee royalties are paid.
Depending on Quade's performance over the next three years,
additional shares of the Company's common stock will be issued for
this acquisition if minimum earnings levels are met as follows:
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
1999 $ 27,671 $81,500 47,408 142,222
2000 $251,166 $754,000 47,376 142,222
2001 $499,900 $1,499,200 47,423 142,222
The additional shares that are issued to the Quade, Inc.
shareholder also have a guaranteed value of $5.00.
The Company is also obligated to provide an additional $125,000 to
Quade for working capital purposes and will provide a letter of
credit for up to $200,000 for Quade to make apparel blank
purchases.
25
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
RESULTS OF OPERATIONS
For the Quarter Ended June 30, 1998, Compared to the Quarter Ended June 30,
19967.
Total revenue for the quarter ended June 30, 1998 increased $647,873,
or 402%, to $809,034, compared with $161,161 for the quarter ended June 30,
1997. During the current period Fan-Tastic merchandise sales and franchise
fees/royalties were $147,223 and $36,852 compared to $148,556 and $0 for the
three months ended June 30, 1997. The increase in franchise fees is primarily
due to an increase in Fan-Tastic's marketing budget in fiscal 1998 as compared
to fiscal 1997. In addition, The Company acquired Pacific Print Works (PPW)
effective March 31, 1998 (see Note 2 to the financial statements) which
contributed revenue of $624,958 for the three months ended June 30, 1998.
Revenue is expected to increase in future quarters due to the acquisition of
Quade, Inc. (see Note 12 to the financial statements).
Fan-Tastic had a gross profit of $102,359 or 55.6% for the three months
ended June 30, 1998 as compared to $83,021 or 51.5% for the three months ended
June 30, 1997. The improvement in gross profit as a percentage of sales is due
to the increase in franchise fees and royalties for the three months ended June
30, 1998. PPW had a gross profit of $206,806 or 33% of sales for the three
months ended June 30, 1998.
Depreciation and amortization increased by $97,671 which was primarily
due to goodwill of 30,442 from the PPW acquisition and $66,042 of PPW fixed
assets depreciation.
General expenses increased by $305,892 which was primarily due to PPW
general expenses of $284,711. General expenses are expected to continue to grow
in future quarters due to the acquisition of Quade, Inc. in July 1998 (see Note
12 to the financial statements).
Interest expense increased $102,737 for the current period compared to
the comparable 1997 period. The increase in interest expenses was due to 1) the
Company increased it's debt in fiscal 1998 and the three months ended June 30,
1998 in order to fund operations and acquire PPW and Quade, Inc. and 2) PPW's
interest expense from its bank line of credit and capital lease obligations.
The Company experienced an increase in net loss of $277,463 in the
current period compared to the three months ended June 30, 1997 ($411,536 in the
current period compared with a net loss from continuing operations of $134,073
in the prior period.) This increase is due to the increase in depreciation and
amortization, general expenses and interest expense as described above and from
the net loss from PPW operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had total assets of $5,893,239, total
liabilities of $4,477,666 and total stockholders equity of $1,415,573, compared
with total assets of $5,436,635, total liabilities of $4,126,181 and total
stockholders equity of $1,310,454 at March 31, 1998. At June 30, 1998 the
Company's current ratio was approximately .63 current assets to 1 current
26
<PAGE>
liabilities. The Company's current ratio is expected to continue to improve as
the Company's 862,000 restricted shares in GVI become a current asset. The
restriction of sale of these shares expires in July 1999. In addition, the
Company will seek to convert certain debt to equity which will improve its
current ratio.
Management intends to improve its overall financial structure and
provide operating capital through seeking 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 approximately
$125,000 of additional capital to fund the operations of its new subsidiary,
Quade, Inc.
27
<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.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
Date: August 18, 1998 By: /Tim Papenfuss
------------
Tim Papenfuss, Chief Financial Officer
and Chief Executive Officer
29
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 16,649
<SECURITIES> 643,087
<RECEIVABLES> 299,044
<ALLOWANCES> 0
<INVENTORY> 362,987
<CURRENT-ASSETS> 1,398,395
<PP&E> 1,229,939
<DEPRECIATION> (195,060)
<TOTAL-ASSETS> 5,893,239
<CURRENT-LIABILITIES> 2,216,806
<BONDS> 0
0
245
<COMMON> 2,965
<OTHER-SE> 1,412,363
<TOTAL-LIABILITY-AND-EQUITY> 4,477,666
<SALES> 809,034
<TOTAL-REVENUES> 809,034
<CGS> 499,870
<TOTAL-COSTS> 657,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (107,042)
<INCOME-PRETAX> (411,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (411,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411,536)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
