U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A2nd
Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended March 31, 1997, or
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from ________________ to ____________________
Commission file number 0-18865
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
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(Name of Small Business Issuer in Its Charter)
Utah 87-0401400
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
102 West 500 South, Suite 318, Salt Lake City, Utah 84101
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(Address of Principal Executive Offices) (Zip Code)
(801)363-8961
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class Name of each Exchange on which Registered
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None ------
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
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(Title of class)
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
---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Issuer's revenues for its most recent fiscal year was $274,000.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked prices
of such stock, as of April 6, 1998, was $ $1,095,838.
The number of shares outstanding of the issuer's common equity, as of
April 6, 1998, was 1,890,481 shares.
Transitional Small Business Disclosure Format:
Yes No X
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<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 4
ITEM 3. LEGAL PROCEEDINGS 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 6
ITEM 7. FINANCIAL STATEMENTS 11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 11
ITEM 10. EXECUTIVE COMPENSATION 13
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 16
<PAGE>
The information contained in this second amended Form 10-K for the
fiscal year ended March 31, 1997, is as of the latest practicable date except
for financial information which relates to the fiscal year.
PART I
Item 1. Description of Business.
GENERAL
American Resources and Development Company ("ARDCO" or the "Company")
was incorporated under the laws of the State of Utah on March 13, 1983, under
the name of Leasing Technology, Incorporated. In March, 1997 the Company changed
its name to American Resources and Development Company. The Company, through
various subsidiaries, owns an interest in a franchisor and owner of retail
entertainment and sports stores, and an investment in a regional developer and
management provider of golf courses and related developments. When used
throughout this report, the Company shall include the subsidiaries unless the
context indicates otherwise. In addition to the above businesses, the Company is
actively reviewing other acquisition possibilities wherein the Company could
acquire an interest in products, properties, technologies and/or businesses
believed by management to hold potential for profit. The nature of any
acquisition and the manner of any acquisition cannot be determined at the
present time and will be subject to the business judgment of management of the
Company. There is no assurance that the Company will be able to acquire any
interest in any other product, property, technology, or business.
The Company's present executive offices are located at 102 West 500
South, Suite 318, Salt Lake City, Utah 84101 and its telephone number is (801)
363-8961. As of April 6, 1998, the Company had twenty-two (22) full time
equivalent employees. On March 27, 1997, the Company effected a 1 for 20 reverse
stock split of its common stock.
FAN-TASTIC, INC.
In March, 1997, the company acquired 80% of the outstanding shares of
Fan-Tastic, Inc., (Fan-Tastic) a Utah Corporation. Fan-Tastic is a franchiser
and owner of retail entertainment and sports stores, dba Fan-A-Mania, based in
regional shopping malls. As of April 6, 1998, Fan-Tastic owned 6 of its own
stores (2 in Utah and 4 in Oregon) and 9 franchisees (Utah, Wyoming,
Pennsylvania, Texas, Barbados, Canada and Japan). Fan-Tastic opened its first
Fan-A-Mania store in October, 1995, with the purpose of taking advantage of the
high growth and popularity of licensed entertainment and sports products.
Fan-A-Mania stores carry a broad range of sports and entertainment
products purchased from national vendors who are licensed with the following
entertainment and sports companies: Disney, Warner Brothers, Public Television
(Sesame Street), National Football League, National Basketball Association,
Major League Baseball, and National Hockey League. Products carried range from
apparel for ages ranging from toddlers to adults, collectibles and souvenirs for
fans of entertainment and sports.
In May, 1997, Fan-Tastic initiated a national marketing campaign to
promote the Fan-A-Mania stores primarily through advertising in national
magazines. Limited additional marketing will also be done at specific
entrepreneur shows held in strategic regions of the United States and through
direct marketing.
With the sales of each franchise unit, Fan-Tastic receives a franchise
fee of $19,500, and a royalty fee on ongoing sales of 3 1/2%. Principal services
Fan-Tastic provides to its franchisees are as follows:
<PAGE>
- Site evaluation and selection and lease negotiation.
- Store design and merchandising and display plans.
- Lower inventory costs from negotiated volume pricing and
simplified buying through a consolidated buying program.
- Inventory control through a consolidated point of sale
software and chain wide identification of hot selling
products.
- Three days of initial training at the corporate office
covering all phases of store operations; product purchasing,
store promotions, etc. using the proprietary Fan-A-Mania
operations manual. This initial training is followed closely
with three days of training at the opening of the store and
on-going follow-up training.
International Franchising
Fan-Tastic's marketing efforts have also resulted in international
interest in the concept, with a first store opening in Bridgetown, Barbados, in
December, 1996, and the signing of a master franchise agreement with a Japanese
company that opened its first store in December 1997 January 1998. Management of
Fan-Tastic believes a strong area of growth will be in the international market
due to the growing interest in American entertainment and sports in the global
marketplace.
Seasonality
Approximately 36% of annual Fan-Tastic sales have occurred in the
months of November and December.
Competition
The entertainment and sports products industry is quite competitive.
Most mass merchants carry entertainment and sports products and thus provide
competition on an indirect basis. However, management believes service and
atmosphere differentiate Fan-A-Mania products from mass merchant products.
Direct competition in malls where Fan-A-Mania stores are located comes primarily
from national chains such as Disney, Warner Brothers, and Champs. Currently,
there are no Fan-A-Mania stores in locations with these stores, although direct
competition exists with smaller sports stores. Management believes that
Fan-A-Mania has differentiated itself by selling both entertainment and sports
products and by having a more attractive look which includes an interactive
shopping experience.
Fan-Tastic also receives indirect competition from other franchisers
for prospective franchisees. However, there is very little direct competition
for prospective franchisees since Fan-A-Mania is currently the only
entertainment and sports concept on the market. Fan-Tastic also has competition
from suitable store locations from a wide variety of retailers.
Trademarks
Fan-Tastic owns the registered mark, "Fan-A-Mania".
Employees
As of April, 1998, Fantastic had 21 full time equivalent employees.
<PAGE>
GOLF VENTURES, INC.
As of April 6, 1998, the Company owned 502,746 shares of common stock
of Golf Ventures, Inc. (hereinafter "GVI"), a publicly held Utah corporation. As
of April 6, 1998, such shares represent approximately 5.3% of the issued and
outstanding common stock of GVI. This percentage is prior to the conversion of
U.S. Golf Communities Preferred Stock, which upon conversion will reduce the
Company's holdings to approximately 1.4% of the issued and outstanding Common
Stock of GVI. In addition, in connection with GVI's merger with U.S. Golf
Communities, Inc. described below, and to resolve all intercompany transactions
between the Company and GVI since 1992, GVI, in July 1997, issued the Company
823,343 shares of common stock. Subsequently, GVI converted such shares to their
own use but agreed to issue the Company 715,000 shares of common stock. However,
GVI has now refused to honor such commitment and the Company is now deciding
whether to seek legal recourse.
Until December, 1997, GVI's assets consisted of the Red Hawk
International Golf & Country Club (hereinafter "Red Hawk"), Cotton Manor, and
Cotton Acres, real estate developments located near St. George, Utah.
On November 25, 1997, GVI announced that it had completed a merger with
U.S. Golf Communities, Inc. ("U.S. Golf Communities"), an Orlando based group of
affiliated companies principally engaged in the acquisition, development and
operations management of public, private and resort golf properties and adjacent
residential real estate throughout the United States. The transaction was
structured as a reverse merger with the assets of U.S. Golf Communities being
merged into GVI in exchange for the issuance by GVI of convertible preferred
stock to the current owners of U.S. Golf Communities. GVI issued sufficient
shares of preferred stock to the shareholders of U.S. Golf Communities so that
when converted, such shareholders would own approximately 81% of the outstanding
common stock of GVI.
Additional information regarding the business of GVI can be found in
GVI's reports filed with the Securities and Exchange Commission. Since the
Company has no control over GVI, its interest in GVI after November 25, 1997, is
that of a passive shareholder.
FINALLY COMMUNITIES, INC.
On March 22, 1998, the Company sold its shares in Finally Communities,
Inc. to William R. Vowell in exchange for the return of the stock previously
issued to Mr. Vowell.
POTENTIAL ACQUISITIONS
On December 26, 1997, the Company signed a Letter of Intent with
respect to the acquisition of Pacific Printworks, Inc. ("PPI"). PPI is active in
the contract screenprinting and embroidery business. Current negotiations would
provide for the purchase of one hundred percent (100%) of the outstanding common
stock of PPI, through issuance by the Company of $2.3 million of its common
stock, and the loan to PPI of funds in the amount of $300,000.00. Two-thirds of
the stock issued will be subject to earnout consideration. The funds loaned will
be used for PPI's operations and for the assumption of capitalized leases of
approximately $175,000.00. The Company had advanced one hundred forty-five
thousand dollars ($145,000.00) to PPI on or before April 6, 1998, in the form of
a note receivable. The Letter of Intent with PPI remains subject to Board of
Director approval, negotiating and signing a definitive stock purchase agreement
by PPI shareholders, due diligence by all parties to the agreement, and other
customary conditions. There can be no assurance that the Company will be able to
complete this, or any other acquisition.
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. Under
the terms of the Letter of Intent, the owner of Quade 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 the subsequent 3 years based on
contingent earnout consideration. The Company would also pay $100,000.00 on the
date of acquisition to former partners of Quade, Inc., and an additional
<PAGE>
$500,000.00 is payable to Quade's former partners from guaranteed sub-licensee
royalties, even in the event no sub-licensee royalties are paid. The Company is
also obligated to provide an additional $200,000.00 to Quade for working capital
purposes. 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 bringing on four sub-licensees, and serving as licensee for
knit tops including t-shirts, fleece and polo shirts. The Letter of Intent with
Quade, Inc. is subject to negotiating and signing a definitive stock purchase
agreement with the shareholders of US Polo, receiving Board of Director
approval, the performance of due diligence by all parties to the agreement, and
other customary conditions. There can be no assurance that the Company will be
able to complete this, or any other acquisition.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
No information is presented as to industry segments. The Finally
Communities acquisition occurred in May, 1997, and the Fan-Tastic acquisition
occurred in March, 1997. The assets, equity, and operations of Fan-Tastic are
each respectively less than 10% of the Company's, and not material for separate
industry segment disclosure. Reference is made to the statements of operations
included herein in response to Part II, Item 7 of this Form 10-KSB/A for a
statement of the Company's revenues and operating profit (loss) for the past two
fiscal years.
Item 2. Description of Property.
The Company's executive offices are located at 102 West 500 South, Suite 318,
Salt Lake City, Utah 84101. This office facility consists of approximately 1,100
square feet. The Company is paying $1,016 per month for the space on a
month-by-month basis.
Fan-Tastic leases an office and warehouse space in Salt Lake City, Utah, and
leases retail space for its six stores. Lease commitments from fiscal 1998
through fiscal 2004 are $150,241, $154,730, $161,453, $118,887, $77, 317, and
$30,216.
Item 3. Legal Proceedings.
No material legal proceeding is pending at this time.
On December 18, 1997, the Securities and Exchange Commission
(hereinafter the "Commission") filed a civil enforcement action complaint,
2:97CV 0963K in the United States District Court for the district of Utah,
Central Division, against George Badger, former president of the Company, Karl
Badger, president of the Company, and others, alleging violations of the general
anti-fraud provisions of the federal securities laws. The complaint alleges that
George Badger directed a scheme to manipulate the market for securities issued
by GVI through payments to various broker-dealers and registered
representatives. The complaint alleges that Mr. Karl Badger arranged for some of
these payments. The complaint seeks a permanent injunction against future
violations of the federal securities laws, a court order prohibiting the
defendants from future participation in offerings of penny stocks and
disgorgement of alleged profits. Mr. Karl Badger has filed an answer to the
complaint denying the material allegations thereof, and filed Motions to
Dismiss, and intends to vigorously defend the action. At the present time, the
Company has agreed to indemnify and advance legal expenses for Karl Badger in
connection with this matter.
Item 4. Submission of Matters to a Vote of Security Holders.
On February 20, 1997, an amendment to the Articles of Incorporation of the
Company was approved by written consent of shareholders owning 1,219,331 shares
(66%) in lieu of a meeting, changing the name of the corporation to American
Resources and Development Company. A one-for-twenty reverse split of the
Company's common stock was also approved. These changes became effective on
March 27, 1997.
<PAGE>
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter market on
the Electronic Bulletin Board under the symbol ADCO. The following table sets
forth for the respective period indicated, the high and low bid quotations, as
adjusted for stock splits of the Company's common stock, as reported by the
National Quotation Bureau and represents prices between dealers, does not
include retail markups, markdowns or commissions, and may not represent actual
transactions:
Calendar Quarters High Bid Low Bid
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1995
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1st Quarter 3.80 2.60
2nd Quarter 10.00 5.00
3rd Quarter 2.60 1.20
4th Quarter 3.80 1.20
1996
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1st Quarter 3.80 1.20
2nd Quarter 3.80 1.20
3rd Quarter 3.00 1.20
4th Quarter 2.50 0.60
1997
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1st Quarter 6.50 2.50
2nd Quarter 5.50 2.75
3rd Quarter 5.25 2.00
4th Quarter 1.75 .875
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As of April 6, 1998, the Company had 1,890,481 shares of its common
stock issued and outstanding, and there were approximately 1,300 shareholders of
record.
As of the date hereof, the Company has not paid or declared any cash
dividends. Future payment of dividends by the Company, if any, is at the
discretion of the Board of Directors and will depend, among other criteria, upon
the Company's earnings, capital requirements, and its financial condition as
well as other relative factors. Management has followed the policy of retaining
any and all earnings to finance the development of its business. Such a policy
is likely to be maintained as long as necessary to provide working capital for
the Company's operations.
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
On March 17, 1997, the Company acquired 80% of the outstanding shares
of Fan-Tastic for 100,000 shares of the Company's Series D Convertible Preferred
Stock. These shares were issued to the 8 shareholders of Fan-Tastic, each of
which signed an investment letter. The issuance of these shares was exempt from
registration pursuant to Section (4)(2) of the Securities Act of 1933.
On May 20, 1997 the Company entered into an agreement with William R.
Vowell to form Finally Communities, Inc. In consideration of Mr. Vowell's time
and effort to develop the Finally business, the Company issued Mr. Vowell
500,000 shares of Series E Convertible Preferred Stock. The issuance of these
shares was exempt from registration pursuant to Section (4)(2) of the Securities
Act of 1933. In connection with the Company's sale of its shares in Finally
Communities, Inc. in February, 1998, these shares were returned to the Company.
Item 6. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
The following information, on a fiscal year basis, is derived from the
consolidated financial statements of the Company. Such financial statements
include the Company, GVI, Fan-Tastic and Finally.
RESULTS OF OPERATIONS
For the Year Ended March 31, 1997, Compared to the Year Ended March 31, 1996.
Total revenue for the fiscal year ended March 31, 1997 ("fiscal 1997")
decreased $460,675, 63%, to $274,000, compared with $734,675 for the fiscal year
ended March 31, 1996 ("fiscal 1996"). Income is comprised of the sale of lots
from Cotton Acres and condominiums from Cotton Manor. During fiscal 1997, 9 lots
were sold at an average price of $30,400. During the comparable prior year
period, 20 lots were sold at an average price of $24,000 and 3 condominium units
were sold at an average price of $84,700. The sales volume is dependent upon the
number of completed lots and condominiums in inventory. During the past year
GVI's available capital was used to develop Red Hawk and no funds were made
available to Cotton Manor or Cotton Acres for development and therefore no new
inventory was available for sale and sales decreased.
Cost of sales decreased by $354,462, 69%, to $158,066 for the fiscal
year ended March 31, 1997 from $512,528 for fiscal 1996. As a percentage of
total revenue, cost of sales decreased to 58% in the current year from 70% in
the prior year. Gross profit decreased $106,213, 48%, to $115,934 during fiscal
1997 from $222,147 during fiscal 1996. Gross profit as a percentage of total
revenue increased to 42% from 30% in fiscal 1996.
General and administrative expenses decreased $2,859,610, or 68%, to
$1,377,082 during fiscal 1997 from $4,236,692 during fiscal 1996. The decrease
was principally attributable to $2,835,000 in financial advisory and referral
expenses incurred by GVI in 1996 and $350,000 for advertising and promotional
services incurred by GVI, both of which were settled by the issuance of GVI
common shares. The decrease was offset somewhat by increases in legal fees of
$197,730, 202%.
The Company had other income of $241,863 during fiscal 1997 compared
with $232,173 during fiscal 1996, an increase of $9,690, 4%.
The Company experienced a net loss of $1,024,802 in fiscal 1997
compared with a net loss of $3,786,145 in fiscal 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had total current assets of
$1,336,961 and total current liabilities of $3,486,633 which results in a
current ratio of 0.38:1, compared to a current ratio of 0.68:1 as of March 31,
1996. The current ratio decrease was due to the decrease in year end cash of
$742,894, 94%, from $790,744 at year end 1996 to $47,850 at March 31, 1997. The
decrease in cash reflects the slow down in real estate sales in GVI and the
decrease in borrowings during the fourth quarter of FY 1997. The decrease in
cash was offset somewhat by the increase in real estate inventories of $184,429,
25%, from $748,010 to $932,439 due primarily to the completion of an additional
townhome in the Cotton Manor development and the construction of an additional
19 lots in Phase X of Cotton Acres.
Current liabilities at March 31, 1997 increased $1,012,677, 41%, over
the prior year due to an increase in accounts payable of $385,938, 50%, and an
increase in interest payable of $556,649, 100%, related to the ongoing interest
accrual for notes payable and an adjustment for prior periods.
The Fan-Tastic, Inc. acquisition involves contingent consideration
based on Fan-Tastic, Inc. achieving specified earnings. The additional cost of
contingent consideration shall be recognized in the period that the contingency
is resolved.
The earnings per share calculation includes amortization of an
estimated contingent amount. Assuming earnings of $700,000 by Fan-Tastic, Inc.
over the three (3) 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 unaudited pro forma summary information combining the results of
operations of the Company and Fan-Tastic, Inc. are represented as if the
acquisition had occurred at the beginning of fiscal 1997 and 1996, after giving
effect to certain adjustments, including the amortization of Goodwill. This pro
forma summary does not necessarily reflect the results of operations as they
would have been if the Company and Fan-Tastic, Inc. had constituted a single
entity during such periods.
Fiscal Years
1997 1996
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Net Revenue $ 1,149,532 $ 1,120,879
Net Loss (1,142,977) (4,071,168)
Net Loss per share (.62) (2.22)
The basis used to determine the fair value of this acquisition was the
net assets acquired. In addition, the total consideration given were the 150,000
stock options and the shares to be issued based on contingent earnings. Both the
stock options and the contingent shares are disclosed in the amended 10-KSB.
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
Communities. The remainder of new debt with this shareholder of $385,125
<PAGE>
requires interest only payments until April of 1998, at which time 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 stock of Finally Communities in
exchange for all Company stock he received under the May 1997 purchase of
Finally Communities 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 ("Pacific Printworks, Inc." or "PPI"). Under the current
terms of negotiations related to that Letter of Intent, the Company would
purchase $2.3 million of its common stock, and loan funds in the amount 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 dollars had been advanced to the PPI 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 PPI. The $155,000 of funds advanced to PPI through April 6, 1998,
were obtained primarily through debt issuances of $120,000 with a shareholder.
Under the terms of the Letters of Intent described above, the Company
is obligated to provide $300,000.00 to Pacific Printworks, Inc. ("PPI") for use
in PPI's operations (of which $145,000.00 had been paid prior to April 6, 1998),
and to provide $300,000.00 to the Apparel Company ($100,000.00 to a buyout
partner and $200,000.00 for working capital purposes). The Company intends to
fund these obligations from debt or equity financing and/or through the sale of
the Company's stock in GVI. As explained in the Potential Acquisitions Section
above, the Company's Letters of Intent are subject to negotiation, execution or
a definitive agreement, Board Approval, and due diligence by all parties to the
agreement. Therefore, there can be no assurance that the Company will be able to
complete any agreement committed to through a Letter of Intent.
PLAN OF OPERATIONS
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words anticipates, believes, expects, intends, future, and words of similar
import which express management's belief, expectations or intentions regarding
the Company's future performance or future events or trends. Forward-looking
statements may not reflect actual operations because they involve known and
unknown risks, uncertainties and other factors, which may cause actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressly or implied by such
forward-looking statements. In addition, the Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
In addition to the development of its existing businesses, management
of the Company intends to investigate with a view to acquiring interests in
products, properties, technologies and businesses believed by management to hold
potential for profit. The nature of any acquisition and the manner of
acquisition cannot be determined at the present time and will be subject to the
business judgment of management. The Company presently intends to find a
product, property, technology or business in which an interest can be acquired
by the Company in exchange for the Company's securities, where the Sellers will
play the major role in the development of such product, property, technology or
business, and the primary function of the Company would be providing the
corporate structure for the business operations.
<PAGE>
The Company's acquisitions, if any, may be owned by a joint venture
between the Company and the developer or by a partnership organized by the
Company. If the Company becomes a partner in a joint venture or partnership,
under certain circumstances risks may be involved not otherwise present,
including, for example, risks associated with the possibility that the Company's
co-venturer in an investment might become bankrupt, that such co-venturer may at
any time have economic or business interests or goals which are inconsistent
with the business interests or goals of the Company, or that such co-venturer
may be in a position to take action contrary to the instructions or the requests
of the Company or contrary to the Company's policies or objectives.
Management believes that products, properties, technologies and
businesses will become available to it for acquisition due to a number of
factors, including, among others: (a) The Company's status as a publicly held
Company; (b) Management's willingness to enter into unproven, speculative
ventures; (c) Management's contacts and acquaintances; and (d) The Company's
flexibility with respect to the manner in which it may structure potential
acquisitions. However, there is no assurance that the Company will be able to
structure any partnership, or acquire an interest in any product, property,
technology or business.
Due to the factors described in the preceding paragraph, the Company
believes that it may be attractive to individuals and entities which wish to
take advantage of the benefits of a public corporation. Management believes that
a public trading market for the Company's common stock will be attractive to
corporations and other firms, due to (a) The Company's ability to issue stock in
acquisition transactions rather than paying cash thus providing an opportunity
to the seller to structure the transaction as a "tax free" event under the
Internal Revenue Code; (b) The liquidity (ability to turn investment into cash)
provided to shareholders of a publicly traded corporation not available in a
privately held company, as a result of the ability to sell shares in the open
market; and (c) a potential trading market in the Company's common stock which
may be at a premium over shares which cannot be publicly traded since shares of
a privately held company are often valued at the Company's book value for
purposes of a sale while shares of a publicly traded company often trade at an
increased value.
Possible Methods of Business Opportunity Acquisition
The Company proposes to seek out persons and firms holding interest in
products or businesses who are seeking to transfer such products or businesses
to a public entity.
In implementing its proposed business, the Company will consider a
number of alternative methods for the acquisition of an interest in products or
business. The primary method of acquisition will most likely be a merger,
reorganization or joint venture with a corporation or other entity holding the
rights to such product, business or process. There can be no assurance that the
Company will be able to enter into any arrangements on terms favorable to the
Company.
Evaluation of Potential Business, Property, Technology or Product Acquisitions
It is anticipated that preliminary information with respect to any
potential business, property, technology or product acquisition by the Company
will be obtained primarily through the personal contacts of management in the
business community.
Management of the Company will conduct the review and evaluation of any
potential business, property, technology or product acquisitions. Such
evaluation will be based generally upon management's knowledge and expertise. In
seeking products, businesses or processes, the Company will consider a number of
factors, including the soundness of the idea, service or product to be developed
or being developed, the market for such product, the effect of economic
conditions and governmental policies on such product, the nature and extent of
competition, the cost of developing and marketing the product, and other factors
deemed relevant by management. To the extent applicable, management will
consider other factors including the following, none of which will be
controlling:
<PAGE>
1. The management and personnel of the proposed acquisition
who will be involved with the Company following such acquisition;
2. The capital requirements and anticipated availability of
required funds for the operation of the acquisition;
3. The cost to the Company of participating in the potential
acquisition as compared to the potential benefit of such acquisition;
4. The competitive position which the proposed acquisition has
in the market-place;
5. The potential growth of the business, property, technology
or product in the industry; and
6. Other factors deemed relevant in the specific
circumstances.
In evaluating a potential business, property, technology or product
acquisition, the Company will consider the results of operations of such
business to date. However, since the Company may seek to acquire new businesses,
properties, technologies or products which are in the development state, it
recognizes that the results of operations of such businesses, properties,
technologies or products may not be indicative of its potential future
operations.
Prior to conducting an evaluation of a prospective acquisition, the
Company will generally require that it be provided with reports, documents,
agreements, financial information and other information deemed relevant in the
particular circumstances. The Company will also conduct a personal investigation
and review the books and records of the potential acquisition as it may deem
appropriate, including interviews with management and key personnel, independent
analysis of information provided, and other similar activities. However, due to
the limited capital of the Company, it must be recognized that the Company's
investigation of a potential acquisition may not be as thorough or complete as
would be desirable under the circumstances. It is not likely that any "fairness
opinion" will be obtained in connection with any acquisition.
Business Acquisitions: Special Considerations
If the Company decides to acquire a business, the following
considerations exist. It cannot be predicted at this time the manner in which
the Company may participate in a potential business acquisition. Such
determination will depend upon a number of factors, including the nature of the
particular business, the respective needs of the parties to the transaction, and
the relative negotiating strengths of such parties. The manner of participation
will include, but not be limited to, joint ventures, licensing arrangements,
purchase and sale of assets, purchase and sale of stock, partnerships, leases,
mergers, consolidations, and other contractual transactions. The precise nature
of any of such transactions cannot be predicted at the present time.
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation or reorganization with
another corporation or entity. Upon the consummation of such a transaction, the
present management and shareholders of the Company may not be in control of the
Company. For example, a majority or all of the Company's directors may, as a
part of the terms of the acquisition transaction, resign and be replaced by new
directors without a vote of the Company's shareholders.
It can be anticipated that the Company may effect a business
acquisition through the issuance of its securities. While the precise terms of
such transaction cannot be predicted, it may be expected that the parties to the
business acquisition will find it desirable to avoid the creation of a taxable
event and thereby structure the acquisition in a so-called "tax free"
reorganization under Section 368(a)(1) of the Internal Revenue Code.
<PAGE>
Item 7. Financial Statements and Supplementary Data.
See Item 13. Exhibits and Reports on Form 8-K.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
This item is not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Directors and Executive Officers
The following table sets forth the name, age and office held by each
director and officer of the company, followed by a brief resume of each
individual.
NAME AGE POSITION HELD
- -------------------------------------------------
Karl F. Badger 43 President, Chief Executive Officer and
Director
Barry L. Papenfuss 37 Vice President and Director
Timothy Papenfuss 38 Secretary/Treasurer, Chief Financial Officer
and Director
B. Willes Papenfuss 39 Executive Vice-President
KARL F. BADGER, has been with the Company since 1992 working as the
Director of Shareholder Relations. He was appointed President, CEO and Director
of the Company upon resignation of George H. Badger, his father in December
1996. Prior to 1992, Mr. Badger was a licensed broker/principle for Rocky
Mountain Securities and Investments.
BARRY L. PAPENFUSS, Vice President and Director of the Company, is the
President of Fan-Tastic, which position he has held since 1994, and has been
with the Company since Fan-Tastic was acquired by ARDCO in March, 1997. From
1990-1994, Mr. Papenfuss was the controller of The Pro Image, a sports apparel
company and from 1985-1990, was a consultant with Deloitte and Touche, an
international accounting firm. Mr. Papenfuss graduated from Brigham Young
University. Mr. Barry Papenfuss is the brother of Mr. Timothy Papenfuss,
Secretary/Treasurer, Chief Financial Officer and a director of the Company and
of B. Willes Papenfuss, Executive Vice-President of the Company.
TIMOTHY M. PAPENFUSS, chief financial officer and director of the
Company, is chief financial officer of Fan-Tastic, Inc., which position he has
held since April, 1994. Mr. Papenfuss was appointed chief financial officer and
a director of the Company in August, 1997. From 1990 to April, 1994, Mr.
Papenfuss was a manager and senior manager with Ernst and Young. Mr. Papenfuss
has 13 years of professional accounting experience. Mr. Papenfuss graduated from
Brigham Young University in 1983 with a bachelors degree in accounting. Mr.
Papenfuss is the brother of Barry Papenfuss, vice president and a director of
the Company and of B. Willes Papenfuss, Executive Vice-President of the Company.
B. WILLES PAPENFUSS, Executive Vice-President, was appointed Executive
Vice-President of the Company in December, 1997. Mr. Papenfuss joined
Fan-Tastic, Inc. as Vice-President International in May, 1995. He was
Vice-President of U.S. Bank from 1991 to 1993, and Senior Vice-President of U.S.
Bank from 1993 to 1995. Mr. Papenfuss graduated from the University of
Washington with a Masters of Business Administration in 1985. Mr. Papenfuss is
<PAGE>
the brother of Barry Papenfuss, Vice-President and Director of the Company, and
of Timothy Papenfuss, Chief Financial Officer and Director of the Company.
Commitment for Board Seats
Pursuant to the Letters of Intent, described above, the Company has
agreed to appoint an officer of PPI and U.S. Polo to its Board of Directors.
Significant Employees and Consultants
The following individual is a consultant to the Company.
GEORGE H. BADGER, resigned as President, Chief Executive Officer and a
Director of the Company on December 31, 1996. Mr. Badger served as a director
since June 1992, and was President since 1995. Mr. Badger is currently providing
consulting services to the Company primarily in providing background information
on transactions which took place or were begun when he was president of the
Company and in locating possible acquisitions. Mr. Badger was indicted on a
number of charges and was arraigned in the U.S. Federal District Court for the
Southern District of New York on October 9, 1996. The Company has been advised
that the indictment related to alleged unlawful and undisclosed compensation to
securities brokers and promoters to induce them to cause customers to purchase
securities issued by GVI and the Company. The Company has been advised that Mr.
Badger has pleaded guilty to counts of: (i) conspiracy to commit securities
fraud; (ii) securities fraud; (iii) criminal contempt; and (iv) perjury.
On December 18, 1997, the Securities and Exchange Commission
(hereinafter the "Commission") filed a civil enforcement action complaint,
2:97CV 0963K in the United States District Court for the district of Utah,
Central Division, against George Badger, former president of the Company, Karl
Badger, president of the Company, and others, alleging violations of the general
anti-fraud provisions of the federal securities laws. The complaint alleges that
George Badger directed a scheme to manipulate the market for securities issued
by GVI through payments to various broker-dealers and registered
representatives. The complaint alleges that Mr. Karl Badger arranged for some of
these payments. The complaint seeks a permanent injunction against future
violations of the federal securities laws, a court order prohibiting the
defendants from future participation in offerings of penny stocks and
disgorgement of alleged profits. Mr. Karl Badger has filed an answer to the
complaint denying the material allegations thereof, has filed Motions to Dismiss
the complaint, and intends to vigorously defend the action.
Compliance with Section 16(a) of the Securities Act of 1934 by Company Officers,
Directors and 10% Shareholders.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file with the Commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company. The rules promulgated by the Commission under Section
16(a) of the Exchange Act require those persons to furnish the Company with
copies of all reports filed with the Commission pursuant to Section 16(a).
Messrs. Badger, Papenfuss, Papenfuss and Papenfuss did not file Forms 3
within ten days of becoming officers and/or directors of the Company. Messrs.
Papenfuss, Papenfuss and Papenfuss have not filed Forms 3, 4, or 5, when they
became a director, nor when they were granted stock options. Based solely upon a
review of Forms 3, Forms 4 and Forms 5 and amendments thereto furnished to the
Company pursuant to Rule 16a-3(e) during the fiscal year ended March 31, 1997,
and written representations of certain of its directors and executive officers
that no Forms 5 were required to be filed, all other directors and executive
officers have filed with the Commission on a timely basis all reports required
to be filed under Section 16(a) of the Exchange Act.
<PAGE>
Item 10. Executive Compensation.
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers of directors.
The following table sets forth the annual compensation paid and accrued
by the Company for services rendered during the fiscal years ended March 31,
1997, 1996 and 1995 to (i) the Company's Chief Executive Officer and (ii) each
other executive officer of the Company or its subsidiary serving at the end of
the last completed fiscal year whose salary and bonus exceeded $100,000 during
the last fiscal year ("Named Executive Officer").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
===================================================================================================================================
Annual Compensation Long-Term Compensation
-------------- ---------- ------------------- --------------------------- ------------
Awards Payouts
------------- ------------- ------------
Name and Principal Other Restricted All Other
Position Annual Stock Options/ LTIP Compen-
Year Salary Bonus Compensation Award(s) SARs Payouts sation
($) ($) ($) ($) (#) ($) ($)
==================== ========== ============== ========== =================== ============= ============= ============ ============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Karl Badger, Chief 1997 $73,058 -0- -0- -0- -0- -0- -0-
Executive Officer 1996 $73,058 -0- -0- -0- -0- -0- -0-
1995 $73,058 -0- -0- -0- -0- -0- -0-
George Badger 1997 $50,400 -0- -0- -0- -0- -0-
1996 $50,400 -0- -0- -0- -0- -0-
1995 $50,400 -0- -0- -0- -0- -0-
==================== ========== ============== ========== =================== ============= ============= ============ ============
</TABLE>
<PAGE>
Employment Agreements.
None of the Company's officers or directors has any written employment
agreement with the Company. Messrs. Barry and Timothy Papenfuss have employment
agreements with Fan-Tastic.
Director Compensation
Directors of the Company have been partially reimbursed for expenses
incurred by them on behalf of the Company. No salary or fee has been paid to
directors. It is anticipated that the Company may establish some fees for
directors at such time as the Company has sufficient funds to pay fees to
directors.
Stock Options
In October, 1997 the Board of Directors ratified options for the three
officers of the Company. Pursuant to this action, Mr. Karl Badger holds an
option to purchase 100,000 shares of the Company's common stock at $2.00 per
share. The option vests as to 10,000 shares at the end of each fiscal year and
the option may be exercised for a three year period following its vesting. Both
Mr. Barry Papenfuss, Mr. Timothy Papenfuss, and Mr. B. Willes Papenfuss each
hold an option to purchase 20,000 shares of the Company's common stock at $2.00
per share. Mr. Barry Papenfuss, and Mr. Timothy Papenfuss' options are fully
vested as to 5,000 shares at the end of each fiscal year. Mr. B. Willes
<PAGE>
Papenfuss' options are fully vested. On the date of the Board of Directors'
meeting the average between the bid and asked price of the Company's common
stock was approximately $4.00.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, to the best knowledge of the
Company, as of April 6, 1998, with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock; (ii)
each director; and (iii) all current directors and executive officers as a
group.
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OWNED OF CLASS
- ---------------- ------------ --------
Banque SCS Alliance SA 948,3361 51.50%
P.O. Box 880
12111 Geneva 3, Switzerland
George H. Badger 131,487 7.14%
102 West 500 South, Suite 318
Salt Lake City, UT 84101
Don Pickett, agent for 125,860 6.83%
Mindon Investment and The Stella Trust
P. O. Box 58548
Salt Lake City, UT 84101
Karl F. Badger 58,605 3.2%
102 West 500 South, Suite 318
Salt Lake City, UT 84101
Barry L. Papenfuss 02 *
3855 South 500 West #R
Salt Lake City, UT 84115
Timothy M. Papenfuss 03 *
3855 South 500 West #R
Salt Lake City, UT 84115
B. Willes Papenfuss 03 *
123 13 Southeast Wagoner Street
Portland, OR 97236
All Officers and Directors as a Group (3 persons) 58,605 3.2%
*Less than 1%
- --------------------------
1 Banque SCS Alliance SA disclaims beneficial ownership.
2 Mr. Barry Papenfuss is the owner of 37,012 shares of the Company's Series D
Convertible Preferred Stock. After June 30, 2000 and before September 30, 2000
the D Preferred is convertible at the option of the holder into shares of the
Company's common stock or the common stock of Fantastic at a conversion rate to
be determined based on net income of Fantastic at the time of conversion and the
trading price of the Company's common stock. Additionally Mr. Papenfuss has
received options to acquire 56,903 shares of the Company's common stock valued
at $2.00 per share. The options become available on June 1, 1999 if certain
income related performance goals have been met.
<PAGE>
3 Mr. Timothy Papenfuss is the owner of 19,786 shares of the Company's Series D
Convertible Preferred Stock. Mr. Timothy Papenfuss also owns options to purchase
30,418 shares of common stock. The Series D Preferred Stock and the options are
convertible and exercisable upon the same terms as set forth in footnote 2
above.
4 Mr. B. Willes Papenfuss is the owner of 392 Shares of the Company's Series D
Convertible Preferred Stock. Mr. B. Willes Papenfuss also owns options to
purchase 865 shares of common stock. The Series D Preferred Stock and the
options are convertible and exercisable upon the same terms as set forth in
footnote 2 above. Mr. B. Willes Papenfuss additionally can receive stock options
as a finder's fee for company acquisitions as explained above in "Stock
Options," under Item 10.
Item 12. Certain Relationships and Related Transactions.
Since the beginning of the Company's last fiscal year, there have been no
transactions between the Company and any officer, director, nominee for election
as director, or any shareholder owning greater than five percent (5%) of the
Company's outstanding shares, nor any member of the above referenced
individuals' immediate family. George Badger, a shareholder and former Company
President, and father to Company President Karl Badger, has loaned the Company
$563,210.00 during the last thirteen (13) months. The terms of these loans are
as follows: Loan for $358,000 secured by Company assets with interest payable
monthly at 12% with monthly principal payments of $9,428 beginning April 1,
1998, until paid in full; Loan for $137,725 secured by Company assets with
interest payable monthly at 18% with no stated principal payments required; and
Loan for $67,485 with 12% interest, and secured by assets of the Company. The
loan funds were used by the Company for working capital.
Item 13. Exhibits and Reports on Form 8-K.
The following financial statements, schedules, reports and exhibits are
filed with this Report:
(a) FINANCIAL STATEMENTS
(1) Report of Jones, Jensen & Company, Independent Public
Accountants.
(2) Consolidated Balance Sheet as of March 31, 1997.
(3) Consolidated Statements of Operation for the years
ended March 31, 1997 and 1996.
(4) Statement of Stockholders' Equity for the period
March 31, 1996 through March 31, 1997.
(5) Consolidated Statements of Cash Flows for years ended
March 31, 1996 and 1997.
(6) Notes to Financial Statements.
(b) FINANCIAL STATEMENT SCHEDULES
(1) Schedule VIII - Valuation and Qualifying Accounts.
(2) Schedule X - Supplementary Income Statement
Information.
(3) Schedule XI - Real Estate and Accumulated
Depreciation.
<PAGE>
(d) Exhibits
The following exhibits are filed herewith or are incorporated
by reference to exhibits previously filed with the Securities and Exchange
Commission. The Company shall furnish copies of exhibits for a reasonable fee
(covering the expense of furnishing copies) upon request.
Exhibit No. Exhibit Name
- ----------- ------------
3.1 (1) Articles of Incorporation
3.2 (2) Amendment to Articles of Incorporation
3.3 (1) By-Laws
3.4 (7) Amendment on name change
3.5 (7) Amendment on Series D designation
3.6 (7) Amendment on Series E designation
10.1 (1) Agreement with TechKNOWLOGY, Inc.
10.2 (1) Financing Agreement
10.3 (1) Exchange of Shares Agreement
10.4 (1) Option Contract
10.5 (1) Extension to Option Contract
10.6 (1) Further Amendment to Option Agreement
10.7 (1) Purchase Agreement
10.8 (1) Amendment to Purchase Agreement
10.9 (1) Addendum to Purchase Agreement
10.10 (1) Purchase Agreement (Stella Trust)
10.11 (2) Agreement of Joint Project
10.12 (2) Amendment to Agreement of Joint Project
10.13 (2) Dynamic American Option
10.14 (2) Land Sale Agreement
10.15 (2) Assignment of Trust Deed and Trust Deed Note
10.16 (2) Promissory Note (Johnson)
10.17 (3) TKI Dealer Agreement
10.18 (4) Modification Agreement
10.19 (4) Land Sales Agreement (Mindon)
10.20 (4) Sales Agreement (Property Alliance)
10.21 (5) Assignment Agreement
10.22 (6) Agreement with The Stella Trust and Mindon Investments
(Pickett Group)
10.23 (6) Acquisition Agreement with Golf Ventures, Inc.
10.24 (6) Settlement Agreement and General Release (TKI)
10.25 (7) Stock Purchase Agreement (Fantastic)
10.26 (7) Agreement (Vowell/Finally)
10.27 Termination Agreement (Vowell/The Company)
16.1 (2) Letter Regarding Change in Certifying Public Accountant
21. Subsidiaries
23. Consent of Independent Auditor
99.1 (2) List of Third Party Loans to TechKNOWLOGY, Inc.
(28.1)*
99.2 (2) Lease of LTI Office
(28.2)*
99.3 (2) Financial Statements for years ended March 31, 1989, 1988 and
1987, and
(28.3)* quarter ended June 30, 1989, as prepared by Dale K. Barker
Co., P.C.
99.4 (4) Class "A" Preferred Stock
(28.4)*
99.5 (4) Debenture
(28.5)*
<PAGE>
(1) Incorporated by reference to the Form 10 Registration
Statement filed with the Commission October 16, 1990, File No.
0-18865.
(2) Incorporated by reference to Amendment No. 1 to Form 10
Registration Statement filed with the Commission May 23, 1991,
File No. 0-18865.
(3) Incorporated by reference to Amendment No. 2 to Form 10
Registration Statement filed with the Commission August 12,
1991, File No. 0-18865.
(4) Incorporated by reference to Amendment No. 3 to Form 10
Registration Statement filed with the Commission November 13,
1991, File No. 0-18865.
(5) Incorporated by reference to Amendment No. 4 to Form 10
Registration Statement filed with the Commission February 13,
1992, File No. 0-18865.
(6) Incorporated by reference to Form 10-K for the year ended
March 31, 1993
(7) Incorporated by reference to form 10-KSB for the year ended
March 31, 1997. (*) Exhibits previously filed as Exhibits 28.1
through 28.5 are now depicted as 99.1 through 99.5.
(b) The Registrant filed a report on Form 8-K on March 17, 1997 outlining the
acquisition by the Company of Fan-Tastic, Inc. on March 17, 1997, identifying
the Company's name change from Leasing Technology, Inc. to American Resources
and Development Company and a one for twenty (1:20) reverse stock split effected
on the Company's common stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
------------------------------------------
(Registrant)
By:
Karl F. Badger
Dated: April , 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<PAGE>
Signature Title Date
--------- ----- ----
- ------------------------ President, Chief Executive April , 1998
Karl F. Badger Officer and Director
(Principal Executive
Officer)
- ------------------------ Vice President and Director April , 1998
Barry L. Papenfuss
- ------------------------ Secretary / Treasurer and April , 1998
Timothy M. Papenfuss Director (Chief Financial
Officer, Chief Accounting
Officer and Controller)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
------------------------------------------
(Registrant)
By: /s/ Karl F. Badger
------------------------
Karl F. Badger
Dated: April 28, 1998
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Karl F. Badger
- ------------------------ President, Chief Executive April 28, 1998
Karl F. Badger Officer and Director --------------
(Principal Executive
Officer)
/s/ Barry L. Papenfuss
- ------------------------ Vice President and Director April 28, 1998
Barry L. Papenfuss --------------
/s/ Timothy M. Papenfuss
- ------------------------ Secretary / Treasurer and April 28, 1998
Timothy M. Papenfuss Director (Chief Financial --------------
Officer, Chief Accounting
Officer and Controller)
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Financial Statements
March 31, 1997 and 1996
<PAGE>
C O N T E N T S
Independent Auditors' Report ................................................ 3
Consolidated Balance Sheet .................................................. 4
Consolidated Statements of Operations ....................................... 6
Consolidated Statements of Stockholders' Equity ............................. 7
Consolidated Statements of Cash Flows ....................................... 8
Notes to the Consolidated Financial Statements .............................. 10
Supplemental Schedules ...................................................... 19
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Shareholders and Board of Directors
American Resources and Development Company
We have audited the accompanying consolidated balance sheet of American
Resources and Development Company at March 31, 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended March 31, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Resources
and Development Company at March 31, 1997 and the results of their operations
and their cash flows for the years ended March 31, 1997 and 1996 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company has incurred significant
losses since inception, has a substantial working capital deficit, and has debt
significantly in excess of stockholders' equity, all of which raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 10. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules on pages 20 and 21 are
presented for purposes of additional analysis and are not a required part of the
basic consolidated financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
Jones, Jensen & Company
Salt Lake City, Utah
June 19, 1997
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
------
March 31,
1997
----------------
CURRENT ASSETS
Cash $ 47,850
Accounts receivable 41,349
Real estate inventories 932,439
Merchandise inventory 291,169
Prepaid and other current assets 23,682
Current portion of contract receivable 472
----------------
Total Current Assets 1,336,961
PROPERTY AND EQUIPMENT
Model home 133,954
Furniture, fixtures and equipment 146,412
Vehicle under capital lease 17,852
----------------
Total depreciable assets 298,218
Less: accumulated depreciation (97,965)
Net Property and Equipment 200,253
OTHER ASSETS
Land held for development (Note 2) 11,475,016
Goodwill 252,912
Long-term portion of contract receivable 55,993
Deposits 1,970
----------------
Total Other Assets 11,785,891
TOTAL ASSETS $ 13,323,105
================
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31,
1997
----------------
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 1,151,894
Accrued expenses and other current liabilities 1,108,635
Current portion of notes payable (Note 3) 1,213,866
Current portion of capital lease obligations (Note 4) 12,238
----------------
Total Current Liabilities 3,486,633
LONG-TERM DEBT
Commission payable 90,000
Long-term portion of notes payable (Note 3) 6,356,331
Long-term portion of capital lease obligations (Note 4) 13,394
Notes payable, related parties (Note 9) 319,039
----------------
Total Long-Term Debt 6,778,764
COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST (Note 1) -
----------------
PREFERRED STOCK, CLASS D SHARES: par value
$0.001 per share; 100,000 and -0- 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
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 1,835,486
shares issued and 1,674,666 shares outstanding, respectively
(See Note 7) 1,835
Additional paid-in capital 13,021,721
Accumulated deficit (9,966,100)
----------------
Total Stockholders' Equity 3,057,708
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,323,105
================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Years Ended
March 31,
1997 1996
---------------- ----------------
INCOME
Real estate sales $ 274,000 $ 734,675
Cost of real estate sales 158,066 512,528
---------------- ----------------
Gross Profit on Real Estate Sales 115,934 222,147
---------------- ----------------
EXPENSES
Depreciation and amortization 5,517 3,773
General and administrative expenses 1,377,082 4,236,692
---------------- ----------------
Total Expenses 1,382,599 4,240,465
---------------- ----------------
LOSS FROM OPERATIONS (1,266,665) (4,018,318)
---------------- ----------------
OTHER INCOME AND (EXPENSES)
Other revenue 29,931 102,896
Interest income 38,817 5,683
Gain on sale of assets 215,375 149,463
Interest expense (42,260) (25,869)
---------------- ----------------
Total Other Income and (Expenses) 241,863 232,173
---------------- ----------------
NET LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (1,024,802) (3,786,145)
INCOME TAXES - -
---------------- ----------------
NET LOSS BEFORE MINORITY INTEREST (1,024,802) (3,786,145)
MINORITY INTEREST (Note 1) - -
---------------- ----------------
NET LOSS $ (1,024,802) $ (3,786,145)
================ ================
NET LOSS PER SHARE OF COMMON STOCK $ (0.56) $ (2.06)
================ ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,835,486 1,835,486
================ ================
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
AMERICAN RESOURCE AND DEVELOPMENT COMPANY
Statement of Stockholders' Equity
March 31, 1997 and 1996
<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, 1995 1,835,486 $ 1,835 252,220 $ 252 $ 7,679,394 $ (5,155,153)
Capital contributed by stock
issuances of a subsidiary - - - - 4,230,818 -
Net loss - - - - - (3,786,145)
----------- ---------- ------------- ----------- --------------- --------------
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)
=========== ========== ============= =========== =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended March 31,
1997 1996
---------------- -------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $ (1,024,802) $ (3,786,145)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,517 3,773
Common stock issued for services - 3,260,000
Changes in operating assets and liabilities:
(Increase) Decrease in inventory 5,936 416,782
(Increase) Decrease in notes and accounts
receivable 35,688 52,298
Increase (Decrease) in other current assets 58,024 (58,024)
Increase (Decrease) in accounts payable and
other current liabilities 708,273 402,577
---------------- -------------------
Net Cash Provided (Used) by Operating Activities (211,364) 291,261
---------------- -------------------
INVESTING ACTIVITIES
Purchases of property and equipment (32,610) (8,495)
Investment in land held for development (3,796,686) (708,276)
---------------- -------------------
Net Cash Provided (Used) by Investing Activities (3,829,296) (716,771)
---------------- -------------------
FINANCING ACTIVITIES
Cash from acquisition on subsidiary 19,954 -
Payments on long-term debt and capital lease obligations (1,045,324) (126,558)
Long-term borrowings 3,246,497 355,000
Contributions from subsidiary 1,076,639 -
Issuance of common and preferred stock for cash - 970,818
---------------- -------------------
Net Cash Provided (Used) by Financing Activities 3,297,766 1,199,260
---------------- -------------------
INCREASE (DECREASE) IN CASH (742,894) 773,750
CASH, BEGINNING OF YEAR 790,744 16,994
---------------- -------------------
CASH, END OF YEAR $ 47,850 $ 790,744
================ ===================
</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 (Continued)
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1997 1996
---------------- -------------------
<S> <C> <C>
CASH PAID FOR
Interest $ 370,046 $ 147,370
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ - $ 3,260,000
Debt incurred for acquisition of inventory $ 190,365 $ -
Debt incurred for acquisition of land held for development $ 2,390,725 $ -
Debt incurred for acquisition of property and equipment $ 116,800 $ -
</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
March 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Resources and Development Company (the Company) was
formed as a Utah company on March 31, 1983 under the name Leasing
Technologies Incorporated for the purpose of leasing equipment.
The Company has significantly increased its investing activities
which include startup companies, real estate development, and/or
other projects. Operations include related and non related party
transactions. In March 1997, the shareholders of the Company
approved a name change to American Resources and Development
Corporation. In addition, the shareholders also approved a
reverse split of its common stock on a 1 share for 20 share
basis. The accompanying consolidated financial statements reflect
this reverse split retroactively.
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. This acquisition has been accounted
for using the purchase method in the accompanying consolidated
financial statements. See Note 9 for further discussion regarding
this transaction.
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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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) and Fan-Tastic, Inc. (FTI), neither of which are
wholly owned by the Company. The Company realized a gain of
$215,375 on the sale of GVI common stock on the year ended March
31, 1997.
All significant intercompany transactions have been eliminated in
the consolidated financial statements. The only significant
intercompany transactions are loans made by the Company to GVI.
The notes receivable on the books of the Company and the accrued
interest receivable have been eliminated against the liability on
the books of the subsidiaries and the related accrued interest
payable. The interest income accrued by the Company has been
eliminated against the interest expense accrued by the
subsidiary.
j. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. Profit Recognition and Capitalization of Costs Related to Real
Estate
Income on real estate is recognized in accordance with the
provisions os FASB-66. Revenue and profits from the sale of land
and other real estate have been recognized using the full accrual
method for all periods presented. As such, each sale has been
determined to have been consummated, with the buyers initial and
continuing investment determined to show adequate demonstration of
commitment to pay. In addition, all outstanding remaining
receivables related to these transactions are not subject to the
future subordination and the Company no longer has a substantial
continuing involvement with the property with the buyer
substantially assuming the usual risks and rewards of ownership of
the property.
Costs associated with real estate are accounted for in accordance
with the provisions of FASB-67. Accordingly, acquisition,
development and construction costs, including property taxes and
interest on associated debt and selling costs, are capitalized.
Such costs are specifically allocated to the related opponents or,
if relating to multiple components, allocated on a pro rata basis
as appropriate. Estimates are reviewed periodically and revised as
needed. The respective real estate projects are also periodically
reviewed to determine the that carrying amount does not exceed the
net realizable value. To date, no allowance has had to be provided
for estimated impairments of value based on evaluation of the
projects.
GVI recognizes gain on real estate sales in accordance with the
provisions of FASB-66.
l. Notes Receivable
Notes receivable are shown net of the allowance for bad debts of
$5,000 at March 31, 1997.
m. Goodwill
Goodwill resulting from the acquisition of FTI will be amortized
using the straight-line method over a 15 year period.
NOTE 2 - LAND HELD FOR DEVELOPMENT
On March 30, 1990 the Company purchased 486 acres of undeveloped
land from Karl Stucki and the Stucki Family Trust for $3,004,356,
and on July 31, 1990 the Company purchased 130 acres from Dynamic
American Company for $610,000 which makes up 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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 2 - LAND HELD FOR DEVELOPMENT (CONTINUED)
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.
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
March 31,
1997
----------------
<S> <C>
Convertible subordinated debentures,
due June 30, 1997 bearing interest at
12% per annum. Interest payable
quarterly, secured by land. $ 185,000
Promissory note payments through August
15, 2016 at $30,524 per year including
interest at 10% per annum. 201,890
Trust deed note payable, secured by land.
Interest accrued at 8% per annum. Payable
$100,000 per year plus the accrued interest
for that year. 355,890
Note payable, unsecured, bearing interest at 12%,
payable in monthly installments of $13,193, plus
interest. 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
Promissory note secured by land. Interest accrued
at 10% per annum, payable in shares of the Company's
common stock. $120,000 plus a percentage of the
proceeds of lot sales payable annually beginning on
February 1, 1991 through February 1, 1997 at which
time the balance will be due as a balloon payment.
$2,000 from each Red Hawk lot sale also applies to
the note. 646,502
----------------
Balance forward $ 1,575,403
----------------
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 3 - NOTES PAYABLE (CONTINUED)
March 31,
1997
----------------
Balance forward $ 1,575,403
Promissory note secured by land, bearing interest
at 10.5%. Interest payable monthly with principal
and any accrued interest payable in full on June
10, 1999. 3,440,805
Purchase contract and note secured by land, bearing
interest at 10%. Monthly installments of $25,000
due through May 15, 1998 with remaining principal and
accrued interest due in full. 2,246,823
Mortgage note payable secured by real estate bearing
interest at 11.5%. Due in monthly installment of $911. 90,915
Mortgage note payable secured by real estate bearing
interest at 8.125%. Due in monthly installments of $919. 116,800
Mortgage note payable secured by real estate bearing
interest at 8.125%. Due in monthly installments of $879. 99,451
--------
Subtotal 7,570,197
Less current portion 1,213,866
Long-term portion $ 6,356,331
Maturities of long-term debt are as follows:
March 31, 1998 $ 1,213,866
1999 2,282,797
2000 3,557,065
2001 73,718
2002 19,559
Thereafter 423,192
----------------
$ 7,570,197
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 4 - CAPITAL LEASES
Property and equipment under capital leases as of March 31, 1997
is summarized as follows:
Property and equipment $ 35,255
Less accumulated depreciation (12,175)
----------------
Net property and equipment under capital lease $ 23,080
================
At March 31, 1997, the Company and its subsidiaries have capital
leases obligations as follows:
Year End
March 31,
---------
1998 $ 15,689
1999 13,492
2000 302
----------------
Total minimum lease payments 29,483
Less interest and taxes 3,851
----------------
Present value of net minimum lease payments 25,632
Less current portion 12,238
----------------
Long-term portion of capital lease obligations $ 13,394
================
NOTE 5 - 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 $9,900,000 to offset future tax
liabilities. The loss carry-forwards 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 can not be reasonably determined that the net operating
loss will be useable.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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 are 102,220 shares of series B preferred
stock issue and outstanding. The holders of these series B
preferred shares are entitled to an annual cumulative cash
dividend of not less than sixty cents per share. At March 31,
1997, there is a total of $251,450 of accrued and unpaid dividends
related to the series B preferred stock which have been included
in the accompanying consolidated financial statements. These
series B preferred shares were convertible into shares of the
Company's common stock which conversion option expired March 31,
1995.
SERIES C:
In September 1991, the Company purchased the Cotton Manor real
estate project as follows:
Cash $ 23,601
Debt assumed 431,449
Promissory note 1,387,000
Series C preferred stock 750,000
-------
$2,592,050
==========
The Company delivered to the seller, 150,000 shares of authorized
but previously unissued Series C preferred stock, which for the
purpose of the agreement were valued at $5.00 per share or a total
of $750,000. The shares of Series C preferred stock may be
redeemed by the Company at any time prior to September 3, 1997, by
the Company paying to the seller or its assigns, the sum of $5.50
cash per share if redeemed within 12 months from the date hereof;
$6.00 cash per share if redeemed between 12 and 24 months from the
date hereof; and $6.50 if redeemed between 24 and 36 months from
the date hereof; and $7.00 cash per share if redeemed between 36
and 48 months from the date hereof; and $7.50 cash per share if
redeemed within 48 and 60 months from the date hereof. Prior to
the Company redeeming the preferred shares to be issued to the
seller hereunder and prior to the third day of September, 1997,
the seller will have the right to convert any remaining shares of
preferred stock into shares of the Company's common stock at the
rate of 5 shares of common stock for each share of preferred stock
converted.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 6 - PREFERRED STOCK (CONTINUED)
CLASS D:
As discussed in Note 9, the Company issued 100,000 shares of
Series D preferred stock in exchange for 80% of the issued and
outstanding common stock of FTI. This Series D preferred stock
entitles the holder to dividends on the same basis had their
shares been converted into common stock. In addition, after June
30, 2000 but before September 30, 2000, holders of these Series D
shares of preferred stock shall have the right to convert such
shares into shares of common stock of the Company at the rate of
the number of the Company's common stock equal to the number that
is represented by the total net income of FTI for the three year
period ended March 31, 2000 divided by $1,000,000 times ten
divided by seventy percent of the average trading price of the
Company's common stock on 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.
Because of the conversion provisions of these Series D preferred
shares, they have been reflected separately from equity in the
accompanying consolidated financial statements.
NOTE 7 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which have
been offered to the holders of the Series B preferred stock and
the debentures. The shares have not been accepted by the holders
of those investments as of the date of the consolidated financial
statements.
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
March 31, 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. 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.
For the years ended March 31, 1997 and 1996, FTI sustained net
losses of $(101,314) and $(268,162) on gross revenues of $875,532
and $386,204, respectively.
Notes payable to related parties totaling $319,039 at March 31,
1997 as reflected in the accompanying consolidated financial
statements consists of the $269,039 payable to the now 20% common
stock shareholders of FTI and $50,000 payable to a significant
shareholder and former officer and director of the Company. These
balances are not expected to be repaid in the current period and
therefore have been reflected as long-term in the accompanying
consolidated financial statements.
The 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.
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.
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 and 1996, 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.
Fiscal Years
----------------------------------
1997 1996
--------------- --------------
Net revenue $ 1,149,532 $ 1,120,879
Net loss (1,142,977) (4,071,168)
Net loss per share (.62) (2.22)
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
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.
NOTE 11 - SUBSEQUENT EVENTS
In May 1997, the Company entered into an agreement with an
unrelated party to organize 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.
One of the Company's subsidiaries, GVI has entered into
discussions with an unrelated company regarding a possible
business reorganization that would combine the two companies. The
unrelated company is extensively involved in golf course
construction and management.
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
$2,300,000 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. Seventy-five
thousand of the cash payment had been advanced to the Printing
Company at December 31, 1997 in the form of a note receivable.
Two-thirds of the stock subject to issuance will be subject to
earnout consideration. The success of this purchase is subject to
negotiating terms of a definitive purchase agreement and
completion of final due diligence.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 11 - 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>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial
Statements March 31, 1997 and 1996 Schedule X -
Supplementary income statement information
Schedule VIII - Valuation and qualifying accounts
Allowance for returns and bad debts:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
of Year Additions Deductions Year
------- --------- ---------- ----
<S> <C> <C> <C> <C>
March 31, 1997 $ 5,000 $ - $ - $ 5,000
March 31, 1996 5,000 - - 5,000
<CAPTION>
For the Years Ended
March 31,
-------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Maintenance and repair $ 35,749 $ 16,571
Depreciation and amortization 258,429 3,773
Taxes, other than payroll and income taxes 7,199 33,120
Royalties - -
Advertising 17,323 1,002
</TABLE>
<PAGE>
<TABLE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Supplemental Schedules
March 31, 1997 and 1996
Schedule XI - Real Estate and Accumulated Depreciation
<CAPTION>
Life on
which
Costs Gross depreciation
capitalized amount in latest
(Disposals) at which Accumu- income
Initial subsequent carried lated Date of statements
cost to to at close deprec- construc- Date is
Description Encumbrances Company acquisition of period iation tion acquired computed
- ----------------------- ------------ --------- ------------- ------------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Red Hawk Development
St. George, Utah
Undeveloped Land
Convertible subordinated
Debentures 185,000
Foss Lewis Construction,
Trust Deed Note 80,575
Miltex Industries, Ltd.
Promissory Note 3,440,805
Daniel C. Watson
Trust Deed Note 355,890
Stucki income trust,
Trust Deed Note 2,246,823
$ 6,309,093 $ 4,135,000 $ 6,242,166 $ 10,377,166 $ N/A 7-8-96 3-30-90 N/A
============= ============ ============= ============== ========== ======== ========= =========
Cotton Manor/Cotton
Acres Dev.
St. George, Utah
Improved residential
Blaine Harmon Family
Trust, Promissory Note $ 201,890
Property Alliance, Inc.
Promissory Note 646,502
$ 848,392 $ 1,902,130 $ (804,280) $ 1,097,850 $ N/A 9-1-91 9-1-91 N/A
============= ============ ============= ============== ========== ======== ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 76166
<SECURITIES> 692886
<RECEIVABLES> 206522
<ALLOWANCES> 0
<INVENTORY> 581169
<CURRENT-ASSETS> 1589873
<PP&E> 271280
<DEPRECIATION> (120501)
<TOTAL-ASSETS> 2229029
<CURRENT-LIABILITIES> 1855902
<BONDS> 0
0
252
<COMMON> 1868
<OTHER-SE> (306342)
<TOTAL-LIABILITY-AND-EQUITY> 2229029
<SALES> 1271328
<TOTAL-REVENUES> 1271328
<CGS> 650220
<TOTAL-COSTS> 650220
<OTHER-EXPENSES> 1224512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91606
<INCOME-PRETAX> (572828)
<INCOME-TAX> 0
<INCOME-CONTINUING> (572828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572828)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
