UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
Commission file number 0-18865
----------------
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
----------------
UTAH 87-0401400
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------
3855 S. 500 W.
Suite R
Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 288-9120
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of November 17, 1998, the Registrant had outstanding 3,215,596 shares of
Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Part I Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1998 and
March 31, 1998............................................................. 1
Condensed Consolidated Statements of Operations - Six months ended
September 30, 1998 and 1997 and Three Months
Ended September 30, 1998 and 1997.......................................... 3
Statements of Stockholders' Equity......................................... 4
Condensed Consolidated Statements of Cash Flows - Six months ended
September 30, 1998 and 1997 and Three Months
Ended September 30, 1998 and 1997.......................................... 5
Notes to Condensed Consolidated Financial Statements - September 30, 1998.. 9
Item 2: Management's Discussion and Analysis or Plan of Operation.......
Part II Other Information
Item 1. Legal Proceedings...............................................
Item 2. Changes in Securities...........................................
Item 3. Defaults upon Senior Securities.................................
Item 4. Submission of Matters to a Vote of Security Holders.............
Item 5. Other Information ..............................................
Item 6. Exhibits and Reports on Form 8-K................................
i
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
September 30, March 31,
1998 1998
----------------- -----------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 5,015 $ 14,663
Accounts receivable 377,063 221,875
Inventory (Note 1) 445,693 437,003
Marketable securities 1,962,587 622,182
Prepaid and other current assets 25,900 44,882
----------------- -----------------
Total Current Assets 2,816,258 1,340,605
----------------- -----------------
PROPERTY AND EQUIPMENT (Note 1)
Furniture, fixtures and equipment 426,426 383,638
Capital leases 1,003,507 859,185
----------------- -----------------
Total depreciable assets 1,429,933 1,242,823
Less: accumulated depreciation (274,146) (118,889)
----------------- -----------------
Net Property and Equipment 1,155,786 1,123,934
----------------- -----------------
OTHER ASSETS
Investments (Note 1) - 1,077,500
Intangible assets (Note 1) 2,932,399 1,826,492
Deposits 4,694 68,104
----------------- -----------------
Total Other Assets 2,937,093 2,972,096
----------------- -----------------
TOTAL ASSETS $ 6,909,137 $ 5,436,635
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
1998 1998
----------------- -----------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 819,712 $ 688,021
Accrued expenses and other current liabilities 636,432 393,494
Current portion of notes payable (Note 3) 853,703 419,781
Current portion of notes payable, related parties (Note 4) 255,084 184,974
Current portion of capital lease obligations (Note 5) 257,395 303,475
----------------- -----------------
Total Current Liabilities 2,822,326 1,989,745
----------------- -----------------
LONG-TERM DEBT
Reserve for discontinued operations 450,782 450,782
Notes payable (Note 3) 378,884 14,155
Capital lease obligations (Note 5) 565,072 579,963
Notes payable, related parties (Note 4) 1,399,459 1,091,536
----------------- -----------------
Total Long-Term Debt 2,794,197 2,136,436
----------------- -----------------
Total Liabilities 5,616,523 4,126,181
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Unrealized gain on marketable securities and investments 452,905 -
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 94,953
Series B shares, 150,000 Series C shares 245 245
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding; 3,215,596 and
2,929,263 shares issued and outstanding (Note 8) 3,215 2,929
Additional paid-in capital 7,503,890 7,026,260
Accumulated deficit (6,667,541) (5,718,980)
----------------- -----------------
Total Stockholders' Equity 1,292,714 1,310,454
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,909,137 $ 5,436,635
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Six Months Ended For the Three Months Ended
September 30, September 30,
1998 1997 1998 1997
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 1,816,924 $ 382,124 $ 1,007,890 $ 220,963
COST OF SALES 1,131,510 173,966 631,640 95,826
--------------- --------------- ---------------- ---------------
GROSS PROFIT 685,414 208,158 376,250 125,137
--------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 228,177 25,057 123,232 13,568
General expenses 1,222,951 507,346 670,721 261,008
--------------- --------------- ---------------- ---------------
Total General and
Administrative Expenses 1,451,128 532,403 793,953 274,576
--------------- --------------- ---------------- ---------------
Net Loss (765,714) (324,245) (417,703) (149,439)
--------------- --------------- ---------------- ---------------
OTHER INCOME AND (EXPENSES)
Other income and expenses 11,418 40,823 (12,694) -
Gain of sale of assets 48,100 - 28,695 -
Interest expense (242,365) (49,815) (135,323) (37,777)
--------------- --------------- ---------------- ---------------
Total Other Income and
(Expenses) (182,847) (8,992) (119,322) (37,777)
--------------- --------------- ---------------- ---------------
LOSS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (948,561) (333,237) (537,025) (187,216)
--------------- --------------- ---------------- ---------------
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC - (157,595) - 95,611
--------------- --------------- ---------------- ---------------
Net (Loss) Before Income Tax (948,561) (490,832) (537,025) (91,605)
--------------- --------------- ---------------- ---------------
Net Loss Before Income Tax (948,561) (490,832) (537,025) (91,605)
Less: Provisions for (Income
Tax) - - - -
--------------- --------------- ---------------- ---------------
NET LOSS PER SHARE OF
COMMON STOCK FOR
CONTINUING OPERATIONS $ (0.31) $ (0.18) $ (0.17) $ (0.10)
=============== =============== ================ ===============
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK FOR
DISCONTINUED OPERATIONS $ - $ (0.09) $ - $ 0.05
=============== =============== ================ ===============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,051,814 1,817,896 3,153,795 1,832,100
=============== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT
Statements of Stockholders' Equity
Additional
Common Stock Preferred Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------------ ----------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 1,835,486 $ 1,835 252,220 $ 252 $ 11,910,212 $ (8,941,298)
Capital contributions by stock
issuances of a subsidiary - - - - 1,111,509 -
Net loss - - - - - (1,024,802)
------------ ----------- ----------- ------------- -------------- ---------------
Balance, March 31, 1997 1,835,486 1,835 252,220 252 13,021,721 (9,966,100)
Stock issuance of a subsidiary
for payment of interest - - - - 143,166 -
Preferred B stock conversion
into common stock 11,995 12 (7,267) (7) - -
Common stock issued for
services 399,000 399 - - 388,261 -
Expense recognized for
vested stock options - - - - 52,498 -
Eliminate GVI equity for
merger with U.S. Golf
Communities (Note 2) - - - - (8,406,498) 4,687,868
Stock issued for cash 24,000 24 - - 29,976 -
Stock issued for PPW
acquisition (Note 2) 258,782 259 - - 1,293,651 -
Stock issued to FTI
shareholders (Note 2) 400,000 400 - - 499,600 -
Stock options issued to FTI
shareholders - - - - 3,885 -
Net loss - - - - - (440,748)
------------ ----------- ----------- ------------- -------------- ---------------
Balance, March 31, 1998 2,929,263 2,929 244,953 245 7,026,260 (5,718,980)
Stock issued for cash 48,000 48 - - 59,952 -
Stock issued for Quade
acquisition 238,333 238 - - 417,678 -
Net loss - - - - - (948,561)
------------ ----------- ----------- ------------- -------------- ---------------
Balance, September 30, 1998 3,215,596 $ 3,215 244,953 $ 245 $ 7,503,890 $ (6,667,541)
============ =========== =========== ============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Six Months Ended For the Three Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------- --------------- --------------- --------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Loss $ (948,561) $ (490,832) $ (537,025) $ (91,605)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 228,177 27,164 123,232 12,510
Common stock issued for services and interest - 30,000 - 30,000
Gain on sale of marketable securities (48,100) - (28,695) -
Changes in operating assets and liabilities net
of Quade acquisition:
(Increase) decrease in inventory 3,282 (118,302) (70,734) 25,471
(Increase) decrease in notes and accounts
receivable (150,921) (35,771) (73,752) (25,697)
Increase (decrease) in other current assets 53,287 2,069 75,441 (3,881)
Increase (decrease) in accounts payable 122,485 107,581 81,966 7,603
Increase (decrease) in other current liabilities 101,999 206,780 127,603 42,735
-------------- --------------- --------------- --------------
Net Cash Provided (Used) by Operating Activities (638,352) (271,311) (301,964) (2,864)
-------------- --------------- --------------- --------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 232,304 - 91,194 -
Purchases of property and equipment (74,110) (8,823) (4,934) (8,042)
Investment in land held for development - (364,261) - (124,599)
-------------- --------------- --------------- --------------
Net Cash Provided (Used) by Investing Activities 158,194 (373,084) 86,260 (132,641)
-------------- --------------- --------------- --------------
FINANCING ACTIVITIES
Stock issued for cash 60,000 - 15,000 -
Payments on long-term debt and capital lease
obligations (207,338) (61,170) (121,091) (9,130)
Proceeds from notes payable 150,000 245,266 - 30,282
Net borrowings on line of credit arrangement 67,848 - 10,161 -
Borrowings from related parties 400,000 452,610 300,000 124,635
-------------- --------------- --------------- --------------
Net Cash Provided (Used) by Financing Activities 470,510 636,706 204,070 145,787
-------------- --------------- --------------- --------------
INCREASE (DECREASE) IN CASH (9,648) (7,689) (11,634) 10,282
CASH, BEGINNING OF PERIOD 14,663 47,850 16,649 29,879
-------------- --------------- --------------- --------------
CASH, END OF PERIOD $ 5,015 $ 40,161 $ 5,015 $ 40,161
============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
September 30,
1998 1997
---------------- ------------------
CASH PAID FOR
<S> <C> <C>
Interest $ - $ 190,836
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ - $ 30,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Quarterly Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates. The accompanying consolidated
unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB but do not include
all of the information and footnotes required by generally
accepted accounting principles and should therefore, be read in
conjunction with the Company's fiscal 1998 financial statements in
Form 10-KSB. These statements do include all normal recurring
adjustments which the Company believes are necessary for a fair
presentation of the statements. The interim operating results are
not necessarily indicative of the results for a full year.
b. Organization
American Resources and Development Company (the Company) was
formed as a Utah company on March 31, 1983 under the name Leasing
Technologies. In March 1997, the shareholders of the Company
approved a name change to American Resources and Development
Corporation. In addition, the shareholders also approved a reverse
split of its common stock on a 1 share for 20 share basis. The
accompanying consolidated financial statements have been restated
to reflect this reverse split retroactively.
Effective march 17, 1997, the Company acquired 80% of the issued
and outstanding common stock of Fan-Tastic, Inc. (FTI), a Utah
corporation, in exchange for 100,000 shares of the Company's Class
D preferred stock. Effective March 31, 1998, the Company acquired
the remaining 20% of the issued and outstanding common stock of
FTI. This acquisition has been accounted for using the purchase
method in the accompanying consolidated financial statements. See
Note 2 for further discussion regarding this transaction.
Effective March 31, 1998, the Company acquired approximately 83%
of the issued and outstanding common stock of Pacific Printing and
Embroidery.
Effective July 23, 1998, the Company acquired 100% of the issued
and outstanding common stock of Quade, Inc. ("Quade"). Quade owns
the master licensing rights of the U.S. Polo Association
trademarks for the United States and Canada (see Note 5).
c. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development company and its subsidiaries,
Fan-Tastic, Inc, (FTI), Pacific Printing and Embroidery L.L.C.
(PPW) and Quade, Inc.
(Quade).
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" requires disclosure of
the fair value of financial instruments held by the Company, SFAS
107 defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The following methods and
assumptions were used to estimate fair value.
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term
nature.
Marketable securities represent 1,207,746 and 497,746 shares of
GVI unrestricted stock at September 30, 1998 and March 31, 1998,
respectively, which are classified as marketable securities
available for sale and are carried at market value. Any change in
market value from period to period will be reported as a separate
component of stockholders' equity until realized.
Investments represent 862,000 shares of GVI restricted stock at
March 31, 1998, which were classified as investments available for
sale. These shares were classified as marketable securities at
September 30, 1998 as restrictions for resale expire in July 1999.
There was an unrealized gain of $452,905 in marketable securities
at September 30, 1998 due to a $0.375 increase in GVI per share
value at September 30, 1998 compared to the Company's recorded
cost for GVI shares.
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.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Net Loss Per Common Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the period. The
common stock equivalents are anti-dilutive and, accordingly, are
not used in the net loss per common share computation.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, (SFAS 128), which was
required to be adopted on December 31, 1997. SFAS 128 requires a
change in the method currently used to compute earnings per share
and to restate all prior periods to disclose diluted net income
per common share in addition to its current basic net income per
common share. Basic net loss from continuing operations per common
share and diluted net loss from continuing operations per common
share amounts, calculated in accordance with SFAS 128, were
$(0.17) and $(0.10) for the quarters ended September 30, 1998 and
1997, respectively. Basic net loss from discontinued operations
per common share and diluted net loss from discontinued operations
per common share for the quarters ended September 30, 1998 and
1997 was $-0- and $0.05, respectively. Weighted average common
shares outstanding were 3,153,795 and 1,832,100 for the quarters
ended June 30, 1998 and 1997, respectively.
g. Revenue Recognition
Franchise fees are recognized as revenue when all material
services relating to the sale have been substantially performed by
FTI. Material services relating to the franchise sale include
assistance in the selection of a site and franchisee training.
Revenue for contract screenprinting, embroidery and product sales
are recognized when the goods have shipped. Royalty revenue from
sublicensee royalty guarantees are recognized equally over the
life of the contracts.
h. Intangible Assets
The excess of the Company's acquisition cost over the fair value
of the net assets of the FTI acquisition resulted in a write-down
of goodwill of $756,797 for the year ended March 31, 1998. On
March 31, 1998, the Company also recognized goodwill of $1,826,492
from the purchase of Pacific Print Works (a.k.a. Pacific Printing
and Embroidery LLC). The Company recognizes goodwill from the
excess of the purchase price of its acquisitions over the fair
value of the net assets acquired. The Company also recognized
$1,092,473 of license and trademark rights from the July 23, 1998
purchase of Quade, Inc. The Company amortizes its intangible
assets over a 15 year life.
The Company evaluates the recoverability of goodwill and reviews
the amortization period on an annual basis. Several factors are
used to evaluate goodwill, including but not limited to:
management's plans for future operations, recent operating results
and projected, undiscounted cash flows. The primary method is
projected, undiscounted cash flows.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, Inc. merged with U.S. Golf
Communities. U.S. Golf Communities is the controlling company in
this merger and subsequent to the merger the combined company's
name will be changed to Golf Communities of America (GCA). This
merger resulted in a less than 20% American Resources' ownership
in GVI. Therefore, subsequent to the merger, the Company's
investment in GVI is reflected as an investment in accordance with
Financial Accounting Standards Board Statement No. 121. Pro forma
results of operations if the GVI merger would have occurred at the
beginning of fiscal 1997 would have resulted in a decrease in net
loss of $172,728 and $685,918 for the years ended March 31, 1998
and 1997, respectively, and $0.83 and $(0.37) per share for the
same periods. The following proforma balance sheet reflects the
effect of this merger.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
In connection with the Company's management services relating to
the merger of GVI with U.S. Golf Communities and to settle all
claims, and obligations with the Company, GVI issued 862,000
shares of its restricted common stock to the Company in July of
1998. A gain of $1,720,387, net of expenses, was recognized for
the year ended March 31, 1998. This gain was recognized for fiscal
1998 because it related to prior year activities.
<TABLE>
<CAPTION>
Prior to GVI After
Merger Adjustments GVI Merger
------------------ ----------------- -----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 86,213 $ (10,047) $ 76,166
Marketable securities - 692,886 692,886
Accounts receivable 131,522 - 131,522
Inventory, real estate 753,131 (753,131) -
Inventory, merchandise 581,169 - 581,169
Notes receivable 75,000 - 75,000
Prepaid and other current assets 33,130 - 33,130
Current portion of contract receivable 1,955 (1,955)
------------------ ----------------- -----------------
Total Current Assets 1,662,120 (72,247) 1,589,873
------------------ ----------------- -----------------
PROPERTY AND EQUIPMENT
Model home and condominiums 180,988 (134,788) 46,200
Furniture, fixtures and equipment 197,284 (15,456) 181,828
Vehicles 43,252 - 43,252
------------------ ------------------ -----------------
Total depreciable assets 421,524 (150,244) 271,280
Less: accumulated depreciation (124,936) 4,435 (120,501)
------------------ ------------------- -----------------
Net property and equipment 296,588 (145,809) 150,779
------------------ ----------------- -----------------
OTHER ASSETS
Land held for development 12,132,098 (11,886,098) 246,000
Goodwill 240,407 - 240,407
Long-term portion of contract
receivable 55,993 (55,993) -
Deposit 1,970 - 1,970
------------------- ----------------- -----------------
Total Other Assets 12,430,468 (11,942,091) 488,377
------------------ ----------------- -----------------
TOTAL ASSETS $ 14,389,176 $ (12,160,147) $ 2,229,029
================== ================= =================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
Prior to GVI After
Merger Adjustments GVI Merger
------------------ ----------------- -----------------
CURRENT LIABILITIES
<S> <C> <C> <C>
Accounts payable $ 1,296,869 $ (898,265) $ 398,604
Accrued expenses and other current
liabilities 1,367,403 (707,474) 659,929
Current portion of notes payable 1,309,400 (903,924) 405,476
Current portion of notes payable, related
parties 377,337 - 377,337
Current portion of capital lease
obligations 14,556 - 14,556
------------------ ----------------- -----------------
Total Current Liabilities 4,365,565 (2,509,663) 1,855,902
------------------ ----------------- -----------------
LONG-TERM DEBT
Notes payable 6,550,550 (6,550,550) -
Capital lease obligations 4,262 - 4,262
Notes payable, related parties 748,087 (75,000) 673,087
------------------ ----------------- -----------------
Total Long-Term Debt 7,302,899 (6,625,550) 677,349
------------------ ----------------- -----------------
STOCKHOLDERS' EQUITY
Preferred stock 252 - 252
Common stock 1,868 - 1,868
Additional paid-in capital 13,258,330 (8,406,498) 4,851,832
Accumulated deficit (10,539,738) 5,381,564 (5,158,174)
------------------ ----------------- -----------------
Total Stockholders' Equity 2,720,712 (3,024,934) (304,222)
------------------ ----------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,389,176 $ (12,160,147) $ 2,229,029
================== ================= =================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Fan-Tastic, Inc.
In March 1997, the Company acquired 80% of the issued and
outstanding common stock of Fan-Tastic, Inc. (FTI) in exchange
for the issuance of 100,000 shares of the Company's Series D
preferred stock. FTI is a franchiser and owner of retail
entertainment and sports stores doing business as Fan-A Mania.
The Acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based on
their fair market value at the date of acquisition. The acquired
interest was valued at $252,912, which represents liabilities
assumed in excess of assets acquired which has been reflected as
goodwill. The FTI acquisition involved contingent consideration
based on FTI achieving specified earnings but was amended in June
1998, effective as of March 31, 1998, as the Company purchased
the remaining 20% of the issued and outstanding common stock of
FTI and eliminated the contingent consideration by issuing the
FTI shareholders 400,000 shares of the Company's common stock and
by vesting options to purchase 150,000 shares of the Company's
common stock at $2.00 a share. These stock options expire on June
30, 2000. The Company recognized $500,000 for the shares issued
to FTI shareholders and $3,855 for the value of the options. The
fair value for these options was estimated at the date of the
vesting using an option pricing model which was designed to
estimate the fair value of options which, unlike these stock
options, can be traded at any time and are fully transferable.
The assumptions as described in Note 9 were used to estimate the
fair value of these options in addition to a trading price on the
Company's stock of $1.25 per share. The $503,855 value for the
shares issued and the options was included in the $756,797
writedown of goodwill for fiscal 1998.
For the year ended March 31, 1997, FTI sustained net losses of
$(101,314) on gross revenues of $875,532.
Unaudited proforma summary information combining the results of
operations of the Company and FTI as if the acquisition had
occurred at the beginning of fiscal 1997, after giving effect to
certain adjustments, including amortization of goodwill. This
proforma summary does not necessarily reflect the results of
operations as they would have been if the Company and FTI had
constituted a single entity during such periods.
For the
Year ended
March 31, 1997
Net revenue $ 1,149,532
Net loss $ (1,142,977)
Net loss per share $ (0.62)
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Finally Communities, Inc.
In May 1997, the Company issued 500,000 shares of Series E
preferred stock in exchange for 100% of the issued and
outstanding common stock of Finally Communities, Inc. (FCI). FCI
was a new corporation with no prior operations organized to
develop and sell vacation ownership interest in various resorts
initially located in the State of Arkansas and develop and market
other new vacation products. The seller of FCI remained as
President after the acquisition.
From May 1997 through December 31, 1997, FCI had real estate
sales of $67,772, cost of sales of $27,771, general expenses of
$69,307 and interest expense of $1,081. In March 1998, the
Company's Board of Directors sold its shares in FCI to the
original seller for the return of the stock previously issued to
the original seller. A $30,387 gain was recorded from the
disposal of FCI.
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
In December 1997, the Company entered into a letter of intent for
the purchase of a contract screen printing and embroidery
company, Pacific Print Works (PPW). At March 31, 1998, $115,000
had been advanced to PPW in the form of a note receivable. In May
1998, the Company acquired over 80% of the outstanding shares of
PPW. The merger is effective as of March 31, 1998 as the Board of
Directors of PPW had agreed to transfer control of PPW effective
March 31, 1998, except for restrictions based on significant
changes to operations. The acquisition was accounted for by the
purchase method of accounting, and accordingly, the purchase
price has been allocated to assets acquired and liabilities
assumed based on their fair market value at the date of
acquisition. Liabilities assumed in excess of assets acquired was
$532,582 and 258,782 shares of the Company's common stock were
issued to PPW shareholders with a guaranteed share value of $5.00
resulting in goodwill of $1,826,492. Depending on PPW's
performance over the next three years, additional shares of the
Company's common stock will be issued for this acquisition if
minimum earnings levels are met.
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
---- --- ---- ------- -------
1999 $ 179,480 $ 538,200 28,754 86,261
2000 269,020 807,300 28,754 86,261
2001 357,900 1,073,700 28,754 86,261
Earnings before income taxes above the low level but below the
high level will result in common shares being issued based on the
percentage of actual earnings to the high earnings multiplied by
the maximum shares issuable for that year. For example, in fiscal
1999, earnings of $300,000 would result in 48,083 shares of common
stock being issued to the PPW shareholders.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
The following tables set forth certain unaudited pro forma
condensed combined financial information for the Company and PPW
accounted for under the purchase method of accounting.
The pro forma condensed combined balance sheet was prepared using
the historical balance sheets of the Company and PPW as of March
31, 1998. The pro forma condensed combined statements of
operations for each of the two years ended March 31, 1998 and
1997 were prepared using the historical statements of operations
of the Company and PPW.
The pro forma condensed combined financial information was
included for comparative purposes only and does not purport to be
indicative of the results of operations or financial position
that actually would have been obtained if the merger had been
effected at the dates indicated of the financial position or
results of operations that may be obtained in the future.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
---------------- ---------------- -------------- ---------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 4,962 $ 9,699 $ - $ 14,663
Marketable Securities 622,182 - - 622,182
Accounts receivable 51,444 170,431 - 221,875
Inventory, merchandise 321,934 115,071 - 437,003
Notes receivable 115,000 (115,000) - -
Prepaid and other current
assets 41,289 3,593 - 44,882
---------------- ---------------- -------------- ---------------
Total Current Assets 1,156,811 183,794 - 1,340,605
---------------- ---------------- -------------- ---------------
PROPERTY AND
EQUIPMENT
Furniture, fixtures and
equipment 158,242 271,413 (46,017) 383,638
Leased equipment 40,650 921,713 (103,178) 859,185
---------------- ---------------- -------------- ---------------
Total depreciable assets 198,892 1,193,126 (149,195) 1,242,823
Less: accumulated
depreciation (118,889) (149,195) 149,195 (118,889)
---------------- ---------------- -------------- ---------------
Net Property and
Equipment 80,003 1,043,931 - 1,123,934
---------------- ---------------- -------------- ---------------
OTHER ASSETS
Investments 1,077,500 - - 1,077,500
Goodwill 1,826,492 1,826,492
Deposit 1,970 66,134 - 68,104
---------------- ---------------- -------------- ---------------
Total Other Assets 1,079,470 66,134 1,826,492 2,972,096
---------------- ---------------- -------------- ---------------
TOTAL ASSETS $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
================ ================ ============== ================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2- MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
---------------- ---------------- -------------- ---------------
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 391,985 $ 296,036 $ - $ 688,021
Accrued expenses and
other current liabilities 288,415 105,079 - 393,494
Current portion of notes payable 382,635 162,146 - 544,781
Current portion of notes
payable - related parties 23,974 36,000 - 59,974
Current portion of capital
lease obligations 19,450 284,025 - 303,475
---------------- ---------------- -------------- ---------------
Total Current Liabilities 1,106,459 883,286 - 1,989,745
---------------- ---------------- -------------- ---------------
LONG-TERM DEBT
Reserve For Discontinued Operations 450,782 - - 450,782
Long-term portion of notes payable 14,155 - - 14,155
Long-term portion of capital
lease obligations 13,638 566,325 - 579,963
Notes payable, related parties 714,699 376,837 - 1,091,536
---------------- ---------------- -------------- ---------------
Total Long-Term Debt 1,193,274 943,162 - 2,136,436
---------------- ---------------- -------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock 245 - - 245
Common stock 2,670 13,080 (12,821) 2,929
Additional paid-in capital 5,732,616 - 1,293,644 7,026,260
Accumulated deficit (5,718,980) (545,669) 545,669 (5,718,980)
---------------- ---------------- -------------- ---------------
Total Stockholders' Equity 16,551 (532,589) 1,826,492 1,310,454
---------------- ---------------- -------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
=============== =============== =============== ==============
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
------------- ------------- ------------- --------------
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,389,970 $ - $ 2,389,970
Sales - merchandise and franchise fees 1,093,110 - - 1,093,110
------------- ------------- ------------- --------------
Total Sales 1,093,110 2,389,970 - 3,483,080
------------- ------------- ------------- --------------
COST OF SALES
Cost of sales - screenprinting and embroidery - 1,784,167 - 1,784,167
Cost of sales - merchandise 774,405 - - 774,405
------------- ------------- ------------- --------------
Total Cost of Sales 774,405 1,784,167 - 2,558,572
------------- ------------- ------------- --------------
Gross Profit 318,705 605,803 - 924,508
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 1,447,285 771,624 121,229 2,340,138
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation 31,814 194,523 - 226,337
------------- ------------- ------------- --------------
Total Expenses 2,329,071 966,147 121,229 3,416,447
------------- ------------- ------------- --------------
Loss From Operations (2,010,366) (360,344) (121,229) (2,491,939)
------------- ------------- ------------- --------------
Other Income and (Expenses)
Other income 15,387 1,847 - 17,234
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (183,385) - (316,724)
------------- ------------- ------------- --------------
Total Other Income and Expenses 21,959 (181,538) - (159,579)
------------- ------------- ------------- --------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- --------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- --------------
INCOME TAXES - - - -
------------- ------------- ------------- --------------
Net Loss $ (440,748) $ (541,882) $ (121,229) $ (1,103,859)
============= ============= ============= ==============
Loss Per Share $ (0.57) $ (2.07) $ - $ (0.80)
============= ============= ============= ==============
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations (Continued)
For the Year ended March 31, 1997
(Unaudited)
American Pro Forma
Resources PPW Adjustments Combined
------------- ------------- ------------- --------------
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,926,410 $ - $ 2,926,410
Total Sales - 2,926,410 - 2,926,410
COST OF SALES
Cost of sales - screenprinting and embroidery - 2,209,410 - 2,209,410
Total Cost of Sales - 2,209,410 - 2,209,410
Gross profit - 717,000 - 717,000
EXPENSES
General and administrative expenses 519,185 944,015 121,229 1,584,429
Writedown of goodwill - - - -
Sales and marketing expenses - - - -
Depreciation 3,124 74,815 - 77,939
------------- ------------- ------------- --------------
Total Expenses 522,309 1,018,830 121,229 1,662,368
------------- ------------- ------------- --------------
Loss from operations (522,309) (301,830) (121,229) (945,368)
------------- ------------- ------------- --------------
Other income and (Expenses)
Other revenue - 49,750 - 49,750
Interest income 168 - - 168
Gain on sale of assets 215,375 - - 215,375
Interest expense (32,118) (58,350) - (90,468)
Total Other Income and Expenses 183,425 (8,600) - 174,825
Loss before income taxes and discontinued
operations
Loss from discontinued operations (685,918) - - (685,918)
Total Discontinued operations (685,918) - - (685,918)
Income Taxes - - - -
Net Loss $ (1,024,802) $ (310,430) $ (121,229) $ (1,456,461)
============= ============= ============= ==============
Net loss per Share $ (0.56) $ (1.20) $ (0.97)
============= ============= ============= ==============
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 MERGERS AND ACQUISITIONS (Continued)
Quade, Inc.
In 1997, Quade, Inc. acquired from the U.S. Polo Association ("US
Polo") the exclusive master licenses rights to the US Polo name
for the United States and Canada. For the last year Quade, Inc.
has been developing this property including signing agreements
with four sub-licensees, and serving as licensee for knit tops
including t-shirts, fleece and polo shirts.
On March 17, 1998, the Company signed a Letter of Intent to
acquire on hundred percent (100%) of the outstanding common stock
of Quade, Inc. On July 23, 1998, the Company completed its
purchase of Quade by issuing 213,333 shares of its common stock
and by loaning Quade $115,000, of which $40,000 had been loaned by
June 30, 1998. these shares include 32,000 shares that have a
guarantee of $5.00 per share based on the average asking price of
the Company's common stock for the six months ended March 31,
1999. The Company also guaranteed a note payable of Quade, Inc. to
its former partner, with a discounted value of $613,383.65 and
issued 25,000 shares of common stock to Quade's former partner.
Depending on Quade's performance over the next three years,
additional shares of the Company's common stock will be issued for
this acquisition if minimum earnings levels are met as follows:
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
---- --- ---- ------- -------
1999 $ 27,671 $ 81,500 47,408 142,222
2000 $ 251,166 $ 754,000 47,376 142,222
2001 $ 499,900 $ 1,499,200 47,423 142,222
The additional contingent shares that could be issued to the
Quade, Inc. shareholder also have a guaranteed value of $5.00.
The following tables set forth certain audited pro forma condensed
combined financial information for the Company and Quade, Inc.
accounted for under the purchase method of accounting.
The pro forma condensed combined balance sheet was prepared using
the historical balance sheets of the company and Quade, Inc. as of
March 31, 1998. the pro forma condensed combined statements of
operations for Quade, Inc. for the year ended March 31, 1998 was
prepared using the historical statements of operations of the
Company and Quade.
The pro forma condensed combined financial information was
included for comparative purposes only and does not purport to be
indicative of the results of operations or financial position that
actually would have been obtained if the merger had been effected
at the dates indicated of the financial position or results of
operations that may be obtained in the future.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
<TABLE>
<CAPTION>
American Pro Forma
Resources Quade Adjustments Combined
----------------- --------------- ---------------- ----------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 14,663 $ - $ - $ 14,663
Marketable Securities 622,182 - - 622,182
Accounts receivable 221,875 - - 221,875
Inventory, merchandise 437,003 23,456 - 460,459
Notes receivable - - - -
Prepaid and other current
assets 44,882 109,779 - 154,661
----------------- --------------- ---------------- ----------------
Total Current Assets 1,340,605 133,235 - 1,473,840
----------------- --------------- ---------------- ----------------
PROPERTY AND
EQUIPMENT
Furniture, fixtures and
equipment 383,638 - - 383,638
Leased equipment 859,185 - - 859,185
----------------- --------------- ---------------- ----------------
Total depreciable assets 1,242,823 - - 1,242,823
Less: accumulated
depreciation (118,889) - - (118,889)
----------------- --------------- ---------------- ----------------
Net Property and
Equipment 1,123,934 - - 1,123,934
----------------- --------------- ---------------- ----------------
OTHER ASSETS
Royalties receivable - 120,000 - 120,000
Investments 1,077,500 - - 1,077,500
Intangible assets 1,826,492 - 989,129 2,815,621
Deposit 68,104 - - 68,104
----------------- --------------- ---------------- ----------------
Total Other Assets 2,972,096 120,000 989,129 4,081,225
----------------- --------------- ---------------- ----------------
TOTAL ASSETS $ 5,436,635 $ 253,235 $ 989,129 $ 6,678,999
================= =============== ================ ================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2- MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources Quade Adjustments Combined
------------- ------------- ------------- -------------
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 688,021 $ - $ - $ 688,021
Accrued expenses and
other current liabilities 393,494 244,411 - 637,905
Current portion of notes payable 419,781 651,868 (92,454) 979,195
Current portion of notes
payable - related parties 184,974 - - 184,974
Current portion of capital
lease obligations 303,475 - - 303,475
------------- ------------- ------------- -------------
Total Current Liabilities 1,989,745 896,279 (92,454) 2,793,570
------------- ------------- ------------- -------------
LONG-TERM DEBT
Reserve for discontinued
operations 450,782 - - 450,782
Long-term portion of notes payable 14,155 - - 14,155
Long-term portion of capital
lease obligations 579,963 - - 579,963
Notes payable, related parties 1,091,536 - - 1,091,536
------------- ------------- ------------- -------------
Total Long-Term Debt 2,136,436 - - 2,136,436
------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock 245 - - 245
Common stock 2,929 1,000 (762) 3,167
Additional paid-in capital 7,026,260 - 438,301 7,464,561
Accumulated deficit (5,718,980) (644,044) 644,044 (5,718,980)
------------- ------------- ------------- -------------
Total Stockholders' Equity 1,310,454 (643,044) 1,081,583 1,748,993
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,436,635 $ 253,235 $ 989,129 $ 6,678,999
============= ============= ============= =============
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations
March 31, 1998
American Pro Forma
Resources Quade Adjustments Combined
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES $ 1,093,110 $ 206,391 $ - $ 1,299,501
COST OF SALES 774,405 219,618 - 994,023
------------- ------------- ------------- --------------
Gross Profit 318,705 (13,227) - 305,478
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 1,447,285 535,841 - 1,983,126
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation and amortization 31,814 - 72,831 104,643
------------- ------------- ------------- -------------
Total Expenses 2,329,071 535,841 72,831 2,937,741
------------- ------------- ------------- -------------
Loss From Operations (2,010,366) (549,068) (72,831) (2,632,265)
------------- ------------- ------------- -------------
Other Income and (Expenses)
Other income 15,387 - - 15,387
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (41,660) - (316,724)
------------- ------------- ------------- -------------
Total Other Income and Expenses 21,959 (41,660) - (159,579)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- -------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- -------------
INCOME TAXES - - - -
------------- ------------- ------------- -------------
Net Loss $ (440,748) $ (590,728) $ (72,831) $ (1,104,307)
============= ============= ============= =============
Loss Per Share $ (0.24) $ $ - $ (0.59)
============= ============= ============= ==============
</TABLE>
Pro forma adjustments include a $1,061,960 addition to intangible assets for
license and trademark rights net of fiscal 1998 pro forma accumulated
amortization of $72,831. License and trademark rights were valued based on
acquired liabilities over assets plus the value of the Company's stock issued
for Quade. Pro forma adjustment for additional paid-in capital and common stock
represent the value of common stock issued for the acquisition. Pro forma
adjustment for notes payable was made to impute the note from Quade's former
partner to its present value at a 10% interest rate.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
September 30,
1998
-----------------
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest. $ 54,209
Convertible subordinated debentures, due June 30, 1996
bearing interest at 12% per annum. Interest payable
quarterly, secured by land. 185,000
Note payable with interest at 25%. Interest payable in July with
the entire note due October 24, 1998. Secured by Company
and GVI stock. Note paid in full October 1998. 150,000
Note payable to a bank with interest at 3% above prime per annum.
Secured by accounts receivable and due September 30, 1998.
Paid in full in November 1998. 229,994
Note payable to former Quade partner. Entire balance was
paid in October 1998 from proceeds of Jordache investment
(see Note 13.) 613,384
-----------------
Subtotal 1,232,587
Less current portion 853,703
-----------------
Long-term portion $ 378,884
=================
Maturities of long-term debt are as follows:
March 31, 1999 $ 853,703
March 31, 2000 169,000
March 31, 2001 209,884
-----------------
$ 1,232,587
=================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 4 - NOTES PAYABLE, RELATED PARTIES
<TABLE>
<CAPTION>
September 30,
1998
-----------------
<S> <C>
Note payable to Banque SCS, secured by GVI and Company common
stock. Interest at 14% with monthly principal and interest
payments of $6,000 with a final balloon payment July 2001.
(Banque SCS is a shareholder although it disclaims
beneficial ownership of the shares). $ 346,144
Promissory notes to Banque SCS, secured by GVI stock, bearing
interest at 12%. Interest due monthly with the entire balance due
on April 24, 1998. Holder of note has agreed
to sell GVI stock securing note until note is paid in full. 170,000
Note payable to Banque SCS, secured by GVI and Company
common stock. Interest at 16% due monthly with the entire
loan due December 7, 1999. 340,000
Note payable to a shareholder, secured by assets of the
Company. Interest payable monthly at 18% with no stated
principal payments required. 135,491
Notes payable to the former owners of FTI (includes officers and
directors of the Company). Interest rates average 9.5%.
Unsecured, due upon demand. 256,900
Notes payable to the former shareholders of PPW (includes
an officer an director of the Company). Interest rates average
12%. Unsecured. 406,008
-----------------
Subtotal 1,654,543
Less current portion (255,084)
-----------------
Long-term portion $ 1,399,459
=================
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 5 - CAPITAL LEASES
Property and equipment payments under capital leases as of March
31, 1998 is summarized as follows:
Year End
March 31,
1999 $ 368,389
2000 295,451
2001 253,347
2002 90,898
------------
Total minimum lease payments 1,008,085
Less interest and taxes 124,647
------------
Present value of net minimum lease payments 883,438
Less current portion 303,475
------------
Long-term portion of capital lease obligations $ 579,963
============
NOTE 6 - INCOME TAXES
The Company had net operating loss carry-forwards available to
offset future taxable income. The Company has net operating loss
carry-forwards of approximately $5,700,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2008.
Deferred income taxes payable are made up of the estimated federal
and state income taxes on items of income and expense which due to
temporary differences between books and taxes are deferred. The
temporary differences are primarily caused by the use of the
equity method for reporting investment in subsidiaries. The
deferred tax asset is offset in full by a valuation allowance
because it can not be reasonably determined that the net operating
loss will be useable.
NOTE 7 - PREFERRED STOCK
The shareholders of the Company have authorized 10,000,000 shares
of preferred stock with a par value of $0.001. The terms of the
preferred stock are to be determined when issued by the board of
directors of the Company.
SERIES B:
At September 30, 1998, there are 94,953 shares of series B
preferred stock issue and outstanding. The holders of these series
B preferred shares are entitled to an annual cumulative cash
dividend of not less than sixty cents per share. At September 30,
1998, there is a total of $344,782 of accrued and unpaid dividends
related to the series B preferred stock which have been included
in the accompanying consolidated financial statements. These
series B preferred shares were convertible into shares of the
Company's common stock which conversion option expired March 31,
1995.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 7 - PREFERRED STOCK (Continued)
SERIES D:
As discussed in Note 2, the Company issued 100,000 shares of
Series D preferred stock in exchange for 80% of the issued and
outstanding common stock of FTI. Effective March 31, 1998, the
Series D stock was converted into common stock (Note 2).
NOTE 8 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which have
been offered to the holders of the Series B preferred stock and
the debentures. The shares have not been accepted by the holders
of those investments as of the date of the consolidated financial
statements.
NOTE 9 - STOCK OPTIONS
In August 1997, the Company's Board of Directors approved the 1997
American Resources and Development Company Stock Option Plan
(Option Plan). Under the Option Plan, 500,000 shares of the
Company's common stock are reserved for issuance to Directors and
employees. Options are granted at a price and with vesting terms
as determined by the Board of Directors. In October 1997, the
Board of Directors granted options to purchase 140,000 shares of
stock at $2.00. These options are exercisable beginning March 31,
1998, over staggered periods and expire after ten years.
Compensation expense of $1,458 per month will be recognized for
40,000 of the options issued over a 4 year vesting period and
$1,458 per month will be recognized for 100,000 of the options
over a 10 year vesting period. In July 1998, the Board of
Directors changed the terms of the 100,000 options vesting over 10
years. 25,000 of these options were fully vested and the remainder
of the options were canceled. As a result, compensation expense of
$52,498 was recognized for the year ended March 31, 1998 for the
vesting of these options.
In December 1997, the Board of Directors granted options to
purchase 39,000 shares of stock at $2.00. These options are
exercisable beginning March 31, 1998, are exercisable over
staggered periods and expire after ten years. No compensation
expense was recognized as the option price was greater than the
fair market value of the stock at the date of the option grant.
Pro forma net income and net income per common share was
determined as if the Company had accounted for its employee stock
options under the fair value method of Statement of Financial
Accounting Standards No. 123.
Pro forma expense in year 1 would be $30,904, and $5,646 in years
2 and 3, respectively, with an increase in pro forma expenses per
share of $0.016 in year 1 and $0.003 in years 2 and 3.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 9 - STOCK OPTIONS (Continued)
For the pro forma disclosures, the options' estimated fair value
was amortized over their expected ten-year life. The fair value
for these options was estimated at the date of grant using an
option pricing model which was designed to estimate the fair value
of options which, unlike employee stock options, can be traded at
any time and are fully transferable. In addition, such models
require the input of highly subjective assumptions, including the
expected volatility of the stock price. Therefore, in management's
opinion, the existing models do not provide a reliable single
measure of the value of employee stock options. The following
weighted-average assumptions were used to estimate the fair value
of these options.
Expected dividend yield 0%
Expected stock price volatility 70%
Risk-free interest rate 6.5%
Expected life of options (in years) 10
NOTE 10 - COMMITMENTS AND CONTINGENCIES
FTI leases office and warehouse space in Salt Lake City, Utah and
leases space for six retail stores in various locations. Lease
commitments for the years ended March 31, 1999 through March 31,
2004 are $368,885, $373,374, $380,077, $112,011 and $30,216,
respectively.
NOTE 11 - ROYALTIES COMMITMENT
U.S. Polo Association, Ltd., which is owned 50% by the Company, is
required to pay royalties to U.S. Polo Association from the
Company's sale of USPA product and revenue from sublicense
royalties. Minimum guarantees to U.S. Polo Association from July
1999 to July 2002 are $275,000, $350,000, $385,000 and $425,000.
Minimum guarantees from year 6 through 10, if the Company
exercises its option for the license with U.S. Polo Association,
is $550,000 to $800,000, respectively.
The Company has entered into sublicensing agreements with certain
manufacturers. Minimum guaranteed royalties to be paid to the
Company from these manufacturers are $290,700, $547,500, $800,000,
$450,000 and $500,000 for the years ending March 31, 1999 through
March 31, 2003, respectively. Certain manufacturers have an option
to renew their license agreement in years after March 31, 2003.
Such renewal would require additional minimum guarantees from the
manufacturers.
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 12 - GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. In order to carry
out its operating plans, the Company will need to obtain
additional funding from outside sources. The Company has received
funds from a private placement and debt funding and plans to
continue making private stock and debt placements in addition to
selling its investment in GVI. There is no assurance that the
Company will be able to obtain sufficient funds from other sources
as needed or that such funds, if available, will be obtainable on
terms satisfactory to the Company. Management also intends to
renegotiate the terms of its debt for a longer repayment period.
NOTE 13 - SUBSEQUENT EVENTS
Effective October 8, 1998, the Company and Jordache Enterprises,
through its wholly-owned subsidiary, Iron Will, Inc. ("Iron Will")
formed a joint venture company, U.S. Polo Association, Ltd. (US
Polo), to hold the master license granted by the US Polo
Association and to perform all licensing activities relating to
the US Polo Association licenses and trademarks for the United
States and Canada. The Company and Iron Will each own 50% of US
Polo and management and the Board of Directors for US Polo is
shared equally by the Company and Iron Will. For its ownership in
US Polo, the Company contributed, through Quade, Inc., all assets
and liabilities relating to the business of the licensing of US
Polo including the master license and sublicense agreements in the
US Polo name and trademarks. Iron Will contributed $900,000. US
Polo used $613,384 of the $900,000 equity contribution to pay the
note payable to the former partner of Quade, Inc.
On October 14, 1998, the Company was loaned $1,000,000 from
Jordache Enterprises. Interest on this promissory note is payable
quarterly from the date of the note at the prime rate as published
by the Wall Street Journal plus 1% per annum. Principal is payable
equally over 4 years beginning October 14, 1999. The note is
secured by a pledge of the Company's stock in US Polo.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
For the Quarter Ended September 30, 1998, Compared to the Quarter Ended
September 30, 1997.
Total revenue for the quarter ended September 30, 1998
increased $786,927, or 356%, to $1,007,890, compared with $220,963 for the
quarter ended September 30, 1997. During the current period Fan-Tastic
merchandise sales and franchise fees/royalties were $105,332 and $110,453
compared to $182,472 and $38,491 for the three months ended September 30, 1997.
The increase in franchise fees is primarily due to an increase in Fan-Tastic's
marketing budget in fiscal 1998 as compared to fiscal 1997. Store sales declined
from the prior comparable quarter due to the closure of two company stores that
were in temporary mall locations. In addition, The Company acquired Pacific
Print Works (PPW) effective March 31, 1998 (see Note 2 to the financial
statements) which contributed revenue of $710,549 for the three months ended
September 30, 1998. Quade, Inc. was acquired July 23, 1998 and contributed
revenues of $81,556 for the quarter ended September 30, 1998 from sale of US
Polo Association apparel to retailers and revenue from license fees. Revenue
from Quade, Inc. is expected to grow in future quarter due to the growth of its
sublicensing revenues including royalties from Iron Will, Inc., a subsidiary of
Jordache Enterprises. Quade, Inc. is now doing business as U.S.P.A. Premier for
sale of U.S. Polo Association T-shirts and sweatshirts, and US Polo Association,
Ltd. for U.S. Polo Association licensing activities.
Fan-Tastic had a gross profit of $124,714 or 57.8% for the three
months ended September 30, 1998 as compared to $125,137 or 56.6% for the three
months ended September 30, 1997. The improvement in gross profit as a percentage
of sales is due to the increase in franchise fees and royalties for the three
months ended September 30, 1998. PPW had a gross profit of $231,119 or 32.5% of
sales for the three months ended September 30, 1998.
Depreciation and amortization increased by $108,578 which was
primarily due to goodwill amortization of 30,441 from the PPW acquisition,
amortization of license and trademark rights of 13,704 from the Quade
acquisition and $68,957 of PPW fixed assets depreciation.
General expenses increased by $350,473 which was primarily due to PPW
general expenses of $284,711. General expenses are expected to continue to grow
in future quarters due to the acquisition of Quade, Inc. in July 1998 (see Note
12 to the financial statements).
Interest expense increased $102,737 for the current period compared to
the comparable 1997 period. The increase in interest expenses was due to 1) the
Company increased it's debt in fiscal 1998 and the three months ended September
30, 1998 in order to fund operations and acquire PPW and Quade, Inc. and 2)
PPW's interest expense from its bank line of credit and capital lease
obligations.
The Company experienced an increase in net loss from continuing
operations of $349,809 in the current period compared to the three months ended
September 30, 1997 ($537,025 in the current period compared with a net loss from
continuing operations of $187,216 in the prior period.) This increase is due to
the increase in depreciation and amortization, general expenses and interest
expense as described above and from the net loss from PPW operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had total assets of $6,909,137,
total liabilities of $5,616,423 and total stockholders' equity of $1,292,714,
compared with total assets of $5,436,635, total liabilities of $4,126,181 and
total stockholders equity of $1,310,454 at March 31, 1998. At September 30, 1998
the Company's current ratio was approximately 1 current asset to 1 current
liability The Company's current ratio improved from June 30, 1998 because the
Company's 862,000 restricted shares in GVI become a current asset. The
restriction of sale of these shares expires in July 1999. In addition, the
Company will seek to convert certain debt to equity which will improve its
current ratio.
Management intends to improve its overall financial structure and
provide operating capital through seeking the conversion of debt and preferred
stock, private placement of the Company's common stock and sale of the Company's
investment in GVI. In October 1998, the Company received $1,000,000 in loan
proceeds that is payable equally over 4 years beginning one year from the date
of the loan. These loan proceeds are being used for working capital purposes and
to reduce current liabilities.
17
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
On October 30, 1998, the Company filed a report on 8-K regarding
its purchase of Quade, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
Date: November 19, 1998 By: /s/ Tim Papenfuss
--------------------------------------
Tim Papenfuss, Chief Financial Officer
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