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 December 31, 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 February 8, 1999, the Registrant had outstanding 3,219,596 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 - December 31, 1998 and
March 31, 1998................................................................1
Condensed Consolidated Statements of Operations - Nine months ended
December 31, 1998 and 1997 and Three Months
Ended December 31, 1998 and 1997..............................................3
Statements of Stockholders' Equity.............................................4
Condensed Consolidated Statements of Cash Flows - Nine months ended
December 31, 1998 and 1997 and Three Months Ended
December 31, 1998 and 1997....................................................5
Notes to Condensed Consolidated Financial Statements - December 31, 1998.......7
Item 2: Management's Discussion and Analysis or Plan of Operation..........31
Part II Other Information
Item 1. Legal Proceedings..................................................34
Item 2. Changes in Securities..............................................34
Item 3. Defaults upon Senior Securities....................................34
Item 4. Submission of Matters to a Vote of Security Holders................34
Item 5. Other Information .................................................34
Item 6. Exhibits and Reports on Form 8-K...................................34
i
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
December 31, March 31,
1998 1998
----------------- -----------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 46,767 $ 14,663
Accounts receivable (Note 3) 322,894 221,875
Inventory (Note 1) 396,923 437,003
Marketable securities 905,810 622,182
Prepaid and other current assets 32,600 44,882
----------------- -----------------
Total Current Assets 1,704,994 1,340,605
----------------- -----------------
PROPERTY AND EQUIPMENT (Note 1)
Furniture, fixtures and equipment 449,823 383,638
Capital leases 1,004,553 859,185
----------------- -----------------
Total depreciable assets 1,454,376 1,242,823
Less: accumulated depreciation (351,843) (118,889)
----------------- -----------------
Net Property and Equipment 1,102,533 1,123,934
----------------- -----------------
OTHER ASSETS
Investment in unconsolidated affiliate 403,615 -
Investments (Note 1) - 1,077,500
Intangible assets (Note 1) 1,831,639 1,826,492
Deposits - 68,104
----------------- -----------------
Total Other Assets 2,235,254 2,972,096
----------------- -----------------
TOTAL ASSETS $ 5,042,781 $ 5,436,635
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1998 1998
----------------- -----------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 517,045 $ 688,021
Accrued expenses and other current liabilities 615,299 393,494
Current portion of notes payable (Note 4) 516,457 419,781
Current portion of notes payable, related parties (Note 5) 705,713 184,974
Current portion of capital lease obligations (Note 6) 234,046 303,475
----------------- -----------------
Total Current Liabilities 2,588,560 1,989,745
----------------- -----------------
LONG-TERM DEBT
Reserve for discontinued operations 450,782 450,782
Notes payable (Note 4) 750,000 14,155
Capital lease obligations (Note 6) 531,956 579,963
Notes payable, related parties (Note 5) 852,319 1,091,536
----------------- -----------------
Total Long-Term Debt 2,585,057 2,136,436
----------------- -----------------
Total Liabilities 5,173,617 4,126,181
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Unrealized loss on marketable securities and investments (603,872) -
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; 3,219,596 and
2,929,263 shares issued and outstanding (Note 8) 3,219 2,929
Additional paid-in capital 7,510,447 7,026,260
Accumulated deficit (7,040,875) (5,718,980)
----------------- -----------------
Total Stockholders' Equity (130,836) 1,310,454
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,042,781 $ 5,436,635
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
SALES $ 2,952,829 $ 860,202 $ 1,135,905 $ 478,078
COST OF SALES 1,873,150 427,641 741,640 253,675
--------------- --------------- ---------------- ---------------
GROSS PROFIT 1,079,679 432,561 394,265 224,403
--------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 340,818 32,773 112,641 11,861
General expenses 1,746,994 810,496 524,043 303,150
--------------- --------------- ---------------- ---------------
Total General and
Administrative Expenses 2,087,812 843,269 636,684 315,011
--------------- --------------- ---------------- ---------------
Net Loss (1,008,133) (410,708) (242,419) (90,608)
--------------- --------------- ---------------- ---------------
OTHER INCOME AND (EXPENSES)
Interest income 318 - 318-
Other income and expenses 48,282 40,823 36,865 -
Gain of sale of assets 48,100 - - 63,712
Interest expense (385,467) (86,220) (143,103) (36,405)
Equity in loss from
unconsolidated affiliate (24,995) - (24,995) -
--------------- --------------- ---------------- ---------------
Total Other Income and
(Expenses) (313,762) (45,397) (130,915) 27,307
--------------- --------------- ---------------- ---------------
Net (Loss) Before Income Tax
and discontinued operations (1,321,895) (456,105) (373,334) (63,301)
Minority Interest (Note 1) - - - -
Discontinued operations - (116,723) - (18,645)
--------------- --------------- ---------------- ---------------
Net Loss Before Income Tax (1,321,895) (572,828) (373,334) (81,996)
Less: Provisions for (Income
Tax) - - - -
--------------- --------------- ---------------- ---------------
NET LOSS $ (1,321,895) $ (572,828) $ (373,334) $ (81,996)
=============== =============== ================ ===============
BASIC LOSS PER SHARE
OF COMMON STOCK -
CONTINUING OPERATIONS $ (0.42) $ (0.25) $ (0.12) $ (0.03)
=============== =============== ================ ===============
BASIC LOSS PER SHARE
OF COMMON STOCK
DISCONTINUED OPERATIONS $ - $ (0.06) $ - $ (0.01)
=============== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT
Statements of Stockholders' Equity
December 31, 1998
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) - - - - (8,40 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)
------------ ----------- ----------- ------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ---------------- --------------- -------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Loss $ (1,321,895) $ (572,828) $ (373,334) $ (81,996)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 340,818 39,475 112,641 12,311
Gain on sale of marketable securities (48,100) - - -
Common stock issued for services and interest 6,557 85,000 - 55,000
Changes in operating assets and liabilities:
(Increase) decrease in inventory 52,052 (110,692) 48,770 187,045
(Increase) decrease in notes and accounts
receivable (100,176) (165,172) (70,826) (129,401)
Increase (decrease) in other current assets 76,996 2,069 - (6,700)
Increase (decrease) in accounts payable (200,182) 144,975 (302,667) 37,394
Increase (decrease) in other current liabilities 150,173 258,768 (19,845) 51,988
------------- ---------------- --------------- -------------
Net Cash Provided (Used) by Operating Activities (1,043,757) (318,405) (611,961 ) (47,094)
------------- ---------------- --------------- ------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 232,304 - - -
Purchases of property and equipment (211,553) (53,272) (24,443) (42,049)
Reduction in cash from GVI merger - (10,047) - (10,047)
Investment in land held for development - (417,892) - (47,631)
------------- ---------------- --------------- ---------------
Net Cash Provided (Used) by Investing Activities (20,751) (481,211) (24,443) (99,727)
------------- ---------------- --------------- -------------
FINANCING ACTIVITIES
Stock issued for cash 60,000 - - -
Proceeds from sale of receivables, net 168,531 - 168,531 -
Payments on long-term debt and capital lease
obligations (720,992) (63,390) (539,448) (2,220)
Long-term borrowings 1,199,077 309,937 1,049,073 85,000
Borrowings from related parties 390,000 581,385 100,046 -
------------- ---------------- --------------- -------------
Net Cash Provided (Used) by Financing Activities 1,096,612 827,932 182,826 678,156
------------- ---------------- --------------- -------------
INCREASE (DECREASE) IN CASH 32,104 28,316 41,752 36,005
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 14,663 47,850 5,015 40,161
------------- ---------------- --------------- -------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 46,767 $ 76,166 $ 46,767 $ 76,166
============= ================ =============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended
December 31,
1998 1997
----------------- ------------------
CASH PAID FOR
<S> <C> <C>
Interest $ 268,845 $ 91,606
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services and interest $ 6,557 $ 85,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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. Effective October 8,
1998, the Company formed a joint venture company with Quade's
market licensing rights for the U.S. Polo Association (see Note
2).
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).
7
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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 December 31, 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 loss of $603,872 in marketable securities
at December 31, 1998 due to a $0.50 decline in GVI per share value
at December 31, 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.
8
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Common Net Loss Per Common Share
Common 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
$(0.12) and $(0.03) for the quarters ended December 31, 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 December 31, 1998 and 1997
was $-0- and $(0.01), respectively. Weighted average common shares
outstanding were 3,218,982 and 1,835,486 for the quarters ended
December 31, 1998 and 1997, respectively, and 3,107,537 and
1,835,486 for the nine months ended December 31, 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 screen printing, 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 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.
9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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.
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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>
11
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Prior to GVI After
Merger Adjustments GVI Merger
-------------------- ------------------- -----------------
CURRENT LIABILITIES
<S> <C> <C> <C>
Accounts payable $ 1,296,869 $ (898,265) $ 398,604
Accrued expenses and other current
liabilities 1,367,403 (707,474) 659,929
Current portion of notes payable 1,309,400 (903,924) 405,476
Current portion of notes payable, related
parties 377,337 - 377,337
Current portion of capital lease
obligations 14,556 - 14,556
-------------------- ------------------- -----------------
Total Current Liabilities 4,365,565 (2,509,663) 1,855,902
------------------ ------------------ -----------------
LONG-TERM DEBT
Notes payable 6,550,550 (6,550,550) -
Capital lease obligations 4,262 - 4,262
Notes payable, related parties 748,087 (75,000) 673,087
------------------ -------------------- ------------------
Total Long-Term Debt 7,302,899 (6,625,550) 677,349
------------------ ------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred stock 252 - 252
Common stock 1,868 - 1,868
Additional paid-in capital 13,258,330 (8,406,498) 4,851,832
Accumulated deficit (10,539,738) 5,381,564 (5,158,174)
------------------ ----------------- -----------------
Total Stockholders' Equity 2,720,712 (3,024,934) (304,222)
------------------ ----------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,389,176 $ (12,160,147) $ 2,229,029
================== ================= =================
</TABLE>
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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)
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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.
15
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
----------------- ------------------ --------------- ----------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 4,962 $ 9,699 $ - $ 14,663
Marketable Securities 622,182 - - 622,182
Accounts receivable 51,444 170,431 - 221,875
Inventory, merchandise 321,934 115,071 - 437,003
Notes receivable 115,000 (115,000) - -
Prepaid and other current
assets 41,289 3,593 - 44,882
----------------- ------------------ --------------- ----------------
Total Current Assets 1,156,811 183,794 - 1,340,605
----------------- ------------------ --------------- ----------------
PROPERTY AND
EQUIPMENT
Furniture, fixtures and
equipment 158,242 271,413 (46,017) 383,638
Leased equipment 40,650 921,713 (103,178) 859,185
----------------- ------------------ --------------- ----------------
Total depreciable assets 198,892 1,193,126 (149,195) 1,242,823
Less: accumulated
depreciation (118,889) (149,195) 149,195 (118,889)
----------------- ------------------ --------------- ----------------
Net Property and
Equipment 80,003 1,043,931 - 1,123,934
----------------- ------------------ --------------- ----------------
OTHER ASSETS
Investments 1,077,500 - - 1,077,500
Goodwill 1,826,492 1,826,492
Deposit 1,970 66,134 - 68,104
----------------- ----------------- --------------- ---------------
Total Other Assets 1,079,470 66,134 1,826,492 2,972,096
---------------- ----------------- --------------- ---------------
TOTAL ASSETS $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
================ ================ =============== ===============
</TABLE>
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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>
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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 - screen printing 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 - screen printing and embroidery - 1,784,167 - 1,784,167
Cost of sales - merchandise 774,405 - - 774,405
------------- ------------- ------------- --------------
Total Cost of Sales 774,405 1,784,167 - 2,558,572
------------- ------------- ------------- --------------
Gross Profit 318,705 605,803 - 924,508
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 1,447,285 771,624 121,229 2,340,138
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation 31,814 194,523 - 226,337
------------- ------------- ------------- --------------
Total Expenses 2,329,071 966,147 121,229 3,416,447
------------- ------------- ------------- --------------
Loss From Operations (2,010,366) (360,344) (121,229) (2,491,939)
------------- ------------- ------------- --------------
Other Income and (Expenses)
Other income 15,387 1,847 - 17,234
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (183,385) - (316,724)
------------- ------------- ------------- --------------
Total Other Income and Expenses 21,959 (181,538) - (159,579)
------------- ------------- ------------- --------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- --------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- --------------
INCOME TAXES - - - -
------------- ------------- ------------- --------------
Net Loss $ (440,748) $ (541,882) $ (121,229) $ (1,103,859)
============= ============= ============= ==============
Loss Per Share $ (0.57 $ (2.07) $ - $ (0.80)
============= ============= ============= ==============
</TABLE>
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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 - screen printing and embroidery $ - $ 2,926,410 $ - $ 2,926,410
------------- ------------- ------------- --------------
Total Sales - 2,926,410 - 2,926,410
------------- ------------- ------------- --------------
COST OF SALES
Cost of sales - screen printing and embroidery - 2,209,410 - 2,209,410
------------- ------------- ------------- --------------
Total Cost of Sales - 2,209,410 - 2,209,410
------------- ------------- ------------- --------------
Gross profit - 717,000 - 717,000
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 519,185 944,015 121,229 1,584,429
Writedown of goodwill - - - -
Sales and marketing expenses - - - -
Depreciation 3,124 74,815 - 77,939
------------- ------------- ------------- --------------
Total Expenses 522,309 1,018,830 121,229 1,662,368
------------- ------------- ------------- --------------
Loss from operations (522,309) (301,830) (121,229) (945,368)
------------- ------------- ------------- --------------
Other income and (Expenses)
Other revenue - 49,750 - 49,750
Interest income 168 - - 168
Gain on sale of assets 215,375 - - 215,375
Interest expense (32,118) (58,350) - (90,468)
------------- ------------- ------------- --------------
Total Other Income and Expenses 183,425 (8,600) - 174,825
------------- ------------- ------------- --------------
Loss before income taxes and discontinued
operations
Loss from discontinued operations (685,918) - - (685,918)
------------- ------------- ------------- --------------
Total Discontinued operations (685,918) - - (685,918)
------------- ------------- ------------- --------------
Income Taxes - - - -
------------- ------------- ------------- --------------
Net Loss $ (1,024,802) $ (310,430) $ (121,229) $ (1,456,461)
============= ============= ============= ==============
Net loss per Share $ (0.56) $ (1.20) $ (0.97)
============= ============= ==============
</TABLE>
19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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.
20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
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. The Company's
investment in this joint venture is accounted for under the equity
method of accounting. The Company's share of losses for the 1999
third quarter from this joint venture were $24,995.
21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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 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>
22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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>
23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 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.
24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 3 - SALE OF RECEIVABLES
In November 1998, the Company entered into an accounts receivable
financing agreement to sell, with recourse, up to $1.4 million of
receivables, net of a 15% collection reserve. The Company is
charged .065% daily for all receivables sold and uncollected under
this financing agreement. At December 31, 1998, the Company had
$168,531 of sold but uncollected receivables. The Company received
$423,948 from the sale of receivables in the third quarter of
fiscal 1999 and recognized $4,636 in interest expense from the
discount of selling these receivables.
NOTE 4 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable are comprised of the following:
December 31,
1998
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest. $ 32,384
Convertible subordinated debentures, due June 30, 1996
bearing interest at 12% per annum. Interest payable
quarterly, secured by land. 185,000
Trade draft payable, secured with inventory, payable in six
monthly installments beginning January 1999 at $8,874.10
per month. 49,073
Note payable to business partner in U.S. Polo Association, Ltd.
Interest is payable quarterly 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 and is
secured by a pledge of the Company's stock in U.S. Polo
Association, Ltd. 1,000,000
Subtotal 1,266,457
Less current portion 516,457
Long-term portion $ 750,000
=================
Maturities of long-term debt are as follows:
December 31, 1999 $ 467,384
December 31, 2000 250,000
December 31, 2001 250,000
December 31, 2002 250,000
-----------------
$ 1,217,384
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
December 31,
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). $ 339,144
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. 200,247
Notes payable to the former shareholders of PPW (includes
an officer and director of the Company). Interest rates average
12%. Unsecured. 373,150
Subtotal 1,558,032
Less current portion (705,713)
-----------------
Long-term portion $ 852,319
=================
</TABLE>
26
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 6 - 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 7 - 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 8 - 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.
27
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 8 - 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 9 - 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 10 - 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.
28
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 10 - 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 11 - 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 12 - 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.
29
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1998 and 1997
NOTE 13 - 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.
30
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
For the Quarter Ended December 31, 1998, Compared to the Quarter Ended December
31, 1997.
Total revenue for the quarter ended December 31, 1998 increased
$657,827, or 138%, to $1,135,905, compared with $478,078 for the quarter ended
December 31, 1997. During the current quarter Fan-Tastic merchandise sales and
franchise fees/royalties were $203,056 and $58,394 compared to $280,605 and
$43,000 for the three months ended December 31, 1997. The increase in franchise
and royalty fees is primarily due to an increase in Fan-Tastic's marketing
budget in the current year as compared to the prior year and an increase in
operating franchise stores from 6 at December 1997 to 15 at December 1998.
Merchandise sales declined from the prior year's comparable quarter primarily
due to the closure of two company stores that were in temporary mall locations
and a 37% decrease in comparable store sales due to reduced inventory levels per
store. In addition, the Company acquired Pacific Print Works (PPW) effective
March 31, 1998 (see Note 2 to the financial statements) which contributed
revenue of $832,586 for the three months ended December 31, 1998.
31
<PAGE>
Fan-Tastic had a gross profit of $115,715 or 43% of sales for the three
months ended December 31, 1998 as compared to $224,403 or 47% for the three
months ended December 31, 1997. The decline in gross profit is primarily due to
lower profit margins on obsolete inventory being sold at significant discounts
in the third fiscal quarter of 1998. PPW had a gross profit of $254,226 or 30.5%
of sales for the three months ended December 31, 1998.
General expenses increased by $220,893 for the three months ended
December 31, 1998 as compared to the comparable prior year quarter. This change
was primarily due to PPW general expenses of $282,124 and a decrease in general
expenses for Fan-Tastic and corporate headquarters. The decrease in Fan-Tastic
general expenses was due to the closure of two stores and the decrease in
corporate headquarter's general expenses was primarily due to a reduction in
salaries and office expenses.
Depreciation and amortization increased by $100,780, primarily due to
goodwill amortization of $30,441 from the PPW acquisition and PPW fixed assets
depreciation of $67,568.
Interest expense increased $106,698 for the current quarter compared to
the comparable 1997 quarter. The increase in interest expense was due to 1) the
Company increasing it's debt in fiscal 1999 and for the three months ended
December 31, 1998 in order to fund operations and acquire PPW and Quade, Inc.,
and 2) PPW's interest expense from its receivable factoring and capital lease
obligations.
The Company experienced an increase in net loss from continuing
operations of $310,033 in the current period compared to the three months ended
December 31, 1997. This increase is due to the increase in depreciation and
amortization, general expenses, interest expense and the PPW operational losses.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had total assets of $5,042,781, total
liabilities of $5,173,617 and a total stockholders' deficiency of $130,836,
compared with total assets of $5,436,365, total liabilities of $4,126,181 and
total stockholders' equity of $1,310,454 at March 31, 1998. At December 31, 1998
the Company's current ratio was approximately .65 current assets to 1 current
liability. The Company's current ratio declined from September 30, 1998 due to a
$1,057,000 decline in marketable securities. Marketable securities consist of
the Company's holdings in common stock of Golf Communities of America. The
market value of the Company's holdings improved by over $600,000 at February 5,
1999 compared to December 31, 1998 due to an increase in the price of Golf
Communities stock.
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 were used for working capital purposes and to reduce current
liabilities.
Management intends to improve its overall financial structure and
provide operating capital through seeking the conversion of debt and preferred
stock into the Company's common stock, private placement of the Company's common
stock and sale of the Company's investment in Golf Communities of America. 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.
32
<PAGE>
Year 2000 Issues:
Many computer hardware and software systems and equipment with software were
designed with two digit year codes that did not recognize century and millennium
fields. As a result, these systems may calculate dates for year 2000 as 1900,
which may cause errors in information or system failures.
The Company has evaluated its internal computer hardware and software systems
and equipment with software and does not expect the costs to remedy year 2000
problems to be material to the Company's financial position, results of
operations, or cash flows. The Company believes that necessary modifications
will be made on a timely basis. However, the readiness of the Company's
suppliers relating to year 2000 may vary. It is possible that any significant
supplier failures could have a material adverse impact on the Company's
operations and financial results.
33
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
34
<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: February 11, 1998 By: /s/Tim Papenfuss
------------
Tim Papenfuss
Chief Financial Officer
35
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