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 June 30, 1999;
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.)
---------------
2035 N.E. 181st Gresham, OR 97230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 492-1500
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of August 11, 1999, the Registrant had outstanding 3,600,953 shares of
Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Part I Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1999 and
March 31, 1999................................................................1
Condensed Consolidated Statements of Operations - Three months ended
June 30, 1999 and 1998..............................................3
Statements of Stockholders' Equity.............................................5
Condensed Consolidated Statements of Cash Flows - Three Months Ended
June 30, 1999 and 1998....................................................7
Notes to Condensed Consolidated Financial Statements - June 30, 1999.......9
Item 2: Management's Discussion and Analysis or Plan of Operation..........17
Part II Other Information
Item 1. Legal Proceedings..................................................19
Item 2. Changes in Securities..............................................19
Item 3. Defaults upon Senior Securities....................................19
Item 4. Submission of Matters to a Vote of Security Holders................19
Item 5. Other Information .................................................19
Item 6. Exhibits and Reports on Form 8-K...................................19
i
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
June 30, March 31,
1999 1999
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 87,475 $ 41,967
Accounts receivable, net (Note 1) 391,521 516,660
Inventory (Note 1) 283,771 293,768
Prepaid and other current assets 25,115 15,400
Marketable securities (Note 1) 27,187 157,500
------------------ -----------------
Total Current Assets 815,069 1,025,295
------------------ -----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 409,128 395,253
Capital leases 1,083,340 1,090,032
------------------ -----------------
Total depreciable assets 1,492,468 1,485,285
Less: accumulated depreciation (412,213) (355,492)
------------------ -----------------
Net Property and Equipment 1,080,255 1,129,793
------------------ -----------------
OTHER ASSETS
Marketable securities (Note 1) 190,407 857,938
Net assets of discontinued operations (Note 14) - 282,508
------------------ -----------------
Total Other Assets 190,407 1,140,446
------------------ -----------------
TOTAL ASSETS $ 2,085,731 $ 3,295,534
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, March 31,
1999 1999
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 399,350 $ 366,028
Accrued expenses and other current liabilities 461,410 397,800
Line of credit (Note 3) 255,544 367,845
Current portion of notes payable (Note 4) 302,445 587,323
Current portion of notes payable, related parties (Note 5) 47,104 47,104
Current portion of capital lease obligations (Note 6) 280,592 282,497
------------------ -----------------
Total Current Liabilities 1,746,445 2,048,597
------------------ -----------------
LONG-TERM DEBT
Deferred revenue 10,000 10,000
Reserve for discontinued operations (Note 2) 676,458 660,123
Notes payable (Note 4) 231,027 1,001,819
Notes payable, related parties (Note 5) 1,350,423 1,395,148
Capital lease obligations (Note 6) 427,442 495,030
------------------ -----------------
Total Long-Term Debt 2,695,350 3,562,120
------------------ -----------------
Total Liabilities 4,441,795 5,610,717
------------------ -----------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT)
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: 4,361,773
shares issued and 3,600,953 outstanding. (Note 9) 3,600 3,174
Other comprehensive losses (1,233,032) (435,188)
Additional paid-in capital 7,441,814 7,297,066
Accumulated deficit (8,558,690) (9,180,480)
------------------ -----------------
Total Stockholders' Equity (Deficit) (2,356,063) (2,315,183)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 2,085,731 $ 3,295,534
================== =================
</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 Operations
For the Three Months Ended
June 30,
1999 1998
INCOME
<S> <C> <C>
Sales $ 1,128,088 $ 809,034
Cost of sales 835,348 637,555
------------------ -----------------
Gross Profit 292,740 171,479
------------------ -----------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 9,012 44,945
General expenses 337,330 474,545
------------------ -----------------
Total General and Administrative Expenses 346,342 519,490
------------------ -----------------
LOSS FROM OPERATIONS (53,602) (348,011)
------------------ -----------------
OTHER INCOME AND (EXPENSES)
Other income 3,979 24,112
Gain on sale of assets - 19,405
Interest expense (146,105) (107,042)
------------------ -----------------
Total Other Income and (Expenses) (142,126) (63,525)
------------------ -----------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (195,728) (411,536)
------------------ -----------------
DISCONTINUED OPERATIONS
Gain from sale of USPA 813,389 -
Loss from operations of USPA (5,871) -
------------------ -----------------
TOTAL DISCONTINUED OPERATIONS 807,518 -
------------------ -----------------
INCOME TAXES - -
------------------ -----------------
NET INCOME (LOSS) 611,790 (411,536)
------------------ -----------------
OTHER COMPREHENSIVE GAIN (LOSS)
Gain (loss) on valuation of marketable securities (797,844) 471,655
------------------ -----------------
Total Other Comprehensive gain (loss) (797,844) 471,655
------------------ -----------------
NET COMPREHENSIVE GAIN (LOSS) $ (186,054) $ 60,119
================== =================
</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 Operations (Continued)
For the Three Months Ended
June 30,
1999 1998
<S> <C> <C>
BASIC LOSS PER SHARE OF COMMON
STOCK-CONTINUING OPERATIONS $ (0.06) $ (0.14)
================== =================
BASIC INCOME PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ 0.19 $ (0.00)
================== =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,219,596 2,949,834
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Deficit)
June 30, 1999 and 1998
Other Additional
Common Stock Preferred Stock Comprehensive Paid-In Accumulated
Shares Amount Shares Amount Loss Capital Deficit
--------- ------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 for the year ended
March 31, 1998 - - - - - - (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.
7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Continued)
June 30, 1999 and 1998
Other Additional
Common Stock Preferred Stock Comprehensive Paid-In Accumulated
Shares Amount Shares Amount Loss Capital Deficit
--------- ------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 - - - 59,954 -
Stock issued for Quade
acquisition (Note 2) 238,333 238 - - - 417,678 -
Stock adjustment on PPW
acquisition (Note 2) (45,310) (45) - - - (226,505) -
Expense recognized for
vested options - - - - - 17,496 -
Stock issued for loan 4,000 4 - - - 2,183 -
Loss on valuation of
marketable securities - - - - (435,188) - -
Net loss for the year ended
March 31, 1999 - - - - - - (3,461,500)
--------- ------------ ----------- ----------- ------------ ------------ ------------
Balance, March 31, 1999 3,174,286 3,174 244,953 245 (435,188) 7,297,066 (9,180,480)
Loss on valuation of
marketable securities - - - - (797,844) - -
Expense recognized for
vested options - - - - - 4,374 -
Stock issued for Quade
acquisition (Note 2) 426,667 426 - - - 140,374 -
Net income for the period
ended June 30, 1999 - - - - - - 621,790
--------- ------------ ----------- ----------- ------------ ------------ ------------
Balance, June 30, 1999 3,600,953 $ 3,600 244,953 $ 245 $(1,233,032) $ 7,441,814 $(8,558,690)
========= ============ =========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
June 30,
1999 1998
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 611,790 $ (411,536)
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of USPA, Ltd. (813,389) -
Depreciation and amortization 72,012 104,945
Common sock issued for services 4,374 -
Changes in operating assets and liabilities:
(Increase) decrease in inventory 9,997 74,016
(Increase) decrease in accounts receivable 125,139 (117,169)
Increase (decrease) in other current assets (9,715) 8,254
Increase (decrease) in accounts payable and
other current liabilities 96,932 (53,149)
----------------- -----------------
Net Cash Provided (Used) by Operating Activities 97,140 (394,639)
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from sale of USPA, Ltd. 221,470 -
Purchases of property and equipment - (37,854)
Sale of marketable securities, net of gain - 121,705
----------------- -----------------
Net Cash Provided (Used) by Investing Activities 221,470 83,851
----------------- -----------------
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (160,801) (57,759)
Proceeds from notes payable - 325,533
Common stock issued for cash - 45,000
Net payments on factoring line of credit (112,301) -
----------------- -----------------
Net Cash Provided (Used) by Financing Activities (273,102) 312,774
----------------- -----------------
INCREASE (DECREASE) IN CASH 45,508 1,986
CASH, BEGINNING OF PERIOD 41,967 14,663
----------------- -----------------
CASH, END OF PERIOD $ 87,475 $ 16,649
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
June 30,
1999 1998
CASH PAID FOR
<S> <C> <C>
Interest $ 108,045 $ 99,824
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ - $ 30,000
Equipment purchased through capital
lease obligation $ - $ 144,312
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Quarterly Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates. The accompanying
consolidated unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-QSB but
do not include all of the information and footnotes required by
generally accepted accounting principles and should, therefore,
be read in conjunction with the Company's fiscal 1998 financial
statements in Form 10-KSB. These statements do include all normal
recurring adjustments which the Company believes necessary for a
fair presentation of the statements. The interim operating
results are not necessarily indicative of the results for a full
year.
b. 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)
c. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at time, may
exceed federally insured limits.
In the normal course of business, the Company extends credit to
its customers.
f. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Property and Equipment
Property, equipment and capital leases are recorded at cost and
are depreciated or amortized over the estimated useful life of
the related assets, generally three to seven years. When assets
are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period.
The costs of maintenance and repairs are charged to income as
incurred. Renewals and betterments are capitalized and
depreciated over their estimated useful lives.
h. 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 145,000 shares of free trading
GVI stock valued at $27,187 and 1,015,000 shares of GVI stock
pledged as collateral on notes payable valued at $190,407. Any
change in market value from period to period will be reported as
a separate component of stockholders' equity until realized.
There was an unrealized loss of $1,233,032 in marketable
securities at June 30, 1999 due to a $1.063 decline in the
Company's recorded cost per GVI share.
i. 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.
j. Basic Loss Per Common Share
Basic los per common share is computed based on the weighted
average number of common shares outstanding during the period.
The common stock equivalents are antidilutive and, accordingly,
are not used in the net loss per common share computation. Fully
diluted loss per share is the same as the basic loss per share
because of the antidilutive nature of common stock equivalents.
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Basic Loss Per Common Share (Continued)
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 (0.06) and
(0.14) for the quarters ended June 30, 1999 an 1998,
respectively. Basic net income from discontinued operations per
common share was $0.19 and $0.00, respectively. Weighted average
common shares outstanding were 3,219,596 and 2,949,834 for the
quarters ended June 30, 1999 and 1998, respectively.
k. Revenue Recognition for Franchise Operations
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 been shipped.
l. Goodwill
The excess of the Company's acquisition cost over the fair value
of the net assets of the FTI acquisition resulted in a write-down
of goodwill of $756,797 for the year ended March 31, 1998. On
March 31, 1998, the Company also recognized goodwill of
$1,696,412 from the purchase of Pacific Print Works (aka Pacific
Printing and Embroidery LLC). The Company amortized $128,198 of
goodwill from the PPW acquisition in fiscal 1999. In the fourth
quarter of fiscal 1999, the Company wrote-off its remaining
goodwill from the PPW acquisition due to a permanent impairment,
resulting in an additional expense of $1,568,215. The Company
recognizes goodwill from the excess of the purchase price of its
acquisitions over the fair value of the net assets acquired.
The Company evaluates the recoverability of goodwill and reviews
the amortization period on an annual basis. Several factors are
used to evaluate goodwill, including but not limited to:
Management's plans for future operations, recent operating
results and projected, undiscounted cash flows.
m. Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income" during the year
ended March 31, 1999. SFAS No. 130 established standards for
reporting and display of comprehensive income (loss) and its
components (revenues, expenses, gains and losses) in a full set
of general purpose financial statements. This statement requires
that an enterprise classify items of other comprehensive income
by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of a balance sheet. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company has
retroactively applied the provisions of this new standard by
showing the other comprehensive income (loss) for all years
presented.
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
n. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
o. Prior Period Reclassification
Certain 1998 balances have been reclassified to conform to the
presentation of the 1999 consolidated financial statements.
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 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 for the year ended March 31, 1998 and $0.83 per
share.
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. The
Company has a reserve for discontinued operations of $660,123 at
March 31, 1999.
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
$629,252 and 213,472 shares of the Company's common stock were
issued to PPW shareholders with a guaranteed share value of $5.00
resulting in goodwill of $1,686,411. 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.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITION (Continued)
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
(Continued)
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
1999 $179,480 $ 538,200 28,754 86,261
2000 269,020 807,300 28,754 86,261
2001 357,900 1,073,700 28,754 86,261
Earnings before income taxes above the low level but below the
high level will result in common shares being issued based on the
percentage of actual earnings to the high earnings multiplied by
the maximum shares issuable for that year. For example, in fiscal
1999, earnings of $300,000 would result in 48,083 shares of common
stock being issued to the PPW shareholders.
The following tables set forth certain unaudited pro forma
condensed combined financial information for the Company and PPW
accounted for under the purchase method of accounting.
The pro forma condensed combined statements of operations for the
year ended March 31, 1998 was 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 that actually would have
been obtained if the merger had been effected at the dates
indicated or results of operations that may be obtained in the
future.
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
<TABLE>
<CAPTION>
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
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>
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 2 MERGERS AND ACQUISITIONS (Continued)
Quade, Inc.
In 1997, Quade, Inc. acquired from the U.S. Polo Association the
exclusive master licenses rights to the US Polo name for the
United States and Canada. For the last year Quade, Inc. has been
developing this property including signing agreements with four
sub-licensees, and serving as licensee for knit tops including
t-shirts, fleece and polo shirts.
On March 17, 1998, the Company signed a Letter of Intent to
acquire one hundred percent (100%) of the outstanding common stock
of Quade, Inc. On July 23, 1998, the Company completed its
purchase of Quade 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.
Effective October 8, 1998, the Company and Jordache Enterprises,
through its affiliate, 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 from this
joint venture for the year ended March 31, 1999 were $127,268.
In June 1999, the Company sold its 50% ownership in US Polo to
Iron Will (See Note 14). In addition, the Company and the former
owner of Quade amended the original stock purchase agreement.
Under the amendment, the additional 426,667 shares of common stock
were issued to the former owner of Quade without any additional
earnings requirments by Quade or US Polo and the $5.00 guarantee
value of the common shares issued to Quade was removed.
The following tables set forth certain unaudited 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.
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
<TABLE>
<CAPTION>
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
American Resources and Development Company
Consolidated Unaudited 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>
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
<TABLE>
<CAPTION>
NOTE 2- MERGERS AND ACQUISITIONS (Continued)
American Resources and Development Company
Consolidated Unaudited 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>
19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
<TABLE>
<CAPTION>
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
American Resources and Development Company
Consolidated Unaudited 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 (Loss) 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) - (174,999)
------------- ------------- ------------- --------------
Total Other Income and Expenses 21,959 (41,660) - (19,701)
------------- ------------- ------------- --------------
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) $ (0.35) $ - $ (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.
20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 3 - LINE OF CREDIT
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 March 31, 1999 and June 30, 1999, the
Company had a payable of $367,845 and 255,544, respectively, for
net funds advanced from this accounts receivable line of credit.
The Company received $1,163,873 from the sale of receivables for
the year ended March 31, 1999 and recognized $24,560 in interest
expense from the discount of selling these receivables.
<TABLE>
<CAPTION>
NOTE 4 - NOTES PAYABLE
Notes payable are comprised of the following:
June 30,
1999
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest. Due on
demand. $ 26,210
Convertible subordinated debentures, originally due June 30, 1996
bearing interest at 12% per annum. Interest payable
quarterly. 187,000
Trade drafts payable, secured with inventory, payable in five
monthly installments beginning April 1999, with payments from
$2,267 to $2,030 per month. 24,750
Notes payable to a shareholder of PPW. Interest rates
average 10%, due on demand, unsecured. 244,196
Notes payable with three vendors with interest rates averaging
12%; partially secured by equipment, due in 2000. 51,316
-------------------
Subtotal 533,472
Less current portion (302,445)
Long-term portion $ 231,027
===================
</TABLE>
21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 4 - NOTES PAYABLE (Continued)
Maturities of long-term debt are as follows:
March 31, 2000 $ 302,445
March 31, 2001 231,027
March 31, 2002 -
March 31, 2003 -
-----------------
$ 533,472
<TABLE>
<CAPTION>
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
June 30,
1999
<S> <C>
Note payable to Miltex Industries, secured by 700,000 shares of
GVI and 600,000 shares of the Company's common stock. Interest at
15% with monthly principal and interest payments
of $11,000 with a final balloon payment September 2000. $ 720,189
Note payable to a shareholder, secured by GVI stock. Interest
payable monthly at 13.5% with interest and principal payments
of $5,000 per month. Due September 2000. 319,465
Notes payable to shareholders (includes officers
and directors of the Company). Interest rates average 10.5%.
Unsecured, due on demand, but not expected to be repaid
until 2003. 357,873
Subtotal 1,397,527
Less current portion (47,104)
-----------------
Long-term portion $ 1,350,423
=================
Maturities of notes payable, related parties are as follows:
March 31, 2000 $ 47,104
March 31, 2001 1,008,555
March 31, 2002 294,764
-----------------
$ 1,350,423
</TABLE>
22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 6 - CAPITAL LEASES
Property and equipment payments under capital leases as of March
31, 1999 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Year End
March 31,
2000 $ 357,482
2001 318,944
2002 158,568
2003 61,669
2004 33,381
-----------------
Total minimum lease payments 930,044
Less interest and taxes (152,517)
Present value of net minimum lease payments 777,527
Less current portion (282,497)
Long-term portion of capital lease obligations $ 495,030
=================
</TABLE>
The Company recorded depreciation expense of $196,606 for the year
ended March 31, 1999.
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 $7,500,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2014.
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 March 31, 1999, there are 94,953 shares of series B preferred
stock issued and outstanding. The holders of these series B
preferred shares are entitled to an annual cumulative cash
dividend of not less than sixty cents per share. At March 31,
1999, there is a total of $352,589 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.
23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 9 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which had
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. Additionally, the Company has issued 600,000 shares of
common stock as collateral for the note payable to Banque SCS
(Note 5).
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.
24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
NOTE 10 - STOCK OPTIONS (Continued)
On January 22, 1999, the Company granted options to a consultant
to purchase up to 160,000 shares of the Company's common stock.
The consultant is to provide various investor and public
relations services through January 21, 2000 and the Company is
recognizing an expense of $6,000 over the term of the services
based upon the value of the options as calculated from an option
pricing model. The options expire in December 31, 2001, are not
transferrable and are exercisable at any time at the following
rates:
40,000 shares at $0.50 per share; 40,000 shares at $1.00
per share; 40,000 shares at $2.00 per share; 40,000 shares
at $3.00 per share.
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:
March 31,
1999
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
Office Lease
The Company leases office and warehouse space in Salt Lake City,
Utah and Portland, Oregon and leases space for retail stores in
various locations. Lease commitments for the years ended March 31,
2000 through March 31, 2003 are $269,526, $270,198, $224,391, and
$34,698, respectively.
Legal Proceedings
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
25
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
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.
NOTE 13 - BUSINESS SEGMENTS
Effective March 31, 1999, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related
Information." Prior period amounts have been restated to conform
to the requirements of this statement. The Company conducts its
operations principally in the contract screen printing and
embroidery industry with Pacific Print works, Inc. and the retail
franchise industry with Fan-Tastic, Inc.
Certain financial information concerning the Company's operations
in different industries is as follows:
<TABLE>
<CAPTION>
For the
Quarter Ended Pacific Corporate
June 30, Print Works Fan-Tastic Unallocated
------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales 1999 $ 1,035,474 $ 92,614
1998 624,958 184,077
Operating income (loss)
applicable to industry
segment 1999 42,822 (40,840)
1998 (143,948) (66,202)
General corporate expenses
not allocated to industry
segments 1999 $ 45,584
1998 137,861
Interest expense 1999 (83,209) (7,908) (54,989)
1998 (47,747) (20,682) (38,613)
Other income (expenses)
including interest and gain
on sale of securities 1999 886 3,093 -
1998 23,108 - 20,409
</TABLE>
26
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 1999 and 1998
<TABLE>
<CAPTION>
NOTE 13 - BUSINESS SEGMENTS (Continued)
For the
Quarter Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Gain from discontinued
operations 1999 $ (807,518)
1998 -
Assets 1999 $ 1,569,020 $ 211,514 $ 305,197
Depreciation and
amortization 1999 66,423 4,400 1,189
1998 66,042 7,272 31,630
Property and equipment
acquisitions 1999 - - -
</TABLE>
NOTE 14 - NET ASSETS OF DISCONTINUED OPERATIONS
In March 1999, the Company's Board of Directors made a decision to
sell its 50% ownership in U.S. Polo to Iron Will. In June 1999,
the Company closed its sale of U.S. Polo ownership to Iron Will.
For its sale of U.S. Polo, the Company received the cancellation
of $1,000,000 in debt from Jordache Enterprises, the cancellation
of $13,185 in interest and cash of $221,470. In addition, the
Company could receive up to another $103,942 upon the collection
of U.S. Polo royalties earned through May 31, 1999.
The results of operations of Quade, Inc. and U.S. Polo for the
year ended March 31, 1999 has generated a loss of $252,972 on
sales of $232,712. The net assets of the discontinued operations
at March 31, 1999 are included in the consolidated balance sheet
as a single amount of $282,508 which consists primarily of
receivables, inventories, accounts payable and the Company's
investment accounted for under the equity method in U.S. Polo. A
gain on the disposal of U.S. Polo was recognized in the first
quarter of the year ending March 31, 2000 for $813,789. No income
tax benefit or expense has been attributed to the disposal of U.S.
Polo.
27
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
RESULTS OF OPERATIONS
For the three months ended June 30, 1999 ("first quarter 99"), compared to the
three months ended June 30, 1998 ("first quarter 98"):
Sales for the three months ended June 30, 1999 were $1,128,088 compared to
$809,034 for the three months ended June 30, 1998. Pacific Print Works ("PPW")
sales for the three months ended June 30, 1999 were $1,035,474 compared to
$624,958 for the three months ended June 30, 1998. The $410,516 increase in
PPW's revenue was primarily due to an increase of over 50% in sales to PPW's
four largest customers. Sales to PPW's four largest customers in the first
quarter 99 exceeded $760,000. The increase with these customers is largely due
to PPW's high density printing capabilities in addition to the overall quality
of the printing and related services. The PPW first quarter 99 sales also
include approximately $123,000 of garment blank sales as opposed to garment
blank sales of approximately $15,000 for the first quarter 98. The increase in
garment blank sales is due to PPW selling garment blanks with contract printing
to two of its largest customers in the first quarter 99 while in the first
quarter 98 these two customers provided their own garment blanks to PPW for
printing. PPW expects a similar or larger increase in sales over the next three
quarters based on its relationship and orders with existing customers in
addition to PPW samples with potential new customers.
Sales for Fan-Tastic declined by $91,463 which was primarily due to first
quarter 99 sales coming from three stores as opposed to six stores in first
quarter 98.
Gross profit for the first quarter 99 was $292,740 compared to $171,479 for the
first quarter 98. The increase in gross profit was due to an increase in sales
which also resulted in an improvement in gross profit as a percentage of sales
(26% compared to 21%) which was also due to additional sales available for the
first quarter 99 to cover direct expenses.
General and administrative expenses for the first quarter 99 were $346,342 as
compared to $519,490 for the first quarter 98. A $69,000 decline in the
corporate office expenses was primarily due to approximately $30,000 in reduced
goodwill amortization and a reduction of $37,000 in consulting fees. Fan-Tastic
also saw a decline in general and administrative expenses of approximately
$90,000 due to less rent and payroll expenses resulting from the closure of 3
stores. The Company expects general and administrative expenses over the next
three quarter to be similar to the first quarter 99 amount.
Depreciation and amortization expenses included in total general expenses for
the fiscal year ended March 31, 1999 was $9,012 in the first quarter 99 compared
to $44,945 for the first quarter 98. This decrease is primarily due to zero
goodwill amortization in the first quarter 99 as the Company wrote off all
goodwill from the PPW acquisition at March 31, 1999.
The loss from operations for the first quarter 99 was reduced to $53,602
compared to $348,011 for the first quarter 98. The reduction in the loss is
primarily due to the increase in sales and the reduction in general and
administrative expenses as discussed above.
Interest expense for the first quarter 99 was $146,105 compared to $107,042 for
the prior year. The increase in interest expense for the first quarter 99 was
due to additional debt in Fiscal 1999 that was used for working capital purposes
and to fund losses from operations.
The Company had a $813,389 gain from the sale of its 50% ownership in USPA Ltd.
in the first quarter 99. For its sale of USPA Ltd., the Company received the
cancellation of $1,000,000 in debt from Jordache Enterprises, the cancellation
of $13,185 in interest and cash of $221,470.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 the Company had total assets of $2,085,731, total liabilities
of $4,441,795 and total stockholders deficit of $2,356,063 compared with total
assets of $3,295,534, total liabilities of $5,610,717 and total stockholders
deficit of $2,315,183 at March 31, 1999. The changes in assets, liabilities and
stockholders deficit is due primarily to the decline in value of the Company's
investment in GVI. At March 31, 1999 the Company's current ratio was
approximately .47 current assets to 1 current liabilities. 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 private placement of the Company's common stock and
seeking the conversion of debt and preferred stock to common stock. There is no
assurance that the Company will be able to obtain sufficient funds from other
sources as needed or that such funds, if available, will be obtainable on terms
satisfactory to the Company.
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.
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
Not applicable.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
Date: August 13, 1999 By: /s/ Will Papenfuss
---------------------------
Will Papenfuss
President and Chief Executive Officer
Date: August 13, 1999 By: /s/ Tim Papenfuss
---------------------------
Tim Papenfuss
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 87,475
<SECURITIES> 217,594
<RECEIVABLES> 391,521
<ALLOWANCES> 0
<INVENTORY> 283,771
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0
245
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</TABLE>
