UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 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 November 11, 1999, the Registrant had outstanding 3,615,953 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 - September 30, 1999
and March 31, 1999 3
Condensed Consolidated Statements of Operations -Six months
ended September 30, 1999 and 1998 and Three months ended
September 30, 1999 and 1998 5
Statements of Stockholders' Equity 7
Condensed Consolidated Statements of Cash Flows - Six
months ended September 30, 1999 and 1998 and Three months
ended September 30, 1999 and 1998 9
Notes to Condensed Consolidated Financial Statements -
September 30, 1999 11
Item 2: Management's Discussion and Analysis or Plan of Operation 28
Part II Other Information
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
September 30, March 31,
1999 1999
------------------ -----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,190 $ 41,967
Accounts receivable, net (Note 1) 486,007 516,660
Inventory (Note 1) 278,517 293,768
Prepaid and other current assets 9,902 15,400
Marketable securities (Note 1) 37,000 157,500
Net assets of discontinued operations (Note 14) 74,040 282,508
------------------ -----------------
Total Current Assets 886,656 1,307,803
------------------ -----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 413,697 395,253
Capital leases 1,083,340 1,090,032
------------------ -----------------
Total depreciable assets 1,497,037 1,485,285
Less: accumulated depreciation (481,902) (355,492)
------------------ -----------------
Net Property and Equipment 1,015.135 1,129,793
------------------ -----------------
OTHER ASSETS
Marketable securities (Note 1) 253,000 857,938
------------------ -----------------
Total Other Assets 253,000 857,938
------------------ -----------------
TOTAL ASSETS $ 2,154,791 $ 3,295,534
================== =================
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, March 31,
1999 1999
------------------ -----------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 435,254 $ 366,028
Accrued expenses and other current liabilities 661,698 397,800
Line of credit (Note 3) 315,580 367,845
Current portion of notes payable (Note 4) 289,751 587,323
Current portion of notes payable, related parties (Note 5) 1,038,471 47,104
Current portion of capital lease obligations (Note 6) 280,658 282,497
------------------ -----------------
Total Current Liabilities 3,021,412 2,048,597
------------------ -----------------
LONG-TERM DEBT
Deferred revenue 10,000 10,000
Reserve for discontinued operations (Note 2) 697,342 660,123
Notes payable (Note 4) 244,197 1,001,819
Notes payable, related parties (Note 5) 335,117 1,395,148
Capital lease obligations (Note 6) 347,757 495,030
------------------ -----------------
Total Long-Term Debt 1,634,413 3,562,120
------------------ -----------------
Total Liabilities 4,655,825 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: 4,376,773
shares issued and 3,640,953 outstanding. (Note 9) 3,640 3,174
Other comprehensive losses (1,160,626) (435,188)
Additional paid-in capital 7,452,148 7,297,066
Accumulated deficit (8,796,441) (9,180,480)
------------------ -----------------
Total Stockholders' Equity (Deficit) (2,501,034) (2,315,183)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 2,154,791 $ 3,295,534
================== =================
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Six Months Ended For the Three Months Ended
September 30, September 30,
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 2,069,089 $ 1,735368 $ 941,000 $ 926,334
COST OF SALES 1,561,885 1,323,565 726,537 686,010
--------------- --------------- ---------------- ---------------
GROSS PROFIT 507,204 411,803 214,463 240,324
--------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 15,618 66,735 6,606 57,723
General expenses 713,395 976,692 386,065 502,147
--------------- --------------- ---------------- ---------------
Total General and Administrative Expenses 729,013 1,104,307 392,671 559,870
--------------- --------------- ---------------- ---------------
LOSS FROM OPERATIONS (221,809) (667,558) (178,208) (319,546)
--------------- --------------- ---------------- ---------------
OTHER INCOME AND (EXPENSES)
Other income and expenses 20,981 10,418 17,002 (13,694)
Gain on sale of assets - 48,100 - 28,695
Interest expense (278,417) (242,365) (132,311) (135,323)
--------------- --------------- ---------------- ---------------
Total Other Income and (Expenses) (257,436) (183,847) (115,309) (120,322)
--------------- --------------- ---------------- ---------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (479,245) (948,561) (293,517) (439,868)
--------------- --------------- ---------------- ---------------
DISCONTINUED OPERATIONS
Gain from sale of USPA 869,336 - 55,947 -
Loss from operations of USPA (5,871) - - (97,156)
--------------- --------------- ---------------- ---------------
Loss from operations of USPA (5,871) (97,156) -
(97,156)
Total Discontinued Operations 863,465 - 55,947 (97,156)
--------------- --------------- ---------------- ---------------
INCOME TAXES - - -
--------------- --------------- ---------------- ---------------
NET INCOME $ 384,220 $ (948,561) $ (237,570) $ (537,024)
=============== =============== ================ ===============
OTHER COMPREHENSIVE GAIN (LOSS)
Gain (loss) on valuation of marketable securities $ (725,438) $ 452,905 $ 72,406 $ -
Total Other Comprehensive Gain (Loss) (725,438) 452,905 72,406 -
--------------- --------------- ---------------- ---------------
NET COMPREHENSIVE GAIN (LOSS) $ (341,218) $ (495,656) $ (165,164) $ (537,024)
=============== =============== ================ ===============
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Deficit)
September 30, 1999 and 1998
Other
Common Stock Preferred Stock
Comprehensive Paid-In Accumulated Additional
Shares Amount Shares Amount Loss Capital Deficit
--------- ---------- ------ ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 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)
-------------- ------------ ----------- ----------- ---------------- ------------ -------------
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Continued)
September 30, 1999 and 1998
Other
Common Stock Preferred Stock
Comprehensive Paid-In Accumulated Additional
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 - - - - (725,438) - -
Expense recognized for
vested options - - - - - 8,748 -
Stock issued for Quade
acquisition (Note 2) 451,667 451 - - - 144,099 -
Stock issued for consulting
services 15,000 15 - - - 2,235 -
Net income for the six months
ended September 30, 1999 - - - - - - 384,220
-------------- ------------ ----------- ----------- ---------------- ------------ -------------
Balance, September 30, 1999 3,640,953 $ 3,640 244,953 $ 245 $(1,160,626) $ 7,452,148 $(8,796,260)
============== ============ =========== =========== =========== ============ ============
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Six Months Ended For the Three Months Ended
September 30, September 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 384,220 $ (948,561) $ (165,164) $ (537,025)
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of USPA, Ltd. (869,336) - - -
Depreciation and amortization 141,706 228,177 69,694 123,232
Common sock issued for services and interest 10,983 - 6,609 -
Gain (loss) on sale of marketable securities - (48,100) - (28,695)
Changes in operating assets and liabilities net of Quade acquisition:
(Increase) decrease in inventory 15,251 3,282 5,254 (70,734)
(Increase) decrease in accounts receivable (52,712) (150,921) (188,259) (73,752)
Increase (decrease) in other current assets 5,499 53,287 (15,213) 75,441
Increase (decrease) in accounts payable 69,226 122,485 35,904 81,966
Increase (decrease) in other current liabilities 301,117 101,999 221,172 127,603
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Operating Activities 5,954 (638,352) (30,003) (301,964)
--------------- --------------- --------------- ---------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities - 232,304 - 91,194
Proceeds from sale of USPA, Ltd. 221,470 - - -
Purchases of property and equipment - (74,110) - (4,934)
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Investing Activities 221,470 158,194 - 86,260
--------------- --------------- --------------- ---------------
FINANCING ACTIVITIES
Stock issued for cash - 60,000 - 15,000
Payments on notes payable and capital lease obligations (147,273) (207,338) (79,685) (121,091)
Proceeds (payments) from notes payable - 150,000 (12,694) -
Borrowings (payments) from related party debt (68,664) 400,000 (23,939) 300,000
Net (borrowings) payments on factoring line of credit (52,264) 67,848 60,036 10,161
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Financing Activities (268,201) 470,510 (56,282) 204,070
--------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN CASH (40,777) (9,648) (86,285) (11,634)
CASH, BEGINNING OF PERIOD 41,967 14,663 87,475 16,649
--------------- --------------- --------------- ---------------
CASH, END OF PERIOD $ 1,190 $ 5,015 $ 1,190 $ 5,015
=============== =============== =============== ===============
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Six Months Ended For the Three Months Ended
September 30, September 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
CASH PAID FOR
<S> <C> <C> <C> <C>
Interest $ 195,298 $ 203,364 $ 87,253 $ 83,669
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 10,983 $ - $ 6,609 $ -
Equipment purchased through capital
lease obligation $ - $ 144,312 $ - $ -
The accompanying notes are an intergral part of these consolidated financial statements.
</TABLE>
9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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.
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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 $37,000 and 1,015,000 shares of GVI stock
pledged as collateral on notes payable valued at $253,750. 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 $725,438 in marketable securities
at September 30, 1999 due to a $1.00 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.
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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 ($0.08) and
($0.17) for the quarters ended September 30, 1999 and 1998,
respectively. Basic net income from discontinued operations per
common share was $0.02 and $0.00, respectively. Weighted average
common shares outstanding were 3,618,779 and 3,153,795 for the
quarters ended September 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.
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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.
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations
March 31, 1998
<TABLE>
<CAPTION>
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>
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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. From its inception, Quade, Inc. had
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.
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
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>
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 2- MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
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>
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
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.
19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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 $1,000,000 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 September
30, 1999, the Company had a payable of $367,845 and $315,580,
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.
NOTE 4 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable are comprised of the following:
September 30,
1999
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest. Due on
demand. $ 26,603
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 six
monthly installments beginning June 1999, with payments from
$1,909 to $3,021 per month. 28,253
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. 47,896
-------------------
Subtotal 533,948
Less current portion (289,751)
Long-term portion $ 244,197
===================
</TABLE>
20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 4 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
Maturities of long-term debt are as follows:
<S> <C>
March 31, 2000 $ 289,751
March 31, 2001 244,197
March 31, 2002 -
March 31, 2003 -
-----------------
$ 533,948
</TABLE>
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
<TABLE>
<CAPTION>
September 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. $ 721,970
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. 316,501
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. 335,117
Subtotal 1,373,588
Less current portion (1,038,471 )
-----------------
Long-term portion $ 335,117
=================
Maturities of notes payable, related parties are as follows:
March 31, 2000 $ 47,104
March 31, 2001 1,008,555
March 31, 2002 317,929
-----------------
$ 1,373,588
</TABLE>
21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 6 - CAPITAL LEASES
<TABLE>
<CAPTION>
Property and equipment payments under capital leases as of March
31, 1999 is summarized as follows:
Year End
March 31,
<S> <C>
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.
22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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.
23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
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:
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
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.
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.
24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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
Six Months Ended Pacific Corporate
September 30, Print Works Fan-Tastic Unallocated
------------- ----------- ---------- -----------
<S> <C> <C> <C>
Net sales 1999 $ 1,886,860 $ 182,228
1998 1,335,507 399,861
Operating income (loss)
applicable to industry
segment 1999 2,450 (110,098)
1998 (248,159) (98,722)
General corporate expenses
not allocated to industry
segments 1999 $ 114,160
1998 64,116
Interest expense 1999 (159,185) (19,278) (99,954)
1998 (126,605) (27,938) (87,823)
Other income (expenses)
including interest and gain
on sale of securities 1999 17,888 3,093 -
1998 17,905 (10,800) 50,613
</TABLE>
25
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 1999 and 1998
NOTE 13 - BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
For the
Six Months Ended Pacific Corporate
September 30, Print Works Fan-Tastic Unallocated
------------- ----------- ---------- -----------
<S> <C> <C> <C>
Gain from discontinued
operations 1999 $ 867,215
1998 -
As of
September 30,
1999 and for
The Six Months
Then Ended
Assets 1999 $ 1,610,392 $ 179,099 $ 365,300
Depreciation and
amortization 1999 134,860 6,497 2,378
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 received $74,040 in October 1999 from the collection of
U.S. Polo royalties earned through May 31, 1999, and could receive
up to another $30,000.
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 six months
ended September 30, 1999 for $873,086. No income tax benefit or
expense has been attributed to the disposal of U.S. Polo.
26
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Forward Looking Statements
The statements in this report concerning certain expected future expenses as a
percentage of net sales, future financing and working capital requirements and
availability, and the Year 2000 issue constitute forward - looking statements
that are subject to risks and uncertainties. These risks could cause actual
results or activities to differ materially from those expected. Factors that
could adversely affect cost of sales and general expenses as a percentage of net
sales include, but are not limited to, increased competitive factors, changes in
consumer preferences, as well as an inability to increase sales. Other factors
could include a failure adequately fund operations. In addition, unfavorable
business conditions, or changes in the general economy could have adverse
effects. Factors that could materially affect future financing requirements
include, but are not limited to, the ability to obtain additional financing on
acceptable terms. Factors that could materially affect future working capital
requirements include, but are not limited to, the factors listed above and the
industry factors and general business conditions noted above. Factors that could
materially affect the Year 2000 issue include, but are not limited to,
unanticipated costs associated with any required modifications to the Company's
computer systems and associated software, failures of external systems of
suppliers, business partners or governmental agencies.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected Company
income statement data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Quarter Ended September 30 Six Months Ended September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.2% 74.1% 75.5% 76.3%
Gross profit 22.8% 25.9% 24.5% 23.7%
General expenses 41.0% 54.2% 34.5% 56.3%
Depreciation and amortization 0.7% 6.2% 0.8% 3.8%
Loss from operations -18.9% -34.5% -10.7% -38.5%
Other income and expenses 1.8% -1.5% 1.0% 0.6%
Gain on sale of assets 0.0% 3.1% 0.0% 2.8%
Interest expense -14.1% -14.6% -13.5% -14.0%
Loss before income taxes
and discontinued operations -31.2% -47.5% -23.2% -49.1%
Discontinued operations 5.9% 0.0% 41.7% -5.6%
Income taxes 0.0% 0.0% 0.0% 0.0%
Net income -25.2% -47.5% 18.6% -54.7%
</TABLE>
For the three months ended September 30, 1999 ("second quarter 99"), compared to
the three months ended September 30, 1998 ("second quarter 98"):
Sales for the three months ended September 30, 1999 were $941,000 compared to
$926,334 for the three months ended September 30, 1998. Pacific Print Works
("PPW") sales for the three months ended September 30, 1999 were $851,386
compared to $710,549 for the three months ended September 30, 1998. The $140,837
increase in PPW's revenue was primarily due to an increase in sales to PPW's
four largest customers. 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. PPW expects a similar or larger increase in
sales over the next two 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 $126,171 which was primarily due to second
quarter 99 sales coming from four stores as opposed to six stores in second
quarter 98 and franchise sales of $78,000 in the second quarter 98 as opposed to
zero in the second quarter 99.
Gross profit and the gross profit as a percentage of sales declined for the
second quarter 99 compared to the second quarter 98, $214,463 and 22.8% compared
to $240,324 and 25.9%. The decrease in gross profit was primarily due to the
decline in Fan-Tastic franchise sales as noted above. The gross profit from PPW
operations increased by approximately $60,000.
General and administrative expenses for the second quarter 99 were $386,065 as
compared to $502,147 for the second quarter 98. Fan-Tastic saw a decline in
general and administrative expenses of approximately $50,000 due to less rent
and payroll expenses resulting from the closure of 2 stores. The Company expects
general and administrative expenses over the next two quarter to be similar to
the second quarter 99 amount.
Depreciation and amortization expenses were $6,016 in the second quarter 99
compared to $57,523 for the second quarter 98. This decrease is primarily due to
zero goodwill amortization in the second quarter 99 as the Company wrote off all
goodwill from the PPW acquisition at March 31, 1999.
The loss from operations for the second quarter 99 was reduced to $178,208
compared to $319,546 for the second 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 second quarter 99 was $132,311 compared to $135,323 for
the prior year.
27
<PAGE>
The Company had a $55,947 gain from the sale of its 50% ownership in USPA Ltd.
in the second quarter 99. For its sale of USPA Ltd., in June 1999 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 received $74,040 in October 1999 from the collection of U.S. Polo
royalties earned through May 31, 1999.
For the six months months ended September 30, 1999 ("YTD 99"), compared to the
six months ended September 30, 1998 ("YTD 98"):
Sales for the six months ended September 30, 1999 were $2,069,089 compared to
$1,735,368 for the six months ended September 30, 1998. Pacific Print Works
("PPW") sales for the six months ended September 30, 1999 were $1,886,860
compared to $1,335,507 for the six months ended September 30, 1998. The $551,353
or 41% increase in PPW's revenue was primarily due to an increase in sales to
PPW's four largest customers. 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. PPW expects a similar or larger increase
in sales over the next six 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 $217,663 which was primarily due to YTD 99
sales coming from four stores as opposed to six stores in YTD 98 and franchise
sales of $112,000 YTD 98 as opposed to zero for YTD 98. Franchise sales from
October 1999 through March 31, 2000 are expected to increase compared to April
1, 1999 through September 30, 1998 but franchise sales beyond fiscal 2000 are
based upon the amount of advertising incurred.
Gross profit and the gross profit as a percentage of sales increased for the YTD
99 compared to the YTD 98, ($507,204 and 24.5% compared to $411,803 and 23.7%).
The increase in gross profit was primarily due to the increase in PPW sales and
gross profit for the YTD 99 compared to YTD 98 ($417,000 vs. $246,000) that was
partially reduced by a decline in Fan-Tastic franchise sales as noted above.
General and administrative expenses for the YTD 99 were $713,395 as compared to
$976,692 for the YTD 98. Fan-Tastic saw a decline in general and administrative
expenses of approximately $10,000 due to less rent and payroll expenses
resulting from the closure of 2 stores. The Company expects general and
administrative expenses over the next six months to be similar to the YTD 99
amount.
Depreciation and amortization was $15,618 in the YTD 99 compared to $66,735 for
the YTD 98. This decrease is primarily due to zero goodwill amortization in the
YTD 99 as the Company wrote off all goodwill from the PPW acquisition at March
31, 1999.
The loss from operations for the YTD 99 was reduced to $221,809 compared to
$667,558 for the YTD 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 second quarter 99 was $278,417 compared to $242,365 for
the prior year, which was due to a greater amount of debt outstanding for YTD
99.
28
<PAGE>
The Company had a $869,336 gain from the sale of its 50% ownership in USPA Ltd.
in the YTD 99. For its sale of USPA Ltd., in June 1999 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 received
$74,040 in October 1999 from the collection of U.S. Polo royalties earned
through May 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company had total assets of $2,154,791, total
liabilities of $4,655,825 and total stockholders deficit of $2,501,034 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 compared to .19
current assets to 1 current liabilities at September 30, 1999. The decline in
the Company's current ratio is primarily due to $990,000 notes payable with
related parties becoming current at September 30, 1999. 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.
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.
29
<PAGE>
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
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)
/s/ B. Willes Papenfuss President, Chief Executive November 11, 1999
- -----------------------
B. Willes Papenfuss Officer and Director
(Principal Executive
Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and November 11, 1999
Timothy M. Papenfuss Director (Chief Financial
Officer, Chief Accounting
Officer and Controller)
30
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 1,190
<SECURITIES> 37,000
<RECEIVABLES> 486,007
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