U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended March 31, 1999, or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from ________________ to ____________________
Commission file number 0-18865
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
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(Name of Small Business Issuer in Its Charter)
Utah 87-0401400
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2035 N.E. 181st Gresham, Oregon 97230
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(Address of Principal Executive Offices) (Zip Code)
(503) 492-1500
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class Name of each Exchange on which Registered
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None None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
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(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year was $3,996,739
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked prices
of such stock, as of July 7, 1999 was $370,245.
The number of shares outstanding of the issuer's common equity, as of
July 7, 1999 was 3,174,286.
Documents Incorporated by Reference
None
Transitional Small Business Disclosure Format:
Yes No X
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 9
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 13
ITEM 7. FINANCIAL STATEMENTS 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 16
ITEM 10. EXECUTIVE COMPENSATION 19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 22
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The information contained in this Form 10-KSB for the fiscal year ended
March 31, 1999, is as of the latest practicable date except for financial
information which relates to the fiscal year.
PART I
Item 1. Description of Business.
GENERAL
American Resources and Development Company ("ARDCO" or the "Company")
through various subsidiaries, owns a franchisor and owner of retail
entertainment and sports stores, and a screen printing and embroidery company.
When used throughout this report, the Company shall include the subsidiaries of
the Company unless the context indicates otherwise. The Company's present
executive offices are located at 2035 N.E. 181st, Gresham, Oregon 97230 and its
telephone number is (503) 492-1500. As of July 7, 1999, the Company had one
hundred five (105) full time employees and twelve part time employees. On March
27, 1997, the Company effected a 1 for 20 reverse stock split of its common
stock.
FAN-TASTIC, INC.
In March, 1997, the Company acquired 80% of the outstanding shares of
Fan-Tastic, Inc., a Utah Corporation ("Fan-Tastic") and acquired the remaining
20% in June 1998, effective March 31, 1998. Fan-Tastic is a franchisor and owner
of retail entertainment and sports stores, dba Fan-A-Mania, based in regional
shopping malls. As of July 7, 1999, Fan-Tastic owned 2 of its own stores Oregon
and had 13 franchisees in the states of Arkansas, Louisiana, New York, Virginia,
Wyoming, Pennsylvania, Texas, and countries of Barbados, Canada and Japan.
Fan-Tastic opened its first Fan-A-Mania store in August 1995.
Fan-A-Mania stores carry a broad range of sports and entertainment
products purchased from national vendors who are licensed with various
organizations including the following entertainment and sports companies:
Disney, Warner Brothers, Nickelodeon,, World Wrestling Federation, National
Football League, National Basketball Association, Major League Baseball, and the
National Hockey League. Products carried include apparel for ages ranging from
toddlers to adults, collectibles and souvenirs for fans of entertainment and
sports.
Fan-Tastic advertises nationally to promote the Fan-A-Mania stores
primarily in business periodicals. Limited additional marketing is also done at
specific business shows held in strategic regions of the United States, and
through direct marketing, and internet advertising.
With the sales of each franchise unit to a new owner, Fan-Tastic
receives a franchise fee of $19,500, and a royalty on ongoing sales of 3 1/2%.
Principal services Fan-Tastic provides to its franchisees are as follows:
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- Site evaluation, selection and lease negotiation.
- Store design, merchandise and display plans.
- Reduction in inventory costs resulting from chain-wide volume
pricing and simplified buying. through a consolidated buying
program.
- Inventory control through a consolidated point of sale
software and chain wide identification of hot selling
products.
- Four days of initial training at the corporate office covering
all phases of store operations; product purchasing, store
promotions, etc. using the proprietary Fan-A-Mania operations
manual. This initial training is followed closely with four
days of training at the opening of the store and on-going
follow-up training.
International Franchising
Fan-Tastic's marketing efforts have resulted in international interest
in the concept, with a first store opening in Bridgetown, Barbados, in December,
1996, and the signing of a master franchise agreement with a Japanese company
that opened its first store in December 1997.
Seasonality
Approximately 43% of annual Fan-Tastic sales have occurred in the
months of November and December.
Suppliers
Fan-Tastic purchases product from a number of national licensed sports
and entertainment manufacturers including Starter, Inc., New Era, Champion,
Applause, Giant and Changes. Fan-Tastic is not dependent upon any one supplier.
Competition
The entertainment and sports products industry is quite competitive.
Most mass merchants carry entertainment and sports products and thus provide
competition. However, management believes service and atmosphere differentiate
Fan-A-Mania stores from those mass merchants. Direct competition in malls where
Fan-A-Mania stores are located comes primarily from national chains such as
Disney, Warner Brothers, Champs, and department stores. Management believes that
Fan-A-Mania has differentiated itself from these competitors by merchandising
both entertainment and sports products and by having an attractive appearance.
Fan-Tastic competes with other franchisers for prospective franchisees.
However, there is little direct competition for prospective franchisees since
Fan-A-Mania is currently the only entertainment and sports apparel, collectible
and souvenir oriented franchisor known to management. Fan-Tastic also competes
for suitable store locations in malls and outlet centers from a wide variety of
retailers.
Trademarks
Fan-Tastic owns the registered mark, "Fan-A-Mania" for retail stores
featuring entertainment and sports memorabilia and clothing.
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Employees
As of July 7, 1999, Fantastic had seven full-time employees and 9
part-time employees.
PACIFIC PRINT WORKS
In May 1998, the Company acquired approximately 83% of the outstanding shares of
Printworks, Inc. ("Pacific Print Works" or "PPW"). 213,472 shares of the
Company's common stock were issued to PPW shareholders with a guaranteed share
value of $5.00. 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 (See Note 2 to the financial
statements.) Based on the $5.00 guarantee and the Company's share value from
October 1998 through March 1999, the Company may be obligated to issue
approximately 1.7 million shares of common stock to the PPW shareholders.
However, an amendment to the PPW Stock Purchase Agreement is being evaluated by
the Company and PPW shareholders in which the Company would issue another
213,472 shares of the Company's common stock to PPW shareholders and the
guaranteed share value of $5.00 would be deferred until the year 2000. PPW is
active in the contract screenprinting and embroidery business and is based in
Portland, Oregon.
Industry Trends
PPW performs contract screenprint, embroidery and finishing services for
customers, the majority of whom are in the decorated sportswear market. The
decorated sportswear market, based upon industry data, accounted for
approximately $14.3 billion of retail level sales in the United States in 1996,
with a compounded annual growth rate of approximately 8.8% since 1991. PPW
believes growth in the decorated sportswear market has resulted from: (i) an
increased preference for comfortable apparel selections; (ii) more flexible
dress codes, including greater acceptance of casual clothes in the workplace;
(iii) a heightened emphasis on physical fitness, including increased
participation in sports; (iv) improved characteristics that have enhanced
consumer appeal, including improvements in fabric weight, blends and
construction, and increased offerings of size, color and style; (v) the
enhancement of screenprinted graphics and embroidered designs primarily
resulting from more advanced manufacturing equipment and processes; and (vi) the
increased use of "attitude" apparel. PPW believes that these trends should
continue to drive industry growth.
Business Strategy
PPW intends to increase its revenues and position itself as a leading national
screen print and embroidery contractor by continuing to pursue the following
business strategies:
Contract Services
PPW designs graphics for its larger apparel customers that are sold under
particular customers' labels. PPW will then screenprint or embroider these
designs on blanks provided by the customers. PPW's new product focus during the
past 18 months has been on high-density printing. High-density printing is a
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screenprinting term for a process that leaves a 3-D, sharp-edged print with
excellent detail. PPW hired an industry expert in March 1998, Michael Beckman,
PPW Vice President of Operations, who oversees PPW's high-density printing. Mr.
Beckman has been honored by industry experts with significant awards for his
creative designs and inks. PPW has also been able to grow its business by
specializing in reflective inks, and environmentally safe water based printing.
Private Label Products.
PPW manufactures private label products for certain of its larger retail
customers. PPW designs each private label product by working closely with a
customer, creating a unique decorated sportswear line that is sold under that
customer's label.
Other.
Other products include printing on athletic uniforms for Nike's Organized Sports
Division. PPW also produces custom designed graphics and screenprinting for
corporate accounts.
Design And Sales Staff.
PPW employs a staff of approximately 3 graphic design artists who work closely
with customers to create designs for its customers sportswear lines. PPW employs
six external and two internal sales people who work closely with existing and
new customers to ensure customer needs are met.
Customers
PPW's primary sales are through national decorated sportswear companies
including: Nike, Columbia Sportswear, Chaps Ralph Lauren, Speedo, K-Swiss and
Jantzen. In fiscal 1999, PPW's sales to major customers that exceeded 10% of its
total sales were as follows: Customer A 24%, Customer B 20.4%.
Sources of Raw Materials
PPW does not enter into long-term contracts with its suppliers. PPW buys its
inks and embroidery thread from approximately eight suppliers. PPW is not
dependent on any one supplier. The majority of blank apparel screen printed and
embroidered is provided by its customers.
Production and Manufacturing
PPW is committed to controlling costs and improving operating efficiencies. PPW
concentrates on the high value-added production processes of custom design,
screen printing and embroidery at its manufacturing facility. Production of
PPW's products requires applying garment decorations through screen printing or
embroidery.
Screen Printing.
The screen printing process begins with the preparation of a design by PPW's
artists. PPW tests new designs for printability and color dynamics and produces
sales and production samples. PPW also stocks over 140 pigment colors and
numerous ink bases, which allows for in-house development of new ink
applications and techniques. In the printing process, screens are positioned in
automatic printing presses where inks are pressed through the screen to create
the design on the garment. Garments bearing designs on different portions of the
garment may move through the printing process several times. Following printing,
the garments run through a dryer , making the printed design permanent and
washable.
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PPW operates seven automatic screen printing presses and five manual screen
printing presses. Most of the automatic presses are color printing presses with
eight to eighteen stations available. Each press is operated by a team of
employees. PPW believes that this approach contributes to the flexibility,
quality and speed of its production process. PPW believes that its capacity is
sufficient for its needs and that during seasonal peaks sufficient sources of
outside production are available to PPW to meet its production needs, as
necessary.
Embroidery.
The embroidery process begins with the preparation of a design by PPW's artists.
PPW tests new designs for embroiderability as it relates primarily to stitch
count and color selection and produces sales and production samples. After a
design is approved, the design that is to be embroidered is formatted onto a
computer disk, and programmed into the embroidery machine. Each embroidery
machine has multiple sewing heads, permitting two to sixty-one garments to be
embroidered at one time. After the stitching is complete garments are trimmed,
packed in PPW's warehouse and shipped directly to the customer. PPW operates
seven fully automated machines with sixty-one single heads.
Quality Control.
PPW maintains several quality control checkpoints monitoring all phases of
production and ensuring that garments meet the quality standards of PPW's
customers.
Product Shipment.
PPW believes responding quickly to customer requirements and meeting delivery
schedules consistently are important factors in its business. Customers
generally select the specific art designs to be printed on ordered garments
periodically for delivery within as few as one week following the design
selection. PPW can place garments on hangers before shipping, affix price tags
and other product information, and can ship garments polybagged or folded. These
services reduce the time required to prepare the garments for display and
thereby enable customers to stock their stores more quickly. PPW's customers
generally bear all shipping costs.
Regulation
PPW is subject to federal, state and local environmental laws and regulations,
including laws relating to employee knowledge of, exposure to, and disposal of
inks, dyes, photographic chemicals and cleaning solvents. PPW believes that its
operations comply in all material respects with applicable environmental laws
and regulations. Although PPW continues to make capital expenditures for
environmental protection, it does not anticipate that significant expenditures
will be required to remain in compliance with environmental requirements. There
can be no assurance, however, that future changes in such laws and regulations
will not have a material effect on PPW's operations.
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Competition
The screen printing industry is highly competitive. PPW competes with numerous
screen printing and manufacturing vendors, including those with their own line
of licensed and branded product. PPW also competes through a combination of
graphics and decorating techniques. Competitive factors include product quality,
access to popular licenses, price, ability to meet delivery requirements and
other aspects of customer service, changes in styles and consumer preferences.
Employees
At July 7, 1999, PPW employed approximately 98 full-time employees. PPW believes
that its employee relations are good.
QUADE, INC.
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, Inc. by issuing 213,333
shares of its common stock and by loaning Quade $115,000. These shares include
32,000 shares that have a guarantee of $5.00 per share based on the average
asking price of the Company's common stock for the six months ended March 31,
1999. Depending on Quade's performance over the next three years, additional
shares of the Company's common stock will be issued for this acquisition if
minimum earnings levels are met as follows:
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
1999 $27,671 $81,500 47,408 142,222
2000 $251,166 $754,000 47,376 142,222
2001 $499,900 $1,499,200 47,423 142,222
The additional shares that are issued to Quade, Inc. also have a guaranteed
value of $5.00.
In 1997, Quade, Inc., acquired from the U.S. Polo Association ("US Polo") the
exclusive master licenses rights to the US Polo name for the United States and
Canada. For the last year Quade, Inc., has been developing this property
including signing agreements with four sub-licensees, and serving as licensee
for knit tops including t-shirts, fleece and polo shirts.
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.
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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. See Note 2 of the financial statements.
GOLF VENTURES, INC.
As of April 6, 1998, the Company owned 502,746 shares of common stock of
Golf Ventures, Inc. (hereinafter "GVI"), a publicly held Utah corporation. As of
April 6, 1998, such shares represented approximately 5.3% of the issued and
outstanding common stock of GVI. This percentage was prior to the conversion of
U.S. Golf Communities Preferred Stock into common stock, which conversion
occurred by July 1998 and reduced the Company's holdings to approximately 1.4%
of the issued and outstanding Common Stock of GVI. In connection with GVI's
merger with U.S. Golf Communities, Inc. described below, and to settle all
services provided by the Company to GVI, and for the assumption of certain
contingent liabilities by the Company, GVI, in July 1998, issued the Company
862,000 shares of common stock. As of July 7, 1999, the Company owned 1,160,000
shares of common stock of Golf Ventures, Inc. which represents less than 3% of
the outstanding shares of GVI.
Until December, 1997, GVI's assets consisted of the Red Hawk
International Golf & Country Club (hereinafter "Red Hawk"), Cotton Manor, and
Cotton Acres, real estate developments located near St. George, Utah.
On November 25, 1997, GVI announced that it had completed a merger with
U.S. Golf Communities, Inc. ("U.S. Golf Communities"), an Orlando based group of
affiliated companies principally engaged in the acquisition, development and
operations management of public, private and resort golf properties and adjacent
residential real estate throughout the United States. The transaction was
structured as a reverse merger with the assets of U.S. Golf Communities being
merged into GVI in exchange for the issuance by GVI of convertible preferred
stock to the current owners of U.S. Golf Communities. GVI issued sufficient
shares of preferred stock to the shareholders of U.S. Golf Communities so that
when converted, such shareholders would own approximately 81% of the outstanding
common stock of GVI.
Additional information regarding the business of GVI can be found in
GVI's reports filed with the Securities and Exchange Commission. Since the
Company has no control over GVI, its interest in GVI after November 25, 1997, is
that of a passive shareholder.
Item 2. Description of Property.
The Company's and Fan-Tastic's executive offices and warehouse space are
located at 3855 South 500 West, Suite R, Salt Lake City, Utah 84115 and is
approximately 4,000 square feet of combined space. Fan-Tastic leases retail mall
space for its four stores that average approximately 2,000 square feet. PPW
rents a 45,000 square foot office and screenprinting/embroidery facility in
Portland, Oregon. Lease commitments from fiscal 2000 through fiscal 2003 are
$269,526, $270,198, $224,391 and $34,698, respectively.
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Item 3. Legal Proceedings.
On February 8, 1998, Quade, Inc. entered into a Sublicense Agreement
("Agreement") with Jenna Lane Kids, Inc. licensing Jenna Lane Kids, Inc. to sell
various categories of sportswear apparel in misses, petite, and plus sizes with
the United States Polo Association trademarks with guaranteed royalties to Quade
of $600,000 over the life of the agreement.
On March 1, 1999, Jenna Lane, Inc. and Jenna Lane Polo Association,
Ltd. (hereafter referred to as Jenna Lane), filed a complaint in the Supreme
Court of the State of New York against the Company and various other defendants
including, Quade, Inc., U.S. Polo Association, Ltd., Robert Mintz, United States
Polo Association and Jordache Enterprises, Inc. Jenna Lane is seeking a judgment
of $5,000,000 compensatory damages, $10,000,000 punitive damages and rescision
of the Agreement. Jenna Lane's complaint alleges the Company owes it damages
resulting from, among other things, breach of contract and tortious interference
with contractual relationships. The Company has moved to stay the litigation
pending a determination of claims commenced by the Company against Jenna Lane
before the American Arbitration Association. As of July 7, 1999, the parties had
not engaged in any discovery, nor had they exchanged any documents relating to
their respective claims. At this time it is to early to determine the ultimate
outcome of this legal matter, however, in the opinion of management, the
ultimate outcome of this matter will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
On December 18, 1997, the Securities and Exchange Commission
(hereinafter the "Commission") filed a civil enforcement action complaint,
2:97CV 0963K in the United States District Court for the district of Utah,
Central Division, against George Badger, former president of the Company, Karl
Badger, former president of the Company, and others, alleging violations of the
generalanti-fraud provisions of the federal securities laws. The complaint
alleges that George Badger directed a scheme to manipulate the market for
securities issued by GVI through payments to various broker-dealers and
registered representatives. The complaint alleges that Mr. Karl Badger arranged
for some of these payments. The complaint seeks a permanent injunction against
future violations of the federal securities laws, a court order prohibiting the
defendants from future participation in offerings of penny stocks and
disgorgement of alleged profits. Mr. Karl Badger has filed an answer to the
complaint denying the material allegations thereof, and filed Motions to
Dismiss, and intends to vigorously defend the action. On July 14, 1998, Karl
Badger resigned as President of the Company and accepted a position as Vice
President.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter
market on the Electronic Bulletin Board under the symbol ADCO. The following
table sets forth for the respective period indicated, the high and low bid
quotations, as adjusted for stock splits of the Company's common stock, as
reported by the National Quotation Bureau and represents prices between dealers,
does not include retail markups, markdowns or commissions, and may not represent
actual transactions:
Calendar Quarters High Bid Low Bid
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1996
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1st Quarter 3.80 1.20
2nd Quarter 3.80 1.20
3rd Quarter 3.00 1.20
4th Quarter 2.50 0.60
1997
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1st Quarter 6.50 2.50
2nd Quarter 5.50 2.75
3rd Quarter 5.25 2.00
4th Quarter 1.75 .875
1998
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1st Quarter 3.00 1.00
2nd Quarter 2.625 1.0625
3rd Quarter 1.4375 .3125
4th Quarter .6875 .25
1999
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1st Quarter .875 .1875
2nd Quarter .5 .1875
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As of July 7, 1999, the Company had 3,174,286 shares of its common
stock issued and outstanding, and there were approximately 1,300 shareholders of
record.
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As of the date hereof, the Company has not paid or declared any cash
dividends. Future payment of dividends by the Company, if any, is at the
discretion of the Board of Directors and will depend, among other criteria, upon
the Company's earnings, capital requirements, and its financial condition as
well as other relative factors. Management has followed the policy of retaining
any and all earnings to finance the development of its business. Such a policy
is likely to be maintained as long as necessary to provide working capital for
the Company's operations.
RECENT SALES OF UNREGISTERED SECURITIES
On March 17, 1997, the Company acquired 80% of the outstanding shares
of Fan-Tastic for 100,000 shares of the Company's Series D Convertible Preferred
Stock. These shares were issued to the 8 shareholders of Fan-Tastic, each of
which signed an investment letter. The Company believes that the issuance of
these shares was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2). On May 29, 1998, the Company acquired the remaining
20% of Fan-Tastic and exchanged the 100,000 shares of Series D preferred stock
for 400,000 shares of its common stock.
On May 20, 1997 the Company entered into an agreement with William R.
Vowell to form Finally Communities, Inc. In consideration of Mr. Vowell's time
and effort to develop the Finally business, the Company issued Mr. Vowell
500,000 shares of Series E Convertible Preferred Stock. The Company believes
that the issuance of these shares was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2). In connection with the
Company's sale of its shares in Finally Communities, Inc. in February, 1998,
these shares were returned to the Company.
In June 1997, the Company issued 16,000 shares to two consultants for
promotional and advertising services. Based on the knowledge, experience and
economic strength of these persons, the Company believes these two transactions
were exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2).
On March 10, 1998, the Company sold 24,000 shares of its common stock
for $30,000 to an investor. The Company believes that the shares were exempt
from registration under the Securities Act of 1933 pursuant to Rule 505 of
Regulation D promulgated thereunder.
In April 1998, the Company sold 36,000 shares of its common stock for
$45,000 to an investor. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Rule 505 of Regulation D promulgated
thereunder.
In May 1998, effective March 31, 1998, the Company acquired over 80% of
the outstanding shares of Printworks, Inc., for 213,472 shares of the Company's
common stock. The issuance of these shares were exempt from registration
pursuant to Section 4 (2) of the Securities Act of 1933.
On July 14, 1998 the Company issued 300,000 shares to Mr. George Badger
for prior services. Based on the knowledge, experience and economic strength of
Mr. George Badger, the Company believes this transaction is exempt from
registration with the Commission under Section 4(2) of the Securities Act of
1933.
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On July 14, 1998 the Company issued 56,000 shares to Mr. Don Pickett
for prior services. Based on the knowledge, experience and economic strength of
Mr. Pickett, the Company believes this transaction is exempt from registration
under the Securities Act of 1933 Section 4(2).
On January 22, 1999, the Company granted options to Mr. James Stock to
purchase up to 160,000 shares of the Company's common stock. Mr. Stock is to
provide various investor and public relations services through January 21, 2000
and the options expire in December 31, 2001. The options are not transferable,
are exercisable at any time between $.50 and $3.00 per share (See Note 10 to the
financial statements.) Based on the knowledge, experience and economic strength
of Mr. Stock, the Company believes this transaction is exempt from registration
under the Securities Act of 1933 Section 4(2).
Item 6. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
The following information, on a fiscal year basis, is derived from the
consolidated financial statements of the Company. Such financial statements
include the Company and its subsidiaries.
RESULTS OF OPERATIONS
For the Fiscal Year Ended March 31, 1999 ("Fiscal 1999"), Compared to the Fiscal
Year Ended March 31, 1998 ("Fiscal 1998).
Sales for the year ended March 31, 1999 were $3,996,739 as compared to
$1,093,110 for the year ended March 31, 1998. The increase in sales is
attributable to the acquisition of Pacific Print Works ("PPW") (see Note 2 to
the Financial Statements) as PPW contributed sales of $3,223,417 for the current
fiscal year. The Company's acquisition of PPW was accounted as a purchase
combination, and therefore, no PPW revenue was recorded by the Company in fiscal
1998. Pro Forma audited revenue for PPW Fiscal 1998 was $2,389,970. The $833,447
increase in PPW's revenue for Fiscal 1999 compared to Fiscal 1998 pro forma
revenue was primarily due to:
1) An increase of approximately $1,370,000 in Fiscal 1999 from
existing customers in Fiscal 1998.
2) Sales of approximately $535,000 to new customers for Fiscal
1999.
3) A sales decline of approximately $1,140,000 in fiscal 1999
from existing customers in Fiscal 1998.
The PPW Fiscal 1999 sales include approximately $450,000 of garment sales as
opposed to pro forma garment sales of $189,000 in Fiscal 1998. The improvement
in sales to existing customers and to new customers is primarily due to PPW's
expertise in the area of high density printing. PPW expects a similar or larger
increase in sales for the year ended March 31, 2000 based on its relationship
and orders with existing customers in addition to PPW samples with potential new
customers. Approximately 40% of the decline in sales with existing customers is
due to 1) a decrease of $350,000 from a customer that is moving out of the
T-shirt and sweatshirt business and 2) a reduction of $115,000 from a customer
whose production was moved to its new parent company.
13
<PAGE>
Sales for Fan-Tastic declined by $319,778 which was due to a decline in store
sales of $390,962 due to the closure of two stores in June 1998 and an increase
in franchise and royalty fees of $71,184.
Gross profit for the fiscal year ended March 31, 1999 was $867,097 compared to
$318,705 for the prior year. The increase in gross profit was due to a
contribution in gross profit from PPW for Fiscal 1999 of $497,083 and an
increase in Fan-Tastic gross profit for Fiscal 1999 of approximately $52,000.
General and marketing expenses for the fiscal year ended March 31, 1999 were
$1,772,155 as compared to $1,540,460 for the prior year. The increase was
primarily attributable to general and marketing expenses from PPW for Fiscal
1999 of approximately $790,000 which was offset by a decline in general and
marketing costs from the Company's corporate offices of approximately $620,000.
The decline in the corporate office expenses was primarily due to approximately
$425,000 in expenses for stock issued to consultants in Fiscal 1998 with none in
Fiscal 1999.
Depreciation and amortization expenses included in total general expenses for
the fiscal year ended March 31, 1999 was $169,420 compared to $31,814 for the
prior year. This increase is due to the amortization of the goodwill from the
PPW acquisition which was being amortized over 15 years. The remainder of this
goodwill was written off at the end of Fiscal 1999 and therefore we expect the
Fiscal 2000 general amortization expenses to be similar to the amount for Fiscal
1998.
The Company's loss before discontinued operations include a one time write-off
of goodwill from the Pacific Print Works acquisition for $1,568,215 as opposed
to a write-off of goodwill from the Fan-Tastic acquisition of $756,797 for
Fiscal 1998.
Interest expense for the fiscal year ended March 31, 1999 was $561,335 compared
to $133,339 for the prior year. The increase in interest expense was due to
approximately $230,000 of interest from PPW lease and notes payable and
additional debt in Fiscal 1999 that was used for working capital purposes and to
fund losses from operations.
The Company had a loss on discontinued operations for the year ended March
31,1999 of $252,972 from its Quade and US Polo Association, Ltd. operations
compared to a $172,728 loss from Golf Ventures and Finally Communities
operations from the prior year and a $1,720,387 gain on the disposal of Golf
Ventures operations in the prior year. The Company will record a gain in the
first quarter of Fiscal 2000 for its sale of its 50% ownership in US Polo
Association, Ltd.
14
<PAGE>
The Pacific Print Works ("PPW") acquisition involves contingent consideration
that could result in PPW shareholders receiving additional shares over the next
two years based on PPW achieving specified earnings (see footnote 2 to the
financial statements). For example, if PPW achieves earnings of $300,000 in
fiscal 2000, 48,083 shares of common stock would be issued to PPW shareholders
with a guaranteed value of $5.00 which would result in $240,415 of additional
goodwill. This goodwill would result in additional amortization by the Company
of $16,028 per year or $.005 per share over 15 years.
The unaudited pro forma summary information combining the results of operations
of the Company and PPW is represented as if the acquisition had occurred at the
beginning of fiscal 1998, after giving effect to certain adjustments, including
the amortization of $121,229 of goodwill over 15 years. This pro forma summary
does not necessarily reflect the results of operations as they would have been
if the Company and PPW had constituted a single entity during such periods.
Fiscal 1998
-----------
Net Revenue $ 3,483,080
Net Loss (1,103,859)
Net Loss per share (.80)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had total assets of $3,295,534, total liabilities
of $5,610,717 and total stockholders deficit of $2,315,183, compared with total
assets of $5,436,635, total liabilities of $5,606,776, and total stockholders
equity of $2,302,241 at March 31, 1998. The significant changes in assets,
liabilities and stockholders equity is due primarily to the Company's write-off
of goodwill from the PPW acquisition, the reduction in stockholders equity due
to losses from operations and the decline in value of the Company's investment
in GVI.. At March 31, 1998 the Company's current ratio was approximately .502
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,
seeking the conversion of debt and preferred stock to common stock, and sale of
the Company's investment in GVI.
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
15
<PAGE>
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.
PLAN OF OPERATIONS
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words anticipates, believes, expects, intends, future, and words of similar
import which express management's belief, expectations or intentions regarding
the Company's future performance or future events or trends. Forward-looking
statements may not reflect actual operations because they involve known and
unknown risks, uncertainties and other factors, which may cause actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressly or implied by such
forward-looking statements. In addition, the Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
Item 7. Financial Statements and Supplementary Data.
See Item 13. Exhibits and Reports on Form 8-K.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Directors and Executive Officers
The following table sets forth the name, age and office held by each
director and officer of the company, followed by a brief resume of each
individual.
16
<PAGE>
NAME AGE POSITION HELD
- --------------------------------------------------------------------------------
B. Willes Papenfuss 40 President, Chief Executive Officer and
Director
Jeffrey S. Harden 54 Vice President and Director, President of
Pacific Print Works
Karl F. Badger 44 Vice-President
Barry L. Papenfuss 38 Vice President, President of Fan-Tastic, Inc.
Timothy Papenfuss 39 Secretary/Treasurer, Chief Financial Officer
and Director
Robert Mintz 53 Vice President and Director, President of
Quade, Inc.
B. WILLES PAPENFUSS, President and Director of the Company, was
appointed Executive Vice-President, of the Company in December, 1997. Mr.
Papenfuss joined Fan-Tastic, Inc. as Vice-President International in May, 1995.
He was Vice-President of U.S. Bank from 1991 to 1993, and Senior Vice-President
of U.S. Bank from 1993 to 1995. Mr. Papenfuss graduated from the University of
Washington with a Masters of Business Administration in 1985. Mr. Papenfuss is
the brother of Barry Papenfuss, Vice-President of the Company, and of Timothy
Papenfuss, Chief Financial Officer and Director of the Company.
JEFFREY S. HARDEN, Vice President and Director of the Company, and has
been with the Company since Pacific Print Works was acquired by ARDCO in May
1999. President of Pacific Print Works since 1993. Division Vice President of
West Coast sales with London Fog from 1987 to 1993. Sales Manager with Jantzen
from 1979 to 1987. Education includes two years at Texas A & M and three years
at Ohio Wesleyan.
KARL F. BADGER, Vice President has been with the Company since 1992.
Prior to 1992, Mr. Badger was a licensed broker/principle for Rocky Mountain
Securities and Investments. On December 18, 1997, the Securities and Exchange
Commission filed a civil enforcement action complaint against certain
individuals including Mr. Karl Badger (See Significant Employees and
Consultants.)
BARRY L. PAPENFUSS, Vice President and is the President of Fan-Tastic,
which position he has held since 1994, and has been with the Company since
Fan-Tastic was acquired by ARDCO in March, 1997. Was a Director of the Company
from March 1997 through July 14, 1998. From 1990-1994, Mr. Papenfuss was the
controller of The Pro Image, a sports apparel company and from 1985-1990, was a
consultant with Deloitte and Touche, an international accounting firm. Mr.
Papenfuss graduated from Brigham Young University. Mr. Barry Papenfuss is the
brother of Mr. Timothy Papenfuss, Secretary/Treasurer, Chief Financial Officer
and a director of the Company and of B. Willes Papenfuss, President of the
Company and a director of the Company.
17
<PAGE>
TIMOTHY M. PAPENFUSS, chief financial officer and director of the
Company, is chief financial officer of Fan-Tastic, Inc., which position he has
held since April, 1994. Mr. Papenfuss was appointed chief financial officer and
a director of the Company in August, 1997. From 1990 to April, 1994, Mr.
Papenfuss was a manager and senior manager with Ernst and Young. Mr. Papenfuss
has 9 years of professional accounting experience. Mr. Papenfuss graduated from
Brigham Young University in 1983 with a bachelors degree in accounting. Mr.
Papenfuss is the brother of Barry Papenfuss, vice president of the Company and
of B. Willes Papenfuss, President of the Company and a director of the Company.
ROBERT MINTZ, Director of the Company since July 23, 1998 upon the
Company's acquisition of Quade, Inc. President and founder of Quade, Inc. since
1996. Director of Women's Apparel at London Fog from 1994 to 1995. President of
Bugle Boy Womens from 1987 to 1993. Division President for Lizwear at Liz
Claibourne from 1984 to 1987. Mr. Mintz has a bachelors degree in anthropology
from the University of Pittsburgh.
Significant Employees and Consultants
The following individual was a consultant to the Company from 1997
through June 1998.
GEORGE H. BADGER, resigned as President, Chief Executive Officer and a
Director of the Company on December 31, 1996. Mr. Badger served as a director
since June 1992, and was President since 1995. Mr. Badger was indicted on a
number of charges and was arraigned in the U.S. Federal District Court for the
Southern District of New York on October 9, 1996. The Company has been advised
that the indictment related to alleged unlawful and undisclosed compensation to
securities brokers and promoters to induce them to cause customers to purchase
securities issued by GVI and the Company. The Company has been advised that Mr.
Badger has pleaded guilty to counts of: (i) conspiracy to commit securities
fraud; (ii) securities fraud; (iii) criminal contempt; and (iv) perjury.
On December 18, 1997, the Securities and Exchange Commission
(hereinafter the "Commission") filed a civil enforcement action complaint,
2:97CV 0963K in the United States District Court for the district of Utah,
Central Division, against George Badger, former president of the Company, Karl
Badger, former president of the Company, and others, alleging violations of the
general anti-fraud provisions of the federal securities laws. The complaint
alleges that George Badger directed a scheme to manipulate the market for
securities issued by GVI through payments to various broker-dealers and
registered representatives. The complaint alleges that Mr. Karl Badger arranged
for some of these payments. The complaint seeks a permanent injunction against
future violations of the federal securities laws, a court order prohibiting the
defendants from future participation in offerings of penny stocks and
disgorgement of alleged profits. Mr. Karl Badger has filed an answer to the
complaint denying the material allegations thereof, has filed Motions to Dismiss
the complaint, and intends to vigorously defend the action.
Compliance with Section 16(a) of the Securities Act of 1934 by Company
Officers, Directors and 10% Shareholders.
18
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file with the Commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company. The rules promulgated by the Commission under Section
16(a) of the Exchange Act require those persons to furnish the Company with
copies of all reports filed with the Commission pursuant to Section 16(a).
Based solely upon a review of Forms 3, Forms 4 and Forms 5 and
amendments thereto furnished to the Company pursuant to Rule 16a-3(e) during the
fiscal year ended March 31, 1999, and written representations of certain of its
directors and executive officers that no Forms 5 were required to be filed, all
directors and executive officers have filed with the Commission on a timely
basis all reports required to be filed under Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers of directors.
The following table sets forth the annual compensation paid and accrued
by the Company for services rendered during the fiscal years ended March 31,
1999, 1998 and 1997 to (i) the Company's Chief Executive Officer and (ii) each
other executive officer of the Company or its subsidiary serving at the end of
the last completed fiscal year whose salary and bonus exceeded $100,000 during
the last fiscal year ("Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
===================================================================================================================================
Annual Compensation Long-Term Compensation
-------------------------------------------- ----------------------------------------
Awards Payouts
--------------------------- ------------
Securities
Other Restricted Underlying
Name and Principal Annual Stock Options/ LTIP All Other
Position Year Salary Bonus Compensation Award(s) SARs Payouts Compensation
($) ($) ($) ($) (#) ($) ($)
==================== ========== ============== ========== =================== ============= ============= ============ ============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B. Willes Papenfuss, 1999 $38,000 -0- -0- -0- -0- -0- -0-
Chief Executive 1998 $48,000 -0- -0- -0- -0- -0- -0-
Officer(1) 1997 $48,000 -0- -0- -0- -0- -0- -0-
==================== ========== ============== ========== =================== ============= ============= ============ ============
</TABLE>
19
<PAGE>
Employment Agreements.
None of the Company's officers or directors has any written employment
agreement with the Company. Messrs. Barry and Timothy Papenfuss have employment
agreements with Fan-Tastic.
Director Compensation
Directors of the Company have been partially reimbursed for expenses
incurred by them on behalf of the Company. No salary or fee has been paid to
directors. It is anticipated that the Company may establish some fees for
directors at such time as the Company has sufficient funds to pay fees to
directors.
Stock Options
Option/SAR Grants in Last Fiscal Year:
There were no option or SAR grants for the year ended March 31, 1999.
Aggregated Option Exercises and Fiscal Year-End Option Values:
There were no options exercised for the year ended March 31, 1999. There were no
options at March 31, 1999 in which the exercise price was lower than the bid or
ask price of the Company's stock at March 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, to the best knowledge of the
Company, as of July 7, 1999, with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock; (ii)
each director; and (iii) all current directors and executive officers as a
group.
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OWNED OF CLASS
- ---------------- ------------ --------
Banque SCS Alliance SA 591,472(1) 18.63%
11 Route De Florissant Case Portal 3733
12111 Geneva 3, Switzerland
George H. Badger 610,987(2) 19.25%
550 Northmont Way
Salt Lake City, UT 84103-3323
Don Pickett, agent for 151,024 4.76%
Mindon Investment and The Stella Trust
1150 Augusta Way
Salt Lake City, UT 84108
20
<PAGE>
Karl F. Badger 71,320(3) 1.6%
1041 E. Dugger Lane
Bountiful, UT 84010
Barry L. Papenfuss 158,048(4) 4.65%
3855 South 500 West #R
Salt Lake City, UT 84115
Timothy M. Papenfuss 89,144(5) 2.49%
3855 South 500 West #R
Salt Lake City, UT 84115
B. Willes Papenfuss 78,108(6) 1.66%
12313 SE Wagner Street
Portland, OR 97236
Jeffrey S. Harden 151,809 4.78%
17942 St. Clair Dr.
Lake Oswego, OR 97034
Robert Mintz 213,333 6.72%
All Officers and Directors as
a Group (6 persons) 553,429 16.84
- -------------------------
1 Banque SCS Alliance SA disclaims beneficial ownership but has provided no
additional information to the Company to identify the beneficial owners.
2 Mr. George Badger is the beneficial owner of 174,450 shares held by his wife
LaJuana Badger in an IRA account. These shares also include 300,000 shares held
in an irrevocable trust for the benefit of Mr. Badger's children, for which he
does not act as trustee. Mr. Badger disclaims beneficial ownership of these
shares.
3 Mr. Karl Badger is the owner of vested options to purchase 25,000 shares of
the Company's common stock at $2.00 a share.
4 Mr. Barry Papenfuss is the owner of vested options to purchase 10,000 of the
Company's common stock at $2.00 a share. Messrs. Barry Papenfuss, Timothy
Papenfuss and B. Willes Papenfuss are brothers.
5 Mr. Timothy Papenfuss is the owner of vested options to purchase 10,000 shares
of the Company's common stock at $2.00 a share.
6 Mr. B. Willes Papenfuss is the owner of vested options to purchase 25,000
shares of the Company's common stock at $2.00 a share. Mr. B. Willes Papenfuss
additionally can receive stock options as a finder's fee for company.
7 Mr. Jeffrey Harden's shares include 82,030 held by his wife, Lynn Harden, and
2,413 and 2,413 shares held by his children, Brittany and Blake Harden,
respectively.
21
<PAGE>
Item 12. Certain Relationships and Related Transactions.
George Badger, a shareholder and former Company President, and father
to former Company President Karl Badger, had loaned the Company $563,210.00 from
February 1997 to March 1998. The terms of these loans are as follows: Loan for
$358,000 which was refinanced by Banque SCS in July 1998 with payment of
interest and principal of $6,000 a month with the remaining principal due June
2001, secured by Company and GVI stock; Loan for $130,491 secured by Company
assets with interest payable monthly at 18% with no stated principal payments
required; The loan funds were used by the Company for working capital. On July
14, 1998 the Company issued 300,000 shares to Mr. George Badger for prior
services.
Item 13. Exhibits and Reports on Form 8-K.
The following financial statements, schedules, reports and exhibits are
filed with this Report:
(a) FINANCIAL STATEMENTS
(1) Report of Jones, Jensen & Company, Independent Public
Accountants.
(2) Consolidated Balance Sheet as of March 31, 1999.
(3) Consolidated Statements of Operation for the years
ended March 31, 1999 and 1998.
(4) Statement of Stockholders' Equity for the period
March 31, 1997 through March 31, 1999.
(5) Consolidated Statements of Cash Flows for years ended
March 31, 1999 and 1998.
(6) Notes to Financial Statements.
(d) Exhibits
22
<PAGE>
The following exhibits are filed herewith or are incorporated
by reference to exhibits previously filed with the Securities and Exchange
Commission. The Company shall furnish copies of exhibits for a reasonable fee
(covering the expense of furnishing copies) upon request.
Exhibit No. Exhibit Name
- ----------- ------------
3.1 (1) Articles of Incorporation
3.2 (2) Amendment to Articles of Incorporation
3.3 (1) By-Laws
3.4 (7) Amendment on name change
3.5 (7) Amendment on Series D designation
3.6 (7) Amendment on Series E designation
10.1 (1) Agreement with TechKNOWLOGY, Inc.
10.2 (1) Financing Agreement
10.3 (1) Exchange of Shares Agreement
10.4 (1) Option Contract
10.5 (1) Extension to Option Contract
10.6 (1) Further Amendment to Option Agreement
10.7 (1) Purchase Agreement
10.8 (1) Amendment to Purchase Agreement
10.9 (1) Addendum to Purchase Agreement
10.10 (1) Purchase Agreement (Stella Trust)
10.11 (2) Agreement of Joint Project
10.12 (2) Amendment to Agreement of Joint Project
10.13 (2) Dynamic American Option
10.14 (2) Land Sale Agreement
10.15 (2) Assignment of Trust Deed and Trust Deed Note
10.16 (2) Promissory Note (Johnson)
10.17 (3) TKI Dealer Agreement
10.18 (4) Modification Agreement
10.19 (4) Land Sales Agreement (Mindon)
10.20 (4) Sales Agreement (Property Alliance)
10.21 (5) Assignment Agreement
10.22 (6) Agreement with The Stella Trust and Mindon Investments
(Pickett Group)
10.23 (6) Acquisition Agreement with Golf Ventures, Inc.
10.24 (6) Settlement Agreement and General Release (TKI)
10.25 (7) Stock Purchase Agreement (Fantastic)
10.26 (7) Agreement (Vowell/Finally)
10.27 Termination Agreement (Vowell/The Company)
10.28 Stock Exchange Agreement (Pacific Print Works)
10.29 Stock Exchange Agreement (Quade, Inc.)
10.30 Employee Stock Option Plan
10.31 Funding Fee Agreement (Badger)
10.32 GVI Settlement Agreement
10.33 U.S. Polo Association Shareholders' Agreement
10.34 Secured Promissory Note with Jordache Enterprises, Inc.
10.35 U.S. Polo Association Ltd. Stock Redemption Agreement
10.36 Promissory Note with Miltex Industries
10.37 Promissory Note with George Badger
10.38 Alliance Financial accounts receivable factor Agreement
16.1 (2) Letter Regarding Change in Certifying Public Accountant
23
<PAGE>
Exhibit No. Exhibit Name
- ----------- ------------
21. Subsidiaries
23. Consent of Independent Auditor
99.1 (2) List of Third Party Loans to TechKNOWLOGY, Inc.
(28.1)*
99.2 (2) Lease of LTI Office
(28.2)*
99.3 (2) Financial Statements for years ended March 31, 1989, 1988 and
1987, and
(28.3)* quarter ended June 30, 1989, as prepared by Dale K. Barker
Co., P.C.
99.4 (4) Class "A" Preferred Stock
(28.4)*
99.5 (4) Debenture
(28.5)*
(1) Incorporated by reference to the Form 10 Registration
Statement filed with the Commission October 16, 1990, File No.
0-18865.
(2) Incorporated by reference to Amendment No. 1 to Form 10
Registration Statement filed with the Commission May 23, 1991,
File No. 0-18865.
(3) Incorporated by reference to Amendment No. 2 to Form 10
Registration Statement filed with the Commission August 12,
1991, File No. 0-18865.
(4) Incorporated by reference to Amendment No. 3 to Form 10
Registration Statement filed with the Commission November 13,
1991, File No. 0-18865.
(5) Incorporated by reference to Amendment No. 4 to Form 10
Registration Statement filed with the Commission February 13,
1992, File No. 0-18865.
(6) Incorporated by reference to Form 10-K for the year ended
March 31, 1993
(7) Incorporated by reference to form 10-KSB for the year ended
March 31, 1997. (*) Exhibits previously filed as Exhibits 28.1
through 28.5 are now depicted as 99.1 through 99.5.
(b) The Registrant filed a report on Form 8-K on March 17, 1997 outlining the
acquisition by the Company of Fan-Tastic, Inc. on March 17, 1997, identifying
the Company's name change from Leasing Technology, Inc. to American Resources
and Development Company and a one for twenty (1:20) reverse stock split effected
on the Company's common stock.
24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Financial Statements
March 31, 1999 and 1998
F-1
<PAGE>
C O N T E N T S
Independent Auditors' Report ......................................... F-3
Consolidated Balance Sheet ........................................... F-4
Consolidated Statements of Operations ................................ F-6
Consolidated Statements of Stockholders' Equity (Deficit)............. F-8
Consolidated Statements of Cash Flows ................................ F-10
Notes to the Consolidated Financial Statements ...................... F-12
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
American Resources and Development Company and Subsidiaries
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of American
Resources and Development Company and Subsidiaries at March 31, 1999 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended March 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Resources and Development Company and Subsidiaries at March 31, 1999
and the results of their operations and their cash flows for the years ended
March 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and its total liabilities exceed its total assets, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 12. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
June 25, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
March 31,
1999
-----------------
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 41,967
Accounts receivable, net (Note 1) 516,660
Inventory (Note 1) 293,768
Prepaid and other current assets 15,400
Marketable securities (Note 1) 157,500
-----------------
Total Current Assets 1,025,295
-----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 395,253
Capital leases 1,090,032
-----------------
Total depreciable assets 1,485,285
Less: accumulated depreciation (355,492)
-----------------
Net Property and Equipment 1,129,793
-----------------
OTHER ASSETS
Marketable securities (Note 1) 857,938
Net assets of discontinued operations (Note 14) 282,508
-----------------
Total Other Assets 1,140,446
-----------------
TOTAL ASSETS $ 3,295,534
=================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31,
1999
-----------------
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 366,028
Accrued expenses and other current liabilities 397,800
Line of credit (Note 3) 367,845
Current portion of notes payable (Note 4) 587,323
Current portion of notes payable, related parties (Note 5) 47,104
Current portion of capital lease obligations (Note 6) 282,497
-----------------
Total Current Liabilities 2,048,597
-----------------
LONG-TERM DEBT
Deferred revenue 10,000
Reserve for discontinued operations (Note 2) 660,123
Notes payable (Note 4) 1,001,819
Notes payable, related parties (Note 5) 1,395,148
Capital lease obligations (Note 6) 495,030
-----------------
Total Long-Term Debt 3,562,120
-----------------
Total Liabilities 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
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 3,935,106
shares issued and 3,174,286 outstanding. (Note 9) 3,174
Other comprehensive losses (435,188)
Additional paid-in capital 7,297,066
Accumulated deficit (9,180,480)
-----------------
Total Stockholders' Equity (Deficit) (2,315,183)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,295,534
=================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Years Ended
March 31,
1999 1998
------------------ -----------------
SALES
<S> <C> <C>
Sales $ 3,996,739 $ 1,093,110
Cost of sales 3,129,642 774,405
------------------ -----------------
Gross Profit 867,097 318,705
------------------ -----------------
EXPENSES
General and marketing expenses 1,772,155 1,540,460
Depreciation and amortization 169,420 31,814
------------------ -----------------
Total Expenses 1,941,575 1,572,274
------------------ -----------------
LOSS FROM OPERATIONS (1,074,478) (1,253,569)
------------------ -----------------
OTHER INCOME AND (EXPENSES)
Writedown of goodwill (1,568,215) (756,797)
Other income (expenses) (50,457) 15,387
Interest income 318 5
Gain on sale of assets 45,639 139,906
Interest expense (561,335) (133,339)
------------------ -----------------
Total Other Income and (Expenses) (2,134,050) (734,838)
------------------ -----------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (3,208,528) (1,988,407)
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC and Quade (Note 2) (252,972) (172,728)
Gain on disposal of GVI, FCC (Note 2) - 1,720,387
------------------ -----------------
Total Discontinued Operations (252,972) 1,547,659
------------------ -----------------
INCOME TAXES - -
------------------ -----------------
NET LOSS (3,461,500) (440,748)
------------------ -----------------
OTHER COMPREHENSIVE LOSS
Loss on valuation of marketable securities (435,188) -
------------------ -----------------
Total Other Comprehensive Loss (435,188) -
------------------ -----------------
NET COMPREHENSIVE LOSS $ (3,896,688) $ (440,748)
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations (Continued)
For the Years Ended
March 31,
1999 1998
------------------ -----------------
<S> <C> <C>
BASIC LOSS PER SHARE OF COMMON
STOCK-CONTINUING OPERATIONS $ (1.03) $ (1.07)
================== =================
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ (0.08) $ 0.83
================== =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,124,224 1,864,113
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Deficit)
March 31, 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.
F-8
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Continued)
March 31, 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)
========= ============ ======= =========== ============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Years Ended
March 31,
1999 1998
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (3,461,500) $ (440,748)
Adjustments to reconcile net loss to net cash
(used) by operating activities, net of effect of
mergers:
Depreciation and amortization 449,553 34,371
Write-down of goodwill 1,568,215 756,797
Stock option and stock for services 19,683 441,315
Gain on GVI settlement - (1,699,682)
Gain on sale of marketable securities 45,639 -
Changes in operating assets and liabilities:
(Increase) in accounts receivable (294,785) (10,095)
Decrease in inventory, real estate - 179,308
(Increase) decrease in inventory merchandise 143,235 (30,763)
Decrease in other assets 97,103 7,754
Increase (decrease) in accounts payable and other
current liabilities (106,046) 355,969
Increase in deferred revenue 10,000 -
Increase in reserve for discontinued operations 67,794 -
------------------ -----------------
Net Cash (Used) by Operating Activities (1,461,109) (405,774)
------------------ -----------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 255,798 -
Purchases of property and equipment (309,006) (50,925)
Investment in land held for development - (411,892)
------------------ -----------------
Net Cash (Used) by Investing Activities (53,208) (462,817)
------------------ -----------------
FINANCING ACTIVITIES
Net proceeds on line of credit 367,845 -
Marketable securities from merger of GVI - 622,182
Loan to acquired company prior to acquisition - (115,000)
Cash from acquisition of subsidiary - 9,699
Payments on long-term debt and capital lease obligations (680,294) (45,317)
Long-term borrowings 1,794,070 333,840
Issuance of common stock for cash 60,000 30,000
------------------ -----------------
Net Cash Provided by Financing Activities 1,541,621 835,404
------------------ -----------------
INCREASE (DECREASE) IN CASH 27,304 (33,187)
CASH, BEGINNING OF YEAR 14,663 47,850
------------------ -----------------
CASH, END OF YEAR $ 41,967 $ 14,663
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
March 31,
1999 1998
----------------- -----------------
CASH PAID FOR
<S> <C> <C>
Interest $ 233,133 $ 135,644
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services and options $ 19,683 $ 388,660
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company and its subsidiaries,
Fan-Tastic, Inc. (FTI), Pacific Printing and Embroidery L.L.C.
(PPW) and Quade, Inc.
b. 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.
c. 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.
d. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times, may
exceed federally insured limits.
In the normal course of business, the Company extends credit to
its customers.
e. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method. Inventory consists of items available
for resale.
f. 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.
g. Accounts Receivable
Accounts receivable are shown net of the allowance for bad debts
of $48,787 at March 31, 1999.
F-12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $157,500, and 1,015,000 shares of GVI stock
pledged as collateral on notes payable valued at $857,938. 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 $435,188 in marketable securities
at March 31, 1999 due to a $0.375 decline in GVI Company's
recorded cost for GVI shares.
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 loss 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.
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 $(1.03) and
($1.07) for the years ended March 31, 1999 and 1998, respectively.
Basic net (loss) income from discontinued operations per common
share and diluted net loss from discontinued operations per common
share was $(0.08) and $0.83, respectively. Weighted average common
shares outstanding were 3,124,224 and 1,864,113 for the years
ended March 31, 1999 and 1998, respectively.
F-13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
n. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
F-14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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
F-15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
(Continued)
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.
F-16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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>
F-17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 2 MERGERS AND ACQUISITIONS (Continued)
Quade, Inc.
In 1997, Quade, Inc. acquired from the U.S. Polo Association ("US
Polo") the exclusive master licenses rights to the US Polo name
for the United States and Canada. For the last year Quade, Inc.
has been developing this property including signing agreements
with four sub-licensees, and serving as licensee for knit tops
including t-shirts, fleece and polo shirts.
On March 17, 1998, the Company signed a Letter of Intent to
acquire 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. These shares include 32,000 shares that have a
guarantee of $5.00 per share based on the average asking price of
the Company's common stock for the six months ended March 31,
1999. The Company also guaranteed a note payable of Quade, Inc. to
its former partner, with a discounted value of $613,384 and issued
25,000 shares of common stock to Quade's former partner. Depending
on Quade's performance over the next three years, additional
shares of the Company's common stock will be issued for this
acquisition if minimum earnings levels are met as follows:
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
1999 $ 27,671 $ 81,500 47,408 142,222
2000 $251,166 $ 754,000 47,376 142,222
2001 $499,900 $1,499,200 47,423 142,222
The additional contingent shares that could be issued to the
Quade, Inc. shareholder also have a guaranteed value of $5.00.
The following tables set forth certain 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.
F-18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
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.
F-19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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>
F-20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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>
F-21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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.
F-22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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, the Company had a
payable of $367,845 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:
March 31,
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
$10,904 to $2,030 per month. 34,684
Notes payable to a shareholder of PPW. Interest rates
average 10%, due on demand, unsecured. 291,819
Notes payable with three vendors with interest rates averaging
12%; partially secured by equipment, due in 2000. 49,429
Note payable to business partner in U.S. Polo Association, Ltd.
Interest is payable quarterly at the prime rate as published by
the Wall Street Journal plus 1% per annum. Note was canceled
in June 1999 with the sale of U.S. Polo Association to business
partner. 1,000,000
-----------------
Subtotal 1,589,142
Less current portion (587,323)
-----------------
Long-term portion $ 1,001,819
=================
</TABLE>
F-23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 4 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
Maturities of long-term debt are as follows:
<S> <C>
March 31, 2000 $ 587,323
March 31, 2001 501,819
March 31, 2002 250,000
March 31, 2003 250,000
-----------------
$ 1,589,142
=================
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
<CAPTION>
March 31,
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. $ 728,162
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. 327,497
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. 386,593
-----------------
Subtotal 1,442,252
Less current portion (47,104)
-----------------
Long-term portion $ 1,395,148
=================
Maturities of notes payable, related parties are as follows:
March 31, 2000 $ 47,104
March 31, 2001 1,008,555
March 31, 2002 386,593
-----------------
$ 1,442,252
=================
</TABLE>
F-24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 6 - CAPITAL LEASES
<TABLE>
Property and equipment payments under capital leases as of March
31, 1999 is summarized as follows:
<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.
F-25
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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.
F-26
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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.
F-27
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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
Years Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales 1999 $ 3,223,417 $ 773,322
1998 1,093,110
Operating loss applicable to
industry segment 1999 307,406 355,182
1998 392,069
General corporate expenses
not allocated to industry
segments 1998 $ 411,890
1999 861,500
Writedown of goodwill 1999 (1,568,215)
1998 (756,797)
Interest expense 1999 (269,949) (60,442) (229,944)
1998 (61,568) (71,771)
Other income (expenses)
including interest and gain
on sale of securities 1999 (34,493) 29,167 5,144
1998 34,480 120,818
</TABLE>
F-28
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 13 - BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
For the
Years Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Loss from discontinued
operations 1999 $ (252,972)
1998 (172,728)
Assets 1999 $ 1,098,406 $ 197,186 1,999,942
Depreciation and
amortization 1999 261,925 34,180 153,448
1998 28,398 5,973
Property and equipment
acquisitions 1999 301,400 7,606
</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 (see Note 4), 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 will be recognized in the first
quarter of the year ending March 31, 2000. No income tax benefit
or expense has been attributed to the disposal of U.S. Polo.
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
------------------------------------------
(Registrant)
By: /s/ Timothy M. Papenfuss
-----------------------------
Timothy M. Papenfuss
Dated: July 7, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
25
<PAGE>
Signature Title Date
--------- ----- ----
/s/ B. Willes Papenfuss
- -------------------------- President, Chief Executive July 7, 1999
B. Willes Papenfuss Officer and Director
(Principal Executive
Officer)
/s/ Timothy M. Papenfuss
- -------------------------- Secretary / Treasurer and July 7, 1999
Timothy M. Papenfuss Director (Chief Financial
Officer, Chief Accounting
Officer and Controller)
26
The following exhibits to the U.S. Polo Association, Ltd. Shareholders' are
omitted and will be provided to the Commission upon request.
Exhibit 1 License Assignment Agreement dated October 8, 1998 between Quade Inc.
and U.S. Polo Association Ltd.
Exhibit 2 Indemnity Letter dated October 8, 1998
U.S. POLO ASSOCIATION, LTD
SHAREHOLDERS' AGREEMENT
AGREEMENT, effective the 8th day of October, 1998, by and among Iron
Will Group Ltd., a British Virgin Island Corporation, with an address c/o
Jordache Enterprises, Inc., 1411 Broadway, New York, NY ("Iron Will"), and
American Resources and Development Company, a Utah corporation, with an address
at 3855 5. 500 West, Suite R, Salt Lake City, UT 84115 ("Ardco") (each a
Shareholder, and collectively, the "Shareholders") and U.S. Polo Association,
Ltd., a British Virgin Island Corporation (the "Corporation")
WHEREAS, each Shareholder is the record and beneficial owner of fifty
percent (50%) of the Corporation's issued and outstanding stock (each an
"Ownership Interest"); and
WHEREAS, the Shareholders consider it to be in their best interest to
discourage each other from engaging in a Transfer Event, as hereinafter defined,
and to ensure continuity of management.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows.
I. Transfer of an Ownership Interest
(a) Limitation of Transfer.
No Shareholder may, directly or indirectly, sell, assign, mortgage, hypothecate,
transfer, pledge, create a security interest in or lien upon, encumber, gift,
place in trust, or otherwise voluntarily or involuntarily dispose of its
Ownership Interest (collectively, a "Transfer Event") in the Corporation except
in accordance with the terms of this Agreement, and as required by the terms of
the loan being extended by Jordache Enterprises, Inc. to Ardco as of this date.
(b) Effect of Certain Transfers. No actual or purported transfer or encumbrance
of any Ownership Interest or interest therein, whether voluntary or involuntary,
not in accordance with the provisions of this Agreement, shall be valid or
effective to grant to the transferee of, or claimant with respect to, such
interest any right (including, without limitation, any right to cause the
registration of such interest in his name or on his behalf on the books of the
Corporation, to receive any distributions or to vote), title or interest in or
to such Ownership Interest (all such right, title and interest being hereinafter
referred to as "Ownership Rights") . Any purported transferor of any Ownership
Interest shall not be entitled to, and specifically waives, its Ownership Rights
from the date of such purported transfer or encumbrance until such transaction
shall be rescinded.
(c) Issuance of Shares The Corporation shall not issue any Shares or any
options, warrants or rights to purchase or acquire any Shares or other
securities convertible or exchangeable for any Shares, without the prior written
consent of all of the directors and Shareholders.
(d) Corporate Transactions. The Corporation shall not redeem, purchase,
reclassify, recapitalize or otherwise acquire for any consideration any Shares
other than pursuant to Section 2, without the written consent of all
Shareholders.
2. Shareholder Transactions. If either Shareholder (the "Selling Shareholder11)
shall wish to sell all, but not less than all, of the Ownership Interest in the
Corporation owned by it then, in such event, the Selling Shareholder may do so
only after strictly complying with the following provisions:
(a) The Selling Shareholder shall offer (the "Offer") to sell to the Corporation
and to the other Shareholder (the "Non-selling Shareholder") all (but not less
than all) of the Ownership Interest (i) at a purchase price (the "Purchase
Price") determined pursuant to section (b) immediately below. The payment terms
shall be twenty (20%) percent in cash at Closing with the
3
<PAGE>
balance payable pursuant to the promissory note terms described in Section 3
hereof (collectively, the "Buyout Terms")
(b) The value of the Corporation shall be determined pursuant to the following
formula: Ownership percentage in the Corporation
X [(i) Book value plus (ii)5 times (three times net pretax income for
the fiscal year preceding the year of the Offer plus two times the net
pre-tax income for the second fiscal year preceding the year of the
Offer plus the net pre-tax income for the third fiscal year preceding
the year of the Offer, with the total divided by six), but the
aggregate of (i) and (ii) shall not be less than book value]. If the
Corporation shall be in existence less than three fiscal years prior to
the year in which the Offer is made, the formula shall be adjusted to
adapt to such fact.
Book value and net pre-tax income shall conclusively be those amounts reported
on the Corporation's Financial Statements for the specific fiscal year involved.
(c) The Corporation and the Non-selling Shareholder 3hall thereupon have the
right and option for a period of 60 days }after the receipt of the Offer (the
"Acceptance Period"), either (I) to accept the offer to purchase all (but not
less than all) of
4
<PAGE>
the Ownership Interest on the Buyout Terms by delivering a written notice
("Notice of Acceptance") to the Selling Shareholder within the Acceptance Period
or (ii) to reject the Offer. The Corporation shall have the first option to
exercise the rights to purchase. If the Corporation elects to purchase less than
all of the Subject Ownership Interest or declines to purchase any of the Subject
Ownership Interest, the Non-selling Shareholder shall have the option to
purchase the shares of the Selling Shareholder not acquired by the Corporation.
(d) If effective acceptance shall have been given, closing shall take place,
within 30 days after the delivery of the Notice of Acceptance, at the offices of
Jordache Enterprises, Inc., 1411 Broadway, New York, New York, or such other
place mutually agreed upon by the parties (the "Closing")
(e) If effective acceptance shall not have been given by the Corporation and/or
the Non-selling Shareholder by the delivery of a Notice of Acceptance within the
Acceptance Period, as aforesaid, then the Selling Shareholder may sell the
Ownership Interest at a price not less than the Purchase Price, and on terms not
materially more favorable to the purchaser than the Buyout Terms, at any time
within sixty (60) days (the "Option Period") after the expiration of the
Acceptance Period.
5
<PAGE>
(f) If the Selling Shareholder shall fail to sell the Ownership Interest as
contemplated above within the Option Period, then the Ownership Interest may not
be sold and the provisions of this Agreement shall continue to apply as if no
Offer had been given.
(g) Any transferee of any Ownership Interest shall hold such Ownership Interest
subject to the terms of this Agreement, and thereafter shall be referred to as
one of the Shareholders as that term is used in this Agreement. Such transferee
shall not have any rights, by virtue of his or her ownership of a Ownership
Interest to be employed by the Corporation or to receive any compensation or
benefits from the Corporation of any kind or nature whatsoever other than to
share proportionately in distributions made by the Corporation, if any.
3. Promissory Note Terms. Any promissory note issued by a Shareholder or the
Corporation pursuant to Section 2 hereof is hereinafter referred to as a
"Promissory Note" and the person making such Promissory Note is hereinafter
referred to as the "Maker". Each Promissory Note shall be payable in: (i) 120
equal monthly installments (such installments being herein referred to as
"Installments") of principal, plus (ii) interest in an amount sufficient to pay
all interest at the prime rate as declared from time to time by Citibank, N.A.
(the "Prime Rate") in effect when
6
<PAGE>
the Installment is due. Each Installment shall be applied first to the payment
of interest and then to the reduction of principal. Any unpaid interest will be
added to the outstanding principal balance of the Promissory Note and interest
shall accrue thereon at the rate provided for in the Promissory Note. Such
Promissory Note shall provide for the acceleration of payments thereunder upon a
default in the payment of principal or interest thereon, the voluntary or
involuntary bankruptcy of the Maker or a default under any other material
indebtedness of the Maker. Each Promissory Note may be prepaid by, and at the
election of, the Maker at any time without premium or penalty, but with interest
through the date of such prepayment. The Promissory Note shall be secured by the
Ownership Interest, the acquisition of which generated production of the
Promissory Note.
4. Management Each Shareholder agrees to vote his or her shares: (a) to cause
the By-laws of the Corporation to provide for four (4) directors; (b) to cause
Ralph Nakash ("Ralph") and Joseph Nakash ("Joe") to be elected at all times as
directors of the Corporation; and to cause Robert Mintz ("Robert") and Will
Papenfuss ("Will"), to be elected at all times as directors of the Corporation;
and (c) to cause Joe at all times to be elected as Chairman of the Board, Ralph
to be elected at all times as secretary, Robert Mintz to be elected at all times
as president, and Will Papenfuss to be elected at all times as vice president of
the Corporation.
7
<PAGE>
Within 120 days after the execution of this Agreement, each of Iron Will and
Ardco shall file in writing with the Corporation the name and address of the
person(s) that it has selected to be its designee(s) in the event of the death,
resignation or removal as officer and/or director of Joe or Ralph as to Iron
Will or Robert and Will as to Ardco. Each designating party shall have the right
to change its designee at any time.
5. Equitable Relief. The parties hereto agree and acknowledge that a breach of
the provisions of this Agreement could not be adequately compensated by money
damages. Accordingly, each party hereto shall be entitled, in addition to any
other right or remedy available to it, to an injunction restraining such breach
or any threatened breach to a specific performance of any such provision of this
Agreement, and in either case, no bond or other security shall be required in
connection therewith, and the parties hereto hereby consent to such injunction
and the ordering of specific performance. 6. Term. This Agreement shall be
effective for and have a term of twenty (20) years from the date written at the
head of this Agreement.
8
<PAGE>
7. Arbitration.
(a) Forum. Any dispute arising out of or relating to this Agreement or the
breach, termination or invalidity thereof, shall be finally settled by
arbitration conducted in New York City in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court having jurisdiction thereof.
(b) Costs and Expenses The successful party (as determined by the arbitral
tribunal) shall be entitled to recover interest from the date of any breach and
reimbursement of costs and expenses of the arbitration, including reasonable
attorneys' fees incurred in connection therewith.
8. Miscellaneous.
(a) Notices: Any and all notices, designations, consents, offers, acceptances,
or any other communication provided for herein shall be made by hand-delivery,
first-class mail (registered or certified, return receipt requested), telex,
telecopies, or overnight air courier guaranteeing next day delivery to the
intended recipient: 9 To Iron Will Group Ltd.
With a copy to:
c/o Jordache Enterprises, Inc. 1411 Broadway
New York, NY 10018
Howard W. Mechanic, Esq.
Muchnick, Golieb & Golieb, P.C.
630 Fifth Avenue - Suite 1425
New York, New York 10111
To American Resources and Development Company:
3855 S. 500 West, Suite R
Salt Lake City, UT 84115
with a copy to:
Except as otherwise provided in this Agreement, each such notice shall be deemed
given at the time delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next business day after timely deliver to the courier, if sent by overnight air
courier guaranteeing next day delivery.
(b) Entire Agreement; Amendment. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations, representations and agreements. No change or
10
<PAGE>
modification of this Agreement shall be valid, binding or enforceable as against
any Shareholder unless the same shall be in writing and signed by all of the
directors and by shareholders owning at least two thirds (3/4) of the
Corporation's issued and outstanding shares.
(c) Waiver. No failure or delay on the part of any Shareholder in exercising any
right, power or privilege hereunder, and no course of dealing between an Entity
and the Shareholders or either of them shall operate as a waiver thereof nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the simultaneous or later exercise of any other right, power or
privilege. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights and remedies that the Shareholders or either of them
would otherwise have. No notice to or demand on any Entity in any case shall
entitle such Entity to any other further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Shareholders or any of
them to take any other of further action in any circumstances without notice or
demand
(d) Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
11 (e) Governing Law. This Agreement shall be governed and construed in
accordance with the law of the State of New York applicable to contracts made
and performed within New York, unless specifically prohibited by the law of the
country of incorporation.
(f) Benefit and Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of each of the Shareholders, and their respective
executors, administrators and personal representatives and heirs and assigns,
and any holder of a Promissory Note as such.
(g) Attorneys' Fees. In any action or proceeding brought to enforce any
provisions of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonably
attorneys' fees in addition to any other available remedy.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first above written.
Iron Will Group Ltd. American Resources & Development Company
By:s/s Robert Speigeelman By:s/s Robert Mintz, Vice President
12
<PAGE>
RIDER
TO
SHAREHOLDERS AGREEMENT DATED OCTOBER 8, 1998
BY AND AMONG IRON WILL GROUP LIMITED,
RESOURCES AND DEVELOPMENT COMPANY AND
U.S. POLO ASSOCIATION LTD.
9. The Company shall not without the unanimous approval of the
Shareholders, take any of the following actions;
(a) purchase or redeem any equity securities, pay or declare a
dividend, whether in cash or in property, or otherwise
authorize any distribution to shareholders;
(b) purchase equity securities or loan to or invest in any
business entity;
(c) incur debt in any twelve month period in excess of $250,000.00
(d) sell or otherwise transfer securities of any subsidiary to any
third party;
(e) make any fundamental change in the operations of the Company
as now conducted or as proposed to be conducted
(f) make any change in the Articles of Incorporation or Bylaws of
the Company.
(g) adopt or amend the Corporation's Articles of Incorporation or
Bylaws
(h) elect or remove officers and directors of the Company.
(i) issue any stock of any class of the Company.
(1) approve any change in the number or classification of
authorized shares of the Company.
(k) Approve any merger or consolidation of the Company with or
into another corporation or other entity, or exchange of
shares with another corporation, whether or not shareholder
approval is required under the Act.
(l) Approve any action which would result in shares of any class
to the Company's securities being made subiect to a public
offering.
(m) Approve any sale of any patent or intellectual property right
owned by the Company.
(n) Approve the sale, 1ease, exchange or other disposition of all
or substantially all of the property of the Company.
Iron Will Group Ltd. American Resources & Development Company
By: s/s Robert Speigeelman By: s/s Will Papenfuss, President
Dated: October 8, 1998 Dated: October 8, 1998
U.S. Polo Association, Ltd.
s/s Will Papenfuss, President
Dated: October 8, 1998
The following exhibits to the Secured Promissory Note with Jordache Enterprises,
Inc. are omitted and will be provided to the Commission upon request.
Exhibit 1 Stock Pledge Agreement dated October 8, 1998 between ARDCO and
Jordache.
SECURED PROMISSORY NOTE
THIS PROMISSORY NOTE (the "Note") is made as of the 8th day of October, 1998, by
and between American Resources and Development Company, a Utah corporation whose
address is 3855 South 500 West, Suite # R, Salt Lake City, Utah 84115
(hereinafter referred to as "Borrower") and Jordache Enterprises, Inc.,
(hereinafter referred to as "Lender'1), whose address is 1411 Broadway, 33rd
floor,New York, NY 10018.
RECITALS
For value received the undersigned, American Resources and Development
Company, promises to pay to the order of the Lender, Jordache Enterprises, Inc.
at the aforementioned address, or such other place that may be designated in
writing, by the Holder of this Note, the principal sum of ONE MILLION DOLLARS
($1,000,000.00 U.S.) with interest as set forth herein.
AGREEMENT
SECTION 1: LOAN TERMS
1.1 Note Advances
Lender agrees to loan (the "Loan") to Borrower the sum of One Million
and no/100 Dollars ($1,000,000 U.S.) and Borrower promises to repay,
according to the following schedule:
Date of Advance Amount of Advance
October 8, 1998 $1,000,000
1.2 Note Term
The Note shall have a term of four (4) years, commencing October 8,
1998 and shall mature and become due on October 8, 2002.
1.3 Interest and Payment Considerations
Interest shall accrue on all sums outstanding at an annual rate equal
to the prime rate as published by the wall street journal from time to
time plus one percent (1 %) . Interest shall be paid to Lender,
quarterly, on January 8, April 8, July 8 and October 8 until all sums
outstanding are paid in full, Borrower shall make payments of principal
in the amount of $250,000 in principal on October 8, 1999, October 8,
2000, October 8, 2001 and October 8, 2002. All payments received under
this Note shall be made in the form of lawful money of the United
States of America. This Note may be prepaid by Borrower, in whole or in
part, without premium or penalty. All prepayments shall first be
applied to accrued interest and then to the unpaid principal balance
hereof.
1.4 Borrower's Pledge
The advance of money pursuant to this Note shall be secured by a stock
pledge agreement (the "Stock Pledge") between Borrower and Lender dated
as of the date hereof pursuant to which Borrower pledges to Lender its
shares of stock in U.S. Polo Association, Ltd. U.S. Polo Association,
Ltd., owns the. rights, title and interest in the master license rights
to the U.S. Polo Association trademarks as evidenced by the Master
License Agreement, dated February 14, 1997, between Quade, Inc. and
USPA Properties, Inc. This Master License Agreement was transferred to
U.S. Polo Association, Ltd., on October 8, 1998. This stock pledge is
documented in Exhibit A to this Note.
SECTION 2: DEFAULT AND LENDER'S RIGHTS
Borrower will be in default if any of the following happens: (a) Borrower
fails to make any payment when due; (b) Borrower breaks any promise Borrower has
made to Lender hereunder, or the Stock Pledge or otherwise defaults under any
term or provision of this Note or the Stock Pledge; or Borrower fails to perform
promptly at the time and strictly in the manner provided in this Note or the
Stock Pledge; (c) any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material respect;
(d) Borrower becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws; or (f) any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
In the event of default, Lender may, at its option, take any or all of the
following actions: (a) declare the entire unpaid principal balance due under
this Note, together with all accrued unpaid interest, fees and costs thereon,
immediately due and payable, without notice; (1)) declare any other indebtedness
owed from Borrower to Lender immediately due and payable, without notice;
Further, the Lender may hire or pay someone else to help collect this Note if
Borrower does not pay, which sums Borrower will reimburse to Lender. Such
reimbursable sums include, subject only to any limits under applicable law,
Lender's reasonable attorneys' fees and legal expenses whether or not there is a
lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated postjudgment collection services.
Lender may also take any other actions allowed by law or under this Note and the
other Notes relating to the indebtedness or the Stock Pledge.
The Borrower further agrees to pay interest on any amount of principal of
interest which is not paid when due whether at maturity or otherwise until all
amounts due and owing under this Note and the Stock Pledge are paid in full,
payable on demand, at a rate per month equal at all times equal to 2% of such
amounts due and owing; provided however, that in no event shall the Late Charges
payable hereunder exceed the maximum rate permitted by applicable law. If from
any circumstances whatsoever, fulfillment of any provision of this Note, the
Stock Pledge or any other document executed in connection with the loan
evidenced by this Note at the time performance of such provision shall be due,
shall involve a transcending of the limit of validity prescribed by law which a
court competent jurisdiction may deem applicable hereto, then ipso facto, the
interest rate shall be reduced to the limit of such validity and if, from any
circumstances whatsoever, the Lender shall ever receive as interest an amount
which would exceed the highest lawful rate, the receipt of such excesses shall
be credited against the principal balance due on this Note and any other
obligations of the Borrower to which the same may lawfully be credited, and any
portion of such excess not capable of being so credited shall be related to the
Borrower.
The Borrower hereby waives presentment for payment, notice of dishonor,
protest and notice of protest. If the Borrower consists of more than one person
or party, the obligations and liabilities of each such person or party shall be
joint and several.
SECTION 3: AFFIRMATIVE COVENANTS
Borrower covenants that so long as Borrower is indebted to Lender, Borrower
will:
3.1 Perform each and every covenant contained in this Note and other loan
documents in any way relating to this Note.
3.2 Promptly inform Lender of any litigation, or of any claim or
controversy which might become the subject of litigation against
Borrower.
3.3 Promptly furnish to Lender, at Lender's request, financial information
concerning the assets, liabilities, operations and transactions of
Borrower as Lender may from time to time reasonably request.
3.4 Preserve and maintain all licenses, privileges, franchises,
certificates and the like necessary for the operation of Borrower's
business, including, but not limited to the license granted pursuant to
the Master License Agreement.
SECTION 4: SURVIVAL
The representations, warranties, covenants, Note and indemnities included or
provided for in this Note, or in any exhibit, document, certificate or other
instrument delivered pursuant to this Note, shall survive the delivery of any
instrument or document to be delivered under this Note.
SECTION 5: NOTICES
All notices, consents, waivers and other communications under this Note must be
in writing and will be deemed to have been duly given when (a) delivered by hand
(with written confirmation of receipt, ('3) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate by notice
to the other parties):
IF TO BORROWER:
American Resources and Development Company
3855 South 500 West, No. R
Salt Lake City, Utah 84115
ATTN.: Tim Papenfuss
Facsimile #: 801 - 288 - 9210
IF TO LENDER: Jordache Enterprises, Inc.,
1411 Broadway
33rd Floor
New York, New York, NY 10018
ATTENTION: Robert A. Spiegelman, Esq.
Facsimile No.212 714-6808
SECTION 6: AMENDMENTS
This Note may not be altered or amended, nor any rights hereunder be waived,
except by an instrument in writing executed by both parties hereto. No waiver of
any term, provision or condition of this Note, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, provision or condition or as a waiver or any other term, provision or
condition of this Note.
SECTION 7: HEADINGS
The headings of the sections of this Note are for guidance and convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions of this Note.
SECTION 8: GOVERNING LAW
This Note and the transaction described herein shall be construed exclusively in
accordance with, and governed by, the substantive laws of the State of New York.
Both parties agree that any action to enforce this Note must be brought within
the State of New York and both parties consent to jurisdiction and venue in the
County of New York and the State of New York.
SECTION 9: COSTS AND LEGAL FEES
If any party is required to take any action to enforce its rights under this
Note as a result of a breach of another party, whether or not a suit or other
legal action is initiated, the breaching party shall reimburse and pay the
non-breaching party promptly upon demand all fees and costs incurred by the
non-breaching party in connection with such action, including, without
limitation, reasonable attorneys fees and court costs.
SECTION 10: SEVERABILITY
Any provision of this Note that is prohibited or unenforceable in any
jurisdiction shall be ineffective in such jurisdiction only to the extent of
such prohibition or unenforceability without affecting the remaining provisions
of this Note.
SECTION 11: PARTIES IN INTEREST
This Note shall be binding upon, and shall inure to the benefit of, the parties
hereto and, except as otherwise prohibited, their respective successors and
assigns. Nothing contained in this Note, express or implied, is intended to
confer upon any other person or entity any benefits, rights or remedies.
SECTION 12: ENTIRE AGREEMENT
This note constitutes the final understanding between the lender and the
borrower and may not be contradicted by evidence of any alleged oral agreements.
SECTION 13: ASIGNMENT
Borrower may not assign this Note to any party without Lender's prior written
consent, which consent may be withheld for any or no reason. Any purported
assignment by Borrower shall be deemed null and void and of no force or effect.
Lender may assign this Note without the Consent of Borrower.
IN WITNESS WHEREOF, this Note has been duly executed as of the day and year
first above written.
LENDER
/s/ Robert Spiegeleman Assistant Secretary
(Signature of Officer with Lender) (Title of person signing)
BORROWER
/s/ Robert Mintz Vice President
(Signature of Officer with Lender) (Title of person signing)
STOCK REDEMPTION AGREEMENT
AGREEMENT, made this 4th day of May 1999, between IRON WILL GROUP LIMITED,
a corporation organized and existing under the laws of British Virgin Islands
("Iron Will") with an address at: Room 605A-607A 6/F Empire Centre, Tsim She
Tsui East, Kowloon, Hong Kong, and AMERICAN RESOURCES AND DEVELOPMENT COMPANY, a
corporation organized and existing under the laws of the State of Utah,
("ARDCO") with an address at: 3855 South 500 West, Suite R, Salt Lake City, Utah
84115 and U,S. POLO ASSOCIATION LTD., a British Virgin Island corporation,
('USPA'), with its principal place of business at:
RECITALS
WHEREAS, Iron Will and ARDCO each own 10,000 Shares of USPA Stock which
together constitute USPA's issued and outstanding Shares of Capital Stock And;
WHEREAS, Iron Will, or its designee desires to purchase all of the Shares
of USPA owned by ARDCO upon the terms and conditions hereinafter set forth.
In consideration of the mutual covenants and agreements herein contained,
the parties agree as follows:
1. Purchase Price: ARDCO, hereby agrees to sell and deliver to Iron Will
and Iron Will, or its designee hereby agrees to purchase from ARDCO, its 10,000
Shams (the "Shams") of USPA represented by Certificate Number One dated October
8, 1998 for the sum of $1,300,000 on the terms and conditions heroin set forth..
2. Manner of Payment: Iron Will shall pay ARDCO for the Shams as follows;
(a) the sum of $100,000 shall be paid upon the execution of the Agreement, said
payment shall be non-refundable as set forth herein.
(b) the sum of $1,200,000 shall be paid at Closing, which
shaft be held thirty (30) days after the date of this Agreement' or if such day
is not a business day on the next following business day. Iron Will shall have
the option to extend the date of Closing an additional fifteen (15) days
provided Iron Will shall pay interest at the rate of prime plus 1/2% per annum
during the additional fifteen (15) day period on the balance due to ARDCO.
(c) closing shall be held at the Office of Robert A.
Spiegelman, 1411 Broadway, New York, NY 10018.
(d) payment shall be made by delivery of the Secured
Promissory Note dated October 8, 1998 between ARDCO and Jordache Enterprises.
Inc. marked "Cancelled" and payment in immediately available funds of $200,000
less interest due to date of closing.
3. Surrender of Certificates: On the date of Closing, ARDCO shall
surrender to Iron Will the Certificates representing the Shares in USPA. ARDCO
shall duly endorse Certificates to Iron Will
4. Resignation of Shareholder: At Closing ARDCO shall deliver the
resignations of Robert Mintz and Will Papenfuss as Officers and Directors of the
Corporation.
5. Representations of ARDCO: ARDCO hereby represents that the following
material facts are true:
(a) ARDCO is a duly organized, validly existing Corporation in
good standing, formed under the laws of Utah and is qualified to do business in
every jurisdiction appropriate to the nature of its activities and properties.
(b) ARDCO has full power and authority to execute this
Agreement and deliver all of the Certificates and perform all obligations
.hereunder. This executed Agreement constitutes a legal, valid and binding
obligation of ARDCO, enforceable in accordance with its terms.
(c) The execution ad delivery of the Certificates and the
consummation of the transaction contemplated herein will not (i) violate any
constitutional provision, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which ARDCO is subject (i~ conflict With, result
in breach of, constitute default under, result in acceleration, of, or create in
any party, the right to accelerate, terminate, modify or cancel or require any
notice under any note, indenture, mortgage, deed of trust, agreement, contract,
lease, license, instrument or other arrangement to which ARDCO is a party.
(d) ARDCO is not required to give notice to, make any filing
with or obtain any authorization, consent or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
(e) The Shams are wholly owned by ARDCO and have not been
sold, exchanged, pledged, forfeited, or otherwise transferred or hypothecated.
ARDCO is the legal and beneficial owner of the shares, free and clear of all
liens, encumbrances, equities and claims whatsoever, except for a Pledge
Agreement dated October 8, 1998 with Jordache Enterprises, Inc., which shall be
discharged and satisfied by payment of ARDCO at Closing.
(f) ARDCO shall obtain the written consent of USPA Properties
Inc., to complete this transaction.
(g) Between the date of the Agreement and Closing, ARDCO
represents that it will operate the business (U.S. Polo Association Ltd.) in the
ordinary course consistent with past practice.
(h) ARDCO Shall deliver at Closing a Balance Sheet and
Statement of Operations of U.S. Polo Association Ltd., certified by Robert Mintz
end Will Papenfuss as officers and directors that said Balance sheet and
Statement of Operations am a true and correct statement of the condition of U.S.
Polo Association Ltd., as of the date of Closing. '
(i) ARDCO shall turn over all books, records and bank accounts
of U.S. Polo Association Ltd., at the time of Closing.
6. Representations by Iron Will: Iron Will hereby represents that the
following material facts are true:
(a) Iron Will is a duly organized, validly existing
corporation in good standing, formed under the laws of the British Virgin
Islands and is qualified to do business in every jurisdiction appropriate to the
nature of its activities and properties.
(b) Iron Will has full power and authority to execute this
Agreement and all obligations hereunder. This executed Agreement constitutes a
legal, valid and binding obligation of the iron Will enforceable in accordance
with its terms.
(c) The redemption of the Shares and the consummation of the
transaction o contemplated herein will not (i) violate any constitutional
provision, statute, regulation,rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any government, governmental agency or
court to which Iron Will is subject, or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, or create in any
party the fight to accelerate, terminate, modify or cancel or require any notice
under any note, indenture, mortgage, deed of trust, agreement, contract, lease,
license, instrument or other arrangement to which Iron Will is subject.
(d) Iron Will is not required to give notice to, make any
filing with, or obtain any authorization, consent or approval of any government
or governmental agency in order to consummate the transaction contemplated by
this Agreement.
(e) There is no pending or overtly threatened action, suit,
proceeding or investigation against iron Will in any judicial form or before any
administrative body, commission or governmental department, the resolution of
which could reasonably be . expected to have a materially adverse effect on the
validity enforceability of this Agreement.
7. Liquidated Damages: If Iron Will defaults under this Agreement,
ARDCO as its sole remedy shall be entitled to declare this Agreement null and
void and to retain the $100,000 deposit paid hereunder as liquidated damages,
where upon the Agreement shall terminate and neither party shall have further
claim against the other. If ARDCO defaults under the Agreement, Iron Will, as
its sole remedy, will be entitled to declare the Agreement null and void and
obtain the refund of its $100,000 deposit hereunder.
8. Miscellaneous: This Agreement may only be modified in writing signed
by both parties.
9. Entire Agreement: This Agreement constitutes the, entire agreement,
between the parties and supersedes any prior agreements or understandings
between them with respect to the subject matter hereof.
10. Headings: All section headings in this Agreement are for
convenience of reference only and are not intended to qualify the meaning of any
section.
11. Separability Provisions: if the operation of any provision of this
Agreement is in contravention of existing law, then only such offending
provision shall be void, and the remainder of this Agreement shall remain valid.
12. Binding Agreement: This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their successors and assigns, except
as otherwise provided herein.
13. Counterparts: This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding on all
the parties hereto. Any counterpart of this Agreement, which has attached to it
separate signature pages which together contain the signature of all parties or
is executed by an attorney-in-fact on behalf of some or all of the parties,
shall for all purposes be deemed a fully executed instrument.
14. Arbitration Clause: Any dispute or controversy arising out of or in
connection with this Agreement, or the breach thereof, shall be determined and
settled by arbitration in New York City in accordance with the rules of the
American Arbitration Association. Any award rendered therein shall be final and
binding on the parties and judgment may be entered thereon in any court of
competent jurisdiction.
15. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. Jurisdiction: The parties stipulate that the jurisdiction and venue
for any disputes pertaining to the subject matter of this Agreement shall be in
the State of New York.
17. Notices: Notices by either party shall be sent to the other party
to the address listed on page one of this Agreement.
II WITNESS WHEREOF, the parties have executed this Agreement as of the
date written above,
IRON WILL GROUP LIMITED
/s/ Robert Spiegelman
U.S. POLO ASSOClATION LTD.
/s/ Robert Mintz
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
By: /s/ Will Papenfuss
PROMISSORY NOTE
322,000.00
March 31st, 1999
FOR VALUE RECEIVED, American Resources and Development Company, a Utah
corporation, ("Debtor") promise to pay to the order of George H. Badger,
Trustee, at 550 Northmont Way, Salt Lake City, UT 84103 ("Payee"), or at such
other place as Payee shall have designated to Debtor in writing, the principal
sum of Three Hundred Twenty Two Dollars ($322,000), or so much as may be
outstanding, together with interest on the unpaid principal balance at the rate
of thirteen and one half percent (13.5%) per annum from the date hereof until
paid in full. Sums due under this Note shall be payable as follows:
Debtor shall pay Five Thousand Dollars ($5,000) on the first day of
each month commencing May 1st, 1999, and continuing on file first of each month
thereafter to and including September 1st, 2000. The principal, and any
remaining interest shall be paid in full on or before September 15th, 2000. All
pavments will be credited first to interest and then to principal.
Debtor will pay an additional Thirty Dollars ($30) per day for each day
any payment is delinquent. In addition to the late payment penalty, Payee may,
at its option, and upon default of Debtor, take any or all of the following
actions; (a) declare the entire unpaid principal balance due under this Note,
together with all accrued unpaid interest, fees and costs thereon, immediately
due and payable, without notice; (b) sell all remaining shares of Golf
Communities of America stock that have been pledged to secure this note; Payee
may hire or pay someone else to help collect this Note if Debtor does not pay,
which sums Debtor will reimburse to Payee. Such reimbursable sums include,
subject to any limits under applicable law, Payee's reasonable attorney's fees
and legal expenses whether or not there is a lawsuit, including reasonable
attorney's fees and legal expenses for bankruptcy proceedings, (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Payee may also take any other
actions allowed by law or under this Note and the other agreements relating to
the indebtedness.
All payments received under this Note shall be made in the form of
lawful money of the United States of America.
This Note may be prepaid by Debtor, in whole or in part, without
premium or penalty. All prepayments shall first be applied to accrued interest
and then to the unpaid principal balance hereof.
Debtor will be in default if any of the following happens: (a) Debtor
fails to make any payment when due and the sum of all payments made by Debtor
and all proceeds from the sale of Golf Communities of America stock is less than
the sum of all payments owed under the terms of this note; provided however,
Debtor will not be excused from making the Thirty Dollars ($30.00) per day
penalty payment if the $5,000 monthly payment is not received on or before the
fast of each month; (b) Debtor break any promise Debtor have made to Payee, or
Debtor fails to perform promptly at the time and strictly in the manner provided
in this Note or any agreement related to this Note, or in any other agreement or
loan Debtor have with Payee, (c) any representation or statement made or
furnished to Payee by Debtor or on Debtor's behalf is false or misleading in any
material respect; (d) Debtor becomes insolvent, a receiver is appointed for any
part of either Debtor's property, Debtor makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Debtor or against either
Debtor and/or its subsidiaries, under any bankruptcy or insolvency laws; (e) any
creditor tries to take any of either Debtor's and/or its subsidiaries property
on or in which Payee has a lien or security interest. Upon default, Payee shall
have all remedies available to it at law or in equity.
If Payee retains an attorney for collection of this Note, or if any
suit or proceeding is brought for the recovery or protection of all or any part
of the indebtedness evidenced by this Note, then Debtor agrees to pay on demand
all costs and expenses of the suit or proceeding, or any appeal thereof,
incurred by Payee, including, without limitation, reasonable attorney's fees.
Debtor waives presentment, notice of dishonor, notice of acceleration
and protest, and assents to any extension of time with respect to any payment or
other fight under this Note shall operate as a waiver of any other payment or
fight.
This Note shall be governed by and construed pursuant to the laws of
the State of Utah (excluding conflicts of law provisions). Debtor agrees that
the courts of the State of Utah shall have exclusive jurisdiction over any
disputes relating to this Note. Debtor consents to venue in the courts of the
State of Utah.
This note is secured by 286,500 shares of Common Stock of Golf
Communities of America, Inc. (CLUB), 231,500 which are now held by Payee, and
75,000 additional shares which are to be delivered concurrent with the signing
of this note. Debtor agrees that Payee may sell said shares at his discretion;
provided however, Payee shall send Debtor a copy of each brokerage confirmation
of all shares sold. All moneys received from the sale of said shares hall be
credited first to interest and then to principal. The Five Thousand Dollar
($5,000) monthly payments are to be made each month regardless of the number of
shares that may, or may not be sold. All shares remaining after payment in full
of this note are to be returned to Debtor.
American Resources & Development Company
/s/Will Papenfuss, President
/s/Tim Papenfuss, Secretary/Treasurer
PROMISSORY NOTE
$731,188.60
March 31st, 1999
FOR VALUE RECEIVED, American Resources and Development Company, a Utah
corporation, ("Debtor") promises to pay to the order of Miltex Industries, Ltd,
20 Senebier, 1211 Geneva 3 Switzerland ("Payee"), or at such other place as
Payee shall have designated to Debtor in writing, the principal sum of Seven
Hundred and Thirty One Thousand One Hundred Eighty Eight U.S. Dollars and sixty
cents ($731,188.60) or so much as may be Outstanding, together with interest on
the unpaid principal balance at the rate of fifteen percent (15%) per annum
commencing June 11, 1999, until paid in full. Sums due under this Note shall be
payable as follows:
Debtor shall pay Eleven Thousand Dollars ($11,000) U.S. Dollars, on the
tenth day of each month commencing June 10th, 1999, and continuing on the tenth
of each month thereafter to and including September 10th, 2000, at which time
the principal, and any remaining interest shall be paid in full. All payments
will be credited first to interest and then to principal.
Debtor will pay an additional Sixty Dollars ($60) per day for each day
any monthly payment is delinquent. In addition to the late payment penalty,
Payee may, at its option, and upon default of Debtor, take any or all of the
following actions; (a) declare the entire unpaid principal balance due under
this Note, together with all accrued unpaid interest, fees and costs thereon,
immediately due and payable, without notice; (b) sell into the market all
remaining shares of Golf Communities of America (CLUB) and American Resources
and Development Company (ADCO); and, sell pursuant to the terms of the attached
Pledge Agreement the shares of Printworks, Inc., and/or Fan-Tastic, Inc.; all of
which shares have been pledged to secure this note; Payee may hire or pay
someone else to help collect this Note if Debtor does not pay, which sums Debtor
will reimburse to Payee. Such reimbursable sums include, subject to any limits
under applicable law, Payee's reasonable attorney's fees and legal expenses
whether or not there is a lawsuit, including reasonable attorney's fees and
legal expenses for bankruptcy proceedings, (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Payee may also take any other actions allowed
by law or under this Note and the other agreements relating to the indebtedness.
All payments received under this Note shall be made in the form of
lawful money of the United States of America.
Payments are to be remitted by wire transfer to:
UBS AG ( Union Bank of Switzerland)
P.O. Box 120300
Stamford, CT 06912-0300 ABA 026 00 79 93
CHIP ABA 799
FW026007993
Code 10 UBS AG
For the account Nbr 101-WA206626-000 of SCS Bank Alliance, Geneva, Switzerland.
In favor of account 5399, Miltex Industries, Ltd.
This Note may be prepaid by Debtor, in whole or in part, without
premium or penalty. All prepayments shall first be applied to accrued interest
and then to the unpaid principal balance hereof.
Debtor will be in default if any of the following happens: (a) Debtor
fails to make any payment when due and the sum of all payments made by Debtor
and all proceeds from the sale of stock pledged as collateral, is less than the
sum of all payments owed under the terms of this note; provided however, Debtor
will not be excused from making the Sixty Dollars ($60.00) per day penalty
payment if the $11,000 monthly payment is not received on or before the tenth of
each month; (b) Debtor breaks any promise Debtor has made to Payee, or Debtor
fails to perform promptly at the time and strictly in the manner provided in
this Note or any agreement related to this Note, or in any other agreement or
loan Debtor has with Payee, (c)any representation or statement made or furnished
to Payee by Debtor or on Debtor's behalf is false or misleading in any material
respect; (d) The Debtor becomes insolvent, a receiver is appointed for any part
of any Debtor's property, or the Debtor makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Debtor or against the Debtor
under any bankruptcy or insolvency laws; (e) any creditor tries to take any of
the Debtor's property on or in which Payee has a lien or security interest. Upon
default, Payee shall have all remedies available to it at law or in equity.
Notwithstanding the provisions of default as set forth above, Debtor will have
15 days following date of 'notice of default', sent either by fax or mail to
cure said default.
If Payee retains an attorney for collection of this Note, or if any
suit or proceeding is brought for the recovery or protection of all or any part
of the indebtedness evidenced by this Note, then Debtor agrees to pay on demand
all costs and expenses of the suit or proceeding, or any appeal thereof,
incurred by Payee, including, without limitation, reasonable attorney's fees.
Debtor waives presentment, notice of dishonor, notice of acceleration
and protest, and assents to any extension of time with respect to any payment or
other right under this Note shall operate as a waiver of any other payment or
right.
This Note shall be governed by and construed pursuant to the laws of
the State of Utah (excluding conflicts of law provisions). Debtor agrees that
the courts of the State of Utah shall have exclusive jurisdiction over any
disputes relating to this Note. Debtor consents to venue in the courts of the
State of Utah.
This note is secured by 700,000 shares of Common Stock of Golf
Communities of America, Inc. (CLUB), 500,000 which are now held by Payee, and
200,000 additional shares which are to be delivered concurrent with the signing
of this note; 600,000 shares of Common Stock of American Resources and
Development Company (ADCO), which shares Payee is now holding; together with all
of the stock Debtor owns in Fan-Tastic, Inc. (100%) and Printworks, Inc., an
Oregon Corporation (approximately 85%), which shares are to be delivered to
Mitchell Barker, attorney for Payee, and which shares are to be held by him
pursuant to the Stock Pledge Agreement attached hereto.
Debtors agree that Payee may sell any or all of said CLUB shares at its
discretion provided however, Payee shall send Debtors a copy of each brokerage
confirmation of all shares sold. So long as Debtor is not in default on this
note, sale of ARDCO stock shall require the prior written consent of Debtor.
All moneys received from the sale of said shares shall be credited
first to interest and then to principal. The Eleven Thousand Dollar ($11,000)
monthly payments are to be made each month regardless of the number of shares
that may, or may not be sold.
As additional consideration for making this loan, Payee is hereby given
the fight, to purchase from American Resources and Development Company (ARDCO)
up to Three Hundred Forty Thousand shares of ARDCO common stock for $1.00 per
share. This fight will terminate when the entire balance of this note has been
paid in full.
Parties acknowledge that this note represents a re-writing of the debt
represented by the Promissory Notes dated July 7th, 1998 ($340,000) and July
1st, 1998 ($350,000).
American Resources & Development Company
s/sWill Papenfuss, President
Attest:
s/sTim Papenfuss, Secretary/Treasurer
ACCOUNTS RECEIVABLE FINANCING AGREEMENT
Alliance Financial Capital, Inc. (hereby "AFC"), a California
corporation, having its offices at 700 Airport Boulevard, Burlingame, California
94010 and the undersigned SELLER (hereafter "SELLER") hereby as follows:
A. On a transaction-by-transaction basis and at each party's sole and absolute
discretion, AFC hereby agrees to buy SELLER'S accounts receivable (hereafter
"accounts") on a discounted basis, including, without limitation, full power to
collect, compromise, sue for, assign, or in any manner enforce collection
thereof, in the name of AFC, or otherwise. Each transaction for said purchase
and sale of accounts shall be on a daily batch basis, which is defined as all
original invoices submitted to AFC by SELLER on a particular day. AFC shall
purchase said accounts, subject to the foregoing, as a group (hereafter 'BULK")
and each of said Bulks shall be treated as a separate transaction on AFC's books
and records, which shall be accounted for as between AFC and SELLER separately
and independently from all other such transactions entered into between AFC and
SELLER. Each of said transactions shall be supported by a Bulk Assignment
Schedule, an exemplar of which is attached hereto and made a part hereof by this
reference as Exhibit "A", executed by SELLER, setting forth the transaction
amount, which is defined as the total gross face amount of all invoice(s)
included in each transaction, the consideration (hereafter 'ADVANCE') paid by
AFC therefor, the contingency reserve, and the discount, therefor. Each of said
Bulk Assignment Schedules shall be deemed a separate sale and assignment of
accounts, regardless of the number of invoices listed therein, and shall
incorporate the terms, conditions and provisions of this agreement.
B. AFC shall advance to SELLER toward the purchase of said accounts, the
following percentage of each BULK, less sales tax, so long as SELLER is not in
breach of this agreement: 85 % Account Credit Limit $1,000,000.00
C. SELLER makes the following representations, warranties and covenants with
respect to each such transaction which may be entered into between AFC ami
SELLER hereafter:
1. SELLER shall be the sole and absolute owner of said account(s), and
shall have the full legal power to make said sales, assignments and transfers.
2. Said account(s) shall be presently due and owing to SELLER with
terms not to exceed net 30 days, the amount(s) thereof shall not bc in dispute,
and the payment of said account(s) shall not be in disputed or contingent upon
the fulfillment of this, or any other contract(s), past or future.
3. There shall not be any set-offs or counterclaims against said
account(s), and said account(s) shall not have been previously assigned or
encumbered by SELLER in any manner whatsoever.
4. AFC shall have the right to reduce contingencies, (the total of each
Bulk, less ADVANCE) and to apply contingencies and/or rebates, as defined
hereafter, from any transaction(s) to any other transactions(s) between the
parties by the amount of any dispute(s), discount(s), return(s), defense(s), or
offset(s) taken by any account debtor(s). If contingencies and/or rebates are
inadequate AFC shall have the right to deduct said amount(s) from any other
billing rights purchased by AFC from SELLER to demand payment of any other
accounts receivable of SELLER, whether or not purchased by AFC, and/or demand
reimbursement from SELLER.
5. Said account(s) shall be the property of and shall be collected by
AFC, but if for any reason any amount(s) thereof should be paid to SELLER by any
of said account debtor's, SELLER shall immediately deliver all such checks or
other instruments in kind to AFC.
6. AFC shall have the power of endorsement for any purpose on any and
all checks, drafts, money orders, or any other instruments in AFC's possession
and payable to SELLER, SELLER hereby appoints AFC its agent for said purpose.
7. SELLER shall promptly advise AFC, in writing, if SELLER's place of
business is changed, a new place is added or record keeping is changed.
D. A gross discount of Fifteen Percent (15.0%), less any applicable rebate
thereof( hereafter "FEE"), as described below, shall be retained by AFC from the
collection of each total transaction ammount. SELLER however shall be entitled
to a rebate, regarding each transaction, which shall be deducted from said gross
discount, if each transaction amount is paid promptly by said account debtor(s),
as follows: REBATE: .065% daily per invoice face amount. One time $500
documentation and due diligence fee. TERM: 12 months with automatic renewals.
All checks received by AFC will be credited on the actual date of
receipt. Thc collection period, regarding each specific BULK, shall be
calculated by counting thc days from the date of each ADVANCE through and
including zero(O) days after the date upon which the total monies collected from
said account debtor(s), is equal to or greater than the sum of the ADVANCE and
the net discount (gross discount less rebate). AFC shall remit to SELLER its
contingency reserve (i.e. all sums collected in excess of a sum equal to or
greater than the net discount and advance) regarding each BULK, providing SELLER
is not in default or breach of this agreement.
E. Should any of the above warranties expressed by SELLER be inaccurate, and it
becomes necessary for AFC to utilize an attorney to enforce its rights against
SELLER, SELLER agrees that such attorneys' fees shall be borne by SELLER. AFC
further agrees, subject to the foregoing, that upon collection of each
transaction amount, regarding each specific BULK, in a total sum equivalent to
or greater than the ADVANCE and net discount (fee), AFC shall pay to SELLER all
sums collected in excess of said sum (i.e. SELLER's contingencies and/or
rebates) when said excess sums are recieved by AFC.
F. AFC shall have the right in its sole discretion after 90 days from the
date(s) of ary ADVANCE or if any of the representations, warranties or covenants
are inaccurate and reasonable notice to SELLER to demand payment from SELLER of
any unpaid invoices sold, assigned and transferred to AFC by SELLER pursuant to
the terms and conditions hereof or to proceed against SELLER or against any
account debtor(s) for the collection or offset of any unpaid invoices or amount
due. As security for thc payment of AFC's fees and other charges and for thc
payment of advances made by AFC to or on behalf of SELLER, SELLER hereby grants
a security interest in and to the following described property, whether now or
hereafter owned or existing, leased, consigned by or to, acquired by Debtor and
regardless of where located: (1) All accounts, contract rights, chattel paper,
general intangibles, instruments, documents, letter of credit, bankers
acceptances, drafts, claims, causes of action, rights in and under insurance
policies, rights to tax refunds and inventory and all proceeds of the foregoing,
including Debtor's rights to any returned or rejected goods: (2) All Debtor's
rights to monies, refunds, and other amounts, due from whatever source,
including Debtor's right of offset and recoupment; (3) All goods, including but
not limited to equipment, farm products, machinery, furniture, furnishings,
fixtures, tools, supplies, and motor vehicles, and (4) All proceeds of the
foregoing, whether due to voluntary or involuntary disposition, including
insurance proceeds and reserving the right to file and prosecute lawsuits,
pertaining thereto, in SELLER's or AFC's name or otherwise. (5) All books and
records relating to the same. (6) Seller irrevocably appoints Buyer and any of
Buyer's officers as Seller's attorney to execute such financing statements,
continuations and amendments and to take such other actions as Buyer deem
appropriate to perfect and continue the perfection of the security interest
granted hereunder.
G. AFC warrants that it will use its best efforts to collect thc amounts due
under this Agreement, and SELLER agrees that AFC may, in its sole discretion,
settle, compromise, or otherwise accept payment of less than the full amount, if
in its judgment such action is necessary to effect collection. SELLER agrees
that the amount of such reduction shall be applied as a reduction of the
contingency reserve.
H. If it should become necessary for AFC to enforce its rights against the
account debtor(s) SELLER agrees that AFC may apply a maximum sum equal to the
total unpaid contingency reserve of SELLER, to compensate AFC for its attorney's
fees therefore. AFC may correct patent errors herein or in any BULK Assignment
Schedule executed by SELLER and fill in blanks. Any provision hereof contrary
to, prohibited by, or invalid under applicable laws or regulations shall be
inapplicable and deemed omitted herefrom, but shall not invalidate thc remaining
provisions hereof. Thc validity, interpretation, enforcement and effect of this
agreement Shall be governed by the laws of the State of California, and SELLER
hereby consents to the exclusive jurisdiction of all courts ill tile County of
San Malco, in thc State of California. SELLER acknowledges receipt of a true
copy and waives acceptance hereof, if thc SELLER is a corporation, this
agreement is executed pursuant to the authority of its Board of Directors. AFC
and SELLER as used in this agreement include the heirs, executors, or
administrators, successors or assigns of those parties. The obligations of
SELLER and guarantors herein shall be joint and several. AFC is hereby
authorized to obtain periodic TRW credit reports concerning all signatories
herof. AFC may inspect and audit SELLER's and guarantors books and records
during normal business hours, thc actual cost of which shall be reimbursed by
SELLER to AFC.
I. SELLER agrees to reimburse AFC for any of its out-of-pocket incidental costs
and expenses, including but not limited to, wire transfers of funds, delivery
expenses, and postage.
J. This agreement contains the entire agreement between the parties with respect
to thc contemplated transactions, and it may not be modified or any of its terms
waived, except by an instrument in writing signed by the party or parties to be
charged, and no collateral representations, whether oral or written, shall
survive execution of this agreement.
VALIDITY INDEMNIFICATION
Re: PRINT WORKS, INC. dba Pacific Print Works ("SELLER") and Alliance Financial
Capital, Inc. Accounts Receivable Factoring Agreement and related documcnts of
even date.
The undersigned are the corporate officers of PRINT WORKS, INC. dba Pacific
Print Works and in order to induce Alliance Financial Financial Capital, Inc. to
extend factoring accommodations to the "SELLER", pursuant to the Agreements with
the "Seller", the undersigned hereby warrants, represents and promises to
Alliance Financial Capital, Inc. as follows: The undersigned acknowledges and
agrees that "Seller" has made the following representations, warranties and
promises to Alliance Financial Capital, Inc.:
1. All "Seller" accounts which have been or will be repotted to Alliance
Financial Capital, Inc. by or on behalf of the "Seller" under the Agreements and
in which Alliance Financial Capital, Inc. holds a security interest
("Accounts"), whether such reports are in the form of agings, invoices,
transmittals, shipping documents, collateral reports or financial statements,
are genuine and in all respects what the purport to be, represent bona fide
obligations of "Seller's" customers arising out of the sale and completed
delivery of merchandise and or services sold by the "Seller" (the Sold
Goods/Servoces") in the ordinary course of its business and in accordance with
and in full and complete performance of customer's (each, and "Account Debtor")
order therefore.
2. All original checks, drafts, notes, letters of credit, acceptances and other
proceeds of the Accounts, received by the "Seller", will be held in trust for
Alliance Financial Capital, Inc. and will immediately be forwarded to Alliance
Financial Capital, Inc. upon receipt, in kind, in accordance with the terms of
the Agreements.
3. None of the Accounts are or will be the subject of any offsets, defenses or
counterclaims of any nature whatsoever, and "Seller" will not in any way impede
or interfere with the normal collections and payment of the Accounts.
4. "Seller" is presently solvent. "Solvent" means "Seller's" assets exceed its
liabilities and "Seller" is able to pay its debts as they come due.
5. The Sold Goods/Services are and will be tap up to point of sales, the sole
and absolute property of the "Seller", and the Accounts and Sold Goods/Services
will be free and clear of all liens and security interests, except the security
interest of "Seller".
6. The due dates of the Accounts will be as reported to Alliance Financial
Capital, Inc. by or on behalf of the "Seller".
7. "Seller" will promptly report to Alliance Financial Capital, Inc. all
disputes, rejections, returns and resales of Sold Goods/Services and all credits
allowed by the "Seller" upon all Accounts.
8. All reports which Alliance Financial Capital, Inc. receives from the
"Seller", including, but not limited to those concerning its Accounts and its
inventory, will be true and accurate except for minor inadvertent errors.
9. "Seller" will not sell its inventory except in the ordinary course of
business.
10. "Seller" understands and acknowledges that in the event a bankruptcy
petition is filed by or against "Seller", "Seller" cannot sell to Alliance
Financial Capital, Inc. any receivables without first obtaining bankruptcy court
approval. "Seller" agrees to immediately notify Alliance Financial Capital, Inc.
if "Seller" files or has filed against it any petition for relief under
bankruptcy laws. "Seller" agrees it will not sell any receivables or accept any
advance front Alliance Financial Capital, Inc. after Seller becomes subject to
any bankruptcy law without first having obtained bankruptcy court approval on
terms satisfactory with Purchaser. The undersigned hereby indemnifies Alliance
Financial Capital, Inc. and holds Alliance Financial Capital, Inc. harmless,
(continuously and irrevocable for so long as the "Seller" is indebted to
Alliance Financial Capital, Inc.), from any direct, indirect, or consequential
damage or loss including any costs (including reasonable attorney's fees and
expenses) incurred by Alliance Financial Capital, Inc. in relation to such
damage or loss which Alliance Financial Capital, Inc. may sustain as a result of
the breach of any of the above representations, warranties or promises or of
Alliance Financial Capital Inc.'s reliance (whether or not such reliance was
reasonable) upon any misstatement ( whether or not intentional), fraud, deceit,
or criminal act on the part of any officer, employee, or agent of the "Seller".
The undersigned also agrees to reimburse Alliance Financial Capital, Inc. for
any costs (including reasonable attorney's fees and expenses) incurred by
Alliance Financial Capital, Inc. in the enforcement of this Validity
Indemnification. All such sums will be paid by the undersigned to Alliance
Financial Capital, Inc. on demand. 11. Seller agrees that in the event an
account becomes more than 90 days past due from the date of assignment to AFC,
Seller shall remunerate AFC with additional verified invoices or financial
reimbursement. Interest on the amount paid Seller shall otherwise accrue from
said time, at the rate of one and one half (1 &l/2) of thc monthly discount
rate.
Nothing herein contained shall be in any way impaired or affected by any change
in or amendment of any of the Agreements. This agreement shall be binding upon
the undersigned, and the undersigned's personal representative, successors, and
assigns.
IN WITNESS, WHEREOF, the parties have duly executed this ACCOUNTS RECEIVABLE
FACTORING AGREEMENT this day of ______________, 19__ at Burlingame, California.
ALLIANCE FINANCIAL CAPITAL, INC. (SELLER) PRINT WORKS, INC. dba
Pacific Print Works
By /s/ Robert McCarthy By /s/Jeffrey S. Harden
By: /s/ B. Willes Papenfuss
Printworks, Inc. (dba Pacific Print Works)
Pacific, Print and Embroidery, LLC
2035 N.E. 181st
Gresham, OR 97230
Fan-Tastic, Inc.
Fan-A-Mania, Inc.
3855 S. 500 W., Suite R
Salt Lake City, UT 84115
July 12, 1999
Shareholders and Board of Directors
American Resources and Development Company and Subsidiaries
Salt Lake City, Utah
We hereby consent to the incorporation of our audit report dated June 25, 1999
by reference in the Form 10-KSB of American Resources and Development Company
and Subsidiaries.
Jones, Jensen & Company
Salt Lake City, Utah
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of American Resources & Development Company for the year
ended March 31, 1999, as set forth in its annual report on Form 10-KSB for such
year, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 41,967
<SECURITIES> 157,500
<RECEIVABLES> 565,447
<ALLOWANCES> 48,787
<INVENTORY> 293,768
<CURRENT-ASSETS> 1,025,295
<PP&E> 1,485,285
<DEPRECIATION> 355,492
<TOTAL-ASSETS> 3,295,534
<CURRENT-LIABILITIES> 2,048,597
<BONDS> 3,552,120
0
245
<COMMON> 3,174
<OTHER-SE> (2,318,602)
<TOTAL-LIABILITY-AND-EQUITY> 3,295,534
<SALES> 3,996,739
<TOTAL-REVENUES> 3,996,739
<CGS> 3,129,642
<TOTAL-COSTS> 3,129,642
<OTHER-EXPENSES> 3,514,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 561,335
<INCOME-PRETAX> (3,208,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,208,528)
<DISCONTINUED> (252,972)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,461,500)
<EPS-BASIC> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
