UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Name of Small Business Issuer in Its Charter)
Utah 87-0401400
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2035 N.E. 181st, Portland, Oregon 84115
(Address of Principal Executive Offices) (Zip Code)
(503) 492-1500
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of August 10, 2000, the Registrant had outstanding 4,008,730 shares of Common
Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
<PAGE>
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 2000 and
March 31, 2000 3
Condensed Consolidated Statements of Operations -Three months
ended June 30, 2000 and 1999 5
Statements of Stockholders' Equity 7
Condensed Consolidated Statements of Cash Flows - Three
months ended June 30, 2000 and 1999 9
Notes to Condensed Consolidated Financial Statements - June
30, 2000 11
Item 2: Management's Discussion and Analysis or Plan of Operation 22
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
June 30, March 31,
2000 2000
------------------ -----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 349 $ 8,914
Accounts receivable, net (Note 1) 534,065 586,829
Inventory (Note 1) 209,842 232,310
Prepaid and other current assets 25,333 102,359
Marketable securities (Note 1) - 2,485
------------------ -----------------
Total Current Assets 769,589 932,897
------------------ -----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 408,572 404,322
Capital leases 1,277,899 1,277,899
------------------ -----------------
Total depreciable assets 1,686,471 1,682,221
Less: accumulated depreciation (665,328) (597,131)
------------------ -----------------
Net Property and Equipment 1,021,143 1,085,090
------------------ -----------------
OTHER ASSETS
Deposits 65,733 62,733
------------------ -----------------
Total Other Assets 65,733 62,733
------------------ -----------------
TOTAL ASSETS $ 1,856,465 $ 2,080,720
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, March 31,
2000 2000
------------------ -----------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 295,569 $ 449,011
Accrued expenses and other current liabilities 962,804 822,780
Deferred revenue 10,000 20,000
Line of credit (Note 3) 376,755 416,171
Current portion of notes payable (Note 4) 529,403 546,542
Current portion of notes payable, related parties (Note 5) 105,841 69,797
Current portion of capital lease obligations (Note 6) 301,970 302,551
------------------ -----------------
Total Current Liabilities 2,582,342 2,626,852
------------------ -----------------
LONG-TERM DEBT
Deferred revenue 10,000 20,000
Reserve for discontinued operations (Note 2) 734,988 734,988
Notes payable (Note 4) 77,947 62,981
Notes payable, related parties (Note 5) 1,241,529 1,224,049
Capital lease obligations (Note 6) 312,103 389,275
------------------ -----------------
Total Long-Term Debt 2,366,567 2,411,293
------------------ -----------------
Total Liabilities 4,948,909 5,038,145
------------------ -----------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 94,953
Series B shares, 150,000 Series C shares 245 245
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 5,483,730
shares issued and 4,008,730 outstanding. (Note 9) 4,008 3,876
Additional paid-in capital 7,709,597 7,640,045
Accumulated deficit (10,806,294) (10,601,591)
------------------ -----------------
Total Stockholders' Equity (Deficit) (3,092,444) (2,957,425)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,856,465 $ 2,080,720
================== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Three Months Ended
June 30,
--------------------------------------
2000 1999
----------------- -----------------
SALES
<S> <C> <C>
Sales $ 1,361,522 $ 1,128,088
Cost of sales 946,245 835,348
----------------- -----------------
Gross Profit 415,277 292,740
----------------- -----------------
EXPENSES
General and marketing expenses 461,892 337,330
Depreciation and amortization 3,508 9,012
----------------- -----------------
Total Expenses 465,400 346,342
----------------- -----------------
LOSS FROM OPERATIONS (50,123) (53,602)
----------------- -----------------
OTHER INCOME AND (EXPENSES)
Other income (expenses) 10,971 3,979
Interest expense (165,551) (146,105)
----------------- -----------------
Total Other Income and (Expenses) (154,580) (142,126)
----------------- -----------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (204,703) (195,728)
----------------- -----------------
DISCONTINUED OPERATIONS
Loss from operations of Quade and USPA (Note 2) - (5,871)
Gain on disposal of USPA (Note 2) 813,389
----------------- -----------------
Total Discontinued Operations - 807,518
----------------- -----------------
INCOME TAXES - -
----------------- -----------------
NET INCOME (LOSS) (204,703) 611,790
----------------- -----------------
OTHER COMPREHENSIVE LOSS
Loss on valuation of marketable securities - (797,844)
----------------- -----------------
Total Other Comprehensive Loss - (797,844)
----------------- -----------------
NET COMPREHENSIVE LOSS $ (204,703) $ (186,054)
================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations (Continued)
For the Three Months Ended
June 30,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
BASIC LOSS PER SHARE OF COMMON STOCK -
CONTINUING OPERATIONS $ (0.05) $ (.06)
================= =================
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ - $ .19
================= =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,878,257 3,219,596
================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity
June 30, 2000 and 1999
Common Stock Preferred Stock Other Additional
------------------------ ---------------- Comprehensive Paid-In Accumulated
Shares Amount Shares Amount Loss Capital Deficit
--------- -------- ------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 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)
Stock issued for Quade
acquisition (Note 2) 451,667 452 - - - 144,099 -
Stock issued for consulting
services 250,000 250 - - - 181,384
Expense recognized for
vested options - - - - - 17,496
Recognition of loss on
valuation of marketable
securities - - - - 435,188 - -
Net loss for the year ended
March 31, 2000 - - - - - - (1,421,111)
--------- -------- ------- ------- ----------- ------------- ------------
Balance, March 31, 2000 3,875,953 $ 3,876 244,953 $ 245 $ - $ 7,640,045 $(10,601,591)
========= ======== ======= ======= =========== ============= ============
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Continued)
June 30, 2000 and 1999
Common Stock Preferred Stock Other Additional
------------------------ ---------------- Comprehensive Paid-In Accumulated
Shares Amount Shares Amount Loss Capital Deficit
--------- -------- ------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 2000 3,875,953 $ 3,876 244,953 $ 245 $ - $ 7,640,045 $(10,601,591)
========= ======== ======= ======= =========== ============= ============
Stock issued for consulting
services 32,777 32 34,028
Expense recognized for
vested options 4,374
Stock issued for interest
on notes payable 100,000 100 31,150
Net loss for the year ended
March 31, 2000 (204,703)
Balance at June 30, 2000 4,008,730 $ 4,008 244,953 $ 245 $ - $ 7,709,597 $(10,806,294)
========= ======== ======= ======= =========== ============= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Three Months Ended
June 30,
---------------------------------------
2000 1999
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income (loss) $ (204,703) $ 611,790
Adjustments to reconcile net loss to net cash
(used) by operating activities, net of effect of mergers:
Gain on sale of USPA, Ltd. - (813,389)
Depreciation and amortization 68,197 72,012
Stock option and stock for services 114,295 4,374
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 52,765 125,139
Decrease in inventory 22,467 9,997
(Increase) decrease in other assets (3,000) (9,715)
Increase (decrease) in accounts payable and other
current liabilities 54,950 96,932
Increase (decrease) in deferred revenue (10,000) -
Net Cash Provided (Used) by Operating Activities 94,611 97,140
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from sale of USPA, Ltd. - 221,470
Purchases of property and equipment (4,250) -
----------------- -----------------
Net Cash (Used) by Investing Activities (4,250) 221,470
----------------- -----------------
FINANCING ACTIVITIES
Net (payment) proceeds on line of credit (39,416) (112,301)
Payments on long-term debt and capital lease obligations (77,753) (160,801)
Note payable borrowings, related parties 18,243 -
Net Cash Provided (Used) by Financing Activities (98,926) (273,102)
----------------- -----------------
INCREASE (DECREASE) IN CASH (8,565) 45,508
CASH, BEGINNING OF PERIOD 8,914 41,967
----------------- -----------------
CASH, END OF PERIOD $ 349 $ 87,475
================= =================
<PAGE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended
June 30,
---------------------------------------
2000 1999
----------------- -----------------
CASH PAID FOR
<S> <C> <C>
Interest $ 50,289 $ 108,045
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
</TABLE>
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Quarterly Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. The accompanying consolidated unaudited condensed
financial statements have been prepared in accordance with the
instructions to Form 10-QSB but do not include all of the information
and footnotes required by generally accepted accounting principles and
should, therefore, be read in conjunction with the Company's fiscal
2000 financial statements in Form 10-KSB. These statements do include
all normal recurring adjustments which the Company believes necessary
for a fair presentation of the statements. The interim operating
results are not necessarily indicative of the results for a full year.
Effective for fiscal quarters ending after March 15, 2000, the
Securities and Exchange Commission adopted a rule requiring companies'
independent auditors review the companies' financial information prior
to the companies filing their Quarterly Reports on Form 10-QSB with the
Commission. The Company's June 30, 2000 Form 10-QSB was not reviewed
prior to submission to the Commission. A Form 8-K will be filed when
the review is completed by the independent auditors.
b. Principles of Consolidation
The accompanying consolidated financial statements include American
Resources and Development Company and its subsidiaries, Pacific
Printing and Embroidery L.L.C. (PPW) and Fan-Tastic, Inc. (FTI).
c. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high credit
quality financial institutions. The balances, at times, may exceed
federally insured limits.
In the normal course of business, the Company extends credit to its
customers.
f. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method. Inventory consists of items available for
resale.
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Property and Equipment
Property, equipment and capital leases are recorded at cost and are
depreciated or amortized over the estimated useful life of the related
assets, generally three to seven years. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
The costs of maintenance and repairs are charged to income as incurred.
Renewals and betterments are capitalized and depreciated over their
estimated useful lives.
h. Accounts Receivable
Accounts receivable are shown net of the allowance for bad debts of
$63,822 at March 31, 2000.
i. 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.
At March 31, 2000, the Company held 1,045,000 shares of GCA stock.
Because of GCA filing for bankruptcy in July of 1999, substantial doubt
exists regarding the ability of the Company to recover its investment
in GCA. At July 14, 2000, GCA was still in Chapter 11 bankruptcy and
its market value was $0.06 per share. Furthermore, the majority of the
Company's stock in GCA is restricted and the Company does not have the
ability to have the restriction removed because GCA is not current in
its SEC filings. As a result, the Company wrote off its cost in GCA at
March 31, 2000 and incurred a loss of $1,434,239.
j. 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.
k. 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 $(0.05) and $(.06) for the
three months ended June 30, 2000 and 1999, respectively. Basic net
(loss) income from discontinued operations
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Basic Loss Per Common Share (Continued)
per common share and diluted net loss from discontinued operations per
common share were $0.00 and $.19, respectively. Weighted average common
shares outstanding were 3,878,257 and 3,219,596 for the three months
ended June 30, 2000 and 1999, respectively.
l. Revenue Recognition for Franchise Operations
Revenue for contract screen printing, embroidery and product sales are
recognized when the goods have been shipped. 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.
m. Goodwill
On March 31, 1998, the Company 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.
n. 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.
o. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
p. Prior Period Reclassification
Certain 1999 amounts have been reclassified to conform to the
presentation of the 2000 consolidated financial statements.
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 2 - MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, Inc., a former Company subsidiary,
merged with U.S. Golf Communities. U.S. Golf Communities was 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.
The Company has a reserve for discontinued operations of $734,988 at
March 31, 2000.
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
In May 1998, the Company acquired 83% of the outstanding shares of
Pacific Print Works (PPW). The acquisition was accounted for by the
purchase method of accounting, and accordingly, the purchase price was
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. In
addition, depending on PPW's performance from April 1, 1998 through
March 31, 2001, additional shares of the Company's common stock would
be issued to the Sellers if minimum earnings levels were met. Based on
the $5.00 guarantee and the Company's share value from October 1998
through March 1999, the Company is obligated to issue additional shares
of common stock to the Sellers. An amendment to the PPW Stock Purchase
Agreement is being evaluated by the Company and the Sellers in which
the Company would issue another 854,000 shares of the Company's common
stock to the Sellers and any additional earnings requirements by PPW or
per share value guarantee by the Company would be eliminated.
Quade, Inc. and U.S. Polo Association, Ltd.
In 1997, Quade, Inc. acquired from the U.S. Polo Association ("US
Polo") the exclusive master license rights to the US Polo name for the
United States and Canada. On July 23, 1998, the Company purchased Quade
by issuing 238,333 shares of its common stock.
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 owned 50% of US Polo and management and the Board of Directors for
US Polo were 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. The Company's
investment in this joint venture was accounted for under the equity
method of accounting. The Company's share of losses from this joint
venture for the year ended March 31, 1999 were $127,268.
In March 1999, the Company's Board of Directors made a decision to sell
its 50% ownership in U.S. Polo to Iron will. In June 1999, the Company
closed its sale of U.S. Polo ownership to Iron Will. For its sale of
U.S. Polo, the Company received the cancellation of $1,000,000 in debt
from Jordache Enterprises, the cancellation of $13,185 in interest and
cash of $221,470. In addition, the Company received another $70,000
upon the collection of U.S. Polo royalties earned through May 31, 1999.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
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. A gain on the disposal of U.S. Polo for $867,587 was
recognized for year ending March 31, 2000. No income tax benefit or
expense has been attributed to the disposal of U.S. Polo.
In addition, the Company and the former owner of Quade amended the
original stock purchase agreement. Under the amendment, an additional
451,667 shares of common stock were issued to the former owner of Quade
and to a Quade creditor and the additional earnings requirements by
Quade or U.S. Polo to receive additional Company common stock was
eliminated. In return, the $5.00 per share guaranteed value of the
initial common shares issued to the Quade shareholder was removed.
NOTE 3 - LINE OF CREDIT
In November 1998, the Company entered into an accounts receivable
financing agreement to sell, with recourse, up to $1 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 June 30 and March 31, 2000, the Company had a
payable of $376,755 and $416,171, respectively, for net funds advanced
from this accounts receivable line of credit. The Company received
$1,233,670 and $914,140 from the sale of receivables for the three
months ended June 30, 2000 and 1999 and recognized $34,201 and $24,059
in interest expense from the discount of selling these receivables,
respectively.
NOTE 4 - NOTES PAYABLE
Notes payable are comprised of the following:
June 30,
2000
----------
Note payable, unsecured, bearing interest at 12%,
payable in monthly installments of $7,000, including
interest. Due on demand. $ 26,603
Convertible subordinated debentures, originally due June
30, 1996 bearing interest at 12% per annum. Interest
payable quarterly. 187,000
Notes payable to shareholders of PPW. Interest rates
average 10%, primarily due on demand, unsecured. 341,008
Notes payable with three vendors with interest rates
averaging 12%; partially secured by equipment, due in
2000. 52,739
----------
Subtotal 607,350
Less current portion (529,403)
----------
Long-term portion $ 77,947
==========
Maturities of long-term debt are as follows:
June 30, 2001 $ 529,403
June 30, 2002 77,947
----------
$ 607,350
==========
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
June 30,
2000
-------------
Note payable to Miltex Industries, secured by 700,000
shares of GCA and 1,475,000 shares of the Company's
common stock. Interest at 15% with monthly principal
and interest payments of $11,000 with a final balloon
payment December 31, 2001. $ 723,494
Note payable to a shareholder, secured by GCA stock.
Interest payable monthly at 13.5% with interest and
principal payments of $5,000 per month. Due October
31, 2001. 315,859
Note payable to a Company owned by a shareholder.
Interest payable at 72% with interest and principal
payments due currently. 66,285
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. 241,732
-------------
Subtotal 1,347,370
Less current portion (105,841)
-------------
Long-term portion $ 1,241,529
=============
Maturities of notes payable, related parties are as follows:
June 30, 2001 $ 105,841
June 30, 2002 1,039,353
June 30, 2003 202,176
-------------
$ 1,347,370
=============
NOTE 6 - CAPITAL LEASES
Property and equipment payments under capital leases as of March 31,
2000 is summarized as follows:
Year End
March 31,
-------------
2001 $ 373,124
2002 225,438
2003 123,785
2004 88,308
2005 32,378
-------------
Total minimum lease payments 843,033
Less interest and taxes (151,207)
-------------
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 6 - CAPITAL LEASES (Continued)
Present value of net minimum lease payments 691,826
Less current portion (302,551)
-------------
Long-term portion of capital lease obligations $ 389,275
=============
The Company recorded depreciation on capitalized lease equipment
expense of $232,589 and $196,606 for the years ended March 31, 2000 and
1999, respectively.
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, 2000, 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, 2000, there is a total of $406,620
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.
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 1,475,000 shares of common stock
as collateral for the note payable to Banque SCS (Note 5).
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
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 August 1999, the Board of Directors granted options to purchase
696,291 shares of common stock at $0.25. Fifty percent of these
options vest immediately and the remainder vest in August 2000. The
options were issued to various officers and directors of the Company
for past services, risk associated with various debt incurred by
officers for the Company and guarantees by officers of Company debt,
and for future services. 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.
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.
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.
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 $77,660, $52,402 and $5,646 in
years 2 and 3, respectively, with an increase in pro forma expenses
per share of $0.02 in year 1, $0.05 in year 2 and $0.00 in year 3.
On March 1, 2000, the Company granted options to a company to purchase
up to 340,000 shares of the company's common stock. This company is to
provide various investor relations services. The Company is
recognizing a $32,385 expense over 4 months based upon the value of
the options as calculated from an option pricing model.
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 10 - STOCK OPTIONS (Continued)
The options expire September 1, 2001, are not transferrable and are
exercisable at any time at the following rates:
85,000 share s at $1.08 per share;
85,000 shares at $1.32 per share;
85,000 shares at $1.49 per share;
85,000 shares at $1.72 per share.
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,
2000
------------
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 a retail store in Oregon.
Lease commitments for the years ended March 31, 2001 through March 31,
2003 are $467,478, $421,671 and $67,574, respectively.
19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
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.
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. 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."
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 Three
Months Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales 2000 $ 1,310,348 $ 51,174
1999 1,035,474 92,614
Operating income (loss) 2000 142,113 (43,858)
applicable to industry 1999 42,822 (40,840)
segment
General corporate expenses 2000 $ 148,137
not allocated to industry 1999 45,584
segments
Interest expense 2000 (96,128) (12,983) (56,440)
1999 (83,209) (7,908) (54,989)
Other income (expenses) 2000 (29) 10,971 11,000
1999 886 3,093 -
20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2000 and 1999
NOTE 13 - BUSINESS SEGMENTS (Continued)
<CAPTION>
For the Three
Months Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Income (loss) from 2000 -
discontinued operations 1999 $ 807,518
Assets 2000 $ 1,768,173 $ 64,607 23,684
Depreciation and 2000 65,689 2,268 240
amortization 1999 66,042 4,400 1,189
Property and equipment 2000 4,250 - -
acquisitions 1999 - - -
</TABLE>
NOTE 14 - SUBSEQUENT EVENTS
On June 7, 2000, the company announced the signing of a letter of
intent to merge with Royal Avalon S.A. De C.V., a Mexico based apparel
manufacturer. Under terms of the deal, the newly merged entity will be
renamed Royal Pacific Apparel Group, Inc. and will continue all
present business activities as well as constructing new garment dying
and printing facilities at Royal Avalon's manufacturing plants in
Mexico.
Royal Avalon has been manufacturing T-shirts in Mexico for the past
five years. During calendar 1999 Royal Avalon achieved over $12
million in revenue.
The present agreement between the Company and Royal Avalon calls for
the Company to issue its common stock to Royal Avalon shareholders for
the purchase of the business. The deal is contingent on satisfactory
due diligence findings, board approvals and execution of a definitive
agreement. Management from the companies believe the merger will be
consummated by the end of August 2000. Additionally, the Company is
presently soliciting additional funding in order to establish
screenprinting and garment dying at Royal Avalon's facility as well as
increasing T-shirt manufacturing capacity.
21
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Forward Looking Statements
The statements in this report concerning certain expected future expenses as a
percentage of net sales, future financing and working capital requirements and
availability constitute forward - looking statements that are subject to risks
and uncertainties. These risks could cause actual results or activities to
differ materially from those expected. Factors that could adversely affect cost
of sales and general expenses as a percentage of net sales include, but are not
limited to, increased competitive factors, changes in consumer preferences, as
well as an inability to increase sales. Other factors could include a failure to
adequately fund operations. In addition, unfavorable business conditions, or
changes in the general economy could have adverse effects. Factors that could
materially affect future financing requirements include, but are not limited to,
the ability to obtain additional financing on acceptable terms. Factors that
could materially affect future working capital requirements include, but are not
limited to, the factors listed above and the industry factors and general
business conditions noted above.
The following table sets forth, for the periods indicated, selected Company
income statement data expressed as a percentage of net sales.
Three Months Ended June 30,
2000 1999
---- ----
Net sales 100.0% 100.0%
Cost of sales 69.5% 74.0%
Gross profit 30.5% 26.0%
General expenses 33.9% 29.9%
Depreciation and amortization 0.3% 0.8%
Loss from operations -1.0% -1.3%
Other income and expenses 0.2% 0.1%
Interest expense -3.4% -3.7%
Loss before income taxes
and discontinued operations -4.2% -4.9%
Discontinued operations 0.0% 20.2%
Income taxes 0.0% 0.0%
Net Income (loss) -4.2% 15.3%
For the three months ended June 30, 2000 ("first quarter fiscal 2001"), compared
to the three months ended June 30, 1999 ("first quarter fiscal 2000"):
Sales for the three months ended June 30, 2000 were $1,361,522 compared to
$1,128,088 for the three months ended June 30, 1999 Pacific Print Works ("PPW")
sales for the first quarter fiscal 2001 were $1,310,348 compared to $1,035,474
for the first quarter fiscal 2000. The $274,874 increase in PPW's revenue was
primarily due to an increase in sales to PPW's two largest customers. The
increase with these customers is largely due to PPW's high density printing
capabilities in addition to the overall quality of the printing and related
services.
Sales for Fan-Tastic declined by $41,440 which was primarily due to first
quarter fiscal 2001 sales coming from one store as opposed to three stores in
the first quarter fiscal 2000.
Gross profit and the gross profit as a percentage of sales increased for the
first quarter fiscal 2001 as compared to the first quarter fiscal 2000, $415,277
and 30.5% compared to $292,740 and 26%. The increase in gross profit was
primarily due to the increase in PPW revenues as noted above. The gross profit
from PPW operations increased by approximately $145,000.
22
<PAGE>
General and administrative expenses for the first quarter fiscal 2001 were
$461,892 as compared to $337,330 for the first quarter fiscal 2000. The increase
in general and administrative expenses is primarily due to $110,000 in investor
relation expenses in the first quarter fiscal
The gain (loss) from operations before other income and expenses for the first
quarter fiscal 2001 was a loss of $50,123 as opposed to a loss of $53,602 for
the first quarter fiscal 2000.
Interest expense for the first quarter fiscal 2001 was $165,551 compared to
$146,105 for the prior year.
For the three months ended June 30, 1999 ("first quarter 99"), compared to the
three months ended June 30, 1998 ("first quarter 98"):
Sales for the three months ended June 30, 1999 were $1,128,088 compared to
$809,034 for the three months ended June 30, 1998. Pacific Print Works ("PPW")
sales for the three months ended June 30, 1999 were $1,035,474 compared to
$624,958 for the three months ended June 30, 1998. The $410,516 increase in
PPW's revenue was primarily due to an increase of over 50% in sales to PPW's
four largest customers. Sales to PPW's four largest customers in the first
quarter 99 exceeded $760,000. The increase with these customers is largely due
to PPW's high density printing capabilities in addition to the overall quality
of the printing and related services. The PPW first quarter 99 sales also
include approximately $123,000 of garment blank sales as opposed to garment
blank sales of approximately $15,000 for the first quarter 98. The increase in
garment blank sales is due to PPW selling garment blanks with contract printing
to two of its largest customers in the first quarter 99 while in the first
quarter 98 these two customers provided their own garment blanks to PPW for
printing. PPW expects a similar or larger increase in sales over the next three
quarters based on its relationship and orders with existing customers in
addition to PPW samples with potential new customers.
Sales for Fan-Tastic declined by $91,463 which was primarily due to first
quarter 99 sales coming from three stores as opposed to six stores in first
quarter 98.
Gross profit for the first quarter 99 was $292,740 compared to $171,479 for the
first quarter 98. The increase in gross profit was due to an increase in sales
which also resulted in an improvement in gross profit as a percentage of sales
(26% compared to 21%) which was also due to additional sales available for the
first quarter 99 to cover direct expenses.
General and administrative expenses for the first quarter 99 were $346,342 as
compared to $519,490 for the first quarter 98. A $69,000 decline in the
corporate office expenses was primarily due to approximately $30,000 in reduced
goodwill amortization and a reduction of $37,000 in consulting fees. Fan-Tastic
also saw a decline in general and administrative expenses of approximately
$90,000 due to less rent and payroll expenses resulting from the closure of 3
stores. The Company expects general and administrative expenses over the next
three quarters to be similar to the first quarter 99 amount.
Depreciation and amortization expenses included in total general expenses for
the fiscal year ended March 31, 1999 was $9,012 in the first quarter 99 compared
to $44,945 for the first quarter 98. This decrease is primarily due to zero
goodwill amortization in the first quarter 99 as the Company wrote off all
goodwill from the PPW acquisition at March 31, 1999.
The loss from operations for the first quarter 99 was reduced to $53,602
compared to $348,011 for the first quarter 98. The reduction in the loss is
primarily due to the increase in sales and the reduction in general and
administrative expenses as discussed above.
Interest expense for the first quarter 99 was $146,105 compared to $107,042 for
the prior year. The increase in interest expense for the first quarter 99 was
due to additional debt in Fiscal 1999 that was used for working capital purposes
and to fund losses from operations. The Company had a $813,389 gain from the
sale of its 50% ownership in USPA Ltd. in the first quarter 99. For its sale of
USPA Ltd., the Company received the cancellation of $1,000,000 in debt from
Jordache Enterprises, the cancellation of $13,185 in interest and cash of
$221,470.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had total assets of $1,856,465, total liabilities
of $4,948,909 and total stockholders' deficit of $3,092,444 compared with total
assets of $2,080,720, total liabilities of $5,038,145 and total stockholders
deficit of $2,957,425 at March 31, 2000. The changes in assets, liabilities and
stockholders equity is due primarily to losses from operations and interest
expense. At June 30, 2000 the Company's current ratio was approximately .299
current assets to 1 current liabilities. The Company will seek to convert
certain debt to equity which will improve its current ratio.
Management intends to improve its overall financial structure and provide
operating capital through private placement of the Company's common stock and
seeking the conversion of debt and preferred stock to common stock.
Management intends to improve its overall financial structure and provide
operating capital through private placement of the Company's common stock and
seeking the conversion of debt and preferred stock to common stock. There is no
assurance that the Company will be able to obtain sufficient funds from other
sources as needed or that such funds, if available, will be obtainable on terms
satisfactory to the Company.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Effective for fiscal quarters ending after March 15, 2000, the
Securities and Exchange Commission adopted a rule requiring companies'
independent auditors review the companies' financial information prior to the
companies filing their Quarterly Reports on Form 10-QSB with the Commission. The
Company's June 30, 2000 Form 10-QSB was not reviewed prior to submission to the
Commission. A Form 8-K will be filed when the review is completed by the
independent auditors.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
/s/ B. Willes Papenfuss President, Chief Executive August 11, 2000
----------------------- Officer and Director
B. Willes Papenfuss (Principal Executive
Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and August 11, 2000
------------------------ Director (Chief Financial
Timothy M. Papenfuss Officer, Chief Accounting
Officer and Controller)
25
