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, 2000, 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
(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)
Securities registered under Section 12(b) of the Act:
Title of each class Name of each Exchange on which Registered
None None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(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 $4,828,053
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 14, 2000 was $1,257,211
The number of shares outstanding of the issuer's common equity, as of
July 14, 2000 was 3,908,730.
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 8
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 11
ITEM 7. FINANCIAL STATEMENTS 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 15
ITEM 10. EXECUTIVE COMPENSATION 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 19
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 19
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The information contained in this Form 10-KSB for the fiscal year ended
March 31, 2000, 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, Portland, Oregon 97230 and its
telephone number is (503) 492-1500. As of July 14, 2000, the Company had
eighty-three (83) full time employees and twelve 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 ("Sellers") with a
guaranteed share value of $5.00. 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. 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. PPW believes
that these trends should continue to drive industry growth.
Business Strategy
PPW's success in expanding its business is a function of three key
factors: 1) quality of printing, 2) ability to meet customer deadlines, and 3)
ability to create and produce innovative designs. PPW has a demonstrated
excellence in each of these areas with a strong reputation in the industry for
its quality printing. In fact, PPW's second largest customer was obtained in
January 1999 when another screenprinter was unable to produce an order which
incorporated the latest technology, high-density printing. Historically, the
Company has been able to produce at less than a .75% misprint ratio,
considerably better than the industry standard of 2.0%.
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Timeliness of product delivery is another crucial component of business
retention and growth. PPW also excels in this area as evidenced by their
excellent reputation for timely delivery. In fact, PPW has never had an order
canceled for failing to achieve a deadline.
Lastly, PPW is recognized in the screenprinting industry as an innovator
who is constantly working on new processes and techniques. This is extremely
important to PPW customers, all of whom are looking for the newest applications
in order to bring fresh products to the market. PPW's expertise with
high-density printing is a good example of a new technique which has received an
enthusiastic reception from the apparel marketplace. The Company is committed to
continuing its research and development work in order to stay in front of trends
in the screenprinting industry and is convinced this will enable it to expand
business with existing customers in addition to acquiring other customers
presently targeted.
Another opportunity for PPW results from the changing business model for
screenprinters. Historically, the Company has done contract screenprinting where
customers purchase unprinted garments and deliver them to PPW for embellishment.
Several existing customers are now asking the Company to do package deals where
PPW assumes responsibility for purchase and receipt of the unprinted garment and
then does the screenprinting and embroidery. This model will result in
significant increases in both revenue and profits. For example, in the new model
revenue per unit will climb from the current $.50 to $1.00 per unit to $3.50 to
$4.50 per unit. To be successful with the package program, the Company has
signed a letter of intent to merge with a T-shirt manufacturing company from
Mexico City, Mexico.
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 product focus has been on
high-density printing. High-density printing is a screenprinting term for a
process that leaves a 3-D, sharp-edged print with excellent detail. PPW has also
been able to grow its business by specializing in reflective inks, and
environmentally safe water based printing.
Other.
Other products include printing on athletic uniforms for Nike's Team
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 two internal sales people and three customer service 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, Nautica, Brooks,
K-Swiss and Karl Kani. In fiscal 2000, PPW's sales to major customers that
exceeded 10% of its total sales were as follows: Customer A 54.8%, Customer B
11.2%.
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. Currently, the majority of blank apparel
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screen printed and embroidered is provided by its customers although, as
mentioned under "Business Strategy," PPW plans on providing package deals to
many of its customers in the near future.
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.
PPW operates seven automatic screen printing presses and five manual
screen printing presses. 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.
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 14, 2000, PPW employed approximately 77 full-time and 9 part-time
employees. PPW believes that its employee relations are good.
FAN-TASTIC, INC.
Acquired in 1997, 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 14, 2000, Fan-Tastic owned 1 of its own stores in Oregon and
had 13 franchisees in the states of Arkansas, Missouri, New York, North
Carolina, 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:
Pokemon, Disney, Warner Brothers, Marvel Comics, Nickelodeon, World Wrestling
Federation, National Football League, National Basketball Association, Major
League Baseball, College 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 has also been
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:
o Site evaluation, selection and lease negotiation.
o Store design, merchandise and display plans.
o Reduction in inventory costs resulting from chain-wide volume pricing
and simplified buying. through a consolidated buying program.
o Inventory control through a consolidated point of sale software and
chain wide identification of hot selling products.
o 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.
Seasonality
Approximately 43% of annual Fan-Tastic retail sales have occurred in
the months of November and December.
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Suppliers
Fan-Tastic purchases product from a number of national licensed sports
and entertainment manufacturers including 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.
Employees
As of July 14, 2000, Fantastic had six full-time employees and three
part-time employees.
LETTER OF INTENT TO MERGE WITH ROYAL AVALON S.A.
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 dyeing 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. The Company has two production facilities located northeast of
Mexico City. During calendar 1999 Royal Avalon achieved over $12 million in
revenue. This merger will allow the Company to present a vertical solution to
our customers. The merger will result in an increase in revenues as well as an
increase in the Company's gross and operating profits.
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 dyeing at Royal Avalon's facility
as well as increasing T-shirt manufacturing capacity.
QUADE, INC. AND US POLO ASSOCIATION, LTD.
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. In July 1998, the Company purchased Quade, Inc. by issuing
213,222 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
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US Polo Association and to perform all licensing activities relating to the US
Polo Association licenses and trademarks for the United States and Canada.
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. See Note 2 of the financial statements.
In addition, the Company and the former owner of Quade, Inc. amended
the original stock purchase agreement. Under the amendment, an additional
426,667 shares of common stock were issued to the former owner of Quade without
any additional earnings requirements by Quade or U.S. Polo and the $5.00 per
share guarantee value of the initial common shares issued to Quade was removed.
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 14, 2000, the Company owned 1,045,000
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 combined company was
renamed to Golf Communities of America ("GCA"). 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. In July 1999, GCA filed for chapter 11 bankruptcy. At July
15, 2000, GCA was still in chapter 11 bankruptcy and the Company's investment in
GCA was written off (see Note 1 to the Financial Statements.)
Additional information regarding the business of GCA can be found in
GCA's reports filed with the Securities and Exchange Commission. Since the
Company has no control over GCA, its interest in GCA after November 25, 1997, is
that of a passive shareholder.
Item 2. Description of Property.
PPW rents an 85,000 square foot office and screenprinting/embroidery
facility in Portland, Oregon. Fan-Tastic's offices are located in Salt Lake
City, Utah and is approximately 4,000 square feet of combined office and
warehouse space. Fan-Tastic leases retail mall space for its store of
approximately 2,000 square feet. Lease commitments from fiscal 2001 through
fiscal 2003 are $467,478, $421,671 and $67,574, 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 was seeking a
judgment of $5,000,000 compensatory damages and $10,000,000 punitive damages and
rescision of the Agreement. Jenna Lane's complaint alleged the Company owed it
damages resulting from, among other things, breach of contract and tortious
interference with contractual relationships. In May 1999, the Company and other
parties commenced an arbitration against Jenna Lane for, among other things,
breach of contract. In October 1999 the Company and other parties to the
complaint reached a Settlement Agreement ("Settlement") with Jenna Lane. Under
the Settlement, the Company received approximately $67,000, net of attorney
fees, in full and complete settlement of all claims relating to the arbitration
against Jenna Lane. The Company and the other parties to the complaint also
received a release from the complaint from Jenna Lane. In return, the Company
and other parties to the complaint issued releases related to the arbitration
and a stipulation discontinuing the arbitration. In addition, the parties to the
Settlement agreed the license for Jenna Lane to sell product with United States
Polo Association trademarks was terminated.
Item 4. Submission of Matters to a Vote of Security Holders. None.
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
1998
1st Quarter 3.00 1.00
2nd Quarter 2.625 1.0625
3rd Quarter 1.4375 .3125
4th Quarter .6875 .25
1999
1st Quarter .875 .1875
2nd Quarter .5 .1875
3rd Quarter 1.906 .156
4th Quarter 1.50 .625
2000
1st Quarter 1.312 .625
2nd Quarter 1.531 .656
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As of July 14, 2000, the Company had 3,908,330 shares of its common
stock issued and outstanding, and there were approximately 1,300 shareholders of
record.
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
approximately 83% 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.
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).
In July 1998, the Company acquired 100% of the outstanding shares of
Quade, Inc., for 238,333 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. The purchase agreement with Quade, Inc. provided a $5.00
per share guarantee for shares issued to the Quade, Inc. shareholder. In August
2000, the original purchase agreement with the Quade, Inc. shareholder was
amended and 451,667 shares of common stock was issued to the Quade, Inc.
shareholder and a former Quade, Inc. creditor. In return, the $5.00 per share
guarantee was rescinded. The issuance of these shares were exempt
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from registration pursuant to Section 4 (2) of the Securities Act of 1933. The
issuance of these shares were exempt from registration pursuant to Section 4 (2)
of the Securities Act of 1933.
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 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).
In August 1999, the Company issued 15,000 shares to a company for
investor and public relations services. Based on the knowledge, experience and
economic strength of this company, the Company believes this transaction was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2).
In March and May 2000, the Company issued 235,000 and 28,777 shares,
respectively to a company for investor and public relations services. In March
2000, the Company also granted options to this same company to purchase up to
340,000 shares of the Company's common stock. The options expire in September
2001. The options are not transferable, are exercisable at any time between
$1.08 and $1.72 per share (See Note 10 to the financial statements.) Based on
the knowledge, experience and economic strength of this company, the Company
believes this transaction was exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2).
In May 2000, the Company issued 4,000 shares to a company for
financial consulting services. Based on the knowledge, experience and economic
strength of this company, the Company believes this transaction was exempt from
registration under the Securities Act of 1933 pursuant to 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, 2000 ("Fiscal 2000"), Compared to the Fiscal
Year Ended March 31, 1999 ("Fiscal 1999).
Year Ended March 31,
2000 1999
---- ----
Net sales 100.0% 100.0%
Cost of sales 75.4% 78.3%
Gross profit 24.6% 21.7%
General expenses 29.9% 44.3%
Depreciation and amortization 0.4% 4.2%
Loss from operations -5.7% -26.9%
Other income and expenses 0.1% -1.3%
Gain on sale of assets 0.0% 1.1%
Loss on write-off of GCA -29.7% 0.0%
Interest expense -12.1% -14.0%
11
<PAGE>
Loss before income taxes
and discontinued operations -46.5% -80.3%
Discontinued operations 18.0% -6.3%
Income taxes 0.0% 0.0%
Net loss -29.4% -86.6%
Sales for the year ended March 31, 2000 were $4,828,053 as compared to
$3,996,739 for the year ended March 31, 1999. Pacific Print Works ("PPW") sales
for Fiscal 2000 were $4,415,801 compared to $3,223,417 for Fiscal 1999. The 37%
increase in PPW's revenue was primarily due to an increase in sales to PPW's
five largest customers with 73% of the increase in the five largest customers
coming from PPW's largest customer. 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
approximately $361,070 which was primarily due to 1) Fiscal 2000 sales coming
from the equivalent of 2.1 stores over Fiscal 2000 as opposed to 4.5 stores over
the Fiscal 1999 and 2) franchise sales and royalties of $96,958 in Fiscal 2000
as opposed to $199,834 for Fiscal 1999 due to fewer new franchisee fees.
Gross profit for Fiscal 2000 was $1,187,465 compared to $867,097 for the prior
year with a Company wide gross profit margin of 24.6% in Fiscal 2000 compared to
21.7% in Fiscal 1999. The increase in gross profit was primarily due to an
increase in gross profit from PPW for Fiscal 2000 of $497,000. PPW's gross
profit increase was due to the increase in sales while the gross profit margin
improved due to the increase in sales reducing fixed production costs as a
percentage of sales.
General expenses for Fiscal 2000 were $1,442,181 as compared to $1,772,155 for
the prior year. The decrease was primarily attributable to a reduction of
$104,000 and $95,000 in Fan-Tastic rent and payroll expenses, respectively, due
to store closures.
Depreciation and amortization expenses included in total general expenses for
Fiscal 2000 was $18,929 compared to $169,420 Fiscal 1999. This decrease is due
to the amortization of the goodwill from the PPW acquisition in Fiscal 1999.
There was no amortization from the PPW acquisition goodwill in Fiscal 2000
because this goodwill was completely written off at the end of Fiscal 1999 which
resulted in a $1,434,239 expense. PPW had depreciation of $275,260 and $257,925
for Fiscal 2000 and Fiscal 1999, respectively which was included in cost of
sales.
The Company's loss from operations in Fiscal 2000 was $273,645 in Fiscal 2000
compared to $1,074,478 in Fiscal 1999. The improvement in operations is due to
the increase in PPW revenues as discussed above.
Interest expense for Fiscal 2000 was $584,355 compared to $561,335 for Fiscal
1999. The Company expected interest expense to be similar between Fiscal 2000
and Fiscal 1999 because the average debt outstanding for the two years was
similar. The Company also incurred a loss of $1,434,239 from its write-off of
Golf Communities marketable securities (see Note 1 to the Financial Statements).
As these marketable securities were written completely off, no additional charge
will be incurred in future years.
In Fiscal 2000, the Company sold its 50% ownership in US Polo Association, Ltd.
which resulted in a gain on sale of discontinued operations for Fiscal 2000 of
$867,587. In Fiscal 1999 the Company incurred a loss of $252,972 from its Quade
and US Polo Association, Ltd. 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
12
<PAGE>
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.
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.
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
13
<PAGE>
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, 2000, the Company had total assets of $2,080,720, total
liabilities of $5,038,145 and total stockholders deficit of $2,957,425 compared
with total assets of $3,295,534, total liabilities of $5,610,717 and total
stockholders deficit of $2,315,183 at March 31, 1999. The significant changes in
assets, liabilities and stockholders equity is due primarily to the Company's
write-off of Golf Communities of America stock and the reduction in stockholders
equity due to losses from operations and interest expense. At March 31, 2000 the
Company's current ratio was approximately .358 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.
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.
There have been no disagreements with accountants on accounting and
financial disclosure. Effective May 1, 2000, Jones, Jensen and Company changed
its name to HJ & Associates, LLC.
14
<PAGE>
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.
NAME AGE POSITION HELD
B. Willes Papenfuss 42 President, Chief Executive Officer and
Director
Jeffrey S. Harden 55 Vice President and Director, President of
Pacific Print Works
Barry L. Papenfuss 39 Vice President, President of Fan-Tastic, Inc.
Timothy Papenfuss 40 Secretary/Treasurer, Chief Financial Officer
and Director
Robert Mintz 54 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.
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.
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 of U.S. Polo Association, Ltd.
since October 1998. President and founder of Quade, Inc. from 1996 to October
1998. 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.
15
<PAGE>
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.
Compliance with Section 16(a) of the Securities Act of 1934 by Company
Officers, Directors and 10% Shareholders.
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, 2000, Forms 4 and 5 were required to be filed by all
directors and executive officers by September 15, 1999 and May 15, 2000
respectively and were not filed until July 25, 2000 except for Form 4 by Mr. Tim
Papenfuss, which was filed on February 15, 2000 and Forms 4 and 5 by Mr. Karl
Badger, which were filed both filed on May 11, 2000. The Company has not
received any Forms 4 and 5 from any shareholder who owns more than five percent
of the Company's outstanding common stock..
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,
2000, 1999 and 1998 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").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
---------------------- ------------------------
Securities
Other Underly-
Annual Restricted ing Op- All Other
Compen- Stock tions/ LTIP Compen-
Name And Principal Fiscal Salary Bonus sation Award SARs Payouts sation
Position Year $ $ $ $ (#) ($) ($)
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B. Willes Papenfuss, 2000 $24,930 0 0 0 102,112 0 0
Chief Executive 1999 $38,000 0 0 0 0 0 0
Officer 1998 $48,000 0 0 0 0 0 0
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
Jeffrey S. Harden 2000 $96,000 $43,094 0 0 34,424 0 0
President of PPW
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
</TABLE>
16
<PAGE>
Employment Agreements.
None of the Company's officers or directors has any written employment
agreement with the Company.
Director Compensation
Directors of the Company have been partially reimbursed for expenses
incurred by them on behalf of the Company. No salary or fee has been paid to
directors. It is anticipated that the Company may establish some fees for
directors at such time as the Company has sufficient funds to pay fees to
directors.
Stock Options
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Number of Percent of total
Securities Exerscise or
Options/SARs Granted to Base price Expiration date
Name Underlying Employees in ($/Sh)
Options/SARs Fiscal year
Granted (#)
----------------------------- ------------------ ----------------- ----------------- ------------------------
<S> <C> <C> <C> <C> <C>
B. Willes Papenfuss 172,566 24.8% $0.25 August 20, 2002
----------------------------- ------------------ ----------------- ----------------- ------------------------
Jeffrey S. Harden 111,793 16.1% $0.25 August 20, 2002
----------------------------- ------------------ ----------------- ----------------- ------------------------
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises and Fiscal Year-End Option Values:
Number of
Securities Value of
Underlying Unexercised in-
Shares Unexercised the-money
Name Acquired on Value realized Options/SARs at Options/SARs at
Exercise (#) ($) FY-end (#) FY-end ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
----------------------------- ------------------ ----------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
B. Willes Papenfuss 0 0 111,283/86,283 $91,633/$91,633
----------------------------- ------------------ ----------------- --------------------- --------------------
Jeffrey S. Harden 0 0 55,896/55,897 $59,362/59,363
----------------------------- ------------------ ----------------- --------------------- --------------------
</TABLE>
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 14, 2000, 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.
17
<PAGE>
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OWNED OF CLASS
Banque SCS Alliance SA 858,515 (1) 21.96%
11 Route De Florissant Case Portal 3733
12111 Geneva 3, Switzerland
George H. Badger 519,852 (2) 13.3%
550 Northmont Way
Salt Lake City, UT 84103-3323
Stockbroker Presentations, Inc. 603,777 (9) 14.21%
2232 East Semeran Blvd.
Apopks, FL 32703
Don Pickett, agent for 183,250 4.69%
Mindon Investment and The Stella Trust
1150 Augusta Way
Salt Lake City, UT 84108
Karl F. Badger 71,193 (3) 1.79%
1041 E. Duffer Lane
Bountiful, UT 84010
Barry L. Papenfuss 290,175 (4) 7.1%
9659 S. Chavez Dr.
S. Jordan, UT 84095
Timothy M. Papenfuss 263,756 (5) 6.4%
3441 S. Medford Dr.
Bountiful, UT 84010
B. Willes Papenfuss 250,674 (6) 6.1%
12313 SE Wagner Street
Portland, OR 97236
Jeffrey S. Harden 253,602 (7) 6.56%
17942 St. Clair Dr.
Lake Oswego, OR 97034
Robert Mintz 588,000 (8) 14.97%
30 Otter Trail
Westport, CT 06880
All Officers and Directors as
a Group (6 persons) 1,727,400 36.87%
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 130,987 shares held by his
wife LaJuana Badger in an IRA account and 120,000 shares held by his wife. These
shares also include 265,000 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. Mr. Karl Badger also is
the owner of options to purchase 34,193 shares of the Company's common stock at
$.25 per share, of which fifty percent are vested with the remaining fifty
percent vesting in August 2000.
18
<PAGE>
4 Mr. Barry Papenfuss is the owner of vested options to purchase 15,000
of the Company's common stock at $2.00 a share. Mr. Barry Papenfuss also is the
owner of options to purchase 163,127 shares of the Company's common stock at
$.25 per share, of which fifty percent are vested with the remaining fifty
percent vesting in August 2000. Messrs. Barry Papenfuss, Timothy Papenfuss and
B. Willes Papenfuss are brothers.
5 Mr. Timothy Papenfuss is the owner of vested options to purchase 15,000
shares of the Company's common stock at $2.00 a share. Mr. Timothy Papenfuss
also is the owner of options to purchase 194,612 shares of the Company's common
stock at $.25 per share, of which fifty percent are vested with the remaining
fifty percent vesting in August 2000.
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 also is the owner of options to purchase 172,566 shares of the
Company's common stock at $.25 per share, of which fifty percent are vested with
the remaining fifty percent vesting in August 2000.
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. Mr. Jeffrey Harden also is the owner of options to
purchase 111,793 shares of the Company's common stock at $.25 per share, of
which fifty percent are vested with the remaining fifty percent vesting in
August 2000.
8 Mr. Robert Mintz is the owner of vested options to purchase 20,000
shares of the Company's common stock at $.25 a share, of which fifty percent are
vested with the remaining fifty percent vesting in August 2000.
9 Stockbroker Presentations, Inc., in March 2000, was granted warrants to
purchase 340,000 shares of common stock. The warrants can be exercised
immediately, expire September 2001 and were issued with grant prices of $1.08,
$1.32, $1.49 and $1.72 per share for 85,000 shares of common stock each.
Item 12. Certain Relationships and Related Transactions.
George Badger, a shareholder and former Company President, and father to former
Company President Karl Badger, has provided loans to the Company. At March 31,
2000, the Company owed Mr. Badger $316,501 with interest and principal payment
of $5,000 per month. This note is due October 31, 2001. 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 HJ & Associates, LLC, Independent
Public Accountants. F-3
(2) Consolidated Balance Sheet as of March 31, 2000. F-4
(3) Consolidated Statements of Operation for the
years ended March 31, 2000 and 1999. F-6
(4) Statement of Stockholders' Equity for the period
March 31, 1998 through March 31, 2000. F-8
(5) Consolidated Statements of Cash Flows for years
ended March 31, 2000 and 1999. F-9
(6) Notes to Financial Statements. F-11
19
<PAGE>
(d) Exhibits
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
21. Subsidiaries
23. Consent of Independent Auditor
27. Financial Data Schedules
99.1 (2) List of Third Party Loans to TechKNOWLOGY, Inc.
(28.1)*
20
<PAGE>
99.2 (2) Lease of LTI Office
(28.2)*
99.3 (2) Financial Statements for years ended March 31, 1989, (28.3)*
1988 and 1987, and 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.
21
<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 25, 2000
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.
Signature Title Date
/s/ B. Willes Papenfuss President, Chief Executive July 25, 2000
----------------------- Officer and Director
B. Willes Papenfuss (Principal Executive
Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and July 25, 2000
------------------------ Director (Chief Financial
Timothy M. Papenfuss Officer, Chief Accounting
Officer and Controller)
22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Financial Statements
March 31, 2000 and 1999
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-9
Notes to the Consolidated Financial Statements ........................... F-11
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, 2000 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended March 31, 2000 and 1999 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, 2000
and the results of their operations and their cash flows for the years ended
March 31, 2000 and 1999 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.
HJ & Associates, LLC
Salt Lake City, Utah
July 28, 2000
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
March 31,
2000
-----------------
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 8,914
Accounts receivable, net (Note 1) 586,829
Inventory (Note 1) 232,310
Prepaid and other current assets 102,359
Marketable securities (Note 1) 2,485
-----------------
Total Current Assets 932,897
-----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 404,322
Capital leases 1,277,899
-----------------
Total depreciable assets 1,682,221
Less: accumulated depreciation (597,131)
-----------------
Net Property and Equipment 1,085,090
-----------------
OTHER ASSETS
Deposits 62,733
-----------------
Total Other Assets 62,733
-----------------
TOTAL ASSETS $ 2,080,720
=================
</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,
2000
-----------------
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 449,011
Accrued expenses and other current liabilities 822,780
Line of credit (Note 3) 416,171
Current portion of notes payable (Note 4) 546,542
Current portion of notes payable, related parties (Note 5) 69,797
Current portion of capital lease obligations (Note 6) 302,551
Deferred revenue 20,000
-----------------
Total Current Liabilities 2,626,852
-----------------
LONG-TERM DEBT
Reserve for discontinued operations (Note 2) 734,988
Notes payable (Note 4) 62,981
Notes payable, related parties (Note 5) 1,224,049
Capital lease obligations (Note 6) 389,275
-----------------
Total Long-Term Debt 2,411,293
-----------------
Total Liabilities 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
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 4,475,953
shares issued and 3,875,953 outstanding (Note 9) 3,876
Additional paid-in capital 7,640,045
Accumulated deficit (10,601,591)
-----------------
Total Stockholders' Equity (Deficit) (2,957,425)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,080,720
=================
</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,
--------------------------------------
2000 1999
------------------ -----------------
SALES
<S> <C> <C>
Sales $ 4,828,053 $ 3,996,739
Cost of sales 3,640,588 3,129,642
------------------ -----------------
Gross Profit 1,187,465 867,097
------------------ -----------------
EXPENSES
General and marketing expenses 1,442,181 1,772,155
Depreciation and amortization 18,929 169,420
------------------ -----------------
Total Expenses 1,461,110 1,941,575
------------------ -----------------
LOSS FROM OPERATIONS (273,645) (1,074,478)
------------------ -----------------
OTHER INCOME AND (EXPENSES)
Loss on write-off of GCA (1,434,239) -
Writedown of goodwill - (1,568,215)
Other income (expenses) 3,541 (50,139)
Gain on sale of assets - 45,639
Interest expense (584,355) (561,335)
------------------ -----------------
Total Other Income and (Expenses) (2,015,053) (2,134,050)
------------------ -----------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (2,288,698) (3,208,528)
------------------ -----------------
DISCONTINUED OPERATIONS
Loss from operations of Quade and USPA (Note 2) - (252,972)
Gain on disposal of USPA (Note 2) 867,587 -
------------------ -----------------
Total Discontinued Operations 867,587 (252,972)
------------------ -----------------
INCOME TAXES - -
------------------ -----------------
NET LOSS (1,421,111) (3,461,500)
------------------ -----------------
OTHER COMPREHENSIVE LOSS
Loss on valuation of marketable securities - (435,188)
------------------ -----------------
Total Other Comprehensive Loss - (435,188)
------------------ -----------------
NET COMPREHENSIVE LOSS $ (1,421,111) $ (3,896,688)
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations (Continued)
For the Years Ended
March 31,
--------------------------------------
2000 1999
------------------ -----------------
BASIC LOSS PER SHARE OF COMMON STOCK -
<S> <C> <C>
CONTINUING OPERATIONS $ (0.64) $ (1.03)
================== =================
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ 0.24 $ (0.08)
================== =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,549,495 3,124,224
================== =================
</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
March 31, 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)
========= ============ ======= =========== =========== =========== ==============
</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 Cash Flows
For the Years Ended
March 31,
--------------------------------------
2000 1999
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (1,421,111) $ (3,461,500)
Adjustments to reconcile net loss to net cash
(used) by operating activities, net of effect of
mergers:
Gain on sale of USPA, Ltd. (867,587) -
Depreciation and amortization 294,188 449,553
Write-down of goodwill - 1,568,215
Stock option and stock for services 107,927 19,683
Loss on write-off of GCA marketable securities 1,434,239 -
Gain on sale of marketable securities - 45,639
Changes in operating assets and liabilities:
(Increase) in accounts receivable (70,169) (294,785)
Decrease in inventory 61,458 143,235
(Increase) decrease in other assets (86,959) 97,103
Increase (decrease) in accounts payable and other
current liabilities 497,577 (106,046)
Increase in deferred revenue 10,000 10,000
Increase in reserve for discontinued operations 74,865 67,794
------------------ -----------------
Net Cash (Used) by Operating Activities 34,428 (1,461,109)
------------------ -----------------
INVESTING ACTIVITIES
Proceeds from sale of USPA, Ltd. 221,470 -
Proceeds from sale of marketable securities 33,059 255,798
Purchases of property and equipment (62,876) (309,006)
------------------ -----------------
Net Cash (Used) by Investing Activities 191,653 (53,208)
------------------ -----------------
FINANCING ACTIVITIES
Net proceeds on line of credit 48,326 367,845
Payments on long-term debt and capital lease obligations (347,260) (680,294)
Note payable borrowings 39,800 1,794,070
Issuance of common stock for cash - 60,000
------------------ -----------------
Net Cash Provided by Financing Activities (259,134) 1,541,621
------------------ -----------------
INCREASE (DECREASE) IN CASH (33,053) 27,304
CASH, BEGINNING OF YEAR 41,967 14,663
------------------ -----------------
CASH, END OF YEAR $ 8,914 $ 41,967
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
For the Years Ended
March 31,
--------------------------------------
2000 1999
------------------ -----------------
CASH PAID FOR
<S> <C> <C>
Interest $ 344,901 $ 233,133
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services and options $ 107,927 $ 19,683
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. 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).
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 $63,822 at March 31, 2000.
F-11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
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.
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.
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 $(0.64) and
$(1.03) for the years ended March 31, 2000 and 1999,
respectively. Basic net (loss) income from discontinued
operations per common share and diluted net loss from
discontinued operations per common share were $0.24 and $(0.08),
respectively. Weighted average common shares outstanding were
3,549,495 and 3,124,224 for the years ended March 31, 2000 and
1999, respectively.
F-12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. 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.
l. 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.
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.
n. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
F-13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Prior Period Reclassification
Certain 1999 amounts have been reclassified to conform to the
presentation of the 2000 consolidated financial statements.
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 licenses 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.
F-14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
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 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.
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 March 31, 2000, the Company
had a payable of $416,171 for net funds advanced from this
accounts receivable line of credit. The Company received
$3,892,926 and $1,163,873 from the sale of receivables for the
year ended March 31, 2000 and 1999 and recognized $95,606 and
$24,560 in interest expense from the discount of selling these
receivables, respectively.
F-15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 4 - NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
March 31,
2000
-----------------
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable in
monthly installments of $7,000, including interest. Due on demand. $ 26,603
Convertible subordinated debentures, originally due June 30, 1996
bearing interest at 12% per annum. Interest payable quarterly. 187,000
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. 54,912
-----------------
Subtotal 609,523
Less current portion (546,542)
-----------------
Long-term portion $ 62,981
=================
Maturities of long-term debt are as follows:
March 31, 2001 $ 546,542
March 31, 2002 62,981
-----------------
$ 609,523
</TABLE>
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
<TABLE>
<CAPTION>
March 31,
2000
-----------------
<S> <C>
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. 45,204
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. 209,289
-----------------
Subtotal 1,293,846
Less current portion (69,797)
-----------------
Long-term portion $ 1,224,049
=================
</TABLE>
F-16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 5 - NOTES PAYABLE, RELATED PARTIES (Continued)
Maturities of notes payable, related parties are as follows:
March 31, 2001 $ 69,797
March 31, 2002 1,039,353
March 31, 2003 114,899
-----------------
$ 1,224,049
NOTE 6 - CAPITAL LEASES
Property and equipment payments under capital leases as of March
31, 2000 is summarized as follows:
<TABLE>
<CAPTION>
Year End
March 31,
<S> <C>
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)
------------
Present value of net minimum lease payments 691,826
Less current portion (302,551)
------------
Long-term portion of capital lease obligations $ 389,275
============
</TABLE>
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.
F-17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
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 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 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.
F-18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 10 - STOCK OPTIONS (Continued)
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. The options expire September 1, 2001, are not
transferrable and are exercisable at any time at the following
rates:
85,000 shares 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.
F-19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 10 - STOCK OPTIONS (Continued)
For the pro forma disclosures, the options' estimated fair value
was amortized over their expected ten-year life. The fair value
for these options was estimated at the date of grant using an
option pricing model which was designed to estimate the fair
value of options which, unlike employee stock options, can be
traded at any time and are fully transferable. In addition, such
models require the input of highly subjective assumptions,
including the expected volatility of the stock price. Therefore,
in management's opinion, the existing models do not provide a
reliable single measure of the value of employee stock options.
The following weighted-average assumptions were used to estimate
the fair value of these options:
March 31,
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.
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.
F-20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
NOTE 13 - BUSINESS SEGMENTS (Continued)
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 2000 $ 4,415,801 $ 412,252
1999 3,223,417 773,322
Operating income (loss)
applicable to industry
segment 2000 181,348 (202,951)
1999 (307,406) (355,182)
General corporate expenses
not allocated to industry
segments 2000 $ 252,041
1999 411,890
Writedown of goodwill 2000
1999 (1,568,215)
Interest expense 2000 (339,253) (38,746) (206,356)
1999 (269,949) (60,442) (229,944)
Other income (expenses)
including interest and gain
and loss on write-down of
marketable securities 2000 7,469 (4,174) (1,433,994)
1999 (34,493) 29,167 5,144
Income (loss) from
discontinued operations 2000 867,587
1999 (252,972)
Assets 2000 1,893,576 84,391 102,753
Depreciation and
amortization 2000 279,260 12,013 2,915
1999 261,925 34,180 153,448
Property and equipment
acquisitions 2000 272,468 6,007
1999 301,400 7,606
</TABLE>
F-21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2000 and 1999
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.
F-22
