UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1999;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
------------------------------------------
(Exact name of registrant as specified in its charter)
--------------
UTAH 87-0401400
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
--------------
2035 N.E. 181st, Gresham, OR 97230
----------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 492-1500
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
As of February 10, 2000, the Registrant had outstanding 3,640,953
shares of Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1999 and
March 31, 1999 3
Condensed Consolidated Statements of Operations - Nine months ended
December 31, 1999 and 1998 and Three months ended December 31, 1999
and 1998 5
Statements of Stockholders' Equity 6
Condensed Consolidated Statements of Cash Flows - Nine months ended
December 31, 1999 and 1998 and Three months ended December 31, 1999
and 1998 8
Notes to Condensed Consolidated Financial Statements - December
31, 1999 10
Item 2: Management's Discussion and Analysis or Plan of Operation 27
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
December 31, March 31,
1999 1999
------------------ -----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 24,146 $ 41,967
Accounts receivable, net (Note 1) 556,863 516,660
Inventory (Note 1) 283,433 293,768
Prepaid and other current assets 14,193 15,400
Marketable securities (Note 1) 9,063 157,500
Net assets of discontinued operations (Note 14) - 282,508
------------------ -----------------
Total Current Assets 887,698 1,307,803
------------------ -----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 433,202 395,253
Capital leases 1,251,390 1,090,032
------------------ -----------------
Total depreciable assets 1,684,592 1,485,285
Less: accumulated depreciation (550,033) (355,492)
------------------ -----------------
Net Property and Equipment 1,134,559 1,129,793
------------------ -----------------
OTHER ASSETS
Deposits 14,047 -
Marketable securities (Note 1) 63,469 857,938
------------------ -----------------
Total Other Assets 77,516 857,938
------------------ -----------------
TOTAL ASSETS $ 2,099,773 $ 3,295,534
================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, March 31,
1999 1999
------------------ -----------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 371,083 $ 366,028
Accrued expenses and other current liabilities 796,929 397,800
Line of credit (Note 3) 377,166 367,845
Current portion of notes payable (Note 4) 272,885 587,323
Current portion of notes payable, related parties (Note 5) 1,082,674 47,104
Current portion of capital lease obligations (Note 6) 303,595 282,497
------------------ -----------------
Total Current Liabilities 3,204,332 2,048,597
------------------ -----------------
LONG-TERM DEBT
Deferred revenue 10,000 10,000
Reserve for discontinued operations (Note 2) 718,225 660,123
Notes payable (Note 4) 244,197 1,001,819
Notes payable, related parties (Note 5) 302,514 1,395,148
Capital lease obligations (Note 6) 419,788 495,030
------------------ -----------------
Total Long-Term Debt 1,694,724 3,562,120
------------------ -----------------
Total Liabilities 4,899,056 5,610,717
------------------ -----------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 94,953
Series B shares, 150,000 Series C shares 245 245
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 4,376,773
shares issued and 3,640,953 outstanding. (Note 9) 3,640 3,174
Other comprehensive losses (1,378,095) (435,188)
Additional paid-in capital 7,456,522 7,297,066
Accumulated deficit (8,881,595) (9,180,480)
------------------ -----------------
Total Stockholders' Equity (Deficit) (2,799,283) (2,315,183)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,099,773 $ 3,295,534
================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 3,466,627 $ 2,847,151 $ 1,397,538 $ 1,094,036
COST OF SALES 2,551,360 2,337,293 989,471 820,871
--------------- --------------- ---------------- ---------------
GROSS PROFIT 915,267 509,858 408,067 273,165
--------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 22,694 148,380 7,077 62,156
General expenses 1,053,039 1,351,185 335,893 388,387
--------------- --------------- ---------------- ---------------
Total General and Administrative Expenses 1,075,733 1,499,565 342,970 450,543
--------------- --------------- ---------------- ---------------
GAIN (LOSS) FROM OPERATIONS (160,466) (989,707) 65,097 (177,378)
-------------- ---------------- ---------------- ---------------
OTHER INCOME AND (EXPENSES)
Other income and expenses 20,359 50,964 (444) 3,140
Gain on sale of assets - 48,100 - -
Interest expense (428,223) (383,963) (149,807) (141,606)
--------------- --------------- ---------------- ---------------
Total Other Income and (Expenses) (407,864) (284,899) (150,251) (138,466)
--------------- --------------- ---------------- ---------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (568,330) (1,274,606) (85,154) (315,844)
--------------- --------------- ---------------- ---------------
DISCONTINUED OPERATIONS
Gain from sale of USPA 873,086 - - -
Loss from operations of USPA (5,871) (47,289) - (57,490)
--------------- --------------- ---------------- ---------------
Total Discontinued Operations 867,215 (47,289) - (57,490)
--------------- --------------- ---------------- ---------------
INCOME TAXES - - - -
--------------- --------------- ---------------- ---------------
NET INCOME (LOSS) $ 298,885 $ (1,321,895) $ (85,154) $ (373,334)
=============== =============== ================ ===============
OTHER COMPREHENSIVE GAIN (LOSS)
Gain (loss) on valuation of marketable securities $ (942,907) $ (603,872) $ (232,313) $ (1,056,776)
Total Other Comprehensive Gain (Loss) (942,907) (603,872) (232,313) (1,056,776)
--------------- --------------- ---------------- ----------------
NET COMPREHENSIVE GAIN (LOSS) $ (644,022) $ (1,925,767) $ (317,467) $ (1,430,110)
=============== ============== =============== ===============
BASIC LOSS PER SHARE
OF COMMON STOCK -
CONTINUING OPERATIONS $ (0.16) $ (0.41) $ (0.02) $ (.13)
=============== ============== =============== ===============
BASIC LOSS PER SHARE
OF COMMON STOCK
DISCONTINUED OPERATIONS $ .24 $ (02) $ - $ (0.02)
=============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Deficit)
December 31, 1999 and 1998
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, 1997 1,835,486 $ 1,835 252,220 $ 252 $ - $ 13,021,721 $ (9,966,100)
Stock issuance of a subsidiary
for payment of interest - - - - - 143,166 -
Preferred B stock conversion
into common stock 11,995 12 (7,267) (7) - - -
Common stock issued for
services 399,000 399 - - - 388,261 -
Expense recognized for
vested stock options - - - - - 52,498 -
Eliminate GVI equity for
merger with U.S. Golf
Communities (Note 2) - - - - - (8,406,498) 4,687,868
Stock issued for cash 24,000 24 - - - 29,976 -
Stock issued for PPW
acquisition (Note 2) 258,782 259 - - - 1,293,651 -
Stock issued to FTI
shareholders (Note 2) 400,000 400 - - - 499,600 -
Stock options issued to FTI
shareholders - - - - - 3,885 -
Net loss for the year ended
March 31, 1998 - - - - - - (440,748)
----------- ------------ ------- ----------- ----------- ------------ ------------
Balance, March 31, 1998 2,929,263 $ 2,929 244,953 $ 245 $ - $ 7,026,260 $ (5,718,980)
----------- ------------ ------- ----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Continued)
December 31, 1999 and 1998
Common Stock Preferred Stock Other Additional
---------------------------- ------------------------ Comprehensive Paid-In Accumulated
Shares Amount Shares Amount Loss Capital Deficit
-------------- ------------ ----------- ----------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 2,929,263 $ 2,929 244,953 $ 245 $ - $ 7,026,260 $ (5,718,980)
Stock issued for cash 48,000 48 - - - 59,954 -
Stock issued for Quade
acquisition (Note 2) 238,333 238 - - - 417,678 -
Stock adjustment on PPW
acquisition (Note 2) (45,310) (45) - - - (226,505) -
Expense recognized for
vested options - - - - - 17,496 -
Stock issued for loan 4,000 4 - - - 2,183 -
Loss on valuation of
marketable securities - - - - (435,188) - -
Net loss for the year ended
March 31, 1999 - - - - - - (3,461,500)
----------- ------------ ------- ----------- ----------- ------------ ------------
Balance, March 31, 1999 3,174,286 3,174 244,953 245 (435,188) 7,297,066 (9,180,480)
Loss on valuation of
marketable securities - - - - (942,907) - -
Expense recognized for
vested options - - - - - 13,122 -
Stock issued for Quade
acquisition (Note 2) 451,667 451 - - - 144,099 -
Stock issued for consulting
services 15,000 15 - - - 2,235 -
Net income for the nine months
ended December 31, 1999 - - - - - - 298,885
----------- ------------ ------- ----------- ----------- ------------ ------------
Balance, December 31, 1999 3,640,953 $ 3,640 244,953 $ 245 $(1,378,095) $ 7,456,522 $ (8,881,595)
========= =========== ======= =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 298,885 $ (1,321,895) $ (85,154) $ (373,334)
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of USPA, Ltd. (869,336) - - -
Depreciation and amortization 211,860 340,818 70,160 112,641
Common sock issued for services and interest 15,357 6,557 4,374 -
Gain (loss) on sale of marketable securities - (48,100) - -
Changes in operating assets and liabilities net of
Quade acquisition:
(Increase) decrease in inventory 10,335 52,052 (4,915) 48,770
(Increase) decrease in accounts receivable (40,203) (100,176) 3,184 (70,826)
Increase (decrease) in other current assets 1,207 76,996 (4,293) -
Increase (decrease) in accounts payable 5,055 (200,182) 12,559 (352,667)
Increase (decrease) in other current liabilities 540,152 150,169 94,833 (19,845)
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Operating Activities 173,312 (1,043,761) 90,748 (655,261)
--------------- --------------- --------------- ---------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities - 232,304 - -
Proceeds from sale of USPA, Ltd. 221,470 - - -
Purchases of property and equipment (37,949) (211,553) (19,505) (24,443)
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Investing Activities 183,521 (20,751) (19,505) (24,443)
--------------- --------------- --------------- ---------------
FINANCING ACTIVITIES
Stock issued for cash - 60,000 - -
Payments on notes payable and capital lease obligations (281,707) (720,992) (89,946) (564,448)
Proceeds from long-term borrowings - 1,199,077 - 1,049,073
Borrowings (payments) from related party debt (102,268) 390,000 (19,926) 68,300
Net (borrowings) payments on factoring line of credit 9,321 168,531 61,585 168,531
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Financing Activities (374,654) 1,096,616 (48,287) 721,456
--------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN CASH (17,821) 32,104 22,956 41,752
CASH, BEGINNING OF PERIOD 41,967 14,663 1,190 5,015
--------------- --------------- --------------- ---------------
CASH, END OF PERIOD $ 24,146 $ 46,767 $ 24,146 $ 46,767
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
CASH PAID FOR
<S> <C> <C> <C> <C>
Interest $ 314,321 $ 268,845 $ 88,494 $ 98,106
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 15,357 $ 6,557 $ 4,374 $ 4,374
Equipment purchased through capital
lease obligation $ 168,500 $ 144,312 $ 168,500 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Quarterly Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. The accompanying consolidated unaudited condensed
financial statements have been prepared in accordance with the
instructions to Form 10-QSB but do not include all of the information
and footnotes required by generally accepted accounting principles and
should, therefore, be read in conjunction with the Company's fiscal
1999 financial statements in Form 10-KSB. These statements do include
all normal recurring adjustments which the Company believes necessary
for a fair presentation of the statements. The interim operating
results are not necessarily indicative of the results for a full year.
b. Principles of Consolidation
The accompanying consolidated financial statements include American
Resources and Development Company and its subsidiaries, Fan-Tastic,
Inc. (FTI), Pacific Printing and Embroidery L.L.C. (PPW)
c. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high credit
quality financial institutions. The balances, at times, may exceed
federally insured limits.
In the normal course of business, the Company extends credit to its
customers.
f. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Property and Equipment
Property, equipment and capital leases are recorded at cost and are
depreciated or amortized over the estimated useful life of the related
assets, generally three to seven years. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
The costs of maintenance and repairs are charged to income as incurred.
Renewals and betterments are capitalized and depreciated over their
estimated useful lives.
h. Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosure of the fair
value of financial instruments held by the Company. SFAS 107 defines
the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The following methods and assumptions were used to estimate
fair value:
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term nature.
Marketable securities represent 145,000 shares of free trading GVI
stock valued at $9,062 and 1,015,000 shares of GVI stock pledged as
collateral on notes payable valued at $72,531. Any change in market
value from period to period will be reported as a separate component of
stockholders' equity until realized.
There was an unrealized loss of $1,378,094 in marketable securities at
December 31, 1999 due to a $1.00 decline in the Company's recorded cost
per GVI share.
i. Income Taxes
Income taxes consist of Federal Income and State Franchise taxes. The
Company has elected a March 31 fiscal year end for both book and income
tax purposes.
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting
for Income Taxes," which requires the asset and liability method of
accounting for tax deferrals.
j. Basic Loss Per Common Share
Basic 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.
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Basic Loss Per Common Share (Continued)
Basic net loss from continuing operations per common share and diluted
net loss from continuing operations per common share amounts,
calculated in accordance with SFAS 128, were ($0.02) and ($0.13) for
the quarters ended December 31, 1999 and 1998, respectively. Basic net
income (loss) from discontinued operations per common share was $0.00
and ($0.02), respectively. Weighted average common shares outstanding
were 3,640,953 and 3,218,982 for the quarters ended December 31, 1999
and 1998, respectively.
k. Revenue Recognition for Franchise Operations
Franchise fees are recognized as revenue when all material services
relating to the sale have been substantially performed by FTI. Material
services relating to the franchise sale include assistance in the
selection of a site and franchisee training. Revenue for contract
screen printing, embroidery and product sales are recognized when the
goods have been shipped.
l. Goodwill
The excess of the Company's acquisition cost over the fair value of the
net assets of the FTI acquisition resulted in a write-down of goodwill
of $756,797 for the year ended March 31, 1998. On March 31, 1998, the
Company also recognized goodwill of $1,696,412 from the purchase of
Pacific Print Works (aka Pacific Printing and Embroidery LLC). The
Company amortized $128,198 of goodwill from the PPW acquisition in
fiscal 1999. In the fourth quarter of fiscal 1999, the Company
wrote-off its remaining goodwill from the PPW acquisition due to a
permanent impairment, resulting in an additional expense of $1,568,215.
The Company recognizes goodwill from the excess of the purchase price
of its acquisitions over the fair value of the net assets acquired.
The Company evaluates the recoverability of goodwill and reviews the
amortization period on an annual basis. Several factors are used to
evaluate goodwill, including but not limited to: Management's plans for
future operations, recent operating results and projected, undiscounted
cash flows.
m. Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" during the year ended March
31, 1999. SFAS No. 130 established standards for reporting and display
of comprehensive income (loss) and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial
statements. This statement requires that an enterprise classify items
of other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a balance sheet. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company has retroactively
applied the provisions of this new standard by showing the other
comprehensive income (loss) for all years presented.
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
n. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
o. Prior Period Reclassification
Certain 1998 balances have been reclassified to conform to the
presentation of the 1999 consolidated financial statements.
NOTE 2 - MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, Inc. merged with U.S. Golf
Communities. U.S. Golf Communities is the controlling company in this
merger and subsequent to the merger the combined company's name changed
to Golf Communities of America (GCA). This merger resulted in a less
than 20% American Resources' ownership in GVI. Therefore, subsequent to
the merger, the Company's investment in GVI is reflected as an
investment in accordance with Financial Accounting Standards Board
Statement No. 121. Pro forma results of operations if the GVI merger
would have occurred at the beginning of fiscal 1997 would have resulted
in a decrease in net loss of $172,728 for the year ended March 31, 1998
and $0.83 per share.
In connection with the Company's management services relating to the
merger of GVI with U.S. Golf Communities and to settle all claims, and
obligations with the Company, GVI issued 862,000 shares of its
restricted common stock to the Company in July of 1998. A gain of
$1,720,387, net of expenses, was recognized for the year ended March
31, 1998. This gain was recognized for fiscal 1998 because it related
to prior year activities. The Company has a reserve for discontinued
operations of $660,123 at March 31, 1999.
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
In December 1997, the Company entered into a letter of intent for the
purchase of a contract screen printing and embroidery company, Pacific
Print Works (PPW). At March 31, 1998, $115,000 had been advanced to PPW
in the form of a note receivable. In May 1998, the Company acquired
over 80% of the outstanding shares of PPW. The merger is effective as
of March 31, 1998 as the Board of Directors of PPW had agreed to
transfer control of PPW effective March 31, 1998, except for
restrictions based on significant changes to operations. The
acquisition was accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to assets acquired
and liabilities assumed based on their fair market value at the date of
acquisition. Liabilities assumed in excess of assets acquired was
$629,252 and 213,472 shares of the Company's common stock were issued
to PPW shareholders with a guaranteed share value of $5.00 resulting in
goodwill of $1,686,411. Depending on PPW's performance over the next
three years, additional shares of the Company's common stock will be
issued for this acquisition if minimum earnings levels are met.
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITION (Continued)
Pacific Print and Embroidery, LLC (aka Pacific Print Works) (Continued)
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
---- --- ---- ------- -------
1999 $179,480 $ 538,200 28,754 86,261
2000 269,020 807,300 28,754 86,261
2001 357,900 1,073,700 28,754 86,261
Earnings before income taxes above the low level but below the high
level will result in common shares being issued based on the percentage
of actual earnings to the high earnings multiplied by the maximum
shares issuable for that year. For example, in fiscal 1999, earnings of
$300,000 would result in 48,083 shares of common stock being issued to
the PPW shareholders.
The following tables set forth certain unaudited pro forma condensed
combined financial information for the Company and PPW accounted for
under the purchase method of accounting.
The pro forma condensed combined statements of operations for the year
ended March 31, 1998 was prepared using the historical statements of
operations of the Company and PPW.
The pro forma condensed combined financial information was included for
comparative purposes only and does not purport to be indicative of the
results of operations that actually would have been obtained if the
merger had been effected at the dates indicated or results of
operations that may be obtained in the future.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
------------- ------------- ------------- ------------
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,389,970 $ - $ 2,389,970
Sales - merchandise and franchise fees 1,093,110 - - 1,093,110
------------- ------------- ------------- ------------
Total Sales 1,093,110 2,389,970 - 3,483,080
------------- ------------- ------------- ------------
COST OF SALES
Cost of sales - screenprinting and embroidery - 1,784,167 - 1,784,167
Cost of sales - merchandise 774,405 - - 774,405
------------- ------------- ------------- ------------
Total Cost of Sales 774,405 1,784,167 - 2,558,572
------------- ------------- ------------- ------------
Gross Profit 318,705 605,803 - 924,508
------------- ------------- ------------- ------------
EXPENSES
General and administrative expenses 1,447,285 771,624 121,229 2,340,138
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation 31,814 194,523 - 226,337
------------- ------------- ------------- ------------
Total Expenses 2,329,071 966,147 121,229 3,416,447
------------- ------------- ------------- ------------
Loss From Operations (2,010,366) (360,344) (121,229) (2,491,939)
------------- ------------- ------------- ------------
Other Income and (Expenses)
Other income 15,387 1,847 - 17,234
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (183,385) - (316,724)
------------- ------------- ------------- ------------
Total Other Income and (Expenses) 21,959 (181,538) - (159,579)
------------- ------------- ------------- ------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- ------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- ------------
INCOME TAXES - - - -
------------- ------------- ------------- ------------
Net Loss $ (440,748) $ (541,882) $ (121,229) $ (1,103,859)
============= ============= ============= ============
Loss Per Share $ (0.57) $ (2.07) $ - $ (0.80)
============= ============= ============= ============
</TABLE>
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Quade, Inc.
In 1997, Quade, Inc. acquired from the U.S. Polo Association the
exclusive master licenses rights to the US Polo name for the United
States and Canada. From its inception, Quade, Inc. had been developing
this property including signing agreements with four sub-licensees, and
serving as licensee for knit tops including t-shirts, fleece and polo
shirts.
On March 17, 1998, the Company signed a Letter of Intent to acquire one
hundred percent (100%) of the outstanding common stock of Quade, Inc.
On July 23, 1998, the Company completed its purchase of Quade by
issuing 213,333 shares of its common stock and by loaning Quade
$115,000, of which $40,000 had been loaned by June 30, 1998.
Effective October 8, 1998, the Company and Jordache Enterprises,
through its affiliate, Iron Will, Inc. ("Iron Will") formed a joint
venture company, U.S. Polo Association, Ltd. (US Polo), to hold the
master license granted by the US Polo Association and to perform all
licensing activities relating to the US Polo Association licenses and
trademarks for the United States and Canada. The Company and Iron Will
each own 50% of US Polo and management and the Board of Directors for
US Polo is shared equally by the Company and Iron Will. For its
ownership in US Polo, the Company contributed, through Quade, Inc., all
assets and liabilities relating to the business of the licensing of US
Polo including the master license and sublicense agreements in the US
Polo name and trademarks. Iron Will contributed $900,000. US Polo used
$613,384 of the $900,000 equity contribution to pay the note payable to
the former partner of Quade, Inc. The Company's investment in this
joint venture is accounted for under the equity method of accounting.
The Company's share of losses from this joint venture for the year
ended March 31, 1999 were $127,268.
In June 1999, the Company sold its 50% ownership in US Polo to Iron
Will (See Note 14). In addition, the Company and the former owner of
Quade amended the original stock purchase agreement. Under the
amendment, the additional 426,667 shares of common stock were issued to
the former owner of Quade without any additional earnings requirements
by Quade or US Polo and the $5.00 guarantee value of the common shares
issued to Quade was removed.
The following tables set forth certain unaudited pro forma condensed
combined financial information for the Company and Quade, Inc.
accounted for under the purchase method of accounting.
The pro forma condensed combined balance sheet was prepared using the
historical balance sheets of the Company and Quade, Inc. as of March
31, 1998. The pro forma condensed combined statements of operations for
Quade, Inc. for the year ended March 31, 1998 was prepared using the
historical statements of operations of the Company and Quade.
The pro forma condensed combined financial information was included for
comparative purposes only and does not purport to be indicative of the
results of operations or financial position that actually would have
been obtained if the merger had been effected at the dates indicated of
the financial position or results of operations that may be obtained in
the future.
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Unaudited Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources Quade Adjustments Combined
---------------- --------------- --------------- ----------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 14,663 $ - $ - $ 14,663
Marketable Securities 622,182 - - 622,182
Accounts receivable 221,875 - - 221,875
Inventory, merchandise 437,003 23,456 - 460,459
Notes receivable - - - -
Prepaid and other current
assets 44,882 109,779 - 154,661
---------------- --------------- --------------- ----------------
Total Current Assets 1,340,605 133,235 - 1,473,840
---------------- --------------- --------------- ----------------
PROPERTY AND
EQUIPMENT
Furniture, fixtures and
equipment 383,638 - - 383,638
Leased equipment 859,185 - - 859,185
----------------- --------------- --------------- ----------------
Total depreciable assets 1,242,823 - - 1,242,823
Less: accumulated
depreciation (118,889) - - (118,889)
---------------- --------------- --------------- ----------------
Net Property and
Equipment 1,123,934 - - 1,123,934
---------------- --------------- --------------- ----------------
OTHER ASSETS
Royalties receivable - 120,000 - 120,000
Investments 1,077,500 - - 1,077,500
Intangible assets 1,826,492 - 989,129 2,815,621
Deposit 68,104 - - 68,104
---------------- --------------- --------------- ----------------
Total Other Assets 2,972,096 120,000 989,129 4,081,225
---------------- --------------- --------------- ----------------
TOTAL ASSETS $ 5,436,635 $ 253,235 $ 989,129 $ 6,678,999
================ =============== =============== ================
</TABLE>
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Unaudited Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources Quade Adjustments Combined
---------------- --------------- --------------- ----------------
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 688,021 $ - $ - $ 688,021
Accrued expenses and
other current liabilities 393,494 244,411 - 637,905
Current portion of notes payable 419,781 651,868 (92,454) 979,195
Current portion of notes
payable - related parties 184,974 - - 184,974
Current portion of capital
lease obligations 303,475 - - 303,475
Total Current Liabilities 1,989,745 896,279 (92,454) 2,793,570
---------------- --------------- --------------- ----------------
LONG-TERM DEBT
Reserve for discontinued
operations 450,782 - - 450,782
Long-term portion of notes payable 14,155 - - 14,155
Long-term portion of capital
lease obligations 579,963 - - 579,963
Notes payable, related parties 1,091,536 - - 1,091,536
---------------- --------------- --------------- ----------------
Total Long-Term Debt 2,136,436 - - 2,136,436
---------------- --------------- --------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock 245 - - 245
Common stock 2,929 1,000 (762) 3,167
Additional paid-in capital 7,026,260 - 438,301 7,464,561
Accumulated deficit (5,718,980) (644,044) 644,044 (5,718,980)
---------------- --------------- --------------- ----------------
Total Stockholders' Equity 1,310,454 (643,044) 1,081,583 1,748,993
---------------- --------------- --------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,436,635 $ 253,235 $ 989,129 $ 6,678,999
================ =============== =============== ================
</TABLE>
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Unaudited Pro Forma Combined Statements of Operations
March 31, 1998
American Pro Forma
Resources Quade Adjustments Combined
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
SALES $ 1,093,110 $ 206,391 $ - $ 1,299,501
COST OF SALES 774,405 219,618 - 994,023
------------- ------------- ------------- --------------
Gross Profit (Loss) 318,705 (13,227) - 305,478
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 1,447,285 535,841 - 1,983,126
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation and amortization 31,814 - 72,831 104,643
------------- ------------- ------------- --------------
Total Expenses 2,329,071 535,841 72,831 2,937,741
------------- ------------- ------------- --------------
Loss From Operations (2,010,366) (549,068) (72,831) (2,632,265)
------------- ------------- ------------- --------------
Other Income and (Expenses)
Other income 15,387 - - 15,387
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (41,660) - (174,999)
------------- ------------- ------------- --------------
Total Other Income and Expenses 21,959 (41,660) - (19,701)
------------- ------------- ------------- --------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- --------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- --------------
INCOME TAXES - - - -
------------- ------------- ------------- --------------
Net Loss $ (440,748) $ (590,728) $ (72,831) $ (1,104,307)
============= ============= ============= ==============
Loss Per Share $ (0.24) $ (0.35) $ - $ (0.59)
============= ============= ============= ==============
</TABLE>
Pro forma adjustments include a $1,061,960 addition to intangible
assets for license and trademark rights net of fiscal 1998 pro forma
accumulated amortization of $72,831. License and trademark rights were
valued based on acquired liabilities over assets plus the value of the
Company's stock issued for Quade. Pro forma adjustment for additional
paid-in capital and common stock represent the value of common stock
issued for the acquisition. Pro forma adjustment for notes payable was
made to impute the note from Quade's former partner to its present
value at a 10% interest rate.
19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - LINE OF CREDIT
In November 1998, the Company entered into an accounts receivable
financing agreement to sell, with recourse, up to $1,000,000 of
receivables, net of a 15% collection reserve. The Company is charged
.065% daily for all receivables sold and uncollected under this
financing agreement. At March 31, 1999 and December 31, 1999, the
Company had a payable of $367,845 and $377,166, respectively, for net
funds advanced from this accounts receivable line of credit. The
Company received $1,163,873 from the sale of receivables for the year
ended March 31, 1999 and recognized $24,560 in interest expense from
the discount of selling these receivables.
NOTE 4 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable are comprised of the following:
December 31,
1999
-------------------
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest. Due on
demand. $ 26,603
Convertible subordinated debentures, originally due June 30, 1996
bearing interest at 12% per annum. Interest payable
quarterly. 187,000
Trade drafts payable, secured with inventory, payable in six
monthly installments beginning August 1999, with payments from
$1,909 to $3,021 per month. 10,329
Notes payable to a shareholder of PPW. Interest rates
average 10%, due on demand, unsecured. 244,196
Notes payable with three vendors with interest rates averaging
12%; partially secured by equipment, due in 2000. 48,954
-------------------
Subtotal 517,082
Less current portion (272,885)
-------------------
Long-term portion $ 244,197
===================
</TABLE>
20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4 - NOTES PAYABLE (Continued)
Maturities of long-term debt are as follows:
March 31, 2000 $ 272,885
March 31, 2001 244,197
March 31, 2002 -
March 31, 2003 -
------------
$ 517,082
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
Note payable to Miltex Industries, secured by 700,000 shares of
GVI and 600,000 shares of the Company's common stock. Interest at
15% with monthly principal and interest payments
of $11,000 with a final balloon payment September 2000. $ 721,970
Note payable to a shareholder, secured by GVI stock. Interest
payable monthly at 13.5% with interest and principal payments
of $5,000 per month. Due September 2000. 315,501
Note payable to a shareholder, interest payable monthly at 72%.
Due on demand. 45,203
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. 302,514
-----------------
Subtotal 1,385,188
Less current portion (1,082,674)
-----------------
Long-term portion $ 302,514
=================
</TABLE>
Maturities of notes payable, related parties are as follows:
March 31, 2000 $ 57,284
March 31, 2001 1,025,390
March 31, 2002 302,514
-----------------
$ 1,385,188
21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - CAPITAL LEASES
Property and equipment payments under capital leases as of March 31,
1999 is summarized as follows:
<TABLE>
<CAPTION>
Year End
March 31,
---------
<S> <C>
2000 $ 357,482
2001 318,944
2002 158,568
2003 61,669
2004 33,381
-----------------
Total minimum lease payments 930,044
Less interest and taxes (152,517)
-----------------
Present value of net minimum lease payments 777,527
Less current portion (282,497)
-----------------
Long-term portion of capital lease obligations $ 495,030
=================
</TABLE>
The Company recorded depreciation expense of $196,606 for the year
ended March 31, 1999.
NOTE 7 - INCOME TAXES
The Company had net operating loss carry-forwards available to offset
future taxable income. The Company has net operating loss
carry-forwards of approximately $7,500,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2014.
Deferred income taxes payable are made up of the estimated federal and
state income taxes on items of income and expense which due to
temporary differences between books and taxes are deferred. The
temporary differences are primarily caused by the use of the equity
method for reporting investment in subsidiaries. The deferred tax asset
is offset in full by a valuation allowance because it can not be
reasonably determined that the net operating loss will be useable.
NOTE 8 - PREFERRED STOCK
The shareholders of the Company have authorized 10,000,000 shares of
preferred stock with a par value of $0.001. The terms of the preferred
stock are to be determined when issued by the board of directors of the
Company.
SERIES B:
At March 31, 1999, there are 94,953 shares of series B preferred stock
issued and outstanding. The holders of these series B preferred shares
are entitled to an annual cumulative cash dividend of not less than
sixty cents per share. At March 31, 1999, there is a total of $352,589
of accrued and unpaid dividends related to the series B preferred stock
which have been included in the accompanying consolidated financial
statements. These series B preferred shares were convertible into
shares of the Company's common stock which conversion option expired
March 31, 1995.
22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 9 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which had been
offered to the holders of the Series B preferred stock and the
debentures. The shares have not been accepted by the holders of those
investments as of the date of the consolidated financial statements.
Additionally, the Company has issued 600,000 shares of common stock as
collateral for the note payable to Banque SCS (Note 5).
NOTE 10 -STOCK OPTIONS
In August 1997, the Company's Board of Directors approved the 1997
American Resources and Development Company Stock Option Plan (Option
Plan). Under the Option Plan, 500,000 shares of the Company's common
stock are reserved for issuance to Directors and employees. In August
1999, the Option Plan was amended to allow for issuance of up to one
million shares of the Company's common stock to Directors and
employees. Options are granted at a price and with vesting terms as
determined by the Board of Directors. In October 1997, the Board of
Directors granted options to purchase 140,000 shares of stock at $2.00.
These options are exercisable beginning March 31, 1998, over staggered
periods and expire after ten years. Compensation expense of $1,458 per
month will be recognized for 40,000 of the options issued over a 4 year
vesting period and $1,458 per month will be recognized for 100,000 of
the options over a 10 year vesting period. In July 1998, the Board of
Directors changed the terms of the 100,000 options vesting over 10
years. 25,000 of these options were fully vested and the remainder of
the options were canceled. As a result, compensation expense of $52,498
was recognized for the year ended March 31, 1998 for the vesting of
these options.
In December 1997, the Board of Directors granted options to purchase
39,000 shares of stock at $2.00. These options are exercisable
beginning March 31, 1998, are exercisable over staggered periods and
expire after ten years. No compensation expense was recognized, as the
option price was greater than the fair market value of the stock at the
date of the option grant.
In August 1999, the Board of Directors granted options to purchase
696,291 shares of stock at $.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.
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 for options issued in 1998 would be $30,904, in year
1 and $5,646 in years 2 and 3, respectively, with an increase in pro
forma expenses per share of $0.016 in year 1 and $0.003 in years 2 and
3. Pro forma expense for options issued in August 1999 would be $45,413
in fiscal 2000 and fiscal 2001, with an increase in pro forma expenses
per share of $.01 in fiscal 2000 and fiscal 2001, respectively.
23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 10- STOCK OPTIONS (Continued)
For the pro forma disclosures, the options' estimated fair value was
amortized over their expected ten-year life. The fair value for these
options was estimated at the date of grant using an option pricing
model which was designed to estimate the fair value of options which,
unlike employee stock options, can be traded at any time and are fully
transferable. In addition, such models require the input of highly
subjective assumptions, including the expected volatility of the stock
price. Therefore, in management's opinion, the existing models do not
provide a reliable single measure of the value of employee stock
options. The following weighted-average assumptions were used to
estimate the fair value of these options:
March 31,
1999
---------
Expected dividend yield 0%
Expected stock price volatility 70%
Risk-free interest rate 6.5%
Expected life of options (in years) 10
On January 22, 1999, the Company granted options to a consultant to
purchase up to 160,000 shares of the Company's common stock. The
consultant is to provide various investor and public relations services
through January 21, 2000 and the Company is recognizing an expense of
$6,000 over the term of the services based upon the value of the
options as calculated from an option pricing model. The options expire
in December 31, 2001, are not transferrable and are exercisable at any
time at the following rates:
40,000 shares at $0.50 per share; 40,000 shares at $1.00
per share; 40,000 shares at $2.00 per share; 40,000 shares
at $3.00 per share.
NOTE 11- COMMITMENTS AND CONTINGENCIES
Office Lease
The Company leases office and warehouse space in Salt Lake City, Utah
and Portland, Oregon and leases space for retail stores in various
locations. Lease commitments for the years ended March 31, 2000 through
March 31, 2003 are $269,526, $270,198, $224,391, and $34,698,
respectively.
Legal Proceedings
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's financial position, results of operations, or
liquidity.
24
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 12- GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. In order to carry out its
operating plans, the Company will need to obtain additional funding
from outside sources. The Company has received funds from a private
placement and debt funding and plans to continue making private stock
and debt placements in addition to selling its investment in GVI. There
is no assurance that the Company will be able to obtain sufficient
funds from other sources as needed or that such funds, if available,
will be obtainable on terms satisfactory to the Company.
NOTE 13- BUSINESS SEGMENTS
Effective March 31, 1999, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." Prior period
amounts have been restated to conform to the requirements of this
statement. The Company conducts its operations principally in the
contract screen printing and embroidery industry with Pacific Print
works, Inc. and the retail franchise industry with Fan-Tastic, Inc.
Certain financial information concerning the Company's operations in
different industries is as follows:
<TABLE>
<CAPTION>
For the
Nine Months
Ended Pacific Corporate
December 31, Print Works Fan-Tastic Unallocated
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales 1999 $ 3,104,767 $ 361,860
1998 2,167,054 680,097
Operating income (loss)
applicable to industry
segment 1999 97,774 (110,389)
1998 (415,998) (215,647)
General corporate expenses
not allocated to industry
segments 1999 $ 147,848
1998 355,876
Interest expense 1999 (244,729) (28,420) (154,830)
1998 (175,094) (40,527) (168,342)
Other income (expenses)
including interest and gain
on sale of securities 1999 18,365 1,749 -
1998 23,222 (4,163) 80,005
</TABLE>
25
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 13- BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
For the
Nine Months
Ended Pacific Corporate
December 31, Print Works Fan-Tastic Unallocated
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Gain from discontinued
operations 1999 $ 867,215
1998 (47,289)
<CAPTION>
As of
December 31,
1999 and for
The Nine Months
Then Ended
------------
<S> <C> <C> <C> <C>
Assets 1999 $ 1,848,597 $ 174,105 $ 62,227
Depreciation and
amortization 1999 199,229 9,065 3,566
1998 202,567 25,153 113,098
Property and equipment
acquisitions 1999 218,987 - 961
</TABLE>
NOTE 14- NET ASSETS OF DISCONTINUED OPERATIONS
In March 1999, the Company's Board of Directors made a decision to sell
its 50% ownership in U.S. Polo to Iron Will. In June 1999, the Company
closed its sale of U.S. Polo ownership to Iron Will. For its sale of
U.S. Polo, the Company received the cancellation of $1,000,000 in debt
from Jordache Enterprises, the cancellation of $13,185 in interest and
cash of $221,470. In addition, the Company received $74,040 in October
1999 from the collection of U.S. Polo royalties earned through May 31,
1999, and could receive up to another $30,000.
The results of operations of Quade, Inc. and U.S. Polo for the year
ended March 31, 1999 generated a loss of $252,972 on sales of $232,712.
The net assets of the discontinued operations at March 31, 1999 are
included in the consolidated balance sheet as a single amount of
$282,508 which consists primarily of receivables, inventories, accounts
payable and the Company's investment accounted for under the equity
method in U.S. Polo. A gain on the disposal of U.S. Polo was recognized
for the nine months ended September 30, 1999 for $873,086. No income
tax benefit or expense has been attributed to the disposal of U.S.
Polo.
26
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Forward Looking Statements
The statements in this report concerning certain expected future expenses as a
percentage of net sales, future financing and working capital requirements and
availability constitute forward - looking statements that are subject to risks
and uncertainties. These risks could cause actual results or activities to
differ materially from those expected. Factors that could adversely affect cost
of sales and general expenses as a percentage of net sales include, but are not
limited to, increased competitive factors, changes in consumer preferences, as
well as an inability to increase sales. Other factors could include a failure to
adequately fund operations. In addition, unfavorable business conditions, or
changes in the general economy could have adverse effects. Factors that could
materially affect future financing requirements include, but are not limited to,
the ability to obtain additional financing on acceptable terms. Factors that
could materially affect future working capital requirements include, but are not
limited to, the factors listed above and the industry factors and general
business conditions noted above.
The following table sets forth, for the periods indicated, selected Company
income statement data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Quarter Ended December 31, Nine Months Ended December 31,
-------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
- ---------------------------------------------------------------------------------------------------------------
Cost of sales 70.8% 75.0% 73.6% 82.1%
- ---------------------------------------------------------------------------------------------------------------
Gross profit 29.2% 25.0% 26.4% 17.9%
- ---------------------------------------------------------------------------------------------------------------
General expenses 24.0% 35.5% 30.4% 47.5%
- ---------------------------------------------------------------------------------------------------------------
Depreciation and amortization 0.5% 5.7% 0.7% 5.2%
- ---------------------------------------------------------------------------------------------------------------
Loss from operations 4.7% -16.2% -4.6% -34.8%
- ---------------------------------------------------------------------------------------------------------------
Other income and expenses 0.0% 0.3% 0.6% 1.8%
- ---------------------------------------------------------------------------------------------------------------
Gain on sale of assets 0.0% 0.0% 0.0% 1.7%
- ---------------------------------------------------------------------------------------------------------------
Interest expense -10.7% -12.9% -12.4% -13.5%
- ---------------------------------------------------------------------------------------------------------------
Loss before income taxes
and discontinued operations -6.1% -28.9% -16.4% -44.8%
- ---------------------------------------------------------------------------------------------------------------
Discontinued operations 0.0% -5.3% 25.0% -1.7%
- ---------------------------------------------------------------------------------------------------------------
Income taxes 0.0% 0.0% 0.0% 0.0%
- ---------------------------------------------------------------------------------------------------------------
Net income -6.1% -34.1% 8.6% -46.4%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For the three months ended December 31, 1999 ("third quarter fiscal 2000"),
compared to the three months ended December 31, 1998 ("third quarter fiscal
1999"):
Sales for the three months ended December 31, 1999 were $1,397,538 compared to
$1,094,036 for the three months ended December 31, 1998. Pacific Print Works
("PPW") sales for the three months ended December 31, 1999 were $1,217,906
compared to $832,586 for the three months ended December 31, 1998. The $385,320
increase in PPW's revenue was primarily due to an increase in sales to PPW's two
largest customers. The increase with these customers is largely due to PPW's
high density printing capabilities in addition to the overall quality of the
printing and related services.
27
<PAGE>
Sales for Fan-Tastic declined by $81,817 which was primarily due to third
quarter fiscal 2000 sales coming from two stores as opposed to four stores in
third quarter.
Gross profit and the gross profit as a percentage of sales increased for the
third quarter fiscal 2000 compared to the third quarter fiscal 1999, $408,067
and 29.2% compared to $273,165 and 25%. The increase in gross profit was
primarily due to the increase in PPW revenues as noted above. The gross profit
from PPW operations increased by approximately $226,000.
General and administrative expenses for the third quarter fiscal 2000 were
$335,893 as compared to $388,387 for the third quarter fiscal 1999. Fan-Tastic
saw a decline in general and administrative expenses of approximately $41,000
due to less rent and payroll expenses resulting from the closure of 2 stores.
Depreciation and amortization expenses were $7,077 in the third quarter fiscal
2000 compared to $62,156 for the third quarter fiscal 1999. This decrease is
primarily due to zero goodwill amortization in the third quarter fiscal 2000 as
the Company wrote off all goodwill from the PPW acquisition at March 31, 1999.
The gain (loss) from operations before other income and expenses for the third
quarter fiscal 2000 improved to a gain of $65,097 compared to a loss of $177,378
for the third quarter fiscal 1999. The improvement is primarily due to the
increase in sales and the reduction in general and administrative expenses as
discussed above.
Interest expense for the third quarter fiscal 2000 was $149,807 compared to
$141,606 for the prior year.
For the nine months ended December 31, 1999 ("YTD FISCAL 2000"), compared to the
nine months ended December 31, 1998 ("YTD FISCAL 1999"):
Sales for the nine months ended December 31, 1999 were $3,466,627 compared to
$2,847,151 for the nine months ended December 31, 1998. Pacific Print Works
("PPW") sales for the nine months ended December 31, 1999 were $3,104,767
compared to $2,167,054 for the nine months ended December 31, 1998. The $937,713
or 43% increase in PPW's revenue was primarily due to an increase in sales to
PPW's two largest customers. The increase with these customers is largely due to
PPW's high density printing capabilities in addition to the overall quality of
the printing and related services.
Sales for Fan-Tastic declined by approximately $318,000 which was primarily due
to 1) YTD FISCAL 2000 sales coming from the equivalent of 2.4 stores over 9
months as opposed to 4.7 stores over the 9 months ended December 31, 1998 and 2)
franchise sales of $68,000 in YTD Fiscal 2000 as opposed to 122,000 for YTD
Fiscal 1999.
Gross profit and the gross profit as a percentage of sales increased for the YTD
Fiscal L 2000 compared to the YTD Fiscal 1999, ($915,267 and 26.4% compared to
$509,858 and 17.9%). The increase in gross profit was primarily due to the
increase in PPW gross profit for the YTD Fiscal 2000 compared to YTD Fiscal 1999
($720,601 vs. $168,337) that was partially reduced by a decline in Fan-Tastic
sales and gross profit as noted above.
28
<PAGE>
General and administrative expenses for the YTD Fiscal 2000 were $1,053,039 as
compared to $1,351,185 for the YTD Fiscal 1999. Fan-Tastic saw a decline in
general and administrative expenses of approximately $236,000 due to less rent
and payroll expenses resulting from the closure of the equivalent 2.3 stores
over the nine months ended December 31, 1999. The Company also expensed $55,000
in debt acquisition costs in the YTD Fiscal 1999 that were not recurring in the
YTD Fiscal 2000.
Depreciation and amortization was $22,694 in the YTD Fiscal 2000 compared to
$148,380 for the YTD Fiscal 1999. This decrease is primarily due to zero
goodwill amortization in the YTD Fiscal 2000 as the Company wrote off all
goodwill from the PPW acquisition at March 31, 1999.
The loss from operations for the YTD Fiscal 2000 was reduced to $160,463
compared to $989,707 for the YTD Fiscal 1999. The reduction in the loss is
primarily due to the increase in sales and the reduction in general and
administrative expenses as discussed above.
Interest expense for the third quarter 99 was $278,417 compared to $242,365 for
the prior year, which was due to a greater amount of debt outstanding for YTD
Fiscal 2000.
The Company had a $873,086 gain from the sale of its 50% ownership in USPA Ltd.
in the YTD Fiscal 2000. For its sale of USPA Ltd., in June 1999 the Company
received the cancellation of $1,000,000 in debt from Jordache Enterprises, the
cancellation of $13,185 in interest and cash of $221,470. In addition, the
Company received $74,040 in October 1999 from the collection of U.S. Polo
royalties earned through May 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 the Company had total assets of $2,099,773, total
liabilities of $4,899,056 and total stockholders deficit of $2,799,283 compared
with total assets of $3,295,534, total liabilities of $5,610,717 and total
stockholders deficit of $2,315,183 at March 31, 1999. The changes in assets,
liabilities and stockholders deficit is due primarily to the decline in value of
the Company's investment in GVI. At March 31, 1999 the Company's current ratio
was approximately .47 current assets to 1 current liabilities compared to .28
current assets to 1 current liabilities at December 31, 1999. The decline in the
Company's current ratio is primarily due to $990,000 notes payable with related
parties becoming current at September 30, 1999. The Company will seek to convert
certain debt to equity, which will improve its current ratio.
Management intends to improve its overall financial structure and provide
operating capital through private placement of the Company's common stock and
seeking the conversion of debt and preferred stock to common stock. There is no
assurance that the Company will be able to obtain sufficient funds from other
sources as needed or that such funds, if available, will be obtainable on terms
satisfactory to the Company.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
29
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
/s/ B. Willes Papenfuss President, Chief Executive February 9, 2000
- ----------------------- Officer and Director
B. Willes Papenfuss (Principal Executive
Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and February 9, 2000
- ------------------------ Director (Chief Financial
Timothy M. Papenfuss Officer, Chief Accounting
Officer and Controller)
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 24,146
<SECURITIES> 9,063
<RECEIVABLES> 556,863
<ALLOWANCES> 0
<INVENTORY> 283,433
<CURRENT-ASSETS> 887,698
<PP&E> 1,684,592
<DEPRECIATION> (550,033)
<TOTAL-ASSETS> 2,099,773
<CURRENT-LIABILITIES> 3,204,332
<BONDS> 0
0
245
<COMMON> 3,640
<OTHER-SE> (2,779,283)
<TOTAL-LIABILITY-AND-EQUITY> 2,099,773
<SALES> 3,466,627
<TOTAL-REVENUES> 3,466,627
<CGS> 2,551,356
<TOTAL-COSTS> 2,551,356
<OTHER-EXPENSES> 1,075,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (428,223)
<INCOME-PRETAX> (568,327)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,327)
<DISCONTINUED> 867,215
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (298,888)
<EPS-BASIC> (0.163)
<EPS-DILUTED> .248
</TABLE>
