U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--- ---
Commission File No. 0-21472
AMERICAN RESOURCES OF DELAWARE, INC.
(Name of small business issuer in its charter)
DELAWARE 86-0713506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Morgan Street, P. O. Box 87
Versailles, Kentucky 40383
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 606-873-5455
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
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 xx NO
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a
court.
YES xx NO
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the last practicable date:
On September 30, 1997, 10,193,676 shares of the Registrant's
Common Stock, par value $.00001 per share, were issued and
outstanding and 268,851 shares of the Registrant's Series 1993 8%
Convertible Preferred Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ; No xx .
---- --------
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
FORM 10-QSB/A1
For the Quarter Ended September 30, 1997
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION 1
Item 1 - Financial Statements 1
Introduction to the Financial Statements 2
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations - Quarter and Nine Months
Ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of
Stockholders' Equity - Nine Months
Ended September 30, 1997 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1997 and 1996 7
Notes to Condensed Consolidated
Financial Statements 9
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17
PART II - OTHER INFORMATION 17
Item 4 - Submission of Matters to a Vote
of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signature page 18
ii
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Financial Statements for the nine months ended September
30, 1997 and 1996 include, in the opinion of the Company, all
adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the results of operations for such
periods. Results of operations for the nine months ended September
30, 1997, are not necessarily indicative of results of operations
which will be realized for the year ending December 31, 1997. The
Financial Statements should be read in conjunction with the
Company's Report on Form 10-KSB for the year ended December 31,
1996.
The Financial Statements for the nine months ended September
30, 1997 and 1996 as previously filed are hereby amended solely for
the purpose of correcting a typographical error in the 1996
comparative numbers contained on the Condensed, Consolidated
Statement of Cash Flows (Unaudited), specifically, "Increase
(decrease) in cash" has been changed to correctly reflect
$3,319,012 rather than ($4,945,073).
1
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARY
--------------
CONDENSED, CONSOLIDATED FINANCIAL
---------------------------------
STATEMENTS
----------
FOR THE QUARTER AND NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, 1997 AND 1996
---------------------------
2
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARY
--------------
CONDENSED, CONSOLIDATED BALANCE SHEETS
--------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1997 DECEMBER 31,
---- ------------
(UNAUDITED) 1996(*)
----------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 651,219 $ 353,419
Accounts and notes receivable, net 3,841,161 7,037,415
Deferred tax asset 16,319 16,319
Prepaid expenses and other 576,952 344,850
----------- -----------
Total current assets 5,085,651 7,752,003
Oil and gas properties, at cost
(successful efforts method) 52,449,250 48,136,759
Property and equipment, at cost 12,215,713 11,754,079
----------- -----------
64,664,963 59,890,838
Less accumulated depreciation,
depletion and amortization (11,641,922) (6,150,632)
----------- -----------
Net property and equipment 53,023,041 53,740,206
Other assets:
Investment in unconsolidated subsidiaries 291,219 485,610
Call advance 1,500,000 1,500,000
Notes receivable 419,612 432,576
Deferred financing costs, net 435,541 439,695
Other 350,255 487,554
----------- -----------
Total other assets 2,996,627 3,345,435
----------- -----------
$61,105,319 $64,837,644
=========== ===========
</TABLE>
(Continued)
*Derived from audited financial statements.
See accompanying notes to condensed, consolidated financial statements.
3
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARY
--------------
CONDENSED, CONSOLIDATED BALANCE SHEETS (CONTINUED)
--------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
SEPTEMBER 30,
-------------
1997 DECEMBER 31,
---- ------------
(UNAUDITED) 1996(*)
----------- -------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 143,702 $ 6,513,283
Accounts payable 1,101,016 4,861,340
Accrued severance liabilities 58,625 112,689
Accrued taxes payable 165,185 195,467
Unearned revenue 744,247 807,632
Accrued expenses and other 337,749 373,622
----------- -----------
Total current liabilities 2,550,524 12,864,033
Long-term debt, excluding current maturities 24,322,959 19,422,421
Unearned revenue 2,272,566 2,821,611
Deferred tax liability and other 4,217,309 3,611,572
----------- -----------
Total liabilities 33,363,358 38,719,637
Stockholders' equity:
Series 1993 8% Convertible Preferred Stock,
par value $12.00 per share 2,181,819 2,181,819
Convertible Securities, representing
approximately 0 and 2,850,000 shares
of Common Stock at September 30, 1997
and December 31, 1996, respectively 0 4,997,554
Common Stock, par value $.00001 per
share; 20,000,000 shares authorized;
10,193,676 and 6,520,296 shares issued
and outstanding at September 30, 1997
and December 31, 1996, respectively 102 65
Additional paid-in capital 22,229,952 16,453,899
Treasury stock (52,400) (52,400)
Retained earnings 3,382,488 2,537,070
----------- -----------
Total stockholders' equity 27,741,961 26,118,007
Commitments and contingencies - -
----------- -----------
Total liabilities and stockholders'
equity $61,105,319 $64,837,644
=========== ===========
</TABLE>
*Derived from audited financial statements.
See accompanying notes to condensed, consolidated financial statements.
4
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
AND SUBSIDIARY
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------------------------------
<TABLE>
QUARTER ENDED NINE MONTHS ENDED
------------- -----------------
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Production $ 4,812,361 $ 1,806,357 $13,457,137 $ 4,654,184
Transportation 222,445 211,577 657,397 845,041
Marketing 1,955,537 3,929,508 15,355,482 16,126,910
Other 89,439 (22,007) 136,697 379,372
----------- ----------- ----------- -----------
7,079,782 5,925,435 29,606,713 22,005,507
----------- ----------- ----------- -----------
Expenses:
Production 716,111 371,860 1,833,968 976,997
Transportation 119,895 61,391 322,049 227,663
Marketing 1,929,350 3,589,796 15,329,713 15,726,622
Unsucessful Well Costs 381,300 - 434,246 -
Other 53,121 39,319 113,495 162,003
Depreciation, depletion
and amortization 2,008,280 624,448 5,510,040 1,668,927
----------- ----------- ----------- -----------
5,208,057 4,686,814 23,543,511 18,762,212
----------- ----------- ----------- -----------
1,871,725 1,238,621 6,063,202 3,243,295
Administrative expenses 861,902 568,235 2,442,413 1,495,853
----------- ----------- ----------- -----------
Operating income 1,009,823 670,386 3,620,789 1,747,442
Other income (expense):
Interest income 9,944 20,176 33,018 785,384
Interest expense (665,835) (649,220) (2,020,341) (1,638,677)
Other 717 2,567 4,891 (4,316)
----------- ----------- ----------- -----------
(655,174) (626,477) (1,982,432) (857,609)
----------- ----------- ----------- -----------
Income before income
tax expense 354,649 43,909 1,638,357 889,833
Income tax expense 141,843 17,844 655,343 342,590
----------- ----------- ----------- -----------
Net income $ 212,806 $ 26,065 $ 983,014 $ 547,243
Per common share:
Primary:
Net income $.02 -- $.10 $.09
=== == === ===
Weighted average number
of common shares and
common share equivalents
outstanding 9,938,299 6,469,614 9,124,335 6,152,154
========= ========= ========= =========
Fully diluted:
Net income $.02 -- $.10 $.08
=== == === ===
Weighted average number
of common shares and
common share equivalents
outstanding 10,207,150 6,738,465 9,393,186 6,525,442
========== ========= ========= =========
</TABLE>
See accompanying notes to condensed, consolidated financial statements.
5
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARY
--------------
CONDENSED, CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------
(UNAUDITED)
-----------
<TABLE>
Common Stock 8% Preferred Stock
------------- -----------------------------
Number Number Net of Additional
of Par Convertible of Par Discount Paid-in Treasury Retained
shares value Securities shares value value Capital stock Earnings Total
------ ----- ----------- ------ ----- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996 6,520,296 $65 4,997,554 268,851 3,226,213 2,181,819 16,453,899 (52,400) 2,537,070 26,118,007
Conversion of
Convertible
Securities and
Dividends to
Common Stock 3,101,864 31 (4,519,914) - - - 4,598,706 - (78,823) 0
Issuance of
Common Stock,
net of
Placement
Costs 500,000 5 - - - - 1,132,906 - - 1,132,911
Common Stock
Dividends issued
or accrued 21,508 - - - - - 47,647 - (47,647) 0
Redemption of
Convertible
Securities - - (477,640) - - - (100,257) - (11,126) (589,023)
Warrants exercised
for Common
Stock 8 - - - - - 52 - - 52
Issuance of stock
for services 50,000 1 - - - - 96,999 - - 97,000
Net income - - - - - - - - 983,014 983,014
--------- --- ---------- ------- --------- --------- ---------- ------- --------- ----------
Balance,
September 30,
1997 10,193,676 $102 0 268,851 3,226,213 2,181,819 22,229,952 (52,400) 3,382,488 27,741,961
========== ==== ========== ======= ========= ========= ========== ======= ========= ==========
</TABLE>
See accompanying notes to condensed, consolidated financial
statements.
6
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARY
--------------
CONDENSED, CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
---------------------------------------------
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 5,966,000 $ 8,264,085
---------- ----------
Investing activities:
Purchase of oil and gas properties (4,312,492) (23,960,277)
Purchases of property and equipment (489,467) (57,561)
Payments on notes receivable 231,017 6,973,217
Issuance of note receivable (35,000) -
Proceeds from sale of assets 4,200 616,418
---------- -----------
Net cash used in investing activities (4,601,742) (16,428,193)
---------- -----------
Financing activities:
Proceeds from borrowings 3,235,817 17,698,068
Payments on borrowings (4,704,860) (6,224,548)
Redemption of convertible securities (589,023) -
Proceeds from issuance of Common Stock 1,330,000 900,000
Purchase of 6% Junior Preferred Stock - (802,900)
Increase in deferred financing costs (139,663) -
Purchase of Treasury Stock - (52,400)
Other (198,729) (35,100)
---------- -----------
Net cash provided in financing
activities (1,066,458) 11,483,120
---------- -----------
Increase (decrease) in cash 297,800 3,319,012
Cash and cash equivalents at
beginning of period 353,419 826,393
----------- -----------
Cash and cash equivalents at
end of period $ 651,219 $ 4,145,405
=========== ===========
</TABLE>
NON-CASH TRANSACTIONS:
The Company declared stock dividends and issued 21,508 and 27,535 shares of
Common Stock to holders of the Series 1993 and Series B Preferred Stock
during the nine months ended September 30, 1997 and 1996, respectively.
During the nine months ended September 30, 1997, holders of $5,538,483
($4,519,914 net of placement costs) of the Convertible Securities have
converted the securities into 3,052,188 shares of Common Stock and received
49,676 shares of Common Stock dividends related to the Convertible
Securities. The remaining $461,517 was redeemed by the Company for a price
of $589,023.
During the nine months ended September 30, 1996, 58,941 shares of Series B
Preferred Stock were converted into a total of 224,822 shares of Common
Stock.
7
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
AND SUBSIDIARY
CONDENSED, CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
During the nine months ended September 30, 1996, the Company issued 225,000
shares of common stock and 225,000 common stock warrants with a combined
value of $1,157,175 in connection with the acquisition of certain gas
properties and related equipment. The Company also paid cash and assumed
certain obligations in connection with the acquisition, which was consummated
on February 26, 1996.
During the nine months ended September 30, 1997, the Company entered into an
Amendment to Lead Generation Agreement with Corporate Relations Group ("CRG")
to provide additional services in the public relations area. The amendment
provided for the termination of options previously granted to CRG by ARI and
the issuance to CRG of 50,000 shares of registered stock in ARI. The shares
were valued at $1.94 per share which represents the closing bid price on
April 21, 1997, the date of the amendment. The cost is being amortized
during 1997 due to the timing of the services being performed.
The Company acquired 58,059 shares of the outstanding 6% Junior Preferred
Stock for $802,900 during the nine months ended September 30, 1996. Upon
resolution of the Board of Directors, the shares were retired.
8
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT
----------------------------------------------------
(UNAUDITED)
-----------
(1) GENERAL
American Resources of Delaware, Inc. ("ARI"), a Delaware corporation
organized on August 14, 1992, was formed to acquire the assets and
assume certain liabilities of Standard Oil & Exploration of Delaware,
Inc. ("SOE") pursuant to SOE's Chapter 11 Bankruptcy Joint Plan of
Reorganization which was consummated effective April 22, 1993.
ARI and its wholly-owned subsidiary, Southern Gas Co. of Delaware, Inc.
("Southern") are involved in the production, gathering, purchasing,
processing, transporting and selling of natural gas primarily in the
State of Kentucky and the Gulf of Mexico. The Subsidiary has expanded
its production efforts through its involvement in the development of
prospects located offshore Louisiana in the Gulf of Mexico. These
activities are considered to be one business segment for financial
reporting purposes.
The accompanying condensed, consolidated financial statements include
the accounts of ARI and its Subsidiary, collectively referred to as the
Company. All significant intercompany balances and transactions have
been eliminated in consolidation in order to make the financial
statements, in the opinion of management, not misleading.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with instructions to Form 10-QSB and,
therefore, do not include all disclosures required by generally accepted
accounting principles. However, in the opinion of management, these
statements include all adjustments, which are of a normal recurring
nature, necessary to present fairly the financial position at September
30, 1997 and December 31, 1996 and the results of operations and changes
in cash flows for the periods ended September 30, 1997 and 1996. These
financial statements should be read in conjunction with the financial
statements and notes to the financial statements in the 1996 Form 10-KSB
of the Company that was filed with the Securities and Exchange
Commission.
Net income per common share was computed after consideration of dividend
requirements on Preferred Stock, using the weighted average number of
shares outstanding during each of the years presented. Outstanding
stock options and warrants are Common Stock equivalents and have been
considered when the effect is dilutive.
The Company does not have, nor does it anticipate entering into, any
type of derivative financial instruments or derivative commodity
instruments.
Certain reclassifications have been made to the prior period financial
statements to conform with the current period presentation.
9
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AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
-----------
(2) PROPERTY ACQUISITIONS
In February 1997, the Company through its wholly owned subsidiary,
Southern Gas Co. of Delaware, Inc., acquired a twenty-five percent (25%)
working interest in onshore Gulf Coast undeveloped properties located in
Greene and Wayne Counties, Mississippi, for approximately $300,000.
On April 2, 1997, the Company entered into an agreement to acquire a
26.4% working interest in the Main Pass Block 53 from Great River Oil &
Gas Corporation for approximately $254,000. Drilling was completed
during the third quarter of 1997, and it was determined that the well is
not economically feasible.
In April 1997, the Company purchased from a director of the Company an
overriding royalty interest in the Ship Shoal B-3 well for $150,000 and
also purchased from an officer/director of the Company an overriding
royalty interest in the Ship Shoal B-4 well for $180,000. Values of the
overriding royalty interests were based on discounted reserve values as
determined from the December 31, 1996 reserve reports.
In June 1997, the Company entered into a purchase agreement to acquire
interests in 26 natural gas wells from Daugherty Petroleum, Inc., said
wells being located in Whitley and Knox Counties, Kentucky, on the
Company's existing gathering facilities. The wells contain an estimated
1.5 billion cubic feet of natural gas reserves net to the Company, and
the purchase price is approximately $526,000. The purchase transaction
was completed in September 1997.
On September 15, 1997, the Company entered into a Letter of Intent with
Prima Capital LLC ("Prima") providing for the acquisition of an interest
in certain producing and non-producing oil and gas properties (the
"Properties") located in Mississippi. The purchase price for the
Properties is Two Million Eight Hundred Thousand Dollars ($2,800,000)
payable One Million Three Hundred Thousand Dollars ($1,300,000) on or
before closing which occurred October 10, 1997, and the balance of One
Million Five Hundred Thousand Dollars ($1,500,000) in an interest
bearing note with recourse only to the Properties. The Company
currently owns up to 3.5% interest in the Properties. An officer and
director of the Company owns a twenty percent (20%) interest in Prima.
$1,100,000 had been advanced to Prima as of September 30, 1997.
In September 1997, the Company purchased a 4.3% overriding royalty
interest in the Ship Shoal B-4 well for $330,000. The value of the
overriding royalty interest was based on discounted reserve values as
determined from the December 31, 1996 reserve report less amounts paid
through June 1997.
10
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
-----------
(3) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
September 30, December 31,
------------- ------------
1997 1996
---- ----
<S> <C> <C>
Borrowings under the Company's Credit
Agreement, as amended, with Den norske
Bank AS, reduction subject to availability
under borrowing base, $30,000,000 available
borrowing base effective September 30, 1997
reduction against the available borrowing base
of $425,000 commences November 1, 1997,
interest payable monthly at adjusted LIBO
Rate and/or prime rate as determined under
the Credit Agreement, secured by oil and gas
properties, equipment and receivables. $23,998,275 $25,083,000
Call Agreement payable, original balance of
$1,000,000 payable in monthly installments
of $31,250 commencing April 1, 1995,
due November 1997. - 274,000
Notes payable to related parties, interest
payable at 10.5%, in connection with
Participation Agreements. 381,431 490,000
Note payable, original balance of $165,000 payable
on January 15, 1998, secured by an interest in oil
and gas properties. - 49,696
Other notes 86,955 39,808
----------- -----------
24,466,661 25,935,704
Less - Current portion 143,702 6,513,283
----------- -----------
Long-term debt $24,322,959 $19,422,421
=========== ===========
</TABLE>
On September 28, 1995, the Company entered into a $20,000,000 revolving
credit agreement through February 1, 2002 with Den norske Bank AS (Den
norske). On August 7, 1996, the revolving credit facility was increased
to $30,000,000. As of September 30, 1997, the available borrowing base
under the revolving credit facility was $30,000,000. Additional
borrowings under the credit facility are dependent upon a
redetermination of the borrowing base, which is primarily dependent upon
11
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
-----------
the value of the mortgaged properties as determined under Den norske's
internal lending procedures. Reductions of the credit facility are also
dependent upon the borrowing base. The borrowing base will be
redetermined semi-annually on each October 1st and April 1st prior to
February 1, 2002.
In February 1997, the credit agreement was amended to reduce the
interest rate to the prime rate plus 1/2% per annum and establish a
$2,500,000 development facility which can be drawn upon by the Company
to develop properties.
On October 9, 1997, the credit facility agreement with Den norske Bank
AS was amended to (1) combine the $2,500,000 development facility and
increase the borrowing base to $30,000,000, effective September 30,
1997, and (2) provide flexibility in the determination of the applicable
interest rate. The applicable interest rate can be selected at the
Company's option to be either (1) a floating rate equal to the prime
rate or (2) LIBO Rate, plus 2.5%. As of October 23, 1997, the Company
opted for a LIBO Rate loan for the entire amount outstanding under the
credit facility. The rate for the thirty day period commencing October
23, 1997 is approximately 8.1875%. Additionally, assuming that the
borrowing base does not increase, no principal payments will be required
until November 1998.
Under the credit agreement with Den norske, the Company is required to
maintain certain financial ratios relating to debt coverage ratio,
current ratio, tangible net worth, general and administrative expenses
and quarterly interest ratio. At September 30, 1997, the Company was in
compliance with the required financial covenants.
Under the credit agreement with Den norske, the Company is required to
obtain the consent of Den norske before entering into certain
transactions, including, without limitation, i) the sale of assets
within any twelve-month period the value of which aggregates more than
$250,000; ii) the payment of any dividend or distribution for any class
of its capital stock except for common stock dividends paid on preferred
stock; iii) the expenditure for capital or fixed assets in any fiscal
year aggregating more than $400,000; and iv) a change in the corporate
structure of the Company.
(4) CONVERTIBLE SECURITIES PRIVATE PLACEMENT
In 1996, the Company privately placed 4% convertible securities in the
aggregate principal amount of $6,000,000 ($4,997,554 net of placement
costs) with a required conversion of one year from date of issuance.
The securities were convertible at the option of the holders into shares
of common stock valued at the lesser of (1) the closing bid price of the
common stock as reported on NASDAQ on the date of issuance of the
security, or (2) 75% of the average closing bid prices of the common
stock as reported on NASDAQ for the five trading days prior to the date
of conversion (the Conversion Price). Securities which were not
converted prior to their maturity dates would automatically convert on
their maturity dates. Interest accrued on the convertible securities
until the Company received notice of the conversion. If a security was
not converted within five business days after the Company received
notice of the conversion, the Company was obligated to pay liquidated
damages to the security holder for each $100,000 principal amount of
12
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AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
-----------
securities sought to be converted in the amount of $100 for each of the
first two days, $200 for each of the next two days, $300 for each of the
next two days, $400 for each of the next two days, and $500 per day
thereafter until the conversion shares were delivered. Prior to the
receipt of a conversion notice, the Company had the right to redeem any
security for a cash amount equal to 125% of the principal amount of the
security, plus unpaid accrued interest, if the conversion price was
below the closing bid price of the common stock as reported on NASDAQ on
the date the security was issued. The closing bid prices when the
securities were issued ranged from $3.00 to $3.50. Upon giving notice
of its intention to redeem a security, the security holder's right to
convert the security was suspended, but the Company would be required to
pay an additional 1% per month in cash on a pro rata basis until the
full redemption price was paid. If the full redemption price was not
paid within ten business days after the redemption notice was given, the
security holder had the right to convert the security into shares of
common stock. A security holder could fax a notice to the Company
requiring the Company to declare, by faxed notice within twenty-four
hours after receipt of the notice from the security holder, whether the
Company intended to effect a redemption within the following five
business days. If the Company did not respond during said twenty-four
hour period, the Company was precluded from redeeming that security
holder's securities during said five day period. The Company agreed to
register the shares of common stock into which the securities were
convertible within 120 days after demand was made by a security holder.
On June 9, 1997, securities totaling $5,538,483 had been converted into
3,052,188 shares of common stock for which 49,675 shares of Common Stock
dividends were issued relative thereto, and the remaining securities
totaling $461,517 had been redeemed by the Company pursuant to its
rights under the security documents for a price of $589,023. The
Company was not required to pay any liquidated damages or additional
interest as a result of the conversion or redemption of the securities.
In conjunction with the issuance of the convertible securities, the
Company paid placement fees and related issuance costs of $1,002,446,
inclusive of 173,724 restricted shares of common stock to World Capital
Funding, Inc., Denver Colorado, or to persons designated by it, with
piggy-back registration rights, in partial payment of the placement
agent's fee, and issued five year options to World Capital Funding,
Inc., or to persons designated by it, to purchase 100,000 shares of
common stock at $4.50 per share.
The shares of common stock into which the securities are convertible,
together with the placement fee shares to World Capital Funding, Inc.,
or its designees, and the shares underlying the options issued to World
Capital Funding, Inc., or its designees, have been registered under an
S-3 Registration Statement which was effective on January 23, 1997.
(5) STOCKHOLDERS' EQUITY
On July 8, 1997, the Company's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation increasing the
authorized number of shares of the Company's $.00001 par value common
stock from 20,000,000 shares to 50,000,000 shares and dividing the Board
of Directors into three classes with staggered three year terms. An
appropriate Certificate of Amendment to the restated Certificate of
13
<PAGE>
AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
-----------
Incorporation of the Company was filed with the Delaware Secretary of
State on July 11, 1997.
During the nine months ended September 30, 1997, the Company issued
500,000 shares of Common Stock to Den norske Bank ASA ("Den norske") as
a result of Den norske's purchase of said shares for a price of $2.66
per share, for a total of $1,330,000 ($1,132,911 net of placement
costs). The Company and Den norske also entered into a Registration
Rights Agreement wherein Den norske was granted certain demand and
piggyback registration rights with respect to the shares purchased.
The Company has authorized one million shares (1,000,000) shares of
Series 1993 Preferred Stock and two million shares (2,000,000) of Series
Preferred Stock subject to designation by the Board of Directors:
Series 1993 Preferred Stock is convertible into one share
of common stock with a liquidation preference of $12 per
share. Dividends are payable semiannually at the rate of
8% per annum in common stock. 268,851 shares are
outstanding at September 30, 1997 and December 31, 1996.
Series B Preferred Stock, designated by the Board of
Directors, was convertible into common stock based on a
conversion factor of $10.00 divided by 73% of the common
stock's closing bid price on the conversion date. The
Series B Preferred Stock had a liquidation preference of
$10.00 per share, but was junior to the Series 1993
Preferred Stock. Dividends were payable quarterly at the
rate of 6% in cash or common stock. There were 1,000,000
shares authorized and zero shares outstanding at
September 30, 1997 and December 31, 1996, respectively.
During the first quarter of 1997, the Company's Board of
Directors adopted a resolution eliminating the Series B
Preferred Stock and returning the 1,000,000 shares to the
status of authorized but unissued Preferred Stock,
without designation. The Certificate eliminating the
Series B Preferred Stock was filed in the Office of the
Secretary of State of Delaware on April 16, 1997.
On January 15, 1997, the Board of Directors declared dividends payable
in 10,754 shares of Common Stock on January 22, 1997, to holders of the
Series 1993 Preferred Stock. On July 15, 1997, the Board of Directors
declared dividends payable in 10,754 shares of Common Stock on July 22,
1997, to holders of the Series 1993 Preferred Stock.
The Company has reserved a total of approximately 2,000,000 shares of
common stock for issuance under a 1994 Compensatory Stock Option Plan
(CSO). Outstanding stock options, which include CSO plan and non-plan
options, granted to employees, consultants, officers and directors for
the purchase of the Company's common stock are as follows:
14
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AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
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(UNAUDITED)
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<TABLE>
Price Per Share
Shares From To
<S> <C> <C> <C>
Balance December 31, 1996 3,370,230 $3.00 $8.00
Granted 37,500 3.00 3.00
Terminated (587,333) 3.00 3.50
---------
Balance September 30, 1997 2,820,397 $3.00 $8.00
=========
</TABLE>
On April 21, 1997, the Company entered into an Amendment to Lead
Generation Agreement with Corporate Relations Group, Inc. ("CRG") to
provide additional services in the public relations area. The Amendment
provided for, among other things, the immediate termination of 500,000
options previously granted to CRG by ARI.
Outstanding options at September 30, 1997 include 1,976,410 issued under
the CSO, of which 1,918,577 are exercisable, and 843,987 non-plan
options, all of which are immediately exercisable. Outstanding options
at September 30, 1997 expire between July 14, 1998 and February 1, 2005.
At September 30, 1997, the Company has outstanding warrants to purchase
1,201,667 shares of common stock at exercise prices from $2.75 to $5.00
per share. Warrants to purchase an additional 262,424 shares of common
stock expired by their own terms on April 24, 1997.
(6) SUBSEQUENT EVENTS
STOCKHOLDERS EQUITY:
Pursuant to an announcement in April 1997, the Board of Directors
authorized the Company to repurchase up to $2,000,000 of the Company's
common stock. As of September 30, 1997, no shares had been repurchased.
However, in October 1997, 58,910 shares were acquired at an average
price of $2.97 per share.
INVESTMENT:
In July 1995, the Company entered into a Call Agreement with Prima
Capital, LLC, a limited liability company in which an officer/director
owns 20%, wherein the Company has the right to acquire 2,471.3 shares of
the common stock of Century Offshore Management Corporation for $4
million. Said right expires December 31, 1997; and on November 4, 1997,
the Board of Directors approved the exercise of the Company's rights
under the Call Agreement. As of September 30, 1997, the Company had
advanced approximately $1.5 million under the Call Agreement, which
funds were non-refundable. The balance of $2.5 million is due on
or before December 31, 1997.
15
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AMERICAN RESOURCES OF DELAWARE, INC.
------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
-----------
LONG-TERM DEBT:
On November 11, 1997, the Company's revolving credit facility with Den
norske was increased to $75,000,000 in order to give the Company greater
flexibility for future property acquisitions. The available borrowing
base has remained at $30,000,000.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Not amended.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not amended.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN RESOURCES OF DELAWARE INC.
Date: November 26, 1997 By: /s/ Ralph A. Currie
---------------------- ------------------------------------
Ralph A. Currie
Chief Financial Officer
(Principal Accounting and Financial
Officer)
18
