UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
American Resources & 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 August 12, 2001, the Registrant had outstanding 4,421,817 shares
of Common Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
-1-
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 2001
and March 31, 2001 3
Condensed Consolidated Statements of Operations - Three
months ended June 30, 2001 and 2000 5
Statements of Stockholders' Equity 7
Condensed Consolidated Statements of Cash Flows - Three
months ended June 30, 2001 and 2000 9
Notes to Condensed Consolidated Financial Statements -
June 30, 2001 11
Item 2: Management's Discussion and Analysis or Plan of Operation 20
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
-2-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
June 30, March 31,
2001 2001
------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 1,189 $ 23,759
Accounts receivable, net (Note 1) 615,977 609,456
Inventory (Note 1) 432,694 170,065
Prepaid and other current assets 6,832 10,982
------------------ -----------------
Total Current Assets 1,056,692 814,262
------------------ -----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 472,103 461,954
Capital leases 1,277,899 1,277,899
------------------ -----------------
Total depreciable assets 1,750,002 1,739,853
Less: accumulated depreciation (943,154) (878,240)
------------------ -----------------
Net Property and Equipment 806,848 861,613
------------------ -----------------
OTHER ASSETS
Deposits 93,756 87,458
------------------ -----------------
Total Other Assets 93,756 87,458
------------------ -----------------
TOTAL ASSETS $ 1,957,296 $ 1,763,333
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, March 31,
2001 2001
------------------ -----------------
CURRENT LIABILITIES
Accounts payable $ 1,787,419 $ 1,377,463
Accrued expenses and other current liabilities 1,004,207 897,799
Line of credit (Note 3) 478,804 363,888
Current portion of notes payable (Note 4) 377,227 475,727
Current portion of notes payable, related parties (Note 5) 1,168,257 1,168,269
Current portion of capital lease obligations (Note 6) 141,709 219,930
------------------ -----------------
Total Current Liabilities 4,957,623 4,503,076
------------------ -----------------
LONG-TERM DEBT
Reserve for discontinued operations (Note 2) 829,605 810,842
Notes payable (Note 4) 296,084 220,084
Notes payable, related parties (Note 5) 197,426 210,669
Capital lease obligations (Note 6) 193,441 210,302
------------------ -----------------
Total Long-Term Debt 1,516,556 1,451,897
------------------ -----------------
Total Liabilities 6,474,179 5,954,973
------------------ -----------------
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: 7,404,752
shares issued and 4,421,817 outstanding. (Note 9) 4,422 4,422
Additional paid-in capital 7,850,032 7,845,635
Accumulated deficit (12,371,582) (12,041,942)
------------------ -----------------
Total Stockholders' Equity (Deficit) (4,516,883) (4,191,640)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,957,296 $ 1,763,333
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Three Months Ended
June 30,
--------------------------------------
2001 2000
----------------- -----------------
SALES
Sales $ 1,280,152 $ 1,361,522
Cost of sales 1,147,358 946,245
----------------- -----------------
Gross Profit 132,794 415,277
----------------- -----------------
EXPENSES
General and marketing expenses 328,508 461,892
Depreciation and amortization 1,300 3,508
----------------- -----------------
Total Expenses 329,808 465,400
----------------- -----------------
LOSS FROM OPERATIONS (197,014) (50,123)
----------------- -----------------
OTHER INCOME AND (EXPENSES)
Other income (expenses) 3,237 3,508
Interest expense (135,863) (165,551)
----------------- -----------------
Total Other Income and (Expenses) (132,626) (154,580)
---------------- -----------------
LOSS BEFORE INCOME TAXES (329,640) (204,703)
INCOME TAXES - -
----------------- -----------------
NET LOSS (329,640) (204,703)
----------------- -----------------
OTHER COMPREHENSIVE LOSS
Loss on valuation of marketable securities - -
----------------- -----------------
Total Other Comprehensive Loss - -
----------------- -----------------
NET COMPREHENSIVE LOSS $ (329,640) $ (204,703)
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations (Continued)
For the Three Months Ended
June 30,
--------------------------------------
2001 2000
----------------- -----------------
BASIC LOSS PER SHARE OF COMMON
STOCK-CONTINUING OPERATIONS $ (0.07) $ (.05)
================= =================
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ - $ -
================= =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 4,421,817 3,878,257
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
-6-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity
June 30, 2001 and 2000
Common Stock Preferred Stock Other Additional
--------------------------- ---------------------- Comprehensive Paid-In Accumulated
Shares Amount Shares Amount Loss Capital Deficit
------------- ------------ --------- ---------- ---------------- ----------------------------
Balance, April 1, 1999 3,174,286 3,174 244,953 245 (435,188) 7,297,066 (9,180,480)
Stock issued for Quade
acquisition (Note 2) 451,667 452 - - - 144,099 -
Stock issued for consulting
services 250,000 250 - - - 181,384
Expense recognized for
vested options - - - - - 17,496
Recognition of loss on
valuation of marketable
securities - - - - 435,188 - -
Net loss for the year ended
March 31, 2000 - - - - - - (1,421,111)
--------- -------- ------- ------ ---------- ------------ ------------
Balance, March 31, 2000 3,875,953 3,876 244,953 245 - 7,640,045 (10,601,591)
Stock issued for consulting
services 192,777 193 - - - 82,841 -
Stock issued for interest
on debt 140,087 140 - - - 45,466 -
Stock exchanged for debt
with related parties 140,000 140 - - - 34,860 -
Stock issued to employees
under Employee Stock
Plan 73,000 73 - - - 24,927 -
Expense recognized for
vested options - - - - - 17,496 -
Net loss for the year
ended March 31, 2001 (1,440,351)
--------- -------- ------- ------ ---------- ------------ ------------
Balance, March 31, 2001 4,421,817 $ 4,422 244,953 $ 245 $ - $ 7,845,635 (12,041,942)
========= ======== ======= ====== ========== ============ ============
Expense recognized for
vested options - - - - - 4,397
Net loss for the three months
ended June 30, 2000 (329,640)
Balance at June 30, 2001 4,421,817 $ 4,422 244,953 $ 245 $ - $ 7,850,032 $(12,371,582)
========= ======== ======= ====== ========== ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
-7-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Three Months Ended
June 30,
--------------------------------------
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net loss $ (329,640) $ (204,703)
Adjustments to reconcile net loss to net cash
(used) by operating activities, net of effect of
mergers:
Gain on sale of USPA, Ltd. - -
Depreciation and amortization 64,914 68,197
Stock option and stock for services 4,397 114,295
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (6,521) 52,765
Decrease in inventory (262,629) 22,467
(Increase) decrease in other assets (2,148) (3,000)
Increase (decrease) in accounts payable and other
current liabilities 535,127 54,950
----------------- -----------------
Net Cash (Used) by Operating Activities 3,500 94,611
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from sale of USPA, Ltd. - -
Purchases of property and equipment (10,149) (4,250)
----------------- -----------------
Net Cash (Used) by Investing Activities (10,149) (4,250)
----------------- -----------------
FINANCING ACTIVITIES
Net (payments) proceeds on line of credit 114,916 (39,416)
Payments on long-term debt and capital lease obligations (117,582) (77,753)
Note payable borrowings, related parties (13,255) 18,243
------------------ -----------------
Net Cash Provided by Financing Activities (15,921) (98,926)
----------------- -----------------
INCREASE (DECREASE) IN CASH (22,570) (8,565)
CASH, BEGINNING OF YEAR 23,759 8,914
----------------- -----------------
CASH, END OF YEAR $ 1,189 $ 349
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
-8-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended
June 30,
--------------------------------------
2001 2000
----------------- -----------------
CASH PAID FOR
Interest $ 56,137 $ 50,289
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
-9-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
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 2001 financial
statements in Form 10-KSB. These statements do include all normal
recurring adjustments which the Company believes necessary for a
fair presentation of the statements. The interim operating
results are not necessarily indicative of the results for a full
year. Effective for fiscal quarters ending after March 15, 2000,
the Securities and Exchange Commission adopted a rule requiring
companies' independent auditors review the companies' financial
information prior to the companies filing their Quarterly Reports
on Form 10-QSB with the Commission. The Company's June 30, 2001
Form 10-QSB was not reviewed prior to submission to the
Commission. A Form 8-K will be filed when the review is completed
by the independent auditors.
b. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company and its subsidiaries,
Pacific Printing and Embroidery L.L.C. (PPW) and Fan-Tastic, Inc.
(FTI).
c. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
e. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times,
may exceed federally insured limits.
In the normal course of business, the Company extends credit to
its customers.
f. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method. Inventory consists of items available
for resale.
-10-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Property and Equipment
Property, equipment and capital leases are recorded at cost and
are depreciated or amortized over the estimated useful life of the
related assets, generally three to seven years. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain
or loss is reflected in income for the period.
The costs of maintenance and repairs are charged to income as
incurred. Renewals and betterments are capitalized and depreciated
over their estimated useful lives.
h. Accounts Receivable
Accounts receivable are shown net of the allowance for bad debts
of $48,917 at June 30, 2001.
i. Financial Instruments
Statement of Financial Accounting Standards No. 107, " Disclosures
about Fair Value of Financial Instruments" requires disclosure of
the fair value of financial instruments held by the Company. SFAS
107 defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The following methods and
assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term
nature.
j. Income Taxes
Income taxes consist of Federal Income and State Franchise taxes.
The Company has elected a March 31 fiscal year-end for both book
and income tax purposes.
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No.109 (SFAS No. 109),
"Accounting for Income Taxes," which requires the asset and
liability method of accounting for tax deferrals.
k. Basic Loss Per Common Share
Basic loss per common share is computed based on the weighted
average number of common shares outstanding during the period. The
common stock equivalents are antidilutive and, accordingly, are
not used in the net loss per common share computation. Fully
diluted loss per share is the same as the basic loss per share
because of the antidilutive nature of common stock equivalents.
Basic net loss from continuing operations per common share and
diluted net loss from continuing operations per common share
amounts, calculated in accordance with SFAS 128, were $(0.07) and
$(.05) for the three months ended June 30, 2001 and 2000,
respectively. Basic net (loss) income from discontinued operations
per common share and diluted net loss from discontinued operations
per common share were $0.00 and $0.00, respectively. Weighted
average common shares outstanding were 4,421,817 and 3,878,257 for
the three months ended June 30, 2001 and 2000, respectively.
-11-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Revenue Recognition
Revenue for contract screen printing, embroidery and product sales
are recognized when the goods have been shipped. Franchise fees
are recognized as revenue when all material services relating to
the sale have been substantially performed by FTI. Material
services relating to the franchise sale include assistance in the
selection of a site and franchisee training.
m. Goodwill
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.
o. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
NOTE 2 - MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, Inc., a former Company
subsidiary, merged with U.S. Golf Communities. U.S. Golf
Communities was the controlling company in this merger and
subsequent to the merger the combined company's name changed to
Golf Communities of America (GCA). This merger resulted in a less
than 20% American Resources' ownership in GVI. Therefore,
subsequent to the merger, the Company's investment in GVI is
reflected as an investment in accordance with Financial Accounting
Standards Board Statement No. 121.
The Company has a reserve for discontinued operations of $829,605
at June 30, 2001
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
In May 1998, the Company acquired 83% of the outstanding shares of
Pacific Print Works (PPW). The acquisition was accounted for by
the purchase method of accounting, and accordingly, the purchase
price was allocated to assets acquired and liabilities assumed
based on their fair market value at the date of acquisition.
Liabilities assumed in excess of assets acquired was $629,252 and
213,472 shares of the Company's common stock were issued to PPW
shareholders with a guaranteed share value of $5.00 resulting in
goodwill of $1,686,411. In addition, depending on PPW's
performance from April 1, 1998 through March 31, 2001, additional
shares of the Company's common stock would be issued to the
Sellers if minimum earnings levels were met. Based on the $5.00
guarantee and the Company's share value from October 1998 through
March 1999, the Company is obligated to issue additional shares of
common stock to the Sellers. An amendment to the PPW Stock
Purchase Agreement is being evaluated by the Company and the
Sellers in which the Company would issue another 854,000 shares of
the Company's common stock to the Sellers and any additional
earnings requirements by PPW or per share value guarantee by the
Company would be eliminated.
-12-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 3 - LINE OF CREDIT
In November 1998, the Company entered into an accounts receivable
financing agreement to sell, with recourse, up to $1 million of
receivables, net of a 15% collection reserve. The Company is
charged .065% daily for all receivables sold and uncollected under
this financing agreement. At June 30 and March 31, 2001, the
Company had a payable of $478,804 and $363,888, respectively, for
net funds advanced from this accounts receivable line of credit.
The Company received $1,084,047 and $1,233,630 from the sale of
receivables for the three months ended June 30, 2001 and 2000 and
recognized $16,478 and $31,604 in interest expense from the
discount of selling these receivables, respectively.
NOTE 4 - NOTES PAYABLE
Notes payable are comprised of the following:
June 30,
2001
-----------------
Note payable, unsecured, bearing interest at 12%, payable in
monthly installments of $7,000, including interest. Due on demand. $ 19,916
Convertible subordinated debentures, originally due June 30, 1996
bearing interest at 12% per annum. Interest payable quarterly. 187,000
Note payable to debtholder of PPW, unsecured. Modified in August
2000. Modified agreement requires payments of $145,000 through
February 2002 without interest. Additional principal payments of
$147,084 will be required if payments are not made timely plus 9%
interest. A gain on the modification of debt for $137,084 will be
recorded when there is no risk of default on this debt. 269,584
Note payable to shareholder of PPW for purchase of 7% of PPW
shares, unsecured. Note requires monthly payments of $3,000 from
July 2001, increasing to $5,000 in July 2002 with a final $9,000
payment July 2003. The note is non-interest bearing but will
accrue interest at 9% from inception if the Company is non-timely
on payments. 100,000
Note payable to former shareholder of PPW, unsecured. Interest rate
of 10%. Due on demand, unsecured. 96,811
-----------------
Subtotal 673,311
Less current portion (377,227)
----------------
Long-term portion $ 296,084
=================
Maturities of long-term debt are as follows:
June 30, 2002 $ 377,227
June 30, 2003 272,084
June 30, 2004 24,000
-----------------
$ 673,311
-13-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
June 30,
2001
-----------------
Note payable to Miltex Industries, secured by 2,934,193 shares of
the Company's common stock. Interest at 15% with monthly
principal and interest payments of $11,000 with a final
balloon payment December 31, 2001. Note is in default. $ 770,054
Note payable to a shareholder, secured by GCA stock. Interest
payable monthly at 13.5% with interest and principal payments
of $5,000 per month. Due October 31, 2001. Note is in default 315,859
Notes payable to a Company owned by a shareholder. Interest
payable at 72% with interest and principal payments due currently. 66,377
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. 213,393
-----------------
Subtotal 1,365,683
Less current portion (1,168,257)
----------------
Long-term portion $ 197,426
=================
Maturities of notes payable, related parties are as follows:
June 30, 2002 $ 1,168,257
June 30, 2003 197,426
-----------------
$ 1,365,683
NOTE 6 - CAPITAL LEASES
Property and equipment payments under capital leases as of March
31, 2001 is summarized as follows:
Year End
March 31,
2002 $ 240,765
2003 125,335
2004 87,408
2005 32,379
-----------------
Total minimum lease payments 485,887
Less interest and taxes (55,655)
-----------------
Present value of net minimum lease payments 430,232
Less current portion (219,930)
-----------------
Long-term portion of capital lease obligations $ 210,302
=================
-14-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 6 - CAPITAL LEASES (Continued)
The Company recorded depreciation expense on capitalized lease
equipment of $210,689 and $232,589 for the years ended March 31,
2001 and 2000, respectively.
NOTE 7 - INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Other
temporary differences are created by the use of the equity method
for reporting investments in subsidiaries. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
The Income tax benefit for the year ending March, 31, 2001 differs
from the amount computed at the federal statutory rates as
follows:
Income tax Benefit at statutory rate $ 46,200
Valuation allowance (46,000)
------------
$ -
============
Deferred tax assets for the year ending March 31, 2001 are
comprised of the following:
Net Operating Loss Carryforward $ 1,318,000
Valuation allowance (1,318,000)
------------
$ -
============
At March 31, 2001, the Company had a net operating loss
carryforward of approximately $4,700,000 that may be offset
against future taxable income through 2021. These losses will
start to expire in the year 2014 and not included in this
carryforward is about $1,600,000 in carryforwards net operating
losses created from Golf Ventures, Inc. that most likely will not
be allowed to be offset by any future operations of the Company.
No tax benefit has been reported in the financial statements
because the Company believes there is a 50% or greater chance the
carryforward will expire unused. Accordingly, the potential tax
benefits or the loss carryforward are offset by a valuation
allowance of the same amount.
NOTE 8 - PREFERRED STOCK
The shareholders of the Company have authorized 10,000,000 shares
of preferred stock with a par value of $0.001. The terms of the
preferred stock are to be determined when issued by the board of
directors of the Company.
SERIES B:
At March 31, 2000, there are 94,953 shares of series B preferred
stock issued and outstanding. The holders of these series B
preferred shares are entitled to an annual cumulative cash
dividend of not less than sixty cents per share.
-15-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 8 - PREFERRED STOCK (Continued)
At March 31, 2001, there is a total of $466,533 of accrued and
unpaid dividends related to the series B preferred stock which
have been included in the accompanying consolidated financial
statements. These series B preferred shares were convertible into
shares of the Company's common stock which conversion option
expired March 31, 1995.
NOTE 9 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which had
been offered to the holders of the Series B preferred stock and
the debentures. The shares have not been accepted by the holders
of those investments as of the date of the consolidated financial
statements. Additionally, the Company has issued 2,934,193 shares
of common stock as collateral for the note payable to Banque SCS
(Note 5).
NOTE 10 - STOCK OPTIONS
In March 2001 and August 1997, the Company's Board of Directors
approved the 2001 and 1997 American Resources and Development
Company Stock Option Plans, respectively (Option Plans). Under the
Option Plans, 1,500,000 shares of the Company's common stock are
reserved for issuance to Directors and employees. Options are
granted at a price and with vesting terms as determined by the
Board of Directors.
In August 1999 and January 2001, the Board of Directors granted
options to purchase 696,291 and 599,723 shares of common stock at
$0.25. The options issued in August 1999 are currently vested. The
options issued in January 2001 vest over four years. The options
were issued to various employees, officers and directors of the
Company for past services, risk associated with various debt
incurred by officers for the Company and guarantees by officers of
Company debt, and for future services. No compensation expense was
recognized, as the option price was greater than the fair market
value of the stock at the date of the option grant.
In December 1997, the Board of Directors granted options to
purchase 39,000 shares of stock at $2.00. These options are
exercisable beginning March 31, 1998, are exercisable over
staggered periods and expire after ten years. No compensation
expense was recognized as the option price was greater than the
fair market value of the stock at the date of the option grant.
In October 1997, the Board of Directors granted options to
purchase 140,000 shares of stock at $2.00. These options are
exercisable beginning March 31, 1998, over staggered periods and
expire after ten years. Compensation expense of $1,458 per month
will be recognized for 40,000 of the options issued over a 4 year
vesting period. In July 1998, the Board of Directors changed the
terms of the 100,000 options vesting over 10 years. 25,000 of
these options were fully vested and the remainder of the options
were canceled. As a result, compensation expense of $52,498 was
recognized for the year ended March 31, 1998 for the vesting of
these options.
Pro forma net income and net income per common share was
determined as if the Company had accounted for its employee stock
options under the fair value method of Statement of Financial
Accounting Standards No. 123.
-16-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 10 - STOCK OPTIONS (Continued)
Pro forma expense in year 1 would be $77,660, and $75,335, 28,579,
$22,933 in years 2 , 3, and 4, respectively, with an increase in
pro forma expenses per share of $0.02 in year 1, $0.02 in year 2
and $0.01 in years 3 and 4.
On March 1, 2000, the Company granted options to a company to
purchase up to 340,000 shares of the company's common stock. This
company is to provide various investor relations services. The
Company recognized a $32,385 expense over 4 months from the date
of the grant based upon the value of the options as calculated
from an option pricing model. The options expire September 1,
2001, are not transferrable and are exercisable at any time at the
following rates:
85,000 shares at $1.08 per share;
85,000 shares at $1.32 per share;
85,000 shares at $1.49 per share;
85,000 shares at $1.72 per share.
On January 22, 1999, the Company granted options to a consultant
to purchase up to 160,000 shares of the Company's common stock.
The consultant is to provide various investor and public relations
services through January 21, 2000 and the Company is recognizing
an expense of $6,000 over the term of the services based upon the
value of the options as calculated from an option pricing model.
The options expire in December 31, 2001, are not transferrable and
are exercisable at any time at the following rates:
40,000 shares at $0.50 per share;
40,000 shares at $1.00 per share;
40,000 shares at $2.00 per share;
40,000 shares at $3.00 per share.
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,
2001
Expected dividend yield 0%
Expected stock price volatility 70%
Risk-free interest rate 6.5%
Expected life of options (in years) 10
-17-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Office Lease
The Company leases office and warehouse space in Portland, Oregon.
Lease commitments for the years ended March 31, 2002 through March
31, 2003 are $318,832 and $49,366, respectively.
Legal Proceedings
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
NOTE 12 - GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. In order to carry
out its operating plans, the Company will need to obtain
additional funding from outside sources. The Company has received
funds from a private placement and debt funding and plans to
continue making private stock and debt placements. There is no
assurance that the Company will be able to obtain sufficient funds
from other sources as needed or that such funds, if available,
will be obtainable on terms satisfactory to the Company.
NOTE 13 - BUSINESS SEGMENTS
Effective March 31, 1999, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related
Information." The Company conducts its operations principally in
the contract screen printing and embroidery industry with Pacific
Print works, Inc. and the retail franchise industry with
Fan-Tastic, Inc.
Certain financial information concerning the Company's operations
in different industries is as follows:
For the Three
Months Ended Pacific Corporate
June 30, Print Works Fan-Tastic Unallocated
--------------- ---------------- --------------- ---------------
Net sales 2001 $ 1,235,819 $ 44,333 $
2000 1,310,348 51,174
Operating income (loss)
applicable to industry
segment 2001 (165,641) (14,908)
2000 142,113 (43,858)
General corporate expenses
not allocated to industry
segments 2001 31,465
2000 148,137
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AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
June 30, 2001 and 2000
NOTE 13 - BUSINESS SEGMENTS (Continued)
For the Three
Months Ended Pacific Corporate
June 30, Print Works Fan-Tastic Unallocated
--------------- ---------------- --------------- ---------------
Interest expense 2001 (85,513) (10,752) (39,598)
2000 (96,128) (12,983) (56,440)
Other income (expenses) 2001 3,237 - -
2000 (29) 10,971 11,000
Assets 2001 $ 1,907,185 $ 31,796 3,315
Depreciation and
amortization 2001 64,614 300 -
2000 65,689 2,268 240
Property and equipment
acquisitions 2001 10,149 - -
2000 4,250 - -
-19-
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.
For the three months ended June 30, 2001 ("first quarter fiscal 2002"), compared
to the three months ended June 30, 2000 ("first quarter fiscal 2001"):
Three Months Ended June 30,
2001 2000
---- ----
Net sales 100.0% 100.0%
Cost of sales 89.6% 69.5%
Gross profit 10.4% 30.5%
General expenses 25.7% 33.9%
Depreciation and amortization 0.1% 0.3%
Loss from operations -15.4% -3.7%
Other income and expenses 0.3% 0.3%
Interest expense -10.6% -12.2%
Loss before income taxes
and discontinued operations -25.8% -15.0%
Income taxes 0.0% 0.0%
Net loss -25.8% -15.0%
Sales for the three months ended June 30, 2001 were $1,280,152 as compared to
$1,361,522 for the three months ended June 30, 2000. Pacific Print Works ("PPW")
sales for the first quarter fiscal 2002 were $1,235,819 compared to $1,310,348
for first quarter fiscal 2001. Production sales, primarily from screenprinting,
embroidery and finishing, were $716,838 in first quarter fiscal 2002 as compared
to $1,268,776 in first quarter fiscal 2001. The decrease in production sales
were primarily from a decrease in sales to PPW's largest customer of $512,450.
First quarter fiscal 2002 PPW sales included $518,981 for garment sales as
compared to $41,395 for the first quarter fiscal 2001. Certain customers request
"package sales" which include the sale of the garment, primarily T-shirts, with
the screenprint and/or embroidery. The increase in garment sales in first
quarter fiscal 2002 came from two of PPW's largest customers. The increase in
garment sales is expected to continue as many of PPW's other large customers
have expressed an interest in purchasing package sales from PPW.
Gross profit for the three months ended June 30, 2001 was $132,794 as compared
to $415,277 for the three months ended June 30, 2000. The decrease in gross
profit was primarily due to 1) a decline in production sales which resulted in a
higher percentage of fixed production costs to sales and 2) to an increase in
garments sales for PPW which have a lower gross profit margin than production
sales. The gross profit margin on first quarter fiscal 2002 garment sales was
8.7%.
-20-
General expenses for the first quarter fiscal 2002 were $328,508 as compared to
$461,892 for the first quarter fiscal 2001. The decrease was primarily
attributable to a reduction in investor relations expenses for the quarter.
Depreciation and amortization expenses included in total general expenses for
the first quarter fiscal 2002 was $1,300 as compared to $3,508 for the first
quarter fiscal 2001. PPW had depreciation of $63,614 and $64,689 for the first
quarter fiscal 2002 and 2001, respectively, which was included in cost of sales.
The Company's loss from operations for the first quarter fiscal 2002 was
$197,014 compared to $50,123 for the first quarter fiscal 2001. The increase in
operating losses is primarily due to the decline in gross profit margins
discussed above.
Interest expense for first quarter fiscal 2002 was $135,863 compared to $165,551
for the first quarter fiscal 2001. The decline in interest expense was primarily
due to a reduction in borrowings from the accounts receivable factor in addition
to an improved interest rate on the accounts receivable factor arrangement.
For the three months ended June 30, 2000 ("first quarter fiscal 2001"), compared
to the three months ended June 30, 1999 ("first quarter fiscal 2000"):
Three Months Ended June 30,
2000 1999
---- ----
Net sales 100.0% 100.0%
Cost of sales 69.5% 74.0%
Gross profit 30.5% 26.0%
General expenses 33.9% 29.9%
Depreciation and amortization 0.3% 0.8%
Loss from operations -1.0% -1.3%
Other income and expenses 0.2% 0.1%
Interest expense -3.4% -3.7%
Loss before income taxes
and discontinued operations -4.2% -4.9%
Discontinued operations 0.0% 20.2%
Income taxes 0.0% 0.0%
Net Income (loss) -4.2% 15.3%
Sales for the three months ended June 30, 2000 were $1,361,522 compared to
$1,128,088 for the three months ended June 30, 1999 Pacific Print Works ("PPW")
sales for the first quarter fiscal 2001 were $1,310,348 compared to $1,035,474
for the first quarter fiscal 2000. The $274,874 increase in PPW's revenue was
primarily due to an increase in sales to PPW's two largest customers. The
increase with these customers is largely due to PPW's high density printing
capabilities in addition to the overall quality of the printing and related
services.
Sales for Fan-Tastic declined by $41,440 which was primarily due to first
quarter fiscal 2001 sales coming from one store as opposed to three stores in
the first quarter fiscal 2000.
Gross profit and the gross profit as a percentage of sales increased for the
first quarter fiscal 2001 as compared to the first quarter fiscal 2000, $415,277
and 30.5% compared to $292,740 and 26%. The increase in gross profit was
primarily due to the increase in PPW revenues as noted above. The gross profit
from PPW operations increased by approximately $145,000.
General and administrative expenses for the first quarter fiscal 2001 were
$461,892 as compared to $337,330 for the first quarter fiscal 2000. The increase
in general and administrative expenses is primarily due to $110,000 in investor
relation expenses in the first quarter fiscal.
-21-
The gain (loss) from operations before other income and expenses for the first
quarter fiscal 2001 was a loss of $50,123 as opposed to a loss of $53,602 for
the first quarter fiscal 2000.
Interest expense for the first quarter fiscal 2001 was $165,551 compared to
$146,105 for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had total assets of $1,957,296, total liabilities
of $6,475,094 and total stockholders' deficit of $4,516,883 compared with total
assets of $1,763,333, total liabilities of $5,954,973 and total stockholders
deficit of $4,191,640 at March 31, 2001. The changes in assets, liabilities and
stockholders equity is due primarily to losses from operations and interest
expense. At June 30, 2001 the Company's current ratio of current assets to
current liabilities was approximately .21. The Company will seek to convert
certain debt to equity which will improve its current ratio.
Management intends to improve its overall financial structure and provide
operating capital through private placement of the Company's common stock and
seeking the conversion of debt and preferred stock to common stock.
Management intends to improve its overall financial structure and provide
operating capital through private placement of the Company's common stock and
seeking the conversion of debt and preferred stock to common stock. There is no
assurance that the Company will be able to obtain sufficient funds from other
sources as needed or that such funds, if available, will be obtainable on terms
satisfactory to the Company.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Effective for fiscal quarters ending after March 15, 2000, the
Securities and Exchange Commission adopted a rule requiring companies'
independent auditors review the companies' financial information prior to the
companies filing their Quarterly Reports on Form 10-QSB with the Commission. The
Company's June 30, 2001 Form 10-QSB was not reviewed prior to submission to the
Commission. A Form 8-K will be filed when the review is completed by the
independent auditors.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
-22-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
(Registrant)
/s/ B. Willes Papenfuss President, Chief Executive August 12, 2001
----------------------- Officer and Director
B. Willes Papenfuss (Principal Executive
Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and August 12, 2001
------------------------ Director (Chief Financial
Timothy M. Papenfuss Officer, Chief Accounting
Officer and Controller)
-23-