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 September 30, 2001;
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For transition period from ________________ to _________________
American Resourses & 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 November 13, 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 - September 30,
2001 and March 31, 2001 3
Condensed Consolidated Statements of Operations - Six
months ended September 30, 2001 and 2000 and Three
months ended September 30, 2001 and 2000 5
Statements of Stockholders' Equity 7
Condensed Consolidated Statements of Cash Flows - Six
months ended September 30, 2001 and 2000 and Three
months ended September 30, 2001 and 2000 8
Notes to Condensed Consolidated Financial Statements -
September 30, 2001 10
Item 2: Management's Discussion and Analysis or Plan of Operation 19
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
September 30, March 31,
2001 2001
------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 4,235 $ 23,759
Accounts receivable, net (Note 1) 1,164,849 609,456
Inventory (Note 1) 736,751 170,065
Prepaid and other current assets 9,060 10,982
------------------ -----------------
Total Current Assets 1,914,895 814,262
------------------ -----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 472,981 461,954
Capital leases 1,359,241 1,277,899
------------------ -----------------
Total depreciable assets 1,832,222 1,739,853
Less: accumulated depreciation (1,004,952) (878,240)
------------------ -----------------
Net Property and Equipment 827,270 861,613
------------------ -----------------
OTHER ASSETS
Deposits 100,679 87,458
------------------ -----------------
Total Other Assets 100,679 87,458
------------------ -----------------
TOTAL ASSETS $ 2,842,844 $ 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)
September 30, March 31,
2001 2001
------------------ -----------------
CURRENT LIABILITIES
Accounts payable $ 2,114,048 $ 1,377,463
Accrued expenses and other current liabilities 1,101,183 897,799
Line of credit (Note 3) 904,880 363,888
Current portion of notes payable (Note 4) 442,227 475,727
Current portion of notes payable, related parties (Note 5) 1,168,257 1,168,269
Current portion of capital lease obligations (Note 6) 159,238 219,930
------------------ -----------------
Total Current Liabilities 5,889,833 4,503,076
------------------ -----------------
LONG-TERM DEBT
Reserve for discontinued operations (Note 2) 835,215 810,842
Notes payable (Note 4) 194,584 220,084
Notes payable, related parties (Note 5) 186,169 210,669
Capital lease obligations (Note 6) 189,478 210,302
------------------ -----------------
Total Long-Term Debt 1,405,446 1,451,897
------------------ -----------------
Total Liabilities 7,295,279 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 7,854,408 7,845,635
Accumulated deficit (12,311,510) (12,041,942)
------------------ -----------------
Total Stockholders' Equity (Deficit) (4,452,435) (4,191,640)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,842,844 $ 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 Six Months Ended For the Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- --------------- ---------------- ---------------
NET SALES $ 3,781,727 $ 2,700,297 $ 2,501,575 $ 1,338,775
COST OF SALES 3,172,517 2,233,624 2,025,159 1,287,380
--------------- --------------- ---------------- ---------------
GROSS PROFIT 609,210 466,673 476,416 51,395
--------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 2,400 6,417 1,100 2,908
General expenses 637,557 829,930 309,049 368,038
--------------- --------------- ---------------- ---------------
Total General and Administrative Expenses 639,957 836,347 310,149 370,946
--------------- --------------- ---------------- ---------------
GAIN (LOSS) FROM OPERATIONS (30,747) (369,674) 166,267 (319,551)
--------------- --------------- ---------------- ---------------
OTHER INCOME AND (EXPENSES)
Other income and expenses 6,521 10,032 3,285 (939)
Interest expense (245,342) (312,173) (109,480) (146,622)
--------------- -------------- --------------- --------------
Total Other Income and (Expenses) (238,821) (302,141) (106,195) (147,561)
--------------- ---------------- ---------------- ---------------
GAIN (LOSS) BEFORE INCOME TAXES (269,568) (671,815) 60,072 (467,112)
-------------- -------------- ---------------- --------------
INCOME TAXES - - - -
--------------- --------------- ---------------- ---------------
NET INCOME (LOSS) $ (269,568) $ (671,815) $ 60,072 $ (467,112)
=============== =============== ================ ==============
OTHER COMPREHENSIVE GAIN (LOSS)
Gain (loss) on valuation of marketable securities $ - $ - $ - $ -
Total Other Comprehensive Gain (Loss) - - - -
--------------- --------------- ---------------- ---------------
NET COMPREHENSIVE GAIN (LOSS) $ (269,568) $ (671,815) $ 60,072 $ (467,112)
=============== =============== ================ ==============
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 Six Months Ended For the Three Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2000 2000 2001 2000
-------------- -------------- ---------------- --------------
BASIC LOSS PER SHARE OF COMMON STOCK -
CONTINUING OPERATIONS $ (0.06) $ (0.17) $ .01 $ (0.12)
============== ============== ================ ==============
BASIC LOSS PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ - $ - $ - $ -
============== ============== ================ ==============
The accompanying notes are an integral part of these consolidated
financial statements.
-6-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity
September 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 - - - - - 8,773
Net loss for the six months
ended September 30, 2001 (269,568)
Balance at
September 30, 2001 4,421,817 $ 4,422 244,953 $ 245 $ - $ 7,854,408 $(12,311,510)
========= =========== ======= =========== ========== ============ =============
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 Six Months Ended For the Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
OPERATING ACTIVITIES
Net income (loss) $ (269,568) $ (671,815) $ 60,072 $ (467,112)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 126,712 140,307 61,798 72,110
Common stock issued for services and interest 8,773 118,669 4,376 4,374
Changes in operating assets and liabilities:
(Increase) decrease in inventory (566,686) 54,482 (304,057) 32,016
(Increase) decrease in accounts receivable (555,393) 65,301 (548,872) 12,536
(Increase) decrease in other current assets (11,299) (9,815) (9,151) (12,815)
Increase (decrease) in accounts payable 736,588 419,240 326,629 526,152
Increase (decrease) in other current liabilities 242,687 243,340 102,586 103,318
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) by Operating Activities (288,186) 359,709 (306,619) 270,579
--------------- --------------- --------------- ---------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities - 2,485 - -
Purchases of property and equipment (11,027) (10,662) (878) (6,412)
--------------- --------------- ----------------- ---------------
Net Cash Provided (Used) by Investing Activities (11,027) (8,177) (878) -
--------------- --------------- ----------------- ---------------
FINANCING ACTIVITIES
Payments on capital lease obligations (177,791) (159,319) (67,776) ((81,566)
Proceeds (payments) from notes payable (59,000) (10,151) (36,500) -
Borrowings (payments) from related party debt (24,512) 46,700 (11,257) 15,310
Net borrowings (payments) on factoring line of credit 540,992 (227,940) 426,076 (188,524)
--------------- ----------------- --------------- ---------------
Net Cash Provided (Used) by Financing Activities 279,689 (350,710) 310,543 (254,780)
---------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN CASH (19,524) 822 3,046 9,387
CASH, BEGINNING OF PERIOD 23,759 8,914 1,189 349
--------------- --------------- --------------- ---------------
CASH, END OF PERIOD $ 4,235 $ 9,736 $ 4,235 $ 9,736
=============== =============== =============== ===============
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 Six Months Ended For the Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
CASH PAID FOR
Interest $ 107,549 $ 123,060 $ 48,220 $ 72,771
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 8,773 $ 118,669 $ 4,376 $ 4,374
Equipment purchased through capital
lease obligation $ 81,342 $ - $ 81,342 $ -
The accompanying notes are an integral part of these consolidated
financial statements.
-9-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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 September 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
September 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 returns and bad
debts of $90,585 at September 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 $.01 and $(.12) for the
three months ended September 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 4,008,730 for the three months ended September 30, 2001
and 2000, respectively.
-11-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 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 $835,215 at
September 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 1,100,000 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
September 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 September 30 and March 31, 2001, the Company
had a payable of $904,880 and $363,888, respectively, for net funds
advanced from this accounts receivable line of credit. The Company
received $3,656,750 and 2,242,992 from the sale of receivables for the
six months ended September 30, 2001 and 2000 and recognized $36,600 and
$60,386 in interest expense from the discount of selling these
receivables, respectively.
NOTE 4 - NOTES PAYABLE
Notes payable are comprised of the following:
September 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 September 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 $102,500 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. 242,084
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. 91,000
Note payable to former shareholder of PPW, unsecured. Interest rate
of 10%. Due on demand, unsecured. 96,811
-----------------
Subtotal 636,811
Less current portion (442,227)
-----------------
Long-term portion $ 194,584
=================
Maturities of long-term debt are as follows:
September 30, 2002 $ 442,227
September 30, 2003 194,584
-----------------
$ 636,811
-13-
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
September 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. 202,136
-----------------
Subtotal 1,354,426
Less current portion (1,168,257)
-----------------
Long-term portion $ 186,169
=================
Maturities of notes payable, related parties are as follows:
September 30, 2002 $ 1,168,257
September 30, 2003 186,169
-----------------
$ 1,354,426
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
September 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 (46,200)
-------------
$ -
=============
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
September 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
September 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 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
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.
-17-
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
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 Six
Months Ended Pacific Corporate
September 30, Print Works Fan-Tastic Unallocated
--------------- --------------- --------------- ----------------
Net sales 2001 $ 3,670,641 $ 111,086 $
2000 2,610,953 89,344
Operating income (loss) 2001 85,730 (35,039)
applicable to industry 2000 (57,087) (126,932)
segment
General corporate expenses 2001 81,438
not allocated to industry 2000 185,664
segments
Interest expense 2001 (168,701) (19,935) (56,706)
2000 (198,842) (24,442) (88,889)
Other income (expenses) 2001 6,521 - -
2000 (968) - 11,000
Assets 2001 $ 2,793,989 $ 45,804 3,051
Depreciation and 2001 126,312 400 -
amortization 2000 135,890 3,936 481
Property and equipment 2001 92,369 - -
acquisitions 2000 10,662 - -
-18-
Item 2. Management's Discussion and Analysis or Plan of Operations
Forward Looking Statements
The statements in this report concerning certain expected future expenses as a
percentage of net sales, future financing and working capital requirements and
availability constitute forward - looking statements that are subject to risks
and uncertainties. These risks could cause actual results or activities to
differ materially from those expected. Factors that could adversely affect cost
of sales and general expenses as a percentage of net sales include, but are not
limited to, increased competitive factors, changes in consumer preferences, as
well as an inability to increase sales. Other factors could include a failure to
adequately fund operations. In addition, unfavorable business conditions, or
changes in the general economy could have adverse effects. Factors that could
materially affect future financing requirements include, but are not limited to,
the ability to obtain additional financing on acceptable terms. Factors that
could materially affect future working capital requirements include, but are not
limited to, the factors listed above and the industry factors and general
business conditions noted above.
The following table sets forth, for the periods indicated, selected Company
income statement data expressed as a percentage of net sales.
Three Months Six Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 81.0% 96.2% 83.9% 82.7%
Gross profit 19.0% 3.8% 16.1% 17.3%
General expenses 12.4% 27.5% 16.9% 30.7%
Depreciation and amortization 0.0% 0.2% 0.1% 0.2%
Loss from operations 6.6% -23.9% -0.8% -13.7%
Other income and expenses 0.1% -0.1% 0.2% 0.4%
Interest expense -4.4% -11.0% -6.5% -11.6%
Gain (Loss) before income taxes 2.4% -34.9% -7.1% -24.9%
Income taxes 0.0% 0.0% 0.0% 0.0%
Net Income (loss) 2.4% -34.9% -7.1% -24.9%
For the three months ended September 30, 2001 ("second quarter fiscal 2002"),
compared to the three months ended September 30, 2000 ("second quarter fiscal
2001"):
Sales for the three months ended September 30, 2001 were $2,501,575 as compared
to $1,338,775 for the three months ended September 30, 2000. Pacific Print Works
("PPW") sales for the second quarter fiscal 2002 were $2,434,822 compared to
$1,300,605 for second quarter fiscal 2001. Production sales, primarily from
screenprinting, embroidery and finishing, were $907,445 in second quarter fiscal
2002 as compared to $855,222 in second quarter fiscal 2001. Second quarter
fiscal 2002 PPW sales included $1,527,377 for garment sales as compared to
$445,133 for the second 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 second quarter
fiscal 2002 came from the sale of patriotic design T-shirts and other garments.
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 September 30, 2002 was $476,416 as
compared to $51,395 for the three months ended September 30, 2000. The increase
in gross profit was primarily due to an increase in garments sales for PPW with
a higher gross margin.
-19-
General expenses for the second quarter fiscal 2002 were $309,049 as compared to
$368,038 for the first quarter fiscal 2001. The decrease was primarily
attributable to a reduction of $54,000 in Fan-Tastic general expenses related to
closing the last of Fan-Tastic retail stores September 2001.
Depreciation and amortization expenses included in total general expenses for
the second quarter fiscal 2002 was $1,100 as compared to $2,908 for the second
quarter fiscal 2001. PPW had depreciation of $61,699 and $69,602 for the second
quarter fiscal 2002 and 2001, respectively, which was included in cost of sales.
The Company's gain from operations for the second quarter fiscal 2002 was
$166,267 compared to a loss of $319,551 for the second quarter fiscal 2001. The
improvement in operations is primarily due to the increase in package sales as
discussed above.
Interest expense for second quarter fiscal 2002 was $109,480 compared to
$146,622 for the second quarter fiscal 2001. The decline in interest expense was
primarily due to a reduction of $8,300 in interest from the accounts receivable
factor due to an improved interest rate on the accounts receivable factor
arrangement, and a reduction in capitalized lease interest expense due to the
decreasing capitalized lease payable balance and elimination of interest from a
note payable to a PPW debtholder due to a modification in the debt terms in
August 2000. The Company is accruing but not paying $20,000 of monthly interest
on $187,000 in debentures, and debt to Miltex Industries and debt with various
shareholders.
For the six months ended September 30, 2001 ("YTD fiscal 2002"), compared to the
six months ended September 30, 1999 ("YTD fiscal 2001"):
Sales for the six months ended September 30, 2001 were $3,781,727 compared to
$2,700,297 for the six months ended September 30, 2000. Pacific Print Works
("PPW") sales YTD fiscal 2002 were $3,670,641 compared to $2,610,953 for the YTD
fiscal 2001 sales. PPW production sales, primarily from screenprinting,
embroidery and finishing, were $2,046,358 YTD fiscal 2002 as compared to
$2,124,000 YTD fiscal 2001. YTD fiscal 2002 PPW sales included $1,629,283 for
garment sales as compared to $486,597 for the YTD 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
for YTD fiscal 2002 came from the sale of patriotic design T-shirts and other
garments. 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 increased and the gross profit as a percentage of sales decreased
for YTD fiscal 2002 as compared to the YTD fiscal 2001, $609,210 and 16.1%
compared to $466,673 and 17.3%. The increase in gross profit margin was
primarily due to an increase in garments sales for PPW with a higher gross
margin.
General and administrative expenses for the YTD fiscal 2002 were $637,557 as
compared to $829,930 for the YTD fiscal 2000. The decrease in general and
administrative expenses is primarily due to $110,000 in investor relation
expenses incurred in the first quarter fiscal 2001 as compared to none in YTD
fiscal 2002 and a reduction of $88,000 in Fan-Tastic general expenses related to
closing the last of Fan-Tastic retail stores September 2001.
The loss from operations before other income and expenses for the YTD fiscal
2002 was a loss of $30,747 as opposed to a loss of $369,674 for the YTD fiscal
2001. The improvement in operations was due to the increase in gross profit and
a decline in general expenses as discussed above.
Interest expense for the YTD fiscal 2002 was $245,342 compared to $312,173 for
the prior year. The decline in interest expense was primarily due to a reduction
of $27,000 in interest from the accounts receivable factor due to an improved
interest rate on the accounts receivable factor arrangement, and a reduction in
capitalized lease interest expense due to the decreasing capitalized lease
payable balance and elimination of interest from a note payable to a PPW
debtholder due to a modification in the debt terms in August 2000. The Company
is accruing but not paying $20,000 of monthly interest on $187,000 in
debentures, and debt to Miltex Industries and debt with various shareholders.
-20-
For the three months ended September 30, 2000 ("second quarter fiscal 2001"),
compared to the three months ended September 30, 1999 ("second quarter fiscal
2000"):
Sales for the three months ended September 30, 2000 were $1,338,775 compared to
$941,000 for the three months ended September 30, 1999. Pacific Print Works
("PPW") sales for the second quarter fiscal 2001 were $1,300,605 compared to
$851,386 for the second quarter fiscal 2000. The $449,219 increase in PPW's
revenue was primarily due to a $412,000 increase in sales to a customer in the
second quarter fiscal 2001 compared to the second quarter fiscal 2000. Sales in
the second quarter fiscal 2001 included T-shirt garments of $445,000 in addition
to screen printing revenue.
Gross profit and the gross profit as a percentage of sales declined for the
second quarter fiscal 2001 as compared to the second quarter fiscal 2000,
$51,395 and 3.8% compared to $214,463 and 22.8%. The decline in gross profit was
primarily due to an increase in production salaries and wages, an increase in
costs of garments sold to customers of $430,000 with a profit of $9,000 on these
garments, an increase in materials for garment finishing, screen and freight
costs and an increase in rent costs. Production salaries and wages increased
$34,000 due to an increase of 5% in production volume and a pay increase to the
top three production management employees. Materials used for garment finishing
and screens increased $25,000 due to the increase in production. Rent costs
increased by $39,000 because PPW required extra space due to the increase in
revenue (i.e., $1,338,775 for second quarter fiscal 2001 compared to $941,000
for second quarter fiscal 2000.)
General and administrative expenses for the first quarter fiscal 2001 were
$368,038 as compared to $386,065 for the second quarter fiscal 2000.
The gain (loss) from operations before other income and expenses for the second
quarter fiscal 2001 was a loss of $319,551 as opposed to a loss of $178,208 for
the second quarter fiscal 2000.
Interest expense for the second quarter fiscal 2001 was $146,622 compared to
$132,311 for the prior year.
For the six months ended September 30, 2000 ("YTD fiscal 2001"), compared to the
six months ended September 30, 1999 ("YTD fiscal 2000"):
Sales for the six months ended September 30, 2000 were $2,700,297 compared to
$2,069,089 for the six months ended September 30, 1999. Pacific Print Works
("PPW") sales YTD fiscal 2001 were $2,610,953 compared to $1,886,860 for the YTD
fiscal 2000 sales. The $724,093 increase in PPW's revenue was primarily due to a
$412,000 and $366,000 increase in sales to PPW's two largest customers YTD
fiscal 2001 compared to YTD fiscal 2000. The increase to these customers is
largely due to PPW's high density printing capabilities in addition to the
overall quality of the printing and related services.
Gross profit and the gross profit as a percentage of sales declined slightly for
YTD fiscal 2001 as compared to the YTD fiscal 2000, $466,673 and 17.3% compared
to $507,204 and 24.5%. The decline in gross profit margin was primarily due to
an increase in production salaries and wages, an increase in costs of garments
sold to customers of $346,000 with a profit of $16,000 on these garments, an
increase in materials for garment finishing, screen and freight costs and an
increase in rent costs. Rent costs increased by $78,000 because PPW required
extra space due to the increase in revenue (i.e., $2.7 million for the six
months ended September 30, 2000 compared to $2.1 million for the six months
ended September 30, 1999.)
General and administrative expenses for the YTD fiscal 2001 were $829,930 as
compared to $713,395 for the YTD fiscal 2000. The increase in general and
administrative expenses is primarily due to $110,000 in investor relation
expenses incurred in the first quarter fiscal 2001.
The gain (loss) from operations before other income and expenses for the YTD
fiscal 2001 was a loss of $369,674 as opposed to a loss of $221,809 for the YTD
fiscal 2000.
Interest expense for the YTD fiscal 2001 was $312,173 compared to $278,417 for
the prior year.
The Company had a $869,336 gain from the sale of its 50% ownership in USPA Ltd.
in the YTD fiscal 2000 without any similar gain for YTD fiscal 2001.
-21-
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had total assets of $2,842,844, total
liabilities of $7,295,279 and total stockholders' deficit of $4,452,435 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 September 30, 2001 the Company's current ratio of
current assets to current liabilities was approximately .33. 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.
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
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 September 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.
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 November 13, 2001
----------------------- Officer and Director
B. Willes Papenfuss (Principal Executive
Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and November 13, 2001
------------------------ Director (Chief Financial
Timothy M. Papenfuss Officer, Chief Accounting
Officer and Controller)
-22-