U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ ] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended March 31, 2000, or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition period from ____________ to ____________
Commission file number 0-18865
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
------------------------------------------
(Name of Small Business Issuer in Its Charter)
Utah 87-0401400
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2035 N.E. 181st, Portland, Oregon 84115
---------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(503) 492-1500
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class Name of each Exchange on which Registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year was $5,949,348
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked prices
of such stock, as of July 27, 2001 was $237,349
The number of shares outstanding of the issuer's common equity, as of
July 27, 2001 was 4,421,892.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 11
ITEM 7. FINANCIAL STATEMENTS 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 15
ITEM 10. EXECUTIVE COMPENSATION 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 19
The information contained in this Form 10-KSB for the fiscal year ended
March 31, 2001, is as of the latest practicable date except for financial
information which relates to the fiscal year.
2
PART I
Item 1. Description of Business.
GENERAL
American Resources and Development Company ("ARDCO" or the "Company")
through various subsidiaries, owns a screen printing and embroidery company and
a franchiser of retail entertainment and sports stores. When used throughout
this report, the Company shall include the subsidiaries of the Company unless
the context indicates otherwise. The Company's present executive offices are
located at 2035 N.E. 181st, Portland, Oregon 97230 and its telephone number is
(503) 492-1500. As of July 27 , 2001, the Company had eighty-three (83) full
time employees and twelve part time employees.
PACIFIC PRINT WORKS
In May 1998, the Company acquired approximately 83% of the outstanding
shares of Printworks, Inc. ("Pacific Print Works" or "PPW"). 213,472 shares of
the Company's common stock were issued to PPW shareholders ("Sellers") with a
guaranteed share value of $5.00. In addition, depending on PPW's performance
from April 1, 1998 through March 31, 2001, additional shares of the Company's
common stock would be issued to the Sellers if minimum earnings levels were met.
Based on the $5.00 guarantee and the Company's share value from October 1998
through March 1999, the Company is obligated to issue additional shares of
common stock to the Sellers. An amendment to the PPW Stock Purchase Agreement is
being evaluated by the Company and the Sellers in which the Company would issue
another 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. In July 2001, the Company agreed to purchase an
additional 7% of PPW outstanding shares from a PPW shareholder for $100,000
payable in monthly installments from July 2001 through July 2003 (See Note 4 to
the financial statements.) PPW is active in the contract screenprinting and
embroidery business and is based in Portland, Oregon.
Industry Trends
PPW performs contract screenprint, embroidery and finishing services
for customers, the majority of whom are in the decorated sportswear market. The
decorated sportswear market, based upon industry data, accounted for
approximately $14.3 billion of retail level sales in the United States in 1996,
with a compounded annual growth rate of approximately 8.8% since 1991. PPW
believes growth in the decorated sportswear market has resulted from: (i) an
increased preference for comfortable apparel selections; (ii) more flexible
dress codes, including greater acceptance of casual clothes in the workplace;
(iii) a heightened emphasis on physical fitness, including increased
participation in sports; (iv) improved characteristics that have enhanced
consumer appeal, including improvements in fabric weight, blends and
construction, and increased offerings of size, color and style; (v) the
enhancement of screenprinted graphics and embroidered designs primarily
resulting from more advanced manufacturing equipment and processes. PPW believes
that these trends should continue to drive industry growth.
Business Strategy
PPW's success in expanding its business is a function of four key
factors: 1) specialized printing techniques, including high density printing, 2)
quality of printing, 3) ability to meet customer deadlines, and 4) ability to
create and produce innovative designs. PPW has a demonstrated excellence in each
of these areas with a strong reputation in the industry for its quality and
specialized printing. In fact, PPW's second largest customer was obtained in
January 1999 when another screenprinter was unable to produce an order which
incorporated the latest technology, high-density printing. Historically, the
Company has been able to produce at less than a .75% misprint ratio,
considerably better than the industry standard of 2.0%.
3
Timeliness of product delivery is another crucial component of business
retention and growth. PPW also excels in this area as evidenced by their
excellent reputation for timely delivery. In fact, PPW has never had an order
canceled for failing to achieve a deadline.
Lastly, PPW is recognized in the screenprinting industry as an
innovator who is constantly working on new processes and techniques. This is
extremely important to PPW customers, all of whom are looking for the newest
applications in order to bring fresh products to the market. PPW's expertise
with high-density printing is a good example of a new technique which has
received an enthusiastic reception from the apparel marketplace. The Company is
committed to continuing its research and development work in order to stay in
front of trends in the screenprinting industry and is convinced this will enable
it to expand business with existing customers in addition to acquiring other
customers presently targeted.
Another opportunity for PPW results from the changing business model
for screenprinters. Historically, the Company has done contract screenprinting
where customers purchase unprinted garments and deliver them to PPW for
embellishment. Several existing customers are now asking the Company to do
package deals where PPW assumes responsibility for purchase and receipt of the
unprinted garment and then does the screenprinting and embroidery. This model
will result in significant increases in both revenue and profits. For example,
in the new model revenue per unit will climb from the current $.50 to $1.00 per
unit to $3.50 to $4.50 per unit.
PPW intends to increase its revenues and position itself as a leading
national screen print and embroidery contractor by continuing to pursue the
following business strategies:
Contract Services
PPW designs graphics for its larger apparel customers that are sold
under particular customers' labels. PPW will then screenprint or embroider these
designs on blanks provided by the customers. PPW's product focus has been on
high-density printing. High-density printing is a screenprinting term for a
process that leaves a 3-D, sharp-edged print with excellent detail. PPW has also
been able to grow its business by specializing in reflective inks, and
environmentally safe water based printing.
Other.
Other products include printing on athletic uniforms for Nike's Team
Sports Division. PPW also produces custom designed graphics and screenprinting
for corporate accounts.
Design And Sales Staff.
The Company employs a staff of 3 graphic design artists who work
closely with customers to create designs for its customers sportswear lines. PPW
employs two internal sales people and three customer service people who work
closely with existing and new customers to ensure customer needs are met.
Customers
PPW's primary sales are through national decorated sportswear companies
including: Nike, Avirex, Warnaco (Chaps Ralph Lauren licensee), Nautica, Brooks,
K-Swiss and Karl Kani. In fiscal 2001, PPW's sales to major customers that
exceeded 10% of its total sales were as follows: Customer A 27.6%, Customer B
20.7%, Customer C 17.1%, and Customer D 14.8%.
Sources of Raw Materials
PPW does not enter into long-term contracts with its suppliers. PPW
buys its inks and embroidery thread from approximately eight suppliers. PPW is
not dependent on any one supplier. Currently, the majority of blank apparel
4
screen printed and embroidered is provided by its customers although, as
mentioned under "Business Strategy," For the year ended March 31, 2001, PPW
purchased $1,935,000 garments that were resold to customers. Over 95% of these
garments were purchased from two vendors located in Mexico and California.
Production and Manufacturing
PPW is committed to controlling costs and improving operating
efficiencies. PPW concentrates on the high value-added production processes of
custom design, screen printing and embroidery at its manufacturing facility.
Production of PPW's products requires applying garment decorations through
screen printing or embroidery.
Screen Printing.
The screen printing process begins with the preparation of a design by
PPW's artists. PPW tests new designs for printability and color dynamics and
produces sales and production samples. PPW also stocks over 140 pigment colors
and numerous ink bases, which allows for in-house development of new ink
applications and techniques. In the printing process, screens are positioned in
automatic printing presses where inks are pressed through the screen to create
the design on the garment. Garments bearing designs on different portions of the
garment may move through the printing process several times. Following printing,
the garments run through a dryer, making the printed design permanent and
washable.
PPW operates seven automatic screen printing presses and five manual
screen printing presses. The automatic presses are color printing presses with
eight to eighteen stations available. Each press is operated by a team of
employees. PPW believes that this approach contributes to the flexibility,
quality and speed of its production process.
Embroidery.
The embroidery process begins with the preparation of a design by PPW's
artists. PPW tests new designs for embroiderability as it relates primarily to
stitch count and color selection and produces sales and production samples.
After a design is approved, the design that is to be embroidered is formatted
onto a computer disk, and programmed into the embroidery machine. Each
embroidery machine has multiple sewing heads, permitting two to sixty-one
garments to be embroidered at one time. After the stitching is complete garments
are trimmed, packed in PPW's warehouse and shipped directly to the customer. PPW
operates seven fully automated machines with sixty-one single heads.
Quality Control.
PPW maintains several quality control checkpoints monitoring all phases
of production and ensuring that garments meet the quality standards of PPW's
customers.
Product Shipment.
PPW believes responding quickly to customer requirements and meeting
delivery schedules consistently are important factors in its business. Customers
generally select the specific art designs to be printed on ordered garments
periodically for delivery within as few as one week following the design
selection. PPW can place garments on hangers before shipping, affix price tags
and other product information, and can ship garments polybagged or folded. These
services reduce the time required to prepare the garments for display and
thereby enable customers to stock their stores more quickly. PPW's customers
generally bear all shipping costs.
Regulation
PPW is subject to federal, state and local environmental laws and
regulations, including laws relating to employee knowledge of, exposure to, and
disposal of inks, dyes, photographic chemicals and cleaning solvents. PPW
believes that its operations comply in all material respects with applicable
environmental laws and regulations. Although PPW continues to make capital
expenditures for environmental protection, it does not anticipate that
5
significant expenditures will be required to remain in compliance with
environmental requirements. There can be no assurance, however, that future
changes in such laws and regulations will not have a material effect on PPW's
operations.
Competition
The screen printing industry is highly competitive. PPW competes with
numerous screen printing and manufacturing vendors, including those with their
own line of licensed and branded product. PPW also competes through a
combination of graphics and decorating techniques. Competitive factors include
product quality, access to popular licenses, price, ability to meet delivery
requirements and other aspects of customer service, changes in styles and
consumer preferences.
Employees
At July 6, 2001, PPW employed approximately 83 full-time employees. PPW
believes that its employee relations are good.
FAN-TASTIC, INC.
Acquired in 1997, Fan-Tastic is a franchiser of retail entertainment
and sports stores, dba Fan-A-Mania, based in regional shopping malls. As of July
7, 2001, Fan-Tastic had 11 franchisees in the states of Missouri, New York,
North Carolina, Virginia, Wyoming, Pennsylvania, Texas, and countries of
Barbados, Canada and Japan.
Fan-A-Mania stores carry a broad range of sports and entertainment
products purchased from national vendors who are licensed with various
organizations including the following entertainment and sports companies:
Pokemon, Disney, Warner Brothers, Marvel Comics, Nickelodeon,, World Wrestling
Federation, National Football League, National Basketball Association, Major
League Baseball, College and the National Hockey League. Products carried
include apparel for ages ranging from toddlers to adults, collectibles and
souvenirs for fans of entertainment and sports.
With the sales of each franchise unit to a new owner, Fan-Tastic
receives a franchise fee of $19,500, and a royalty on ongoing sales of 3 1/2%.
Principal services Fan-Tastic provides to its franchisees are as follows:
o Site evaluation, selection and lease negotiation.
o Store design, merchandise and display plans.
o Reduction in inventory costs resulting from chain-wide volume
pricing and simplified buying. through a consolidated buying
program.
o Inventory control through a consolidated point of sale
software and chain wide identification of hot selling
products.
o Four days of initial training at the corporate office covering
all phases of store operations; product purchasing, store
promotions, etc. using the proprietary Fan-A-Mania operations
manual. This initial training is followed closely with four
days of training at the opening of the store and on-going
follow-up training.
Seasonality
Approximately 43% of annual royalties have occurred from store sales in
the months of November and December.
6
Competition
The entertainment and sports products industry is quite competitive.
Most mass merchants carry entertainment and sports products and thus provide
competition. However, management believes service and atmosphere differentiate
Fan-A-Mania stores from those mass merchants. Direct competition in malls where
Fan-A-Mania stores are located comes primarily from national chains such as
Disney, Warner Brothers, Champs, and department stores. Management believes that
Fan-A-Mania has differentiated itself from these competitors by merchandising
both entertainment and sports products and by having an attractive appearance.
Fan-Tastic competes with other franchisers for prospective franchisees.
However, there is little direct competition for prospective franchisees since
Fan-A-Mania is currently the only entertainment and sports apparel, collectible
and souvenir oriented franchiser known to management. Fan-Tastic also competes
for suitable store locations in malls and outlet centers from a wide variety of
retailers.
Trademarks
Fan-Tastic owns the registered mark, "Fan-A-Mania" for retail stores
featuring entertainment and sports memorabilia and clothing.
Employees
As of July 6, 2001, Fantastic had three full-time employees.
Item 2. Description of Property.
PPW rents an 85,000 square foot office and screenprinting/embroidery
facility in Portland, Oregon. Lease commitments from fiscal 2002 through fiscal
2003 are $318,832, and $49,366, respectively.
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders. None.
7
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter
market on the Electronic Bulletin Board under the symbol ADCO. The following
table sets forth for the respective period indicated, the high and low bid
quotations, as adjusted for stock splits of the Company's common stock, as
reported by the National Quotation Bureau and represents prices between dealers,
does not include retail markups, markdowns or commissions, and may not represent
actual transactions:
Calendar Quarters High Bid Low Bid
----------------- -------- -------
1999
----
1st Quarter .875 .1875
2nd Quarter .5 .1875
3rd Quarter 1.906 .156
4th Quarter 1.50 .625
2000
----
1st Quarter 1.312 .625
2nd Quarter 1.531 .656
3rd Quarter 1.00 .562
4th Quarter .687 .19
2001
----
1st Quarter 1.437 .188
2nd Quarter .325 .125
As of July 27, 2001, the Company had 4,421,892 shares of its common
stock issued and outstanding, and there were approximately 1,300 shareholders of
record.
As of the date hereof, the Company has not paid or declared any cash
dividends. Future payment of dividends by the Company, if any, is at the
discretion of the Board of Directors and will depend, among other criteria, upon
the Company's earnings, capital requirements, and its financial condition as
well as other relative factors. Management has followed the policy of retaining
any and all earnings to finance the development of its business. Such a policy
is likely to be maintained as long as necessary to provide working capital for
the Company's operations.
RECENT SALES OF UNREGISTERED SECURITIES
In April 1998, the Company sold 36,000 shares of its common stock for
$45,000 to an investor. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Rule 505 of Regulation D promulgated
thereunder.
In May 1998, effective March 31, 1998, the Company acquired
approximately 83% of the outstanding shares of Printworks, Inc., for 213,472
shares of the Company's common stock. The issuance of these shares were exempt
from registration pursuant to Section 4 (2) of the Securities Act of 1933.
On July 14, 1998 the Company issued 300,000 shares to Mr. George Badger
for prior services. Based on the knowledge, experience and economic strength of
Mr. George Badger, the Company believes this transaction is exempt from
registration with the Commission under Section 4(2) of the Securities Act of
1933.
On July 14, 1998 the Company issued 56,000 shares to Mr. Don Pickett
for prior services. Based on the knowledge, experience and economic strength of
Mr. Pickett, the Company believes this transaction is exempt from registration
under the Securities Act of 1933 Section 4(2).
8
In July 1998, the Company acquired 100% of the outstanding shares of
Quade, Inc., for 238,333 shares of the Company's common stock. The issuance of
these shares were exempt from registration pursuant to Section 4 (2) of the
Securities Act of 1933. The purchase agreement with Quade, Inc. provided a $5.00
per share guarantee for shares issued to the Quade, Inc. shareholder. In August
2000, the original purchase agreement with the Quade, Inc. shareholder was
amended and 451,667 shares of common stock was issued to the Quade, Inc.
shareholder and a former Quade, Inc. creditor. In return, the $5.00 per share
guarantee was rescinded. The issuance of these shares were exempt from
registration pursuant to Section 4 (2) of the Securities Act of 1933. The
issuance of these shares were exempt from registration pursuant to Section 4 (2)
of the Securities Act of 1933.
On January 22, 1999, the Company granted options to Mr. James Stock to
purchase up to 160,000 shares of the Company's common stock. Mr. Stock is to
provide various investor and public relations services through January 21, 2000
and the options expire December 31, 2001. The options are not transferable, are
exercisable at any time between $.50 and $3.00 per share (See Note 10 to the
financial statements.) Based on the knowledge, experience and economic strength
of Mr. Stock, the Company believes this transaction is exempt from registration
under the Securities Act of 1933 Section 4(2).
In August 1999, the Company issued 15,000 shares of common stock to a
company for investor and public relations services. Based on the knowledge,
experience and economic strength of this company, the Company believes this
transaction was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2).
In March and May 2000, the Company issued 235,000 and 28,777 shares of
common stock, respectively to a company for investor and public relations
services. In March 2000, the Company also granted options to this same company
to purchase up to 340,000 shares of the Company's common stock. The options
expire in September 2001. The options are not transferable, are exercisable at
any time between $1.08 and $1.72 per share (See Note 10 to the financial
statements.) Based on the knowledge, experience and economic strength of this
company, the Company believes this transaction was exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2).
In May 2000, the Company issued 4,000 shares of common stock to a
company for financial consulting services. Based on the knowledge, experience
and economic strength of this company, the Company believes this transaction was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2).
In August 2000, the Company issued 100,000 shares of common stock to a
debtholder for $31,250 in interest payments. Based on the knowledge, experience
and economic strength of this debtholder, the Company believes this transaction
was exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2).
In January 2001, the Company issued 100,000 shares of common stock to a
company for investor and public relations services. Based on the knowledge,
experience and economic strength of this company, the Company believes this
transaction was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2).
In January 2001, the Company issued 70,000 shares of common stock each
to Barry and Tim Papenfuss for reduction of $35,000 in debt and accrued wages.
Barry Papenfuss is the President of Fan-Tastic, Inc. and a Vice President of the
Company. Tim Papenfuss is the CFO of the Company. Based on the knowledge,
experience and economic strength of these two individuals, the Company believes
this transaction was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2).
Item 6. Management's Discussion & Analysis of Financial Condition & Results
of Operations.
The following information, on a fiscal year basis, is derived from the
consolidated financial statements of the Company. Such financial statements
include the Company and its subsidiaries.
9
RESULTS OF OPERATIONS
For the Fiscal Year Ended March 31, 2001 ("Fiscal 2001"), Compared to
the Fiscal Year Ended March 31, 2000 ("Fiscal 2000").
Year Ended March 31,
2001 2000
---- ----
Net sales 100.0% 100.0%
Cost of sales 87.1% 75.4%
Gross profit 12.9% 24.6%
General expenses 26.1% 29.9%
Depreciation and amortization 0.2% 0.4%
Loss from operations -13.4% -5.7%
Other income and expenses 0.3% 0.1%
Loss on write-off of GCA 0.0% -29.7%
Interest expense -11.2% -12.1%
Loss before income taxes
and discontinued operations -24.2% -47.4%
Discontinued operations 0.0% 18.0%
Income taxes 0.0% 0.0%
Net loss -24.2% -29.4%
Sales for the year ended March 31, 2001 were $5,949,348 as compared to
$4,828,053 for the year ended March 31, 2000. Pacific Print Works ("PPW") sales
for Fiscal 2001 were $5,775,337 compared to $4,415,801 for Fiscal 2000. The 31%
increase in PPW's revenue was due to an increase in "package sales" to
customers. Package sales include the sale of the garment, primarily T-shirts,
with the screenprint and/or embroidery. Fiscal 2001 PPW sales included
$2,027,913 for garment sales as compared to $162,477 in fiscal 2000. The
increase in garment sales in fiscal 2001 came from three of PPW's largest
customers. Combined garment sales for these three customers was $1,733,213 in
fiscal 2001 as opposed to $80 in fiscal 2000. The increase in garment sales is
expected to continue as many of PPW's other large customers have expressed an
interest in purchasing garments from PPW. Production sales, primarily from
screenprinting, embroidery and finishing, were $3,924,201 in fiscal 2001 as
compared to $4,665,576 in fiscal 2000. The decrease in production sales were
primarily from a decrease in sales to PPW's largest customer of $592,000.
Gross profit for Fiscal 2001 was $765,727 compared to $1,187,465 for
Fiscal 2000, with a Company wide gross profit margin of 12.9% in Fiscal 2001
compared to 24.6% in Fiscal 2000. The decrease in gross profit was primarily due
to an increase in garments sales for PPW. The gross profit margin on Fiscal 2001
garment sales was 5.7%. The gross profit margin on Fiscal 2001 PPW production
sales was 19.3%. The gross profit margin on garment sales is expected to improve
in Fiscal 2002 as a higher share of garment purchases will come from
international production at lower costs. PPW's gross profit margin on production
sales decreased in Fiscal 2001 as there were less production sales to reduce
fixed production costs as a percentage of sales.
General expenses for Fiscal 2001 were $1,549,808 as compared to
$1,442,181 for the prior year. The increase was primarily attributable to a
$269,000 increase in PPW general expenses offset by a reduction of $147,000 in
Fan-Tastic general expenses. The increase in PPW general expenses were due to a
$74,000 increase in payroll costs and an increase in telephone, travel and legal
costs. These cost increases were incurred in contemplation of the merger with a
T-shirt manufacturing company from Mexico. The Company also wrote off the cost
of purchasing $100,000 of PPW stock to increase its ownership in PPW to 90%. The
Fan-Tastic general expenses declined due to a reduction in rent and payroll
expenses due to store closures.
10
Depreciation and amortization expenses included in total general
expenses for Fiscal 2001 was $10,193 as compared to $18,929 in Fiscal 2000. PPW
had depreciation of $270,668 and $275,260 for Fiscal 2001 and Fiscal 2000,
respectively which was included in cost of sales.
The Company's loss from operations in Fiscal 2001 was $794,274 compared
to $273,645 in Fiscal 2000. The increase in operating losses is primarily due to
the decline in gross profit margins discussed above and the $100,000 expense
from the purchase of PPW stock.
Interest expense for Fiscal 2001 was $666,652 compared to $584,355 for
Fiscal 2000.
In Fiscal 2000, the Company sold its 50% ownership in US Polo
Association, Ltd. which resulted in a gain on sale of discontinued operations
for Fiscal 2000 of $867,587.
For the Fiscal Year Ended March 31, 2000 ("Fiscal 2000"), Compared to
the Fiscal Year Ended March 31, 1999 ("Fiscal 1999").
Year Ended March 31,
2000 1999
---- ----
Net sales 100.0% 100.0%
Cost of sales 75.4% 78.3%
Gross profit 24.6% 21.7%
General expenses 29.9% 44.3%
Depreciation and amortization 0.4% 4.2%
Loss from operations -5.7% -26.9%
Other income and expenses 0.1% -1.3%
Gain on sale of assets 0.0% 1.1%
Loss on write-off of GCA -29.7% 0.0%
Interest expense -12.1% -14.0%
Loss before income taxes
and discontinued operations -47.4% -80.3%
Discontinued operations 18.0% -6.3%
Income taxes 0.0% 0.0%
Net loss -29.4% -86.6%
Sales for the year ended March 31, 2000 were $4,828,053 as compared to
$3,996,739 for the year ended March 31, 1999. Pacific Print Works ("PPW") sales
for Fiscal 2000 were $4,415,801 compared to $3,223,417 for Fiscal 1999. The 37%
increase in PPW's revenue was primarily due to an increase in sales to PPW's
five largest customers with 73% of the increase in the five largest customers
coming from PPW's largest customer. The increase with these customers is largely
due to PPW's high density printing capabilities in addition to the overall
quality of the printing and related services. Sales for Fan-Tastic declined by
approximately $361,070 which was primarily due to 1) Fiscal 2000 sales coming
from the equivalent of 2.1 stores over Fiscal 2000 as opposed to 4.5 stores over
the Fiscal 1999 and 2) franchise sales and royalties of $96,958 in Fiscal 2000
as opposed to $199,834 for Fiscal 1999 due to fewer new franchisee fees.
Gross profit for Fiscal 2000 was $1,187,465 compared to $867,097 for
the prior year with a Company wide gross profit margin of 24.6% in Fiscal 2000
compared to 21.7% in Fiscal 1999. The increase in gross profit was primarily due
to an increase in gross profit from PPW for Fiscal 2000 of $497,000. PPW's gross
profit increase was due to the increase in sales while the gross profit margin
11
improved due to the increase in sales reducing fixed production costs as a
percentage of sales.
General expenses for Fiscal 2000 were $1,442,181 as compared to
$1,772,155 for the prior year. The decrease was primarily attributable to a
reduction of $104,000 and $95,000 in Fan-Tastic rent and payroll expenses,
respectively, due to store closures.
Depreciation and amortization expenses included in total general
expenses for Fiscal 2000 was $18,929 compared to $169,420 Fiscal 1999. This
decrease is due to the amortization of the goodwill from the PPW acquisition in
Fiscal 1999. There was no amortization from the PPW acquisition goodwill in
Fiscal 2000 because this goodwill was completely written off at the end of
Fiscal 1999 which resulted in a $1,434,239 expense. PPW had depreciation of
$275,260 and $257,925 for Fiscal 2000 and Fiscal 1999, respectively which was
included in cost of sales.
The Company's loss from operations in Fiscal 2000 was $273,645 in
Fiscal 2000 compared to $1,074,478 in Fiscal 1999. The improvement in operations
is due to the increase in PPW revenues as discussed above.
Interest expense for Fiscal 2000 was $584,355 compared to $561,335 for
Fiscal 1999. The Company expected interest expense to be similar between Fiscal
2000 and Fiscal 1999 because the average debt outstanding for the two years was
similar. The Company also incurred a loss of $1,434,239 from its write-off of
Golf Communities marketable securities (see Note 1 to the Financial Statements).
As these marketable securities were written completely off, no additional charge
will be incurred in future years.
In Fiscal 2000, the Company sold its 50% ownership in US Polo
Association, Ltd. which resulted in a gain on sale of discontinued operations
for Fiscal 2000 of $867,587. In Fiscal 1999 the Company incurred a loss of
$252,972 from its Quade and US Polo Association, Ltd. operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had total assets of $1,763,333, total
liabilities of $5,954,973, and total stockholders deficit of $4,191,640 compared
with total assets of $2,080,720, total liabilities of $5,038,145 and total
stockholders deficit of $2,957,425 at March 31, 2000. The significant changes in
assets, liabilities and stockholders equity is due primarily to the reduction in
stockholders equity due to losses from operations and interest expense. At March
31, 2001 the Company's current ratio was approximately .181 current assets to 1
current liabilities. The Company will seek to convert certain debt to equity
which will improve its current ratio.
Management intends to improve its overall financial structure and
provide operating capital through improving operations, private placement of the
Company's common stock and seeking the conversion of debt and preferred stock to
common stock.
PLAN OF OPERATIONS
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words anticipates, believes, expects, intends, future, and words of similar
import which express management's belief, expectations or intentions regarding
the Company's future performance or future events or trends. Forward-looking
statements may not reflect actual operations because they involve known and
unknown risks, uncertainties and other factors, which may cause actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressly or implied by such
forward-looking statements. In addition, the Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
12
Item 7. Financial Statements and Supplementary Data.
See Item 13. Exhibits and Reports on Form 8-K.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no disagreements with accountants on accounting and
financial disclosure.
13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Directors and Executive Officers
The following table sets forth the name, age and office held by each
director and officer of the company, followed by a brief resume of each
individual.
NAME AGE POSITION HELD
---- --- -------------
B. Willes Papenfuss 43 President, Chief Executive Officer and
Director
Jeffrey S. Harden 56 Vice President and Director, President of
Pacific Print Works
Barry L. Papenfuss 40 Vice President, President of Fan-Tastic, Inc.
Timothy Papenfuss 41 Secretary/Treasurer, Chief Financial Officer
and Director
Robert Mintz 55 Vice President and Director, President
of Quade, Inc.
B. WILLES PAPENFUSS, President and Director of the Company, was
appointed Executive Vice-President, of the Company in December, 1997. Mr.
Papenfuss joined Fan-Tastic, Inc. as Vice-President International in May, 1995.
He was Vice-President of U.S. Bank from 1991 to 1993, and Senior Vice-President
of U.S. Bank from 1993 to 1995. Mr. Papenfuss graduated from the University of
Washington with a Masters of Business Administration in 1985. Mr. Papenfuss is
the brother of Barry Papenfuss, Vice-President of the Company, and of Timothy
Papenfuss, Chief Financial Officer and Director of the Company.
JEFFREY S. HARDEN, Vice President and Director of the Company, and has
been with the Company since Pacific Print Works was acquired by ARDCO in May
1999. President of Pacific Print Works since 1993. Division Vice President of
West Coast sales with London Fog from 1987 to 1993. Sales Manager with Jantzen
from 1979 to 1987. Education includes two years at Texas A & M and three years
at Ohio Wesleyan.
BARRY L. PAPENFUSS, Vice President and is the President of Fan-Tastic,
which position he has held since 1994, and has been with the Company since
Fan-Tastic was acquired by ARDCO in March, 1997. Was a Director of the Company
from March 1997 through July 14, 1998. From 1990-1994, Mr. Papenfuss was the
controller of The Pro Image, a sports apparel company and from 1985-1990, was a
consultant with Deloitte and Touche, an international accounting firm. Mr.
Papenfuss graduated from Brigham Young University. Mr. Barry Papenfuss is the
brother of Mr. Timothy Papenfuss, Secretary/Treasurer, Chief Financial Officer
and a director of the Company and of B. Willes Papenfuss, President of the
Company and a director of the Company.
TIMOTHY M. PAPENFUSS, chief financial officer and director of the
Company, is chief financial officer of Fan-Tastic, Inc., which position he has
held since April, 1994. Mr. Papenfuss was appointed chief financial officer and
a director of the Company in August, 1997. From 1990 to April, 1994, Mr.
Papenfuss was a manager and senior manager with Ernst and Young. Mr. Papenfuss
has 9 years of professional accounting experience. Mr. Papenfuss graduated from
Brigham Young University in 1983 with a bachelors degree in accounting. Mr.
Papenfuss is the brother of Barry Papenfuss, vice president of the Company and
of B. Willes Papenfuss, President of the Company and a director of the Company.
14
ROBERT MINTZ, Director of the Company since July 23, 1998 upon the
Company's acquisition of Quade, Inc. President of U.S. Polo Association, Ltd.
since October 1998. President and founder of Quade, Inc. from 1996 to October
1998. Director of Women's Apparel at London Fog from 1994 to 1995. President of
Bugle Boy Womens from 1987 to 1993. Division President for Lizwear at Liz
Claibourne from 1984 to 1987. Mr. Mintz has a bachelors degree in anthropology
from the University of Pittsburgh.
Significant Employees and Consultants
The following individual was a consultant to the Company from 1997
through June 1998.
GEORGE H. BADGER, resigned as President, Chief Executive Officer and a
Director of the Company on December 31, 1996. Mr. Badger served as a director
since June 1992, and was President since 1995. Mr. Badger was indicted on a
number of charges and was arraigned in the U.S. Federal District Court for the
Southern District of New York on October 9, 1996. The Company has been advised
that the indictment related to alleged unlawful and undisclosed compensation to
securities brokers and promoters to induce them to cause customers to purchase
securities issued by GVI and the Company. The Company has been advised that
Mr.Badger has pleaded guilty to counts of: (i) conspiracy to commit securities
fraud; (ii) securities fraud; (iii) criminal contempt; and (iv) perjury.
Compliance with Section 16(a) of the Securities Act of 1934 by Company
Officers, Directors and 10% Shareholders.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file with the Commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company. The rules promulgated by the Commission under Section
16(a) of the Exchange Act require those persons to furnish the Company with
copies of all reports filed with the Commission pursuant to Section 16(a).
Based solely upon a review of Forms 3, Forms 4 and Forms 5 and
amendments thereto furnished to the Company pursuant to Rule 16a-3(e) during the
fiscal year ended March 31, 2001, Forms 4 and 5 were required to be filed by all
directors and executive officers by February 15, 2001 and May 15, 2000
respectively and were not filed until July 2001. The Company has not received
any Forms 4 and 5 from any shareholder who owns more than five percent of the
Company's outstanding common stock..
Item 10. Executive Compensation.
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers of directors.
The following table sets forth the annual compensation paid and accrued
by the Company for services rendered during the fiscal years ended March 31,
2001, 2000 and 1999 to (i) the Company's Chief Executive Officer and (ii) each
other executive officer of the Company or its subsidiary serving at the end of
the last completed fiscal year whose salary and bonus exceeded $100,000 during
the last fiscal year ("Named Executive Officer").
15
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------- -------------------------------------
Awards Payouts
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
Securities
Other Underly-
Annual Restricted Ing Op- All Other
Compen- Stock Tions/ LTIP Compen-
Name And Principal Fiscal Salary Bonus sation Award SARs Payouts Sation
Position Year $ $ $ $ (#) ($) ($)
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
B. Willes Papenfuss, 2001 $72,020 0 0 0 166,544 0 0
Chief Executive 2000 $24,930 0 0 0 102,112 0 0
Officer 1999 $38,000 0 0 0 0 0 0
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
Jeffrey S. Harden 2001 $94,900 $21,150 0 0 40,000 0 0
President of PPW 2000 $96,000 $43,094 0 0 34,424 0 0
-------------------------- --------- ------------ ---------- ----------- ------------ ------------ ----------- ------------
Employment Agreements.
None of the Company's officers or directors has any written employment
agreement with the Company.
Director Compensation
Directors of the Company have been partially reimbursed for expenses
incurred by them on behalf of the Company. No salary or fee has been paid to
directors. It is anticipated that the Company may establish some fees for
directors at such time as the Company has sufficient funds to pay fees to
directors.
Stock Options
Option/SAR Grants in Last Fiscal Year
----------------------------- ------------------ ----------------- ----------------- ------------------------
Number of Percent of total
Securities Options/SARs Exerscise or
Name Underlying Granted to Base price Expiration date
Options/SARs Employees in ($/Sh)
Granted (#) Fiscal year
----------------------------- ------------------ ----------------- ----------------- ------------------------
B. Willes Papenfuss 166,544 27.3% $0.25 January 16, 2008
----------------------------- ------------------ ----------------- ----------------- ------------------------
Jeffrey S. Harden 40,000 6.6% $0.25 January 16, 2008
----------------------------- ------------------ ----------------- ----------------- ------------------------
Aggregated Option Exercises and Fiscal Year-End Option Values:
----------------------------- ------------------ ----------------- --------------------- --------------------
Number of
Securities Value of
Underlying Unexercised in-
Shares Unexercised The-money
Name Acquired on Value realized Options/SARs at Options/SARs at
Exercise (#) ($) FY-end (#) FY-end ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
----------------------------- ------------------ ----------------- --------------------- --------------------
B. Willes Papenfuss 0 0 197,566/166,544 $0/$0
----------------------------- ------------------ ----------------- --------------------- --------------------
Jeffrey S. Harden 0 0 111,793/40,000 $0/$0
----------------------------- ------------------ ----------------- --------------------- --------------------
16
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, to the best knowledge of
the Company, as of July 27, 2001, with respect to the beneficial ownership of
the Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock; (ii)
each director; and (iii) all current directors and executive officers as a
group.
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OWNED OF CLASS
---------------- ------------ --------
Banque SCS Alliance SA 858,515 (1) 19.4%
11 Route De Florissant Case Portal 3733
12111 Geneva 3, Switzerland
George H. Badger 551,927 (2) 12.5%
550 Northmont Way
Salt Lake City, UT 84103-3323
Stockbroker Presentations, Inc. 1,238,364 (9) 26.01%
2232 East Semeran Blvd.
Apopks, FL 32703
Barry L. Papenfuss 348,857 (4) 7.54%
9659 S. Chavez Dr.
S. Jordan, UT 84095
Timothy M. Papenfuss 331,278 (5) 7.11%
3441 S. Medford Dr.
Bountiful, UT 84010
B. Willes Papenfuss 292,310 (6) 6.27%
12313 SE Wagner Street
Portland, OR 97236
Jeffrey S. Harden 273,602 (7) 6.02%
17942 St. Clair Dr.
Lake Oswego, OR 97034
Robert Mintz 471,000 (8) 10.6%
30 Otter Trail
Westport, CT 06880
All Officers and Directors
as a Group (5 persons) 1,717,047 32.7%
1 Banque SCS Alliance SA disclaims beneficial ownership but has provided no
additional information to the Company to identify the beneficial owners.
2 These shares also include 294,750 shares held in an irrevocable trust for the
benefit of Mr. Badger's children, for which he does not act as trustee. Mr.
Badger disclaims beneficial ownership of these shares.
17
4 Mr. Barry Papenfuss is the owner of vested options to purchase 20,000 of the
Company's common stock at $2.00 a share. Mr. Barry Papenfuss also is the owner
of options to purchase 257,217 shares of the Company's common stock at $.25 per
share, of which 206,649 are vested with the remaining 70,568 vesting over four
years beginning January 2002. Messrs. Barry Papenfuss, Timothy Papenfuss and B.
Willes Papenfuss are brothers.
5 Mr. Timothy Papenfuss is the owner of vested options to purchase 20,000 shares
of the Company's common stock at $2.00 a share. Mr. Timothy Papenfuss also is
the owner of options to purchase 288,702 shares of the Company's common stock at
$.25 per share, of which 238,134 are vested with the remaining 70,568 vesting
over four years beginning January 2002.
6 Mr. B. Willes Papenfuss is the owner of vested options to purchase 25,000
shares of the Company's common stock at $2.00 a share. Mr. B. Willes Papenfuss
also is the owner of options to purchase 339,110 shares of the Company's common
stock at $.25 per share, of which 239,202 are vested with the remaining 124,908
vesting over four years beginning January 2002.
7 Mr. Jeffrey Harden's shares include 82,030 held by his wife, Lynn Harden, and
2,413 and 2,413 shares held by his children, Brittany and Blake Harden,
respectively. Mr. Jeffrey Harden also is the owner of options to purchase
151,793 shares of the Company's common stock at $.25 per share, of which 121,793
are vested with the remaining 30,000 vesting over four years beginning January
2002.
8 Mr. Robert Mintz is the owner of vested options to purchase 20,000 shares of
the Company's common stock at $.25 a share, all of which are vested.
9 Stockbroker Presentations, Inc., in March 2000, was granted warrants to
purchase 340,000 shares of common stock. The warrants can be exercised
immediately, expire September 2001 and were issued with grant prices of $1.08,
$1.32, $1.49 and $1.72 per share for 85,000 shares of common stock each.
Item 12. Certain Relationships and Related Transactions.
George Badger, a shareholder and former Company President, and father to former
Company President Karl Badger, has provided loans to the Company. At March 31,
2001, the Company owed Mr. Badger $315,859 with interest and principal payment
of $5,000 per month. This note is due October 31, 2001. On July 14, 1998 the
Company issued 300,000 shares to Mr. George Badger for prior services.
Item 13. Exhibits and Reports on Form 8-K.
The following financial statements, schedules, reports and exhibits are
filed with this Report:
(a) FINANCIAL STATEMENTS
(1) Report of HJ & Associates, Independent
Public Accountants. F-1
(2) Consolidated Balance Sheet as of March 31,
2001. F-2
(3) Consolidated Statements of Operation for
the years ended March 31, 2001 and 2000. F-4
(4) Statement of Stockholders' Equity for the
period April 1, 1999 through March 31,
2001. F-6
(5) Consolidated Statements of Cash Flows for
years ended March 31, 2001 and 2000. F-7
(6) Notes to Financial Statements. F-9
18
(d) Exhibits
The following exhibits are filed herewith or are incorporated
by reference to exhibits previously filed with the Securities and
Exchange Commission. The Company shall furnish copies of exhibits for
a reasonable fee (covering the expense of furnishing copies) upon
request.
Exhibit No. Exhibit Name
3.1 (1) Articles of Incorporation
3.2 (2) Amendment to Articles of Incorporation
3.3 (1) By-Laws
3.4 (7) Amendment on name change
3.5 (7) Amendment on Series D designation
3.6 (7) Amendment on Series E designation
10.1 (1) Agreement with TechKNOWLOGY, Inc.
10.2 (1) Financing Agreement
10.3 (1) Exchange of Shares Agreement
10.4 (1) Option Contract
10.5 (1) Extension to Option Contract
10.6 (1) Further Amendment to Option Agreement
10.7 (1) Purchase Agreement
10.8 (1) Amendment to Purchase Agreement
10.9 (1) Addendum to Purchase Agreement
10.10 (1) Purchase Agreement (Stella Trust)
10.11 (2) Agreement of Joint Project
10.12 (2) Amendment to Agreement of Joint Project
10.13 (2) Dynamic American Option
10.14 (2) Land Sale Agreement
10.15 (2) Assignment of Trust Deed and Trust Deed Note
10.16 (2) Promissory Note (Johnson)
10.17 (3) TKI Dealer Agreement
10.18 (4) Modification Agreement
10.19 (4) Land Sales Agreement (Mindon)
10.20 (4) Sales Agreement (Property Alliance)
10.21 (5) Assignment Agreement
10.22 (6) Agreement with The Stella Trust and Mindon Investments
(Pickett Group)
10.23 (6) Acquisition Agreement with Golf Ventures, Inc.
10.24 (6) Settlement Agreement and General Release (TKI)
10.25 (7) Stock Purchase Agreement (Fantastic)
10.26 (7) Agreement (Vowell/Finally)
10.27 Termination Agreement (Vowell/The Company)
10.28 Stock Exchange Agreement (Pacific Print Works)
10.29 Stock Exchange Agreement (Quade, Inc.)
10.30 Employee Stock Option Plan
10.31 Funding Fee Agreement (Badger)
10.32 GVI Settlement Agreement
10.33 U.S. Polo Association Shareholders' Agreement
10.34 Secured Promissory Note with Jordache Enterprises, Inc.
10.35 U.S. Polo Association Ltd. Stock Redemption Agreement
10.36 Promissory Note with Miltex Industries
10.37 Promissory Note with George Badger
10.38 Alliance Financial accounts receivable factor Agreement
19
10.39 Gateway Acceptance Company accounts receivable factor Agreement
10.40 Promissory Note and Settlement Agreement with Gregory McWade
10.41 Promissory Note and Settlement Agreement with Gary Lange
16.1 (2) Letter Regarding Change in Certifying Public Accountant
21. Subsidiaries
23. Consent of Independent Auditor
27. Financial Data Schedules
99.1 (2) List of Third Party Loans to TechKNOWLOGY, Inc.
(28.1)*
99.2 (2) Lease of LTI Office
(28.2)*
99.3 (2) Financial Statements for years ended March 31, 1989, (28.3)*
1988 and 1987, and quarter ended June 30, 1989, as prepared by
Dale K.Barker Co., P.C.
99.4 (4) Class "A" Preferred Stock
(28.4)*
99.5 (4) Debenture
(28.5)*
(1) Incorporated by reference to the Form 10 Registration Statement
filed with the Commission October 16, 1990, File No.0-18865.
(2) Incorporated by reference to Amendment No. 1 to Form 10
Registration Statement filed with the Commission May 23, 1991, File No. 0-18865.
(3) Incorporated by reference to Amendment No. 2 to Form 10
Registration Statement filed with the Commission August 12, 1991, File No.
0-18865.
(4) Incorporated by reference to Amendment No. 3 to Form 10
Registration Statement filed with the Commission November 13, 1991, File No.
0-18865.
(5) Incorporated by reference to Amendment No. 4 to Form 10
Registration Statement filed with the Commission February 13, 1992, File No.
0-18865.
(6) Incorporated by reference to Form 10-K for the year ended March 31,
1993
(7) Incorporated by reference to form 10-KSB for the year ended March
31, 1997.
(*) Exhibits previously filed as Exhibits 28.1 through 28.5 are now depicted as
99.1 through 99.5.
(b) The Registrant filed a report on Form 8-K on March 17, 1997 outlining the
acquisition by the Company of Fan-Tastic, Inc. on March 17, 1997, identifying
the Company's name change from Leasing Technology, Inc. to American Resources
and Development Company and a one for twenty (1:20) reverse stock split effected
on the Company's common stock.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Registrant)
By: /s/ Timothy M. Papenfuss
---------------------------------
Timothy M. Papenfuss
Dated: July 27, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Signature Title Date
/s/ B. Willes Papenfuss President, Chief Executive July 27, 2001
----------------------- Officer and Director
B. Willes Papenfuss (Principal Executive Officer)
/s/ Timothy M. Papenfuss Secretary / Treasurer and July 27, 2001
------------------------ Director (Chief Financial
Timothy M. Papenfuss Officer, Chief Accounting
Officer and Controller)
21
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
American Resources and Development Company and Subsidiaries
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of American
Resources and Development Company and Subsidiaries at March 31, 2001 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended March 31, 2001 and 2000 These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Resources and Development Company and Subsidiaries at March 31, 2001
and the results of their operations and their cash flows for the years ended
March 31, 2001 and 2000 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and its total liabilities exceed its total assets, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 12. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
June 26, 2001
F-1
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
March 31,
2001
-----------------
CURRENT ASSETS
Cash and cash equivalents $ 23,759
Accounts receivable, net (Note 1) 609,456
Inventory (Note 1) 170,065
Prepaid and other current assets 10,982
-----------------
Total Current Assets 814,262
-----------------
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 461,954
Capital leases 1,277,899
-----------------
Total depreciable assets 1,739,853
Less: accumulated depreciation (878,240)
-----------------
Net Property and Equipment 861,613
-----------------
OTHER ASSETS
Deposits 87,458
-----------------
Total Other Assets 87,458
-----------------
TOTAL ASSETS $ 1,763,333
=================
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31,
2001
-----------------
CURRENT LIABILITIES
Accounts payable $ 1,377,463
Accrued expenses and other current liabilities 897,799
Line of credit (Note 3) 363,888
Current portion of notes payable (Note 4) 475,727
Current portion of notes payable, related parties (Note 5) 1,168,269
Current portion of capital lease obligations (Note 6) 219,930
-----------------
Total Current Liabilities 4,503,076
-----------------
LONG-TERM DEBT
Reserve for discontinued operations (Note 2) 810,842
Notes payable (Note 4) 220,084
Notes payable, related parties (Note 5) 210,669
Capital lease obligations (Note 6) 210,302
-----------------
Total Long-Term Debt 1,451,897
-----------------
Total Liabilities 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
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
Additional paid-in capital 7,845,635
Accumulated deficit (12,041,942)
-----------------
Total Stockholders' Equity (Deficit) (4,191,640)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,763,333
=================
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Years Ended
March 31,
--------------------------------------
2001 2000
------------------ -----------------
SALES
Sales $ 5,949,348 $ 4,828,053
Cost of sales 5,183,621 3,640,588
------------------ -----------------
Gross Profit 765,727 1,187,465
------------------ -----------------
EXPENSES
General and marketing expenses 1,549,808 1,442,181
Depreciation and amortization 10,193 18,929
------------------ -----------------
Total Expenses 1,560,001 1,461,110
------------------ -----------------
LOSS FROM OPERATIONS (794,274) (273,645)
------------------ -----------------
OTHER INCOME AND (EXPENSES)
Loss on write-off of GCA - (1,434,239)
Other income (expenses) 20,575 3,541
Interest expense (666,652) (584,355)
------------------ -----------------
Total Other Income and (Expenses) (646,077) (2,015,053)
------------------ -----------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (1,440,351) (2,288,698)
------------------ -----------------
DISCONTINUED OPERATIONS
Gain on disposal of USPA (Note 2) - 867,587
------------------ -----------------
Total Discontinued Operations - 867,587
------------------ -----------------
INCOME TAXES - -
------------------ -----------------
NET LOSS (1,440,351) (1,421,111)
------------------ -----------------
OTHER COMPREHENSIVE LOSS
Loss on valuation of marketable securities - -
------------------ -----------------
Total Other Comprehensive Loss - -
------------------ -----------------
NET COMPREHENSIVE LOSS $ (1,440,351) $ (1,421,111)
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations (Continued)
For the Years Ended
March 31,
--------------------------------------
2001 2000
------------------ -----------------
BASIC LOSS PER SHARE OF COMMON
STOCK-CONTINUING OPERATIONS $ (.36) $ (0.64)
=================== =================
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ - $ 0.24
================== =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 4,009,136 3,549,495
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Stockholders' Equity (Deficit)
March 31, 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)
========= ========== ======= =========== ============== ============= ==============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Years Ended
March 31,
--------------------------------------
2001 2000
------------------ -----------------
OPERATING ACTIVITIES
Net loss $ (1,440,351) $ (1,421,111)
Adjustments to reconcile net loss to net cash
provided by operating activities, net of effect of
mergers:
Gain on sale of USPA, Ltd. - (867,587)
Expense purchase of PPW stock (see Note 2) 100,000
Depreciation and amortization 281,110 294,188
Stock option and stock for services 187,842 107,927
Loss on write-off of GCA marketable securities - 1,434,239
Changes in operating assets and liabilities:
(Increase) in accounts receivable (22,627) (70,169)
Decrease in inventory 62,245 61,458
(Increase) decrease in other assets (21,605) (86,959)
Increase (decrease) in accounts payable and other
current liabilities 1,166,111 497,577
Increase (decrease) in deferred revenue (20,000) 10,000
Increase in reserve for discontinued operations 75,854 74,865
------------------ -----------------
Net Cash Provided by Operating Activities 368,579 34,428
------------------ -----------------
INVESTING ACTIVITIES
Proceeds from sale of USPA, Ltd. - 221,470
Proceeds from sale of marketable securities 2,485 33,059
Purchases of property and equipment (57,632) (62,876)
------------------- -----------------
Net Cash Provided (Used) by Investing Activities (55,147) 191,653
------------------ -----------------
FINANCING ACTIVITIES
Cash from exercise of stock options 5,960 -
Net proceeds on line of credit (52,283) 48,326
Payments on long-term debt and capital lease obligations (364,693) (347,260)
Note payable borrowings 112,429 39,800
------------------ -----------------
Net Cash Used by Financing Activities (298,587) (259,134)
------------------- -----------------
INCREASE (DECREASE) IN CASH 14,845 (33,053)
CASH, BEGINNING OF YEAR 8,914 41,967
------------------ -----------------
CASH, END OF YEAR $ 23,759 $ 8,914
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
March 31,
--------------------------------------
2001 2000
------------------ -----------------
CASH PAID FOR
Interest $ 260,383 $ 344,901
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services and compensation $ 118,553 $ 107,927
Common stock issued for reduction of interest or debt payable 80,606 -
Purchase of seven percent of PPW stock for notes payable 100,000 -
Conversion of interest payable into notes payable 46,560 -
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include American
Resources and Development Company and its subsidiaries, Pacific
Printing and Embroidery L.L.C. (PPW) and Fan-Tastic, Inc. (FTI).
b. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
c. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
d. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high credit
quality financial institutions. The balances, at times, may exceed
federally insured limits.
In the normal course of business, the Company extends credit to its
customers.
e. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method. Inventory consists of items available for
resale.
f. Property and Equipment
Property, equipment and capital leases are recorded at cost and are
depreciated or amortized over the estimated useful life of the related
assets, generally three to seven years. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
The costs of maintenance and repairs are charged to income as incurred.
Renewals and betterments are capitalized and depreciated over their
estimated useful lives.
g. Accounts Receivable
Accounts receivable are shown net of the allowance for bad debts of
$47,947 at March 31, 2001.
F-9
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Financial Instruments
Statement of Financial Accounting Standards No. 107, " Disclosures
about Fair Value of Financial Instruments" requires disclosure of the
fair value of financial instruments held by the Company. SFAS 107
defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between
willing parties. The following methods and assumptions were used to
estimate fair value:
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term nature.
At March 31, 2000, the Company held 1,045,000 shares of GCA stock.
Because of GCA filing for bankruptcy in July of 1999, substantial doubt
exists regarding the ability of the Company to recover its investment
in GCA. At June 15, 2001, GCA was still in Chapter 11 bankruptcy and
its market value was $0.06 per share. Furthermore, the majority of the
Company's stock in GCA is restricted and the Company does not have the
ability to have the restriction removed because GCA is not current in
its SEC filings. As a result, the Company wrote off its cost in GCA at
March 31, 2000 and incurred a loss of $1,434,239.
i. Income Taxes
Income taxes consist of Federal Income and State Franchise taxes. The
Company has elected a March 31 fiscal year-end for both book and income
tax purposes.
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No.109 (SFAS No. 109), "Accounting
for Income Taxes," which requires the asset and liability method of
accounting for tax deferrals.
j. Basic Loss Per Common Share
Basic loss per common share is computed based on the weighted average
number of common shares outstanding during the period. The common stock
equivalents are antidilutive and, accordingly, are not used in the net
loss per common share computation. Fully diluted loss per share is the
same as the basic loss per share because of the antidilutive nature of
common stock equivalents.
Basic net loss from continuing operations per common share and diluted
net loss from continuing operations per common share amounts,
calculated in accordance with SFAS 128, were $(.36) and $(0.64) for the
years ended March 31, 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
$0.24, respectively. Weighted average common shares outstanding were
4,009,136 and 3,549,495 for the years ended March 31, 2001 and 2000,
respectively.
k. 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.
F-10
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Goodwill
On March 31, 1998, the Company recognized goodwill of $1,696,412 from
the purchase of Pacific Print Works (aka Pacific Printing and
Embroidery LLC). The Company amortized $128,198 of goodwill from the
PPW acquisition in fiscal 1999. In the fourth quarter of fiscal 1999,
the Company wrote-off its remaining goodwill from the PPW acquisition
due to a permanent impairment, resulting in an additional expense of
$1,568,215. The Company recognizes goodwill from the excess of the
purchase price of its acquisitions over the fair value of the net
assets acquired.
The Company evaluates the recoverability of goodwill and reviews the
amortization period on an annual basis. Several factors are used to
evaluate goodwill, including but not limited to: management's plans for
future operations, recent operating results and projected, undiscounted
cash flows.
m. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
n. Change in Accounting Principle
The Company has adopted the provisions of FIN 44, "Accounting for
Certain Transactions Involving Stock Compensation (an iterpretation of
APB Opinion No. 25)" This interpretation is effective July 1, 2000. FIN
44 clarifies the application of Opinion No. 25 for only certain issues.
It does not address any issues related to the application of the fair
value method in Statement No. 123. Among other issues, FIN 44 clarifies
the definition of employee for purposes of applying Opinion 25, the
criteria for determining whether a plan qualifies as a noncompensatory
plan, the accounting consequence of various modifications to the terms
of a previously fixed stock option or award, and accounting for an
exchange of stock compensation awards in a business combination. The
adoption of this principal had no material effect on the Company's
consolidated financial statements.
The Company has adopted the provision of FASB Statement No. 140
"Accounting for Transfers and servicing of Financial Assets and
Extinguishments of Liabilities (a replacement of FASB Statement No.
125.)" This statement provides accounting and reporting standard for
transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that
approach, the transfer of financial assets, the Company recognized the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of this principle had no material
effect on the Company's consolidated financial statements.
F-11
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Prior Period Reclassification
Certain 2000 amounts have been reclassified to conform to the
presentation of the 2001 consolidated financial statements.
NOTE 2 - MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, Inc., a former Company subsidiary,
merged with U.S. Golf Communities. U.S. Golf Communities was the
controlling company in this merger and subsequent to the merger the
combined company's name changed to Golf Communities of America (GCA).
This merger resulted in a less than 20% American Resources' ownership
in GVI. Therefore, subsequent to the merger, the Company's investment
in GVI is reflected as an investment in accordance with Financial
Accounting Standards Board Statement No. 121.
The Company has a reserve for discontinued operations of $810,842 at
March 31, 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.
Effective May 2, 2001, the Company agreed to buy an additional 7% of
PPW from a PPW shareholder for $100,000, payable in monthly
installments through July 2003 (See Note 4). The $100,000 for the
additional PPW shares were expensed for the year ended March 31, 2001
as the Company had previously written off all goodwill related to the
purchase of PPW (see Note 1, l.).
Quade, Inc. and U.S. Polo Association, Ltd.
In 1997, Quade, Inc. acquired from the U.S. Polo Association ("US
Polo") the exclusive master licenses rights to the US Polo name for the
United States and Canada.
On July 23, 1998, the Company purchased Quade by issuing 238,333 shares
of its common stock.
F-12
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Effective October 8, 1998, the Company and Jordache Enterprises,
through its affiliate, Iron Will, Inc. ("Iron Will") formed a joint
venture company, U.S. Polo Association, Ltd. (US Polo), to hold the
master license granted by the US Polo Association and to perform all
licensing activities relating to the US Polo Association licenses and
trademarks for the United States and Canada. The Company and Iron Will
each owned 50% of US Polo and management and the Board of Directors for
US Polo were shared equally by the Company and Iron Will. For its
ownership in US Polo, the Company contributed, through Quade, Inc., all
assets and liabilities relating to the business of the licensing of US
Polo including the master license and sublicense agreements in the US
Polo name and trademarks. Iron Will contributed $900,000. The Company's
investment in this joint venture was accounted for under the equity
method of accounting. The Company's share of losses from this joint
venture for the year ended March 31, 1999 were $127,268.
In March 1999, the Company's Board of Directors made a decision to sell
its 50% ownership in U.S. Polo to Iron will. In June 1999, the Company
closed its sale of U.S. Polo ownership to Iron Will. For its sale of
U.S. Polo, the Company received the cancellation of $1,000,000 in debt
from Jordache Enterprises, the cancellation of $13,185 in interest and
cash of $221,470. In addition, the Company received another $70,000
upon the collection of U.S. Polo royalties earned through May 31, 1999.
The results of operations of Quade, Inc. and U.S. Polo for the year
ended March 31, 1999 has generated a loss of $252,972 on sales of
$232,712. A gain on the disposal of U.S. Polo for $867,587 was
recognized for year ending March 31, 2000. No income tax benefit or
expense has been attributed to the disposal of U.S. Polo. In addition,
the Company and the former owner of Quade amended the original stock
purchase agreement. Under the amendment, an additional 451,667 shares
of common stock were issued to the former owner of Quade and to a Quade
creditor and the additional earnings requirements by Quade or U.S. Polo
to receive additional Company common stock was eliminated. In return,
the $5.00 per share guaranteed value of the initial common shares
issued to the Quade shareholder was removed.
NOTE 3 - LINE OF CREDIT
In December 2000, 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
prime (as defined by Bank of America) plus 8% per annum for all
receivables sold and uncollected under this financing agreement. At
March 31, 2001 the Company had a payable of $363,888 for net funds
advanced from its accounts receivable line of credit. The Company
received $4,632,798 and $3,355,182 from the sale of receivables for the
Years ended March 31, 2001 and 2000 and recognized $98,668 and $95,606
in interest expense from the discount of selling these receivables,
respectively.
F-13
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 4 - NOTES PAYABLE
Notes payable are comprised of the following:
March 31,
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. 292,084
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. 100,000
Note payable to former shareholder of PPW, unsecured. Interest
rate of 10%. Due on demand, unsecured. 96,811
-----------------
Subtotal 695,811
Less current portion (457,727)
-----------------
Long-term portion $ 220,084
=================
Maturities of long-term debt are as follows:
March 31, 2002 $ 475,727
March 31, 2003 196,084
March 31, 2004 24,000
-----------------
$ 695,811
=================
F-14
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 5 - NOTES PAYABLE, RELATED PARTIES
March 31,
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. 226,648
-----------------
Subtotal 1,378,938
Less current portion (1,168,269)
-----------------
Long-term portion $ 210,669
=================
Maturities of notes payable, related parties are as follows:
March 31, 2002 $ 1,168,269
March 31, 2003 210,669
-----------------
$ 1,378,938
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
=================
F-15
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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 reduces 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)
------------
$ -0-
============
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)
------------
$ -0-
============
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. 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.
F-16
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
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.
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:
F-17
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 10 - STOCK OPTIONS (Continued)
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
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.
F-18
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 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
Years Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
--------- ----------- ---------- -----------
Net sales 2001 $ 5,775,337 $ 174,011 $ -
2000 4,415,801 412,252 -
Operating income (loss) 2001 (406,772) (246,391) -
applicable to industry 2000 181,348 (202,951) -
segment
General corporate expenses 2001 - - 235,506
not allocated to industry 2000 - - 252,041
segments
Writedown of goodwill 2001 100,000 - -
2000 - - -
Interest expense 2001 (401,746) (62,841) (202,335)
2000 (339,253) (38,746) (206,356)
Other income (expenses) 2001 904 8,671 11,000
including interest and gain 2000 7,469 (4,174) (1,433,994)
and loss on write-down of
marketable securities
F-19
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 2001 and 2000
NOTE 13 - BUSINESS SEGMENTS (Continued)
For the
Years Ended Pacific Corporate
March 31, Print Works Fan-Tastic Unallocated
--------- ----------- ---------- -----------
Income (loss) from
discontinued operations 2001 - - -
2000 - - 867,587
Assets 2001 1,740,714 17,347 5,272
Depreciation and
amortization 2001 270,668 5,472 721
2000 279,260 12,013 2,915
Property and equipment
acquisitions 2001 57,632 - -
2000 272,468 6,007 -
F-20