UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2000; or [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For transition period from ________________ to _________________ AMERICAN RESOURCES AND DEVELOPMENT COMPANY (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 Gresham, OR 97230 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (503) 492-1500 Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] As of February 19, 2000, the Registrant had outstanding 4,868,730 shares of Common Stock. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] -1- Item 1: Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - December 31, 2000 and March 31, 2000 3 Condensed Consolidated Statements of Operations -Nine months ended December 31, 2000 and 1999 and Three months ended December 31, 2000 and 1999 5 Statements of Stockholders' Equity 7 Condensed Consolidated Statements of Cash Flows - Nine months ended December 31, 2000 and 1999 and Three months ended December 31, 2000 and 1999 9 Notes to Condensed Consolidated Financial Statements - December 31, 2000 11 Item 2: Management's Discussion and Analysis or Plan of Operation 22 Item 1. Legal Proceedings 26 Item 2. Changes in Securities 26 Item 3. Defaults upon Senior Securities 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 26 -2- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Balance Sheet ASSETS December 31, March 31, 2000 2000 ------------------ ----------------- CURRENT ASSETS Cash and cash equivalents $ 729 $ 8,914 Accounts receivable, net (Note 1) 624,297 586,829 Inventory (Note 1) 313,845 232,310 Prepaid and other current assets 7,234 102,359 Marketable securities (Note 1) - 2,485 ------------------ ----------------- Total Current Assets 946,105 932,897 ------------------ ----------------- PROPERTY AND EQUIPMENT (NOTE 1) Furniture, fixtures and equipment 461,302 404,322 Capital leases 1,277,899 1,277,899 ------------------ ----------------- Total depreciable assets 1,739,201 1,682,221 Less: accumulated depreciation (800,667) (597,131) ------------------ ----------------- Net Property and Equipment 938,534 1,085,090 ------------------ ----------------- OTHER ASSETS Deposits 80,541 62,733 ------------------ ----------------- Total Other Assets 80,541 62,733 ------------------ ----------------- TOTAL ASSETS $ 1,965,180 $ 2,080,720 ================== ================= The accompanying notes are an integral part of these consolidated financial statements. -3- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Balance Sheet (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) December 31, March 31, 2000 2000 ------------------ ----------------- CURRENT LIABILITIES Accounts payable $ 1,386,560 $ 449,011 Accrued expenses and other current liabilities 1,070,593 822,780 Deferred revenue 1,105 20,000 Line of credit (Note 3) 264,559 416,171 Current portion of notes payable (Note 4) 368,727 546,542 Current portion of notes payable, related parties (Note 5) 1,162,290 69,797 Current portion of capital lease obligations (Note 6) 300,998 302,551 ------------------ ----------------- Total Current Liabilities 4,554,832 2,626,852 ------------------ ----------------- LONG-TERM DEBT Reserve for discontinued operations (Note 2) 734,988 734,988 Notes payable (Note 4) 247,087 62,981 Notes payable, related parties (Note 5) 261,451 1,224,049 Capital lease obligations (Note 6) 145,987 389,275 ------------------ ----------------- Total Long-Term Debt 1,389,513 2,411,293 ------------------ ----------------- Total Liabilities 5,944,345 5,038,145 ------------------ ----------------- COMMITMENTS AND CONTINGENCIES (Note 11) STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, par value $0.001 per share: 10,000,000 shares authorized; issued and outstanding: 94,953 Series B shares, 150,000 Series C shares 245 245 Common stock, par value $0.001 per share: 125,000,000 shares authorized; issued and outstanding: 5,483,730 shares issued and 4,008,730 outstanding. (Note 9) 4,008 3,876 Additional paid-in capital 7,718,344 7,640,045 Accumulated deficit (11,701,762) (10,601,591) ------------------ ----------------- Total Stockholders' Equity (Deficit) (3,979,165) (2,957,425) ------------------ ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,965,180 $ 2,080,720 ================== ================= The accompanying notes are an integral part of these consolidated financial statements. -4- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Statements of Operations For the Nine Months Ended For the Three Months Ended December 31, December 31, --------------------------------- --------------------------------- 2000 1999 2000 1999 --------------- --------------- ---------------- --------------- NET SALES $ 4,077,797 $ 3,466,627 $ 1,377,500 $ 1,397,538 COST OF SALES 3,509,941 2,551,360 1,276,317 989,471 --------------- --------------- ---------------- --------------- GROSS PROFIT 567,856 915,267 101,183 408,067 --------------- --------------- ---------------- --------------- GENERAL AND ADMINISTRATIVE EXPENSES Depreciation and amortization 8,425 22,694 2,008 7,077 General expenses 1,179,901 1,053,039 349,469 335,893 --------------- --------------- ---------------- --------------- Total General and Administrative Expenses 1,188,326 1,075,733 351,477 342,970 --------------- --------------- ---------------- --------------- GAIN (LOSS) FROM OPERATIONS (620,470) (160,466) (250,294) 65,097 --------------- --------------- ---------------- --------------- OTHER INCOME AND (EXPENSES) Other income and expenses 16,218 20,359 6,186 (444) Interest expense (495,919) (428,223) (183,746) (149,807) --------------- --------------- ---------------- --------------- Total Other Income and (Expenses) (479,701) (407,864) (177,560) (150,251) --------------- --------------- ---------------- --------------- LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS (1,100,171) (568,330) (427,854) (85,154) --------------- --------------- ---------------- --------------- DISCONTINUED OPERATIONS Gain from sale of USPA - 873,086 - - Loss from operations of USPA - (5,871) - - --------------- --------------- ---------------- --------------- Total Discontinued Operations - 867,215 - - --------------- --------------- ---------------- --------------- INCOME TAXES - - - - --------------- --------------- ---------------- --------------- NET INCOME (LOSS) $ (1,100,171) $ 298,885 $ (427,854) $ (85,154) =============== =============== ================ =============== OTHER COMPREHENSIVE GAIN (LOSS) Gain (loss) on valuation of marketable securities $ - $ (942,907) $ - $ (232,313) Total Other Comprehensive Gain (Loss) - (942,907) - (232,313) --------------- --------------- ---------------- --------------- NET COMPREHENSIVE GAIN (LOSS) $ (1,100,171) $ (644,022) $ (427,854) $ (317,467) =============== ===============- =============== =============== The accompanying notes are an integral part of these consolidated financial statements. -5- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Statements of Operations (Continued) BASIC LOSS PER SHARE OF COMMON STOCK - CONTINUING OPERATIONS $ (0.28) $ (.16) $ (0.11) $ (.02) =============== =============== ================ =============== BASIC LOSS PER SHARE OF COMMON STOCK DISCONTINUED OPERATIONS $ - $ $.24 $ - $ - =============== =============== ================ =============== The accompanying notes are an integral part of these consolidated financial statements. -6- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Statements of Stockholders' Equity December 31, 2000 and 1999 Common Stock Preferred Stock Other Additional ------------------------- ------------------------ Comprehensive Paid-In Accumulated Shares Amount Shares Amount Loss Capital Deficit ---------- ------------ ----------- ----------- ---------------- ------------- ----------- Balance, April 1, 1998 2,929,263 $ 2,929 244,953 $ 245 $ - $ 7,026,260 $ (5,718,980) Stock issued for cash 48,000 48 - - - 59,954 - Stock issued for Quade acquisition (Note 2) 238,333 238 - - - 417,678 - Stock adjustment on PPW acquisition (Note 2) (45,310) (45) - - - (226,505) - Expense recognized for vested options - - - - - 17,496 - Stock issued for loan 4,000 4 - - - 2,183 - Loss on valuation of marketable securities - - - - (435,188) - - Net loss for the year ended March 31, 1999 - - - - - - (3,461,500) ---------- ------------ ----------- ----------- ---------------- ------------- -------------- Balance, March 31, 1999 3,174,286 3,174 244,953 245 (435,188) 7,297,066 (9,180,480) 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) ========== ============ =========== =========== ================ ============= ============== The accompanying notes are an integral part of these consolidated financial statements. -7- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Statements of Stockholders' Equity (Continued) December 31, 2000 and 1999 Common Stock Preferred Stock Other Additional ------------------------- ------------------------ Comprehensive Paid-In Accumulated Shares Amount Shares Amount Loss Capital Deficit ---------- ------------ ----------- ----------- ---------------- ------------- ----------- Balance, March 31, 2000 3,875,953 $ 3,876 244,953 $ 245 $ - $ 7,640,045 $ (10,601,591) ========= ============ =========== =========== ================ ============= ============== Stock issued for consulting services 32,777 32 - - - 34,028 - Expense recognized for vested options - - - - - 13,121 - Stock issued for interest on notes payable 100,000 100 - - - 31,150 - Net loss for the nine months ended December 31, 2000 - - - - - - (1,100,171) Balance at December 31, 2000 4,008,730 $ 4,008 244,953 $ 245 $ - $ 7,718,344 $ (11,701,762) ========= ============ =========== =========== ================ ============= ============== The accompanying notes are an integral part of these consolidated financial statements. -8- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Statements of Cash Flows For the Nine Months Ended For the Three Months Ended December 31, December 31, --------------------------------- --------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- OPERATING ACTIVITIES Net income (loss) $ (1,100,171) $ 298,885 $ (427,854) $ (85,154) Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of USPA, Ltd. - (869,336) - - Depreciation and amortization 205,135 211,860 64,828 70,160 Common stock issued for services and interest 123,042 15,357 4,373 4,374 Changes in operating assets and liabilities: (Increase) decrease in inventory (81,534) 10,335 (136,232) (4,915) (Increase) decrease in accounts receivable (37,468) (40,203) (102,842) 3,184 (Increase) decrease in other current assets 1,836 1,207 766 (4,293) Increase (decrease) in accounts payable 1,066,145 5,055 518,681 12,559 Increase (decrease) in other current liabilities 247,813 540,152 143,339 94,833 --------------- --------------- --------------- --------------- Net Cash Provided (Used) by Operating Activities 424,798 173,312 65,059 90,748 --------------- --------------- --------------- --------------- INVESTING ACTIVITIES Proceeds from sale of marketable securities 2,485 - - - Proceeds from sale of USPA, Ltd. - 221,470 - - Purchases of property and equipment (56,980) (37,949) (46,318) (19,505) --------------- --------------- ----------------- --------------- Net Cash Provided (Used) by Investing Activities (54,495) 183,521 (46,318) (19,505) --------------- --------------- ----------------- --------------- FINANCING ACTIVITIES Payments on capital lease obligations (244,841) (281,707) (85,522) (89,946) Proceeds (payments) from notes payable (25,181) - (15,000) - Borrowings (payments) from related party debt 43,146 (102,268) (3,554) (19,926) Net borrowings (payments) on factoring line of credit (151,612) 9,321 76,328 61,585 --------------- ----------------- --------------- --------------- Net Cash Provided (Used) by Financing Activities (378,488) (374,654) (27,748) (48,287) --------------- --------------- --------------- --------------- INCREASE (DECREASE) IN CASH (8,185) (17,821) (9,007) 22,956 CASH, BEGINNING OF PERIOD 8,914 41,967 9,736 1,190 --------------- --------------- --------------- --------------- CASH, END OF PERIOD $ 729 $ 24,146 $ 729 $ 24,146 =============== =============== =============== =============== The accompanying notes are an integral part of these consolidated financial statements. -9- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Consolidated Statements of Cash Flows (Continued) For the Nine Months Ended For the Three Months Ended December 31, December 31, --------------------------------- --------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- CASH PAID FOR Interest $ 144,344 $ 314,321 $ 21,284 $ 88,494 Income taxes $ - $ - $ - $ - NON-CASH FINANCING ACTIVITIES Common stock issued for services $ 123,042 $ 15,357 $ 4,373 $ 4,374 Equipment purchased through capital lease obligation $ - $ - $ - $ - The accompanying notes are an integral part of these consolidated financial statements. -10- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES a. Quarterly Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying consolidated unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-QSB but do not include all of the information and footnotes required by generally accepted accounting principles and should, therefore, be read in conjunction with the Company's fiscal 2000 financial statements in Form 10-KSB. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year. Effective for fiscal quarters ending after March 15, 2000, the Securities and Exchange Commission adopted a rule requiring companies' independent auditors review the companies' financial information prior to the companies filing their Quarterly Reports on Form 10-QSB with the Commission. The Company's December 31, 2000 Form 10-QSB was not reviewed prior to submission to the Commission. A Form 8-K will be filed when the review is completed by the independent auditors. b. Principles of Consolidation The accompanying consolidated financial statements include American Resources and Development Company and its subsidiaries, Pacific Printing and Embroidery L.L.C. (PPW) and Fan-Tastic, Inc. (FTI). c. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets of revenues and expenses during the reporting period. Actual results could differ from those estimates. d. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. e. Concentrations of Risk The Company maintains its cash in bank deposit accounts at high credit quality financial institutions. The balances, at times, may exceed federally insured limits. In the normal course of business, the Company extends credit to its customers. f. Inventories Inventories are stated at the lower of cost or market using the first-in, first-out method. Inventory consists of items available for resale. -11- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) g. Property and Equipment Property, equipment and capital leases are recorded at cost and are depreciated or amortized over the estimated useful life of the related assets, generally three to seven years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. The costs of maintenance and repairs are charged to income as incurred. Renewals and betterments are capitalized and depreciated over their estimated useful lives. h. Accounts Receivable Accounts receivable are shown net of the allowance for bad debts of $63,822 at March 31, 2000. i. Financial Instruments Statement of Financial Accounting Standards No. 107, " Disclosures about Fair Value of Financial Instruments" requires disclosure of the fair value of financial instruments held by the Company. SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate fair value: The carrying amount of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. At March 31, 2000, the Company held 1,045,000 shares of GCA stock (See Note 2). 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 July 14, 2000, 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. j. Income Taxes Income taxes consist of Federal Income and State Franchise taxes. The Company has elected a March 31 fiscal year-end for both book and income tax purposes. The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No.109 (SFAS No. 109), "Accounting for Income Taxes," which requires the asset and liability method of accounting for tax deferrals. k. Basic Loss Per Common Share Basic loss per common share is computed based on the weighted average number of common shares outstanding during the period. The common stock equivalents are antidilutive and, accordingly, are not used in the net loss per common share computation. Fully diluted loss per share is the same as the basic loss per share because of the antidilutive nature of common stock equivalents. Basic net loss from continuing operations per common share and diluted net loss from continuing operations per common share amounts, calculated in accordance with SFAS 128, were $(0.11) and $(.02) -12- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) k. Basic Loss Per Common Share (Continued) for the three months ended December 31, 2000 and 1999, 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 $.00, respectively. Weighted average common shares outstanding were 4,008,730 and 3,640,953 for the three months ended December 31, 2000 and 1999, respectively. l. Revenue Recognition Revenue for contract screen printing, embroidery and product sales are recognized when the goods have been shipped. Franchise fees are recognized as revenue when all material services relating to the sale have been substantially performed by FTI. Material services relating to the franchise sale include assistance in the selection of a site and franchisee training. m. Goodwill 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. n. Recent Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" during the year ended March 31, 1999. SFAS No. 130 established standards for reporting and display of comprehensive income (loss) and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a balance sheet. o. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. p. Prior Period Reclassification Certain 1999 amounts have been reclassified to conform to the presentation of the 2000 consolidated financial statements. -13- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 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 $734,988 at March 31, 2000. Pacific Print and Embroidery, LLC (aka Pacific Print Works) In May 1998, the Company acquired 83% of the outstanding shares of Pacific Print Works (PPW). The acquisition was accounted for by the purchase method of accounting, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their fair market value at the date of acquisition. Liabilities assumed in excess of assets acquired was $629,252 and 213,472 shares of the Company's common stock were issued to PPW shareholders with a guaranteed share value of $5.00 resulting in goodwill of $1,686,411. In addition, depending on PPW's performance from April 1, 1998 through March 31, 2001, additional shares of the Company's common stock would be issued to the Sellers if minimum earnings levels were met. Based on the $5.00 guarantee and the Company's share value from October 1998 through March 1999, the Company is obligated to issue additional shares of common stock to the Sellers. An amendment to the PPW Stock Purchase Agreement is being evaluated by the Company and the Sellers in which the Company would issue another 854,000 shares of the Company's common stock to the Sellers and any additional earnings requirements by PPW or per share value guarantee by the Company would be eliminated. Quade, Inc. and U.S. Polo Association, Ltd. In 1997, Quade, Inc. acquired from the U.S. Polo Association ("US Polo") the exclusive master license 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. 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. -14- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 2 - MERGERS AND ACQUISITIONS (Continued) 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 December 31 and March 31, 2000, the Company had a payable of $264,559 and $416,171, respectively, for net funds advanced from this accounts receivable line of credit. The Company received $3,355,182 and $2,720,346 from the sale of receivables for the Nine months ended December 31, 2000 and 1999 and recognized $69,361 and $66,666 in interest expense from the discount of selling these receivables, respectively. NOTE 4 - NOTES PAYABLE Notes payable are comprised of the following: September 30, 2000 ----------------- Note payable, unsecured, bearing interest at 12%, payable in monthly installments of $7,000, including interest. Due on demand. $ 19,919 Convertible subordinated debentures, originally due June 30, 1996 bearing interest at 12% per annum. Interest payable quarterly. 187,000 Note payable to shareholder of PPW, unsecured. Modified in August 2000. Modified agreement requires payments of $190,000 through February 2002 without interest. Note will default to $327,084 if payments are not made timely plus 9% interest less payments made subsequent to modified agreement. A gain on the modification of debt for $137,084 will be recorded when there is no risk of default on this debt. 312,084 Note payable to former shareholder of PPW, interest rate of 10%, due on demand, unsecured. 96,811 ----------------- Subtotal 615,814 -15- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 4 - NOTES PAYABLE (Continued) Less current portion (368,727) ----------------- Long-term portion $ 247,087 ================= Maturities of long-term debt are as follows: December 31, 2001 $ 368,727 December 31, 2002 247,087 ----------------- $ 615,814 NOTE 5 - NOTES PAYABLE, RELATED PARTIES September 30, 2000 ----------------- Notes payable to Miltex Industries, secured by 700,000 shares of GCA and 1,475,000 shares of the Company's common stock. Interest at 15% with monthly principal and interest payments of $11,000 with a final balloon payment December 31, 2001. $ 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. 315,859 Note payable to a Company owned by a shareholder. Interest payable at 72% with interest and principal payments due currently. 76,377 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. 261,451 ----------------- Subtotal 1,423,741 Less current portion (1,162,290) ----------------- Long-term portion $ 261,451 ================= Maturities of notes payable, related parties are as follows: December 31, 2001 $ 1,162,290 December 31, 2002 - December 31, 2003 261,451 ----------------- $ 1,423,741 -16- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 6 - CAPITAL LEASES Property and equipment payments under capital leases as of March 31, 2000 is summarized as follows: Year End March 31, 2001 $ 373,124 2002 225,438 2003 123,785 2004 88,308 2005 32,378 ------------ Total minimum lease payments 843,033 Less interest and taxes (151,207) ------------ Present value of net minimum lease payments 691,826 Less current portion (302,551) ------------ Long-term portion of capital lease obligations $ 389,275 ============ The Company recorded depreciation on capitalized lease equipment expense of $232,589 and $196,606 for the years ended March 31, 2000 and 1999, respectively. NOTE 7 - INCOME TAXES The Company had net operating loss carry-forwards available to offset future taxable income. The Company has net operating loss carry-forwards of approximately $7,500,000 to offset future tax liabilities. The loss carry-forwards will begin to expire in 2014. Deferred income taxes payable are made up of the estimated federal and state income taxes on items of income and expense which due to temporary differences between books and taxes are deferred. The temporary differences are primarily caused by the use of the equity method for reporting investment in subsidiaries. The deferred tax asset is offset in full by a valuation allowance because it can not be reasonably determined that the net operating loss will be useable. NOTE 8 - PREFERRED STOCK The shareholders of the Company have authorized 10,000,000 shares of preferred stock with a par value of $0.001. The terms of the preferred stock are to be determined when issued by the board of directors of the Company. SERIES B: At March 31, 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, 2000, there is a total of $406,620 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. -17- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 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 1,475,000 shares of common stock as collateral for the note payable to Banque SCS (Note 5). NOTE 10 - STOCK OPTIONS In August 1997, the Company's Board of Directors approved the 1997 American Resources and Development Company Stock Option Plan (Option Plan). Under the Option Plan, 500,000 shares of the Company's common stock are reserved for issuance to Directors and employees. 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 and $1,458 per month will be recognized for 100,000 of the options over a 10 year vesting period. In July 1998, the Board of Directors changed the terms of the 100,000 options vesting over 10 years. 25,000 of these options were fully vested and the remainder of the options were canceled. As a result, compensation expense of $52,498 was recognized for the year ended March 31, 1998 for the vesting of these options. 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, $52,402 and $5,646 in years 2 and 3, respectively, with an increase in pro forma expenses per share of $0.02 in year 1, $0.05 in year 2 and $0.00 in year 3. -18- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 10 - STOCK OPTIONS (Continued) 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 is recognizing a $32,385 expense over 4 months based upon the value of the options as calculated from an option pricing model. The options expire September 1, 2001, are not transferrable and are exercisable at any time at the following rates: 85,000 share s 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, 2000 Expected dividend yield 0% Expected stock price volatility 70% Risk-free interest rate 6.5% Expected life of options (in years) 10 -19- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 11 - COMMITMENTS AND CONTINGENCIES Office Lease The Company leases office and warehouse space in Salt Lake City, Utah and Portland, Oregon and leases space for a retail store in Oregon. Lease commitments for the years ended March 31, 2001 through March 31, 2003 are $467,478, $421,671 and $67,574, respectively. Legal Proceedings The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations, or liquidity. NOTE 12 - GOING CONCERN The accompanying financial statements have been prepared assuming the Company will continue as a going concern. In order to carry out its operating plans, the Company will need to obtain additional funding from outside sources. The Company has received funds from a private placement and debt funding and plans to continue making private stock and debt placements. There is no assurance that the Company will be able to obtain sufficient funds from other sources as needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. NOTE 13 - BUSINESS SEGMENTS Effective March 31, 1999, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." The Company conducts its operations principally in the contract screen printing and embroidery industry with Pacific Print works, Inc. and the retail franchise industry with Fan-Tastic, Inc. Certain financial information concerning the Company's operations in different industries is as follows: For the Nine Months Ended Pacific Corporate December 31, Print Works Fan-Tastic Unallocated ------------ ----------- ---------- ----------- Net sales 2000 $ 3,951,939 $ 125,858 1999 3,104,767 361,860 Operating income (loss) 2000 (248,895) (160,511) applicable to industry 1999 97,774 (110,389) segment General corporate expenses 2000 $ 210,340 not allocated to industry 1999 147,848 segments -20- AMERICAN RESOURCES AND DEVELOPMENT COMPANY Notes to the Consolidated Financial Statements December 31, 2000 and 1999 NOTE 13 - BUSINESS SEGMENTS (Continued) For the Nine Months Ended Pacific Corporate December 31, Print Works Fan-Tastic Unallocated ------------ ----------- ---------- ----------- Interest expense 2000 (276,529) (33,739) (185,651) 1999 (244,729) (28,420) (154,830) Other income (expenses) 2000 (2,217) 7,434 11,000 1999 18,365 1,749 - Income (loss) from 2000 - - - discontinued operations 1999 - - $ 867,215 Assets 2000 $ 1,936,571 $ 28,540 4,259 Depreciation and 2000 198,111 4,704 721 amortization 1999 199,229 9,065 3,566 Property and equipment 2000 56,980 - - acquisitions 1999 218,987 - 961 NOTE 14 - SUBSEQUENT EVENTS On June 7, 2000, the Company announced the signing of a letter of intent to merge with Royal Avalon S.A. De C.V., a Mexico based apparel manufacturer. Royal Avalon has been manufacturing T-shirts in Mexico for the past five years. The letter of intent between the Company and Royal Avalon calls for the Company to issue its common stock to Royal Avalon shareholders for the purchase of the business. During the past seven months the Company has performed significant due diligence relating to the viability of the merger with Royal Avalon. The Company's management and board of directors believes the merger will not be finalized as the letter of intent has expired and the merger would not be in the best interest of the Company's shareholders. In January 2001 the Company issued 140,000 shares of the Company's common stock to two officers of the Company as payment of approximately $80,000 in loans and accrued salaries to the Company. In January 2001 the Company issued 220,000 shares of the Company's common stock to a director of the Company for services performed. In January 2001 the Company issued 500,000 shares of the Company's common stock to a consultant for investor and public relations services and debt and or capital raising efforts. -21- Item 2. Management's Discussion and Analysis or Plan of Operations Forward Looking Statements The statements in this report concerning certain expected future expenses as a percentage of net sales, future financing and working capital requirements and availability constitute forward - looking statements that are subject to risks and uncertainties. These risks could cause actual results or activities to differ materially from those expected. Factors that could adversely affect cost of sales and general expenses as a percentage of net sales include, but are not limited to, increased competitive factors, changes in consumer preferences, as well as an inability to increase sales. Other factors could include a failure to adequately fund operations. In addition, unfavorable business conditions, or changes in the general economy could have adverse effects. Factors that could materially affect future financing requirements include, but are not limited to, the ability to obtain additional financing on acceptable terms. Factors that could materially affect future working capital requirements include, but are not limited to, the factors listed above and the industry factors and general business conditions noted above. The following table sets forth, for the periods indicated, selected Company income statement data expressed as a percentage of net sales. Three Months Nine Months Ended December 31, Ended December 31, ---------------------------- -------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 92.7% 70.8% 86.1% 73.6% Gross profit 7.3% 29.2% 13.9% 26.4% General expenses 25.4% 24.0% 28.9% 30.4% Depreciation and amortization 0.1% 0.5% 0.2% 0.7% Loss from operations -18.7% 6.9% -23.0% -7.8% Other income and expenses 0.5% 0.0% 0.6% 1.0% Interest expense -13.7% -15.9% -18.4% -20.7% Loss before income taxes and discontinued operations -32.0% -9.0% -40.7% -27.5% Discontinued operations 0.0% 0.0% 0.0% 41.9% Income taxes 0.0% 0.0% 0.0% 0.0% Net Income (loss) -32.0% -9.0% -40.7% 14.4% For the three months ended December 31, 2000 ("third quarter fiscal 2001"), compared to the three months ended December 31, 1999 ("third quarter fiscal 2000"): Sales for the three months ended December 31, 2000 were $1,340,986 compared to $1,397,538 for the three months ended December 31, 1999. Pacific Print Works ("PPW") sales for the third quarter fiscal 2001 were $1,300,605 compared to $1,217,906 for the third quarter fiscal 2000. Sales to two of PPW's largest customers in the third quarter fiscal 2001included garment sales, primarily T-shirts. (The garments are sold as part of a "package" that includes the printing and finishing of the garment.) As a result, PPW sales for the third quarter fiscal 2001 included production, finishing and design revenues of $711,000 and garment revenues of $630,000 as compared to production, finishing and design revenues of $1,212,000 and garment revenues of $5,000 in the third quarter fiscal 2000. Gross profit and the gross profit as a percentage of sales declined for the third quarter fiscal 2001 as compared to the third quarter fiscal 2000, $101,183 and 7.3% compared to $408,067 and 14.6%. The decline in gross profit was caused partially by the decrease in production revenues which resulted in a higher percentage of fixed -22- production costs to production revenues. Direct labor costs for production, finishing and design were $362,000 or 50.9% of non-garment revenue in the third quarter fiscal 2001 as compared to $513,000 or 42.3% of non-garment revenue for the third quarter fiscal 2000. In addition, the gross profit as a percentage of sales decrease was partially due to the lower margins on garment sales. The cost of garments was $575,000 or 91.3% of garment sales in the third quarter fiscal 2001. General and administrative expenses for the third quarter fiscal 2001 were $51,477 as compared to $342,970 for the third quarter fiscal 2000. This 2.4% increase was primarily due to an increase in payroll costs at PPW. Cost cutting measures were implemented in the fourth quarter fiscal 2001which will result in a decline of approximately $40,000 general and administrative payroll costs per quarter. The gain (loss) from operations before other income and expenses for the third quarter fiscal 2001 was a loss of $250,294 as opposed to a gain of $65,097 for the third quarter fiscal 2000. Interest expense for the third quarter fiscal 2001 was $146,622 compared to $132,311 for the prior year. For the Nine months ended December 31, 2000 ("YTD fiscal 2001"), compared to the Nine months ended December 31, 1999 ("YTD fiscal 2000"): Sales for the Nine months ended December 31, 2000 were $4,077,797 compared to $3,466,627 for the Nine months ended December 31, 1999. Pacific Print Works ("PPW") sales YTD fiscal 2001 were $3,951,939 compared to $3,104,767 for the YTD fiscal 2000 sales. Sales to two of PPW's largest customers in the YTD fiscal 2001included garment sales, primarily T-shirts. (The garments are sold as part of a "package" that includes the printing and finishing of the garment.) As a result, PPW sales for the YTD fiscal 2001 included production, finishing and design revenues of $2,835,000 and garment revenues of $1,116,000 as compared to production, finishing and design revenues of $2,971,000 and garment revenues of $131,000 in the YTD fiscal 2000. Gross profit and the gross profit as a percentage of sales declined for YTD fiscal 2001 as compared to the YTD fiscal 2000, $567,856 and 13.9% compared to $915,267 and 26.4%. The decline in gross profit was caused partially by the decrease in production revenues which resulted in a higher percentage of fixed production costs to production revenues. Direct labor costs for production, finishing and design were $1,260,000 or 44.4% of non-garment revenue in the YTD fiscal 2001 as compared to $1,296,000 or 43.6% of non-garment revenue for the YTD fiscal 2000. In addition, the gross profit as a percentage of sales decrease was partially due to the lower margins on garment sales. The cost of garments was $1,046,000 or 93.7% of garment sales in the YTD fiscal 2001. Rent costs increased by $95,000 because PPW expanded its warehouse space due to an anticipation of storing and processing additional garments due to increased sales. In addition, the gross profit from Fan-Tastic, Inc. operations declined by $124,000 in the YTD fiscal 2001 compared to YTD fiscal 2000 primarily due to a decrease of approximately 2 equivalent stores. Fan-Tastic closed its last store in September 2000 in order to reduce general costs. General and administrative expenses for the YTD fiscal 2001 were $1,188,326 as compared to $1,075,733 for the YTD fiscal 2000. The increase in general and administrative expenses is primarily due to $110,000 in investor relation expenses incurred in the first quarter fiscal 2001. An increase of approximately $110,000 in PPW general and administrative costs was offset by a decrease in Fan-Tastic general and administrative costs. Cost cutting measures were implemented in the fourth quarter fiscal 2001which will result in a decline of approximately $40,000 in PPW general and administrative costs per quarter. The gain (loss) from operations before other income and expenses for the YTD fiscal 2001 was a loss of $620,470 as opposed to a loss of $160,466 for the YTD fiscal 2000. Interest expense for the YTD fiscal 2001 was $495,919 compared to $428,223 for the prior year. The Company had a $869,336 gain from the sale of its 50% ownership in USPA Ltd. in the YTD fiscal 2000 without any similar gain for YTD fiscal 2001. -23- Quarter Ended December 31, Nine Months Ended December 31, 1999 1998 1999 1998 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 70.8% 75.0% 73.6% 82.1% Gross profit 29.2% 25.0% 26.4% 17.9% General expenses 24.0% 35.5% 30.4% 47.5% Depreciation and amortization 0.5% 5.7% 0.7% 5.2% Loss from operations 4.7% -16.2% -4.6% -34.8% Other income and expenses 0.0% 0.3% 0.6% 1.8% Gain on sale of assets 0.0% 0.0% 0.0% 1.7% Interest expense -10.7% -12.9% -12.4% -13.5% Loss before income taxes and discontinued operations -6.1% -28.9% -16.4% -44.8% Discontinued operations 0.0% -5.3% 25.0% -1.7% Income taxes 0.0% 0.0% 0.0% 0.0% Net income -6.1% -34.1% 8.6% -46.4% For the three months ended December 31, 1999 ("third quarter fiscal 2000"), compared to the three months ended December 31, 1998 ("third quarter fiscal 1999"): Sales for the three months ended December 31, 1999 were $1,397,538 compared to $1,094,036 for the three months ended December 31, 1998. Pacific Print Works ("PPW") sales for the three months ended December 31, 1999 were $1,217,906 compared to $832,586 for the three months ended December 31, 1998. The $385,320 increase in PPW's revenue was primarily due to an increase in sales to PPW's two largest customers. The increase with these customers is largely due to PPW's high density printing capabilities in addition to the overall quality of the printing and related services. Sales for Fan-Tastic declined by $81,817 which was primarily due to third quarter fiscal 2000 sales coming from two stores as opposed to four stores in third quarter. Gross profit and the gross profit as a percentage of sales increased for the third quarter fiscal 2000 compared to the third quarter fiscal 1999, $408,067 and 29.2% compared to $273,165 and 25%. The increase in gross profit was primarily due to the increase in PPW revenues as noted above. The gross profit from PPW operations increased by approximately $226,000. General and administrative expenses for the third quarter fiscal 2000 were $335,893 as compared to $388,387 for the third quarter fiscal 1999. Fan-Tastic saw a decline in general and administrative expenses of approximately $41,000 due to less rent and payroll expenses resulting from the closure of 2 stores. Depreciation and amortization expenses were $7,077 in the third quarter fiscal 2000 compared to $62,156 for the third quarter fiscal 1999. This decrease is primarily due to zero goodwill amortization in the third quarter fiscal 2000 as the Company wrote off all goodwill from the PPW acquisition at March 31, 1999. The gain (loss) from operations before other income and expenses for the third quarter fiscal 2000 improved to a gain of $65,097 compared to a loss of $177,378 for the third quarter fiscal 1999. The improvement is primarily due to the increase in sales and the reduction in general and administrative expenses as discussed above. -24- Interest expense for the third quarter fiscal 2000 was $149,807 compared to $141,606 for the prior year. For the nine months ended December 31, 1999 ("YTD FISCAL 2000"), compared to the nine months ended December 31, 1998 ("YTD FISCAL 1999"): Sales for the nine months ended December 31, 1999 were $3,466,627 compared to $2,847,151 for the nine months ended December 31, 1998. Pacific Print Works ("PPW") sales for the nine months ended December 31, 1999 were $3,104,767 compared to $2,167,054 for the nine months ended December 31, 1998. The $937,713 or 43% increase in PPW's revenue was primarily due to an increase in sales to PPW's two largest customers. The increase with these customers is largely due to PPW's high density printing capabilities in addition to the overall quality of the printing and related services. Sales for Fan-Tastic declined by approximately $318,000 which was primarily due to 1) YTD FISCAL 2000 sales coming from the equivalent of 2.4 stores over 9 months as opposed to 4.7 stores over the 9 months ended December 31, 1998 and 2) franchise sales of $68,000 in YTD Fiscal 2000 as opposed to 122,000 for YTD Fiscal 1999. Gross profit and the gross profit as a percentage of sales increased for the YTD Fiscal L 2000 compared to the YTD Fiscal 1999, ($915,267 and 26.4% compared to $509,858 and 17.9%). The increase in gross profit was primarily due to the increase in PPW gross profit for the YTD Fiscal 2000 compared to YTD Fiscal 1999 ($720,601 vs. $168,337 ) that was partially reduced by a decline in Fan-Tastic sales and gross profit as noted above. General and administrative expenses for the YTD Fiscal 2000 were $1,053,039 as compared to $1,351,185 for the YTD Fiscal 1999. Fan-Tastic saw a decline in general and administrative expenses of approximately $236,000 due to less rent and payroll expenses resulting from the closure of the equivalent 2.3 stores over the nine months ended December 31, 1999. The Company also expensed $55,000 in debt acquisition costs in the YTD Fiscal 1999 that were not recurring in the YTD Fiscal 2000. Depreciation and amortization was $22,694 in the YTD Fiscal 2000 compared to $148,380 for the YTD Fiscal 1999. This decrease is primarily due to zero goodwill amortization in the YTD Fiscal 2000 as the Company wrote off all goodwill from the PPW acquisition at March 31, 1999. The loss from operations for the YTD Fiscal 2000 was reduced to $160,463 compared to $989,707 for the YTD Fiscal 1999. The reduction in the loss is primarily due to the increase in sales and the reduction in general and administrative expenses as discussed above. Interest expense for the third quarter 99 was $278,417 compared to $242,365 for the prior year, which was due to a greater amount of debt outstanding for YTD Fiscal 2000. The Company had a $873,086 gain from the sale of its 50% ownership in USPA Ltd. in the YTD Fiscal 2000. For its sale of USPA Ltd., in June 1999 the Company received the cancellation of $1,000,000 in debt from Jordache Enterprises, the cancellation of $13,185 in interest and cash of $221,470. In addition, the Company received $74,040 in October 1999 from the collection of U.S. Polo royalties earned through May 31, 1999. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company had total assets of $1,965,180, total liabilities of $5,944,345 and total stockholders' deficit of $3,979,165 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 changes in assets, liabilities and stockholders equity is -25- due primarily to losses from operations and interest expense. At December 31, 2000 the Company's current ratio was approximately .208 current assets to 1 current liabilities. Management intends to improve its overall financial structure and provide operating capital through private placement of the Company's common stock and seeking the conversion of debt to equity. There is no assurance that the Company will be able to obtain sufficient funds from other sources as needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. Part II - Other Information Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Default upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Effective for fiscal quarters ending after March 15, 2000, the Securities and Exchange Commission adopted a rule requiring companies' independent auditors review the companies' financial information prior to the companies filing their Quarterly Reports on Form 10-QSB with the Commission. The Company's December 31, 2000 Form 10-QSB was not reviewed prior to submission to the Commission. A Form 8-K will be filed when the review is completed by the independent auditors. Item 6. Exhibits and Reports on Form 8-K Not applicable. -26- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. AMERICAN RESOURCES AND DEVELOPMENT COMPANY (Registrant) /s/ B. Willes Papenfuss President, Chief Executive February 19, 2001 ----------------------- Officer and Director B. Willes Papenfuss (Principal Executive Officer) /s/ Timothy M. Papenfuss Secretary / Treasurer and February 19, 2001 ------------------------ Director (Chief Financial Timothy M. Papenfuss Officer, Chief Accounting Officer and Controller) -27-