10QSB: AMERIRESOURCE TECHNOLOGIES INC
11/20/2002 8:15:45 AM
(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. Except for historical information contained herein, certain statements herein are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements relate to future events or to our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. There are a number of factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements.
This discussion contains forward-looking statements which involve the acquisition of technology, and the Company's financial position, business strategy and other plans and objectives for future operations. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected effects on its business or operations. Moreover, the Company does not assume responsibility for the accuracy and completeness of such statements. The Company is under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results.
General
The Company's operations for the third quarter of 2002 were conducted through its wholly owned subsidiaries Jim Butler Performance ("JBP") and West Texas Real Estate & Resources, Inc. ("WTRER"), although the Company recently acquired a majority interest in Royal Casino Entertainment Corp. ("RCE") which owns and operates a day cruise gaming boat known as Royal Casino I. Since the Company's acquisition of RCE, its primary focus is on the gaming boat and hospitality industries and the operations of Royal Casino I.
Pursuant to an August 26, 2002 Exchange Agreement which closed on October 2, 2002, the Company and Royal Casino Holdings Corporation ("RCH") agreed to exchange a majority interest in RCH's subsidiaries, RCE and Royal Casino Cruises, LLC ("RCC"), for a majority interest in the Company. RCE owns and operates the day cruise gaming boat, Royal Casino I, and RCC owns the land lease on which the Royal Casino I docks adjacent to the Ambassador Hotel on the Intercoastal Waterway in Hollywood, Florida.
Passenger volume for the day cruise industry in southeast Florida was significantly lower than normal for the month of October and the first half of November as compared to prior years, which the Company attributes to economic slowdown, market depreciation, and the U.S. sniper attacks and terrorism in general. This industry slowdown, combined with unexpected delays that RCE has encountered in its efforts to obtain required financing, have forced RCE to cancel scheduled cruises on two recent weekends for lack of working capital, and has resulted in RCE's delinquency on its November mortgage on the Royal Casino I. The Royal Casino I was leased to RCE for a monthly lease of approximately $70,000 per month with approximately 42% of that amount being credited toward the principal purchase price of $4,250,000. RCE is engaging in a search for financing, however, it faces possible foreclosure of the Royal Casino I at any time. The lessor agreed to withdraw $47,000 out of funds held in escrow as partial payment towards the November lease payment, but RCE is still in default of the lease. Unless RCH or the Company
procures immediate financing, repossession of the Royal Casino I is imminent. The Company and RCH have agreed to amend the Exchange Agreement by granting the Company the sole option to rescind the Exchange Agreement in the event RCE does not procure the requisite financing, which was a requirement of the Agreement.
The Company is presently pursuing financing utilizing the boat as collateral, which has been appraised at $8.2 million pursuant to a September 5, 2002 survey by A Knot Just Maritime Surveyors, Inc. The Company has been advised that it has been approved for financing for approximately $5.7 million involving approximately a 70% loan to value ratio. This financing is expected to close within the next ten (10) days. A majority of this financing, $4.2 million, would be used by the Company to purchase the Royal Casino I, with the remaining funds being directed towards working capital requirements and general corporate obligations. In the event the Company is unable to obtain this financing within the next ten (10) days, there is a substantial risk that the Royal Casino I will be foreclosed and repossessed, in which case the Exchange Agreement will be rescinded by RCH and the Company.
JBP's operations concentrated on its core business of manufacturing high end racing engines and the research for the development of potential new product lines as well as expanding the functionality of its existing website, www.jbp-pontiac.com, which is still under minor construction. The website will have a link to a full inventory of parts that can be purchased on line, as well as a calendar of upcoming events and a technical section that will allow JBP's management to answer questions from the car enthusiasts and/or hobbyists. The link for the website should be completed within the next thirty (30) days. The Company is currently exploring options by which to divest JBP since the Company intends to primarily focus on the gaming and hospitality industry.
WTRER's business operations in the third quarter consisted primarily of analyzing the viability of drilling additional wells and deepening the existing wells on its oil, gas and mineral lease in Pecos County, Texas.
The Company continues to search for viable business operations to acquire or merge with in order to increase the Company's revenues and profitability. The Company has received unsolicited offers concerning the sale of its subsidiaries and although it has not received an offer on any of its subsidiaries which the Company deems acceptable, it will continue to entertain offers to sell some or all of its subsidiaries in an attempt to generate profitability.
Results of Operations
The following discussion should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-KSB for the fiscal year ended December 31, 2001, and should further be read in conjunction with the financial statements included in this report. Comparisons made between reporting periods herein are for the nine month period ended September 30, 2002 as compared to that period in 2001, and for the three month period ended September 30, 2002 as compared to the same period in 2001.
Revenue from the operations of the Company's wholly owned subsidiary, JBP, of $158,830 was realized during the third quarter of 2002. JBP's revenues for the nine month period ended
September 30, 2002 were $415,075. The Company did not generate any revenue during the three or nine months ended September 30, 2001 because the Company had not yet acquired JBP.
General and administrative expenses decreased from $53,464 for the quarter ended September 30, 2001 to $32,088 for the same period in 2002, although consulting expenses as well as employee salaries and bonuses, primarily related to the operations of JBP, increased in the third quarter of 2002. However, when JBP's operating expenses are netted from JBP's revenues, the Company's total operating loss for the quarter ended September 30, 2002 decreased to $20,216 from $125,149 for the quarter ended September 30, 2001.
General and administrative expenses for the nine months ended September 30, 2002 increased to $523,148 from $244,413 for the same period in 2001, and employee salaries and bonuses increased by $106,707. However, consulting expenses decreased significantly from $548,435 for the nine months ended September 30, 2001 to $137,620 for the same period in 2002. As a result, the total operating loss for the nine month period ended September 30, 2002 decreased to $365,779 from $797,227 for the nine months ended September 30, 2001.
The Company experienced a net loss of $60,079 for the three months ended September 30, 2002, as compared to net income of $91,616 for the same period in 2001. The majority of the net income realized in the third quarter of 2001 was attributable to a gain on extinguishment of debt in the amount of $215,379.
A net loss of $639,266 was experienced by the Company for the nine month period ended September 30, 2002 as compared to net income of $2,759,056 for the same period in 2001. As a result, the earnings per share decreased from $0.32 per share for the nine months ended September 30, 2001 to a net loss of $0.04 per share for the nine months ended September 30, 2002. Again, the majority of the net income realized in the first nine months of 2001 was attributable to a gain on extinguishment of debt in the amount of $3,581,839.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended September 30, 2002 decreased to $391,444 from $3,325,935 for the same period in 2001. There was $126,473 used in, or provided by, financing activities for the first nine months of 2002 as compared to $3,429,019 used in the same period in 2001.
The Company has relied upon its chief executive officer for its capital requirements and liquidity. The Company's recurring losses and the financial instability of RCH which may necessitate a recission of the Exchange Agreement raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with respect to these matters include raising additional working capital through equity or debt financing and ultimately achieving profitable operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. |
