<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: February 28, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission File Number
000-23615
AMERICAN DIVERSIFIED HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0854150
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12100 Wilshire Boulevard
Suite 680
Los Angeles, California 90025
(Address of principal executive offices)
Issuer's telephone number, including area code: (310) 442-9931
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 103,027,000 shares of Common Stock
outstanding as of March 31, 1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
AMERICAN DIVERSIFIED HOLDINGS, INC.
Form 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets at
February 28, 1998 and August 31, 1997...................... 3
Condensed Consolidated Statements of Operations for the
three months and six months ended February 29, 1998 and
the period from February 4, 1997 (inception) to August 31,
1997 and February 28, 1998................................. 4
Condensed Consolidated Statements of Cash Flows
for the three months and six months ended February 28, 1998
and the period from February 4, 1997 (inception)
to AUGUST 31,1997 AND February 28, 1998.................... 5
Notes to Condensed Consolidated
Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 9
Item 2. Changes in Securities...................................... 9
Item 3. Defaults Upon Senior Securities............................ 9
Item 4. Submission of Matters to a Vote of Security Holders........ 9
Item 5. Other Information.......................................... 9
Item 6. Exhibits and Reports on Form 8-K........................... 9
</TABLE>
2
<PAGE> 3
AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
February 28, 1998 and August 31, 1997
<TABLE>
<CAPTION>
February 28, 1998 August 31, 1997
----------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................... $ 306,662 $ 2,264
Debt Securities ............................. 1,193,049
Prepaid expenses and other
receivables .............................. 297,592 4,220
Stock subscriptions received ................ 1,842,464 117,000
Equipment ................................... 40,930 14,320
------------ ------------
TOTAL ASSETS ................................ $ 3,680,697 $ 137,804
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued
expenses .................................... 615,038 63,577
Bank overdraft .............................. 419,911
------------ ------------
TOTAL LIABILITIES ........................... 1,034,949 63,577
============ ============
Equity
Series A par value $1; 5,000,000 shares
authorized, 9% cumulative, convertible
(subscribed 3,514,491 shares) ............ 3,509,011 150,545
Unpaid subscriptions as of
April 14, 1998 ........................... (239,489) (33,545)
Common Stock
110,000,000 shares authorized; 100,652,000
shares issued and outstanding ............ 10,107,429 96,754
Deficit accumulated during the
development stage ........................ (792,278) (139,527)
Notes receivable from
shareholders(Note 4) ..................... (9,938,925)
------------ ------------
Total Shareholders' Equity .................. 2,645,748 74,227
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY ........................ $ 3,680,697 $ 137,804
============ ============
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
3
<PAGE> 4
AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
Three months Six months February 4, 1997 February 4, 1997
Ended ended (inception) to (inception) to
February 28, February 28, February 28, August 31,
1998 1998 1998 1997
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUE .......................... $ $ $ $
EXPENSES
Employee compensation
and benefits ..................... 116,993 194,902 215,743 20,841
Travel and entertainment ......... 33,377 70,845 93,331 22,486
Administration ................... 65,692 130,183 152,669 22,506
Advertising ...................... 52,831 95,299 102,519 7,220
Professional services ............ 28,469 161,522 227,996 66,474
------------ ------------ ------------ ------------
Expenses ......................... 297,362 652,751 792,278 139,527
------------ ------------ ------------ ------------
(Loss) before income taxes ....... (297,362) (652,751) (792,278) (139,527)
Income taxes ..................... -- -- -- --
------------ ------------ ------------ ------------
NET (LOSS) ....................... $ 297,362 $ 652,751 $ 792,278 $ 139,527
============ ============ ============ ============
Average common shares outstanding 50,250,000 100,409,333 51,727,384 10,000,000
------------ ------------ ------------ ------------
Net (loss) per common share ...... (0.01) (0.01) (0.02) (0.01)
------------ ------------ ------------ ------------
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
4
<PAGE> 5
AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods from inception (February 4, 1997) through August 31, 1997
from December 1, 1997 to February 28, 1998 and from Inception to February 1998
<TABLE>
<CAPTION>
Period from Period from
Three months Six months February 4, 1997 February 4, 1997
Ended ended (inception) to (inception) to
February 28, February 28, February 28, August 31,
1998 1998 1998 1997
----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss ................................. $ (297,362) $ (652,751) $ (742,676) $ (139,527)
Adjustments to reconcile net loss
to net cash used in operating activities:
Noncash expenses;
professional fees ..................... -- 56,100 105,059 48,959
Depreciation expense ..................... 2,049 3,529 3,529
Changes in assets and liabilities:
Increase in accounts payable and
accrued expenses ...................... 442,337 598,647 615,038 63,577
Increase in bank overdraft ............... 112,458 419,911 419,911
Increase in prepaid expenses
and other ............................. (119,965) (293,372) (297,512) (4,220)
Net cash (used in) provided by
operating activities .................. 139,517 84,878 53,667 (31,211)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities
Purchase Equipment .................... (13,915) (23,181) (44,359) (14,320)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from issuance of preferred
stock ................................. 117,009 234,009 234,009
Proceeds from issuance of common
stock ................................. 15,550 15,550 63,345 47,795
----------- ----------- ----------- -----------
132,559 249,559 297,354 47,795
----------- ----------- ----------- -----------
Increase in cash and cash equivalent ..... 255,822 304,419 306,832 2,264
Cash and Cash equivalents
Beginning of the period ............... 50,710 2,284 -- --
End of the period ..................... $ 306,662 $ 306,662 $ 306,662 $ 2,264
=========== =========== =========== ===========
Supplement schedule of noncash financing
activities
Issuance of 510,000, 8,135,000 and
7,625,000 common shares in exchange for
services rendered ..................... $ $ 56,100 $ 105,059 $ 48,959
----------- ----------- ----------- -----------
Issuance of 1,193,051 preferred shares
in exchange for debt securities ....... $ 1,193,051 $ 1,193,051
=========== =========== ===========
Issuance of 90,000,000 common
shares in exchange for note
receivable .............................. $ 9,773,260 $ 9,773,260
=========== ===========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
5
<PAGE> 6
AMERICAN DIVERSIFIED HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three month and six month periods ending February 28, 1998
NOTE 1: QUARTERLY INFORMATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with SEC requirements for interim financial statements. The
statements do not necessarily include all disclosures that would be presented in
the Annual Report on Form 10-SB of American Diversified Holdings, Inc. (the
"Company"). These statements should be read in conjunction with the financial
statements contained in the Company's Annual Report on Form 10-SB as of and for
the period from February 4,1997 (inception) to August 31, 1997.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of Company's financial position and operations for the interim
period. The results are not necessarily indicative of results to be expected for
the fiscal year.
NOTE 2: NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was organized on February 4, 1997 as a provider of financial
services in the United States and Europe. As a development stage enterprise, the
Company has devoted most of its resources since inception to raising capital and
implementing the first stages of its business plan. The Company's fiscal year
ends on the last day of each August.
The Company has established two wholly owned subsidiaries since inception:
<TABLE>
<CAPTION>
Planned Operations
------------------
<S> <C>
American Diversified AG Wertpapierhandelsbank ("ADAG") Provider of financial
services in Germany
American Diversified Asset Management, Inc. ("ADAM") Investment advisor to
planned mutual funds
</TABLE>
A summary of the Company's significant accounting policies follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All material intercompany
accounts and transactions are eliminated in consolidation.
Cash and cash equivalents
Cash equivalents include highly liquid debt instruments which have a maturity of
three months or less from the date of purchase and other highly liquid
investments which are readily convertible into cash. Cash equivalents are stated
at cost which approximates market value.
Equipment
Equipment is reported at cost and includes expenditures for major improvements.
Depreciation is determined using accelerated methods based on estimated useful
lives of between three and five years.
Foreign Currency Translation
The Company has agreed to fund any cash flow deficits incurred by ADAG, its
European subsidiary. Until such time that ADAG generates sales revenue, the
Company's functional currency (U.S. $) will be considered ADAG's functional
currency for financial reporting purposes.
6
<PAGE> 7
(Note 2 cont.)
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 carry forwards. Under the liability method, tax liabilities are recorded
for taxable temporary differences. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, all or a portion 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.
Fair value of financial instruments
The fair value of cash and cash equivalents and capital stock subscriptions
receivable approximates carrying amounts because of the short term nature of
these assets.
Net loss per common share
The net loss per common share is based on the net loss from operations and the
weighted average number of shares of common stock outstanding during the period.
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, liabilities and expenses and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3: RELATED PARTY TRANSACTIONS
Legal and other services provided by the Company's stockholders and reported as
operating expenses totaled $67,483 and $117,422 during the quarter and six month
period ended February 28, 1998, respectively
In connection with the Company's founding, a group of stockholders contributed
their ownership of a "Bearer Note" secured by a first mortgage on certain real
property in Berlin. The note, with a face value of 17.5 million Deutschmarks, is
due on December 31, 1999 and accumulated interest at 4% per annum. For U.S.
accounting purposes the note receivable and the interest thereon of $9,773,260
and $165,665 respectively, are reflected as a reduction of stockholders' equity
until such time as the note and accumulated interest are converted to cash.
NOTE 4: PREFERRED STOCK OFFERING
The Company's Board of Directors has authorized the issuance of 5,000,000 shares
of Series A 9% cumulative convertible redeemable preferred stock. The cumulative
dividends are payable semi-annually, when declared, at an annual rate of $.09
per share commencing January 1, 1998.
NOTE 5: OTHER MATTERS
On November 24, 1997, the Company signed an agreement to effect a merger with
James Buchanan Rea, Inc., the investment advisor and distributor of the
Rea-Graham Balanced Fund. The merger which will be recorded as a purchase
transaction, will be affected by an exchange of 2,375,000 shares of the
Company's common stock and cash of $160,875 for the common stock of James
Buchanan Rea, Inc.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company was organized on February 4, 1997 as a provider of financial
services in the United States and Europe. As a development-stage enterprise, the
Company has devoted most of its resources since inception to raising capital and
implementing the first stages of its business plan. As such, the Company has not
generated any revenues from operations.
RESULTS OF OPERATIONS
For the three months ended February 28, 1998, the Company had operating
expenses of $297,362 as compared to $355,409 for the three months ended November
30 ,1997. The decrease in operating expenses was primarily due to the
reduction of professional fees associated with the development of the Company.
For the three months ended February 28, 1998, the Company incurred expenses
associated with employee compensation and benefits in the amount of $116,993,
travel and entertainment expenses of $33,377, administration costs of $65,692
and advertising expenses of $52,831 associated with the development of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Costs associated with staffing the Berlin location and initial
promotional costs associated with the Company's Preferred Stock Offering under
Regulation S (the "Offering") increased the Company's monthly liquidity
requirements to approximately $100,000 during the period ending February 28,
1998 as compared to $20,000 per month during the fiscal year ended August 31,
1997. Trade creditors, short-term overdrafts with local financial institutions
and initial cash inflows from the Offering provided the working capital.
SUBSEQUENT EVENTS
The Company's U.S. subsidiary merged with and into James Buchanan Rea,
Inc. ("JBRI"), a California corporation, effective March 31, 1998. JBRI is a
licensed broker-dealer and a registered investment advisor under the Investment
Advisers Act of 1940. Since its inception in 1982, JBRI has served as the
investment advisor and distributor to the Rea-Graham Balanced Fund, a series of
mutual funds of Rea-Graham Funds, Inc., a diversified, open-end investment
company registered under the Investment Company Act of 1940 (the "Fund"). The
shareholders of the Fund, at a meeting on January 12, 1998, approved a new
investment advisory agreement with American Diversified Asset Management, Inc.,
a Nevada corporation and a wholly-owned subsidiary of the Company ("ADAM"),
effective upon completion of the merger. ADAM will succeed to the business
operations of JBRI and will operate as a broker-dealer and registered investment
advisor. ADAM will succeed as the investment advisor and distributor to the
Fund. James Buchanan Rea, Jr., the former President and registered securities
principal of JBRI has become the President and general securities principal of
ADAM. Other than through the merged operations of JBRI, ADAM does not have an
operating history and has not previously engaged in the investment management
business or in the operation and distribution of mutual funds. At March 31,
1998, the investment management business of ADAM acquired through the JBRI
merger, and the initial business activities of American Diversified AG
Wertspapierhandlesbank, a German corporation and a wholly owned subsidiary of
the Company ("ADAG"), represent the only active business activities of the
Company. The Company's results of operations do not include the results of
operations for JBRI, as the merger did not become effective until March 31,
1998.
8
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c)(1) The Company accepted subscriptions for 3,351,996 of Series
A Preferred Stock during the period covered by this
report, all of which were unregistered sales made in
reliance on Regulation S.
(2) The Company issued 142,000 shares of Common Stock during
the period covered by the report to ten employees for
$1,555 each in private transactions pursuant to Section
4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
6.1 Plan and Agreement of Merger and Reorganization
among JBRI, ADAM, the Company and certain
shareholders of JBRI. (Filed as Exhibit 8.1 to Form
10-SB of the Company on January 14, 1998 and
incorporated herein by reference.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the applicable period
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, therefore duly authorized.
AMERICAN DIVERSIFIED HOLDINGS, INC.
Date: April 30, 1998 By: /s/ PETER HARTMAN, JR.
----------------------------------------
Peter Hartman, Jr.
Chief Executive Officer
Date: April 30, 1998 By: /s/ ROLAND KUETTNER
----------------------------------------
Roland Kuettner
Principal Financial and Accounting Officer
<PAGE> 11
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 306,662
<SECURITIES> 1,193,049
<RECEIVABLES> 2,140,056
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40,930
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,680,697
<CURRENT-LIABILITIES> 1,034,949
<BONDS> 0
0
0
<COMMON> 10,107,429
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,680,697
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (297,362)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (297,362)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
