<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: November 30, 1997
[ ] 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]
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AMERICAN DIVERSIFIED HOLDINGS, INC.
Form 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets at
November 30, 1997 and August 31, 1997...................... 3
Condensed Consolidated Statements of Operations for the
three months ended November 30, 1997 and the periods from
February 4, 1997 (inception) to August 31, 1997 and
November 30, 1997.......................................... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended November 30, 1997 and the period from
February 4, 1997 (inception) to August 31, 1997 and
November 30, 1997.......................................... 5
Notes to Condensed Consolidated (Unaudited)
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
November 30, 1997 and August 31,1997
<TABLE>
<CAPTION>
November 30, 1997 August 31, 1997
----------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................. $ 50,710 $ 2,264
Capital stock subscriptions
receivable(Note 4) ....................... 33,545 117,000
Prepaid expenses and other
receivables ............................. 177,627 4,220
Equipment .................................. 26,735 14,320
----------- -----------
TOTAL ASSETS ............................... $ 288,617 $ 137,804
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities
Accounts payable and accrued
expenses ................................... 172,701 63,577
Bank overdraft ............................. 307,453
----------- -----------
TOTAL LIABILITIES .......................... 480,154 63,577
=========== ===========
Stockholders' Equity(Notes 3 and 4)
Series A 9% convertible redeemable
cumulative preferred stock, $1 par value;
5,000,000 shares authorized
Subscribed for but not paid for or issued
162,495 shares .......................... 150,545 150,545
Common Stock, $.001 par value;
110,000,000 shares authorized;
Issued and outstanding 100,510,000 and
10,000,000 shares ....................... 9,992,374 96,754
Unpaid subscriptions as of
December 22, 1997 ....................... (3,545)
Deficit accumulated during the
development stage ....................... (494,936) (139,527)
Notes receivable from stockholders ......... (9,839,520)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................. (191,537) 74,227
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .................... $ 288,617 $ 137,804
=========== ===========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
3
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AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
Three months February 4, 1997 February 4, 1997
Ended (inception) to (inception) to
November 30, 1997 November 30, 1997 August 31, 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE .......................... $ $ $
EXPENSES
Employee compensation
and benefits ..................... 77,909 96,750 20,841
Travel and entertainment ......... 37,468 59,954 22,486
Administration ................... 64,491 86,997 22,506
Advertising ...................... 42,468 49,688 7,220
Professional services ............ 133,073 199,547 66,474
------------ ------------ ------------
Expenses ......................... $ 355,409 $ 494,936 $ 139,527
============ ============ ============
(Loss) before income taxes ....... (355,809) (494,936) (139,527)
Income taxes ..................... -- -- --
------------ ------------ ------------
NET (LOSS) ....................... $ (305,809) $ (445,336) $ (139,527)
============ ============ ============
Average common shares outstanding 50,250,000 50,250,000 10,000,000
------------ ------------ ------------
Net (loss) per common share ...... $ (0.01) $ (0.01) $ 0.01
============ ============ ============
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
4
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AMERICAN DIVERSIFIED HOLDINGS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From Period from
Three months February 4,1997 February 4, 1997
Ended (inception) to (inception) to
November 1997 November 1997 August 31, 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) ................................. $ (355,409) $ (494,9336) $ (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 expenses ...................... 1,500 1,500
Changes in assets and liabilities:
Increase in accounts payable and
accrued expenses ........................ 109,124 220,496 63,577
Increase in bank overdraft ................. 307,453 307,453
Increase in prepaid expenses
and other ............................... (173,407) (177,627) (4,220)
----------- ----------- -----------
Net cash (used in) provided by
operating activities .................... (54,639) (38,055) (31,211)
----------- ----------- -----------
Cash Flows from Investing Activities
Purchase Equipment ...................... (13,915) (28,235) (14,320)
----------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from issuance of preferred
stock ................................... 117,000 117,000 47,195
----------- ----------- -----------
Proceeds from issuance of common
stock ................................... 47,795 47,795
----------- ----------- -----------
117,000 164,795 47,795
----------- ----------- -----------
Increase in cash and cash equivalent ....... 48,446 50,710 2,264
Cash and Cash equivalents
Beginning of the period ................. 2,264 --
----------- ----------- -----------
End of the period ....................... $ 50,710 $ 50,710 $ 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 90,000,000 common
shares in exchange for note
receivable ................................ $ 9,733,260 $ 9,773,260
=========== ===========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
5
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AMERICAN DIVERSIFIED HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three month period ending November 30, 1997
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
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(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 $49,939 and $19,639 during the quarter ended November
30, 1997 and the period ending August 31, 1997.
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 $66,260, 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.
The Company commenced the sale of preferred stock in Germany, under Regulation S
guidelines established under the Securities Act of 1933 for Securities offers
made outside of the United States, during August 1997. The offering is
registered with the "Bundesaufsichtsamt fuer Wertpapierhandel," the German
governmental agency which regulates German securities transactions. As of
November 30, 1997, the Company had received subscriptions for 162,495 preferred
shares. The net proceeds were collected in September ($117,000) and during
January 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
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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 November 30, 1997, the Company incurred
operating expenses of $355,409, including $133,073 for professional service fees
$37,468 in travel and entertainment costs, $64,491 in administration costs and
$42,468 in advertising expenses and $77,909 in employee compensation and
benefits. The Company experienced net losses of $355,409 for the three months
ending November 30, 1997.
For the period from the Company's inception on February 4, 1997, to
August 31, 1997, the company incurred operating expenses of $139,527, including
$20,841 in employee compensation and benefits, $22,486 in travel and
entertainment costs, $22,506 in administration costs, $66,474 in professional
service fees and $7,220 in advertising expenses 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 three-month period ended
November 30, 1997, as compared to $20,000 per month during the fiscal year
ended August 31, 1997. Shortterm arrangements with local financial institutions,
trade creditors and initial cash inflows from the Offering provided the
necessary working capital.
SUBSEQUENT EVENT
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)(2) The Company issued 500,000 and 10,000 shares of Common
Stock during the period covered by the report to Roland
Kuettner and Bernd Gebert, respectively, for services
rendered in private transaction pursuant to the exemption
provided under 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, ADSI, 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
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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 HARTMANN
---------------------------------------
Peter Hartmann
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> AUG-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 50,710
<SECURITIES> 33,545
<RECEIVABLES> 177,627
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 26,735
<DEPRECIATION> 0
<TOTAL-ASSETS> 288,617
<CURRENT-LIABILITIES> 480,154
<BONDS> 0
0
0
<COMMON> 9,992,374
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 288,617
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 355,409
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (355,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305,809)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
