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US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB/A/A
(Mark One)
[X] ANNUAL REPORT (AMENDED) PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER: 0-23532
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AMERICAN DIVERSIFIED GROUP, INC.
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NEVADA 88-0292161
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation)
110 NORTH CENTER STREET, SUITE 202, HICKORY, NC 28601
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(Address of Principal Executive Offices)
(704) 322-2044
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(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: NONE
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(Title of class)
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001
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(Title of class)
Page 1 of 35.
Check whether the issuer: (i) 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 (ii) has been subject to the filing requirements for the
past 90 days.
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Yes XX No
-- --
Check if there is no disclosure of delinquent filers in response to Item
405 of regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A.
[ ] The Registrant had revenues of $70,069 during its recent fiscal year
ended December 31, 1997. The aggregate market value of the voting stock
held by non-
affiliates(*) of the Registrant based on the average bid and asked
prices of $.027 and $.029 respectively, of such common stock as of July
15, 1998 is $560,000, based upon an average of $.028 multiplied by
200,762,560 shares of common stock as of such date held by non-
affiliates. As of July 15, 1998, the Registrant had a total of
210,762,560 shares of common stock, par value $.001 outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There are no documents incorporated by reference in this report on Form
10- KSB/A except for certain previously filed exhibits identified in
Part III, Item 13, hereof.
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(*) Affiliates for the purposes of this Item refer to the officers,
directors
and/or persons or firms owning 5% or more of the Registrant's common
stock, both
record and beneficially.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Background-Prior to Fiscal 1997
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American Diversified Group, Inc., a Nevada corporation (hereinafter the
"Company" or the "Registrant"), was incorporated under the laws of the
State of Nevada as Terra West Homes, Inc. on January 16, 1979. In
October, 1991, the Company changed its name to Gerard Enterprises, Ltd.
and in November, 1991, changed its name to Tera West Ventures, Inc. On
March 15 1995, the Company's name was changed to American Diversified
Group, Inc. During 1995 and 1996, the Company's activities involved the
search of a business or assets that it could acquire, in order to become
an operating company, or in the alternative, efforts to develop its own
business operations, principally with the assistance of third parties.
To that end, the Company entered into several consulting agreements with
unaffiliated third parties for the purpose of assisting the Company in
developing product lines, as well as hopefully generating purchase
orders for such products, with the view to making the Company an
operating company. See "Recent Business Developments and Consulting
Agreements" below.
Recent Business Developments and Consulting Agreements
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The Company's business developments, during fiscal 1996 and through
fiscal 1997, have principally resulted from the engagement by the
Company in February, 1996, of Emerging Trends Linkages Corp., a New York
corporation ("ETLC"), as consultant. ETLC. The Company entered into an
initial consulting agreement with ETLC in February, 1996, for the
purpose of seeking purchase orders from West Africa for the distribution
and sale of a variety of medical/pharmaceutical products.
Following execution of the initial February, 1996, consulting agreement
with ETLC, the Company received its first purchase orders from the
Republic of Guinea. These orders were for Human Serum Albumin (HSA) and
cholera diagnostic test kits. During fiscal 1996, the Company pursued
efforts to source HSA from manufacturers that had previously been
involved in the distribution and sale of HSA, including manufacturers in
China and Argentina, among other sources. However, HSA was and remains
in short supply worldwide, and the Company has not been able to fill the
orders for HSA for that reason. In fact, the Company has determined not
to pursue efforts to market and sell HSA in West Africa because of
sourcing difficulty.
Thereafter, in about August, 1996, the Company received requests from
the Republic of Guinea for generic pharmaceuticals and vitamin products,
which were followed by the Company's receipt of purchase orders for such
products. The Company and in May, 1997, the Company requested that ETLC
begin efforts to source the products that were subject to purchase
orders from Guinea.
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The Company during 1997 and during the first two quarters of fiscal 1998
has continued to utilize the services of ETLC for, among other purposes,
seeking the supply of these medical related products from unaffiliated
third parties in order to fulfill purchase orders from the Republics of
Guinea and Mali that were generated by ETLC for the benefit of the
Company and to secure approvals and product registration for dengue
fever diagnostic test kits in Brazil. In addition, during the last
quarter of fiscal 1997, the Company and ETLC entered into a venture for
the purpose of marketing telecommunications products and services in
West Africa, which efforts are continuing. See the discussions below.
During the last six months of fiscal 1996 and continuing through fiscal
1997 and the first quarter of fiscal 1998, the Company and ETLC have
devoted virtually all of their efforts and business time for the purpose
of generating purchase orders for a variety of medical and
pharmaceutical products for the Company, after first securing the
requisite approvals for the registration, distribution and sale of such
products, and filling purchase orders as they are generated. These
efforts have principally involved the Republics of Guinea and Mali in
West Africa. During fiscal 1997 and through the first quarter of fiscal
1998, ETLC has also devoted its efforts for securing purchase orders and
approvals from the National Health Foundation of Brazil for the sale of
dengue fever diagnostic test kits. The Company has been informed that
Brazil has given final approval for registration and sale of the dengue
fever test kit, with first sales expected for July 1998.
In connection with its efforts on behalf of the Company, which commenced
during fiscal 1996, ETLC generated the first purchase orders in the
Company's history, including purchase orders for HSA and cholera test
kits, and thereafter, for a wide variety of generic pharmaceuticals and
vitamins. All these orders were from the Central Pharmacy of the
Republic of Guinea, which the Company at that time believed that it
could source and fill. The aggregate value of the orders for HSA and
test kits was approximately $200,000 and the order for generics totaled
approximately $750,000.
However, the Company was unable to source and supply the HSA that was
the subject to the initial order from the Central Pharmacy of Guinea for
the reason that the suppliers of HSA that the Company sought to use
either had continued difficulty in manufacturing and assuring the
quality of their HSA products or had ceased manufacturing this product.
Further, the Company also had difficulty in sourcing the generic
pharmaceuticals subject to the second Guinean order because of the
pricing parameters set forth in such order from the Central Pharmacy of
Guinea. At the time the order for generic pharmaceuticals was received
from Guinea in about September, 1996, the Company believed that it could
in fact source these products.
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During the last fiscal quarter of fiscal 1996 and through the first six
months of fiscal 1997, the Company discovered that it could not source a
significant portion of the generic pharmaceutical order from Guinea
because the pricing from sources available to the Company, principally
from US manufacturers, could not meet the pricing structure that Guinea
had previously used from various European sources. As a result, the
Company determined to utilize ETLC, not just to secure orders, but also
to source products from manufacturers to fulfill these orders. Such
determination, however, was not made by the Company until February,
1997, as discussed more fully below.
The Company is aware that the market for the sale of
medical/pharmaceutical products is extremely competitive. In order for
the Company to compete successfully, of which there can be no assurance,
the Company must be able to have certain competitive advantages, whether
on the basis of price, with respect to certain products, or as a result
of its unique marketing niche gained from its agreement with ETLC which
has enabled the Company to generate and receive purchase orders from the
Republics of Guinea and Mali. the Company is continuing to devote its
efforts to pursue orders for generic pharmaceuticals/vitamins, and for
diagnostic test kits, among other products. However, the Company must be
able to source such products at pricing levels in order to meet the
requirements for the orders received from and required by the developing
countries in West Africa and elsewhere. The Company continued to pursue
efforts with ETLC to fulfill the purchase orders for generic
pharmaceuticals from the Central Pharmacy of the Republic of Guinea, but
it was not until July, 1997, that the Company was able with the efforts
of ETLC to source and commence shipment of the initial products subject
to the purchase order for generic pharmaceuticals and vitamins to the
Central Pharmacy of Guinea. The Company thereafter, during the last
quarter of fiscal 1997, shipped additional generic pharmaceutical
products to West Africa under purchase orders as discussed below.
In addition, ETLC during 1997 established a business representative in
Brazil, where the Company has pursued the registration and approval of
diagnostic test kits for dengue fever, also as discussed below, which
the Company believes will lead to purchase orders commencing in or about
July 1998.
Historically, generic pharmaceutical products had been only a small
percentage of the total pharmaceutical product market in the developing
countries of West Africa (less than 10% of the total market). However,
with the efforts of ETLC, generic pharmaceuticals have begun to be
demanded in the Republics of Guinea and Mali, and the Company believes
generics are becoming increasingly in demand elsewhere in West Africa,
as compared to brand name pharmaceuticals that have previously
controlled the market. The cost of pharmaceutical products, and indeed
all products sold to West Africa, have increased significantly following
the devaluation of the West African currencies.
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The devaluations have led many West African governments to seek a
variety of products from suppliers other than France and Belgium, which
had traditionally been the major suppliers of almost all products sold
to their former colonies in West Africa. The determination by the West
African governments and particularly the Ministries of Health to seek
alternative sources of supply has presented opportunities to companies,
such as ADGI, to generate purchase orders and penetrate new markets.
Price has become the critical factor in the supply of generic
pharmaceuticals. With the continued efforts and contacts of ETLC during
fiscal 1997 and through the first quarter of fiscal 1998, the Company
believes that it has now developed sources of supply of generics from
manufacturers that will continue to offer the Company an opportunity to
penetrate a previously "closed" market in West Africa. The Company has
also expanded its product line of generic pharmaceutical products and
diagnostic test kits, which the Company believes will permit it to
increase its level of orders and its profitability during fiscal 1998.
However, ADGI does not have the resources of many of its competitors and
is a newcomer to the industry. Therefore, the Company will have to
continue to rely upon its consultants in order to be able to
successfully compete in West Africa as well as in Brazil, because of the
expertise and relationships of its consultants and their respective
representatives, described more fully below. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
The Company, in August, 1997, following conferences and meetings with
ETLC, and for the intended purpose of generating cash flow on a monthly
basis, entered into a joint venture with ETLC for the purpose of
marketing telecommunications services and products in West Africa, where
it has existing pharmaceutical distribution business operations and
representatives. The Company commenced marketing the call-back service
to international and domestic mining companies, financial institutions,
oil companies doing business in West Africa, as well as to certain
foreign embassies in Guinea and Mali
Following the installation by the Company of certain telecommunications
hardware and software enhancements during the third quarter of fiscal
1998, the Company believes that that it will begin to generate increased
revenues of from $500 to $1,000 per month per customer using its
service. This installation should permit the Company to properly develop
the customer base and generate the projected revenues from call-back. As
a result of the amount of time it has taken to complete the enhancement
of call-back equipment, the Company and ETLC have agreed to extend the
term of the call-back agreement to better permit the Company to secure a
satisfactory revenue stream from call-back, which to date have been
minimal. This requirement to install additional hardware and software
has had the effect of extending the start-up period for call-back but
should permit the Company to serve more customers, without interruption
and line interference. To that end, after completion of the installation
of such enhanced computer equipment, the Company believes that it will
be able to meet the projections for call-back and also achieve higher
profit margins from the West African call-back revenues.
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Higher profit margins should also permit far greater volume of usage and
reduce fixed costs. Further, with this installation, the Company
believes that it will be able to again sign large corporations and
institutions fro its call-back service. These customers have not used
the Company's call-back service to any significant extent because of
service interruption and line interference, which the installations in
about July should remedy. At that time the Company will again solicit
and believes it will be successful in signing up to 200 customers by the
end of the 1998. This is based upon the fact that from September 1997,
when service was first offered, the Company was able to sign almost 100
customers for call-back service, but without installation of the
computer equipment, it has not been able to generate adequate revenues
from call-back because of local telephone interference from the PTTs.
Since the inception of the Company's call-back service, it has generated
only limited revenues due to the above referenced interference from
PTTs.
In addition, during fiscal 1997 and continuing during fiscal 1998 to
date, the Company utilized the services of its other consultants,
including Ashco International, Ltd., Higher Ground, Inc., and Corporate
Seminar Advisors, Ltd., for the purpose of providing continuing services
to the Company, as more fully described below, and specifically with
regard to services intended to promote the Company, its expanding
business lines, areas of development, and to evaluate the Company's
potential acquisitions and joint ventures. See the discussion below with
respect to the Company's joint venture and equity participation with
Global Transmedia Communication Corporation, formerly Telephonetics
Overseas Corporation, which was announced in March, 1998. In connection
with the initial February, 1996 consulting agreement between the Company
and ETLC, as noted above, ETLC agreed to use its best efforts to secure
approvals for product registration, and obtain purchase orders for the
distribution and sale of HSA, which ADGI believed it could source as its
principal product at that time, within West Africa. ETLC also agreed to
use the services of ETLC's West African representatives to secure and
service any purchase orders generated for ADGI.
In consideration for the February 12, 1996 consulting agreement with
ETLC, the Company issued to ETLC shares of the Company's common stock
(the "Shares") and granted to ETLC a common stock purchase option (the
"Option") to acquire additional Shares (the "Option Shares") for an
adjusted price of $.18 per Option Share. The grant of the Option was
deemed by the Company as ETLC's consideration and payment for the rights
to market the Company's products, as such product line may be from time
to time, within ETLC's territory in West Africa, which includes Guinea,
Mali, Ivory Coast, Senegal, Burkina Faso, and Niger. This agreement was
amended in to also provide for the sale by ETLC, on behalf of the
Company, of diagnostic test kits for strep, cholera, syphilis and
gonorrhea in the above referenced West African countries, in
consideration for the issuance of additional Shares.
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The Company, in July, 1997, with the assistance of ETLC was able to ship
an initial portion of generic pharmaceuticals subject to the overall
order from the Central Pharmacy of the Republic of Guinea. However,
because the Company's other consultants that it had utilized in 1995 and
1996, not including ETLC, Ashco, Higher Ground and Corporate Seminars,
the Company was unsuccessful in sourcing products to fill the complete
orders and be able to continue shipment of products pursuant to both
purchase orders from the Central Pharmacy of the Republic of Guinea. As
a result, during fiscal 1997, because the Company was unable to generate
revenues from the purchase orders because it could not source the
products at satisfactory pricing during fiscal 1997. During 1997, the
Company was not able to find manufacturing sources with prices
comparable to those Guinea had previously obtained from certain Eastern
European countries, which sources were able to deliver products at lower
prices then were then available to the Company.
With the assistance of ETLC and other ongoing and continuing consultants
to the Company, the Company continued to seek out sources for generic
pharmaceutical from several countries, including India, where quality
generic pharmaceuticals could be obtained at highly competitive pricing.
During fiscal 1997 and the first six months of fiscal 1998, the Company
continues to believe that it will be able to secure advantageous pricing
for the generic pharmaceutical products and continued to utilize ETLC
and other consultants, including the private individuals to develop
better sourcing for these products. The Company received revenues of
$70,769 during fiscal 1997, compared to no revenues during the prior
year.
Further, during fiscal 1997, in connection with the Company's receipt of
the first of several generic pharmaceutical purchase orders from the
Republic of Mali, the Company was issued an irrevocable letter of credit
in the amount of approximately $70,000 from the Banque de Development du
Mali, Bamako, Mali, through Natexis Banque, Paris, France. This letter
of credit was used to payable to the Company for the products shipped
during fiscal 1997, with certain additional shipment being made after
the fiscal year. The initial purchase orders generated by ETLC for
delivery to Mali on behalf of the Company under its agreements with the
Company. At the Company's request made in about March 1997, ETLC began
to source the generic pharmaceutical products for this and other
anticipated orders for generic pharmaceuticals, including Diclofinac,
Furosemide, Paracetamol and Methyldopa, which products were sourced from
manufacturers in Canada, India, Holland and Belgium, respectively, all
of which products were shipped during the first four months of fiscal
1998. During April, 1998, the entire proceeds of this letter of credit
were paid through Natexis Banque to and at the Company's direction.
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Following receipt of this initial order from PERGUE S.A.R.L. that was
subject to the letter of credit, the Company received a further order
for additional generic pharmaceuticals, including Amoxycillin,
Paracetamol and Diclofinac. This order was generated as a result of a
"shortage" in Mali for these products that PERGUE S.A.R.L filled through
the Company, as a result of the Company's contacts with ETLC. This
further order, which was intended to fill the Malian shortage,
aggregated approximately $31,000, and was delivered by the Company to
Bamako, Mali, and was sourced through a manufacturer in India, in late
1997.
Additionally, in consideration for the services to the Company during
the two year period from June 1995 through mid 1997, the Company issued
to Ms. Judith Grossman, a consultant, Shares during late 1996 and in
1997 in consideration for continued consulting services to the Company
at a time during which it had no cash flow to pay for such services.
Further, the Company, in lieu of any cash compensation, issued to
Jerrold Hinton, the Company's president, CEO and a director, and to
Thomas J. Craft, Jr., Esq., the Company's corporate secretary, corporate
counsel and a director, and to persons who served as Mr. Craft's staff
and consultants, Shares for providing continued services to the Company.
The Company has also agreed to negotiate with present officers,
directors and consultants, as well as with other persons and firms
providing continuing services to the Company, including those persons
who provided export financing and who brought the Indian pharmaceutical
manufacturer to the Company and were instrumental in securing for the
Company certain credit lines to pay for products used for export to West
Africa, and persons who conducted investor education seminars and
conferences for the Company, for the issuance of additional Shares and
the grant of Options. The issuance of shares and/or any grant of options
will be included in one or more registration statements on Form S-8
and/or Form S-1, whichever form shall be appropriate, under the
Securities Act of 1933, as amended (the "Act"). This will be in order to
compensate such parties for continuing services performed and to be
performed on behalf of the Company in developing its pharmaceutical
products business, its diagnostic test kit business, its
telecommunications business and other services necessary for the
Company's continued operations prior to its generating any material cash
flow from operations. The Company believes that during fiscal 1998, it
will begin to generate a cash flow from operations that should permit it
to commence paying certain persons in cash as well as in Shares rather
than just in Shares. See the discussion below with respect to the
agreement to acquire equity in Global Transmedia Communications
Corporation of Florida for cash compensation.
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The Company firmly believes that it will be able, during fiscal 1998, to
continue to supply generic drugs and vitamins at prices that shall
permit the Company to generate a profit. Further, through the efforts of
ETLC's representative in Brazil, the Company has recently received
approvals for the registration and sale of dengue fever test kits to the
National Health Foundation, State of Roraima, Brazil, and anticipates
purchase orders nationally in Brazil for this diagnostic test kits
commencing in or about July, 1998. The Company believes that it will
receive the initial purchase orders, after the recent completion of
final human testing in Brazil. The Company has been informed that the
initial order shall be from $60,000 to $100,000 and the potential market
for dengue fever diagnostic test kits in Brazil, nationally, is
approximately 1 million test kits or more per year. The Company will
share gross revenues with the US manufacturer and the Brazilian
distributor of the registered and approved dengue fever diagnostic test
kits.
The Company in March 1998 entered into a joint venture with global
Transmedia Communication Corporation, formerly Telephonetics Overseas
Corporations ("GTCC") of Miami, FL. GTCC is engaged in the business of
providing state of the art telecommunications hardware and audio content
for on-hold and website messaging and advertising. GTCC also distributes
Internet telephony equipment and services for sale in the domestic and
foreign markets. Under the Company's joint venture agreement with GTCC,
the Company paid to GTCC $50,000 with an obligation to pay an additional
$100,000 to acquire a 9% interest in GTCC with the right upon payment of
additional cash consideration to acquire additional 9% interests for up
to 45% total equity in GTCC.
Following its initial investment in GTCC, initial orders were announced
by GTCC for the distribution and sale of GTCC 's telecommunications and
Internet telephony products and services, pursuant to which GTCC 's
distributor in Canada is required to sell a minimum of $400,000 in GTCC
's products and services during the next 12 months. The Company believes
that its agreement with GTCC and the products and services provided and
to be provided by GTCC will integrate well with the Company's call-back
and telecommunications business in West Africa.
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Discontinued Project
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Registrant, during fiscal 1996, entered into purchase agreement with
Imaging Systems Synergies Inc. ("ISS") with offices located at North
Miami Beach, FL for the purpose of acquiring ISS, which purported to be
an internet gateway provider and of related satellite technology,
including earth station for global communication services. in Wisconsin
and Illinois. During the negotiations with respect to the proposed
acquisition of ISS, the Company advanced approximately $100,000 to
assist ISS in continuing its operations, while the Company continued its
due diligence efforts. Following the completion of due diligence with
respect to ISS, and the discovery of facts that the Company considered
to constitute misrepresentations by ISS, the Company determined not to
acquire ISS but rather limit its efforts to the anticipated growth and
the potential it believed and continues to believe exists in the
pharmaceutical business and related medical products business in West
Africa and South America, and in other developing countries.
The Company, after consulting with counsel in Florida, determined to
pursue a cause of action against ISS for damages, including recovery of
the $100,000 in interim capital advanced to ISS. See "Item 3. Legal
Proceedings" below. The Company's action was moved to Dade County
Superior Court and the Company cannot determine at this time whether it
will prevail against ISS and if so, whether it will be successful in
recovering any damages against ISS. The entire board of directors of
ADGI agreed unanimously not to acquire ISS, and the Company generated no
income from its involvement with ISS.
ITEM 2. DESCRIPTION OF PROPERTY
The Company presently leases approximately 600 square feet of executive
office space at 110 North Center Street, Suite 202, Hickory, NC 28601,
for $570 per month. During the first six months of fiscal 1997, the
Company leased approximately 250 square feet of office space at 700
Canal Street, 3rd Floor, Stamford, CT 06902 as its executive offices for
$800 per month. In addition, the Company has use of warehouse facilities
at JFK International Airport, New York City and utilizes as its investor
relations and conference room facilities office space at 45 Rockefeller
Plaza, International Building- Rockefeller Center, New York City, NY, at
a cost of $2,000 per month, on a month-to-month basis. The condition of
the Company's leased facilities in Hickory, NC and New York City, NY is
excellent, and are at advantageous terms because of the Company's
relationship with ETLC.
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ITEM 3. LEGAL PROCEEDINGS
The Company has pending a cause of action against Imaging Systems
Synergies Inc. ("ISS") for damages, including recovery of the $100,000
in interim capital advanced to ISS in connection with a planned
acquisition that was not completed. The venue for the Company's action,
American Diversified Group, Inc. v. Imaging Systems Synergies, Inc., et
al., was moved to the 11th Judicial Circuit, Dade County, Florida, Case
No. 97-001983AN, from Palm Beach County, where the proceeding was
initially commenced. The Company believes that this action is
meritorious but cannot determine at this time whether it will prevail
against and be successful in recovering any damages from ISS. The entire
board of directors of ADGI agreed unanimously not to acquire ISS
following its due diligence in connection with this determination. The
Company generated no income from its involvement with ISS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal year ending 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded over-the-counter in what is
referred to as the "NASDAQ Bulletin Board". As of April 15, 1998, there
were 15 markets makers in the Company's stock. The following information
with respect to the high and low market prices was obtained from the
Company's records.
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Bid Prices
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1994 High Low
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Quarter Ending March 31 $ 8- 1/4 $6
Quarter Ending June 30 $ 8- 3/4 $8
Quarter Ending Sept. 30 $ 10 $6- 3/4
Quarter Ending Dec. 31 $ 7- 1/4 $4- 1/4
Bid Prices
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1995 High Low
- ------------------------- -------- -------
Quarter Ending March 31 $ 5- 5/8 $ 1/8
Quarter Ending June 30 $ 5/16 $ 1/32
Quarter Ending Sept. 30 $ 7/16 $ 1/4
Quarter Ending Dec. 31 $ 7/16 $ 1/4
Bid Prices
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1996 High Low
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Quarter Ending March 31 $ 11/32 $ 1/8
Quarter Ending June 30 $ 1/2 $ 3/16
Quarter Ending Sept. 30 $ 5/16 $ 3/16
Quarter Ending Dec. 31 $ 1/8 $ 1/32
Bid Prices
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1997 High Low
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Quarter Ending March 31 $ 3/16 $ 1/8
Quarter Ending June 30 $.03 $.01
Quarter Ending Sept. 30 $.04 $.01
Quarter Ending Dec. 31 $.04 $.02
Bid Prices
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1998 High Low
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Quarter Ending March 31 $.10 $.02
Quarter Ending June 30 $.04 $.025
Period Ending July 15 $.03 $.025
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As of July 15, 1998, there were 1155 holders of the Company's common
stock, and no holders of the Company's preferred stock. The Company has
never paid a dividend and does not anticipate that any dividends will be
paid in the near future.
ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
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The financial statements included in the Form 10-KSB/A/A have been
audited and supersede the unaudited financial statement in the initial
Form 10-KSB/A. The Company believes that the financial statements
accurately reflect is financial condition and statement of operations
for the fiscal year.
The Company during prior fiscal years through fiscal 1996, never had any
revenues whatsoever from any operations or business endeavors. Further
despite its receipt of initial revenues and generating its initial sales
and accounts receivable during fiscal 1997, the Company is still a
development stage company. In fact, this is the first Annual Report in
the Company's operating history in which it is disclosing in Item 6.
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" as compared to "Management's Plan of Operations", which
is reserved for issuers who are reporting no revenues. This is the
result of the fact that for the first fiscal year in the Company's
history, it is reporting initial sales revenues and accounts
receivables.
During the Company's fiscal year ended December 31, 1997, the Company
incurred a net loss of $3,410,313 ($0.032 per Share) compared to a loss
of $4,279,670 ($0.079 per Share) for the prior fiscal year. The Company
reported sales revenues and accounts receivable of $70,069 for the
fiscal year ended December 31, 1997, which represented the initial
shipments of generic pharmaceuticals and limited telecommunication sales
(which sales commenced in the last two weeks of the third quarter of
1997) from West Africa. This is compared to no sales revenues or
accounts receivable for the prior fiscal year. In fact, the Company has
never before reported any sales or accounts receivable for any fiscal
period. The Company's net loss for the year ended December 31, 1997, was
principally the result of the limited sales revenues, the continued
expenses associated with continuing to operate and maintain its offices
and expenses associated with being a reporting company, which include
professional, accounting and printing/EDGAR preparation and filing fees,
and the non-cash expenses associated with the issuance of shares to its
executive officer, directors and consultants for continued services to
the Company in lieu of cash compensation during the period. Such non-
cash compensation expensed during the year ended December 31, 1997 was
$3,307,500, compared to $3,963,500 during the fiscal 1996.
Page 14
<PAGE>
In order for the Company to pay its operating expenses, including office
rents, salaries to its non-executive employee during the first six
months of fiscal 1997, prior to the move of its corporate headquarters,
telephone expenses, accounting and bookkeeping fees, printing and EDGAR
preparation costs, publication costs, and other general and
administrative expenses, the Company was dependent upon the funds
provided by non-interest bearing loans from the Company's executive
officer and directors, from a consultant, as well as from the private
placement of its securities to private investors.
The Company projects significant additional call-back revenues,
following the installation of new telecommunications hardware and
software scheduled during the third quarter of fiscal 1998, after the 3-
6 month call-back start-up period in which it will conduct active
marketing to the major domestic and multi-national corporations and
institutions in West Africa, based upon anticipated usage of from $500
to $1,000 per month per customer. Following the start-up period, the
Company should reasonably expect to reach and maintain 200 or more
customers for this telecommunication service by the end of fiscal 1998.
The Company in late 1997 was issued and received a letter of credit for
approximately $70,000 from West Africa, to guarantee payment to the
Company for generic pharmaceuticals subject to an order for delivery to
Mali. The Company was sourcing the products for this order and
endeavored to ship this order prior to the end of the 1997 fiscal year.
In fact, the products underlying this letter of credit were shipped
during the first four months of fiscal 1998 and thus these sales will be
reported in the Company's quarterly report on Form 10-QSB for the first
and second quarters of fiscal 1998. Furthermore, the Company has sourced
the remaining generic pharmaceutical products for its existing West
African orders from manufacturer/suppliers at costs that will also
provide gross profit margins that the Company estimates shall be
approximately 10% to 20%.
The Company has been in receipt of continuing requests fro products
which is the last process for receipt of purchase orders for
pharmaceutical products from West Africa, which will increase in size
during successive quarters in fiscal 1998, especially with respect to
the Republic of Mali. Further, the Company projects that its
relationship with PERGUE S.A.R.L. will permit the Company to begin to
receive purchase orders for generic pharmaceuticals from other West
African countries, including Burkina Faso and Niger.
In order to enhance its ability to increase the size of its purchase
orders and indeed its ability to source generic pharmaceutical products,
the Company has recently entered into two exclusive agreements, one with
a manufacturer of generic pharmaceuticals in India, granting the Company
the exclusive right to distribute the products in Africa, South America,
Europe and Asia, and a second agreement with a Indian firm engaged in
the marketing and sale of pharmaceuticals, medical products and test
kits, for the purpose of generating additional sales revenues and
customers for the Company.
Page 15
<PAGE>
The Company during fiscal 1997 and the first six months of fiscal 1998
has continued to increase its product lines to include a broad spectrum
of generic pharmaceuticals, additional diagnostic test kits, from which
it projects increased sales revenues before the end of fiscal 1998. The
Company has been informed of the completion of the final stage of human
testing and the registration by the National Health Foundation, Brazil's
equivalent of the FDA, for dengue fever test kits. The dengue fever test
kits have already been registered and approved by the State of Roraima
in Brazil. Initial orders are anticipated in or about July, 1998, in the
approximate amount of $60,000 to $100,000. With final approvals from
Brazil for the entire country, the Company could generate sales of up to
1 million dengue fever test kits annually. The Company has been informed
that at present dengue fever is becoming an increasingly more serious
disease in Brazil (and elsewhere in the world's tropical climates) and
the Company believes that it should be able to generate orders for
dengue fever test kits from West Africa as well as Brazil during fiscal
1998 and thereafter.
Generic pharmaceuticals are an extremely cost sensitive market,
especially in developing countries where the Company is doing business.
This has led the Company and its consultants to devote a significant
period of time during fiscal 1997 to sourcing generic pharmaceuticals at
competitive pricing. During and immediately following the fiscal 1997,
the Company, with the direct assistance of its consultants, has
developed sources for generic pharmaceuticals, at highly competitive
pricing, from foreign manufacturers. Further, and is continuing to
develop additional sources for products in order to fill present and
anticipated future purchase orders received from West Africa. The
Company does not believe that it is presently dependent upon any one
source, nor does it believe that it will become dependent upon any
manufacturer of generic pharmaceutical products or other products that
it is presently marketing.
The Company's ability to continue to ship the products that are the
subject of the purchase orders from West Africa is essential to the
Company's goal of generating increased levels of operating revenues from
its pharmaceutical and medical products businesses in West Africa. The
Company is presently outsourcing these generic pharmaceutical products
from several third party manufacturers and distributors located in the
United States, Canada, Mexico, South America, Europe, and India, which
have provided quality generic pharmaceutical products at highly
competitive prices necessary for the Company to profitably fulfill
existing and future orders for such products from West Africa and
elsewhere. The Company's recent agreements with a pharmaceutical
manufacturer located in India and a separate agreement with a
pharmaceutical marketing and sales firm with offices in India will not
make the Company dependent upon any one manufacturer or distributor, and
its agreements permit the Company to source and sell products through
any party.
Page 16
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company, at December 31, 1997, had current assets of $64,460. This
is compared to $5,000 in current assets at the end of the 1996 fiscal
year. To assist the Company in its cash flow requirements which are
presently estimated at $15,000 per month, the Company during fiscal
1997, received $192,000 from the private placement of units, as
described above. The units were priced at $.04 per unit (the price of
the Company's Shares on January 15, 1997, the date of the private
placement subscription agreement), each unit consisting of one Share and
one common stock purchase option exercisable to purchase an additional
Share at $.08. The Company has undertaken to register the shares and the
shares underlying the options in a registration statement that the
Company intends to file with the Securities and Exchange Commission as
soon as possible.
The Company continues to be dependent upon the willingness of the
Company's executive officer, directors and each of its consultants to
accept shares in lieu of cash compensation for continued services to the
Company. The trading price of shares of the Company's common stock
during the past two months has been primarily in the range of $.025 to
$.04, but during several days in March, 1998, the trading range
increased to the level of $.05 to $.08 range and was as high as $.10.
However, the trading price of the shares has again been in the range of
$.025 to $.04 per share during the period from April, 1998 to date.
While the Company has been successful in raising $192,000 in investment
capital in the unit private placement during fiscal 1997, there can be
no assurance that the Company will be able to continue to raise private
capital, whether or not the Company's shares once again trade at the
levels that prevailed during March, 1998.
Based upon the Company's present liquid resources after the expenses
that were paid by the Company following receipt of the private
placement funds, which expenses included office expenses, relocation
expenses for the move of the executive offices to Hickory, NC,
professional/accounting fees, transfer agent and printing service fees,
and certain other expenses, and based upon its present monthly
operating expenses of $15,000, the Company will be able to operate for
approximately four months if no additional revenues are generated from
operations or any other sources.
However, the Company believes that it will be generating increased
operating revenues during the remainder of fiscal 1998, as a result of
additional shipments of generic pharmaceuticals to West Africa,
commencement of shipments and sales of dengue fever test kits to Brazil,
an increasing level of revenues from sales of call-back service in West
Africa, revenues from the affiliation with GTCC and as a result of the
recent agreements with an Indian pharmaceutical manufacturer and sales
and marketing firm.
Page 17
<PAGE>
The Company's monthly operating expenses of approximately $15,000 do not
reflect any salary to Dr. Jerrold R. Hinton, the Company's sole
executive officer. The Company is accruing but does not contemplate
commencing payment to Dr. Hinton of the monthly salary of $8,333.33
provided in his three year employment agreement unless and until it
begins to generate revenues from operations. The monies received from
the Company's unit private placement and has not been used to pay
salaries to its chief executive officer or fees to directors or
consultants, each of whom have agreed receive compensation for services
by the issuance of shares. During fiscal 1997, the Company's executive
officer, directors and consultants were issued shares in registration
statements on Form S-8 in consideration for their continued services to
the Company and in lieu of any cash compensation.
ITEM 7. FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1997 are
attached hereto with comparative financial statements for fiscal 1996.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On May 24, 1996, Registrant engaged the firm of Rachlin, Cohen and Holtz
to perform the audit for the fiscal year ended December 31, 1995. A copy
of this engagement was attached as an exhibit to the Registrant's
Current Report on Form 8-K on July 5, 1996. However, by letter dated
June 24, 1996, as a result of the inability of Registrant and Rachlin,
Cohen and Holtz to agree on the amount of time that the accounting firm
could devote to Registrant as a new client, and the cost of conducting
the audit, the Registrant and Rachlin Cohen and Holtz agreed to
discontinue the engagement of Rachlin Cohen and Holtz. A copy of this
letter was also attached as an exhibit to such Current Report. In that
letter, Registrant informed Rachlin Cohen and Holtz that Registrant had
retained the accounting firm of Grant-Schwartz Associates, CPA's, as its
auditors, and Rachlin Cohen and Holtz agreed to cooperate with
Registrant in transmitting copies of all records necessary for Grant
Schwartz Associates to complete the 1995 audit. Grant-Schwartz
Associates has recently merged its practice with the accounting firm of
Beck Villata & Co., P.C., independent public accountants, which combined
firm has conducted the audit for fiscal 1996. The Registrant's audit for
fiscal 1996 was completed by Grant-Schwartz Associates, CPA's, which
firm conducted the audit for fiscal 1997 which are part of this Annual
Report on Form 10-KSB/A.
During the past two years there were no disagreement with either former
accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure. The
engagement of Grant- Schwartz Associates, CPA's, 40 SE 5th Street-Suite
500, Boca Raton, FL 33432 was attached as an exhibit to the Current
Report referenced above.
Page 18
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) The directors and executive officers are:
<TABLE>
<CAPTION>
Name Age Title
------ --- -----
<S> <C> <C>
Jerrold R. Hinton 55 President, Chief Executive
Officer, and a Director
Thomas J. Craft, Jr., Esq. 32 Secretary, Corporate Counsel and a
Director
</TABLE>
All directors hold office until the next annual meeting of stockholders
of the Company and until their successors have been elected and shall
qualify. Officers serve at the discretion of the Board of Directors, but
the Company contemplates that it may elect during the current fiscal
year to enter into employment agreements with certain of its executive
officers and employees, the terms of which have not been determined as
of the date of this Report on Form 10-KSB/A.
Jerrold R. Hinton has served as President, Chief Executive Officer and a
Director of the Company from March 1995 to the present in a full time
capacity, following the change of the Company's operations from that of
Tera West Ventures to that of ADGI. Dr. Hinton, a graduate of Florida
State University, holds bachelors, masters and doctorate degrees in
management, engineering, surveying, real estate and construction. From
1992 to early 1995, prior to joining Registrant in his present capacity
Dr. Hinton served as an officer of United Biomedical, Inc. (UBI), a
private company. Dr. Hinton was not a shareholder of UBI.
Thomas J. Craft, Jr., Esq., is an attorney practicing law under the laws
of the State of Florida. Mr. Craft has been Secretary, Corporate Counsel
and a Director of the Company since March, 1996. From July 1994 to
December, 1997, Mr. Craft was also Counsel, Secretary and a Director of
Phoenix International Industries, Inc., a development stage public
company located in West Palm Beach, FL. During the past five years,
prior to his present positions with the Company, Mr. Craft was engaged
in the private practice of law in West Palm Beach, FL. In addition,
prior to joining the Company, Mr. Craft served as an Intern for United
States Senator, Bob Graham, Florida.
(B) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's officers and directors, and persons who own more that ten
percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities
and Exchange Commission and with any exchange on which the Company's
securities are traded. Officers, directors and persons owning more than
ten percent of such securities are required by Commission regulation to
file with the Commission and furnish the Company with copies of all
reports required under Section 16(a) of the Exchange Act. Based solely
upon its review of the copies of such reports received from officers,
directors and greater than ten percent shareholders, the Company reports
the following failures to file reports under Section 16(a) of the
Exchange Act:
Page 19
<PAGE>
Name of Filer Report Not Filed
------------- ----------------
Jerrold R. Hinton Forms 4 and 5
Thomas J. Craft, Jr. Forms 4 and 5
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
--------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name and Annual Restricted Securities All other
Principal Compen- Stock Underlying LTIP Compen-
Position(*) Year Salary sation Award(s) Options/SAR's Payouts sation
Bonus($) ($) (#) ($) ($) ($)
- -------------- ---- ------ -------- ---------- ------------- ------- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Jerrold Hinton
President, CEO 1997 0 0 0 0 0 0 0
Jerrold Hinton
President, CEO 1996 0 0 0 0 0 0 0
Jerrold Hinton
President, CEO 1995 0 0 0 0 0 0 0
</TABLE>
(*) Mr. Hinton has served as the Company's chief executive officer
and president during the respective years set forth above. Mr. Hinton
was issued shares in registration statements on Form S-8 during fiscal
1997 and 1996 in consideration for his continued services to the
Company, in lieu of cash compensation.
Page 20
<PAGE>
The Company has not had sufficient funds to pay its executive officers
or directors during fiscal 1997 and 1996. To date, the Company has not
commenced payment of any salaries, but has executed a three (3) year
employment agreement with Dr. Jerrold R. Hinton, who has agreed to serve
the Company in a full time capacity of President and Chief Executive
Officer, as well as a director of the Company. The agreement as amended,
provides for the payment to Mr. Hinton of $100,000, which salary has
been accrued but unpaid during the past two years, and presently
provides for the issuance of 5 million Shares per year in 1998 and 1999,
and the grant of an option to purchase a total of 5 million Shares (the
Option Shares"), which Options are exercisable the lower of $1.00 per
Share or 50% of the closing bid price of the Shares during the ten
business days prior to the notice by Mr. Hinton of his election to
exercise all or a portion of the Options. The payment to Dr. Hinton of
the cash salary portion of the Employment Agreement shall not commence
until the Company begins to generate sufficient revenues from operations
to permit payment of such cash compensation, of which there can be no
assurance. The Company, during fiscal 1997, issued to Dr. Hinton, its
president and chief executive officer a total of 15.5 million Shares and
issued to Thomas J. Craft, Jr., Esq., the Company's corporate secretary,
securities counsel and a director a total of 10 million Shares in
registration statements on Form S-8. These Shares were issued in
consideration of the continued and valuable services provided to the
Company by such persons, neither of whom were paid any cash compensation
in 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
As of July, 1998, the security ownership of the following persons and
entities, who were either executive officers of the Company or were
known to the Company to own more than five percent (5%) of the Company's
outstanding voting securities was as follows:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Class Name and Address of Amount and Percent
Beneficial Owner Nature of of
Beneficial Ownership Class (1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Jerrold R. Hinton 6,000,000 2.9%
110 N. Center St.
Suite 202
Hickory, NC 28601
Common Stock Thomas J. Craft, Jr. 3,000,000 1.5%
11000 Prosperity Farms Rd.
Palm Beach Gardens, FL
33440
</TABLE>
________________
(1) Based upon 210,212,560 shares issued and outstanding at July 15,
1998.
PAGE 21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1997, the Company had no transactions with related
parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Sequential
Exhibit No. Document Description Page No.
- ----------- -------------------- ----------
3.1 Articles of Incorporation (filed as
Exhibits 3.1, 3.2 and 3.3 to the
Company's Registration Statement on
Form 10-SB and incorporated herein
by reference)
3.2 Bylaws (filed as Exhibit 3.4 to the
Company's Registration Statement on
Form 10-SB and incorporated herein
by reference)
10(iii) Material Contracts-Consulting Agreements
and Employment Agreement (filed as
Exhibits to Registration Statements of
Form S-8 and post-effective amendments
thereto and incorporated herein by reference)
23 Consent of Grant-Schwartz Associates, CPA's
(b) During fiscal 1997, the Company filed Reports on Form 8-K on
January 21, 1997 and September 9, 1997, respectively. The Company has
not filed any report on Form 8-K during the quarters ended March 31, 1998
or June 30, 1998.
Page 22
<PAGE>
SIGNATURES
----------
In accordance with Section 12 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN DIVERSIFIED GROUP, INC.
By: /s/ Jerrold R. Hinton
-----------------------
Jerrold Hinton,President,Chief
Executive Officer and Director
Date: July 15, 1998
In accordance with the Exchange Act, this report ha been signed below
by the following person on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Thomas J. Craft, Jr.
------------------------
Thomas J. Craft Jr.,
Secretary and Director
Page 23
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1997 and 1996
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
Independent Auditor's Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 11
</TABLE>
<PAGE>
GRANT-SCHWARTZ ASSOCIATES, CPA'S
2263 N.W. Second Avenue, Suite 210
Boca Raton, FL 33431
REPORT OF INDEPENDENT AUDITORS
Boards of Directors
American Diversified Group, Inc.
We have audited the accompanying balance sheets of American
Diversified Group, Inc. (formerly Tera West Ventures, Inc.) as
of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for the years
then ended and for the period January 1, 1996 (Commencement of
Development Stage) to December 31, 1997. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of American Diversified Group, Inc. (formerly Tera
West Ventures, Inc.) as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then
ended and for the period January 1, 1996 (Commencement of
Development Stage) to December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 4 of the financial statements, the Company
has suffered recurring losses from operations and other
transactions. At December 31, 1997, the Company has an
accumulated deficit of $16,554,357. These issues raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are
also described in Note 4. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
GRANT-SCHWARTZ ASSOCIATES, CPA'S
Boca Raton, Florida
July 1, 1998
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Balance Sheets
As of December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------ ------- -------
<S> <C> <C>
Current assets
Cash $11,069 $ -
Accounts receivable (net ) 48,391 -
Inventories 5,000 5,000
-------- -------
Total current assets 64,460 5,000
-------- -------
Fixed assets
Property and equipment (net) 20,452 17,642
-------- -------
Other assets
Deposits 570 570
Miscellaneous receivable
(net of $100,000 allowance) - -
-------- -------
Total other assets 570 570
-------- -------
TOTAL ASSETS $85,482 $23,212
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities
Cash overdraft $ - $ 4,010
Accounts payable and accrued expenses 184,613 68,494
Notes payable to related parties 155,521 125,521
------------ -----------
Total liabilities - all current 340,134 198,025
------------ -----------
Commitments and Contingencies
Stockholders' deficit
Preferred stock, Series A, $10 par value,
authorized 50,000 shares; none outstanding - -
Common stock, par value $.001 per share,
authorized 200,000,000 shares; issued and
outstanding 157,812,520 shares at
December 31, 1997 and 63,562,520 shares at
December 31, 1996 157,812 63,562
Additional paid-in capital 16,848,669 13,513,419
Stock subscriptions paid in advance 51,500 -
Deferred consulting fees (758,276) (607,750)
Deficit accumulated prior to
development stage (8,811,789) (8,811,789)
Deficit accumulated during
development stage (7,742,568) (4,332,255)
------------ -----------
Total stockholders' deficit (254,652) (174,813)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $85,482 $23,212
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Statements of Operations
For the Years Ended December 31, 1997 and 1996 and
For the Period January 1, 1996 (Commencement of Development
Stage) to December 31, 1997
<TABLE>
<CAPTION>
Year Ended December 31, January 1, 1996 to
1997 1996 December 31, 1997
----------------------- ------------------
<S> <C> <C> <C>
Revenues $ 70,769 $ - $ 70,769
Cost of goods sold 67,933 - 67,933
Gross profit 2,836 - 2,836
Expenses
Selling, general and
administrative 3,413,149 4,279,670 7,692,819
---------- --------- ----------
Loss from operations (3,410,313) (4,279,670) (7,689,983)
---------- --------- ----------
Other income (expense)
Debt forgiveness income - 50,000 50,000
Gain on settlements - 4,795 4,795
Loss on abandoned acquisitions - (107,380) (107,380)
---------- --------- ----------
Net other expenses - (53,585) (52,585)
---------- --------- ----------
Net loss ($3,410,313) ($4,332,255) ($7,742,568)
---------- --------- ----------
---------- --------- ----------
Net loss per share ($0.032) ($0.079) ($0.095)
---------- --------- ----------
---------- --------- ----------
Average number of shares
outstanding 107,997,315 54,588,325 81,256,288
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
For the Period from January 1, 1996 (Commencement of Development
Stage) to December 31, 1997
<TABLE>
<CAPTION>
DEFICIT DEFICIT
ACCUMULATED ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED PRIOR TO DURING
PAID-IN CONSULTING DEVELOPMENT DEVELOPMENT
SHARES AMOUNT CAPITAL FEES STAGE STAGE
------------ --------- ----------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,January 1,1996 - as previously
reported 42,542,520 $42,542 $9,408,939 (630,000) ($8,811,789) $ -
Shares issued prior January 1, 1996 100,000 100 (100) - - -
------------ --------- ------------ ------------ ------------- ------------
Balance January 1, 1996 (restated) 42,642,520 42,642 9,408,839 (630,000) (8,811,789) -
Issued shares for services 26,550,000 26,550 3,936,950 (3,034,500) - -
Amortization of deferred consulting fees - - - 3,056,750 - -
Issued shares for possible acquisitions 2,000,000 2,000 (2,000) - - -
Canceled shares per settlement (8,530,000) (8,530) 8,530 - - -
Issued shares for cash 900,000 900 161,100 - - -
Net loss for year ended December 31, 1997 - - - - - (4,332,255)
----------- -------- ------------ ------------ ------------- -------------
Balance, December 31, 1996 63,562,520 63,562 13,513,419 (607,750) (8,811,789) (4,332,255)
Issued shares for services 91,000,000 91,000 3,216,500 (985,000) - -
Amortization of deferred consulting fees - - - 834,474 - -
Issued shares for cash 3,250,000 3,250 118,750 - - -
Net loss for year ended December 31, 1997 - - - - - (3,410,313)
----------- -------- ------------ ------------ ------------- --------------
Balance, December 31, 1997 157,812,520 $157,812 $16,848,669 ($758,276) ($8,811,7
489) ($7,742,568
----------- -------- ------------ ------------ ------------- --------------
</TABLE>
In addition to the above, the Company has authorized 50,000
shares of Preferred Stock; no shares are outstanding.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996 and
For the Period January 1, 1996 (Commencement of Development
Stage) to December 31, 1997
<TABLE>
<CAPTION>
Year Ended December 31, January 1, 1996 to
1997 1996 December 31, 1997
---- ---- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($ 3,410,313) ($4,332,255) ($7,742,568)
Depreciation 6,324 4,482 10,806
Amortization of deferred consulting
fees 834,474 3,056,750 3,891,224
General and administrative expenses
paid by stock 2,322,500 929,000 3,251,500
Loss on abandoned acquisitions - 107,380 107,380
Debt forgiveness - (50,000) (50,000)
Increase in accounts receivable (48,391) - (48,391)
Increase in accounts payable and
accrued expenses 116,119 50,668 166,787
----------- ---------- ----------
Net cash used in operating activities (179,287) (233,975) (413,262)
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (9,134) (550) (9,684)
Payments for possible acquisitions - (107,380) (107,380)
Deposits - (570) (570)
----------- ----------
Net cash used in investing activities (9,134) (108,500) (117,634)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 173,500 162,000 335,500
Proceeds from notes payable
to related parties 55,000 175,521 230,521
Reduction of notes payable
to related parties (25,000) - (25,000)
Cash overdraft ( 4,010) 4,010 -
----------- ---------- -----------
Net cash provided by financing activities 199,490 341,531 541,021
----------- ---------- -----------
Net increase (decrease) in cash 11,069 (944) 10,125
CASH - beginning of year - 944 944
----------- ---------- ----------
CASH - end of year $11,069 $ - $11,069
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
Non-cash Transactions in 1997:
- ------------------------------
1. Issued 91,000,000 shares of common stock for current and
future services of $3,307,500.
Non-cash Transactions in 1996:
- ------------------------------
1. Issued 26,550,000 shares of common stock for current and
future services of $3,963,500.
2. Issued 2,000,000 shares of common stock for possible
acquisition; recorded at par value ($.001 per share).
3. Canceled 8,530,000 shares per settlement agreement; recorded
at par value.
4. Note payable of $50,000 was forgiven.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
Organization and Capitalization
- -------------------------------
The Company was organized January 16, 1979 under the laws of the State of
Nevada as Terra West Homes, Inc. On October 5, 1991, the Company changed
its name to Gerard Enterprises, Ltd. in connection with a merger. The
merger was not consummated, and on November 23, 1991, the name was changed
to Tera West Ventures,Inc. On March 15, 1995, the Company number of shares
of common stock was
increased from 25,000 shares to 25,000,000 shares and the par value was
changed from $1 per share to $.001 per share, and on the same date the
Company approved a 40 for 1 stock split on outstanding shares. On November
22, 1992, the authorized shares were increased to 50,000,000 shares. On
July 17, 1996, the authorized shares were increased to 200,000,000 shares.
On March 6, 1998, the authorized shares were increased to 300,000,000
shares.
On April 7, 1993, the Company amended its Articles of Incorporation and
authorized 50,000 shares of preferred Series A stock with a par value of
$10 per share. No shares of preferred Series A stock are outstanding.
Nature of Operations
- --------------------
Effective 1996, the Company became a development stage company. During
1997, the Company generated its initial sales revenues and receivables from
the shipment of orders for generic pharmaceuticals to West Africa and the
sale of telecommunication services in West Africa. The Company is
presently engaged in the marketing and sale of generic pharmaceuticals,
medical diagnostic test kits, and telecommunications products and services
in West Africa and Brazil. In 1997, pharmaceutical products represented
72.5% of sales and telecommunication services 27.5% of sales.
Uncollectible Accounts
- -----------------------
Management believes that no allowance for uncollectible accounts is needed.
Inventories
- -----------
Inventories consist of medical supplies and equipment held for resale and
are stated at the lower of cost or market. Cost is determined on a first-
in, first-out basis.
Property and Equipment
- ----------------------
Property and equipment is recorded at cost. Depreciation of property and
equipment is computed on a straight line basis and depreciated over the
estimated useful life of the assets which is 5 years.
Fair Value of Financial Instruments
- -----------------------------------
The fair values of current assets and liabilities approximate their
reported carrying amounts.
Accounting Estimates
- --------------------
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period.
Deferred Consulting Fees
- ------------------------
The Company has issued shares of its common stock to consultants for
services rendered and to be rendered. The fair market value of the shares
issued for future services is recorded as deferred consulting fees and is
shown as a separate component of stockholders' equity. The deferred fees
are amortized to expense over the term of the respective consulting
agreements.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED):
Income Taxes
- ------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
The statement requires that the Company follow the liability method of
accounting for income taxes and requires an adjustment to the provision for
income taxes for the effect on deferred income taxes of any changes in
corporate income tax rates.
Through December 31, 1997, the Company has accumulated net operating losses
which can be used to offset future earnings. Accordingly, no provision for
income taxes is recorded in the financial statements. A deferred tax asset
for the future benefits of net operating losses is offset by a 100%
valuation allowance due to the uncertainty of the Company's ability to
utilize the losses.
Net Loss Per Common Share
- -------------------------
Loss per common share has been computed based upon the weighted average
number of shares of common stock outstanding. The weighted average number
of shares outstanding for the years ended December 31, 1997 and 1996 was
107,997,315 and 54,588,325, respectively.
NOTE 2: PROPERTY AND EQUIPMENT:
Property and equipment are as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
Medical equipment $21,656 $21,656
Office furniture and equipment 12,094 2,960
------- -------
33,750 24,616
Less: Accumulated depreciation 13,298 6,974
------- -------
Net property and equipment $20,452 $17,642
------- -------
------- -------
</TABLE>
Depreciation expense was $6,324 for 1997, and $4,482 for 1996.
NOTE 3: MISCELLANEOUS RECEIVABLE:
During 1996, the Company entered into an agreement to acquire Imaging
Systems Synergies, Inc. ( ISS ). During negotiations with respect to the
proposed acquisition, the Company advanced $100,000 to assist ISS in
continuing its operations while the Company pursued its due diligence
efforts.
Following the completion of due diligence, the Company concluded that it
should not acquire ISS and, after consulting with counsel, pursued a cause
of action against ISS for damages, including recovery of the $100,000
advance. It cannot be determined at this time whether the Company will be
successful in recovering any damages against ISS.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 4: COMMITMENTS AND CONTINGENCIES:
Going Concern
- -------------
As shown in the accompanying financial statements, during the year ended
December 31, 1997, the Company had no significant revenues and incurred a
net loss of $3,410,313 and, as of December 31, 1997, the Company's
accumulated deficit is $16,554,357. These factors, as well as the
uncertain conditions the Company faces regarding its ability to
successfully acquire, develop and distribute and/or market medical
products, including generic pharmaceuticals, vitamins, and diagnostic test
kits, and be able to successfully offer and sell telecommunications
products and services, create substantial doubt about the Company's ability
to continue as a going concern.
The Company's management has determined its best business opportunities are
in the export and sale of products manufactured and supplied by third
parties. During 1996 and 1997, the Company entered into consulting
agreements to assist in entering into the medical products and
telecommunications fields and becoming an operating company.
Management's plans also include seeking to raise funds through sales of
stock in private placements and public sales of securities. During the
year ended December 31, 1996, the Company sold 900,000 shares of stock for
cash of $162,000. During the year ended December 31, 1997, the Company
sold 3,250,000 shares of stock for cash of $122,000. During 1997, the
Company also received cash of $51,500 in partial prepayment of
subscriptions for 1,550,000 shares of stock issued in 1998. The Company
has been actively seeking to acquire and/or merge with other suitable
businesses in the fields of medical products distribution and
telecommunications. Toward this end in March 1998, the Company acquired an
option to purchase an equity interest in Global Transmedia Communications
Corporation, which is engaged in internet telephony and other related
products and services, in the United States, Canada, Mexico, Columbia and
South Africa.
Other Risks
- -----------
The Company has not obtained insurance for general liability. Because the
Company is currently in the Development stage, it does not expect to incur
any losses in connection with uninsured risks. Therefore, no provision for
any such loss has been provided in the accompanying financial statements.
Leases
- ------
Effective February 1998, the Company leases its office premises in North
Carolina under a one year lease agreement. Office premises in New York
City are rented on a month-to-month basis. Rent expense for 1997 and 1996
was $23,780 and $14,780, respectively.
NOTE 5: SHAREHOLDERS' EQUITY:
- ------------------------------
Shares Issued and Canceled in Connection with Possible Acquisitions
Effective February 27, 1995, the Company entered into an agreement to
acquire all of the issued and outstanding stock of American Diversified
Medical Corp. ( ADMC ), a Delaware corporation, in exchange for the
issuance of 12 million shares of the Company's common stock (restricted
under Rule 144), of which 10.53 million shares were issued to ADMC's
principal shareholder, Ameril Corp. The agreement was never consummated,
and on April 4, 1996, the Company entered into a settlement agreement with
Ameril, which, among other things, terminated the agreement ab initio, as
if the agreement had never been entered into.
The settlement provided for Ameril, as the corporate seller of ADMC, to
retain 2 million shares of the Company's common stock in consideration for
the cancellation of 8.53 million shares held by Ameril, which 8.53 million
shares were returned to the Company's transfer agent for cancellation.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED):
Shares Issued and Canceled in Connection with Possible Acquisitions
(Continued)
- ---------------------------------------------------------------------------
The settlement also provides for mutual releases of all parties, and
accordingly, during the year ended December 31, 1996, the Company recorded
a gain of $4,795 for net amounts due to the seller, and from ADMC.
In January 1996, the Company issued 2 million shares of common stock
(restricted under Rule 144) in connection with the possible acquisition of
a company. The acquisition was never consummated and the other company has
agreed to return the 2 million shares to the Company for cancellation.
The shares were returned and canceled subsequent to the audit date.
Shares Issued for Services
- --------------------------
In March 1996, the Company issued a total of 17.850 million shares of
common stock for consulting services and professional fees rendered during
the fiscal year and to be rendered during future periods. The shares
issued were valued by the Company at $3,034,500, based upon the average of
the bid and ask price of the shares on the date of issuance. In connection
with services rendered, the Company has charged $2,426,750 to expense
during the year ended December 31, 1996, and in connection with services to
be rendered during future periods, the Company charged $607,750 to deferred
consulting fees, of which amount, $566,031 was charged to expense during
1997.
In December 1996, the Company issued a total of 4.7 million shares of
common stock for consulting services, professional fees and executive
compensation for services rendered during the year ended December 31, 1996.
The shares issued were valued by the Company at $329,000 based upon the
average bid and ask price of the shares on the date of issuance, and the
Company charged this amount to expense during the year ended December 31,
1996.
In December 1996, the Company agreed with a shareholder to issue 4 million
shares of common stock (restricted under Rule 144) as reimbursement for
shares advanced by the shareholder to third parties for services rendered
on the Company's behalf during fiscal 1996. The shares were valued at
$600,000, based upon the estimated fair market value of the services
rendered and the value of the shares on the dates the shares were advanced,
and the Company has charged this amount to expense during the year ended
December 31, 1996. The Company has also agreed to register these shares,
as soon as practicable, and to issue additional shares as necessary to
equal a total market value of $600,000, based upon the average bid and ask
price of the shares on the effective date of the registration statement.
In January 1997, the Company issued 4 million shares to a consultant and 1
million shares to its chief executive officer for continued services to the
Company. The shares issued were valued by the Company at $250,000 based
upon the average bid and ask price of the shares on the date of issuance,
and the Company charged this amount to expense during the year ended
December 31, 1997.
In February 1997, in consideration for the services of two consultants, as
well as its corporate counsel, director and officers, the Company issued
14.5 million shares. These shares issued were valued by the Company at
$725,000 based upon the average bid and ask price of the shares on the date
of issuance, and the Company charged this amount to expense during the year
ended December 31, 1997.
In July 1997, in consideration for the services of three consultants, as
well as its corporate counsel, director and officers, the Company issued
25.5 million shares. These shares issued were valued by the Company at
$637,500 based upon the average bid and ask price of the shares on the date
of issuance, and the Company charged this amount to expense during the year
ended December 31, 1997.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997 and 1996
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED):
Shares Issued for Services (Continued)
- --------------------------------------
In August 1997, the Company issued a total of 15 million shares of common
stock for consulting services rendered during the fiscal year and to be
rendered during future periods. The shares issued were valued by the
Company at $300,000, based upon the average of the bid and ask price of the
shares on the date of issuance. In connection with services rendered, the
Company has charged $100,000 to expense during the year ended December 31,
1997, and in connection with services to be rendered during future periods,
the Company has charged $200,000 to deferred consulting fees.
In October 1997, the Company issued a total of 31 million shares of common
stock for consulting services, professional fees and executive compensation
for services rendered during the year ended December 31, 1997 and to be
rendered during future periods. The shares issued were valued by the
Company at $1,395,000 based upon the average bid and ask price of the
shares on the date of issuance, and the Company charged $1,293,750 to
expense during the year ended December 31, 1997 and in connection with
services to be rendered during future periods, the Company has charged
$101,250 to deferred consulting fees.
Stock Issued for Cash
- ---------------------
During the year ended December 31, 1996, a shareholder exercised stock
options to purchase 900,000 shares of common stock of the Company at $.18
per share, for which the Company received $162,000.
Common Stock Purchase Options
- -----------------------------
In connection with the Company's unit private placement in April 1997, the
Company issued a total of 3,250,000 shares at $.04 per share together with
3,250,000 common stock purchase options exercisable by the holders to
purchase additional 3,250,000 shares at a price of $.08 per share. The
Company has agreed to register the shares and the shares underlying the
options in a registration statement of Form S-1 as soon as reasonably
practicable.
In March 1998, the Company issued an additional 1,550,000 shares under the
same terms as the April 1997 private placement.
In connection with the Company's consulting agreement with one consultant,
the Company granted options exercisable to acquire shares of the Company's
common stock. The consultant was granted options to acquire 10 million
shares per year, for up to five years, provided that the shareholder was
continuing to provide services to the Company during each of the five
years. This agreement was amended in March 1998, and the consultant now
has the option to acquire 20 million shares, with 10 million exercisable
through November 1998 and an additional 10 million shares exercisable
through November 1999. The options are exercisable at the lower of $1.00
per share or 50% of the average bid price of the shares on the 10 days
prior to the exercise of the options.
<PAGE>
American Diversified Group, Inc.
Formerly Tera West Ventures, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997 and 1995
NOTE 6: RELATED PARTY TRANSACTIONS:
Notes Payable to Related Parties
- --------------------------------
As of December 31, 1997, the Company is obligated under five convertible
promissory notes as follows:
<TABLE>
<CAPTION>
<S> <C>
Shareholder and former director $75,000
Shareholder and current officer 35,521
Shareholder and consultant 10,000
Shareholder and consultant 5,000
Shareholder and consultant 30,000
---------
$155,521
---------
---------
</TABLE>
The notes are due and payable, without interest, on January 1, 1999, and
are convertible at the discretion of the holder, on the basis of twelve
(12) shares for each $1.00 of indebtedness.
During the year ended December 31, 1996, a consultant loaned the Company
$50,000 pursuant to a convertible promissory note, with interest at 12% per
annum. The principal and interest under the note was convertible into
shares at a price of $.25 per share. Subsequent to the Company's year
ended December 31, 1996, the $50,000 note was forgiven, based upon a
written letter agreement between the Company and the consultant.
Employment Agreement
- --------------------
Effective October 1, 1996, the Company entered into a three (3) year
employment agreement with an employee/officer/director pursuant to which
the Company agreed to pay compensation of $100,000 per annum, payable
monthly at the rate of $8,333. In accordance with the agreement, this
compensation was accrued but unpaid because of the Company's lack of
positive cash flow. During 1996, the executive was issued 500,000 shares
and during 1997 he was issued 15.5 million shares for continuing to serve
the Company on a full time basis without payment of the above salary.
NOTE 7: SUBSEQUENT EVENTS:
In February 1998, the Company issued 39.7 million shares of common stock
for consulting services, professional fees and executive compensation for
services rendered and to be rendered to the Company. The shares were
valued at $476,400 based on the average bid and ask price on the date of
issuance and the Company charged $248,400 to expense and $228,000 to
deferred consulting fees in the first quarter of 1998.
In March 1998, the Company issued 13 million shares of common stock for
consulting services and professional fees for services rendered and to be
rendered to the Company. The shares were valued at $520,000 based on the
average bid and ask price on the date of issuance and the Company charged
$140,000 to expense and $380,000 to deferred consulting fees in the first
quarter of 1998.
The Company has been dependent upon the willingness of its consultants,
officers, directors and professionals to accept shares issued in
registration statements of Form S-8 for services, in lieu of cash
compensation. The Company shall continue to be dependent upon the
willingness of persons to accept shares as compensation for services, until
such time, if ever, that it shall generate a positive cash flow from
operations.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
As Independent Public Accountants, we consent to the use of our report
dated July 1, 1998 to all references to our firm included in or made a part
of the Form 10-KSB of American Diversified Group, Inc. (Formerly Tera West
Ventures, Inc.)
GRANT-SCHWARTZ ASSOCIATES, CPA's
Boca Raton, Florida
July 1, 1998
<PAGE>
