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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
COMMISSION FILE NUMBER: 0-23532
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AMERICAN DIVERSIFIED GROUP, INC.
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Name of Small Business Issuer in its Charter
NEVADA 88-0292161
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation)
110 NORTH CENTER STREET, SUITE 202, HICKORY, NC 28601
(Address of Principal Executive Offices) (Zip Code)
(828) 322-2044
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: NONE
(Title of class)
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001
(Title of class)
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.
Yes (XX) No
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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 or any amendment to this Form 10-KSB. [XX]
The Registrant had revenues of $66,422 during its recent fiscal year ended
December 31, 1998.
The aggregate market value of the voting stock held by non-affiliates(*) of
the Registrant based on the average bid and asked prices of $.03 and $.034
respectively, of such common stock as of June 15, 1999, is approximately
$7,508,402, based upon an average of $.032 multiplied by 234,637,560 shares
of common stock as of such date held by non-affiliates.
As of June 15, 1999, the Registrant had a total of 251,137,560 shares of
common stock, par value $.001 issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There are no documents incorporated by reference in this report on Form 10- KSB
except for certain previously filed exhibits identified in Part III, Item 13 ,
hereof.
(*) 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
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Background-Prior to Fiscal Year
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. On March 15 1995,
the Company's name was changed to American Diversified Group, Inc. During
1995 and 1996, the Company's principal 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
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, with the intention of
generating sales of such products. During 1997 and 1998, the Company began
to generate initial but limited revenues from the sale of generic
pharmaceutical products in West Africa, which business efforts are presently
being expanded. See "Recent Business Developments and Consulting Agreements"
below.
Business Developments and Consulting Agreements
The Company's business developments, during 1997 and through fiscal 1998, have
principally resulted from the engagement by the Company in February 1996, of
Emerging Trends Linkages Corp., a New York corporation ("ETLC"), as
consultant. The Company entered into an initial consulting agreement with ETLC
in February 1996, for the purpose of seeking sales from West Africa for the
distribution and sale of a variety of medical/pharmaceutical products.
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Following execution of the initial consulting agreement with ETLC, the Company
received its first purchase orders from the Republic of Guinea for generic
pharmaceuticals and vitamin products, which were followed by the Company's
efforts to source the products subject to the purchase orders. During 1996,
the Company had no sales revenues from such efforts and in May, 1997, the
Company and ETLC began efforts to jointly source the generic products that
were subject to purchase orders and product requests from West Africa. Such
sourcing efforts commenced through contacts of the Company and ETLC with US
manufacturers.
During fiscal 1997, the Company and ETLC determined that a significant portion
of the generic pharmaceutical order from Guinea could not be sourced at
satisfactory pricing from US manufacturers, and that in order to meet the
budgets for the Republic of Guinea and other potential West African customers,
the Company requested ETLC begin not just to secure orders, but also to
source products from manufacturers outside of the United States in order to
fulfill orders and product requests.
The Company, during 1997 and 1998, has continued to utilize the services of ETLC
for, among other purposes, seeking the supply of generic pharmaceutical and
related products in order to fulfill purchase orders and product requests
from West African countries, including those first received from the Republic
of Guinea and later from the Republic of Mali. The Company has experienced
only limited success in sourcing generic products at satisfactory pricing
that was within the budgets of potential West African customers and would
permit profit to be generated on orders. To that end, the Company through ETLC
has sourced products from several manufacturers in India in order to supply
samples, certificates of analysis and other documents necessary for product
registration in West Africa.
In addition, the Company, through its consultants and representatives, has
undertaken efforts to secure approvals and product registration for dengue fever
diagnostic test kits in Brazil, which efforts commenced in late 1997 and are
continuing to date. The Company is presently seeking sales following
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,
and projects that it will begin to generate preliminary sales of the dengue
fever test kits with limited sales during the second or third quarters 1999, and
hopefully with increasing orders to follow.
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 based upon its sales revenues
for generic pharmaceutical products to date, the Company must be able to have
certain competitive advantages, on the basis of price and hopefully as a
result of any marketing niche gained from its agreements with its consultants
and representatives. However, with respect to the West African markets, and
other developing markets, the Company must be able to source at acceptable
pricing levels and secure registration of such products in order to meet the
budget requirements in developing countries in West Africa and elsewhere.
Price has become the critical factor in the supply of generic pharmaceuticals.
With the continued efforts and contacts of its representatives, during fiscal
1997 and to date, the Company believes that it has now developed sources of
supply of generic pharmaceuticals from India, which manufacturer's products
and pricing have been acceptable to the customers in West Africa. The Company
is continuing to pursue registration in order to achieve increased sales levels.
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The Company has also continued efforts to expand its product line of generic
pharmaceutical products and diagnostic test kits, in order for the Company to
hopefully expand its potential customer base. The Company believes that this
will permit it to increase its sales revenues during 1999. The Company
recently has also engaged new representatives for West Africa who have
undertaken the process of securing registration of the new product lines of
generic pharmaceuticals, which the Company reasonably believes will permit it
to significantly increase its sales levels in 1999 and thereafter.
However, the Company 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 and representatives 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 respective representatives,
described more fully below. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
In addition, during 1998 and to date, the Company has also sought to diversify
into other areas, with the view to possible acquisitions and joint ventures.
See the discussion below with respect to the Company's interim stock purchase/
equity participation with Global Transmedia Communication Corporation (formerly
Telephonetics Overseas Corporation), located in Miami, Florida, which was
announced in March, 1998.
The Company had revenues of $66,422 during 1998, compared to $70,769 during
fiscal 1997, compared to no revenues during 1996. During 1998, the Company's
revenues declined somewhat from the prior year, principally as a result of
the Company's discontinuance of call-back services in West Africa. During
1998, the Company was required to replace its West African representative,
which replacement was made necessary because the prior West African
representative had only limited success in developing the pharmaceutical
market for which the Company had devoted significant time and resources
during 1996, 1997 and through mid-1998. The Company's purpose in engaging new
representatives was to permit the Company, during 1999, to hopefully
increase the level of market penetration in the price sensitive West African
pharmaceutical markets, with the ability to increase its customer base and
the speed of product registration, a prerequisite to increased sales.
The Company believes that during second half of 1999, it will begin to generate
an increased level of pharmaceutical orders and sales, and secure the
registration of an increased number of products. This in turn should permit
the Company to increase shipments and sales, which should permit the Company
to enjoy an increasing cash flow.
The Company believes that it will be able, during 1999, to increase its
business of supplying generic drugs and vitamins at prices that shall permit
the Company to generate a gross profits from such sales, with the
registration of additional pharmaceutical products in West Africa. Further,
through the efforts of its representative in Brazil, the Company has received
approvals for the registration and has received its first purchase orders for
the sale of dengue fever test kits to the National Health Foundation, State of
Roraima, Brazil. While such orders have been limited to date, the Company
anticipates a significant increase in the level of dengue fever test kit
purchase orders in Brazil commencing during the second half of 1999.
The Company initially believed that these sales would commence in 1998,
but due to the currency devaluation in Brazil, the Company understands that
the funding for several projects, including the purchase of the dengue fever
test kits, was delayed. The Company believes that it will receive increasing
purchase orders, after the recent successful completion of final human
testing in Brazil, but cannot predict the amount of such further orders.
The Company will share any gross revenues with the US manufacturer and the
Brazilian distributor of the registered and approved dengue fever diagnostic
test kit.
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In March 1998, the Company entered into an agreement with Global Transmedia
Communication Corporation, formerly Telephonetics Overseas Corporations
("GTCC") of Miami, FL. GTCC which was engaged in the business of providing
state of the art telecommunications hardware and audio content for on-hold
and web site messaging and advertising. During 1998, GTCC actively commenced
the sale and distribution of Internet telephony services for sale in the
domestic and foreign markets. Under the Company's interim stock purchase
agreement with GTCC, the Company has the right to acquire up to 45% of GTCC
for $700,000. The Company is presently negotiating with GTCC for the right to
purchase up to 80% of GTCC, for consideration to be determined, based upon
certain levels of subscribers and gross revenues of GTCC at times to be
determined. In the event that GTCC reaches gross revenues of $1,250,000 by
December 31, 1999, GTCC shall have the right to put 45% of its stock to the
Company for the consideration of $700,000. To date, the Company has advanced
approximately $275,000, which amount has been accounted for as a loan from
the Company to GTCC, secured by the shares of GTCC, subject to the Company's
right to convert the loan into GTCC shares as provided above. The Company,
while having the right to file UCC-1's with respect to such GTCC shares under
the arrangement with GTCC, has not yet exercised this right but may at any
time determine to file the Forms UCC-1. At December 31, 1998, the amount
of the advance was $222,350.
Following its agreement with GTCC, initial orders were announced by GTCC for
the distribution and sale of GTCC 's telecommunications products and Internet
telephony services to a Canadian distributor. However, to date, GTCC has
received only limited revenues from the Canadian distribution agreement, but
is pursuing this business opportunity. Further, GTCC has recently introduced
enhancements to its Internet telephony business services to permit its
subscribers to use its services worldwide. Initially, its services were
largely limited to Internet telephony from South America to the US, but with
the new enhancements, GTCC's subscribers may access and place Internet
telephony communications of full voice, data, fax features to and from Asia,
South America and elsewhere, to the US or any other world-wide location.
While to date, GTCC has generated only limited operating revenues, it now
projects that during the second half of 1999, it will begin to generate
profitable operations with an increased subscriber base and monthly revenues,
plus an increased calling volume. GTCC recently entered into an agreement
with a group of telecommunications companies in Venezuela, which provides for
the purchase through GTCC of a minimum of 2.1 million minutes and up to
3,900,000 minutes in calling volume, with projected revenues of $780,000. The
value to the Company and GTCC is projected to increase during the next year.
The Company, based upon the revenues that GTCC projects over the twelve month
period commencing at January 1, 2000, that it should generate sufficient
revenues on a month basis to permit it to : (i) repay the loan from the Company
under its terms; or (ii)
GTCC shall have the right to exercise its "put" of 45% of the GTCC shares to
the Company. GTCC basis this projection and belief upon the fact that GTCC
has been carefully building a customer base for the sale of its Internet
services, over a private Internet bandwidth, which affords its customers a
very substantial savings from calls made over traditional telecommunications
providers in the respective markets. GTCC has informed the Company that
during September, 1999, it expects to receive $50,000 in revenues for the
purchase of Internet telephony services and calling minutes under the
agreement to sell telecommunications services in Venezuela and Colombia.
GTCC has also informed the Company of its intention to also offer the
Internet telephony services in Brazil. The Company and GTCC may be expected
to encounter significant competition in the Internet telephony and
telecommunications business, and from traditional phone companies,
notwithstanding its present price advantage.
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Discontinued Projects
The Company during 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 stations 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 material misrepresen-
tations of facts by ISS, the Company determined not to acquire ISS.
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 Circuit 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 board of directors of the Company agreed unanimously not to
acquire ISS, and the Company generated no income from its involvement with ISS.
During the last quarter of 1997, the Company and ETLC entered into a venture
for the purpose of marketing call-back telecommunications products and services
in West Africa (the "call-back services"). The Company and ETLC commenced
marketing the call-back service to international and domestic companies doing
business in West Africa, as well as to certain foreign embassies in Guinea
and Mali. However, the Company together with ETLC, determined during 1998
that without securing dedicated satellite phone lines, the local public
telephone and telegraph companies ("PTT's") in these markets could effectively
interrupt the ability of the Company to successfully market call-back services.
The resulting interruptions of call-back services to customers made collection
of receivables difficult and delayed. Therefore, despite the fact that the
Company was able to sign up as customers over 100 users for its call-back
services, the interruptions to such services made further pursuit of this
market not economical. As a result of the foregoing, the Company and ETLC
agreed to terminate the call-back joint venture in West Africa and the
Company canceled ETLC's rights to 47 million Shares subject to common stock
purchase options. The Company believes that this was a reasonable basis to
end the call-back joint venture. Notwithstanding this termination, the
Company and ETLC are continuing to actively pursue the registration and
sale of generic pharmaceutical products in West Africa, which efforts with
its new representatives, leads the Company to believe it will have increased
success during 1999.
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ITEM 2. DESCRIPTION OF PROPERTY
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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 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. As a result of the Company's
relationship with ETLC, it has use of these facilities at no cost other than
the actual out-of-pocket cost of phone and fax use. The condition of the
Company's leased facilities in Hickory, NC, and the facilities available at
no rental cost to the Company in New York City, NY, are excellent, and will
satisfy the Company's requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
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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 Company and ISS the legal proceeding by the Company shall be settled in a
mediation before the Florida Mediation Group, in Miami, Florida, which is
scheduled for July 12, 1999. 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.
The Company is presently in a dispute with former consultants, Matthew Milo,
Joseph Quattrocchi and Judith Grossman, who resigned as consultants to the
Company prior to December 31, 1998. The Company, during the third quarter of
1998, wrote off as "paid in full" loans to the Company of $15,000 previously
owed to Messrs. Milo and Quattrocchi. The Company deemed such loans satisfied
based, in part, on the consideration given in the consulting agreement
discussed herein. The Company has been informed informally that Messrs. Milo
and Quattrocchi claim that such loans remain outstanding.
The Company had entered into a consulting agreement with the three
consultants in June, 1998, that was amended in August 1998, which provided
for the issuance of Shares and the grant of certain common stock purchase
options for services to be provided to the Company by the Consultants
over the two and one-half year term of their consulting agreement.
The Company issued each of the consultants 3 million Shares in August, 1998,
as partial consideration for their services to be performed under the long-
term consulting agreement. The consultants have asserted that the Company
owes the consultants an additional six million Shares each under the subject
agreement and amendment, which expressly provided that a significant portion
of the consultants' compensation was contingent upon the consultants' actually
generating sales revenues for the Company. The three former consultants did
not, in fact, generate any sales revenues for the Company.
The Company has taken the position that it owes no further compensation to
the consultants and has further taken the position that the loans from
Messrs. Milo and Quattrocchi have been satisfied, as a result of the
consideration given to the consultants, the consultants' resignation, and
their failure to provide services required under the consulting agreement.
The agreement with the consultants further provided for arbitration in the
event of any dispute. As of the date of this report, the Company cannot
predict the outcome of any legal proceeding or arbitration, or whether, as a
result of any such proceeding or arbitration, the Company will be required
to issue and additional consideration or repay any loans. However, the
Company believes that there are meritorious defenses to any action that may
be commenced by the consultants. Further, the Company believes that it has
suffered damages as a result to the breach of the consulting agreement by the
actions of the consultants and may seek to recover Shares previously issued
to consultants in an amount that it has not yet been determined. The Company
may also explore to possibility of the settlement of the dispute with these
consultants, for terms and conditions not presently determinable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the year
ending 1998.
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's common stock is traded over-the-counter in what is referred to as
the "NASDAQ Bulletin Board". As of April 30, 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 (which
represents prices between broker-dealers and do not include retail mark-ups
or mark-downs or any commissions to dealers).
<TABLE>
<CAPTION
Bid Price
High Low
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<S> <C> <C>
1997
Quarter Ending March 31 $.1875 $.125
Quarter Ending June 30 $.03 $.01
Quarter Ending Sept.30 $.04 $.01
Quarter Ending Dec. 31 $.04 $.02
1996
Quarter Ending March 31 $.10 $.02
Quarter Ending June 30 $.04 $.025
Quarter Ending Sept. 30 $.03 $.025
Quarter Ending Dec. 31 $.03 $.015
1999
Quarter Ending March 31 $.03 $.01
Period Ending June 15 $.04 $.025
</TABLE>
As of June 15, 1999, 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.
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During 1997 and 1998, the Company sold in a unit private placement discussed
more fully below, units resulting in net proceeds to the Company of $122,000 in
1997 and $56,000 in 1998. Each unit was priced at $.04 and consisted of one
Share of common stock and one common stock purchase option exercisable at
$.08 per Share. The units were offered and sold based upon an exemption from
registration provided in Section 4(2) under the Act. The units were sold as
follows: Carl D'Ambrosia--125,000 units; Larry Della Corte--250,000 units;
Lorraine Milo--250,000 units; Elena Milo--250,000 units; Richard Waldman--
1,250,000 units; Leonard Weissman--312,500; Richard Shulman--312,500;
Pasquale Lanzetta--200,000 units; William Liblick--250,000 units; John
Petrozza--50,000 units, Dr. Srinvasa Rao Kothapalli--250,000 units; Harry Zee--
125,000 units; Caysing Tan 500,000 units. The Company paid commissions of 10% in
connection with the sale of units.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
The Company during year through December 31, 1996, had no revenues from any
operations or business endeavors. Further despite its receipt of initial
revenues and generating its initial sales and accounts receivable during 1997,
the Company is still a development stage company.
During the Company's year ended December 31, 1998, the Company incurred a net
loss of $1,736,543 ($0.01 per Share) compared to a net loss of $3,410,313 ($0.03
per Share) for 1997 and compared to a net loss of $4,332,255 ($0.08 per Share)
for the year ended December 31, 1996. The Company reported sales revenues of
$66,422 for the year ended December 31, 1998, which were derived from
pharmaceutical sales and limited telecommunications sales, compared to sales
revenues of $70,769 for the year ended December 31, 1997, which represented
the initial shipments of generic pharmaceuticals and limited telecom-
munication sales from West Africa. This is compared to no sales revenues for
the 1996 year.
The Company's net losses for the years ended December 31, 1998 and 1997, were
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, 1998, was $1,396,400 compared to $3,307,500
during 1997, compared to $3,963,500 during 1996.
In order for the Company to pay its operating expenses, including office rents,
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 during 1998, as a result of the effective interruption by local
PTT's in West Africa, ceased its efforts to market call-back services.
As a result, the Company canceled rights of ETLC to 47 million Shares.
The Company does not project any further revenues or business efforts
for call-back in West Africa.
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While the Company continued to pursue orders for generic pharmaceutical products
from West Africa, which efforts the Company has accelerated following the
end of its year, in about August, 1998, the Company's consultant, ETLC,
terminated its former West African representative. The Company with ETLC has
established a relationship with a new West African group, which new
representatives have contacts and business operations in Senegal, Mali and
Guinea. The Company believes that the new affiliation through ETLC with the
West African representatives will permit it to increase the level of orders
for pharmaceutical products in the entire West African region, and indeed during
June 1999 registration of approximately 30 new pharmaceutical products have
commenced in the Republic of Mali, with samples, certificates of analysis and
other product registration documentation having been transmitted. However,
during the last half of 1998, as a result of the requirement to change of West
African representation, the Company's sales of such products in Mali were
less than anticipated.
Nevertheless, the Company continues to receive requests for generic
pharmaceutical products from both the public and private sectors in West
Africa, and as noted above, ETLC has arranged for the delivery samples,
certificates of analysis and related documents for over thirty pharmaceutical
products. The Company has sourced these products from pharmaceutical
manufacturers in India at pricing levels that will permit the
Company to achieve satisfactory gross profit margins. The Company hopes to
begin to deliver these products and receive products requests and purchase
orders before the end of the third quarter of 1999.
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 agreements with an additional manufacturer of generic
pharmaceuticals in India. The Company is also seeking to secure rights from
a manufacturer of a Hepatitis B diagnostic test kit from India for marketing
in Africa, South America, Europe and Asia, for the purpose of generating
additional sales revenues and customers for the Company. There can be no
assurance that the Company will be successful in securing rights to market the
Hepatitis B test kit, or if successful in securing such rights that it will be
able to generate sales of such product in any market.
The Company during 1998 continued efforts to both increase its product lines and
the effectiveness of its West African representation, for the purpose of
hopefully establishing a base for increased sales revenues before the end of
1999.
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The Company has also recently been informed by its representative in Brazil that
following the final stage of human testing and the registration of the US
manufactured dengue fever test kit that it has received approval for the
sale of the test kit in the State of Roraima. In fact, during May, 1999,
the first shipment under the order for 2000 dengue fever test kits were made
and the Company projects increased orders from other States in Brazil with
the approval of the National Health Foundation, Brazil's equivalent of the
FDA. The sale of the dengue fever test kits, which required longer approval
time than the Company initially anticipated in 1998, commenced with the start of
the Brazilian rainy season. With final approvals from Brazil, the Company
could generate increased sales of dengue fever test kits for the entire
country annually, although there can be no assurance as to the timing or
amount of actual sales. However, the Company has been informed that 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 1999 and thereafter.
The ability to generate increasing orders in the future shall be dependent, in
part, on the Company's concluding an extension of its arrangement with ETLC,
among other parties. 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 together with their
new representatives to devote a significant period of time during 1998 to
the establishment and furthering of relationships in West Africa and Brazil,
as well as sourcing generic pharmaceuticals and diagnostic test kits at
competitive pricing.
Since 1997, the Company, with the direct assistance of its consultants, has
developed and continues to seek out sourcing for generic pharmaceuticals, at
highly competitive pricing, from foreign manufacturers. Further, the Company
is continuing to develop additional sources for products in order to fill
present requests for products 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 product requests 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, and its hope for expanding its
recently commencing dengue fever test kit business in Brazil.
The Company does not believe that it will be dependent upon any single
manufacturer of generic pharmaceutical products, although the Company has been
sourcing products only from India, which has proved capable of providing
pricing at advantageous levels.
Page 12
</PAGE>
<PAGE>
Further, with respect to dengue fever test kits, the Company only has a
relationship with one manufacturer, which is the only manufacturer which has an
approved and registered dengue fever test kit product in Brazil. The
Company's goal during 1999 is to secure relationships with several additional
manufacturers and distributors, whether pursuant to exclusive or
non-exclusive distribution and marketing agreements or otherwise, in order
to be able to fill product requests and purchase orders for an increased
variety of products.
Following its agreement with GTCC in 1998, the Company anticipated that
revenues would commence from the interim stock purchase prior to the end of
1998. In fact, the Company announced initial orders for GTCC's
telecommunications and Internet telephony products and services from GTCC 's
distributor in Canada. Following GTCC's recently introduced enhancements to
its Internet telephony business services, which shall permit its subscribers
to use its services worldwide, the Company's affiliate, GTCC, projects that
it will begin to receive revenues in or about July 1999, as GTCC's
subscribers may now access and place Internet telephony communications of full
voice, data, fax features to and from Asia, South America and elsewhere,
to the US or any other world-wide location. To date, GTCC has not generated
any operating revenues for the Company, nor can there be any assurance that
any distributions will be received from GTCC during the near term. GTCC now
projects that during the second half of 1999, it will begin to generate
operations with GTCC's increased subscriber base and monthly revenues,
with an increased calling volume, principally from Venezuela and Colombia in
South America.
Liquidity and Capital Resources
The Company, at December 31, 1998, had virtually no current assets compared to
current assets of $64,460 at December 31, 1997, and compared to $5,000 in
current assets at the end of the 1996 year. To assist the Company in its cash
flow requirements which are presently estimated at $5,000 per month, the
Company during 1998 received only $56,000, net of commissions, from private
placement funds, compared to $122,000, net of commissions, from the private
placement funds in 1997. 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 extended the maturity date for the exercise options issues as
part of the unit private placement. However, to date, none of the options
issued as part of the units have been exercised by private investors and the
Company does not presently anticipate any such exercise, based upon the
recent prevailing prices.
Page 13
</PAGE>
<PAGE>
During 1999, to date, the Company has received $70,000 from the exercise of
options. The Company continues to be dependent upon the willingness of the
Company's executive officers, directors and 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 $.03 to $.04. While the Company
was successful in raising $178,000 net of commissions in investment capital
in the unit private placement during 1997 and 1998, there can be no assurance
that the Company will be able to continue to raise private capital or receive
funds from the exercise of options at terms and conditions satisfactory to the
Company.
Based upon the Company's present liquid resources and based upon its present
monthly operating expenses of $5,000, the Company will be able to operate for
approximately five months, if no additional revenues are generated from
operations, exercise of options, private placement funds or any other sources.
However, the Company believes that it will be generating increased operating
revenues during the remainder of 1999, as a result of its new West African
representatives, and the additional shipments of generic pharmaceuticals to
West Africa, as well as the commencement of shipments and sales of dengue
fever test kits to Brazil, and revenues from the affiliation with GTCC. The
Company will continue to explore potential joint ventures and acquisitions
of firms with positive cash flow, upon which it hopes to develop and expand
its business and operations.
ITEM 7. FINANCIAL STATEMENTS
- ----------------------------
The financial statements for the year ended December 31, 1998 are attached
hereto with comparative financial statements for 1997.
Page 14
</PAGE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
- -------------------------------------------------------
The Company's financial statements for the years ended December 31, 1995, 1996
and 1997 were audited by the firm of Grant-Schwartz Associates, CPA's. In that
letter to the Company, the accounting firm of Grant-Schwartz Associates,
CPA's, informed the Company that it has ceased its accounting practice, and
as a result, it was resigning from the engagement. As a result, the Company
retained the accounting firm of Dohan and Company, CPA's to complete the
audit for the year ended December 31, 1998 and the firm of Grant Schwartz
Associates agreed to cooperate with the Company in transmitting copies of all
records necessary for Dohan and Company, CPA's, to complete the 1998 audit.
The Company has also continued to engage the services of John A. Coniglio, CPA,
of the accounting firm of Rodriguez, Kinzbrunner and Coniglio, to assist the
Company by working as a liaison with its auditors. Mr. Coniglio has continued to
assist the Company in working with its outside auditors since 1995.
During the past two years and through the date of the resignation of the
accounting firm of Grant Schwartz Associates, there were no disagreement(s)
with the former accountant on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope of procedure,
which disagreement(s), if not resolved to the satisfaction of the former
accountant, would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report. The engagement of Dohan
and Company, CPA's, independent public accountants, 7700 North Kendall Drive,
Suite 204, Miami, FL 33156 is attached as an exhibit to this Annual Report on
Form 10-KSB. However, the change in the Company's independent auditors did
cause a delay in the filing of this report.
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>
<S> <C> <C>
Name Age Title
Jerrold R. Hinton 56 President, Chief Executive Officer
and a Director
Thomas J. Craft, Jr., Esq. 34 Secretary, Corporate Counsel
and a Director
</TABLE>
Page 15
</PAGE>
<PAGE>
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.
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 the Company. 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:
Name of Filer Report Not Filed
Jerrold R. Hinton Forms 4 and 5
Thomas J. Craft, Jr. Forms 4 and 5
Page 16
</PAGE>
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compansation Long Term Compansation
Awards Payouts
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Other
Name and Annual Restricted Securities All Other
Principal Compan- Stock Underlying LTIP Compan-
Position Year Salary($) Bonus($) sation($) Awards($) Options/SARs(#) Payouts($) sation($)
- ---------------------------------------------------------------------------------------------------------------
Jerrold Hinton 1998 0 0 0 0 0 0 0
President, CEO
Jerrold Hinton 1997 0 0 0 0 0 0 0
President, CEO
Jerrold Hinton 1996 0 0 0 0 0 0 0
President, CEO
</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 1997 and 1996 in consideration for
his continued services to the Company.
The Company has not had sufficient funds to pay its executive officers or
directors during 1998 or any prior year. 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.
Page 17
</PAGE>
<PAGE>
The agreement provides for the payment to Mr. Hinton of $100,000 per
annum, commencing October 1, 1996, which salary had been accrued but unpaid
since the commencement of the agreement. The Company, during 1998, issued to
Dr. Hinton, its president and chief executive officer, a total of 4,500,000
million Shares, which Shares were valued at $74,000, based upon the average
of the bid and asked price of the Shares on the dates of issuance during the
year. The Company also issued to Thomas J. Craft, Jr., Esq., the Company's
corporate secretary, securities counsel and a director a total of 8,500,000
million Shares, which Shares were valued at $151,000, based upon the average
of the bid and asked price of the Shares on the dates of issuance during the
year. 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 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
As of June 15, 1999, 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>
<S> <C> <C> <C>
(1) (2) (3) (4)
Title of Class Name and Address of Amount and Natur Percent Amount
Benificial Owner Benificial Ownership of Class
</TABLE>
<TABLE>
<CAPTION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Jerrold R. Hinton 6,000,000 2.35%
110 N. Center St.
Suite 202
Hickory, NC 28601
Common Stock Thomas J. Craft, Jr. 3,000,000 1.18%
11000 Prosperity Farms Rd.
Palm Beach Gardens
</TABLE>
(1) Based upon 251,137,560 shares issued and outstanding at June 15, 1999.
Page 18
</PAGE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
During 1998, the Company had no business transactions with related parties. The
Company, however, did issue Shares to its two executive officers-directors in
consideration for continued services to the Company, and received loans from
shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
<TABLE>
<CAPTION>
Exhibit No. Document Description Page No.
- ----------- ----------------------------------------- --------
<S> <C> <C>
3.1 Articles of Incorporation (filed as N.A.
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 N.A.
Registration Statement on Form 10-SB and
incorporated herein by reference)
10(iii) Material Contracts-Consulting Agreements and N.A.
Employment Agreement (filed as Exhibits to
Registration Statements on Form S-8 and
post-effective amendments thereto and
incorporated herein by reference)
10(vi) Contract and Convertible Secured Note between N.A.
the Company and Global Transmedia Communications
Corporation (to be filed by amendment)
27 Financial Data Schedule F-18
</TABLE>
(b) During 1998, the Company filed a Report on Form 8-K on February 19, 1998,
reporting the relocation within Hickory, NC of its executive offices to is
present location. The Company has also filed a Report on Form 8-K on May 28,
1999, reporting the change in its independent accountants to the firm of
Dohan and Company.
Page 19
</PAGE>
<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
Dated: June 29, 1999
In accordance with the Exchange Act, this report has 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 20
</PAGE>
<PAGE>
AMERICAN DIVERSIFIED GROUP, INC.
FORMERLY TERA WEST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS DECEMBER 31, 1998
C O N T E N T S
- ---------------
PAGE
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Loss and Accumulated
Deficit during the Development Stage F-4
Statements of Cash Flows F-5
Statements of Deficiency in Assets F-6
Notes to Financial Statements F-7 - F-17
</PAGE
<PAGE>
Dohan and Company 7700 North Kendall Drive #204
Certified Public Accountants Miami, Florida 33156-7578
A Professional Association Telephone: 305-274-1366
Fascimile: 305-274-1368
INDEPENDENT AUDITORS REPORT
- ---------------------------
Board of Directors
American Diversified Group, Inc.
(A Development Stage Company)
Hickory, North Carolina
We have audited the accompanying balance sheet of American Diversified Group,
Inc. (a Development Stage Company) as of December 31, 1998, and the related
statements of loss and accumulated deficit during the development stage, cash
flows, and deficiency in assets for the year then ended. These financial state-
ments are the responsibility of the Company's managment. Our responsibility is
to express an opinion on these financial statements based on our audit. The
financial statements of American Diversified Group, Inc. (a Development Stage
Company) as of December 31, 1997, and for the year then ended were audited by
other auditors whose report dated July 1, 1998, on those statements included
an explanatory paragraph that referred to the Company's ability to continue as
a going concern.
We conducted our audit in accordance with generally accepted auditing stand-
ards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial are free of material misstate-
ments. 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 presenta-
tion. We believe that our audit provides 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. (a Development Stage Company) at December 31, 1998, and the results
of its operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, the Company has been noti-
fied that certain former consultants are filing a lawsuit alleging breach of
a consulting agreement, non-circumvention and non-disclosure agreement, and
default on a promissory note of $15,000, which the Company has written-off.
The Company believes that the agreement provided for arbitration in the event of
any dispute. The Company further believes that it owes no additional compen-
sation to the consultants and the promissory note has been satisfied, as a
result of the consideration given to the consultants, the consultants' resig-
nation, and their failure to provide services required under the consulting
agreement. The outcome of this dispute cannot presently be determined, but
management is of the opinion, that it will not have a material impact on the
Company's financial position. Accordingly, no provision for any liability that
may result has been made in the financial statements. Nevertheless, due to un-
certainties with this dispute, it is at least reasonably possible that manage-
ment's view of the outcome will change in the near term as the result of pre-
paration for preliminary hearings, discovery proceedings and arbitration as
well as evaluation of potential counterclaims.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from opera-
tions and other transactions, has a working capital deficiency and has a
deficiency in assets that raise substantial doubt about its ability to contin-
ue as a going concern. Management's plans in regard to these matters are also
described in Note 11. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Dohan and Company, PA
Certified Public Accountants
June 23, 1999
Miami, Florida
Member:
Florida Institute of Certified Public Accountants
American Institute of Certified Public Accountants Private Companies and
SEC Practice Sections
SC International-Offices in Principals Cities World-Wide
F-2
</PAGE>
<PAGE>
AMERICAN DIVERSIFIED GROUP,INC.
FORMERLY TERA WEST VENTURES,INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1998 1997
ASSETS
- ------
CURRENT ASSETS
Cash $ 30 $ 11,069
Accounts receivable - 48,391
Inventory - 5,000
Refundable taxes 2,986 -
------ ------
TOTAL CURRENT ASSETS 3,016 64,460
------- -------
PROPERTY AND EQUIPMENT, NET (NOTE 2) 8,753 20,452
------- -------
OTHER ASSETS
Deposits 570 570
Contractual advances to
acquire common stock (Note 3) 222,350 -
Miscellaneous receivable
(less $100,000 allowance for
uncollectibility) (Note 3) - -
------- -------
TOTAL OTHER ASSETS 222,920 570
------- -------
TOTAL ASSETS $234,689 $ 85,482
======= =======
LIABILITIES AND DEFICIENCY IN ASSETS
LIABILITIES
Accounts payable $ 15,174 $ 53,094
Accrued expenses and other
liabilities (Note 4) 236,523 131,519
Notes payable -
stockholders (Note 6) 215,671 155,521
------- -------
TOTAL CURRENT LIABILITIES 467,368 340,134
------- -------
</TABLE>
<TABLE>
<CAPTION>
COMMITMENTS AND CONTINGENCIES (NOTE 7)
<S> <C> <C>
DEFICIENCY IN ASSETS (NOTE 9 AND 10)
Preferred stock, Series A,
$10 par value, 50,000 shares authorized;
none outstanding
Common stock, $.001 par value, 350,000,000
shares authorized, 230,762,560 shares
issued and outstanding; 200,000,000
authorized, 157,812,560 shares issued
and outstanding 230,762 157,812
Additional paid-in capital 18,224,619 16,848,669
Stock subscriptions paid in advance - 51,500
Deferred consulting fees (Note 5) (397,160) (758,276)
Deficit accumulated prior to the
development stage (8,811,789) (8,811,789)
Deficit accumulated during the
development stage (9,479,111) (7,742,568)
----------- -----------
TOTAL DEFICIENCY IN ASSETS (232,679) (254,652)
----------- -----------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 234,689 $ 85,482
=========== ==========
</TABLE>
See accompanying notes.
F-3
</PAGE>
AMERICAN DIVERSIFIED GROUP, INC.
FORMERLY TERA WEST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT DURING THE DEVELOPMENT STAGE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative
During the
For the For the Development Stage
Year Ended Year Ended January 1,1996 to
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998
REVENUES
Sales $ 66,422 $ 70,769 $ 137,191
Cost of sales 57,230 67,933 125,163
-------- ------ -------
GROSS MARGIN 9,192 2,836 12,028
-------- ------ -------
EXPENSES
Consulting fees 1,577,573 3,156,974 8,690,815
Officer's salary 100,000 100,000 225,000
Professional fees 24,911 54,526 141,850
Reimbursed consultants'
Expenses 0 1,065 127,974
Telephone 13,588 14,291 54,288
Other operating expenses 37,465 86,293 206,429
--------- --------- ---------
TOTAL EXPENSES 1,753,537 3,413,149 9,446,356
--------- --------- ---------
LOSS FROM OPERATIONS (1,744,345) (3,410,313) (9,434,328)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Forgiveness of indebtedness - - 50,000
Gain on settlements - - 4,795
Loss on abandonment of
Acquisitions - - (107,380)
Other income 7,802 0 7,802
----- - ---------
NET OTHER INCOME (EXPENSE) 7,802 0 (44,783)
----- - ---------
NET LOSS $(1,736,543) $(3,410,313) $(9,479,111)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 212,320,916 107,997,315 124,968,852
PRIMARY AND FULLY DILUTED) ============ ============ ============
BASIC NET LOSS PER SHARE ($0.01) ($0.03) ($0.08)
(PRIMARY AND FULLY DILUTED) ======= ======= =======
</TABLE>
See accompanying notes
F-4
</PAGE>
<PAGE>
AMERICAN DIVERSIFIED GROUP, INC.
FORMERLY TERA WEST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
< <C> <C> <C>
Cumulative
During the
For the For the Development Stage
Year Ended Year Ended January 1, 1996 to
Dec.31, 1998 Dec.31, 1997 Dec. 31, 1998
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(1,736,543) $(3,410,313) $ (9,479,111)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation 7,076 6,324 17,882
Amortization of deferred
consulting fees 969,116 834,474 4,860,340
Loss on abandoned
Acquisitions - - 107,380
Forgiveness of indebtedness - - (50,000)
Common stock exchanged
for services 608,457 2,322,500 3,859,957
(Increase) decrease in assets:
Accounts receivable 48,391 (48,391) -
Inventory 5,000 - 5,000
Increase (decrease)
in liabilities:
Accounts payable (37,921) - (37,921)
Accrued liabilities 105,004 116,119 271,791
-------- --------- ---------
NET CASH USED BY
DEVELOPMENT STAGE
OPERATING ACTIVITIES (31,420) (179,287) (444,682)
-------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of property
and equipment - (9,134) (9,684)
Payments for possible
Acquisitions - - (107,380)
Deposits - - (570)
-------- -------- ---------
NET CASH USED BY
INVESTING ACTIVITIES - (9,134) (117,634)
-------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Sale of common stock - 173,500 335,500
Proceeds from long-term
note payable to officer 50,381 55,000 280,902
Payments on notes payable
to potential investees (15,000) (25,000) (40,000)
Payment for loan receivable
to potential investees (15,000) - (15,000)
Cash overdraft - (4,010) -
-------- -------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 20,381 199,490 561,402
-------- -------- ---------
NET (DECREASE) INCREASE IN
CASH AND EQUIVALENTS (11,039) 11,069 (914)
CASH AND EQUIVALENTS
- - BEGINNING 11,069 - 944
-------- -------- ---------
CASH AND EQUIVALENTS
- - ENDING $ 30 11,069 30
======== ======== =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ - - -
Income taxes $ - - -
Cash and common stock given
by shareholders to potential
investee on behalf of the
Company for note payable $ 167,358 - $ 167,358
In addition to amounts
reflected above, common
stock was issued for:
Contractual advances to
acquire common stock $ 40,000 - $ 40,000
Settlement of debt $ 7,000 - $ 7,000
Consulting services $1,396,400 $3,307,500 $8,667,400
========== ========== ==========
</TABLE>
F-5
</PAGE>
<PAGE>
AMERICAN DIVERSIFIED GROUP, INC.
FORMERLY TERA WEST VENTURES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF DEFICIENCY IN ASSETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated Accumulated
Stock Deficit Deficit
Additional Subscription Deferred Prior to the During the Total
Common Stock Paid-in Paid in Consulting Development Development Deficiency
Description Shares Amount Capital Advance Fees Stage Stage In Assets
Balance,
January 1, 1996 42,642,560 $42,642 $9,408,839 $ - $(630,000) $(8,811,789) $ - $9,692
Issued shares
for services 26,550,000 26,550 3,936,950 - (3,034,500) - - 929,000
Amortization of
deferred
consulting fees - - - - 3,056,750 - - 3,056,750
Shares issued for
Possible
Acquisitions 2,000,000 2,000 (2,000) - - - - -
Shares cancelled
per settlement (8,530,000) (8,530) 8,530 - - - - -
Shares issued
for cash 900,000 900 161,100 - - - - 162,000
Net loss for
the year 1996 - - - - - - (4,332,255)(4,332,255)
------------------------------------------------------------------------------------------------
Balance,
Dec. 31, 1996 63,562,560 $63,562 $13,513,419 $- $(607,750) $(8,811,789)$(4,332,255) $(174,813)
------------------------------------------------------------------------------------------------
Shares issued
for services 91,000,000 91,000 3,216,500 - (985,000) - - 2,322,500
Amortization of
deferred con-
sulting fees - - - - 834,474 - - 834,474
Shares issued
for possible
acquisitions 3,250,000 3,250 118,750 - - - - 122,000
Stock subscription
paid in advance - - - 51,500 - - - 51,500
Net loss for
the year 1997 - - - - - - (3,410,313)(3,410,313)
-----------------------------------------------------------------------------------------------
Balance,
Dec.31, 1997 157,812,560 $157,812 $16,848,669 $51,500 $(758,276) $(8,811,789)$(7,742,568) $(254,652)
-------------------------------------------------------------------------------------------------
Shares issued
for services 72,700,000 72,700 1,317,700 - (608,000) - - 782,400
Amortization of
deferred con-
sulting fees - - - - 969,116 - - 969,116
Shares issued
for extinguishment
of debt 700,000 700 6,300 - - - - 7,000
Shares issued
for cash 1,550,000 1,550 60,450 (62,000) - - - -
Stock subscription
receivable
charged off - - (10,500) 10,500 - - - -
Shares returned
and cancelled (2,000,000) (2,000) 2,000 - - - - -
Net loss for
the year 1998 - - - - - - (1,736,543)(1,736,543)
- --------------------------------------------------------------------------------------------------------------------
Balance,
Dec.31, 1998 230,762,560 $230,762 $18,224,619 - $(397,160) $(8,811,789)$(9,479,111) $(232,679)
====================================================================================================================
</TABLE>
See accompanying notes
F-6
</PAGE>
<PAGE>
American Diversified Group, Inc.
Notes to Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
- -----------------------------------------------------
Organization and Capitalization
American Diversified Group, Inc. (Company) was organized January 16, 1979,
under the laws of the State of Nevada as Terra West Homes, Inc. On March 15,
1995, the Company's name was changed to American Diversified Group, Inc. at
which time the authorized shares of common stock were increased from 25,000
shares to 25,000,000 shares and the par value was reduced from $1 to $.001
per share. On the same date, the Company approved a 40 for 1 stock split on
outstanding 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 and on March 10, 1998, the authorized shares were then
increased to 350,000,000 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
During 1996, the Company became a development stage company. During 1997 and
1998, the Company generated initial, but limited, sales and receivables from
the shipment of orders for generic pharmaceuticals and the sale of
telecommunication services to customers in West Africa. The Company is
presently engaged in raising capital, marketing, sourcing products and the
sale of generic pharmaceuticals, medical diagnostic test kits, and
telecommunications products and services in West Africa and Brazil. In 1998
and 1997, pharmaceutical products represented 81% and 73.5% of sales and
telecommunication services 19% and 27.6% of sales, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
Inventory
Inventory consisted of medical supplies and equipment held for resale and was
stated at the lower of cost or market. Cost was determined on a first-in,
first-out basis.
Property and Equipment
Property and equipment consists of equipment and leasehold improvements, which
are stated at cost. Depreciation is based on the estimated useful lives of the
assets, using the straight-line method. Expenditures for maintenance and repairs
are charged to expense as incurred. Major improvements are capitalized.
Income Taxes
Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement 109 No. (SFAS 109),
Accounting for Income Taxes. SFAS 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of the difference in events that have been
recognized in the Company's financial statements compared to the tax
returns.
F-7
</PAGE>
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
- ----------------------------------------------------------------
Advertising costs
Advertising costs are charged to operations in the period incurred.
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 on a straight-line basis over the term of the respective
consulting agreements.
Fair Value of Financial Instruments
Financial instruments, including cash, receivables, accounts payable, and notes
payable are carried at amounts which reasonably approximate their fair value due
to the short-term nature of these amounts or due to variable rates of interest
which are consistent with market rates.
Concentrations of Credit Risk and Economic Dependence
The Company has made limited sales in third world countries. Consequently, the
Company's ability to collect the amount due from customers may be affected by
economic fluctuations and political turmoil in these geographical locations.
The Company entered into an initial consulting agreement with Emerging Trends
Linkages Corp. (ETLC) in February 1996, for the purpose of seeking purchase
orders for the distribution and sale of a variety of generic medical/pharma-
ceutical products.
ETLC is the primary distribution source of the Company resulting in an economic
dependence.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses.
Such estimates primarily relate to unsettled transactions and events as of
the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Basic Net Loss Per Common Share
Basic net loss per common share has been computed based upon the weighted
average number of shares of common stock outstanding during each period.
The basic net loss is computed by dividing the net loss by the average
number of common shares outstanding during each period. Available stock
options at December 31, 1998, were anti-dilutive and not considered common
stock equivalents for purposes of computing loss per common share.
F-8
</PAGE>
<PAGE>
Reclassifications and Restatements
Certain amounts in the prior year financial statements have been reclassified
for comparative purposes to conform to the presentation of the current year
financial statements.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
- ----------------------------------------------------------------
Impairment of Long-Lived Assets
During fiscal 1997, the Company adopted FASB Statement No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". SFAS No. 121 requires that impairment losses are to be
recorded when long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related carrying
amount may not be recoverable. When required, impairment losses on assets to
be held and used are recognized based on the fair value of the asset.
Long-lived assets to be disposed of, if any, are reported at the lower of
carrying amount or fair value less cost to sell. To date there have been no
material adjustments for impairment of long-lived assets.
NOTE 2. PROPERTY AND EQUIPMENT
- ------------------------------
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Medical equipment $ - $21,656
Office furniture and equipment $14,218 $12,094
------- --------
$14,218 $33,756
Accumulated depreciation (5,456) (13.298)
------- --------
$ 8,753 $20,452
======= ========
</TABLE>
Total depreciation expense for the years ended December 31, 1998 and 1997,
amounted to $7,076 and $6,324, respectively.
F-9
</PAGE>
<PAGE>
NOTE 3. ACQUISITIONS AND ADVANCES
- -----------------------------------
Contractual Advances to Acquire Common Stock
In March 1998, the Company entered into a letter of intent for the purchase of
stock with Global Transmedia Communication Corporation (GTCC), formerly
Telephonetics Overseas Corporation of Miami, Florida. The letter of intent was
modified by an interim agreement dated August 26, 1998. 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 letter of intent with
GTCC, the Company has the right to acquire up to 45% of GTCC for $700,000.
In an interim agreement, with GTCC, the Company negotiated for the right to
purchase up to 80% of GTCC, for consideration based upon certain levels of
subscribers and expected gross revenues of GTCC. To the date, the Company has
advanced approximately $222,350, which has been accounted for as a secured
loan from the Company to GTCC, subject to the Company's right to convert the
loan to GTCC common shares. Based upon the projected revenues of GTCC, the
Company believes GTCC should generate sufficient revenues on a monthly basis
to enable it to repay the loan from the Company pursuant to its terms or
sufficient revenues will have been achieved to require the Company to
acquire a portion of GTCC's common stock at favorable terms. In any event,
the amounts advanced to GTCC remain speculative in nature.
At the option of the Company, but not before December 31, 1999, the debt shall
be repaid with accrued interest at 10% annually over a period of thirty-six
months beginning ninety days after demand.
NOTE 3. ACQUISITIONS AND ADVANCES (CONTINUED)
- -----------------------------------------------
Shares Issued and Canceled
The Company entered into an agreement with United Biomedical Inc. (UBI) on
June 16, 1996, to acquire UBI. In connection with the agreement to acquire
UBI, the Company issued two million restricted shares of common stock.
Subsequently, the Company and UBI agreed that the acquisition should not take
place and that the two million shares should be returned to the Company's
treasury. On July 2, 1998, two million shares of common stock were returned
and canceled.
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 the due diligence effort, 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.
F-10
</Page>
<PAGE>
NOTE 4. ACCRUED EXPENSES AND OTHER LIABILITIES
- -----------------------------------------------
Accrued expenses and other liabilities consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Compansation-officer $225,000 $125,000
Professional fees 8,000 -
Payroll taxes 3,523 6,519
-------- --------
$236,523 $131,519
======== ========
</TABLE>
NOTE 5. DEFERRED CONSULTING FEES
- ---------------------------------
In 1996, the Company entered into a three-year service agreement with Emerging
Trends Linkages Corp. (ETLC) for consulting services. The services of ETLC are
intended to support the sale of generic pharmaceutical products and call back
services in Africa.
Further, ETLC is to work on the approval from the National Health Foundation of
Brazil for the sale of dengue fever test kits. In accordance with the contract,
the Company issued shares of its common stock, as well as options for the
purchase of common stock, in exchange for current and future consulting
services. (See Note 9.)
The Company entered into a three-year agreement with Higher Ground, Inc., for
consulting services commencing October 1, 1997. Higher Ground, Inc., is to
pursue joint ventures with United States and foreign pharmaceutical
manufacturers. It is commencing negotiations with certain third parties for
the sale of medical products in the international markets. In that
connection, the Company has issued shares of its common stock in exchange
for current and future consulting services. (See Note 9)
F-11
</Page>
<PAGE>
NOTE 5. DEFERRED CONSULTING FEES (CONTINUED)
- ---------------------------------------------
In 1997, the Company engaged the services of Corporate Seminars
Advisors, Inc. under a consulting agreement. The Company has issued
shares of common stock in exchange for consulting services. The fair
market value of these services has been amortized over the term of the
agreement. There were no unamortized fees at the end of 1998 or 1997
related to this contract.
The deferred consulting fees consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Higher Ground, Inc. $ 94,818 $101,250
ETLC $302,342 $657,026
-------- --------
$397,160 $758,276
======== ========
</TABLE>
The fair market value of these future services has been amortized over the term
of the agreement. Consulting fees amortized under these agreements was
$969,116 and $834,474 for the years ended December 31, 1998 and 1997,
respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
- ----------------------------------
Notes Payable - Shareholders
As of December 31, 1998 and 1997, the Company is obligated under seven
convertible promissory notes payable to shareholders as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Former director $75,000 $75,000
Current officer 80,921 35,521
Consultant - 10,000
Consultant 39,000 5,000
Consultant 5,000 -
Consultant 15,750 -
Consultant - 30,000
------- --------
$215,671 $155,521
======== ========
</TABLE>
These notes principally represent advances to the Company by officers, directors
and shareholders. There is no formal repayment plan, the notes bear no interest
and are convertible into common stock, at the lower of $1.00 per share or 50% of
the average bid price of the shares during the ten days prior to the exercise of
the options.
F-12
</Page>
<PAGE>
Employment Agreement
Effective October 1, 1996, the Company entered into a three-year employment
agreement with its President wherein the Company agreed to pay compensation
of $100,000 annually, payable monthly at the rate of $8,333. In accordance with
the agreement, this compensation has been accrued but remains unpaid due to the
Company's lack of positive cash flow.
NOTE 6. RELATED PARTY TRANSACTIONS (CONTINUED)
- ----------------------------------------------
Shares Issued for Services
The Board of Directors authorized the issuance of its common stock to the
President and Chief Executive Officer of the Company in the amount of 4.5
million shares in 1998 and 15.5 million shares in 1997, in consideration
for continuing to serve the Company on a full-time basis without cash payment
of the above salary. (See Note 9.)
The Company's corporate securities counsel and Corporate Secretary were
issued a total of 17 million shares of common in 1998 and 16.5 million shares of
common stock in 1997, for services rendered.
NOTE 7. COMMITMENTS AND CONTINGENCIES
- -------------------------------------
Litigation
The Company is presently in a dispute with three former consultants who resigned
as consultants to the Company prior to December 31, 1998. The remaining balance
of a loan payable of $15,000 originally advanced by the consultants was
written-off based on the belief that such loans had been satisfied based in part
on the consideration given in the consulting agreement. The Company has taken
the position that it owes no further compensation to the consultants, and
further that the loans from these three individuals have been satisfied, as a
result of the consideration given to the consultants, the consultants'
resignation and their failure to provide services required under the consulting
agreement. The agreement provided for the arbitration in the event of any
dispute. As of the date of this report, the Company cannot predict the outcome
of any legal proceeding or arbitration, or whether, as a result of any such
proceeding or arbitration, the Company will be required to issue additional
common stock as consideration or repay any loans.
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 and Rents
Effective February 1, 1998, the Company began leasing its executive office
premises in North Carolina under a one-year lease agreement with monthly rent
payments of $570.
During the first six months of 1997, the Company rented office space in
Connecticut at $800 per month. Rent expense for 1998 and 1997 was $5,700 and
$23,780, respectively and is included in other operating expenses.
F-13
</Page>
<PAGE>
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
- -------------------------------------------------
Year 2000
The year 2000 issue results from certain computer systems and software
applications that use only two digits (rather than four) to define the
applicable year. As a result, such systems and applications may recognize a
date of "00" as 1900 instead of the intended year 2000, which could result
in data miscalculations and software failures. The Company has conducted a
preliminary assessment of its key computer systems and software applications
and believes they are Year 2000 compliant. The Company is in the process of
communicating with all key suppliers, financial institutions and customers to
identify and coordinate the resolution of any Year 2000 issues that might arise.
Based on the initial assessment, the Company believes the cost of addressing the
Year 2000 issue should not have a material impact on the Company's financial
position or results of operations.
NOTE 8. INCOME TAXES
- --------------------
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. These net
operating losses begin to expire in the year 2012.
At the end of 1998, the Company had net operating loss carryforwards of
approximately $2,400,000 which expire at various dates through 2018, however due
to ownership changes as defined in Section 382 of the Internal Revenue Code,
the Company may be limited in its ability to utilize the loss carryforwards.
NOTE 9. COMMON STOCK EXCHANGES
- ------------------------------
Shares Issued for Services
During the periods described below, the Company issued shares of its common
stock to consultants and officers for services to the Company. The shares
issued were valued by the Company based upon the average bid and asked price of
the shares on the date of issuance. The value of these shares was charged to
expense unless they were in consideration for future services, in which case
they were recorded as deferred consulting fees. (See Note 5.)
In January 1997, five million shares, valued at $250,000, were issued to the
Company's Chief Executive Officer.
In February 1997, the Company issued 14.5 million shares to two consultants, as
well as its corporate counsel, a director and officer. These shares issued were
valued at $725,000.
In July 1997, the Company issued 25.5 million shares, valued at $637,500, to its
corporate counsel, a director and officer and three consultants.
In August 1997, the Company issued a total of 15 million shares, valued at
$300,000 for consulting services rendered during the fiscal year and to be
rendered during future periods.
In October 1997, the Company issued a total of 31 million shares, valued at
$1,395,000, for consulting services and professional fees.
F-14
</Page>
<PAGE>
NOTE 9. COMMON STOCK EXCHANGES (CONTINUED)
- ------------------------------------------
In February 1998, the Company issued a total of 39.7 million shares, valued at
$476,400, to its President and Chief Executive Officer, corporate securities
counsel and Corporate Secretary, various consultants, and a potential investee
in connection with a letter of intent. (See Note 3.)
In March 1998, the Company issued a total of 13 million shares, valued at
$520,000, to its corporate securities counsel and Corporate Secretary and
various consultants.
In August 1998, the Company issued a total of 20 million shares, at $400,000,
to its President and Chief Executive Officer, its corporate securities counsel
and Corporate Secretary, various consultants and a potential investee in
connection with a letter of intent. (See Note 3)
In connection with the above, Forms S-8 have been filed with the Securites and
Exchange Commission relative to such issuances of stock.
Stock Issued for Debt
In July 1998, the Company issued 700,000 shares of common stock to a consultant
in payment of a loan. The shares issued were valued by the Company at $7,000
based upon the average bid and asked price of the shares on the date of
issuance. The total debt was $10,000. The remaining $3,000 was applied toward
the reimbursement of expenses which were owed to the Company.
NOTE 10. STOCK OPTIONS
- -----------------------
In connection with the Company's private placement of its common stock 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, which expire
April 15, 2000. The Company has agreed to register the shares and underlying
the options in a registration statement of Form S-1 as soon as reasonably
practicable as part of a Registration Statement it intends to file in the
future (piggy-back rights). 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
(who is also a shareholder), 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/consultant was continuing to provide services to the Company
during each of the five years. This agreement was amended in March 1998, and
the consultant had 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 were extended until April 15,
2000 and are exercisable at the lower of $1.00 per share or 50% of the
average bid price of the shares during the 10 days prior to the exercise of the
options.
During the year ended December 31, 1998, the Company issued 1.55 million shares
of common stock at $.04 per share, for which the Company had a stock
subscription receivable of $62,000.
The Board of Directors of the Company authorized the charge off of $10,500 in
stock subscription receivable for the year ended December 31, 1998, in
connection with a private placement of stock.
F-15
</Page>
<PAGE>
NOTE 11. GOING CONCERN AND MANAGEMENT'S PLANS
- ----------------------------------------------
As reflected in the accompanying financial statements, during the year ended
December 31, 1998, the Company had no significant revenues and incurred a net
loss of $1,736,543. Consequently, there is a deficiency in assets attributable
to common stock of $232,679 at December 31, 1998, as well as a working capital
deficiency. 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, creates substantial doubt about the
Company's ability to continue as a going concern.
Management has determined its best business opportunities are in the export and
sale of products manufactured and supplied by third parties. The Company
entered into consulting agreements to assist in entering into the medical
products and telecommunications fields and becoming an operating company.
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.
To date, the Company has been dependent upon the willingness of its consultants,
officers, directors and professionals to accept shares issued 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
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts or
classifications of liabilities that might be necessary in the event the
Company cannot continue in existence.
NOTE 12. SUBSEQUENT EVENTS
- ---------------------------
In March 1999, the Company issued 15.375 million shares of common stock and
granted an option exercisable to purchase an additional 8.5 million shares for
consulting services and professional fees rendered and to be rendered to the
Company. The shares were valued at $329,000 based on the average bid and asked
price on the date of issuance and the Company charged expenses and deferred
consulting fees for the balance over the remaining term of the agreement.
Five million share options are exercisable at the lower of $.015 per share or
50% of the average bid price of the shares on the date of notice of the
exercise of the options. The remaining 3.5 million share options are
exercisable at the lower of $1 per share or 50% of the average bid price of
the shares on the date of notice of the exercise of the options.
The options expire January 1, 2001.
During April 1999, three million shares of common stock options were exercised
at $.015 per share and in May 1999, one million shares of common stock options
were exercised at $.015 for the option from March 1999. In addition, during
April 1999, 500,000 shares of common stock options were exercised at $.01
per share and in May 1999, 1.5 million shares of common stock options were
exercised at $.01 per share for the option from March 1999.
F-16
</Page>
<PAGE>
NOTE 12. SUBSEQUENT EVENTS (CONTINUED)
- ---------------------------------------
Subsequent to signing the letter of intent (followed by an interim agreement)
with GTCC, on March 15, 1999, the existing convertible loan was replaced by a
secured convertible debenture. The debenture is secured the number of shares of
GTCC that the Company may acquire upon put or conversion of the note equal to
the total advance. The Company has the right of first refusal in the event
that GTCC has an offer from a third party for the purchase of the fifty-five
(55%) percent not originally contemplated to be acquired pursuant to the
letter of intent. The Company was also granted the right to file a Form
UCC-1 with the State of Florida, which would document its security interest
in GTCC common stock. The Company has not yet exercised this right but may do
so at a future date. At the same time, GTCC was granted the right to put 45% of
its common stock to the Company for the amount of $700,000 if its gross revenue
reaches $1,250,000 by December 31, 1999.
F-17
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the years ended December 31, 1998 and 1997 is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 30 11,069
<SECURITIES> 0 0
<RECEIVABLES> 0 48,391
<ALLOWANCES> 0 0
<INVENTORY> 0 5000
<CURRENT-ASSETS> 3,016 64,460
<PP&E> 14,218 33,750
<DEPRECIATION> 5,465 13,298
<TOTAL-ASSETS> 234,689 85,482
<CURRENT-LIABILITIES> 467,368 340,134
<BONDS> 0 0
0 0
0 0
<COMMON> 230,762 157,812
<OTHER-SE> (463,441) (412,464)
<TOTAL-LIABILITY-AND-EQUITY> 234,689 85,482
<SALES> 66,422 70,769
<TOTAL-REVENUES> 66,422 70,769
<CGS> 57,230 67,933
<TOTAL-COSTS> 57,230 57,230
<OTHER-EXPENSES> 1,753,537 3,413,149
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,736,543) (3,410,313)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,736,543) (3,410,313)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,736,543) (3,410,313)
<EPS-BASIC> (.01) (.01)
<EPS-DILUTED> (.01) (.01)
</TABLE>
