1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: November 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_____________ to ___________________
Commission File Number
000-23615
AMDIV.COM, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0854150
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10900 Wilshire Boulevard
9th Floor
Los Angeles, California 90024
(Address of principal executive offices)
Issuer's telephone number, including area code: (310) 209-5090
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months(or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,817,961 shares of Common Stock
outstanding as of December 31, 1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
2
AMDIV.COM, INC.
Form 10-QSB
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets at
November 30, 1998 and August 31, 1998.............. 3
Condensed Consolidated Statements of
Operations for the three months ended
November 30, 1998 and 1997 and the period
from February 5, 1997 (inception) to
November 30, 1998.................................. 4
Condensed Consolidated Statements of Cash
Flows for the three months ended November
30, 1998 and 1997 and the period from
February 5, 1997 (inception) to
November 30, 1998.................................. 5
Notes to Condensed Consolidated
Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................. 9
Item 2. Changes in Securities.............................. 9
Item 3. Defaults Upon Senior Securities.................... 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information.................................. 9
Item 6. Exhibits and Reports on Form 8-K................... 9
3
amdiv.com, inc.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 1998 and August 31, 1998
November 30, 1998 August 31, 1998
----------------- ---------------
(unaudited)
ASSETS
Cash and cash equivalents .......... $ 10,221,283 $ 309,053
Cash held in escrow ................ 11,621,493
Accounts and Note Receivable ....... 161,523 360,040
Equity Securities .................. 281,117
Prepaid expenses ................... 348,233 139,378
Software and Development ........... 489,594
Deferred Offering Costs ............ 72,847 72,847
Other .............................. 16,555 60,243
Goodwill ........................... 338,161 351,143
Property and Equipment ............. 283,069 249,292
------------ ------------
TOTAL ASSETS ....................... $ 11,931,265 $ 13,444,606
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payables .................. $ 236,441 $ 569,831
Accrued expenses ................... 467,297 405,389
Note payable ....................... 387,597
Other .............................. 86,439
------------ ------------
TOTAL LIABILITIES .................. $ 703,738 $ 1,449,256
============ ============
STOCKHOLDERS' EQUITY
Preferred stock;
Series A, par value $1.00
9% cumulative, convertible
5,000,000 shares ................... $ -- 4,725,766
Common Stock;
6,817,961 and 5,151,350 shares
authorized; issued and outstanding . 17,479,476 12,236,710
Accumulated deficit ................ (6,620,024) (4,883,516)
Translation gain (loss) ............ 368,075 (83,610)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ......... 11,227,527 11,995,350
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY ............... $ 11,931,265 $ 13,444,606
============ ============
See Notes to the Condensed Consolidated Financial Statements.
3
4
amdiv.com, inc. and subsidiaries
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
February 5, 1997
Three months ended November 30, (inception) to
------------------------------- November 30,
1998 1997 1998
----------- ------------ -----------
(unaudited)
REVENUE .......................... $ 6,036 $ -- $ 51,621
----------- ------------ -----------
EXPENSES
Employee compensation and benefits 460,598 77,909 1,116,652
Compensation - stock options ..... 517,000 892,000
Travel and entertainment ......... 107,117 37,468 249,825
Administration ................... 133,697 64,491 883,399
Advertising ...................... 689,259 42,468 2,670,523
Professional services ............ 344,612 133,073 1,045,063
Other operating expenses ......... 32,254 71,052
Depreciation ..................... 16,065 174,353
Amortization ..................... 12,982 34,618
Interest ......................... 2,839 22,628
----------- ------------ -----------
Total Expenses ................... 2,316,423 355,409 7,160,113
----------- ------------ -----------
Non-operating income (expense) ... 573,879 -- 713,468
----------- ------------ -----------
Loss before income taxes ......... (1,736,508) (355,409) (6,395,024)
Income taxes ..................... -- --
----------- ------------ -----------
NET LOSS ......................... $(1,736,508) $ (355,409) $(6,395,024)
=========== ============ ===========
Average common shares outstanding 6,817,961 5,025,000 3,732,858
=========== ============ ===========
Basic and diluted loss per
common share ................... $ (0.25) $ (0.01) $ (1.77)
=========== ============ ===========
See Notes to the Condensed Consolidated Financial Statements.
4
5
amdiv.com, inc. and subsidiaries
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Period from
February 5, 1997
Three months ended November 30, (inception) to
-------------------------------- November 30,
1998 1997 1998
------------ ------------ ------------
(unaudited)
Cash Flows from Operating Activities:
Net Loss ............................................. $ (1,736,508) $ (355,409) $ (6,395,024)
Adjustments to reconcile net loss to
net cash used in operating activities
Non-cash items:
Professional fees .................................. 56,100 105,059
Stock option compensation .......................... 517,000 892,000
Loss on sale of securities ......................... 12,583
Gain on foreign currency translation ............... 573,879 425,730
Depreciation and amortization ...................... 29,047 1,500 139,575
Effects of changes in foreign currency ............. (56,445)
Changes in Assets and Liabilities:
Increase (decrease) in accounts payable and accruals (357,921) 109,124 680,787
Increase in receivables ............................ 198,517 (179,061)
Decrease (increase) in prepaid expenses and other .. (167,167) (173,407) (434,589)
------------ ------------ ------------
Net cash (used in) operating activities ......... (943,153) 362,092 (4,809,385)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of equipment .............................. (67,088) (13,915) (405,272)
Software development costs ......................... (487,594) (487,594)
Purchase of J.B. Rea, Inc. net of
cash acquired ..................................... (146,973)
Purchase of marketable equity securities ........... (500,865)
Proceeds from sale of securities ................... 293,788 473,788
------------ ------------ ------------
Net cash provided by (used in) investing
activities .................................... (260,894) (13,915) (1,066,916)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of preferred stock .......... 117,000 4,725,766
Dividends paid on preferred stock .................. (195,401)
Proceeds from issuance of common stock ............. 63,345
Increase in note payable ........................... 387,597
Decrease in note payable ........................... (387,597) 307,453 (387,597)
Receipt of escrowed funds .......................... 11,503,874 11,503,874
------------ ------------ ------------
Net cash provided by financing activities ....... 11,116,277 424,453 16,097,584
------------ ------------ ------------
Increase in cash and cash equivalents ................ 9,912,230 48,446 10,221,283
Cash and cash equivalents
Beginning of period ................................ 309,053 2,264 --
------------ ------------ ------------
End of period ...................................... $ 10,221,283 $ 50,710 $ 10,221,283
============ ============ ============
Supplemental schedule of noncash financing activities:
Issuance of 0, 262,500 and 288,000, common shares
in exchange for services rendered .................. $ 56,100 $ 105,059
============ ============
Issuance of 4,500,000 common shares in
exchange for notes receivable ...................... $ 9,938,700
============
Issuance of 118,750 common shares in
connection with the acquisition of
J.B. Rea, Inc. .................................... $ 237,500
============
Capital contribution associated with sale of
note receivable to unrelated investors ............. $ 1,517,100
============
Conversion of 5,000,000 shares of Series A
preferred stock into 1,666,611 shares of
common stock .......................................
See Notes to the Condensed Consolidated Financial Statements.
5
6
amdiv.com, inc.
AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ending November 30, 1998 and 1997
NOTE 1: QUARTERLY INFORMATION
These statements should be read in conjunction with the financial statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended August 31, 1998.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the Company's financial position and operations for the
interim period. The results are not necessarily indicative of results to be
expected for the complete fiscal year.
NOTE 2: NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was organized on February 5, 1997 as a provider of financial
services in the United States and Europe. As a development stage enterprise, the
Company has devoted most of its resources, since inception, to raising capital
and implementing the first stages of its business plan. The Company's fiscal
year ends on each August 31.
The Company has established six wholly owned subsidiaries since inception:
Planned Operations
------------------
American Diversified AG ("ADAG") Provider of financial
services in Germany
American Diversified Asset Management, Inc. ("ADAM") Investment advisor to
mutual funds
American Diversified Global Equities, Inc. ("ADGE") Broker/Dealer for U.S.
mutual funds
amdiv securities, inc. ("ASI") Broker/Dealer for on-
line brokerage services
American Diversified Technologies, Inc. ("ATEC") Technology Development
AMDIV Publications, GmbH ("APUB") Publishing
A summary of the Company's significant accounting policies follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All material inter-company
accounts and transactions are eliminated in consolidation.
Cash and cash equivalents
Cash equivalents include highly liquid debt instruments that have a maturity of
three months or less from the date of purchase and other highly liquid
investments that are readily convertible into cash. Cash equivalents are stated
at cost which approximates market value.
6
7
Equipment
Equipment is reported at cost and includes expenditures for major improvements.
Depreciation is determined using a straight-line method based on estimated
useful lives of between three and five years.
Foreign Currency Translation
The Company has agreed to fund cash flow deficits incurred by ADAG, its European
subsidiary. Until such time that ADAG generates sales revenue, the Company's
functional currency (U.S.$) will be considered ADAG's functional currency for
financial reporting purposes.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry forwards. Under the liability method, tax liabilities are recorded
for taxable temporary differences. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, all or a portion of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Fair value of financial instruments
The fair value of cash and cash equivalents and capital stock subscription
receivables approximates carrying amounts because of the short-term nature of
these assets.
Loss per common share
The basic loss per common share is based on the net loss applicable to common
stockholders (net loss less preferred stock dividends) and the weighted average
number of shares of common stock outstanding during the period. Stock options
are not included because their effect is antidilutive.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and expenses and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 3: RELATED PARTY TRANSACTIONS
Stock Option and Incentive Plan
The 1998 Stock Option and Incentive Plan was approved at the May 26, 1998 Board
of Directors meeting and 1,000,000 million shares of common stock were reserved
for issuance under the Plan. 110,000 options were granted under the Plan and
compensation expense of $517,000 was recorded for all options outstanding during
the quarter ended November 30, 1998. The amount recorded represents the
difference between the estimated fair value of the options and the exercise
price on the date of grant recognized over the vesting period.
NOTE 4: PREFERRED STOCK OFFERING
The Company completed the sale of 5,000,000 shares of Series A redeemable 9%
cumulative convertible preferred stock in Germany during the fiscal year ended
August 31, 1998. The offering occurred under Regulation S guidelines established
under the Securities Act of 1933 for securities offerings made outside of the
United States. The offering is registered with the ABundesaufsichtsamt fuer
Wertpapierhandel, the German governmental agency that regulates German
securities transactions. Cumulative dividends are payable semi-annually, when
declared, at an annual rate of $.09 per share. All 5,000,000 shares were
converted into 1,666,611 shares of common stock of the Company during the
quarter ended November 30, 1998.
7
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a development stage enterprise organized on February
5, 1997 as a provider of financial services in the U.S. and Germany and other
European Union ("EU") countries. As a development stage enterprise, the Company
has devoted most of its resources since inception to raising capital and
implementing its business plan.
The Company plans to provide financial services consisting mainly of
on-line brokerage services, traditional securities brokerage services, and
mutual fund management and distribution to individual and institutional
investors in Germany and other EU countries. The Company's current development
endeavors include: a) the creation of an on-line based discount brokerage
business to be launched initially in Germany, expanding to other EU countries as
soon as practical; b) the sponsoring of mutual funds for distribution in the
U.S. and in Germany and other EU countries; c) the development of the business
of providing corporate securities financing and distribution services for
companies in the EU; and d) the business of acquiring publication rights to
various magazines, books and other items of interest for translation into German
and other European languages.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements included elsewhere in this report. This discussion contains
forward-looking statements about the Company's business, and actual results may
differ from those anticipated in these forward-looking statements. The
statements depend on certain factors including the successful development of the
Company's financial services and products, and implementation of its business
strategies.
RESULTS OF OPERATIONS
Quarter ended November 30, 1998 compared to quarter ended November 30, 1997
For the three months ended November 30, 1998, the Company reported
operating revenue of $6,036, all of which is attributable to ADAM as investment
advisor to the American Diversified Global Value Fund. Operating expenses for
the quarter ended November 30, 1998 were $2,316,423 compared to $355,409 for the
quarter ended November 30, 1997. Employee compensation and benefits includes a
charge of $517,000, representing vesting of stock options granted, for the
quarter ended November 30, 1998 as compared to none for the quarter ended
November 30, 1997. Additional increases in compensation expense during the
reporting quarter represent the addition of executive management and support
staff to support the anticipated expansion of the Company's business. Travel and
entertainment expense was $107,117 and $37,468 for the quarters ended November
30, 1998 and 1997, respectively. The increase in travel related expense is
primarily attributed to the increased executive management team and business
expansion. Advertising and professional service expenses were $689,259 and
$344,612 as compared to $64,468 and $133,073 for the quarters ended November 30,
1998 and 1997, respectively. The increase of $646,791 and $211,539 for
advertising and professional fees, respectively, was primarily attributable to
initial promotion of the proposed on-line brokerage services of ADAG in Germany,
and professional/consulting services for business and computer development.
Non-operating income of $573,879 in the reporting quarter is
primarily made up of interest and currency translation gain from the receipt of
20,236,667 DM of escrowed funds for the resale of a note receivable in
connection with the original sale of 5,000,000 shares of preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Initial promotional costs associated with the Company's marketing
efforts in Germany and the costs associated with operating ADAG increased the
Company's monthly liquidity requirements substantially. The management of the
Company believes that the Company has adequate resources to continue operations
until the end of the calendar year, however, additional capital will be required
to fully implement all aspects of its business plan. There is no guarantee that
additional capital will be available when the demand arises or that the Company
will be profitable at such time as the Company has fully commenced its
operations.
8
9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Holders of all 5,000,000 shares of Series A Preferred Stock
tendered their shares for conversion into 1,666,611 shares of
common stock of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Changes in Officers and Directors. Effective October 1, 1998 Mr. Roland
Kuettner resigned as CFO/Treasurer of the Company and was replaced by
Mr. Joel Epstein as Executive Vice President, Chief Financial Officer
and Treasurer and Mr. T. Michael Graf was elected Executive Vice
President - Asset Management.
The present officers and directors of the Company are as follows:
Officers Directors
-------- ---------
President/CEO James B. Rea, Jr. Chairman Peter Hartmann
Exec. V.P. - International Development Peter Hartmann Director Tom Corcovelos
Exec. V.P., CFO & Treasurer Joel Epstein Director Thomas H. Fitzgerald
Exec. V.P. - Asset Management T. Michael Graf
Secretary Michael B. Jeffers Director Roland Kuettner
Assistant Secretary Isabel Bautista Director James B. Rea, Jr.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the applicable period.
9
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, therefore duly authorized.
AMDIV.COM, INC.
Date: January 14, 1999 By: /s/ Peter Hartmann
------------------------------------
Peter Hartmann
Chairman of the Board
Date: January 14, 1999 By: /s/ Joel Epstein
-------------------------------------
Joel Epstein
Chief Financial Officer
10
11
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBER DESCRIPTION NUMBERED
- -------------- ----------- ------------
3.1.7 Amendment to Articles of Incorporation, dated 12
December 3, 1998
27.1 Financial Data Schedule 14
11