UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934.
For the quarterly period ended June 30, 2000.
( ) Transition report pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from _________________ to ____________.
Commission File Number: 0-30492
DIVERSIFIED RESOURCES GROUP, INC.
---------------------------------
(Exact name of registrant as specified in charter)
Utah 84-0771180
---- ----------
(State of Incorporation) (I.R.S. Employer I.D. No)
355 Interstate Blvd., Sarasota, Fl 34232
(Address of Principal Executive Offices)
(941) 923-1949
--------------
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 ( )
Indicate the number of shares outstanding of each of the issuer's classes of
stock as of July 15, 2000.
93,237,391 Common Shares
Transitional Small Business Disclosure Format:
YES ( ) NO (X)
1
DIVERSIFIED RESOURCES GROUP, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheet as of December 31, 2000 and June 30, 2000 ............3
Statements of Operations for the three months and
six months ended June 30, 2000 and 1999 ..........................5
Statement of Stockholders' Equity (Deficit) for the six
months ended June 30, 2000........................................7
Statements of Cash Flows for the three and six months ended
June 30, 2000 and 1999 ..........................................10
Notes to Financial Statements .....................................12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................30
Item 2. Changes in Securities..............................................30
Item 3. Defaults Upon Senior Securities....................................30
Item 4. Submission of Matters to a Vote of Securities Holders .............30
Item 5. Other Information..................................................30
Item 6. Exhibits and Reports on Form 8-K...................................30
Signatures ...................................................................31
2
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 28 $ 3,565
Inventory 12,098 14,891
Accounts receivable 2,325 5,571
Prepaid expenses, net - 8,433
Undeposited funds - 1,080
------------ ------------
Total Current Assets 14,451 33,540
------------ ------------
FIXED ASSETS (Note 2)
Computers 41,238 41,238
Test equipment 1,569 1,569
Office equipment 20,380 20,380
Software 32,475 32,475
Accumulated depreciation (89,486) (83,145)
------------ ------------
Net Fixed Assets 6,176 12,517
------------ ------------
OTHER ASSETS
Deposits on land, net (Note 3) - -
------------ ------------
Total Other Assets - -
------------ ------------
TOTAL ASSETS $ 20,627 $ 46,057
============ ============
See Notes to Financial Statements
3
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ - $ 987
Accounts payable - trade 44,143 75,446
Accounts payable - related party (Note 8) 48,660 58,078
Accrued expenses (Note 4) 60,013 94,308
Current portion of long-term debt (Note 7) 19,858 19,858
Notes payable - related party (Note 8) 1,038,332 375,991
------------ ------------
Total Current Liabilities 1,211,006 624,668
------------ ------------
LONG-TERM DEBT (Note 7) 38,088 48,018
------------ ------------
Total Liabilities 1,249,094 672,686
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 1,000,000
shares authorized, -0- shares issued and
outstanding - -
Common stock, $0.001 par value, 100,000,000
shares authorized; 92,075,831 and 92,075,831
issued and outstanding, respectively 93,237 92,076
Additional paid-in capital 6,383,715 6,326,798
Accumulated deficit prior to development stage (4,512,614) (4,512,614)
Accumulated deficit from inception of the
development stage on December 31, 1998 (3,192,805) (2,532,889)
------------ ------------
Total Stockholders' Equity (Deficit) (1,228,467) (626,629)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 20,627 $ 46,057
============ ============
See Notes to Financial Statements
4
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception of the
Development
Stage on
For the For the December 31,
Six Months Ended Three Months Ended 1998 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
--------- -------- --------- --------- -------------
REVENUES
Sales, net $ 42,637 $ - $ 20,734 $ - $ 62,122
Cost of sales 13,213 - 3,308 - 23,519
--------- -------- --------- --------- -------------
Gross Margin 29,424 - 17,426 - 38,603
--------- -------- --------- --------- -------------
OPERATING EXPENSES
General and administrative 150,571 - 77,496 - 602,429
Depreciation and amortization 6,340 - 800 - 29,207
--------- -------- --------- --------- -------------
Total Operating Expenses 156,911 - 78,296 - 631,636
--------- -------- --------- --------- -------------
LOSS FROM OPERATIONS (127,487) - (60,870) - (593,033)
--------- -------- --------- --------- -------------
OTHER INCOME (EXPENSE)
Allowance - land (491,940) - (262,254) - (951,312)
Interest expense (40,489) - (24,695) - (47,639)
Other income - - - - 5,400
--------- -------- --------- --------- -------------
Total Other Income (Expense) (532,429) - (286,949) - (993,551)
--------- -------- --------- --------- -------------
LOSS BEFORE DISCONTINUED
OPERATIONS (659,916) - (347,819) - (1,586,584)
--------- -------- --------- --------- -------------
LOSS FROM DISCONTINUED
OPERATIONS - (417,786) - (430,261) (1,606,221)
--------- -------- --------- --------- -------------
LOSS BEFORE INCOME TAXES (659,916) (417,786) (347,819) (430,261) (3,192,805)
INCOME TAX EXPENSE - - - - -
--------- -------- --------- --------- -------------
NET LOSS $ (659,916) $(417,786) $(347,819) $(430,261) $(3,192,805)
See Notes to Financial Statements
5
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited) (Continued)
From
Inception of the
Development
Stage on
For the For the December 31,
Six Months Ended Three Months Ended 1998 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
--------- -------- -------- -------- ---------------
BASIC LOSS PER SHARE
Loss before discontinued operations $ (0.01) $ - $(0.00) $ -
Discontinued operations - (0.01) - (0.01)
--------- -------- -------- -------- ---------------
BASIC LOSS PER SHARE $ (0.01) $ (0.01) $(0.00) $ (0.01)
========= ======== ======== ======== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 92,701,886 59,274,673 92,165,182 77,304,660
========= ========= ======== ======== ===============
See Notes to Financial Statements
6
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------- ----------- ------------- ------------- --------------
Balance, December 31, 1997 19,091,973 $ 19,092 $ 3,332,971 $ (115,000) $ (9,779,570)
Adjustment for reduction of
subscription price - - (103,500) 103,500 -
Common stock issued for cash
at $0.05 per share 4,707,504 4,708 230,667 - -
Common stock issued for settlement
of debt at $0.05 per share 11,952,380 11,952 585,666 - -
Common stock issued for subscriptions
receivable at $0.05 per share 5,292,496 5,292 259,333 (264,625) -
Net income for the year
ended December 31, 1998 - - - - 5,266,956
------------- ----------- ------------- ------------- --------------
Balance, December 31, 1998 41,044,353 $ 41,044 $ 4,305,137 $ (276,125) $ (4,512,614)
------------- ----------- ------------- ------------- --------------
See Notes to Financial Statements
7
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------- ----------- ------------- ------------- -----------
Balance, December 31, 1998 41,044,353 $ 41,044 $ 4,305,137 $ (276,125) $ (4,512,614)
Receipt of stock subscription
receivable - - - 276,125 -
Common stock issued for services
at $0.031 per share 2,208,400 2,208 66,252 - -
Common stock issued for services
at $0.03 per share 4,390,000 4,390 127,310 - -
Common stock issued for services
at $0.044 per share 242,000 242 10,406 - -
Common stock issued for services
at $0.35 per share 2,031,478 2,032 69,070 - -
Common stock issued for services
at $0.035 per share 840,000 840 28,560 - -
Common stock issued for services
at $0.033 per share 1,880,000 1,880 60,160 - -
Common stock issued for cash,
services and forgiveness of debt
at $0.044 per share 30,439,600 30,440 1,308,903 - -
Common stock issued for services
at $0.04 per share 9,000,000 9,000 351,000 - -
Net (loss) for the year
ended December 31, 1999 - - - - (2,532,889)
Balance, December 31, 1999 92,075,831 92,076 6,326,798 - (7,045,503)
See Notes to Financial Statements
8
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------- ----------- ------------- ------------- -----------
Common stock issued for debt at
$0.05 per share (unaudited) 1,161,560 $ 1,161 $ 56,917 $ - $ -
Net loss for the period
ended June 30, 2000
(unaudited) - - - - (659,916)
------------- ----------- ------------- ------------- -----------
Balance, June 30, 2000
(unaudited) 93,237,391 $ 93,237 $ 6,383,715 $ - $(7,705,419)
See Notes to Financial Statements
9
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception of the
Development
Stage on
For the For the December 31,
Six Months Ended Three Months Ended 1998 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ---------- ---------- ---------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (659,916) $ (417,786) $ (347,819) $(430,261) $(3,192,805)
Adjustments to reconcile net
loss to net cash (used)
in operating activities:
Depreciation and amortization 8,781 14,473 3,240 7,237 34,087
Stock issued for services - 122,347 - 122,347 1,425,300
Stock issued for employment
settlement - 47,179 - 47,179 -
Stock issued for debt 58,078 - 58,078 - 58,078
Allowance of deposits on land 491,940 - 262,254 - 951,312
Stock subscription received by
services and forgiveness - - - - 276,125
Changes in assets and liabilities:
(Increase) decrease in inventory 2,793 200 1,714 20,260 (11,898)
(Increase) decrease in accounts
receivable 3,246 - (1,143) 20,874 (2,325)
Decrease in prepaid expenses 8,433 2,284 899 2,081 3,183
Decrease in other assets 1,080 5,045 - 11,589 5,045
Increase (decrease) in cash
overdraft (987) 9,186 (816) 7,731 (17,481)
Increase (decrease) in accounts
payable (40,720) (65,583) (24,882) (169,953) 8,936
Increase (decrease) in accrued
expenses (34,295) (9,774) (3,769) 173,618 (129,376)
----------- ---------- ---------- ---------- ---------------
Net Cash (Used) by Operating
Activities (161,567) (292,429) (52,244) (187,298) (591,819)
----------- ---------- ---------- ---------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets - (5,000) - (5,000) -
(Increase) in deposits on land (491,940) - (262,254) - (951,312)
----------- ---------- ---------- ---------- ---------------
Net Cash (Used) by Investing
Activities (491,940) (5,000) (262,254) (5,000) (951,312)
----------- ---------- ---------- ---------- ---------------
See Notes to Financial Statements
10
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited) (Continued)
From
Inception of the
Development
Stage on
For the For the December 31,
Six Months Ended Three Months Ended 1998 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
----------- ---------- ---------- ---------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on notes payable -
related parties $ (5,500) $ - $ (5,500) $ - $ (5,500)
Proceeds from notes payable -
related parties 677,600 - 336,414 - 1,053,591
Payments on notes payable (22,130) (12,905) (17,177) (12,905) (57,784)
Collections from related parties - 6,984 - - 6,984
Issuance of common stock for cash - 300,875 - 205,203 543,393
Net Cash Provided by Financing
Activities 649,970 294,954 313,737 192,298 1,540,684
----------- ---------- ---------- ---------- ---------------
Net Increase (Decrease) in Cash (3,537) (2,475) (761) - (2,447)
CASH AT BEGINNING OF PERIOD 3,565 2,475 789 - 2,475
----------- ---------- ---------- ---------- ---------------
CASH AT END OF PERIOD $ 28 $ - $ 28 $ - $ 28
=========== ========== ========== ========== ===============
CASH PAID FOR:
Interest expense $ - $ - $ - $ - $ -
Income taxes $ - $ - $ - $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued in settlement
of debt $ 58,078 $ - $ - $ - $ 148,078
Common stock issued for
subscriptions receivable $ - $ 829,803 $ - $ 829,803 $ -
Common stock issued for fixed asset $ - $ - $ - $ - $ 5,000
Common stock issued for services $ - $ 122,347 $ - $ 122,347 $ 122,347
Common stock issued in settlement
of employment agreement $ - $ 47,179 $ - $ 47,179 $ -
See Notes to Financial Statements
11
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was incorporated under the laws of the State of Utah on
July 31, 1984. The Company has a wholly-owned Delaware subsidiary,
named Data 1, Inc., a wholly-owned subsidiary named Memory 1, Inc., and
a wholly-owned subsidiary named Cordless Power Corporation. The Company
changed its name to Diversified Resources Group, Inc. in May 1999. The
Company has not paid dividends. Dividends that may be paid in the
future will depend on the financial requirements of the Company and
other relevant factors. The Company is considered a development stage
company per SFAS No. 7 because it has not substantially began
operations.
Memory 1, Inc. (Mem 1) was organized February 6, 1996 under the laws of
the State of Florida to engage in the business which includes the
manufacturing and marketing of computer memory devices. During 1999,
the Company discontinued the computer memory business and Mem 1 is
currently inactive.
Cordless Power Corporation was organized April 19, 1999 under the laws
of the State of Florida to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law
of Florida. Cordless Power Corporation is currently engaging in the
business of retailing cellular telephone batteries and accessories.
On May 17, 1999, the shareholders of the Company approved and amended
the Articles of Incorporation to increase the Company's authorized
common shares to 100,000,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has adopted a calendar year
end.
12
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Basic Income (Loss) Per Share
The computation of basic income (loss) per share of common stock is
based on the weighted average number of shares outstanding at the date
of the consolidated financial statements as follows:
For the For the
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
--------- ---------- --------- ---------
Numerator:
Loss before discontinued
operations $ (659,916) $ - $ (347,819) $ -
Discontinued operations $ - $ (417,786) $ - $ (430,261)
Denominator (weighted
average number
of shares outstanding) 92,701,286 59,274,673 92,165,182 77,304,660
Income (loss) per share
Net loss before
discontinued operations $ (0.01) $ - $ (0.00) $ -
Net income (loss)
discontinued operations $ - $ (0.01) $ - $ (0.01)
--------- ---------- --------- ---------
$ (0.01) $ (0.01) $ (0.00) $ (0.01)
Dilutive loss per share is not presented as there are no potentially
dilutive items outstanding.
c. Income Taxes
At June 30, 2000, the Company had a net operating loss carryforward of
approximately $7,700,000 that may be offset against future taxable
income in various years through 2020. No tax benefit has been reported
in the financial statements because the Company believes there is a 50%
or greater chance the carryforward will expire unused. Accordingly, the
potential tax benefits of the loss carryforward are offset by a
valuation allowance of the same amount.
d. Cash Equivalents
The Company considers all highly liquid investments and deposits with a
maturity of three months or less when purchased to be cash equivalents.
13
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer. Sales
primarily require immediate payment or cash on delivery.
f. Restated Consolidated Financial Statements
Prior period consolidated financial statements have been restated to
conform with current consolidated financial statement presentation.
g. Fixed Assets
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated
useful lives of the related assets, primarily from three to seven
years.
h. Principles of Consolidation
The June 30, 2000 consolidated financial statements include those of
the Company and its wholly-owned subsidiaries Data 1, Inc., Memory 1,
Inc., and Cordless Power Corporation. All significant intercompany
accounts and transactions have been eliminated.
i. 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 and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
j. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
14
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which addresses the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 and is not required to be applied retroactively. The
adoption of this statement had no material impact on the Company's
financial statements.
l. Inventory
Inventory is stated at the lower of cost (computed on a first-in,
first-out basis) or market. The inventory consists of cellular
telephone batteries and accessories.
m. Long-Lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Any impairment in value is
recognized as an expense in the period when the impairment occurs.
n. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements include
all of the adjustments which, in the opinion of management, are
necessary for a fair presentation. Such adjustments are of a normal
recurring nature.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
a. Leases
Effective June 30, 1999, the Company terminated its lease for
facilities in Sarasota, Florida it had been leasing on a month-to-month
basis. Lease payments were $1,551 per month. The Company has since
relocated to a facility leased by an affiliate company and pays rent
under a consulting agreement with this company.
15
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Continued)
b. Employment Contracts
Effective August 11, 1996, the Company has entered into 5 year
employment agreements with the President and Chief Financial Officer.
These contracts were terminated in 1999.
On May 31, 1999, the Company and the President and Chief Executive
Officer of the Company entered into a settlement of employment
agreement, wherein, for certain considerations, including his
resignation, he would receive $100,000 plus continued health benefits
payable over a 54 week period. On July 12, 1999, the Company and the
Vice President - Finance and Chief Financial Officer entered into an
identical agreement (Note 4).
c. Real Estate
On July 31, 1999, the Company entered into an agreement whereby it was
assigned the rights to acquire a 607.74 acre tract of undeveloped land
in Wake County, North Carolina from Matheny Development, LLC, ("Matheny
Development"), a North Carolina limited liability controlled by James
M. Matheny, one of the Company's directors for $21,000,000. The
agreement calls for a $100,000 earnest money deposit on signing, with
75% of the $21,000,000 purchase price due in cash at July 31, 1999, and
the remaining 25% balance due in the form of an interest bearing
promissory note. As part of the assignment, the Company agreed to pay
Matheny Development $2,100,000 as liquidated damages if the purchase is
not closed by the due date plus extensions, unless the contract is
breached by Matheny Development. If Matheny Development breaches the
contract, the Company has the option of pursuing all necessary actions
to obtain specific performance by Matheny Development or to assign the
contract to Matheny Development and pay liquidated damages of
$2,100,000. The assignment also provides that the Company pay a
non-refundable extension fee of $76,562 per month to extend the
contract beyond the July 31, 1999 closing date. The Company has paid
$951,312 in extension payments as of December 31, 1999 and has extended
the agreement through August 2000.
An allowance of $951,312 has been set up against these land deposit
payments due to uncertainty of the Company being able to finance the
transaction by the August 2, 2000 due date.
16
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Continued)
d. Consulting Fee Agreement
On July 7, 1999, the Company entered into a consulting fee agreement
with United Funding Solutions, Inc. (United) wherein the Company would
pay United $100,000 per year for 5 years. Additionally, the Company
issued United 10,000,000 shares of common stock valued at the trading
price of $0.032 per share, or $32,000. Pursuant to the agreement, the
Company could be required to issue up to 90,000,000 additional shares
of common stock. The stock would be issued at a formula of one share
for each dollar of gross profit earned by the Company.
NOTE 4 - ACCRUED EXPENSES
The Company's accrued expenses is comprised of the following items:
June 30, December 31,
2000 1999
Accrued directors fees $ 10,000 $ 4,000
Settlement agreement - former CFO 6,923 48,402
Settlement agreement - former President - 34,615
Accrued interest payable 42,805 7,150
Other 285 141
--------- ---------
Total $ 60,013 $ 94,308
============ ============
The settlement agreements for the former President and CFO call for
bi-weekly payments of $3,462 to be made to each party until paid in
full. During the six months ended June 30, 2000, the Company paid all
amounts due to its former President.
NOTE 5 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has incurred
losses from its inception through March 2000. Management intends to
restructure its product lines to generate desired levels of revenues
and profit as it emerges from the bankruptcy proceedings discussed in
Note 10.
Management intends to restructure its product lines to generate desired
levels of revenues and profit as it emerges from bankruptcy
proceedings.
17
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 5 - GOING CONCERN (Continued)
The company's cellular telephone battery and accessory project has
proven to lack significant enough profit margins to support a
significant distribution system and as a result is being de-emphasized.
The most promising area is real estate operations. The Company is
pursuing a strategy of closing on real estate without a significant
down payment and relying on parcel sales to cover interest, development
costs and shortfalls in operations. In the event the Company is unable
to close on the land it faces significant penalties.
The Company is also pursuing a highly speculative and uncertain
acquisition. The Company estimates it would need between $2 and $5
million to complete the acquisition, $2.5 million for real estate and
$1 million for overhead and battery and cellular telephone accessory
operations.
Until the Company can generate sufficient funding or revenues to meet
these needs, management and shareholders are committed to meeting the
minimum operating needs of the Company.
18
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 6 - LOSS FROM DISCONTINUED OPERATIONS
During September 1999, the Board of Directors of the Company decided to
discontinue the business that includes the manufacturing and marketing
of computer memory devices due to falling margins in the industry. The
following is a summary of the loss from discontinued operations:
From
Inception of the
Development
Stage on
For the For the December 31,
Six Months Ended Three Months Ended 1998 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
---------- ----------- ---------- ----------- -------------
REVENUES
Sales, net $ - $ 19,595 $ - $ 20,630 $ 19,595
Cost of sales - 20,356 - 20,373 20,292
---------- ----------- ---------- ----------- -------------
Gross Margin - (761) - 257 (697)
---------- ----------- ---------- ----------- -------------
EXPENSES
General and administrative - 195,048 - 131,709 1,473,580
Depreciation and amortization - 14,473 - 7,237 -
---------- ----------- ---------- ----------- -------------
Total Expenses - 209,521 - 138,946 1,473,580
---------- ----------- ---------- ----------- -------------
LOSS FROM OPERATIONS - (210,282) - (138,689) (1,474,277)
---------- ----------- ---------- ----------- -------------
OTHER INCOME (EXPENSE)
Interest expense - (6,729) - (3,365) (5,694)
Other income - 5,400 - 1,024 -
Other expense - (306,175) - (289,231) (226,250)
---------- ----------- ---------- ----------- -------------
Total Other Income (Expense) - (307,504) - (291,572) (231,944)
LOSS BEFORE
REORGANIZATION ITEMS - (517,786) - (430,261) (1,706,221)
---------- ----------- ---------- ----------- -------------
19
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 6 - LOSS FROM DISCONTINUED OPERATIONS (continued)
During September 1999, the Board of Directors of the Company decided to
discontinue the business that includes the manufacturing and marketing
of computer memory devices due to falling margins in the industry. The
following is a summary of the loss from discontinued operations:
From
Inception of the
Development
Stage on
For the For the December 31,
Six Months Ended Three Months Ended 1998 Through
June 30, June 30, June 30,
2000 1999 2000 1999 2000
---------- ----------- ---------- ----------- -------------
REORGANIZATION ITEMS
Gain on restructuring of debt - 100,000 - - 100,000
---------- ----------- ---------- ----------- -------------
Total Income from
Reorganization Items - 100,000 - - 100,000
---------- ----------- ---------- ----------- -------------
LOSS BEFORE INCOME TAXES - (417,786) - (430,261) (1,606,221)
INCOME TAX EXPENSE - - - - -
---------- ----------- ---------- ----------- -------------
NET LOSS $ - $ (417,786) $ - $ (430,261) $ (1,606,221)
========== ========== ========== ========== ============
No income tax benefit has been attributed to the loss from discontinued
operations.
20
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 7 - LONG-TERM DEBT
Long term debt at June 30, 2000 and December 31, 1999 consisted of the
following:
June 30, December 31,
2000 1999
Various notes payable given in settlement -------- -----------
of accounts payable, non-interest bearing,
quarterly payments of $7,405, unsecured. $57,946 $67,876
Less current maturities (19,858) (19,858)
-------- ------------
Long-term debt $38,088 $48,018
======== ============
Aggregate maturities required on long-term debt at March 31, 2000 and
December 31, 1999 are as follows:
Year Amount Amount
2000 $ 19,858 $ 19,858
2001 19,858 19,858
2002 18,230 19,858
2003 - 8,302
------------ ------------
Total $ 57,946 $ 67,876
============ ============
This amount represents notes issued under the bankruptcy proceedings
discussed in Note 10 as payment for certain amounts due as provided for
in the Company's Plan of Reorganization. The notes are non-interest
bearing, interest has been imputed at 8% per annum.
The balances are shown net of a discount of $30,909. Amortization of
the discount amounted to $2,440 and $5,694 at, June 30, 2000 and
December 31, 1999, respectively.
21
NOTE 8 - RELATED PARTY TRANSACTIONS
Notes Payable
Tampa Bay Financial, Inc., a related party, loaned the Company $667,840
and $375,791 during the six months ended June 30, 2000 and the year
ended December 31, 1999, respectively. The notes are payable on demand
and accrue interest at 10% per annum, unsecured. Interest expense
amounted to $35,609 and $7,150 at June 30, 2000 and December 31, 1999,
respectively.
An officer loaned the Company $200 during 1999. The note is payable on
demand and accrues interest at 10% per annum, unsecured. Interest
expense amounted to $10 and $-0- at June 30, 2000 and December 31,
1999, respectively.
Accounts Payable
The Company owes $47,950 to Tampa Bay Financial, Inc., a related party,
for professional and consulting services performed during the three
months ended June 30, 2000 and December 31, 1999, respectively.
Common Stock
the Company issued 1,161,560 shares of common stock on April 7, 2000
for repayment of $58,058 due to Tampa Bay Financial, a related party,
for professional fees and expense paid on behalf of the Company that
were incurred and accrued during the year ended December 31, 1999.
NOTE 9 - STOCK SUBSCRIPTION RECEIVABLE
Stock subscriptions receivable at December 31, 1998 included amounts
of $6,250 and $5,250 which represented notes given to the Company as
consideration for stock options exercised by the President and Chief
Executive Officer, and the Vice President - Finance and Chief
Financial Officer, respectively. The balance of $264,625 represented
an amount subscribed to by a related party to provide working capital
to the Company while the Company was emerging from the bankruptcy
proceedings discussed in Note 10. The notes due from the two officers
were liquidated in the settlement of employment contracts, and the
amount subscribed to by the related party was received in the form of
services performed during 1999.
22
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - REORGANIZATION ITEMS
On September 24, 1997, Data 1, Inc. (the "Debtor") filed a petition
for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Middle District of Florida,
Tampa Division, Case No.: 97-15827-8P1. Under Chapter 11, certain
claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed
while the Debtor continues business operations as
debtor-in-possession. These claims are reported in the December 31,
1997 balance sheet as "liabilities subject to compromise." Claims
secured against the Debtor's assets ("secured claims") also are
stayed, although the holders of such claims have the right to move the
Court for relief from the stay. There are no secured claims.
On June 19, 1998, the bankruptcy court entered a final order
confirming the plan of reorganization. The order provided that the
creditors could settle their prepetition claims pursuant to three
options. Option 1 provided for a note payable of 10% of the allowed
claim payable in 17 quarterly payments beginning May 1, 1999. Option 2
provided for a combination of a note payable for 5% of the allowed
claim and shares of common stock for 5% of the allowed claim. Option 3
provided for shares of common stock for 10% of the allowed claim.
Pursuant to the confirmed plan, the Company issued notes payable
totaling $235,879 with a net present value of $194,395, and issued
11,952,380 shares valued at $597,618 pursuant to the options available
to the creditors.
The Company recognized a gain on restructuring of debt of $5,956,183
in 1998.
NOTE 11 - DEVELOPMENT STAGE COMPANY
The Company essentially has reverted to the status of a startup
company as it emerged from the bankruptcy proceedings discussed in
Note 10 and will be considered to be a development stage company as it
commences its planned principal operations of retailing cellular
telephone batteries and accessories and real estate development.
NOTE 12 - STOCK ISSUANCES
During March 1999, the Company issued 2,208,400 shares of its
previously authorized, but unissued, common stock for services valued
at $68,460, or $0.031 per share.
During April 1999, the Company issued 4,390,000 shares of its
previously authorized but unissued common stock for services valued at
$131,700, or $0.03 per share.
23
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 12 - STOCK ISSUANCES (continued)
During May 1999, the Company issued 242,000 shares of its previously
authorized, but unissued, common stock for services valued at $10,648,
or $0.044 per share.
During June 1999, the Company issued 2,871,478 shares of its
previously authorized, but unissued, common stock for services valued
at $100,502, or $0.035 per share.
During June 1999, the Company issued 840,000 shares of its previously
authorized, but unissued, common stock for services valued at $29,400
or $0.035 per share.
During June 1999, the Company issued 1,880,000 shares of its
previously authorized, but unissued, common stock for services valued
at $62,040, or $0.033 per share.
During July 1999, the Company issued 30,439,600 shares of its
previously authorized, but unissued, common stock for services valued
at $691,949, cash of $543,393, property of $5,000 and debt of $99,000,
or $0.044 per share.
During December 1999, the Company issued 9,000,000 shares of its
previously authorized, but unissued, common stock for services valued
at $360,000, or $0.04 per share.
During April 2000, the Company issued 1,161,560 shares of its
previously authorized, but unissued, common stock for services and
expenses valued at $58,058, or $0.05 per share.
Stock issuances for services and debt during 1999 were valued at the
trading price on the dates of issue.
NOTE 13 - LEGAL PROCEEDINGS
The United States Securities and Exchange Commission ("SEC") has
entered a formal order of investigation styled as "In the matter of
Diversified Resources Group, Inc. (NY/6573)." On or about September
30, 1999, the Company received a subpoena duces teum requesting that
the Company provide the Northeast Regional Office of the SEC with
various documents regarding past, present and intended business
operations, financial statements and underlying financial records,
prior news releases, and other documentation. The Company has provided
the documentation requested and has and intends to continue to fully
cooperate with this formal order of investigation.
24
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 14 - SUBSEQUENT EVENTS
During July 2000, the Company signed a note payable with Sagedale Farms, LLC in
the amount of $1,500,000. The note accrues interest at the rate designated by
Wachovia Bank and interest is to be paid in monthly installments beginning
August 7, 2000, and continuing until July 7, 2001, when the remaining interest
and principal are due in full.
The remainder of this page intentionally left blank.
25
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
OVERVIEW
The following discussion and analysis should be read in conjunction with the
balance sheet as of June 30, 2000 and the financial statements as of and for the
three and six months ended June 30, 2000 and 1999 included with this Form
10-QSB.
We are considered to be in the development stage as defined in Financial
Accounting Standards Board Statement No. 7, and we are currently in the process
of creating strategic relationships and acquiring complementary operating
companies within the electronic components industry that have proven management
and state-of-the-art technologies.. The results of operations for the six months
ended June 30, 2000 are not necessarily indicative of the results for any future
interim period or for the year ending December 31, 2000. We hope to expand upon
obtaining capital and financing for our operations. We anticipate that these
expenses will continue to increase as our business is expanded in the future,
and further anticipates that these expenses will continue to be incurred in
advance of projected revenue.
Readers are referred to the cautionary statement, which addresses
forward-looking statements made by the Company.
RESULTS OF OPERATIONS
The results of operations for the three months and six months ended June 30,
2000 are not necessarily indicative of the results for any future interim period
or for the year ending December 31, 2000. In particular, we have closed Data 1,
Inc., our computer memory operation in the summer of 1999. We expect to
reinvigorate the Company by obtaining capital, selling off real estate
operations to raise additional cash, to be used for financing for current
operations and our acquisitions currently under review. We anticipate that
operating expenses will continue to increase as our business is expanded in the
future, and further anticipate that these expenses will continue to be incurred
in advance of projected revenue.
Quarter Ended June 30, 2000 and 1999
We incurred a net loss of approximately $(347,819) for the quarter ended June
30, 2000 as compared with a net loss of $(430, 261) for the quarter ended June
30, 1999.
Our sales and cost of sales for the three months ended June 30, 2000, were
$20,734 and $ 3,308 compared to $-0- and $-0- in the corresponding quarter of
the prior year when there were no battery operations. Although there were
improvements compared to previous quarter resulting from a change in suppliers
that increased profitability, this improvement was not sufficient to bring us to
profitability without a significant increase in sales. We incurred $3,020 of
26
advertising costs for Cordless Power during the three months ended June 30,
2000. No amounts were expended in the prior year since our operations did not
commence until the second half of 1999. During the three months ended June 30,
2000, we had 58,855 page views ("hits") and 23,085 daily unique visitors
("visits") to our web site. This was a 50% reduction in the number of visits and
a 58% reduction in the number of hits from the previous quarter. We attributed
this reduction in the effectiveness of our advertising due to increasing
competition, including competition from our current and former suppliers, and
the improved focus of the advertising dollar is evidenced try an improved
closing rate. We sold 697 batteries in the second quarter of 2000; a closing
rate of 3% of visits, and total revenue was stable. We sold 717 batteries in the
first quarter of 2000, which represented a closing rate of 2%.
Our operating expenses consist primarily of general and administrative expenses
and depreciation and amortization. General and administrative expenses increased
to $77,496 for the quarter ended June 30, 2000 compared to $-0- in the quarter
ended June 30, 1999, when expenses were charged to the discontinued memory
operations segment. General and administrative expenses principally consist of
payroll and related taxes; professional fees for consulting, business
development, legal and accounting; office supplies expense; travel expense and
organizational costs. Most of these expense are attributable to overhead costs
associated with our headquarters and operations center, and the additional
expenses related to real estate consultant services, and expenses incurred in
the due diligence process of evaluating Virotest, Inc., a potential acquisition
which we have decided not to pursue. Salaries and commissions, which consisted
entirely of consulting payments to United Funding Solutions, Inc.for the three
months ended June 30, 2000, were $25,000.
Depreciation and amortization expense was $800 for the three month period ending
June 30, 2000, compared with $7,237 three month period ended June 30, 1999.
Prior year amounts were included in income (loss) from discontinued operations.
Interest expense was $24,695 during the three months and three months period
ended June 30, 2000 compared to $-0- in the corresponding period of the prior
fiscal year,which were from discontinued operations. Interest expense related
primarily to debt undertook to settle with creditors arising from our bankruptcy
and debt incurred to fund rest estate operations. We did not incur any
significant interest income or expense and did not capitalize any interest.
Six Months Ended June 30, 2000 and 1999
We incurred a net loss of approximately $659,916 for the six months ended June
30, 2000 as compared with a net loss of $417,786 for the six months ended June
30, 1999.
Our sales and cost of sales for the six months and three months ended June 30,
2000, were $42,637 and $13,217 compared to $-0- and $-0- in the corresponding
period of the prior year when battery operations had not commenced yet. Although
there were improvements resulting from a change in suppliers that increased
profitability, this improvement was not sufficient to bring us to profitability
without a significant increase in sales.
27
Our operating expenses consist primarily of general and administrative expenses
and depreciation and amortization. General and administrative expenses increased
to $150,271 for the six months ended June 30, 2000 from $-0- for the six months
ended June 30, 1999 (when all expenses were charged to discontinued memory
operations), and principally includes payroll and related taxes; professional
fees for consulting, business development, legal and accounting; office supplies
expense; travel expense and organizational costs. Most of these expense are
attributable to overhead costs associated with our headquarters and operations
center, and the additional expenses related to real estate consultant services,
and expenses incurred in the due diligence process of evaluating Virotest, an
acquisition which we have decided not to pursue. Salaries and commissions, which
consisted entirely of consulting payments to United Funding (a related party)
for the six months ended June 30, 2000, were $50,000.
Other Expenses
The allowance for loss on real estate increased to $951,312 as of June 30, which
represents the entire amount invested. This increase was due to the increased
expenditures into the Falls River Land Development, which is being reserved
since there is no assurance as to the recoverability of Our investment. We have
made all required payments under the contract and related extension agreements.
Depreciation and Amortization
Depreciation and amortization expense includes charges relating to depreciation
of property and equipment, which consist principally of shipping equipment such
as switches and points of presence, furniture and equipment, leasehold
improvements, and amortization of intangible assets should they arise. We
depreciate our equipment over periods ranging from five (5) to seven (7) years
and amortize our intangible assets over periods ranging from three (3) to
twenty-five (25) years.
Depreciation and amortization expense was $6,346 for the six month period ending
June 30, 2000, compared with $14,473 for the six month period ended June 30,
1999. Prior year amounts were included in income (loss) from discontinued
operations.
Interest
Interest expense was $81,664 and $4l,766 during the six month period ended June
30, 2000 compared to $-0- in both corresponding periods of the prior fiscal
year. Interest expense related primarily to debt undertook to settle with
creditors arising from our bankruptcy and debt incurred to fund rest estate
operations. We did not incur any significant interest income or expense and did
not capitalize any interest.
Inflation and Deflation
We do not believe that either inflation or deflation will have a significant
effect on operations for the foreseeable future.
Market Risk Exposure
With the cessation of the Cordless Power battery business, We may be subject to
limited indirect foreign currency exchange rate risk relating to payments to
suppliers. However, we do not consider the market risk exposure relating to
foreign currency exchange to be or to have been material.
28
Financial Position, Liquidity and Capital Resources
Our operating requirements have exceeded our cash flow from operations as we
struggle to build a successful operating business. Operating activities during
the six months ended June 30, 2000 used cash of $161,567. Operating activities
were primarily funded through related party advances. In addition to our
operating requirements we have invested close to $500,000 in the Falls River
Land Development during 2000. These amounts were funded by Tampa Bay Financial,
Inc., a related party.
Due to the need for working capital, we will continue to seek additional debt
and/or equity financing from existing shareholders and other investment capital
resources, however, no assurance can be given that we will be able to obtain
other commitments. We will require the proceeds of this and subsequent offerings
to expand our operations and finance our future working capital requirements.
Based upon our current plans and assumptions relating to our business plan, we
anticipate that we may need to seek additional financing to fund our proposed
acquisition strategy. After the end of the quarter, we were able to borrow
$1,250,000 from Sagedale Farms, LLC, a North Carolina company to defray some of
our costs in the Falls River Land Development. We hope to sell the Falls River
project after the end of the quarter, after which we believe we will be able to
pay off existing debts and have a capital base to begin pursuing acquisitions in
early 2001.
CAUTIONARY STATEMENT
This Form 10-QSB, press releases and certain information provided periodically
in writing or orally by the Company's officers or its agents contain statements
which constitute forward-looking statements within the meaning of Section 27A of
the Securities Act, as amended and Section 21E of the Securities Exchange Act of
1934. The words expect, anticipate, believe, goal, plan, intend, estimate and
similar expressions and variations thereof if used are intended to specifically
identify forward-looking statements. Those statements appear in a number of
places in this Form 10-QSB and in other places, particularly, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things: (i)
the Company's liquidity and capital resources; (ii) the Company's financing
opportunities and plans and (iii) the Company's future performance and operating
results. Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The factors that might cause such differences include, among others,
the following: (i) any material inability of the Company to successfully
identify, consummate and integrate the acquisition of radio stations at
reasonable and anticipated costs to the Company; (ii) any material inability of
the Company to successfully internally develop its products; (iii) any adverse
effect or limitations caused by Governmental regulations; (iv) any adverse
effect on the Company's continued positive cash flow and abilities to obtain
acceptable financing in connection with its growth plans; (v) any increased
competition in business; (vi) any inability of the Company to successfully
conduct its business in new markets; and (vii) other risks including those
identified in the Company's filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly update or revise the forward
looking statements made in this Form 10-QSB to reflect events or circumstances
after the date of this Form 10-QSB or to reflect the occurrence of unanticipated
events.
29
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Securities Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.09 Promissory Note between the Company and Sagedale Farms,
LLC.
(b) None
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
February 20, 2001 /s/ Carl Smith
- -------------------------------- ------------------------------
Date Carl Smith, Chief Executive Officer
31