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 September 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 34240
(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 December 14, 2000.
94,437,391 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 September 30, 2000 .......3
Statements of Operations for the three aand nine months
ended September 30, 2000 and 1999 ................................5
Statement of Stockholders' Equity (Deficit) for the nine
months ended September 30, 2000...................................6
Statements of Cash Flows for three and nine months ended
September 30, 2000 and 1999 ......................................8
Notes to Financial Statements .....................................10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...........................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................24
Item 2. Changes in Securities..............................................24
Item 3. Defaults Upon Senior Securities....................................24
Item 4. Submission of Matters to a Vote of Securities Holders..............24
Item 5. Other Information..................................................24
Item 6. Exhibits and Reports on Form 8-K...................................24
Signatures....................................................................25
2
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 1,129 $ 3,565
Inventory, net - 14,891
Accounts receivable 14 5,571
Prepaid expenses 186,954 8,433
Undeposited funds - 1,080
------------ ------------
Total Current Assets 188,097 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 (90,504) (83,145)
------------ ------------
Net Fixed Assets 5,158 12,517
------------ ------------
OTHER ASSETS
Deposits on land, net (Note 3) - -
------------ ------------
Total Other Assets - -
------------ ------------
TOTAL ASSETS $ 193,255 $ 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)
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ - $ 987
Accounts payable - trade 37,783 75,446
Accounts payable - related party (Note 8) - 58,078
Accrued expenses (Note 4) 83,841 94,308
Current portion of long-term debt (Note 7) 19,858 19,858
Notes payable - related party (Note 8) 1,250,829 375,991
------------ ------------
Total Current Liabilities 1,392,311 624,668
------------ ------------
LONG-TERM DEBT (Note 7) 33,114 48,018
------------ ------------
Total Liabilities 1,425,425 672,686
------------ ------------
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; 94,437,391 and 92,075,831 issued and
outstanding, respectively 94,437 92,076
Additional paid-in capital 6,632,515 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 (3,446,508) (2,532,889)
------------ ------------
Total Stockholders' Equity (Deficit) (1,232,170) (626,629)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 193,255 $ 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,
Nine Months Ended Three Months Ended 1998 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
------------ ------------ --------- ---------- -------------
REVENUES
Sales, net $ - $ - $ - $ - $ -
Cost of sales - - - - -
------------ ------------ --------- ---------- -------------
Gross Margin - - - - -
------------ ------------ --------- ---------- -------------
OPERATING EXPENSES
General and administrative 82,924 - 4,567 - 543,470
Depreciation and amortization 14,815 - 3,459 - 14,815
------------ ------------ --------- ---------- -------------
Total Operating Expenses 97,739 - 8,026 - 558,285
------------ ------------ --------- ---------- -------------
LOSS FROM OPERATIONS (97,739) - (8,026) - (558,285)
------------ ------------ --------- ---------- -------------
OTHER INCOME (EXPENSE)
Allowance - land (701,694) (459,372) (209,754) (229,686) (1,161,066)
Interest expense (81,644) - (41,776) - (88,394)
Other income 13,975 - 13,975 - 13,975
------------ ------------ --------- ---------- -------------
Total Other Income (Expense) (769,363) (459,372) (237,555) (229,686) (1,235,485)
------------ ------------ --------- ---------- -------------
LOSS BEFORE DISCONTINUED
OPERATIONS (867,102) - (245,581) - (1,793,770)
LOSS FROM DISCONTINUED
OPERATIONS (46,517) (730,905) (8,122) (542,805) (1,652,738)
------------ ------------ --------- ---------- -------------
LOSS BEFORE INCOME TAXES (913,619) (730,905) (253,703) (542,805) (3,446,508)
INCOME TAX EXPENSE - - - - -
------------ ------------ --------- ---------- -------------
NET LOSS $ (913,619) $ (1,190,277) $(253,703) $(772,491) $(3,446,508)
============ ============ ========= ========== =============
BASIC LOSS PER SHARE
Loss before discontinued
operations $ (0.01) $ (0.01) $ (0.00) $ (0.00)
Discontinued operations (0.00) (0.01) (0.00) (0.01)
------------ ------------ --------- ----------
BASIC LOSS PER SHARE $ (0.01) $ (0.02) $ (0.00) $ (0.01)
============ ============ ========= ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 92,889,820 71,589,263 93,328,695 79,544,660
============ ============ ========= ==========
See Notes to Financial Statements
5
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)
------------ --------- ----------- ------------ -----------
6
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)
Common stock issued for debt at
$0.05 per share (unaudited) 1,161,560 1,161 56,917 - -
Common stock issued for cash at
$0.21 per share (unaudited) 1,200,000 1,200 248,800 - -
Net loss for the period
ended September 30, 2000
(unaudited) - - - - (913,619)
------------ --------- ----------- ------------ -----------
Balance, September 30, 2000
(unaudited) 94,437,391 $ 94,437 $ 6,632,515 $ - $(7,959,122)
============ ========= =========== ============ ===========
See Notes to Financial Statements
7
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,
Nine Months Ended Three Months Ended 1998 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------- ---------- ----------- ---------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (913,619) $(1,190,277) $ (253,703) $(772,491) $(3,446,508)
Adjustments to reconcile net loss
to net cash (used) in operating
activities:
Depreciation and amortization 14,679 21,710 3,458 7,237 37,546
Stock issued for services - 691,408 - 566,921 1,425,300
Stock issued for employment
settlement - 67,039 - - -
Stock issued for debt 58,078 - - - 58,078
Allowance of deposits on land 701,694 - 209,754 - 1,161,066
Stock subscription received by
services and forgiveness - - - - 276,125
Changes in assets and liabilities:
(Increase) decrease in inventory 14,891 (6,881) 12,098 (7,081) 200
(Increase) decrease in accounts
receivable 5,557 - 2,311 - (14)
(Increase) decrease in prepaid
expenses (178,521) 7,329 (186,954) - (190,765)
(Increase) decrease in other
assets 1,080 - - (5,054) 5,045
Increase (decrease) in cash
overdraft (987) (17,481) - (26,667) (17,481)
Increase (decrease) in accounts
payable (95,740) (38,138) (55,020) 27,345 (46,085)
Increase (decrease) in accrued
expenses (10,467) (57,264) 23,828 (47,490) (105,548)
---------- ---------- ----------- ---------- ---------------
Net Cash (Used) by Operating
Activities (403,355) (522,555) (244,228) (257,271) (843,041)
---------- ---------- ----------- ---------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets - (5,500) - (500) (5,500)
(Increase) in deposits on land (701,694) (229,686) (209,754) (229,686) (1,161,066)
---------- ---------- ----------- ---------- ---------------
Net Cash (Used) by Investing Activities (701,694) (235,186) (209,754) (230,186) (1,166,566)
---------- ---------- ----------- ---------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on notes payable -
related parties (1,292,300) - (1,277,039) - (1,272,303)
Proceeds from notes payable -
related parties 917,138 - 239,538 - 1,293,129
Proceeds from notes payable 1,250,000 - 1,250,000 - 1,250,000
Payments on notes payable (22,225) (121,445) (7,416) (106,145) (65,200)
Collections from related parties - 6,984 - - 6,984
Issuance of common stock for cash 250,000 918,518 250,000 642,393 793,393
---------- ---------- ----------- ---------- ---------------
Net Cash Provided by Financing
Activities $1,102,613 $ 804,057 $ 455,083 $ 536,248 $ 2,006,003
---------- ---------- ----------- ---------- ---------------
See Notes to Financial Statements
8
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception of the
Development
Stage on
For the For the December 31,
Nine Months Ended Three Months Ended 1998 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------- ---------- ----------- ---------- ---------------
Net Increase (Decrease) in Cash $ (2,436) $ 46,316 $ 1,101 $ 48,791 $ (3,604)
CASH AT BEGINNING OF PERIOD 3,565 2,475 28 - 2,475
---------- ---------- ----------- ---------- ---------------
CASH AT END OF PERIOD $ 1,129 $ 48,791 $ 1,129 $ 48,791 $ 1,129
========== ========== =========== ========== ===============
CASH PAID FOR:
Interest expense $ 43,158 $ - $ 43,158 $ - $ 43,158
Income taxes $ - $ - $ - $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued in settlement
of debt $ 58,078 $ - $ - $ - $ 148,078
Common stock issued for fixed asset $ - $ - $ - $ - $ 5,000
Common stock issued for services $ - $ 691,408 $ - $ 331,846 $ 1,425,300
Common stock issued in settlement of
of employment agreement $ - $ 67,039 $ - $ - $ -
See Notes to Financial Statements
9
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 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 was
dissolved.
Cordless Power Corporation (CPC) 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. CPC was engaging in the business of retailing cellular
telephone batteries and accessories. During July 2000, the Company
discontinued the retailing of cellular telephone batteries and
accessories and CPC was dissolved.
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.
10
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 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
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- -------------- ----------- ------------
Numerator:
Loss before discontinued
operations $ (867,102) $ (459,372) $ (245,581) $ (229,686)
Discontinued operations $ (46,517) $ (730,905) $ (8,122) $ (542,805)
Denominator (weighted
average number
of shares outstanding) 92,889,820 71,589,263 93,328,695 79,544,660
Income (loss) per share
Net loss before
discontinued operations $ (0.01) $ (0.01) $ (0.00) $ (0.00)
Net income (loss)
discontinued operations $ (0.00) $ (0.01) $ (0.00) $ (0.01)
$ (0.01) $ (0.02) $ (0.00) $ (0.01)
============= ============== =========== ==============
Dilutive loss per share is not presented as there are no potentially
dilutive items outstanding.
c. Income Taxes
At September 30, 2000, the Company had a net operating loss
carryforward of approximately $7,960,000 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.
11
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 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 September 30, 2000 consolidated financial statements include those
of the Company and its wholly-owned subsidiary, 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.
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.
12
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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
13
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Continued)
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 $1,161,066 in extension payments as
of September 30, 2000 and has extended the agreement through November
2000.
An allowance of $1,161,066 has been set up against these land deposit
payments due to uncertainty of the Company being able to finance the
transaction by the November 2, 2000 due date.
d. Consulting Fee Agreement
On July 7, 1999, the Company's wholly-owned subsidiary, CPC, 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.
During July 2000, the Company discontinued the operations of CPC. As a
result, the Company has ceased paying consulting fees to United and has
issued a letter terminating the consulting agreement. Management
believes this will effectively terminate the agreement and absolve the
Company of any further obligation.
NOTE 4 - ACCRUED EXPENSES
The Company's accrued expenses is comprised of the following items:
September 30, December 31,
2000 1999
------------- ------------
Accrued directors fees $13,000 $ 4,000
Settlement agreement - former CFO - 48,402
Settlement agreement - former President - 34,615
Accrued interest payable 40,358 7,150
Accrued finance fees 31,500 -
Other 4 141
------------- ------------
Total $84,862 $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 nine months ended September 30, 2000, the Company paid
all amounts due to its former President and CFO.
14
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 4 - ACCRUED EXPENSES (continued)
During July 2000, the Company issued a note payable for $1,250,000 and
as consideration is required to present to the holder a certificate
evidencing a prepaid hotel suite at the Charlotte Motor Speedway for
three Winston Cup events for each of the next five years after
completion of the building of a hotel. Management estimates the value
of the suite to be $300 per night for seven nights, for 3 events, for
five years, or $31,500. Due to the uncertainty of the building of the
hotel, the entire $31,500 has been expensed in the current period.
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 September 2000. The Company does not
have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern.
The company's cellular telephone battery and accessory project has
proven to lack significant enough profit margins to support a
distribution system and as a result has been discontinued. The most
promising area is real estate operations. The Company has entered into
discussions to sell its interest in property (see Note 3c) and
37,500,000 shares of common stock to Matheny Development, a related
party, for forgiveness of $1,250,000 in debt due under the original
assignment, the authorization of forgiveness of one-third of the
$1,250,000 in debt due Sagedale Farms, LLC, $1,000,000 cash,
reimbursement for $1,161,066 in amounts advanced for the property and
waiver of all future fees. These amounts are expected to be collected
in November 2000. The proceeds will be used pay off liabilities and to
cover operating expenses for the next 12 months.
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish the plan described above
and eventually entice acquisition candidates. The financial statements
do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
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.
During July 2000, the Board of Directors decided to discontinue the
business of its wholly-owned subsidiary, Cordless Power Corporation,
due to lack of sufficient profit margins to cover expenses. The
following is a summary of the loss from discontinued operations from
each of these events:
15
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
From
Inception of the
Development
Stage on
For the For the December 31,
Nine Months Ended Three Months Ended 1998 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------- ---------- ----------- ---------- ---------------
REVENUES
Sales, net $ 42,954 $ 20,378 $ 317 $ 783 $ 62,549
Cost of sales 13,432 20,613 219 257 33,724
---------- ---------- ----------- ---------- ---------------
Gross Margin 29,522 (235) 98 526 28,825
---------- ---------- ----------- ---------- ---------------
EXPENSES
General and administrative 56,908 498,091 8,220 532,729 1,559,313
Depreciation and amortization - 21,710 - 7,237 -
---------- ---------- ----------- ---------- ---------------
Total Expenses 56,908 519,801 8,220 539,966 1,530,488
---------- ---------- ----------- ---------- ---------------
LOSS FROM OPERATIONS (27,386) (520,036) (8,122) (539,440) (1,501,663)
---------- ---------- ----------- ---------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (1,021) (10,094) - (3,365) (6,715)
Other income - 5,400 - - -
Other expense (18,110) (206,175) - - (244,360)
---------- ---------- ----------- ---------- ---------------
Total Other Income (Expense) (19,131) (210,869) - (3,365) (251,075)
LOSS BEFORE REORGANIZATION ITEMS (46,517) (730,905) (8,122) (542,805) (1,752,738)
---------- ---------- ----------- ---------- ---------------
REORGANIZATION ITEMS
Gain on restructuring of debt - - - - 100,000
---------- ---------- ----------- ---------- ---------------
Total Income from Reorganization Items - - - - 100,000
---------- ---------- ----------- ---------- ---------------
LOSS BEFORE INCOME TAXES (46,517) (730,905) (8,122) (542,805) (1,652,738)
INCOME TAX EXPENSE - - - - -
---------- ---------- ----------- ---------- ---------------
NET LOSS $ (46,517) $ (730,905) $ (8,122) $ (542,805) $ (1,652,738)
========== ========== =========== ========== ===============
No income tax benefit has been attributed to the loss from discontinued
operations.
16
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 7 - LONG-TERM DEBT
Long term debt at September 30, 2000 and December 31, 1999 consisted of
the following:
September 30, December 31,
2000 1999
------------ ------------
Various notes payable given in settlement
of accounts payable, non-interest bearing,
quarterly payments of $7,405, unsecured. $52,972 $67,876
Less current maturities (19,858) (19,858)
------------ ------------
Long-term debt $ 33,114 $ 48,018
============ ============
Aggregate maturities required on long-term debt at September 30, 2000
and December 31, 1999 are as follows:
Year Amount Amount
2000 $ 4,965 $ 19,858
2001 19,858 19,858
2002 19,858 19,858
2003 8,291 8,302
------------ ------------
Total $ 52,972 $ 67,876
============ ============
Various notes were 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 $28,469. Amortization of
the discount amounted to $13,014 and $5,694 at, September 30, 2000 and
December 31, 1999, respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS
Notes Payable
During July 2000, the Company issued a note payable to Sagedale Farms,
LLC, a related party, for $1,250,000 bearing interest at a variable
rate based on the Wachovia Bank rate, interest is due monthly. The
Company was also required to issue 1,200,000 shares of common stock
upon receipt. The note is due in one year and is payable by cash of
$1,250,000 or at the option of the Company, may be converted to shares
of the Company's common stock so that the market value of such shares
on the date of issue equals the sum of $1,250,000. As additional
consideration, the Company agreed to prepay a hotel suite for seven
nights for three major Winston Cup events at a yet to be built hotel at
the Charlotte Motor Speedway for each of the five years following the
hotel's completion. This amount has been accrued at September 30, 2000
(see Note 4).
Interest expense amounted to $39,337 at September 30, 2000.
17
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
Tampa Bay Financial, Inc., a related party, loaned the Company $909,679
and $375,791 during the nine months ended September 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 September 30, 2000 and
December 31, 1999, respectively.
During July 2000, the Company repaid its loan and accrued interest from
Tampa Bay Financial, Inc.
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.
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 pre-petition 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.
18
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
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 until it can
establish significant operations.
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.
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.
During July 2000, the Company issued 1,200,000 shares of common stock
for cash of $250,000, or $0.21 per share, in conjunction with a note
payable (see Note 7).
Stock issuances for services and debt during 2000 and 1999 were valued
at the trading price on the dates of issue.
19
DIVERSIFIED RESOURCES GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2000 and December 31, 1999
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.
NOTE 14 -SUBSEQUENT EVENTS
During November 2000, the Company entered into an agreement to assign its rights
to acquire certain real estate (see Note 3c) obtained from Matheny Development
back to Matheny Development and issue 37,500,000 shares of common stock to
Matheny Development. In exchange for assigning these rights and transferring
these shares, Matheny Development has agreed to forgive $1,250,000 in debt due
from the Company as outlined in the original assignment, authorize the
forgiveness of one-third of the debt due Sagedale Farms, LLC (see Note 8),
reimburse all amounts expended to extend the original assignment, or $1,161,066,
and pay the Company $1,000,000 in cash.
20
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 September 30, 2000 and December 31, 1999 and the financial
statements as of and for the three and nine months ended September 30, 1999 and
December 31, 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 electronics components (including computer memory,
batteries and other components) industry that have proven management and
state-of-the-art technologies.
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 nine months ended September
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
two different Company operations in the past couple of years - Cordless Power,
our rechargeable battery sales operation, was closed in the summer of 2000, and
Data One, our computer memory operation was closed in the summer of 1999. We
expect to reinvigorate the Company by upon obtaining capital, selling off real
estate operations to raise additional cash and financing for our acqusitions
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 September 30, 2000 and 1999
We incurred a net loss of approximately $(253,703) for the quarter ended
September 30, 2000 as compared with a net loss of $(772,491) for the quarter
ended September 30, 1999. This difference was caused primarily from the costs
from the termination of our memory business in the prior year. For the quarters
ended September 30, 2000 and 1999 we did not generate any revenues from
continuing operations. Our operating expenses consist primarily of general and
administrative expenses. General and administrative expenses increased to $8,026
for the quarter ended September 30, 2000 from $-0- for the quarter ended
September 30, 1999, where all general and administrative expenses were charged
to loss from continuing operations and principally include payroll and related
taxes; professional fees for consulting, business development, legal and
accounting; office supplies expense; travel expense and organizational costs.
Depreciation and amortization expense was $-0- for the three month period ended
September 30, 2000, compared with $7,237 for the three month period ended
September 30, 1999, both of which were included in income (loss) from
discontinued operations. Interest expense was $41,776 during the three month
period ended September 30, 2000 compared to $-0- in the corresponding period of
the prior fiscal year. This increase came from the borrowing cost of a note
entered into by the Company during the quarter to fund the Falls River Land
Development.
21
Nine Months Ended September 30, 2000 and 1999
We incurred a net loss of approximately $(913,619) for the nine months ended
September 30, 2000 as compared with a net loss of $(1,190,277) for the nine
months ended September 30, 1999. This difference was caused primarily from the
costs from the termination of our memory business in the prior year. For the
nine months ended September 30, 2000 and 1999 we did not generate any revenues
from continuing operations. General and administrative expense was $82,924 and
$4,567 for the nine months and three months ended September 30, 1999. 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 the now terminated Virotest potential acquisition.
Other Expenses
The allowance for loss on real estate increased to $ 1,161,066 as of September
30, 2000, which represents the entire amounts invested. This increase was due to
the increased expenditures into the Falls River Land Development, which is being
reserved for since there is no assurance as to the recoverability of our
investment. We have made all required payments under the contract.
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
twentyfive (25) years. Depreciation and amortization expense was $14,815 for the
nine month period ended September 30, 2000, compared with $21,710 for the nine
month period ended September 30, 1999. Prior year amounts were included in
income (loss) from discontinued operations.
Interest
Interest expense was $81,664 during the nine month period ended September 30,
2000 compared to $10,094 in the corresponding period of the prior fiscal year
charged to loss from discontinued operations. Interest expense related primarily
to debt undertook to settle with creditors arising from our bankruptcy and debt
incurred to fund real estate operations. We did not incur any significant
interest income and did not capitalize any interest.
Discontinued Operations
Our sales and cost of sales in our discontinued battery division for the nine
months ended September 30, 2000, were $42,954 and $13,432. 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. No advertising amounts were expended in the prior
year since our operations did not commence until the second half of 1999.
Although we demonstrated progress in purchasing more effective advertising
during the quarter, we were never able to purchase enough cost-effective
advertising to bring Cordless Power to profitability, and we were unable to work
out alternative arrangements such as a sale of the division and thus shut down
our operation to avoid further losses.
22
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 business, We are no longer subject to
indirect foreign currency exchange rate risk relating to payments to suppliers.
We does not consider the market risk exposure relating to foreign currency
exchange to he or to have been material.
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 nine months ended September 30, 2000 used cash of $403,355. Operating
activities were primarily funded through proceeds from the sale of common stock
of $250,000 and proceeds from the issuance of debt of $1,250,000. In addition to
our operating requirements we have invested over $700,000 in the Falls River
land Development during 2000.
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 he 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. Having sold the Falls River project after the end of the
quarter, 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 21 E of the Securities Exchange
Act of 934. the words expect, anticipate, believe, goal, plan, intend, estimate
and similar expressions and variations thereof if used arc 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 electronic
components operations 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
23
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.
OTHER INFORMATION
Item I - 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
0. -- Assignment Agreement
0. Satisfaction Agreement
(b) Form 8-K
none
24
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
25