***10QSB Out***
sec.yahoo.com
November 20, 1998
AMERICAN DIVERSIFIED GROUP INC (ADGI)
Quarterly Report (SEC form 10QSB)
Management's Discussion and Analysis as part of the Quarterly Report on Form 10-QSB for the 3rd quarter of 1998, includes forward-looking statements that may involve a number of risks and uncertainties that could alter actual results to differ materially. Actual results may vary based upon a number of factors, including, but not limited to, risks in product and technology development, market acceptance of new products and continuing demand, the impact of competitive products and pricing, changing economic conditions in the markets where the Company is conducting and seeking to conduct it and other risk factors detained in the Company's most recent annual report and other filings with the Securities and Exchange Commission.
Results of Operations American Diversified Group, Inc. (the "Company") is a development stage company. During the Company's three and nine month periods ended September 30, 1998, the Company incurred net losses of $638,996 ($.0028 per Share) and $1,511,352 ($.0074 per share) compared to losses of $892,422 ($0.0077 per Share) and 1,858,184 ($0.0201 per share) for the comparable three and nine month periods of the prior fiscal year. The Company reported sales of
$0 and $66,422 for the three and nine month periods ended September 30, 1998, compared to sales of $25,330 and $25,330 for the three and ninth month periods for the prior fiscal year. The sales reported for the three and nine month periods ended September 30, 1998, represented the sales revenues and receivables from generic pharmaceuticals and telecommunication sales, and miscellaneous income, as
discussed below.
The Company's net loss for the nine month period ended September 30, 1998, was principally the result of the limited sales revenues during the quarter, the continued expenses associated with continuing to operate and maintain its offices and expenses associated with being a reporting company, which include professional, accounting and printing/EDGAR preparation and filing fees, and the non-cash expenses associated with the issuance of shares to its executive officer, directors and consultants for continued services to the Company in lieu of cash compensation during the period. Such non-cash compensation expensed during the three month period ended September 30, 1998, was $632,971, compared to $854,681 during the same period in
the prior fiscal year. In order for the Company to pay its operating expenses, including office rents, communication expenses, accounting and bookkeeping fees, printing and EDGAR preparation costs, publication costs, and other general and administrative expenses, the Company was dependent upon the funds provided by non-interest bearing loans from the Company's executive officer and directors, from a consultant, as well as from the private placement of its securities to private investors.
During the recent quarter, Company continued to pursue orders for pharmaceutical products in West Africa and elsewhere, which efforts the Company believes will be enhanced as a result of recent distribution agreements that the Company entered into with generic drug manufacturers in India. In addition during the quarter ended September 30, 1998, the Company also entered into agreements to distribute on an exclusive basis a Hepatitis-B vaccine, at highly advantageous and competitive pricing, pursuant to a long term arrangement with the manufacturer. To assist in the efforts to market and sell these products, the Company has also entered into agreements to use the services of additional representatives, including a company
specializing in the sale of a wide variety of medical and other products to Brazil.
The Company believes that these new agreements and arrangements shall place the Company in a sound position to generate significantly increased orders from a far broader product line over the next twelve months, beginning in the fourth quarter of 1998. The Company has also been informed that the dengue fever test kit that was submitted to the National Health Foundation, Brazil, for registration, approval and sale should begin to generate sales revenues in the very near term, and as early as the fourth quarter of fiscal 1998, with increasing sales during fiscal 1999.
With respect to the Company's telecommunications business, the Company during the second quarter of fiscal 1998 reported the pending acquisition of an equity interest in Global Transmedia Communications Corporation, Miami, Florida ("GTCC"), and during the third quarter of fiscal 1998 the Company and GTCC have continued to negotiate the terms of the potential acquisition. The GTCC operation to date has not yet generated any revenues. With respect to the Company's call-back
venture in West Africa, the Company did not generate any revenues or receivables during the third quarter of fiscal 1998 because of technical difficulties encountered in West Africa with regarding line interruption. The Company and Emerging Trends Linkages Corp. ("ETLC"), subsequent to the end of the quarter ended September 30, 1998, negotiated the sale by the Company back to ETLC of the Company's rights under the call-back agreement, effective as of September 30, 1998. In consideration for ETLC's repurchase of all call-back rights and receivables, the Company received back from ETLC rights to
17,000,000 Shares of the Company's common stock. In addition, the Company and ETLC agreed that the Company will have use of offices at Rockefeller Plaza for its Investor Relations office, with no office rental expense to the Company. In further consideration for the agreement with ETLC, ETLC was assigned by the Company and ETLC assumed the call-back receivables of approximately $17,400, as well as the receivables from generic pharmaceutical invoices of $18,100 and $7,500
from West Africa, which have not been paid to date. This aggregate sum of approximately $43,000 has been offset from ADGI's accounts payable to ETLC, which had totaled $65,707 at September 30, 1998. ETLC further agreed to the cancellation of the remainder of the Company's accounts payable to ETLC, effective as of September 30, 1998. As a result, at
September 30, 1998, the Company's income statement reflects a eduction in rent expense of $22,707, and its balance sheet reflects a decrease in current liabilities of of $65,707 and a decrease in current assets of $43,000. The difference is deemed to be a reduction in rent expense previously accrued. With the assistance of the Company's consultants, the Company's management determined during the fiscal year ended December 31, 1997 and the nine months ended September 30, 1998,
that its best business opportunities were principally in the area of medical-pharmaceutical products, and other products, to countries in South America, Africa and the Asia. The Company, during fiscal 1997 and through September 30, 1998, engaged the services of consultants and entered into contracts for third parties for the purpose of increasing the Company's product lines and its level of sales representation, resulting in continuing purchase orders and sales from the sale of medical products, including generic pharmaceuticals, diagnostic test kits, Hepatitis-B vaccine and other medical products and supplies in its markets.
Generic pharmaceuticals are an extremely cost sensitive market, especially in developing countries where the Company is doing business. This has led the Company and its consultants to devote a significant period of time during fiscal 1997 to sourcing generic pharmaceuticals at competitive pricing. During fiscal 1997 and through the nine month period ended September 30, 1998, the Company, with the direct assistance of its consultants and with third parties has developed sources for generic pharmaceuticals and a Hepatitis-B vaccine, at highly competitive pricing, from manufacturers in India. The Company does not believe, with respect to generic pharmaceuticals, that it is presently dependent upon any one source, nor does it believe that it will become dependent upon any manufacturer of generic pharmaceutical products. However, the Company has only one source for the Hepatitis-B vaccine and for that reason has entered into a long term exclusive distribution agreement with the manufacturer, Shantha Biotechnics, Hyperabad, India, which grants the Company the exclusive
rights to distribute this vaccine in South America, Africa and Asia.
In addition, after the quarter ended September 30, 1998, the Company through its contacts in Brazil, determined to pursue a business opportunity in connection with the import from Brazil and the sale in the United States of certain commodity products.
Pursuant to a purchase order dated November 3, 1998, and a letter of credit posted on November 6, 1998, the Company completed a transaction for the sale of the commodity products and generated sales revenues for the Company of approximately $220,000, which will be recognized by the Company during the last quarter of the fiscal year. The amount of
the profits to the Company shall be determined upon the arrival and completion of the commodity shipment, scheduled to leave Brazil on or about November 12, 1998, with arrival and delivery of the products within ten days. The Company will continue to pursue such sale opportunities, as they arise, during the coming fiscal year, involving a variety of products, specifically in those areas where the Company is conducting business and has representatives, including Brazil, West Africa, and Asia.
The Company's ability to continue to ship medical and pharmaceutical products to West Africa and begin to ship such products to South America is essential to the Company's goal of generating increased levels of operating revenues from its core pharmaceutical and medical products business. The Company is presently outsourcing these generic
pharmaceutical products from several third party
manufacturers and distributors located in the United States,
Canada, Mexico, South America, Europe, and India, which have
provided quality generic pharmaceutical products at highly
competitive prices necessary for the Company to profitably
fulfill existing and future orders for such products from
West Africa and elsewhere.
The services of the Company's consultants, together with that of the Company's management, while not having generated any revenues during the third quarter ended September 30, 1998, have enabled the Company to develop and expand its business during the last quarter of the fiscal year. As a result the Company can report the following business developments: (i) generated sales revenues of approximately $220,000 from the import from Brazil and sale in the US of commodity products, which represent the single highest sale transaction in the Company's operating history, and which sale will generate a profit to the
Company. The revenues and profits from this sale will be reported during the last quarter of fiscal 1998, with a letter of credit
being issued effective November 9, 1998 for 20% ($44,000) of the total $220,000 sale, with the remainder being paid during November, 1998 upon shipment; (ii) secured third party manufacturers from whom the Company can continue to source generic pharmaceuticals at competitive pricing so as to enable it to sell such products at satisfactory profit margins during fiscal 1999, in the highly competitive and price sensitive developing world markets; (iii) secured final approvals of dengue fever test kits, which are prerequisite for the imminent receipt of purchase orders for dengue fever test kits from the National Health Foundation of Brazil; (iv) entered into a distribution agreement with the manufacturer of a Hepatitis B vaccine, approved by the World Health Organization, granting the Company the right to market at highly competitive pricing the Hepatitis B vaccine in
South America, Africa and Asia; and (v) commenced business relationship with manufacturers of complete lines of generic
pharmaceuticals for the purpose of satisfying the Company's anticipated purchase orders in West Africa and South America.
The Company continues to be dependent upon the willingness of the Company's executive officer, directors and each of its
consultants to accept shares in lieu of cash compensation for continued services to the Company. However, with the recent
sale of approximately $220,000 in the United States of an imported Brazilian commodity product, with the potential for
additional commodity product sales both before and after the end of the fiscal year, and renewing efforts for the sale of generic
pharmaceutical products pursuant to letters of credit, and anticipated expanded product lines in the coming months, the
Company hopefully will be able to become operational and therefore may permit the Company's independent auditors to
remove from their report the qualification regarding the Company as a "going concern" during subsequent fiscal periods.
Liquidity and Capital Resources
The Company, at September 30, 1998, had current assets of approximately $7,500, compared to $35,330 at the September
30, 1997, and $64,460 at the end of the fiscal year ended December 31, 1997. To assist the Company in its cash flow
requirements which are presently estimated at $10,000 per month, the Company may determine to continue to seek
subscription proceeds from private investors, as well as revenues from sales of a variety of products and services, and
anticipated commencement of sales revenues from dengue fever test kits, among other products, to Brazil.
Based upon the Company's present liquid resources after the expenses that were paid by the Company following receipt of the
private placement funds, which expenses included office expenses, professional/accounting fees, transfer agent and printing
service fees, and certain other expenses, and based upon its present monthly operating expenses of $10,000, the Company
will be able to operate for approximately three months, which include gross profits from the sale during the last fiscal quarter if
no additional revenues are generated from operations.
The Company's monthly operating expenses for the quarter ended September 30, 1998 and during the present quarter include
rent for executive office space in Hickory, NC, professional/accounting fees, telephones, but do not reflect any salary to Dr.
Jerrold R. Hinton, the Company's sole executive officer. The Company is accruing but does not contemplate commencing
payment to Dr. Hinton of the monthly salary of $8,333.33 provided in his three year employment agreement unless and until it
begins to generate positive cash flow from operations. During fiscal 1997 and the first three quarters of fiscal 1998, the
Company's executive officer, directors and consultants were issued shares in registration statements on Form S-8 in
consideration for their continued services to the Company and in lieu of any cash compensation. After the end of the quarter
ended September 30, 1998, the Company and ETLC agreed that the Company would not incur any expense, other than
phone expense in connection with use of conference facilities for its Investor Relations offices at Rockefeller Center in NYC.
The Company's net loss for the period ended September 30, 1998, was principally the result of the lack of any revenues
during the quarter, the continued expenses associated with continuing to operate and maintain its offices and expenses
associated with being a reporting company, which include professional, accounting and printing/EDGAR preparation and filing
fees, and the non-cash expenses associated with the issuance of shares to its executive officer, directors and consultants for
continued services to the Company in lieu of cash compensation during the period. In order for the Company to pay its
operating expenses, including office rents, salaries to its non- executive employee during a portion of the quarter, telephone
expenses, accounting and bookkeeping fees, printing and EDGAR preparation costs, publication costs, and other general and
administrative expenses, the Company was dependent upon the funds provided by non-interest bearing loans from the
Company's executive officer and directors, from a consultant. During the period from July 1, 1998 through September 30,
1998, the Company did not receive any investment proceeds from private investors. |
