| ****UNITED    STATES****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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| ****SECURITIES    AND EXCHANGE COMMISSION****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ****Washington,    DC 20549****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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| **Form 10-QSB**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                  (Mark one)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| [ X ] QUARTERLY REPORT UNDER    SECTION 13 OR 15 (d) OF THE 
SECURITIES EXCHANGE ACT OF 1934** **
For the quarterly period ended:    March 31, 2001  
[    ]    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE 
SECURITIES EXCHANGE ACT OF 1934  
For the transition period from    ____________ to _____________  
Commission file number: 0-023532  
**AMERICAN DIVERSIFIED    GROUP, INC.**
(Exact name of    small business issuer as specified in its charter)
Nevada
88-0292161
(State or    other jurisdiction of incorporation or organization) 
(IRS Employer    Identification No.)  
110 North Center Street,    Suite 202, Hickory, NC
28601
(Address of    principal executive offices)
(Zip Code)828-322-2044(Issuer’s    telephone number)_____________________________________________________________(Former name, former    address and former fiscal year, if changed since last report)
APPLICABLE    ONLY TO CORPORATE ISSUERS        State the number of    shares outstanding of each of the issuer’s classes of common equity, as of the latest    practicable date: 427,062,358 shares issued as of May 15, 2001Transitional Small    Business Disclosure Format: Yes __ No X
 

 

 

**PART I. FINANCIAL    INFORMATION**
PageItem 1. Consolidated Financial Statements    (Unaudited)2Item 2. Management’s Discussion and    Analysis6  
**PART II. OTHER    INFORMATION**Item 1. Legal Proceedings9Item 2. Changes in Security9Item 3. Default Upon Senior Securities10Item 4. Submission of Matters to a Vote of    Security Holders10Item 5. Other Information10Item 6. Exhibits and Reports on Form 8-K10
 

**PART I FINANCIAL INFORMATION**

**Item 1. Consolidated Financial Statements**
Page Consolidated    Balance Sheet (Unaudited) as of March 31, 2001.2Consolidated    Statements of Income ( Loss) (Unaudited) for the Three months ended March 31, 2001 and    2000 .3Consolidated    Statements of Cash Flows (Unaudited) for the Three months ended March 31, 2001 and 2000 .4Notes to    Consolidated Financial Statements (Unaudited)5
 
**AMERICAN DIVERSIFIED GROUP, INC.    AND SUBSIDIARIES**CONSOLIDATED BALANCE SHEET (UNAUDITED)       
March    31, 2001**ASSETS**  **CURRENT ASSETS**   Cash and cash equivalents 
$23,884       Accounts    receivable, less allowance for doubtful accounts of $220,770
865,584   Unbilled revenues
140,372   Receivable from    related parties 
236,843   Prepaid expenses 
11,519     **TOTAL    CURRENT ASSETS**
1,278,202**PROPERTY AND EQUIPMENT**    (less accumulated depreciation of $192,077 and $176,157) 
879,298  **OTHER ASSETS**   Goodwill7,500   Organization    costs, net537   Deposits 
321,880   Miscellaneous    receivable (less $125,000 allowance for uncollectibility) 
-      **TOTAL    OTHER ASSETS**
329,917  **TOTAL ASSETS**
$2,487,417  
**LIABILITIES    AND STOCKHOLDERS' EQUITY**  **LIABILITIES**   Accounts payable 
$283,077   Current portion of    capital lease obligations62,472   Accrued payroll    and related taxes102,682   Accrued expenses    and other liabilities 
281,596   Deferred revenues
83,658   Accrued income    taxes payable 
47,935   Related party    payables
103,352     **TOTAL    CURRENT LIABILITIES**
964,772  **LONG-TERM LIABILITIES**  Capital lease    obligations
$211,019  Notes    payable-stockholders
83,000    **TOTAL    LONG-TERM LIABILITIES**
294,019      **TOTAL    LIABILITIES**
1,258,791  **STOCKHOLDERS' EQUITY**   Preferred stock,    Series A, $10 par value, 50,000 shares authorized; 
$-         none    issued and outstanding    Common stock,    $.001 par value, 700,000,000 shares authorized;     427,062,358    shares issued and outstanding 
$427,063   Additional paid-in    capital 
21,936,547   Deferred    consulting fees
(159,375)   Accumulated    deficit
(20,975,609)     **TOTAL    STOCKHOLDERS' EQUITY**
1,228,626  **TOTAL LIABILITIES AND    STOCKHOLDERS' EQUITY**
$2,487,417See accompanying notes. 
 
**AMERICAN DIVERSIFIED GROUP, INC. AND SUBSIDIARIES**CONSOLIDATED    STATEMENTS OF INCOME (LOSS) (UNAUDITED)       
For    the 
For    the 
Three-Months    Ended 
Three-Months    Ended 
March    31, 2001
March    31, 2000**REVENUES**      Sales 
$758,933
$1,160,135       Cost of sales 
599,952
707,146**        GROSS MARGIN**
158,981
452,989**EXPENSES**      Payroll and related taxes 41,327
118,616      Professional fees59,384
40,249       Officers' salary78,750
52,370      Consulting fees352,693
4,800      Other operating expenses20,344
19,786      Telephone and communications25,940
28,804      Travel and related expenses 18,247
29,469      Rents 32,080
10,487      Insurance and employee benefits19,685
8,230      Depreciation and amortization8,641
3,016**        TOTAL EXPENSES**657,091
315,827**INCOME    (LOSS) FROM OPERATIONS**(498,110)
137,162**OTHER    INCOME (EXPENSE)**      Interest income 
5,245
2,026      Interest expense (15,202)
(20,303)**NET    OTHER INCOME (EXPENSE)**
(9,957)
(18,277)**INCOME    (LOSS) BEFORE INCOME TAXES**(508,067)
118,885**INCOME    TAXES**- 
(15,000)**NET    INCOME (LOSS)**
$(508,067)
$103,885WEIGHTED    AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 
424,748,747
 286,058,110(BASIC    AND DILUTED) NET    INCOME (LOSS) PER SHARE (BASIC AND DILUTED) 
$(0.00) 
$0.00See    accompanying notes.      **AMERICAN    DIVERSIFIED GROUP, INC. AND SUBSIDIARIES**CONSOLIDATED    STATEMENTS OF CASH FLOWS (UNAUDITED)     
For    the 
For    the 
Three     Months Ended 
Three    Months Ended 
March    31, 2001
March    31, 2000**CASH    FLOWS FROM OPERATING ACTIVITIES**      Net income (loss)
$(508,067)
$103,885      Adjustments to reconcile net income (loss) to net       cash used by operating activities:         Depreciation and amortization
15,948
18,402        Amortization of deferred consulting fees 
53,125
-         Common stock exchanged for services 
324,000
-       (Increase) decrease in assets:         Accounts receivable and unbilled revenues
(125,589)
(264,897)        Prepaid expenses 
- 
94,000      Increase (decrease) in liabilities:         Accounts payable 
(57,965)
8,424        Accrued payroll and related taxes
38,482
-         Accrued expenses and other liabilities 
201,747
(15,202)        Deferred revenues
24,351
37,027       Accrued income tax payable
- 
(4,326)**        NET CASH USED BY OPERATING ACTIVITIES**
(33,968)
(22,687)**CASH    FLOWS FROM INVESTING ACTIVITIES**      Acquisition of property and equipment 
- 
(130,257)      Payments for related party receivables (net) 
(13,307)
(24,352)      Deposits
(5,680)
(8,543)**        NET CASH USED BY INVESTING ACTIVITIES**
(18,987)
(163,152)**CASH    FLOWS FROM FINANCING ACTIVITIES**      Sale of common stock 
22,900
260,000      Payments for capital lease financing
(1,254)
-       Proceeds from related party payables
57,500
-       Payments on related party payables
(15,000)
-       Proceeds from notes and loans payable
- 
250,000      Payments on notes and loans payable 
- 
(98,710)      Proceeds from notes payable to shareholders (net)
- 
5,616**        NET CASH PROVIDED BY FINANCING ACTIVITIES**
64,146
416,906**NET    INCREASE  IN CASH AND EQUIVALENTS**
11,191
231,067**CASH    AND EQUIVALENTS - BEGINNING**
12,693
107,787**CASH    AND EQUIVALENTS - ENDING**
$23,884
$338,854**SUPPLEMENTAL    DISCLOSURES**Cash    paid during the period for:         Interest 
$15,202
$5,219        Income taxes 
$ - 
$ - In    addition to amounts reflected above, common stock was issued for:         Settlement of debt 
$ - 
$468,421        Consulting services 
$324,000
$ - See accompanying notes.   
**AMERICAN DIVERSIFIED GROUP, INC.    AND SUBSIDIARIES**
NOTES TO CONSOLIDATED FINANCIAL    STATEMENTS (Unaudited)
March 31, 2001

**NOTE 1 - BASIS OF PRESENTATION**

The accompanying unaudited financial statements reflect alladjustments, which, in the opinion of management, are necessary for a fair presentation ofthe financial position and the results of operations for the interim periods presented.All adjustments are of a normal recurring nature.

Certain financial information and footnote disclosureswhich are normally included in financial statements prepared in accordance with generallyaccepted accounting principles, but which are not required for interim reporting purposes,have been condensed or omitted. The accompanying financial statements should be read inconjunction with the Consolidated Financial Statements and notes thereto as of December31, 2000 contained in the Company's Form 10-KSB.

**NOTE 2 – PRINCIPLES OF CONSOLIDATION**

The consolidated financial statements include the accountsof American Diversified Group, Inc. (ADGI) and its two wholly-owned subsidiaries, GlobalTransmedia Communications Corporation (Global) and NCI Telecom (NCI). All materialintercompany accounts and transactions have been eliminated.

**NOTE 3 – EARNINGS (LOSS) PER SHARE**

Per share information is computed based on the weighted average numberof common shares outstanding (basic and diluted) during the period.

 

**Item 2. Management’s Discussion and Analysis**

Forward-Looking Statements; Market Data

Forward-Looking Statements: This Form 10-QSB and otherstatements issued or made from time to time by American Diversified Group, Inc. (the"Company") contain statements which may constitute "Forward-LookingStatements" within the meaning of the Securities Act of 1933, as amended (the"Act") and the Securities Exchange Act of 1934 (the "Exchange Act") bythe Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections  77Z-2 and78U-5 (SUPP. 1996). Those statements include statements regarding the intent, belief orcurrent expectations of the Company, its officers and directors and the officers anddirectors of the Company's subsidiaries (collectively, the "Company") as well asthe assumptions on which such statements are based. Prospective investors are cautionedthat any such forward-looking statements are not guarantees of future performance andinvolve risks and uncertainties, and that actual results may differ materially from thosecontemplated by such forward-looking statements. Important factors currently known to theCompany's management that could cause actual results to differ from those inforward-looking statements are set forth in the Safe Harbor Compliance Statement forForward-Looking Statements.

We make forward-looking statementsin this Item 2. These forward-looking statements include, but are not limited to,statements about our plans, objectives, expectations, intentions and assumptions and otherstatements that are not historical facts. We generally intend the, words"expect", "anticipate", "intend", "plan","believe", "seek", "estimate" and similar expressions toidentify forward-looking statements.

This Quarterly Report contains certain estimates andplans related to the telecommunications industry in which our subsidiaries, GlobalTransmedia Telecommunications Corporation, a Florida corporation ("Global") andNCI Telecom, Inc., a Missouri corporation ("NCI") operate. The estimates andplans assume that certain events, trends and activities will occur, of which there can beno assurance. In particular, we do not know what level of growth in the telecommunicationsindustry, and particularly in those Voice over Internet Protocols ("VoIP")markets in which Global operates and the Wide Area Network ("WAN") and LocalArea Network ("LAN") business in which NCI operates. If our assumptions arewrong about any events, trends and activities, then our estimates for future growth fromGlobal, NCI and our consolidated business operations may also be wrong. There can be noassurance that any of our estimates as to our business growth will be achieved.

Results of Operations

American Diversified Group, Inc. (the"Company" is also referred to as "we", "us" and"our") is no longer considered  a development stage company, becausesignificant revenue generating operations have commenced and are anticipated to continue.We completed the acquisition of Global in February, 2000, and the acquisition of NCI inJune, 2000. The period comparisons below include the Company, Global and NCI.

We had revenues on a consolidated basis of $758,933 forthe three-month period ended March 31, 2001, compared to $1,160,135 for the comparablethree-month period of the prior year. Global's revenues were $696,836 and $605,000for the three-month periods ended March 31, 2001 and 2000, respectively, and NCI'srevenues were $62,097 and $555,135 for the three-month periods ended March 31, 2001 and2000, respectively. The reason for the decrease in revenues of $401,202 or 35%  wasprincipally attributable to the significant decrease in NCI's revenues by $493,038. NCIexperienced this decrease because of a significant decline in demand WAN and LANnetworks and the corresponding increased competition in the declining market fortelecommunications products and services. NCI had deferred revenues of $83,658 frommaintenance contracts which are recognized ratably over the term of such contract.

We had a consolidated net loss of $508,067 ($0.00 pershare) for the three-month period ended March 31, 2001, compared to consolidated netincome of $103,885 ($0.00) per share.

Our gross margins on aconsolidated basis for the three-month period ended March 31, 2001 were $158,981 or 21%,compared to $452,989 or 39% for the same period in 2000. Global's gross margins were$105,987 or 15% for the three-month period ended March 31, 2001. NCI's gross margin forthe period ended March 31, 2001 was $52,994 or 85%, which is not indicative for futureperiods because of changing market conditions in NCI's business. The gross margin forGlobal were $313,529 or 52% for the same three-month period of 2000, and  NCI's grossmargin was $139,460 or 25% for the three-month period ended March 31, 2000. The reasonsfor the decrease in Global's profit margin is related to the change in the composition ofGlobal's sales from non-recurring sales generated by term contracts from network servicesand supplies during the period ended March 31, 2000, for which costs of sales were lowerand therefor profit margins were higher. This is compared to sales from network operationsand pre-paid calling and carrier traffic during the period ended March 31, 2001, for whichcosts of sales, including fixed costs, were higher and profit margins lower.

During our three-month periodended March 31, 2001, we had a loss from operations on a consolidated basis of $498,110,compared to income from operations of $137,162 for the same period of the prior year. Theprincipal reason for the loss from operations for the three-months ended March 31, 2001was reduced profit margins as discussed above, increased professional and consulting fees,which included a non-cash expense of $377,125, of which $324,000 was for shares issued forservices in February 2001, and $53,125 for amortization of deferred consulting fees. Theloss from operations of Global for the three-month period ended March 31, 2001 was $3,294compared to income from operations of $106,926 for the same period of the prior year. NCIhad a loss from operations of $33,701 for the three-month period ended March 31, 2001,compared to income from operations of $45,614 for the same period in 2000. The parent,American Diversified Group, Inc., incurred operating losses of $461,115 which wasprincipally due to the non-cash expense of $377,125 as described above.  This iscompared to a loss from operations of $15,378 for the same period of the prior year. 

Liquidity and Capital Resources 

At March 31, 2001, we had totalcurrent assets of $1,278,202 compared to $1,136,455 at December 31, 2000, which change isnot significant. A significant portion of our total current assets at March 31, 2001consisted of accounts receivable of $865,584 net of an allowance of $220,770 for doubtfulaccounts related to sales of Global and NCI for the year ended December 31, 2000. Ourreceivables from related parties were $236,843 at March 31, 2001 compared to $223,535 atDecember 31, 2000. Our total assets were $2,487,417 at March 31, 2001, compared to$2,355,938 at December 31, 2000. Global had total assets of $2,402,452 at March 31, 2001,compared to $2,226,427 at year end 2000. NCI had total assets of $72,511 after theelimination of intercompany balances at March 31, 2001, compared to total assets of$119,461 at December 31, 2000. 

Our total current liabilities were$964,772 at March 31, 2001, compared to $705,879 at December 31, 2000. The increase wasprincipally due to an increase in accrued expenses and other liabilities by $201,747,which is due to accrued costs associated with providing Global's network services. Thecurrent portion of our capital lease obligations was $62,472 at March 31, 2001, comparedto $44,354 at December 31, 2000. Our long-term liabilities were $294,019 at March 31,2001, of which $211,019 are capital lease obligations. At December 31, 2000, our long-termliabilities were $313,391, of which $230,391 were capital lease obligations. At both datesour notes payable to stockholders was $83,000. Our total liabilities changed from$1,019,270 at December 31, 2000 to $1,258,791 at March 31, 2001, which includes accruedexpenses and other liabilities as discussed above.

Our cash used by our operatingactivities was $33,968 during the period ended March 31, 2001, compared to $22,687 duringthe same period of the prior year. Our net cash used by investing activities was $18,987during the three-month period ended March 31, 2001, compared to $163,152 during the sameperiod of the prior year. The significant decrease was the result of having no cashoutflow for capital expenditure during the three-month period ended March 31, 2001.

We financed our negative cash fromoperations and investing activities during the three-month period ended  March 31,2001 by receipt of proceeds of $22,900 from the issuance of shares and proceeds of $57,500from loans payable to officers. This compared to proceeds from the sale of shares($260,000) and from the issuance of notes payable ($250,000) during the same period of theprior year. We increased our cash by $11,190 during the three-month period ended March 31,2001, to cash at March 31, 2001 of $23,884.

The telecommunications industry inwhich we operate is a rapidly evolving, with continuously technological changes. While weare not aware of any particular known trends, events or uncertainties that may have animpact on our short-term or long-term liquidity, there can be no assurance that suchtrends, events or uncertainties will not occur because of the nature of our industry andthe rapidly changing technological and competitive environment. It can be expected as ourtelecommunications business grows that we will have to continue to make commitments forcapital expenditures that are material. We may continue to be dependent upon our abilityto secure long-term capital lease financing or other sources of financing at satisfactoryterms and conditions.

Recent Accounting Pronouncements

In June 1998, Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards No. 133, "Accounting for DerivativeInstruments and Hedging Activities" (FAS 133). The new standard requires companies torecord derivatives on the balance sheet as assets or liabilities, measured at fair value.Under FAS 133, gains or losses resulting from changes in the values of derivatives are tobe reported in the statement of operations or as a deferred item, depending on the use ofthe derivatives and whether they qualify for hedge accounting. The key criterion for hedgeaccounting is that the derivative must be highly effective in achieving offsetting changesin fair value or cash flows of the hedged items during the term of the hedge. The Companyis required to adopt FAS 133 in the first quarter of 2001. To date, the Company has notengaged in any foreign currency or interest hedging activities and does not expectadoption of this new standard to have a significant impact on the Company.

In December 1999, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 101 or SAB 101, Revenue Recognition in Financial Statements, whichprovides guidance on the recognition, presentation, and disclosure of revenue in financialstatements filed with the Commission. SAB 101 outlines the basic criteria that must be metto recognize revenue and provides guidance for disclosures related to revenue recognitionpolicies. The implementation of SAB 101 did not have a material effect on our financialposition or results of operations.

In March 2000, the FASB issued Interpretation No. 44, "Accountingfor Certain Transactions Involving Stock Compensation" an interpretation of APBOpinion No. 25 ("FIN 44"). This Interpretation clarifies the definition of"employee" for purposes of applying Accounting Practice Board Opinion No. 25,Accounting for Stock Issued to Employees (`APB 25'), the criteria for determining whethera plan qualifies as a non-compensatory plan, the accounting consequence of variousmodifications to the terms of a previously fixed stock option or award, and the accountingfor an exchange of stock compensation awards in a business combination. ThisInterpretation is effective July 1, 2000, but certain conclusions in this Interpretationcover specific events that occur after either December 15, 1998, or January 12, 2000.Management believes that the impact of FIN 44 will not have a material effect on thefinancial position or results of operations of the Company.

 

**PART II. OTHER INFORMATION**

**Item 1. Legal Proceedings**

We had a cause of action against Imaging Systems SynergiesInc. ("ISS") for damages, including recovery of the $100,000 in interim capitaladvanced to ISS in connection with a planned acquisition that was not completed. Our boardof directors  agreed unanimously not to acquire ISS following our completion of duediligence. Our action, American Diversified Group, Inc. v. Imaging Systems Synergies,Inc., et al., was pending in the 11th Judicial Circuit, Dade County, Florida, Case No.97-001983AN and went to mediation before the Florida Mediation Group, in Miami, Florida,which awarded us $125,000, resulting in a judgment against ISS for such amount. Wegenerated no income from our involvement with ISS and are presently pursuing efforts tocollect this judgment. There can be no assurance that such collection efforts will befully or partially successful.

We are a defendant in an action commenced by two formerconsultants, Matthew Milo and Joseph Quattrocchi, for compensation for services allegedlyprovided to us under an August 1998 consulting agreement. A third former consultant,Judith Grossman, originally threatened claims under the August 1998 agreement but wesettled her claim for 3 million shares of which 1 million were registered under theSecurities Act of 1933, as amended (the "Act") and 2 million were issued withlegend. The pending action also relates to a loan from Milo and Quattrocchi to us of$50,000 of which we have repaid approximately $35,000. 

Both Milo and Quattrocchi resigned their consultingagreement without fulfilling their services and any services they allegedly providedproved to be unsatisfactory. In addition, we had issued 3,000,000 shares each to Milo andQuattrocchi as part of their consideration under the consulting agreement. Our position isthat the deficiencies in Milo's and Quattrochi's services under the consulting agreementmeans that they have received more compensation in excess of the value of the services asthey did perform, as well as for the unpaid balance of the loan, in the form of thoseshares. However, Milo and Quattrocchi disagreed with our position and commenced an actionagainst us that is pending in the Supreme Court of the State of New York. Messrs. Milo andQuattrocchi claim that they are entitled to an additional 24,526,000 shares as damagesunder the consulting agreement and to the repayment of the loan balance.We believe that wehave meritorious defenses to the Milo-Quattrocchi action, and have counterclaims againstMilo-Quattrocchi but cannot project an outcome with any certainty. No settlementnegotiations are in progress. We believe that we would not be materially adverselyeffected by the outcome of this proceeding.
**Item 2. Changes in Securities

During the period immediately prior to our year endedDecember 31, 2000 and through the date of the filing of this Quarterly Report, and duringthe three  month period ended March 31, 2001, we issued a total of 96,981,885 sharesof common stock as follows: 83,757,302 restricted shares to the former shareholders ofGlobal in connection with our acquisition of Global; 4,800,000 restricted shares to aprivate investor upon conversion of a note issued by Global evidencing a loan  toGlobal of $500,000 and the exercise by the private investor of a warrant issued as part ofthe note; 1,100,000 restricted shares for services to the Company by two individuals andan entity; 2,702,083 restricted shares to a relative of a Global officer upon conversionof a $200,000 note; 4,050,000 shares to individual consultants for services pursuant to aregistration statement on Form S-8, at a value of $324,000; and 572,500 restricted sharesto an individual investor for consideration of $22,900. The restricted shares wereissued  pursuant to an exemption from the  registration requirements of the Actprovided under Section 4(2) of the Act.   
**Item 3. Defaults upon Senior Securities

None
**Item 4. Submission of Matters to a Vote of Security Holders

None
**Item 5. Other Information

None
**Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit No.
Document Description
3(i)Articles of Incorporation (filed as Exhibits    3.1, 3.2 and 3.3 to the Company's Registration Statement on Form 10-SB and incorporated    herein by reference)
3(ii)Bylaws (filed as Exhibit 3.4 to the Company's    Registration Statement on Form 10-SB and incorporated herein by reference)
(b) Form 8-K.

During the quarter ended March 31,    2001, we filed a Form 8-K related to the amendment to the consideration paid by the    Company to the former Global shareholders in connection with our acquisition of Global.    The Form 8-K was filed with the SEC on January 10, 2001 .
**SIGNATURES**
In accordance with Section 12 or 15(d) of the Exchange Act, the    small business issuer has caused this report to be signed on its behalf by the    undersigned, thereunto duly authorized.

AMERICAN DIVERSIFIED GROUP, INC.By: /s/ Jerrold R. HintonJerrold R. Hinton, President, Chief Executive Officer and    DirectorDated: May 15, 2001Hickory, NC
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