|
|

|**UNITED
    STATES**                                                                 
|--------------------------------------------------------------------------------------
|**SECURITIES
    AND EXCHANGE COMMISSION**                                            
|**Washington,
    DC 20549**                                                          
|                                                                                      
|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:
    June 30, 2000                                     
|                                                                                      
|[    ]
    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                                                                                
|(State or
    other jurisdiction of incorporation or organization)                    
|                                                                                      
|110 NORTH CENTER
    STREET, SUITE 202, HICKORY, NC                                   
|(Address of principal executive
    offices)                                          
|                                                                                      
|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:
|-------------------------------------------------------------------------------------------------------------------------------
|Common Stock, $.001 par value 
    306,220,560 shares outstanding as of June 30, 2000.                                         
|Transitional Small Business Disclosure
    Format: Yes __ No X                                                                 
|Page 1 of 38                                                                                                                   



INDEX

|PART I. FINANCIAL INFORMATION                                   | Page
|--------------------------------------------------------------- | ----
|Item 1. Consolidated Financial
    Statements (Unaudited)       | 3   
|Item 2. Managements
    Discussion and Analysis                | 7   
|                                                                |     
|PART II. OTHER INFORMATION                                      |     
|Item 1.
    Legal Proceedings                                   | 13  
|Item
    2. Changes in Security                                 | 13  
|Item 3. Default Upon Senior Securities                          | 14  
|Item 4. Submission of
    Matters to a Vote of Security Holders | 14  
|Item 5.
    Other Information                                   | 14  
|Item 6. Exhibits and Reports on Form 8-K                        | 15  



PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial
Statements

|                                                                                                                      | Page
|--------------------------------------------------------------------------------------------------------------------- | ----
|Consolidated
    Balance Sheets (Unaudited) as of June 30, 2000 and December 31, 1999.                                | 3   
|Consolidated Statements of
    Income ( Loss) (Unaudited) for the Three and Six months ended June 30, 2000 and 1999 . | 4   
|Consolidated
    Statements of Cash Flows (Unaudited) for the Six months ended June 30, 2000 and 1999 .               | 5   
|Notes
    to Consolidated Financial Statements                                                                        | 7   















|AMERICAN DIVERSIFIED GROUP, INC. AND
    SUBSIDIARIES
|-----------------------------------------------------
|CONSOLIDATED BALANCE SHEETS (UNAUDITED)              
|                                                     

|                                                                                      | June
    30, 2000 | Dec. 31, 1999
|------------------------------------------------------------------------------------- | ----------------- | -------------
|**ASSETS**                                                                            |                   |              
|                                                                                      |                   |              
|**CURRENT ASSETS**                                                                    |                   |              
|Cash and cash
    equivalents                                                         | $237,325          | $123,186     
|Accounts receivable                                                                   | 768,835           | 41,065       
|Loans receivable from
    related parties                                             | 209,200           | 160,500      
|Prepaid expenses                                                                      | -                 | 94,000       
|**TOTAL
    CURRENT ASSETS**                                                          | 1,215,360         | 418,751      
|                                                                                      |                   |              
|**PROPERTY AND EQUIPMENT**
    (Net of $132,039 and $44,164 accumulated depreciation) | 660,439           | 26,426       
|                                                                                      |                   |              
|**OTHER ASSETS**                                                                      |                   |              
|Deposits                                                                              | 86,608            | 570          
|Other assets                                                                          | 7,500             | 7,500        
|Miscellaneous
    receivable (less $125,000 allowance for uncollectibility)           | -                 | -            
|**TOTAL
    OTHER ASSETS**                                                            | 94,108            | 8,070        
|                                                                                      |                   |              
|**TOTAL ASSETS**                                                                      | $1,969,907        | $453,247     
|                                                                                      |                   |              
|**LIABILITIES AND
    STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)**                   |                   |              
|                                                                                      |                   |              
|**LIABILITIES**                                                                       |                   |              
|Accounts payable                                                                      | $392,924          | $50,346      
|Accrued expenses and
    other liabilities                                            | 36,500            | 30,500       
|Notes and loans
    payable                                                           | 905,667           | 380,000      
|Accrued officer's
    salary                                                          | 14,200            | 300,000      
|Notes and loans
    payable - shareholders and other related parties                  | 300,273           | 265,539      
|Deferred Revenues                                                                     | 112,918           | 125,452      
|**TOTAL
    CURRENT LIABILITIES**                                                     | 1,762,482         | 1,151,837    
|                                                                                      |                   |              
|**STOCKHOLDERS' EQUITY
    (DEFICIENCY IN ASSETS)**                                   |                   |              
|Preferred stock,
    Series A, $10 par value, 50,000 shares authorized;               |                   |              
|none
    issued and outstanding                                                       |                   |              
|Common stock, $.001
    par value, 700,000,000 and 350,000,000 shares authorized;     |                   |              
|307,970,560 and 276,887,560 shares issued and outstanding                             | 307,970           | 276,887      
|Additional paid-in
    capital                                                        | 19,859,592        | 19,017,254   
|Deficit accumulated                                                                   | (19,960,137)      | (19,992,731) 
|**TOTAL
    STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)**                             | 207,425           | (698,590)    
|                                                                                      |                   |              
|**TOTAL LIABILITIES AND
    STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)**             | $1,969,907        | $453,247     
|See accompanying notes.                                                               |                   |              



|AMERICAN
    DIVERSIFIED GROUP, INC. AND SUBSIDIARIES
|-----------------------------------------------------
|CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) 
|                                                     

|                                                         | For the          | For the          | For the            | For the           
|-------------------------------------------------------- | ---------------- | ---------------- | ------------------ | ------------------
|                                                         | Six Months Ended | Six Months Ended | Three Months Ended | Three Months Ended
|                                                         | June 30, 2000    | June 30, 1999    | June 30, 2000      | June 30, 1999     
|REVENUES                                                 |                  |                  |                    |                   
|Sales                                                    | $1,959,677       | $415,294         | $825,666           | $208,212          
|Cost of sales                                            | 1,108,615        | 154,417          | 401,469            | 61,719            
|GROSS MARGIN                                             | 851,062          | 260,877          | 424,197            | 146,493           
|                                                         |                  |                  |                    |                   
|EXPENSES                                                 |                  |                  |                    |                   
|Consulting fees                                          | 52,990           | 584,858          | 35,190             | 190,329           
|Depreciation                                             | 6,391            | 7,636            | 3,375              | 3,849             
|Insurance and employee benefits                          | 27,251           | 15,023           | 19,326             | 7,244             
|Marketing                                                | 49,749           | -                | 49,749             | -                 
|Payroll and related taxes                                | 202,437          | 27,192           | 90,191             | 11,583            
|Officers' salary                                         | 153,240          | 135,904          | 94,600             | 72,100            
|Professional fees                                        | 64,935           | 70,270           | 37,662             | 39,918            
|Rents                                                    | 36,353           | 8,371            | 25,866             | 3,790             
|Telephone                                                | 63,214           | 28,996           | 33,468             | 16,231            
|Travel and related expenses                              | 59,210           | 15,368           | 31,040             | 12,196            
|Other operating expenses                                 | 69,898           | 16,088           | 48,350             | 5,274             
|TOTAL EXPENSES                                           | 785,668          | 909,706          | 468,817            | 362,514           
|                                                         |                  |                  |                    |                   
|INCOME
    (LOSS) FROM OPERATIONS                        | 65,394           | (648,829)        | (44,620)           | (216,021)         
|                                                         |                  |                  |                    |                   
|OTHER
    INCOME (EXPENSE)                               |                  |                  |                    |                   
|Interest income                                          | 9,412            | -                | 7,386              | -                 
|Interest expense                                         | (42,212)         | (12,031)         | (21,994)           | (11,663)          
|NET
    OTHER INCOME (EXPENSE)                           | (32,800)         | (12,031)         | (14,608)           | (11,663)          
|                                                         |                  |                  |                    |                   
|INCOME
    (LOSS) BEFORE INCOME TAXES                    | 32,594           | (660,860)        | (59,228)           | (227,684)         
|                                                         |                  |                  |                    |                   
|INCOME
    TAXES                                         |                  |                  |                    |                   
|Income tax provision                                     | 4,889            | -                | -                  | -                 
|Benifit from net operating loss carryforward             | (4,889)          |                  |                    |                   
|                                                         |                  |                  |                    |                   
|NET
    INCOME (LOSS)                                    | $32,594          | $(660,860)       | $(59,228)          | $(227,684)        
|                                                         |                  |                  |                    |                   
|WEIGHTED
    AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 295,124,594      | 243,806,758      | 304,191,076        | 254,637,560       
|(BASIC AND
    DILUTED)                                  |                  |                  |                    |                   
|                                                         |                  |                  |                    |                   
|BASIC NET
    LOSS PER SHARE (BASIC AND DILUTED)         | $0.00            | $0.00            | $0.00              | $(0.00)           
|See
    accompanying notes.                              |                  |                  |                    |                   



|AMERICAN
    DIVERSIFIED GROUP, INC. AND SUBSIDIARIES
|-----------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)    
|                                                     

|                                                                         | For the           | For the          
|------------------------------------------------------------------------ | ----------------- | -----------------
|                                                                         | Six  Months Ended | Six  Months Ended
|                                                                         | June 30, 2000     | June 30, 1999    
|                                                                         |                   |                  
|CASH
    FLOWS FROM OPERATING ACTIVITIES                                 |                   |                  
|Net income (loss)                                                        | $32,594           | $(660,860)       
|Adjustments to reconcile net income (loss) to net                        |                   |                  
|cash used by operating activities:                                       |                   |                  
|Depreciation                                                             | 88,425            | 7,636            
|Amortization of deferred consulting fees                                 | -                 | 365,558          
|Common stock exchanged for services                                      | 5,000             | 225,000          
|(Increase) decrease in assets:                                           |                   |                  
|Accounts receivable                                                      | (727,770)         | 8,239            
|Prepaid expenses                                                         | 94,000            | -                
|Increase (decrease) in liabilities:                                      |                   |                  
|Accounts payable                                                         | 342,578           | (20,145)         
|Accrued expenses and other liabilities                                   | 20,200            | 37,911           
|Deferred revenues                                                        | (12,534)          | (76,502)         
|NET CASH USED BY OPERATING ACTIVITIES                                    | (157,507)         | (113,163)        
|                                                                         |                   |                  
|CASH
    FLOWS FROM INVESTING ACTIVITIES                                 |                   |                  
|Acquisition of property and equipment                                    | (722,438)         | (3,848)          
|Payments for loans receivable                                            | (48,700)          | (26,197)         
|Deposits other assets                                                    | (86,038)          | (5,491)          
|NET CASH USED BY INVESTING ACTIVITIES                                    | (857,176)         | (35,536)         
|                                                                         |                   |                  
|CASH
    FLOWS FROM FINANCING ACTIVITIES                                 |                   |                  
|Sale of common stock                                                     | 400,000           | 95,595           
|Dividends paid by subsidiary prior to acquisition                        | -                 | (14,300)         
|Proceeds from notes and loans payable                                    | 639,000           | 81,250           
|Payments from note payable to related party                              | 200,000           | -                
|Payments on notes and loans payable                                      | (113,333)         | (30,738)         
|Proceeds (net) from notes and loans payable to shareholders              | 3,155             | (2,082)          
|                                                                         |                   |                  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                | 1,128,822         | 129,725          
|                                                                         |                   |                  
|NET
    INCREASE (DECREASE) IN CASH AND EQUIVALENTS                      | 114,139           | (18,974)         
|                                                                         |                   |                  
|CASH AND
    EQUIVALENTS - BEGINNING                                     | 123,186           | 64,915           
|                                                                         |                   |                  
|CASH AND
    EQUIVALENTS - ENDING                                        | $237,325          | $45,941          
|                                                                         |                   |                  
|SUPPLEMENTAL
    DISCLOSURES                                             |                   |                  
|Cash paid
    during the period for:                                     |                   |                  
|Interest                                                                 | $10,437           | $8,893           
|Income taxes                                                             | $20,000           | $ -              
|                                                                         |                   |                  
|In addition
    to amounts reflected above, common stock was issued for: |                   |                  
|Contractual advances to acquire common stock                             | $ -               | $ 48,000         
|Settlement of debt                                                       | $468,421          | $ -              
|Consulting services                                                      | $5,000            | $ 225,000        
|See
    accompanying notes.                                              |                   |                  



|AMERICAN DIVERSIFIED GROUP, INC.
    AND SUBSIDIARIES
|-----------------------------------------------------
|NOTES TO CONSOLIDATED
    FINANCIAL STATEMENTS       

JUNE 30, 2000

|NOTE 1 - BASIS OF PRESENTATION
    The accompanying unaudited financial statements reflect all
    adjustments, which, in the opinion of management, are necessary for a fair presentation of
    the 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 disclosures
    which are normally included in financial statements prepared in accordance with generally
    accepted accounting principles, but which are not required for interim reporting purposes,
    have been condensed or omitted. The accompanying financial statements should be read in
    conjunction with the financial statements and notes thereto as of December 31, 1999
    contained in the Company's Form 10-KSB.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 2  BUSINESS COMBINATION
Business combinations, which have been accounted for by the
    pooling of interests method of accounting, occurred during the period. American
    Diversified Group, Inc. ("ADGI") acquired 100% of the issued and outstanding
    stock of Global Transmedia Communications Corporation ("Global") and 100% of the
    issued and outstanding stock of NCI Telecom, Inc. ("NCI") as more fully
    described in the text of the companys current Form 10-KSB.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 3  PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
    of ADGI and its 100% owned subsidiaries, Global and NCI. All material intercompany
    transactions have been eliminated.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|**NOTE 4****INCOME TAXES**The company has accumulated net operating losses, which can be used to offset
    current earnings. Accordingly, the current income tax provision is offset by benefit from
    net operating loss carryforwards.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 5  EARNINGS (LOSS) PER
    SHARE
    Per share information is computed based on the weighted average number
    of common shares outstanding (basic and diluted) during the period.                                                   



|Item 2.
    Managements Discussion and AnalysisForward-Looking
    Statements; Market Data
    We make forward-looking
    statements in the "Managements Discussion and Analysis of Financial Condition
    and Results of Operations" in this Quarterly Report. These forward-looking statements
    include, but are not limited to, statements about our plans, objectives, expectations,
    intentions and assumptions and other statements that are not historical facts. We
    generally intend the words "expect", anticipate", "intend",
    "plan", "believe", "seek", "estimate" and similar
    expressions to identify forward-looking statements.
    Because these forward-looking statements involve risks and
    uncertainties, our actual results may differ materially from those expressed or implied by
    these forward-looking statements.
    All forward-looking statements in this Quarterly Report reflect our
    current views about future events and are based on assumptions and are subject to risks
    and uncertainties. Except as required by applicable law, including the securities laws of
    the United States, we do not intend to update or revise any forward-looking statements.
    This Quarterly Report contains certain estimates and plans related to
    the telecommunications industry in which our subsidiaries, Global Transmedia
    Telecommunications Corporation, a Florida corporation ("Global") and NCI
    Telecom, Inc., a Missouri corporation ("NCI") operate, which assume certain
    events, trends and activities will occur and the projected information based on those
    assumptions. We do not know if our assumptions are accurate. In particular, we do not know
    what level of growth in the telecommunications industry, and particularly in those Voice
    over Internet Protocols ("VoIP") markets in which Global operates and the Wide
    Area Network ("WAN") and Local Area Network ("LAN") business in which
    NCI operates. If our assumptions are wrong about any events, trends and activities, then
    our estimates for future growth from Global, NCI and our consolidated business operations
    may also be wrong. There can be no assurance 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, because significant revenue generating
    operations have commenced and are anticipated to continue. The disclosure in the quarterly
    report should be read in conjunction with our Annual Report on Form 10-KSB for the year
    ended December 31, 1999, which was filed with the SEC, as well as the Quarterly Reports on
    Form 10-QSB filed for the three-month period ended March 31, 2000 and those we filed for
    the three, six and nine-month periods of 1999. Further, this is our first periodic report
    that reflects the acquisition of Global during the first quarter of 2000 together with the
    acquisition of NCI during the second quarter of 2000, and our discussions reflect the
    consolidation which has been accounted for by the pooling of interests method of
    accounting. See Note 2 to Notes to Consolidated Financial Statements.
    We reported on a consolidated basis revenues of $1,959,677 and $825,666
    for the six-month and three-month periods ended June 30, 2000, compared to  revenues
    $415,294 and $208,212 for the six-month and three-month periods ended June 30, 1999. The
    revenues we reported during the three-month and six-month periods ended June 30, 2000 and
    1999 resulted from the operations of our subsidiaries, Global and NCI. During the
    three-month and six-month periods ended June 30, 2000, we had net income (loss) of
    ($59,228) and $32,594, respectively ($0.00 per Share and $0.00 per Share, respectively)
    compared to a net loss of  ($227,684) and ($660,860), respectively ($0.00 per Share
    and $0.00 per Share, respectively) for the comparable three-month and six-month periods
    for 1999.
    During the three and six month periods ended June 30, 2000, we had
    non-cash consulting  fees of $5,000 as compared to $182,779 and $590,558 during the
    comparable periods of the prior year.
    In order for us to meet our operating expenses, including office rents,
    communication expenses, professional  fees, and other general and administrative
    expenses of the corporate parent, we received proceeds from the exercise of options and
    loans from shareholders and other related parties. During the three and six month periods
    ended June 30, 2000, options were exercised  by our executive officers as follows:
    $140,000 and $400,000, respectively, at a price of $.08 per share. There can be no
    assurance that our executive officers will continue to exercise any additional options,
    during subsequent periods or that loans will continue to be available at satisfactory
    terms. In addition, during the six month period ended June 30, 2000, we also 
    received $450,000 from the sale to private investors of  convertible promissory
    notes, which are convertible into common stock options exercisable to purchase restricted
    shares. The proceeds from the sale of convertible promissory notes were utilized to fund
    continued operations and growth of Global.
    It is our intention to file a registration statement under the
    Securities Act of 1933, as amended (the "Act") for the purpose of registering
    the  restricted shares issuable to the shareholders of Global and NCI under the
    respective Share Purchase Agreements, shares issuable under options, and other agreements
    and shares that we may determine to authorize for other potential acquisitions and fund
    our continued growth.
    We are also exploring the possibility of establishing an equity line of
    credit, as well as other private investment to fund the growth of the business of Global
    and NCI. The terms and conditions of any such private investment have not yet been
    determined. There is no assurance that we will be able to raise additional private
    placement funding, or institutional equity lines, or other funding at terms and conditions
    satisfactory to us. However, we reasonably expect that the revenues of Global and NCI
    should continue to increase during the remainder of fiscal 2000 and thereafter.
    As a result of our acquisition of Global and NCI, we are no longer
    dependent upon our executive officers/directors and  consultants willingness to
    accept shares as compensation for continued services in lieu of cash consideration, which
    was our practice in prior years.
    Liquidity and Capital Resources
    At June 30, 2000, on a consolidated basis, we had cash and equivalents
    of $237,325 compared to $123,186 at December 31, 1999, on a consolidated basis. Accounts
    receivable, which  were $768,835 at June 30, 2000 were paid down by $300,000
    subsequent to the end of the June 30, 2000 quarter. Our accounts receivable were $41,065
    at December 31, 1999. Our accounts receivable are current and fully collectible.  Our
    total current assets were $1,215,360 at June 30, 2000 compared to $418,751 at December 31,
    1999.
    To assist us in our cash flow requirements and further our growth,
     we utilized funds from the exercise of  options, and proceeds from sale of
    convertible notes, short term loans, equipment financing and trade credits, in addition to
    the cash flow from operations of Global and NCI, as noted above. We may determine,
    depending upon the prevailing stock price of our shares, to seek additional financing from
    private investors and/or lenders, although there can be no assurance that we will be
    successful in securing any investment from private investors and/or lenders at terms and
    conditions satisfactory to us, if at all.
    While we have been awarded a default judgment in the amount $125,000
    against Imaging Systems Synergies Inc. ("ISS"), by the Court in the 11th
    Judicial Circuit, Dade County, Florida. and are pursuing collection efforts against ISS or
    any successor entity, there can be no assurance that we will be successful in perfecting
    our judgment against ISS and in collecting damages awarded by the Court. As a result, we
    have written-off this judgment receivable, but will continue to pursue our collection
    efforts.
    On a consolidated basis, based upon our liquid resources, present level
    of operations and operating expenses, and including revenues and operations of Global of
    NCI, we could operate for more than one year if no additional revenues are generated from
    other sources. In addition, we are seeking to develop other sources of funding, whether
    public and/or private equity and/or debt in order to permit Global and NCI to continue to
    grow and develop their telecommunications business. The business in which Global and NCI
    operate, telecommunications, can be capital intensive, especially as additional capital
    equipment  is purchased. Global and NCI have been entering into ventures with
    unaffiliated parties for the development and growth of their business, and together with
    ADGI have invested at June 30, 2000 in property and equipment of $792,478,  as
    compared to $70,590 at December 31, 1999. This increase was directly attributable to our
    acquisitions of Global and NCI. We cannot at this date determine the rate at which Global
    and NCI will be required to purchase and/or lease capital equipment and make other
    material capital expenditures. The rate at which funds are raised, and the terms and
    conditions of any financing(s) will have a direct effect on the rate of growth of Global
    and NCI and their ability to enter into new markets with increased services.
    Reference is made to Part II, Item 1, Legal proceedings, with respect
    to the lawsuits recently commenced by Messrs. Matthew Milo or Joseph Quattrocchi, in New
    York Supreme Court, County of Richmond, which seek shares and certain monetary awards.
    Messrs. Milo and Quattrocchi, two stock brokers from Staten Island, New York, resigned as
    consultants to the Company in December, 1998. We have taken the position that we owe no
    compensation to these former consultants, nor do we have any loans payable to Messrs. Milo
    or Quattrocchi. This position is based upon the consultants resignation and their
    failure to provide us with consulting services for the two and one-half year term required
    of the consulting agreement. We also believe that we have meritorious defenses to any
    claim that Messrs. Milo and Quattrocchi may bring, and have counterclaims that we intend
    to pursue. Please also refer to the discussion in our Annual Report on Form 10-KSB for
    1999.
    RECENT ACCOUNTING PRONOUNCEMENTS
    In June 1998, Financial Accounting Standards
    Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting
    for Derivative Instruments and Hedging Activities" (FAS 133). The new standard
    requires companies to record 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 to be reported in the statement of operations or as a deferred
    item, depending on the use of the derivatives and whether they qualify for hedge
    accounting. The key criterion for hedge accounting is that the derivative must be highly
    effective in achieving offsetting changes in fair value or cash flows of the hedged items
    during the term of the hedge. The Company is required to adopt FAS 133 in the first
    quarter of 2001. To date, the Company has not engaged in any foreign currency or interest
    hedging activities and does not expect adoption of this new standard to have a significant
    impact on the Company.
    In December 1999, the Securities and Exchange
    Commission issued Staff Accounting Bulletin No. 101 or SAB 101, Revenue Recognition in
    Financial Statements, which provides guidance on the recognition, presentation, and
    disclosure of revenue in financial statements filed with the Commission. SAB 101 outlines
    the basic criteria that must be met to recognize revenue and provides guidance for
    disclosures related to revenue recognition policies. The implementation of SAB 101 did not
    have a material effect on our financial position or results of operations.
    In March 2000, the FASB issued Interpretation No.
    44, "Accounting for Certain Transactions Involving Stock Compensation" an
    interpretation of APB Opinion 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 whether a plan qualifies as a non-compensatory plan, the accounting
    consequence of various modifications to the terms of a previously fixed stock option or
    award, and the accounting for an exchange of stock compensation awards in a business
    combination. This Interpretation is effective July 1, 2000, but certain conclusions in
    this Interpretation cover 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 the financial position or results of operations of the Company.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK INTEREST RATE SENSITIVITY
    The primary objective of our investment
    activities is to preserve principal while at the same time maximizing the income we
    receive from our investments without significantly increasing risk. Some of the securities
    that we may invest in may be subject to market risk. This means that a change in
    prevailing interest rates may cause the principal amount of the investment to fluctuate.
    For example, if we hold a security that was issued with a fixed interest rate at the
    then-prevailing rate and the prevailing interest rate later rises, the principal amount of
    our investment will probably decline. To minimize this risk in the future, we intend to
    maintain our portfolio of cash equivalents and short-term investments in a variety of
    securities, including commercial paper, money market funds, government and non-government
    debt securities. In general, money market funds are not subject to market risk because the
    interest paid on such funds fluctuates with the prevailing interest rate. As of June 30,
    2000, all of our cash and cash equivalents were in money market and checking funds.
    OTHER RISK FACTORS
    OUR FAILURE TO MANAGE OUR GROWTH COULD HARM OUR
    ABILITY TO RETAIN AND GROW OUR CUSTOMER BASE AND EXPAND OUR BUSINESS SERVICES.
    We may not be able to install Internet related
    hardware and control systems in an efficient and timely manner, and our current or planned
    personnel, systems, procedures and controls may not be adequate to support our future
    operations. Failure to manage our future growth effectively could harm our ability to
    retain and grow our customer base and expand our business services  which would
    materially and adversely affect our business, prospects, operating results and financial
    condition.
    BECAUSE OUR CUSTOMER ACQUISITION AND MARKET
    PENETRATION COSTS ARE HIGH, IF WE FAIL TO RETAIN CUSTOMERS LONG ENOUGH AND/OR BE
    SUCCESSFUL IN NEW MARKETS TO PAY BACK OUR UP FRONT INVESTMENT, WE MAY NOT ACHIEVE AND/OR
    MAINTAIN PROFITABILITY.
    Our customer acquisition and market penetration
    costs comprise a significant portion of our operating costs, including advertising,
    customer care and service on an on-going basis. Because of our up-front investment for
    each market, if our customers terminate their relationships with us or we fail to generate
    sufficient numbers of customers before we recover our up- front costs, we may fail to
    generate a profit from our customers in our targeted markets.  In addition, if we
    fail to reduce our customer acquisition and market start-up costs, including by increasing
    the efficiency of our customer care and market service expense and reducing the costs
    associated with the development and offering of new services, our operating results will
    suffer.
    OUR GROWTH DEPENDS ON OUR ABILITY TO HIRE AND
    RETAIN HIGHLY QUALIFIED EMPLOYEES AND EXECUTIVES.
    The loss of the services of any of our management
    team, including our corporate consultants and key employees under contract, or the failure
    to attract and retain additional key employees could harm the continued deployment of our
    services, the marketing of our Internet telecommunications services and the development of
    new services, our brand and our strategy. Our future growth and ability to sustain this
    growth depends upon the continued service of our officers and other key sales, operations,
    marketing and support personnel.
    OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE
    SIGNIFICANTLY FROM PERIOD TO PERIOD WHICH MAY CAUSE OUR STOCK PRICE TO BE  VOLATILE.
    WE MAY ALSO FAIL TO MEET OR EXCEED THE EXPECTATIONS OF INVESTORS, CAUSING OUR STOCK PRICE
    TO DECLINE.
    Our operating results are likely to fluctuate
      in the future on a quarterly and an annual basis due to a number of factors, many
    of which are outside our control. If we experience such fluctuation, we may fail to meet
    or exceed the expectations of  investors, causing our stock price to decline or
    fluctuate from time to time.
    WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL IN
    THE FUTURE TO SUPPORT OUR GROWTH, AND EVEN IF WE ARE ABLE TO RAISE ADDITIONAL CAPITAL, IT
    MAY BE ON UNACCEPTABLE TERMS, MAY DILUTE YOUR OWNERSHIP OR MAY RESTRICT OUR FLEXIBILITY IN
    RUNNING OUR BUSINESS.
    We intend to seek additional financing in the
    future to fund the growth of our operations, including funding the significant capital
    expenditures and working capital requirements necessary for us to complete our business
    plan. In order to accomplish this business plan, we must expand our Voice over Internet
    Protocols ("VoIP") Internet telecommunications network into new international
    markets geographic areas, establish relationships with local providers in such markets and
    areas launch targeted marketing campaigns in those regions. If we are unable to raise
    additional capital or are able to raise capital only on unfavorable terms, we may not be
    able to complete our business plan which presently contemplates further acquisitions of
    existing businesses in the Internet telecommunications field, develop or enhance our
    services, take advantage of future opportunities or respond to competitive pressures or
    unanticipated requirements, any or all of which could hurt our ability to support our
    growth.
    THE SCALABILITY, RELIABILITY AND SPEED OF THE
      NETWORKS WE RELY UPON  MAY NOT SATISFY CUSTOMER DEMAND.
    We may not be able to meet our projected customer
    numbers while achieving and maintaining superior performance. This risk will continue to
    exist as long as we expand our services geographically to increasing numbers of customers.
    Our failure to achieve our performance goals, for a number of reasons including the
    reliability and inter-operability of the networks we utilize, would significantly reduce
    customer demand for our services, resulting in decreased revenues and the inability to
    build our business as planned.
    AT PRESENT, WE CANNOT PROVIDE OUR SERVICES UNLESS
    OUR ACCESS PROVIDERS SUPPLY US WITH RELIABLE  CONNECTIONS AND BANDWIDTH AND COOPERATE
    WITH US FOR THE TIMELY PROVISION OF CONNECTIONS AND BANDWIDTH FOR OUR CUSTOMERS.
    We must obtain reliable connections and bandwidth
    from telecommunications carriers and have their continuing cooperation for the timely
    provision of Internet telecommunications connections and services for our customers in
    order for us to provide our services. VoIP services uses the lines and bandwidth provided
    by local, regional, national and international communications carriers, which are under
    the control of well-established telephone companies and new competitive carriers and
    require a special connection from our network to such carriers. We rely on them to provide
    us with these connections and bandwidth, and if we were unable to use and pay the costs of
      these connections, we would not be able to provide our customers with our services
    on a reliable and continuous basis. An inability to obtain adequate and timely access to
    bandwidth on acceptable terms and conditions from these carriers and to gain their
    cooperation in the timely provision of such connections for our customers could harm our
    business, as could their failure to properly maintain the connections we use.
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|PART II. OTHER INFORMATIONItem
    1. Legal Proceedings
    See the discussion above with regard to ISS. Subsequent to the end of the quarter ended
    June 30, 2000, we were served with two complaints by Matthew Milo and Joseph Quattrocchi,
    which actions are pending in New York Supreme Court, County of Kings. The actions are are
    for alleged breach of a consulting contract and payment of a promissory note. We firmly
    believe that we have meritorious defenses to both actions, and believe that plaintiffs
    indeed have breached their contract with the Company, have been paid for their services in
    excess of the value of the services they provided prior to their resignations, and that
    the note was paid in full. Further, we believe that based upon the actions and breaches
    committed by plaintiffs we have counterclaims that exceed the value of the consideration
    and damages sought by plaintiffs. We have engaged New York counsel to defend the actions
    and in any event we do not believe that any determination will have a material adverse
    effect upon the Company. The time to answer or otherwise make any motion with respect to
    the above actions has not yet run as of the date of this report.
    Item 2. Changes in Securities
    During the three  month period ended June 30, 2000, we issued a
    total of 1,000,000 shares in connection with the acquisition of NCI and 1,312,500 in
    connection with the exercise of options and 100,000 for consulting services.  These
    shares were not registered under 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
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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)                                     
|10          | Stock Purchase Agreement between the Company and NCI                                                                                                             
|27          | Financial Data Schedule                                                                                                                                          

(b) Form 8-K.

|During the quarter ended June 30, 2000, the Company
    did not file any Reports on Form 8-K.
    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. Hinton                                         
|------------------------------------------------------------------
|Jerrold R. Hinton, President, Chief Executive Officer and Director
|Dated: August 11, 2000                                            
|Hickory, NC