-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ag4i2Ao5CUxVdxmRdDASETbn9zsZEHy9JZHCvtyW5LsfDeJZcLXt0XHKH3xNw0c+ GSgqhZra7oNg6HVx69V8FQ== 0001231742-05-000830.txt : 20051220 0001231742-05-000830.hdr.sgml : 20051220 20051219182024 ACCESSION NUMBER: 0001231742-05-000830 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051220 DATE AS OF CHANGE: 20051219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIVERSIFIED FINANCIAL RESOURCES CORP CENTRAL INDEX KEY: 0001029802 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 582027283 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22373 FILM NUMBER: 051273775 BUSINESS ADDRESS: STREET 1: SANDRA JORGENSEN STREET 2: 1771 WOLVISON WAY CITY: SAN DIEGO STATE: CA ZIP: 92154 BUSINESS PHONE: 6195757904 MAIL ADDRESS: STREET 1: 1771 WOLVISTON WAY STREET 2: SUITE CITY: SAN DIEGO STATE: CA ZIP: 92154 FORMER COMPANY: FORMER CONFORMED NAME: ELOCITY NETWORKS CORP DATE OF NAME CHANGE: 20010330 FORMER COMPANY: FORMER CONFORMED NAME: CHATTOWN COM NETWORK INC DATE OF NAME CHANGE: 20000317 FORMER COMPANY: FORMER CONFORMED NAME: VAXCEL INC DATE OF NAME CHANGE: 19961230 10QSB 1 q.txt 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 September 30, 2005. [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to. Commission file number: 000-22373 --------- DIVERSIFIED FINANCIAL RESOURCES CORPORATION ------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 58-2027283 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8765 Aero Drive, San Diego, CA 92154 ------------------------------------ (Address of principal executive office) (Zip Code) (858) 560-8321 -------------- (Issuer's telephone number) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No --------- Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ____ No X - The number of outstanding shares of the issuer's common stock, no stated par value (the only class of voting stock), as of November 15, 2005 was 2,381,323. 1
INDEX PART I.FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS. Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations (Unaudited) 4 Condensed Consolidated Statements of Cash Flows (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 ITEM 3.CONTROLS AND PROCEDURES 13 PART II.OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS 14 ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15 ITEM 3.DEFAULTS UPON SENIOR SECURITIES 15 ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15 ITEM 5.OTHER INFORMATION 15 ITEM 6.EXHIBITS 16 SIGNATURES 17
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DIVERSIFIED FINANCIAL RESOURCES CORPORATION CONSOLIDATED BALANCE SHEETS September 30, December 31, 2005 2004 ------------- ------------- (Unaudited) (Note) ASSETS Current assets: Cash $ 1,696 $ 135,754 Money market funds - 55,252 Receivable from Finance 500 - 26,849 Investments, available for sale, net 450 1,052 Receivables 88,744 3,571 Receivables from employees - 141,342 Receivable - Related Party 3,519 13,264 Prepaid expenses 19,314 44,933 Deposits - 9,174 ------------- ------------- Total current assets 113,723 431,191 Property and equipment, net 3,491 718,346 Note receivable 117,362 - Oil and gas investment 14,000 - Assets held for sale 170,307 - ------------- ------------- $ 418,883 $ 1,149,537 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 184,135 $ 100,481 Accrued payroll and payroll taxes 396,390 284,885 Accrued expenses 130,626 265,362 Litigation settlement payable 296,499 296,499 Lines-of-credit 262,015 269,692 Notes payable - related parties 75,342 323,517 Notes payable - 716,846 ------------- ------------- Total current liabilities 1,345,007 2,257,282 Commitments and contingencies - - Stockholders' deficit Preferred stock; 200,000,000 shares authorized at September 30, 2005 and December 31, 2004; designated as Series A and Series B: Series A; par value $.001; 1,000,000 shares authorized at September 30, 2005 and December 31, 2004; 13,150 shares issued and outstanding at September 30, 2005 and December 31, 2004 13 13 Series B; no par value; 50,000,000 shares authorized at September 30, 2005 and December 31, 2004; 12,100,000 and no shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 1,210 - Common stock; no par value; 10,000,000,000 shares authorized at September 30, 2005 and December 31, 2004; 2,381,323 and 1,040,800 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 18,821,820 18,490,075 Additional paid-in capital 228,587 131,487 Accumulated other comprehensive loss (64,551) (63,949) Accumulated deficit (19,913,203) (19,665,371) ------------- ------------- Total stockholders' deficit (926,124) (1,107,745) ------------- ------------- $ 418,883 $ 1,149,537 ============= ============= Note: The consolidated balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. See accompanying notes.
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DIVERSIFIED FINANCIAL RESOURCES CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Revenue $ - $ - $ - $ 12,910 General and administrative expenses 112,092 1,051,385 752,009 4,298,067 Mining exploration expenses - - 197,162 - ---------- ---------- ---------- ---------- Loss from continuing operations (112,092) (1,051,385) (949,171) (4,285,157) Interest expense (1,916) (16,789) (43,315) (46,796) Loss on sale of property - - - (272,966) Gain on sale of note receivable 30,000 - 30,000 - ---------- ---------- ---------- ---------- Net loss before equity interest in minority net income, provision for income taxes on continuing operations, and discontinued operations (84,008) (1,068,174) (962,486) (4,604,919) Provision for income taxes on continuing operations - - - - ---------- ---------- ---------- ---------- Loss before equity interest in minority net income and discontinued operations (84,008) (1,068,174) (962,486) (4,604,919) Equity interest in minority net income - 5,894 - 66,813 ---------- ---------- ---------- ---------- Net loss from continuing operations (84,008) (1,062,280) (962,486) (4,538,106) Income (loss) from discontinued operations, net of taxes 771,383 (19,678) 714,654 (85,599) ---------- ---------- ---------- ---------- Net income (loss) $ 687,375 $(1,081,958) $(247,832)$(4,623,705) ========== ========== ========== ========== Net income (loss) per share - basic and diluted: From continuing operations $ (0.04) $(1,641.85) $ (0.46) $(7,014.07) From discontinued operations 0.32 (30.41) 0.34 (132.30) ---------- ---------- ---------- ---------- Net income (loss) per share - basic and diluted $ 0.28 $(1,672.26) $ (0.12) $(7,146.37) ========== ========== ========== ========== Weighted average number of common shares outstanding - basic and diluted 2,379,918 647 2,080,347 647 ========== ========== ========== ========== See accompanying notes.
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DIVERSIFIED FINANCIAL RESOURCES CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- 2005 2004 ------------- ------------- Cash flows from operating activities of continuing operations: Net loss $ (247,832) $ (4,623,705) Less: Net income (loss) from discontinued operations, net of taxes 714,654 (85,599) ------------- ------------- Net loss from continuing operations (962,486) (4,538,106) Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities: Stock compensation expense 98,985 3,140,941 Depreciation 1,071 8,651 Uncollectible notes receivable - 33,261 Loss on sale of property - 272,966 Changes in assets and liabilities: Receivables 7,590 (19,614) Prepaid expenses (11,214) - Deposits - 5,762 Accounts payable 83,894 51,541 Accrued payroll 154,505 - Accrued expenses 6,921 1,945 Litigation settlement payable - 296,499 Related party payables 130,100 (22,811) Minority interest - (60,228) ------------- ------------- Net cash used in continuing operating activities (490,634) (829,193) Cash flow from continuing investing activities Redemption of money funds 55,252 - Purchase of oil and gas interest (14,000) - Purchase of equipment (2,698) (5,007) ------------- ------------- Net cash provided by (used for) continuing investing activities 38,554 (5,007) Cash flows from continuing financing activities Principal payments on notes payable (60,000) (4,468) Issuance of common stock 182,995 880,724 ------------- ------------- Net cash provided by continuing financing activities 122,995 876,256 Net cash provided by (used for) discontinued operations 195,027 (25,570) ------------- ------------- Net increase (decrease) in cash (134,058) 16,486 Cash at begining of year 135,754 8,006 ------------- ------------- Cash at end of year $ 1,696 $ 24,492 ============= ============= See accompanying notes.
5 DIVERSIFIED FINANCIAL RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to our audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in our Annual Report on Form 10-KSB for the year ended December 31, 2004. The consolidated financial statements include our financial statements and those of our subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 2. Going concern For the nine months ended September 30, 2005 the Company had no revenues from continuing operations, and had minimal revenue from continuing operations for the year ended December 31, 2004. For the nine months ended September 30, 2005 the Company incurred a net loss from continuing operations of approximately $962,000, and for the year ended December 31, 2004, the Company incurred a net loss of approximately $5.9 million. The Company had negative cash flows from continuing operating activities of approximately $491,000 for the nine months ended September 30, 2005, and had negative cash flows from operating activities of approximately $980,000 for the year ended December 31, 2004. As of September 30, 2005, the Company had an accumulated deficit of approximately $19.9 million, negative working capital of $1.2 million, current portion of notes payable of approximately $262,000 and accrued employee wages and taxes of approximately $396,000. The Company expects to continue to incur significant losses and negative cash flows from operating activities through at least December 31, 2005, primarily due to our inability to generate revenues sufficient to finance our operations. The Company's cash resources, limited to borrowings from related parties, sales of equity securities, and proceeds from sale of real estate properties, are not sufficient to cover operating expenses. The Company's low stock price makes raising capital very difficult. The Company's remaining properties are not generating rental income because they are not leased by tenants. As a result, payments to vendors, lenders, and employees have been delayed. These factors, as well as the risk factors set out elsewhere in the Company's Annual Report on Form 10-KSB, as amended, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management intends to fund operations through the issuance of additional equity or debt instruments or through the sale of assets. There can be no assurance that management's plans will be successful. 3. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. 4. Acquisition of mining interests in Mexico In October 2004, the Company entered into a series of agreements to acquire a majority interest in a gold mine operation and mineral leases in Mexico. One of the agreements provided a four-month exclusive option to purchase the mining operations, and $500,000 toward the purchase price was due on April 16, 2005. The Company did not make the required option payment by the due date, and all activities related to acquiring the mining interests in Mexico were curtailed and abandoned in the second quarter of 2005. In the connection with this transaction, the Company incurred expenses of $24,000, $197,000, and $383,000 during the second quarter of 2005, the first quarter of 2005, and during the fourth quarter of 2004, respectively. 6 5. Transactions with related parties Nexia Holdings, Inc. - ---------------------- On April 1, 2005, the Company issued a $30,000 note bearing interest at 11.5% to Nexia Holdings, Inc. for cash. The note and accrued interest were due April 22, 2005. On May 11, 2005, the Company issued a $230,000 note bearing interest at 8% to West Jordan Real Estate Holdings, Inc (a subsidiary of Nexia Holdings, Inc.) in exchange for $100,000 in cash and the cancellation of two notes payable and accrued interest to Nexia Holdings, Inc., including the $30,000 note referenced above. This note was forgiven on August 8, 2005 in connection with the Salt Lake Development sale and transaction, as set forth below. Issuance of Stock to J.R. Chapman - -------------------------------------- On May 6, 2005, the Company issued 4,000,000 Series B preferred shares to John Chapman, then President and currently Consultant of the Registrant, as payment for accrued office rent from January 2004 to March 2005. The accrued office rent totaled $97,500 and the Series B preferred shares were valued at $400, resulting in a gain on the settlement of this liability totaling $97,100, which was credited to additional paid-in capital. On May 6, 2005, a resolution of the Board of Directors of the Registrant authorized the issuance of 430,000,000 restricted common stock to be issued to John Chapman, then president and currently Consultant of the Registrant, for partial payment of salary due to him for services in the sum of $43,000. The issuance was carried out pursuant to Section 4 (2) of the Securities Act of 1933. Sale of Salt Lake Properties - -------------------------------- On August 8, 2005, Diversified Financial Resources Corp., a Delaware company, on behalf of it and its subsidiaries (the "Company") entered into a Stock Purchase and Release Agreement, as amended (the "Agreement"), with Diversified Holdings I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah corporation and Hudson Consulting Group, Inc., a Nevada corporation (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire the Company's interest in its majority-owned subsidiary, Salt Lake Development Corporation ("SLDC"). SLDC was the owner of a two story building of 15,000 square feet located at 268 West 400 South in Salt Lake City, Utah. Diversified Financial Resources Corp. had the building on the market for six months prior to the sale on August 8, 2005. Due to its location and its state of repair, there was only limited interest in the building and the Company was unable to complete any sales transactions. Upon interest from the purchaser, Diversified Financial Resources Corp. thought it was in the best interest of the Company to sell Salt Lake Development Corp. including the mortgage of the building and reducing the Company's overall debt. In exchange for the interest in SLDC, Purchaser agreed to (1) release the Company from principal and interest owed on promissory notes in the amounts of $230,000 and $150,000, (2) release the company from debts owed to it and its affiliates in the amount of $10,528, (3) will in affect assume the existing mortgage with First Bank of Beverly Hills of approximately $551,000 and (4) pay the Company $20,000 cash. The Company also retained the right to all proceeds and rights of a promissory note in the amount of $116,977 made payable to SLDC or its assignees, arising from the sale or transfer of four condominium units located in the City of Ogden, State of Utah. Closing occurred on September 28, 2005. On September 4, 2003, Diversified Financial Resources Corp. entered into a loan agreement with Creative Marketing Group, Inc. Said agreement was secured by a Promissory note in the amount of $58,691 bearing simple interest of 2% per month. The note was due on September 4, 2004 and remained unpaid until the sale of the note to Diversified Holdings I, Inc. a subsidiary of Nexia Holdings on July 13, 2005. With Diversified Financial Resources Corp. inability to collect coupled with our marketing effort to sell the note and the interest of Diversified Holdings I, Inc. in the Creative Marketing Note, clearly the only solution to resolve the debt at that time. The sale of the note for approximately one half of its value positioned the Company with the knowledge that they would recover at least a portion of the promissory note rather than the company having an uncollected debt on its books. Diversified Financial Resources Corp. knew after two years of collection efforts that this was in the Company's best interest. On July 13, 2005, Diversified Financial Resources Corp. assigned the promissory note to Diversified Holdings I, Inc., a subsidiary of Nexia Holdings, Inc. in exchange for a cash payment of $30,000. A gain is reflected on the statement of operations due to the receivable being fully reserved. To the best of Diversified Financial Resources Corp. knowledge the note is still remains unpaid and outstanding. From time to time, Diversified Financial Resources Corp. borrows money from J. R. Chapman, Consultant to the Registrant, to cover immediate expenses. As of September 30, 2005, the receivable from J. R. Chapman these loans is $3519, while the payable to J.R. Chapman is $51,010. 6. Litigation settlement payable The Company and its former president were named as respondents in a complaint filed by the Securities and Exchange Commission ("SEC"). The civil suit, SEC v. Wolfson, et. al., case number 2:03 CV 0914K, was filed in the United States District Court for the District of Utah. The complaint alleged that the Company and its president failed to accurately and fully disclose the nature of the Company's relationship with the Sukumo Group, Inc. and to timely disclose the execution of the Offshore Purchase Agreement. The complaint further alleged that the Company's president took actions in 2003 to manipulate the price of the Company's stock in the marketplace. The proposed settlement orders the Company's president to pay a civil penalty of $120,000 in installments over a one year term and prohibits him from serving as an officer or director of any publicly held company and from participating in the issuance of any penny stock. The proposed settlement agreement has not been accepted by the U.S. District Court as of the date of this filing. Mr. Chapman the Company's former president was named as a respondent in a complaint filed by the Securities and Exchange Commission ("SEC"). The civil suit, SEC v. Allen Z. Wolfson, et. al., case number 2:02 CV 1086 (TC), was filed in the United States District Court for the District of Utah. The complaint alleged that Mr. Chapman while the Company's president took actions in 2003 to manipulate the price of the Company's stock in the marketplace. The proposed settlement held Mr. Chapman liable for disgorgement of $64,714, representing profits gained as a result of the conduct alleged in the complaint, plus interest in the amount of $16,785 and a civil penalty of $120,000, payable in installments over a one year term. Additionally, the settlement bars Mr. Chapman from participating in the issuance of any penny stock. Mr. Chapman, while serving as president, executed the proposed settlement agreement for case number 2:02 CV 1086 (TC) and submitted it to the SEC for approval. The proposed settlement agreement was accepted and filed with the U.S.District Court on April 18, 2005. As required by the final agreement, John Chapman resigned from the Board of Directors and from his positions as President and Chief Executive Officer effective May 6, 2005. Dennis Thompson, a member of the Board of Directors, was named as President and Chief Executive Officer to replace Chapman. The Company filed a Form 8-K dated May 6, 2005 to report these events. 7 7. Discontinued operations The Company entered into purchase and sale agreements for all of its real estate properties in February, 2005. Accordingly, the Company reported its real estate operations as discontinued operations at March 31, 2005. The original purchase and sale agreements did not close, and management pursued other offers on the properties. The following new purchase and sale agreements were entered into during the second quarter, and closed in the third quarter. Management will continue to pursue the sale of the remaining real estate properties. On May 10, 2005, the Company, through its subsidiary, Salt Lake Development Corp., entered into an agreement to sell its four condo units located in Ogden, UT for a purchase price of $140,000. These units were located in a building for mixed use which included eighteen condo units on the second floor with vacant retail space on the first floor. Salt Lake Development Corp. lost the building to foreclosure to the former owner Mr. Stacy who in turn, sold the entire property (less the four condo units) to B.I.G. Investment LLC. The building's retail space on the first floor was in disrepair and Diversified Financial Resources Corp. was unable to sell its remaining four units privately until B.I.G. Investment LLC expressed an interest in obtaining the last four units in their building. Diversified Financial Resources Corp. inability to sell the Condos for over six months while on the market and B.I.G. Investment LLC's interest in the units made this transaction desirable for all parties. There were no appraisals on these four Condo properties and the purchase price was determined by the market analysis of the property along with the purchase price paid per unit by B.I.G. Investment LLC in purchase of the building from the other owner. From June 30, 2003 up to the sale of date of August 8, 2005, Diversified Financial Resources Corp. had extensive working knowledge of the building, its value and the current leasing rates in the area. These factors coupled with the limited interest in the properties along with Diversified Financial Resources Corp. unwillingness to invest further capital into the four units including obtaining appraisals that would ultimately concur with the fair market value already known to the Company. Therefore, the Company sold the units to B.I.G. Investment LLC. Diversified Financial Resources Corp. believes that based on their knowledge selling the four Condo units is a positive move and beneficial to the Company. Of this amount, $7,000 will be paid in cash at the closing, $20,400 is credited back to the buyer for the assumption of certain liabilities and closing costs, and the Company will finance the remaining balance of $112,600 over 30 years at 7.5% interest per annum. The entire unpaid balance of principal and interest is due 24 months from the date of the note. The note is secured by a deed of trust and if the buyer defaults on the note, the four properties will be returned to the Company. The transaction closed on July 22, 2005, consistent with all material aspects of the sale agreement. The carrying value of the condos was zero at June 30, 2005. The Company recorded the gain of $117,000 on the sale of the properties in the third quarter, and the gain is included in discontinued operations. Since the sale of the property to B.I.G. Investment LLC, the promissory payments have been current. On June 28, 2005, the Company, through its subsidiary, Diversified Holdings XIX, Inc., entered into an agreement to sell its residential property located in Murray, UT for a purchase price of $100,000. The transaction closed on July 27, 2005, and the Company received $94,000 after closing costs. The carrying value of this residential property at June 30, 2005 was $59,800. The Company recorded the gain of $37,000 on the sale of the properties in the third quarter, and the gain is included in discontinued operations. As reported in its Form 8-K filing dated November 2, 2005, on August 8, 2005, Diversified Financial Resources Corp., a Delaware company, on behalf of it and its subsidiaries (the "Company") entered into a Stock Purchase and Release Agreement, as amended (the "Agreement"), with Diversified Holdings I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah corporation and Hudson Consulting Group, Inc., a Nevada corporation (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire the Company's interest in its majority-owned subsidiary, Salt Lake Development Corporation ("SLDC"). SLDC was the owner of a two story building of 15,000 square feet located at 268 West 400 South in Salt Lake City, Utah. In exchange for the interest in SLDC, Purchaser agreed to (1) release the Company from principal and interest owed on promissory notes in the amounts of $230,000 and $150,000, (2) release the company from debts owed to it and its affiliates in the amount of $10,528, and (3) pay the Company $20,000 cash. The Company also retained the right to all proceeds and rights of a promissory note in the amount of $117,000 made payable to SLDC or its assignees, arising from the sale or transfer of four condominium units located in the City of Ogden, State of Utah. The Company recorded the gain of $630,000 on the sale of the SLDC in the third quarter, and the gain is included in discontinued operations. On September 29, 2005, the Company, through its subsidiary, Diversified Holdings XIX, Inc., sold a duplex located on South 565 East in Salt Lake City, UT to an unaffiliated purchaser. Proceeds from this sale after closing amounted to $89,000, and the Company recorded the gain of $54,000 on the sale of the property in the third quarter as discontinued operations. In the sale of Salt Lake Development Corp., the Wichita Development Corp. state tax liability in the amount of $45,638.00 was not assumed by the purchaser and therefore remains outstanding liability. The following table details selected statement of operations information for the discontinued operations.
Three months ended September 30, Nine months ended September 30, ---------------------------------- --------------------------------- 2005 2004 2005 2004 ---------------- ---------------- ---------------- ---------------- Revenue. . . . . . . . . . . . . . . . . . . . $ - $ 10,750 $ 6,318 $ 40,864 General and administrative expenses. . . . . . 59,130 1,496 79,758 53,667 ---------------- ---------------- ---------------- ---------------- Loss from discontinued operations. . . . . . . (59,130) 9,254 (73,440) (12,803) Interest expense . . . . . . . . . . . . . . . (13,561) (28,932) (55,981) (72,795) Gain (loss) on sale of property. . . . . . . . 844,074 - 844,074 - ---------------- ---------------- ---------------- ---------------- Net income (loss) from discontinued operations $ 771,383 $ (19,678) $ 714,653 $ (85,598) ================ ================ ================ ================
8 The assets and liabilities associated with the real estate operations are included in the Consolidated Balance Sheet. The following table details selected balance sheet information for the real estate operations.
September 30, 2005 December 31, 2004 ------------------- ------------------ Other assets . . . . $ 206,106 $ 61,369 Assets held for sale 170,307 714,846 ------------------- ------------------ Total assets . . . . $ 376,413 $ 776,215 =================== ================== Other liabilities. . $ 19,282 $ 63,679 Lines of credit. . . 262,015 269,692 Notes payable. . . . - 656,846 ------------------- ------------------ Total liabilities. . $ 281,297 $ 990,217 =================== ==================
8. On July 11, 2005, the Company's Board of Directors approved a 1 for 2,000 reverse common stock split. All common stock amounts and per share information in the accompanying consolidated financial statements have been retroactively adjusted to reflect this reverse common stock split. 9. On June 13, 2005, Diversified Financial Resources Corp. entered into a fee agreement for legal services. Pursuant to this agreement, the company issued 20,000 shares of common stock (when adjusted for the 2,000 to 1 reverse stock split on August 25, 2005) and options to purchase 1,000,000 shares of common stock at an exercise price of $.05 per share. These options expire Dec. 31, 2010. 10. Recent accounting pronouncements In May 2005, FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements ("SFAS 154"). This Statement replaces APB Opinion No. 20 and FASB Statement No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, this Statement requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this Statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. Other significant recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force ("EITF")), the American Institute of Certified Public Accountants, and the SEC are discussed elsewhere in these notes to the consolidated financial statements. In the opinion of management, significant recent accounting pronouncements did not or will not have a material effect on the consolidated financial statements. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS As used herein the term "DFRC" or the "Company" refers to Diversified Financial Resources Corporation, its subsidiaries and predecessors, unless indicated otherwise. DFRC was incorporated in the State of Delaware on January 6, 1993, as Vaxcel, Inc. On December 19, 2000, DFRC changed its name to eLocity Networks, Inc. On August 6, 2002, DFRC changed its name to Diversified Financial Resources Corporation. DFRC currently has four organized subsidiary corporations, Diversified Holdings XIX, Inc., International Natural Resources Corp., Wichita Development Corporation, and Wichita Properties, Inc. On August 8, 2005, Diversified Financial Resources Corp., a Delaware company, on behalf of it and its subsidiaries (the "Company") entered into a Stock Purchase and Release Agreement, as amended (the "Agreement"), with Diversified Holdings I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah corporation and Hudson Consulting Group, Inc., a Nevada corporation (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire the Company's interest in its majority-owned subsidiary, Salt Lake Development Corporation ("SLDC"). SLDC was the owner of a two story building of 15,000 square feet located at 268 West 400 South in Salt Lake City, Utah. In exchange for the interest in SLDC, Purchaser agreed to (1) release the Company from principal and interest owed on promissory notes in the amounts of $230,000 and $150,000, (2) release the company from debts owed to it and its affiliates in the amount of $10,528 and (3) pay the Company $20,000 cash. The Company also retained the right to all proceeds and rights of a promissory note in the amount of $116,977.00 made payable to SLDC or its assigns, arising from the sale or transfer of four condominium units located in the City of Ogden, State of Utah. Forward Looking Statements - ---------------------------- The information herein contains certain forward looking statements. Investors are cautioned that all forward looking statements involve risks and uncertainty, including, without limitation, the ability of the Company to continue its expansion strategy, changes in the real estate markets, labor and employee benefits, as well as general market conditions, competition, and pricing. Although the Company believes that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward looking statements included in the Form 10-QSB will prove to be accurate. In view of the significant uncertainties inherent in the forward looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. General - ------- DFRC currently operates as a Real Estate Holdings Company and Natural Resources. DFRC intends to scale back its real estate and other business development investigations or operations and focus on acquiring oil and gas operations and mining operations. Real Estate Investments - ------------------------- The Company is actively pursuing the sale of its remaining real estate properties. As of September 30, 2005, the following properties were sold. On May 10, 2005, the Company, through its subsidiary, Salt Lake Development Corp., entered into an agreement to sell its four condo units located in Ogden, UT for a purchase price of $140,000. Of this amount, $7,000 will be paid in cash at the closing, $20,400 is credited back to the buyer for the assumption of certain liabilities and closing costs, and the Company will finance the remaining balance of $112,600 over 30 years at 7.5% interest per annum. The entire unpaid balance of principal and interest is due 24 months from the date of the note. The transaction closed on July 22, 2005, consistent with all material aspects of the sale agreement. On June 28, 2005, the Company, through its subsidiary, Diversified Holdings XIX, Inc., entered into an agreement to sell its residential property located in Murray, UT for a purchase price of $100,000. The transaction closed on July 27, 2005, and the Company received $94,000 after closing costs. As reported in its Form 8-K filing dated November 2, 2005, on August 8, 2005, Diversified Financial Resources Corp., a Delaware company, on behalf of it and its subsidiaries (the "Company") entered into a Stock Purchase and Release Agreement, as amended (the "Agreement"), with Diversified Holdings I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah corporation and Hudson Consulting Group, Inc., a Nevada corporation (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire the Company's interest in its majority-owned subsidiary, Salt Lake Development Corporation ("SLDC"). SLDC was the owner of a two story building of 15,000 square feet located at 268 West 400 South in Salt Lake City, Utah. In exchange for the interest in SLDC, Purchaser agreed to (1) release the Company from principal and interest owed on promissory notes in the amounts of $230,000 and $150,000, (2) release the company from debts owed to it and its affiliates in the amount of $10,528, and (3) pay the Company $20,000 cash. The Company also retained the right to all proceeds and rights of a promissory note in the amount of $117,000 made payable to SLDC or its assigns, arising from the sale or transfer of four condominium units located in the City of Ogden, State of Utah. On September 29, 2005, the Company, through its subsidiary, Diversified Holdings XIX, Inc., sold a duplex located on South 565 East in Salt Lake City, UT to an unaffiliated purchaser. Proceeds from this sale after closing amounted to $89,000. Land and Natural Resources - ----------------------------- Mining interests. The Company signed agreements in 2004 with professionals to - ------------------ seek out the potential development of mining opportunities within the Country of Mexico. The Company hired professionals to locate resources and available mining claims, to prepare documents to make claims, and to perform other due diligence procedures. The Mexican mining interests are more fully set forth and described in the Company's 10-KSB/A report for the fiscal year ended December 31, 2004, filed on April 25, 2005. At the current time, all options held by the Company to acquire mining interests in Mexico have expired of their own terms. All activities related to acquiring mining interests in Mexico were curtailed and abandoned during the second quarter of 2005. Oil and gas interests. On September 30, 2005, the Company entered into an - ------------------------- Investment Agreement with Sigma Energy and Exploration, whereby the Company invested $40,000.00 in an interest in Shannon GG Lease Wells 2 & 3. Pursuant to this Agreement, after certain exploration activities, Sigma will assign the Company an undivided 5.3333/32nds (11.359% net) interest in the wells, which includes a 68% net revenue interest in the property. No assignments will be given for dry holes. This investment and the sale of the Company's properties over the last two quarters reflects the Company's revised business plan, which includes moving from a real estate holding company to oil and gas investments. The Company is currently analyzing other gold and silver mining opportunities, as well as oil and gas opportunities. 10 Results of Operations - ----------------------- The following discussion and analysis should be considered in light of recent changes in management and operational focus, and should be read in conjunction with the Financial Statements and other disclosures in Form 10KSB/A for the year ended December 31, 2004. Continuing operations - ---------------------- During the three months ended September 30, 2005 and 2004, the Company had no revenues from continuing operations. During the nine months ended September 30, 2005, the Company had no revenues from continuing operations compared to $13,000 for the 2004 period. The Company is selling its real estate holdings and investing in oil and gas properties, and revenues from continuing operations have yet to be established. During the three months ended September 30, 2005, the Company's general and administrative expenses were $112,000, representing a $939,000 decrease from the same period in 2004, when general and administrative expenses were $1.1 million. In 2005, and especially in the second quarter, the Company reduced its use of consultants and trimmed its work force. These actions significantly reduced general and administrative expense, and account for $298,000 of the decrease in general and administrative expense for the quarter. The Company also expensed $300,000 and $305,000 in the 2004 period for Director's fees and the SEC settlement, respectively, and the Company did not incur these expenses in the 2005 period which accounts for the remainder of the decrease in general and administrative expense for the 2005 period. During the nine months ended September 30, 2005, the Company's general and administrative expenses were $752,000, representing a $3.5 million decrease from the same period in 2004, when general and administrative expenses were $4.3 million. In the first quarter of 2004, the Company issued 30,000,000 million restricted common shares to John Chapman for services rendered, and recorded $2.4 million of expense. There was no such stock compensation in the current period. The reduction in the work force accounts for $610,000 of the decrease in general and administrative expense for the 2005 period compared to the 2004 period. The Director's fees were $21,000 for the 2005 period, compared to $300,000 for the 2004 period, resulting in a $279,000 decrease in general and administrative expense for the 2005 period. The Company recorded $26,000 related to the SEC settlement in the 2005 period, compared to $305,000 in the 2004 period, resulting in a $279,000 decrease in general and administrative expense for the 2005 period. During the three months ended September 30, 2005, the Company did not incur any expenses related to the mining activity in Mexico. During the nine months ended September 30, 2005, the Company incurred expenses related to the mining activity in Mexico totaling $197,000. The Company began incurring expenses related to the mining activity in Mexico during the fourth quarter of 2004. All activities related to acquiring mining interests in Mexico were curtailed and abandoned during the second quarter of 2005 when the Company was not able to make the $500,000 payment required pursuant to the agreements. During the three months ended September 30, 2005, the Company's net loss from continuing operations was $84,000, representing a $1.0 million improvement from the same period in 2004, when the net loss from continuing operations was $1.1 million. During the nine months ended September 30, 2005, the Company's net loss from continuing operations was $962,000, representing a $3.5 million improvement from the same period in 2004, when the net loss from continuing operations was $4.5 million. The net loss from continuing operations in the 2004 periods included the loss on the trustee sale of a commercial building of $273,000. The improvement in the 2005 net loss from continuing operations for both periods, excluding the loss on property sale, comes from lower general and administrative expenses, which were offset by the increase in expenses related to the mining activity in Mexico. Discontinued operations - ------------------------ The net income from discontinued operations during the three months ended September, 30, 2005 was $771,000, compared to a net loss from discontinued operations of $20,000 for the 2004 period. The net income from discontinued operations during the nine months ended September 30, 2005 was $715,000, compared to a net loss from discontinued operations of $86,000 for the 2004 period. The Company sold its Salt Lake Development subsidiary, and three of its residential properties during the three months ended September 30, 2005, and recorded a gain of $844,000 on these sales. The Company has two more residential properties that are for sale. 11 Liquidity and Capital Resources - ---------------------------------- As of September 30, 2005, the Company had current assets of $114,000 compared to current assets of $431,000 as of December 31, 2004. During the nine months ended September 30, 2005, we collected the receivables from employees of $141,000, collected the receivable from Finance 500 of $27,000, redeemed our money market funds of $55,000, and used existing cash balances and proceeds from the sale of properties to help fund operations during the period. We had a working capital deficit of $1.2 million as of September 30, 2005, compared to a working capital deficit of $1.8 million as of December 31, 2004. The working capital deficit improved primarily because the mortgage on the office building owned by the Salt Lake Development subsidiary was included in the sale of that company. The lines of credit are classified as current liabilities at September 30, 2005 and December 31, 2004, due to our inability to make timely monthly payments. Total stockholders' deficit was $926,000 as of September 30, 2005, compared to $1.1 million as of December 31, 2004, and the improvement is the net effect of the current loss from operations and the gain on the sale of the properties in discontinued operations. Net cash flows used by continuing operating activities were $491,000 for the nine months ended September 30, 2005, compared to $829,000 for the same period in 2004. The decrease in cash flows used by continuing operating activities in the current period relates to our limited use of consultants and work force reduction and our attempt to control all costs. Net cash flows provided by continuing investing activities were $39,000 for the nine months ended September 30, 2005, compared to net cash flows used for continuing investing activities of $5,000 for the same period in 2004. The increase of net cash flows provided by continuing investing activities relates primarily to our liquidation of money funds, which we used to fund operations in 2005. Net cash flows provided by continuing financing activities were $123,000 for the nine months ended September 30, 2005, compared to net cash flows provided by continuing financing activities of $876,000 for the same period in 2004. We had more option activity in 2004 than in 2005, resulting in decreased cash flows in the current period. Due to our debt service on the remaining real estate holdings and anticipated expenses related to other operating activities, we may experience cash flow shortages throughout 2005. We plan to raise additional funds through the sale of common stock or issuance of debt to fund such shortages. Our ability to raise additional funds in the future is uncertain, and we may be forced to curtail certain activities if we are not successful in raising additional funds. Ability to continue as a going concern - -------------------------------------------- Our ability to continue as a going concern is in doubt. We incurred a loss from continuing operations of approximately $962,000 for the nine months ended September 30, 2005; had an accumulated deficit of approximately $19.9 million at September 30, 2005; and had a stockholders' deficit of approximately $926,000 at September 30, 2005. To date, we financed operations primarily through the issuance of common stock, and more recently through the proceeds from the sale of certain real estate properties. The common stock issuances were made either pursuant to the exercise of stock options or the issuance of stock for services. We will need to substantially increase operating income, and raise significant additional capital to continue as a going concern. There is no assurance that we will be able to increase operating income or raise additional capital in order to continue as a going concern over the next 12 months. See Note 2 to the financial statements. Other - ----- On June 13, 2005, Diversified Financial Resources Corp. entered into a fee agreement for legal services. Pursuant to this agreement, the company issued 20,000 shares of common stock (when adjusted for the 2,000 to 1 reverse stock split on August 25, 2005) and options to purchase 1,000,000 shares of common stock at an exercise price of $.05 per share. These options expire Dec. 31, 2010. 12 ITEM 3. CONTROLS AND PROCEDURES The Company's president acts both as the Company's chief executive officer and chief financial officer ("Certifying Officer") and is responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officer has concluded (based on his evaluation of these controls and procedures as of September 30, 2005) that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) or 15(d)-15(e)) under the Securities Exchange Act of 1934) are effective. No significant changes were made in the Company's internal controls over financial reporting or in other factors that could significantly affect those controls in the last fiscal quarter that have materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting. Due to the Certifying Officer's dual role as chief executive officer and chief financial officer, the Company has no segregation of duties related to internal controls. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Since the filing of DFRC's 10-KSB/A for the period ended December 31, 2004, no material changes have occurred to the legal proceedings reported therein, except as reported herein below. For more information please see DFRC's Form 10-KSB/A for the year ended December 31, 2004, filed November 15, 2005. Securities and Exchange Commission v. David M. Wolfson, et al. On October 16, 2003 a civil complaint was filed by the Securities and Exchange Commission in which DFRC was named as a respondent. The Company's president John Chapman was also named as a respondent. The suit was filed in the United States District Court for the District of Utah and bears the docket number 2:03CV00914DAK and the style of the case is: "Securities and Exchange Commission v. David M. Wolfson; NuWay Holdings, Inc., a Nevada corporation; Momentous Group, LLC, a Utah limited liability company; Leeward Consulting Group, LLC, a Utah limited liability company; Sukumo Limited, a company incorporated in the British Virgin Islands (a.k.a. Sukumo Group, Ltd., Fujiwara Group, First Chartered Capital Corporation, First Colonial Trust, First China Capital and International Investment Holding); Michael Sydney Newman (A.K.A. Marcus Wiseman); Stem Genetics, Inc., a Utah corporation; Howard H. Robertson; Gino Carlucci; G & G Capital, LLC an Arizona and Utah limited liability company; F10 Oil and Gas Properties, Inc.; Jon H. Marple; Mary E. Blake; Jon R. Marple; Grateful Internet Associates, LLC, a Colorado limited liability company; Diversified Financial Resources Corporation, a Delaware corporation; John Chapman; Valesc Holdings, Inc., a New Jersey corporation; Jeremy D. Kraus; Samuel Cohen; NCI Holdings, Inc., a Nevada corporation." The complaint alleges that the Company failed to accurately and fully disclose the nature of the Company's relationship to The Sukumo Group, Inc., including the failure of Sukumo to complete the purchase of the shares and alleges that Sukumo acted as a selling agent for the Company. The complaint alleges that the Company and Mr. Chapman failed to accurately and fully disclose the nature of the Company's relationship to The Sukumo Group, Inc. and timely disclosure of the execution of the Offshore Purchase Agreement. The complaint further alleges that Mr. Chapman took actions during 2003 to manipulate the price of the Company's stock in the marketplace. The complaint also faults The Sukumo Group Inc.'s actions with regard to the sale of common stock to off shore purchasers for failing to disclose the interest that Sukumo had in each sale, reporting that it was taking a 1-2% commission on the re-sale rather than disclosing that it was keeping 70% of the proceeds of each transaction. The Company has entered into settlement discussions with the SEC which are ongoing at this time. John Chapman, the Company's former president, was named as a respondent in a complaint filed by the Securities and Exchange Commission ("SEC"). The civil suit, SEC v. Allen Z. Wolfson, et. al., case number 2:02 CV 1086 (TC), was filed in the United States District Court for the District of Utah. The complaint alleges that Mr. Chapman while the Company's president, took actions in 2003 to manipulate the price of the Company's stock in the marketplace. Settlement of this matter as agreed upon between the SEC, the Company and Mr. Chapman holds Mr. Chapman, formerly the president of the Company, liable for disgorgement of $64.714, representing profits gained as a result of the conduct alleged in the complaint, plus interest in the amount of $16,785 and a civil penalty of $120,000, payable in installments over a one year term. Additionally, the settlement bars Mr. Chapman from participating in the issuance of any penny stock. Mr. Chapman, as president of the Company, executed the proposed settlement agreements. The proposed settlement agreements were accepted and filed with the U.S. District Court on April 18, 2005. As required by the final agreements, John Chapman resigned from the Board of Directors and from his positions as President and Chief Executive Officer effective May 6, 2005. Dennis Thompson, a member of the Board of Directors, was named as President and Chief Executive Officer to replace Chapman. The Company filed a Form 8-K dated May 6, 2005 to report these events. 14 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On June 13, 2005, Diversified Financial Resources Corp. entered into a fee agreement for legal services. Pursuant to this agreement, the company issued 20,000 shares of common stock (when adjusted for the 2,000 to 1 reverse stock split on August 25, 2005) from its stock plan and options to purchase 1,000,000 shares of common stock at an exercise price of $.05 per share. These options expire Dec. 31, 2010. This issuance was pursuant to Section 4(2) of the Act and/or Regulation D. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION On July 11, 2005, majority shareholders of the Company took action by written consent to implement a 2000 to 1 reverse split of the Company's common stock. The Company filed a definitive Schedule 14C reporting the action on August 3, 2005. The reverse split was effective on August 24, 2005. On August 8, 2005, Diversified Financial Resources Corp., a Delaware company, on behalf of it and its subsidiaries (the "Company") entered into a Stock Purchase and Release Agreement, as amended (the "Agreement"), with Diversified Holdings I, Inc., a Nevada corporation, West Jordan Real Estate Holdings, Inc., a Utah corporation and Hudson Consulting Group, Inc., a Nevada corporation (collectively, the "Purchaser"), whereby Diversified Holdings I would acquire the Company's interest in its majority-owned subsidiary, Salt Lake Development Corporation ("SLDC"). SLDC was the owner of a two story building of 15,000 square feet located at 268 West 400 South in Salt Lake City, Utah. In exchange for the interest in SLDC, Purchaser agreed to (1) release the Company from principal and interest owed on promissory notes in the amounts of $230,000 and $150,000, (2) release the company from debts owed to it and its affiliates in the amount of $10,528, and (3) pay the Company $20,000 cash. The Company also retained the right to all proceeds and rights of a promissory note in the amount of $116,977.00 made payable to SLDC or its assignees, arising from the sale or transfer of four condominium units located in the City of Ogden, State of Utah. On September 29, 2005, the Company, through its subsidiary, Diversified Holdings XIX, Inc., sold a duplex located on South 565 East in Salt Lake City, UT to an unaffiliated purchaser. Proceeds from this sale after closing amounted to $88,744.22. On September 30, 2005, the Company entered into an Investment Agreement with Sigma Energy and Exploration, whereby the Company invested $40,000.00 in an interest in Shannon GG Lease Wells 2 & 3. Pursuant to this Agreement, after certain exploration activities, Sigma will assign the Company an undivided 5.3333/32nds (11.359% net) interest in the wells, which includes a 68% net revenue interest in the property. No assignments will be given for dry holes. This investment and the sale of the Company's properties over the last two quarters reflects the Company's revised business plan, which includes moving from a real estate holding company to oil and gas investments. 15 ITEM 6. EXHIBITS Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits of this Form 10-QSB, and are incorporated herein by this reference. INDEX OF EXHIBITS Exhibit No. Description 3(i)(a) * Articles of Incorporation of DFRC (note that these were amended by the Articles of Merger constituting Exhibit 2 to the December 31, 1993 Form 10-KSB) (incorporated herein by reference from Exhibit No. 3(i) to DFRC's Form 10-KSB for the year ended December 31, 1993). 3(i)(b) * Amendment to Certificate of Incorporation dated February 16, 2000 to change name of DFRC from Vaxcel, Inc. to Chattown.com Networks, Inc. (Incorporated by reference from Exhibit 3(i)(b) of DFRC's Form 10-QSB for the six months ended June 30, 2002) 3(i)(c) * Amendment to Certificate of Incorporation dated December 19, 2000 to change name of DFRC from Chattown.com Networks, Inc. to eLocity Networks Corporation (incorporated herein by reference from Exhibit 3(iii) of DFRC's Form 10-KSB for the year ended December 31, 2000). 3(i)d * Amendment to Certificate of Incorporation dated December 23, 2002 to change name of DFRC from eLocity Networks Corporation to Diversified Financial Resources Corporation (incorporated herein by reference from Schedule 14(c) filed August 8, 2002). 3(i)e * Amendment to Certificate of Incorporation to increase the number of authorized shares of common stock to 10,000,000,000 with no stated par value (incorporated herein by reference from Schedule 14(c) filed on March 5, 2004). 3(i)f * Certificate of Designation of Series A Preferred Stock (incorporated herein by reference from Exhibit 3(i)(f) of DFRC's Form 10-QSB for the six months ended June 30, 2005, as amended, filed November 15, 2005). 3(i)g * Certificate of Determination of Series B Preferred Stock (incorporated herein by reference from Schedule 14C filed September 22, 2004). 3(i)(h) * Amendment to Certificate of Incorporation implementing the 2000 to 1 reverse stock split (incorporated herein by reference from Schedule 14(c) filed August 3, 2005.) 3(ii) * Bylaws of DFRC, as amended (incorporated herein by reference from Exhibit 3(ii) of DFRC's Form 10-KSB for the year ended December 31, 1995). 10.1 * Employment Agreement with Dennis Thompson (incorporated herein by reference from DFRC's Form 8-K dated May 6, 2005) 10.2 * Consulting Agreement with John R. Chapman (incorporated herein by reference from DFRC's Form 8-K dated May 6, 2005) 10.3 * Promissory Note with West Jordan Real Estate (incorporated herein by reference from Exhibit 10(3) of DFRC's Form 10-QSB for the six months ended June 30, 2005, as amended, filed November 15, 2005). 10.4 * Stock Purchase and Release Agreement with Diversified Holdings I, Inc. and affiliates (incorporated herein by reference from Exhibit 10.1 of DFRC's Form 8-K filed November 2, 2005). 10.5 * Amendment to Stock Purchase and Release Agreement with Diversified Holdings I, Inc. and affiliates (incorporated herein by reference from Exhibit 10.2 of DFRC's Form 8-K filed November 2, 2005) 10.6 * Investment Agreement with Sigma Energy & Exploration (incorporated herein by reference from Exhibit 10.3 of DFRC's Form 8-K filed November 2, 2005) 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Section 1350 Certification *Previously filed as indicated and incorporated herein by reference from the referenced filings previously made by DFRC. 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Diversified Financial Resources Corporation Date: December 20, 2005 /s/ Dennis Thompson - --------------------- Dennis Thompson, President and Director 17 EX-31.1 2 ex311.txt EXHIBIT 31.1 EXHIBIT 31.1 Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to 302 of the Sarbanes-Oxley Act of 2002 I, Dennis Thompson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Diversified Financial Resources Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 20, 2005 /s/ Dennis Thompson - --------------------- Dennis Thompson, Chief Executive Officer EX-31.2 3 ex312.txt EXHIBIT 31.2 EXHIBIT 31.2 Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to 302 of the Sarbanes-Oxley Act of 2002 I, Dennis Thompson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Diversified Financial Resources Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 20, 2005 /s/ Dennis Thompson - --------------------- EX-32.1 4 ex321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Dennis Thompson, Chief Executive Officer and Chief Financial Officer of Diversified Financial Resources Corporation (the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) the Quarterly Report on Form 10-QSB of the Registrant, to which this certification is attached as an exhibit (the "Report"), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. DATED: December 20, 2005 /s/ Dennis Thompson - --------------------- Dennis Thompson Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----