1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 0-27249
EZCONNECT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0284731
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
716 EAST 4500 SOUTH, SUITE N-142, MURRAY, UT 84107
- --------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(801) 270-9711
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, was 8,660,424 shares of common stock, par value $0.001, as of December
31, 1999.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of December 31, 1999; the
related audited balance sheet of the Company as of June 30, 1999; and the
related unaudited statements of operations and cash flows for the three and
six month periods ended December 31, 1999 and 1998 and from November 1, 1996
(inception of the development stage) through December 31, 1999; are attached
hereto and incorporated herein by this reference.
Operating results for the three and six month periods ended December 31,
1999 is not necessarily indicative of the results that can be expected for the
Company's fiscal year ending June 30, 2000.
3
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Balance Sheets
ASSETS
------
December 31, June 30,
1999 1999
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 8,992 $ -
------------ ------------
Total Current Assets 8,992 -
------------ ------------
PROPERTY AND EQUIPMENT
Computer and office equipment 26,286 -
Less: accumulated depreciation (1,345) -
------------ ------------
Total Property and Equipment 24,941 -
------------ ------------
OTHER ASSETS:
Intangible assets, less amortization of $150 8,860 -
------------ ------------
TOTAL ASSETS $ 42,793 -
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 80 -
Accrued liabilities 3,020 -
Customer deposits 1,050 -
Accrued payroll taxes 3,774 -
------------ ------------
Total Current Liabilities 7,924 -
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.001,
5,000,000 shares authorized, no shares
issued and outstanding - -
Common stock, par value $0.001, 40,000,000
shares authorized, 8,660,424 and 3,463,659
shares issued and outstanding, respectively 8,660 34,637
Capital in excess of par value 1,272,505 1,061,294
Earnings (deficit) prior to November 1, 1996 (654,259) (654,259)
Earnings (deficit) accumulated during the
development stage (592,037) (441,672)
------------ ------------
Total Stockholders' Equity 34,869 -
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,793 $ -
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Statements of Operations
For the For the For the For the Cumulative
Three Months Three Months Six Months Six Months During
Ended Ended Ended Ended the
December 31, December 31, December 31, December 31, Development
1999 1998 1999 1998 Stage
------------ ------------ ------------ ------------ ------------
REVENUES $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
EXPENSES
Selling and marketing 1,385 - 1,385 - 1,385
General and administrative 111,467 27,290 122,849 29,460 525,701
Research and development 22,713 - 22,713 - 22,713
Depreciation and amortization 1,495 - 1,495 - 3,525
------------ ------------ ------------ ------------ ------------
Total Expenses 137,060 27,290 148,442 29,460 553,324
------------ ------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (137,060) (27,290) (148,442) (29,460) (553,324)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest expense (2,340) - (2,340) - (15,599)
Loss on sale of assets - - - - (27,781)
Interest income 417 - 417 - 417
Other income - - - - 4,250
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (1,923) - (1,923) - (38,713)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (138,983) $ (27,290) $ (150,365) $ (29,460) $ (592,037)
============ ============ =========== ============ ============
EARNINGS (LOSS) PER SHARE $ (0.02) $ (0.01) $ (0.02) $ (0.01)
============ ============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES 8,294,330 3,463,659 5,879,994 3,463,659
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Statements of Cash Flows
For the For the For the For the Cumulative
Three Months Three Months Six Months Six Months During
Ended Ended Ended Ended the
December 31, December 31, December 31, December 31, Development
1999 1998 1999 1998 Stage
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (138,983) $ (27,290) $ (150,365) $ (29,460) $ (592,037)
Adjustments to Reconcile Net Income
(Loss) to net cash used by operations
Depreciation and amortization 1,495 - 1,495 - 3,525
Loss from sale of assets - - - - 27,781
Stock issued for services - 26,585 7,500 26,585 195,063
Changes in Assets and Liabilities:
(Increase) decrease in prepaid
expenses - - - - 2,533
(Increase) decrease in other assets - - - - 5,867
Increase (decrease) in accounts
payable (3,000) - (2,920) - (2,920)
Increase (decrease) in accrued
liabilities 3,020 - 3,020 - 13,279
Increase (decrease) in customers
deposits 1,050 - 1,050 - 1,050
Increase (decrease) in accrued
payroll taxes 3,774 - 3,774 - 3,774
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) in
Operating Activities (132,644) (705) (136,446) (2,875) (342,085)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment on note payable - - (30,000) - (30,000)
Acquisition of EZConnect USA, Inc. 6,169 - 6,169 - 6,169
Sale of property - - - - 25,000
Patent costs (9,010) - (9,010) - (9,010)
Acquisition of computer and office
equipment (8,771) - (8,771) - (8,771)
Purchase of property - - - - (54,811)
------------ ------------ ------------- ----------- ------------
Net Cash Provided (Used) in
Investing Activities $ (11,612) $ - $ (41,612) $ - $ (71,423)
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock $ 169,000 $ - $ 200,000 $ - $ 252,000
Stock offering costs - - - - (12,500)
Proceeds from convertible debentures - - - - 169,350
Lease payments (12,950) - (12,950) - (12,950)
Proceeds from payments on shareholder
loans (3,417) - - - -
Proceeds from notes payable - - - - 25,000
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 152,633 - 187,050 - 420,900
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 8,377 (705) 8,992 (2,875) 7,392
CASH - BEGINNING OF PERIOD 615 705 - 2,875 1,600
------------ ------------ ------------ ------------ ------------
CASH - END OF PERIOD $ 8,992 $ - $ 8,992 $ - $ 8,992
============ ============ ============ ============ ============
6
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Statements of Cash Flows (Continued)
For the For the For the For the Cumulative
Three Months Three Months Six Months Six Months During
Ended Ended Ended Ended the
December 31, December 31, December 31, December 31, Development
1999 1998 1999 1998 Stage
------------ ------------ ------------ ------------ ------------
NON-CASH FINANCING ACTIVITIES
Common stock issued for accrued
interest $ - $ - $ - $ - $ 10,259
Common stock issued for the
conversion of debentures $ - $ - $ - $ - $ 169,350
Common stock issued for the
conversion of a note payable $ - $ - $ - $ - $ 25,000
Common stock issued for services
rendered $ - $ 26,585 $ 7,500 $ 26,585 $ 195,063
SUPPLEMENTAL SCHEDULE OF CASH FLOW
ACTIVITIES
CASH PAID FOR:
Interest $ 2,340 $ - $ - $ 1,000 $ 4,840
Taxes $ - $ - $ 385 $ - $ 385
The accompanying notes are an integral part of these consolidated financial
statements.
7
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company, without audit, has prepared the accompanying consolidated
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operation and cash flows at
December 31, 1999 and 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's June 30, 1999
audited financial statements. The results of operations for the periods ended
December 31, 1999 and 1998 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - CHANGE OF CORPORATE DOMICILE AND OTHER CORPORATE MATTERS
On October 15, 1999, the shareholders of EZConnect, Inc. effected a 1 for 2.5
reverse spit in the issued and outstanding shares of EZConnect, Inc.'s common
stock. This transaction has been retroactively reflected in these financial
statements. EZConnect, Inc., with the approval of its shareholders, also
changed its Corporate domicile from Utah to Nevada and in connection with this
action changed the name of the Company from Diversified Industries, Inc. to
EZConnect, Inc. and modified certain other provisions of the Company's
governing instruments by merging it into a new Nevada corporation created for
the purpose of changing its Corporate domicile. At the time of the change of
Corporate domicile, the Company changed its authorized shares of common stock
to 40,000,000 shares, and its par value to $.001, and authorized 5,000,000
shares of preferred stock at a $.001 par value.
NOTE 3 - BUSINESS COMBINATION
On September 27, 1999, the Company and EZConnect USA, Inc. entered into an
Agreement and Plan of Reorganization which was approved by a majority of the
Company's shareholders at a special meeting held October 15, 1999. EZConnect
USA, Inc. is a Utah Corporation which was newly formed in 1999, to engage in
the remote establishment and disconnection of utility services and is a
development stage company.
The Acquisition agreement provided that EZConnect, Inc. acquire all the issued
and outstanding shares of EZConnect USA, Inc. shares of common stock held by
its shareholders in exchange for 6,075,000 shares of EZConnect, Inc. common
stock and after the transaction was completed EZConnect USA, Inc. became a
wholly owned subsidiary of EZConnect, Inc. The business combination has been
treated as a reverse acquisition and has been treated as a recapitalization of
EZConnect USA, Inc. Operations of the consolidated entities are combined
starting from October 1, 1999.
8
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - SUBSEQUENT EVENT
EZConnect, Inc. has entered into a credit agreement with an individual for a
credit line up to $1,500,000 to be used for general working capital in
operating the business of the Company. The interest on the line of credit
has been set at 10%. Assets of the Company will secure the line of credit as
outlined in the agreement. The debt can be converted at any time to equity
in the Company at the rate of one share of common stock for every $1.00 of
outstanding principal and interest of the borrowings. The Company may make
periodic payments in part or in full of the "average daily balance" as defined
in the agreement.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Overview
- --------
From November 1, 1996 (inception of the development stage) through October 15,
1999, the Company had no operations and its business purpose was to locate and
consummated a merger or acquisition with a private entity. On October 15,
1999, the Company completed the acquisition of EZ Connect USA, Inc., a Utah
corporation ("EZ").
Prior to the Company's acquisition of EZ, the Company was settling with
creditors in order to reduce the Company's liabilities so that the Company
could recommence business operations. The costs and expenses associated with
the maintaining the Company's operations have been provided by existing
shareholders who have in the past made loans to the Company or been issued
shares of the Company's restricted common stock as compensation for services.
Current Business Activities
- ----------------------------
On September 27, 1999, the Company entered into an Agreement and Plan of
Reorganization (the "Acquisition Agreement") relating to the acquisition of EZ
through a share exchange. The Acquisition Agreement was approved by the board
of directors and shareholders of EZ and the board of directors of the Company,
and was approved by the Company's shareholders at a special meeting on October
15, 1999. In connection with the acquisition the Company's shareholders
approved proposals changing the Company's corporate domicile to Nevada;
changing the Company's name to "EZConnect, Inc."; effecting a 1-for-2.5
reverse split of the Company's issued and outstanding shares; and electing new
directors.
EZ was formed in 1999, to engage in the remote establishment and disconnection
of utility services and should be considered a start-up or development stage
business. EZ is the result of two years of effort by its founders who develop
the concept of having EZ change utilities and other services without the
hassle of telephoning the individual providers. EZ has filed for patent
protection on its concept and software. The new management of the Company
intends to make EZ's services available via the internet. Under the guidance
of new management, the Company is commencing a beta test of EZ's services. The
beta test is being conducted with regional real estate brokerage firms. The
Company has hired a call center to offer support for its beta test.
10
Discussion and Analysis of Financial Condition and Results of Operations
- ------------------------------------------------------------------------
Despite the acquisition of EZ, the Company's business activities are subject
to several significant risks which arise primarily as a result of the fact
that the Company is still in the development stage.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company had current assets of $8,992 and current
liabilities of $7,924, for working capital of $1,068. For the six month
period ended December 31, 1999, the Company had general and administrative
expenses of $122,849 primarily associated with conducting its business
operations. In addition, the Company expended $22,713 during the same period
in connection with research and development of its proprietary technology.
In September 1999, the Company entered into subscription agreements to sell
2,850,000 shares of its restricted common stock at $0.07 per share and
received $200,000 cash.
Effective February 1, 2000, the Company entered into a credit agreement with
the Company's new CEO to provide the Company with a line of credit up to
$1,500,000 for working capital purposes. The line of credit is for a term of
one year and is renewable for a similar term. The line of credit will bear
interest on the outstanding balance at 10% per annum and the principle and
accrued interest are convertible into common stock of the Company at the
election of the lender at a conversion rate of one share of common stock for
each $1.00 of principle and accrued interest. The line of credit is secured by
all the assets of the Company. The Company believes the line of credit will be
sufficient to fund the Company's working capital needs for the balance of the
Company's fiscal year.
Results of Operations
- ---------------------
Since discontinuing operations in November 1996, the Company has not generated
revenue. For the six month period ended December 31, 1999, the Company has
incurred $148,442 in expenses. Since inception of the development stage the
Company has an accumulated deficit of $(553,324). The Company expects to
continue operating at a loss until such time as it begins to receive revenues
from operations. The Company does not expect to receive revenues from
operations until the later half of March 2000. The Company is unable at this
time to predict whether actual revenues received from operations will be
sufficient to offset the costs and expenses of operations for the
corresponding period.
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material impact on
its current or proposed business operations.
Principal Customers
- -------------------
During the six month period ended December 31, 1999, the Company had no
revenues.
Seasonality
- -----------
Management of the Company knows of no seasonal aspects relating to the nature
of the Company business operations that had a material effect on the financial
condition or results of operation of the Company.
11
Year 2000 Computer Problem
- --------------------------
The Year 2000, or Y2K problem concerns potential failure of certain computer
software to correctly process information because of the software's inability
to calculate dates. The Registrant has no operations or current equipment
which were affected by the Year 2000 computer glitch. The Company has
completed its assessment of potential Y2K problems and is confident that its
existing hardware and software is fully Y2K compliant. The costs of preparing
for Y2K have been included as an integral part of the development of the
Company's proprietary technology, and the Company had no discreet costs
directly attributable to Y2K. Y2K has not poses any significant risks to the
internal operations of its proprietary technology. Because management believes
the risks of significant Y2K problems comes from external sources over which
the Company has no control, the Company has not and does not intend to prepare
any contingency plan. If the kind of systemic failure noted above occurs, it
could have a material impact on the operations and expected revenues of the
Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. SEC Ref. No. Title of Document
- ----------- ------------ -----------------
10.01 10 Credit Agreement and Related Exhibits
27 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
In November 1999, the Company filed a Current Report on Form 8-K reporting
that the Company had entered into an agreement with Prudential California
Realty, an independently owned and operated member of Prudential Real Estate
Affiliates, Inc., to jointly market the Registrant's services through a co-
branding arrangement.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EZCONNECT, INC.
[Registrant]
Dated: February 8, 2000 /S/Frank Gillen, Principal Accounting Officer