1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[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
ENCORE WIRELESS, 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.)
2900 Townsgate Road, Suite 200, Westlake Village, CA 91361
- ---------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(818) 889-9925
----------------------------------------------------
(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.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated 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 consolidated balance sheet of the Company as of December
31, 1999; the related unaudited consolidated statements of operations for the
three month period ended December 31, 1999 and the period September 23, 1999
(inception) through December 31, 1999; and the related unaudited consolidated
statements of stockholders' equity and cash flows for the period September 23,
1999 (inception) through December 31, 1999; are attached hereto and
incorporated herein by this reference.
Operating results for the three month period ended December 31, 1999 and
for the period September 23, 1999 (inception) through December 31, 1999 are
not necessarily indicative of the results that can be expected for the period
September 23, 1999 (inception) through June 30, 2000.
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EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
ASSETS
------
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, 45,000,000
shares authorized, 8,660,424 shares
issued and outstanding 8,660
Additional paid-in capital 1,832,040
Deficit accumulated during the
development stage (1,805,831)
------------
Total Stockholders' Equity 34,869
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,793
============
The accompanying notes are an integral part of this consolidated financial
statement.
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EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
For the Three For the period
Months Ended September 23, 1999
December 31, (Inception) through
1999 December 31, 1999
------------- -----------------
REVENUES $ - $ -
------------- -----------------
EXPENSES
Selling and marketing 1,385 1,385
General and administrative 113,227 122,933
Research and development 22,713 35,273
Depreciation and amortization 1,495 1,495
Consulting expense for stock options 1,417,822 1,417,822
Compensation expense for stock options 225,000 225,000
------------- -----------------
Total Expenses 1,781,642 1,803,908
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LOSS BEFORE OTHER INCOME (EXPENSES) (1,781,642) (1,803,908)
------------- -----------------
OTHER INCOME (EXPENSES)
Interest expense (2,340) (2,340)
Interest income 417 417
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Total Other Income (Expenses) (1,923) (1,923)
------------- -----------------
NET LOSS $ (1,783,565) $ (1,805,831)
============= =================
LOSS PER SHARE $ (0.25) $ (0.27)
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WEIGHTED AVERAGE NUMBER OF SHARES 7,248,561 6,737,108
============= =================
The accompanying notes are an integral part of these consolidated financial
statements.
5
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
For the period September 23, 1999 (Inception) through December 31, 1999
(Unaudited)
Deficit
Accumulated
Common Stock Additional During the Total
---------------------- paid-in Development Stockholders'
Number Amount capital Stage Equity
---------- ---------- ---------- ----------- ----------
Balance at
September 23, 1999 1,000 $ 1 $ 1,759 $ - $ 1,760
Recapitalization
of Company 8,659,424 8,659 187,459 - 196,118
Issuance of stock options
for services - - 1,417,822 - 1,417,822
Issuance of stock options
for compensation - - 225,000 - 225,000
Net loss - - - (1,805,831) (1,805,831)
---------- ---------- ----------- ----------- -----------
Balance at December 31, 1999 8,660,424 $ 8,660 $ 1,832,040 $ (1,805,831) $ 34,869
========== ========== =========== =========== ===========
The accompanying notes are an integral part of this consolidated financial
statement.
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EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the period September 23, 1999 (Inception) through December 31, 1999
(Unaudited)
Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (1,805,831)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,495
Consulting expense for stock options 1,417,822
Compensation expense for stock options 225,000
Changes in accrued liabilities 7,844
-----------
Net cash used in operating activities (153,670)
-----------
Cash flows from investing activities
Purchase of property and equipment (26,286)
Patent costs (9,010)
-----------
Net cash used in investing activities (35,296)
-----------
Cash flows from financing activities
Proceeds from the issuance of note from affiliate 30,000
Stock subscriptions received 169,000
Principal payment on notes payable to stockholders (3,417)
Cash obtained in reverse merger 615
Stock issued for cash 1,760
-----------
Net cash provided by financing activities 197,958
-----------
Net increase in cash 8,992
Cash at beginning of period -
-----------
Cash at end of period $ 8,992
===========
The accompanying notes are an integral part of this consolidated financial
statement.
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EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
December 31, 1999
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 operations and cash flows at
December 31, 1999 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 audited
financial statements included in its Form 10-QSB for the quarter ended
September 30, 1999. The results of operations for the periods ended December
31, 1999 are not necessarily indicative of the operating results expected for
the period September 23, 1999 (inception) through June 30, 2000.
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 split 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 45,000,000 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 on September 23, 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. As such, the historical financial statements of EZConnect
USA, Inc., the accounting acquiror, are presented. Operations of the
consolidated entities are combined starting from October 1, 1999.
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EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
December 31, 1999
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - OPTION GRANTS
In October 1999, the Company issued options to acquire up to an aggregate of
570,000 shares of its common stock at any time within a 1 year period at an
exercise price of $1.50 per share, to executive officers of the Company.
In November 1999, the Company entered into an agreement with Prudential
California Realty ("Pru-Cal"), an independently owned and operated member of
Prudential Real Estate Affiliates, Inc., to jointly market the Company's
services through a co-branding arrangement. Under the terms of the Marketing
and Service Agreement the Company granted Pru-Cal (i) an option to purchase up
to 170,000 shares of common stock at any time within 2 years from the date of
the agreement at an exercise price of $1.47 per share; and (ii) an option to
purchase up to 433,000 shares of common stock any time within 2 years from the
date of the agreement at an exercise price of $1.50 per share, which price was
equal to the 10 day average closing bid price for shares of common stock
immediately prior to the date of the agreement. In addition, Ed Krafchow, the
president of Pru-Cal, was appointed to the Company's board of directors. Mr.
Krafchow received options to purchase up to 50,000 shares of common stock at
an exercise price of $1.50 per share, which price was equal to the 10 day
average closing bid price for shares of common stock immediately prior to the
date of the agreement. The exercise period of the options is 5 years.
In November 1999, the Company issued an option to acquire up to 100,000 shares
of the Company's common stock at any time within a 5 year period at an
exercise price of $1.50 per share, to Phil Lacerte. Mr. Lacerte became an
officer and director of the Company in February 2000.
The Company accounts for stock option granted to employees and directors in
accordance with Accounting Principle Board Opinion #25 and related
interpretations. Accordingly, no compensation is recognized for options
granted at or in excess of the fair market value of the stock on the grant
date. During the quarter ended December 31, 1999, options to acquire 150,000
shares of common stock were granted below market value at the grant date
resulting in compensation expense of $225,000.
The Company accounts for stock options granted to consultants in accordance
with Statement of Financial Accounting Standards #123 and related
interpretations. The value of such services is based on the fair value at the
date of grant calculated using the Black-Scholes option-pricing model or the
value of the services rendered, whichever is more readily determinable.
Expense for services is recognized at the time the services were rendered and
the options become exercisable. Consulting expense recognized during the
quarter ended December 31, 1999 for stock options totaled $1,417,822.
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EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(A Development Stage Company)
December 31, 1999
NOTE 5 - 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.
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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 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").
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 on September 23, 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 developed 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.
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.
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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.
As of October 15, 1999, with the acquisition of EZ, the Company had
subscriptions receivable of $169,000 related to a previous sale of restricted
common stock, which were collected during the quarter ended December 31, 1999.
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 through June 30, 2000.
Results of Operations
- ---------------------
The Company is in the development stage and has not yet generated revenue. For
the three months ended December 31, 1999, and for the period September 23,
1999 (inception) through December 31, 1999, the Company has incurred a total
of $138,820 and $161,086, respectively, for research and development, selling
and marketing, and general and administrative expenses, including depreciation
and amortization. These expenses have been incurred primarily in association
with the conduct of the Company's operations and research and development of
its proprietary technology.
Additionally, the Company granted options to certain employees and consultants
to acquire 1,323,000 shares during the quarter ended December 31, 1999. The
options were granted under the 1999 non-qualified stock option plan, as well
as under various consulting or executive arrangements. Options granted vested
immediately and expire five years after the grant date. See Note 4 to the
consolidated financial statements. The Company accounts for stock options
granted to employees and directors in accordance with Accounting Principle
Board Opinion #25 and related interpretations. Accordingly, no compensation is
recognized for options granted at or in excess of the fair market value of the
stock on the grant date. During the quarter ended December 31, 1999, options
to acquire 150,000 shares of common stock were granted below market value at
the grant date resulting in compensation expense of $225,000. The Company
accounts for stock options granted to consultants in accordance with Statement
of Financial Accounting Standards #123 and related interpretations. The value
of such services is based on the fair value at the date of grant calculated
using the Black-Scholes option-pricing model or the value of the services
rendered, whichever is more readily determinable. Expense for services is
recognized at the time the services were rendered and the options become
exercisable. Consulting expense recognized during the quarter ended December
31, 1999 for stock options totaled $1,417,822.
Through December 31, 1999, the Company has incurred a net loss of $1,805,831
since inception. The Company expects to continue operating at a loss until
such time as it begins to receive sufficient revenues from operations. 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.
12
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 Company 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 posed 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
- ----------- ------------ -----------------
None.
(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 Company's services through a co-
branding arrangement.
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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.
ENCORE WIRELESS, INC.
(Formerly EZConnect, Inc.)
[Registrant]
Dated: April 16, 2001 Kevin S. Hamilton, President