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 September 30, 1998
[ ] 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, Utah 84107
- ---------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(801) 270-9711
----------------------------------------------------
(Registrant's telephone number, including area code)
DIVERSIFIED INDUSTRIES, INC.
- ------------------------------------------------------------------------------
(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 [X] and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
The number of shares outstanding of each of the issuer's classes of common
stock, was 8,660,464 shares of common stock, par value $0.001, as of October
22, 1999.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(A) 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 September 30, 1999; the
related audited balance sheet of the Company as of June 30, 1999; the
related unaudited statements of operations and cash flows for the three month
period ended September 30, 1998 and 1997 and from November 1, 1996 (inception
of development stage)through September 30, 1999; and the unaudited statement
of shareholders' equity for the period from November 1, 1996 (inception of
development stage) through September 30, 1998 are attached hereto and
incorporated herein by this reference
3
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
SEPTEMBER 30, JUNE 30,
1999 1999
------------ ------------
(Unaudited)
Current Assets:
Cash $ 615 $ -
Loans receivable - related party 30,000 -
------------ -----------
Total Current Assets 30,615 -
------------ -----------
TOTAL ASSETS $ 30,615 $ -
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 80 $ -
Loans from shareholders 3,417 -
------------ -----------
Total Current Liabilities 3,497 -
------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 100,000,000
shares authorized, 6,463,659 and 3,463,659
shares issued and outstanding, respectively 64,637 34,637
Additional paid-in capital 1,238,294 1,061,294
Stock subscriptions receivable (168,500) -
Deficit accumulated prior to November 1, 1996 (654,259) (654,259)
Deficit accumulated during the development
stage (453,054) (441,672)
------------ -----------
Total Stockholders' Equity (Deficit) 27,118 -
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,615 $ -
============ ===========
The accompanying notes are an integral part of these financial statements.
4
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
From
Inception
of Development
For the For the Stage on
Three Months Three Months November 1,
Ended Ended 1996 Through
September 30, September 30, September 30,
1999 1998 1999
------------ ------------ ------------
REVENUES $ - $ - $ -
------------ ------------ ------------
EXPENSES
Depreciation - - 2,030
General and Administrative 11,382 5,045 414,234
------------ ------------ ------------
Total Expenses 11,382 5,045 416,264
------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES) (11,382) (5,045) (416,264)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest expense - - (13,259)
Loss on sale of assets - - (27,781)
Other income - - 4,250
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSES) - - (36,790)
------------ ------------ ------------
NET LOSS $ (11,382) $ (5,045) $ (453,054)
============ ============ ============
NET LOSS PER SHARE $ (0.00) $ (0.00)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,963,659 3,463,659
============ ============
The accompanying notes are an integral part of these financial statements.
5
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
Balance, November 1, 1996 (inception
of the development stage) 449,972 $ 4,500 $ 659,759 $ - $ (654,259)
Common stock issued for services
valued at $0.10 per share 1,625,000 16,250 146,250 - -
Common stock issued for cash at
$0.10 per share 520,000 5,200 46,800 (1,000) -
Stock offering costs - - (12,500) - -
Net loss from inception of the
development stage on November 1,
1996 through June 30, 1997 - - - - (195,355)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 2,594,972 25,950 840,309 (1,000) (849,614)
Cash received on stock subscription
receivable - - - 1,000 -
Common stock issued for services
valued at $0.25 per share 100,251 1,003 24,060 - -
Common stock issued for the
conversion of debentures at
$0.25 per share 718,436 7,184 172,425 - -
Common stock issued for the
conversion of a note payable
at $0.50 per share 50,000 500 24,500 - -
Net loss for the year ended
June 30, 1998 - - - - (190,411)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 3,463,659 34,637 1,061,294 - (1,040,025)
Net loss for the year ended
June 30, 1999 - - - - (55,906)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 3,463,659 $ 34,637 $ 1,061,294 $ - $ (1,095,931)
Common stock issued for cash at
$0.07 per share 442,857 4,429 26,571 - -
Common stock issued for services
valued at $0.05 per share 150,000 1,500 6,000 - -
Common stock issued on subscription
at $0.07 per share 2,407,143 24,071 144,429 (168,500) -
Net loss for the three months ended
September 30, 1999 (Unaudited) - - - - (11,382)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 6,463,659 $ 64,637 $ 1,238,294 $ (168,500) $ (1,107,313)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
6
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception of
Development
For The Stage on
Three Months Ended November 1,
September 30, 1996 Through
------------------------ September 30,
1999 1998 1999
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,382) $ (5,045) $ (453,054)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation - - 2,030
Loss from sale of assets - - 27,781
Stock issued for services 7,500 - 195,063
Changes in assets and liability accounts:
(Increase) decrease in prepaid - - 2,533
(Increase) decrease in other assets - - 5,867
(Increase) decrease in accounts payable 80 - 80
(Increase) decrease in accrued expenses - - 10,259
----------- ----------- ------------
Net Cash Used by Operating Activities (3,802) (5,045) (209,441)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances on notes receivable (30,000) - (30,000)
Sale of property - - 25,000
Purchase of property - - (54,811)
----------- ----------- ------------
Net Cash Provided (Used) by
Investing Activities (30,000) - (59,811)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 31,000 - 83,000
Stock offering costs - - (12,500)
Proceeds from convertible debentures - - 169,350
Proceeds from shareholders loans 3,417 - 3,417
Proceeds from notes payable - - 25,000
----------- ----------- ------------
Net Cash Provided by
Financing Activities $ 34,417 $ - $ 268,267
----------- ----------- ------------
The accompanying notes are an integral part of these financial statements.
7
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
From
Inception of
Development
For The Stage on
Three Months Ended November 1,
September 30, 1996 Through
------------------------ September 30,
1999 1998 1999
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 615 $ (5,045) $ (985)
CASH AT BEGINNING OF YEAR 5,750 2,875 1,600
----------- ----------- ------------
CASH AT END OF YEAR $ 615 $ 705 $ 615
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
CASH PAID FOR:
Taxes $ 385 $ - $ 385
Interest $ - $ 1,000 $ 2,500
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 $ 7,500 $ - $ 195,063
The accompanying notes are an integral part of these financial statements.
8
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1999 and 1998
NOTE 1 - FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at September 30, 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
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 September 30 are
not necessarily indicative of the operating results for the full year.
9
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS
EZConnect USA, Inc.
I have audited the accompanying balance sheet of EZConnect USA, Inc. (a
development stage company) as of September 30, 1999 and the related statements
of operations, stockholders' equity and cash flows from inception (September
23, 1999) to September 30, 1999. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on the financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EZConnect USA, Inc. (a
development stage company) as of September 30, 1999, and the results of its
operations and its cash flows from Inception (September 23, 1999) to September
30, 1999 in conformity with generally accepted accounting principles.
As discussed on Note 1, the Company has been in the development stage since
its inception on September 23, 1999. The Company has limited operating
capital with current liabilities exceeding current assets by $32,688 and no
operations. Realization of a major portion of the assets is dependent upon
the Company's ability to meet its future financing requirements, and the
success of future operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
/S/ DAVID T. THOMSON, CPA
Salt Lake City, Utah
October 25, 1999
EZCONNECT USA, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
SEPTEMBER 30,
1999
--------------
Current Assets:
Cash $ 6,169
------------
Total Current Assets 6,169
------------
PROPERTY AND EQUIPMENT
Computer equipment, net of depreciation
of $-0- 3,684
Assets held under capital lease, net of
amortization of $-0- 12,614
------------
Total property and equipment 16,298
------------
OTHER ASSETS
Security deposit and last month payment
on lease obligation 1,967
Organization costs, less amortization of $-0- 350
Intangible assets, less amortization of $-0- 10
------------
Total other assets 2,327
------------
TOTAL ASSETS $ 24,794
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,350
Current portion of capital lease obligation 5,507
Note payable - related party 30,000
------------
Total Current Liabilities 38,857
------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value, 1,000
shares authorized, 1,000 shares issued
and outstanding 1
Additional paid-in capital 1,759
Earnings (deficit) accumulated during the
development stage (22,266)
------------
Total Stockholders' Equity (Deficit) 20,506
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,794
============
The accompanying notes are an integral part of these financial statements.
11
EZCONNECT USA, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
From
Inception
(September 23, 1999)
to September 30,
1999
------------
REVENUE $ -
------------
EXPENSES
Bank charges 15
Property taxes 41
Finance charges 150
Legal fees 3,000
Consulting fees 6,500
Web page construction 12,560
------------
Total Expenses 22,266
------------
NET INCOME (LOSS) $ (22,266)
============
EARNINGS (LOSS) PER SHARE $ (22.27)
============
The accompanying notes are an integral part of these financial statements.
12
EZ CONNECT USA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
From
Inception
(September 23,
Additional 1999, to
Common Stock Paid-in September 30,
Shares Amount Capital 1999
------------ ------------ ------------ ------------
BALANCE, September 23, 1999 (Inception) - $ - $ - $ -
Shares issued for computer equipment,
services, and intangible assets, at
$1.76 per share on September 23, 1999 1,000 1 1,759 -
Net income (loss) from September 23,
1999 (Inception) to September 30, 1999 - - - (22,266)
------------ ----------- ----------- -----------
BALANCE, September 30, 1999 1,000 $ 1 $ 1,759 $ (22,266)
============ =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
DIVERSIFIED INDUSTRIES, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception of
(September 30, 1999)
to September 30,
1999
----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid services, fees and expenses $ (18,266)
----------------
Total cash used in operating activities (18,266)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES
-
----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used to acquire computer equipment (5,565)
Cash from note payable 30,000
----------------
Total cash provided by financing activities 24,435
----------------
NET INCREASE (DECREASE) IN CASH 6,169
CASH - BEGINNING OF PERIOD -
CASH - END OF PERIOD $ 6,169
================
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVIITES
NET INCOME (LOSS) $ (22,266)
----------------
Adjustment to reconcile net income (loss) to
net cash provided (used) by operating activities
Common stock issued for services 1,000
Changes in assets and liabilities
Increase in accounts payable 3,000
----------------
Total Adjustments 4,000
----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (18,266)
================
SUPPLEMENTAL INFORMATION
Common stock issued for intangible assets
and computer equipment $ 760
================
The accompanying notes are an integral part of these financial statements.
14
EZ CONNECT USA, INC.
(A Development Stage Company)
Notes to Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - EZConnect USA, Inc. (The Company) was organized under the laws of
the State of Utah on September 23, 1999 and has elected a fiscal year end of
June 30th. The Company was formed to engage in the remote establishment and
disconnection of utility services. The Company has developed software which
allows its corporate clients to change the utility services of end users without
the hassle of telephoning the various utilities. The Company has not commenced
planned principle operations and is considered a development stage company as
defined in SFAS No. 7. The Company, has at the present time, not paid any
dividends and any dividends that may be paid in the future will depend upon the
financial requirements of the Company and other relevant factors.
Net Earnings Per Share - The computation of net income (loss) per share of
common stock is based on the weighted average number of shares outstanding
during the period presented.
Organization Costs - The Company will amortize its organization costs, which
reflect amounts expended to organize the Company, over sixty (60) months using
the straight-line method.
Intangible Costs - The Company will amortize its costs associated with the
acquisition of its intangible assets (see note 4) over legal terms of protection
or actual estimated life whichever is less.
Income Taxes - Due to no operations and a net loss at September 30, 19999, no
provision for income taxes has been made. There are no deferred income taxes
resulting from income and expense items being reported for financial accounting
and tax reporting purposes in different periods.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The Company has had no noncash
financing activities.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment - Property and equipment are stated at cost and will be
depreciated using the straight-line method over their estimated useful lives.
The depreciation and amortization periods are as follows:
Computer equipment and software 3-5 years
Upon retirement or other disposition of property and equipment, the cost and
related accumulated depreciation and amortization are removed from the accounts.
The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
15
EZ CONNECT USA, INC.
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - COMMON STOCK TRANSACTIONS
The Company on September 23, 1999 (Inception) issued 1,000 of its $.001 par
value common stock for services rendered, a patent pending, trademark,
copyright, and computer equipment. At the time of the issuance of the common
stock the fair value of the assets and services rendered was deemed by
management to be $1,760.
NOTE 3 - RELATED PARTY TRANSACTIONS
Through September 30, 1999 an officer provided free office space to the Company.
The free rent was determined to have only nominal value. The Company subsequent
to September 30, 1999 obtained office space in Salt Lake City, Utah and is
presently negotiating a lease for that office space.
As of September 30, 1999 no compensation has been paid or accrued to any
officers or directors of the Company.
NOTE 4 - INTANGIBLE ASSETS
At inception an officer and stockholder assigned and transferred a patent
pending, trademark and copyright to the Company. These intangible assets were
associated with the Company's business purpose as discussed in the organization
footnote. At the time of the acquisition the intangible assets were valued at
$10.
NOTE 5 - CAPITAL LEASES
The Company is the lessee of computer hardware under a capital lease expiring in
2001. The assets and liability under the capital lease is recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are amortized (or depreciated) over the lower of their
related lease terms or their estimated productive lives. Amortization (or
depreciation) of assets under capital leases will be included in future
depreciation expense.
Following is a summary of property held under capital leases:
Computer equipment $ 12,a694
Minimum future lease payments under the terms of the capital lease are:
Period ending September 30, Amount
- --------------------------- --------
2000 $ 7,966
2001 7,302
--------
Total Minimum Lease Payments 15,268
Less: Executory Costs -
--------
Net Minimum Lease Payments 15,268
Less: Amount Representing Interest (3,318)
--------
Present value of net minimum lease payments 11,950
Less: Current Portion (5,507)
--------
Long-term Portion $ 6,443
========
16
EZ CONNECT USA, INC.
(A Development Stage Company)
Notes to Financial Statements
NOTE 6 - NOTE PAYABLE
On September 27, 1999, the Company signed an interim loan agreement with
Diversified Industries, Inc. (Diversified) (See Note 7). Under the agreement
Diversified will loan up to $200,000 to the Company in anticipation of the
completion of a business combination with Diversified. If the business
combination was not consummated prior to October 31, 1999, the Company would pay
interest at 1% per month until the total amount loaned was to be paid back three
(3) months from October 31, 1999. The Loan was secured by all assets of the
Company. At September 30, 1999, the Company had received $30,000 under the
agreement and an additional $30,000 prior to October 15, 1999. Since the
business combination was completed (see below) all loans prior to October 15,
1999 have become intercompany loans between parent and subsidiary.
NOTE 7 - SUBSEQUENT EVENT
On October 15, 1999, the Company's stockholders approved a business combination
with EZ Merger Co. which was a corporation used to change Diversified's domicile
to Nevada. Concurrent with the above transaction, Diversified changed its name
to EZConnect, Inc. The Company exchanged all of its issued and outstanding
shares of common stock for 6,075,000 shares of Diversified and the Company
became a wholly-owned subsidiary of Diversified.
17
(C) The pro forma financial information required under Article 11 of Regulation
S-X giving effect to the transaction described in "Item 5. OTHER INFORMATION."
The following unaudited proforma combined balance sheet and statement of income
aggregates the unaudited balance sheet and statement of operations of EZConnect,
Inc., formerly Diversified Industries, Inc. (Parent) (A Nevada corporation) as
of September 30, 1999, and the audited balance sheet and statement of income of
EZConnect USA, Inc. (Subsidiary) (a Utah corporation) as of September 30, 1999
giving effect to a transaction which was completed on October 15, 1999, wherein
Parent acquired Subsidiary as a wholly-owned subsidiary (the "Acquisition").
This business combination is a reverse acquisition and is treated as a
recapitalization of Subsidiary. Parent issued common stock in exchange for all
of the issued and outstanding shares of Subsidiary. The following proforma
balance sheet and statement of income uses the assumptions as described in the
notes and the historical financial information available at September 30, 1999.
The financial statements of Parent at September 30, 1999 are unaudited. The
financial statements of Subsidiary at September 30, 1999 are audited.
The unaudited proforma combined balance sheet and statement of income should be
read in conjunction with the separate financial statements and related notes
thereto of Parent and Subsidiary. The unaudited proforma condensed combined
balance sheet and statement of income is not necessarily indicative of the
condensed combined balance sheet and statement of income which might have
existed for the period indicated or the results of operations as they may appear
now or in the future.
18
PRO FORMA FINANCIAL INFORMATION
EZ CONNECT, INC.
(Formerly Diversified Industries, Inc.)
PROFORMA COMBINED BALANCE SHEET
(Unaudited)
Giving effect to an Acquisition on October 15, 1999
EZConnect Proforma
EZConnect, USA Increase Proforma
Inc. Inc. (Decrease) Combined
------------ ------------ ------------ ------------
(9-30-99) (9-30-99)
ASSETS
Current assets
Cash and cash equivalents $ 615 $ 6,169 $ 168,500 (1) $ 175,284
Loans receivable 30,000 - (30,000)(6) -
------------ ------------ ----------- ------------
Total Current Assets 30,615 6,169 138,500 175,284
------------ ------------ ----------- ------------
Property and Equipment, net
Computer equipment, net - 3,684 - 3,684
Assets held under capital leases - 12,614 - 12,614
------------ ------------ ----------- ------------
Total Property and Equipment - 16,298 - 16,298
------------ ------------ ----------- ------------
Other assets
Security deposit and last month
lease payment - 1,967 - 1,967
Organization costs, net - 350 350
Intangible assets, net - 10 - 10
------------ ------------ ----------- ------------
Total Other Assets - 2,327 - 2,327
------------ ------------ ----------- ------------
Total Assets $ 30,615 $ 24,794 $ - $ 193,909
============ ============ =========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 80 $ 3,350 $ - $ 3,430
Loans from shareholder 3,417 - - 3,417
Current portion of capital lease
obligation - 5,507 - 5,507
Note payable - 30,000 (30,000)(6) -
------------ ------------ ----------- ------------
Total current liabilities 3,497 38,857 (30,000) 12,354
------------ ------------ ----------- ------------
Noncurrent liabilities
Long-term portion of capital lease
obligation - 6,443 - 6,443
------------ ------------ ----------- ------------
Stockholders' equity
Preferred stock; $.001 par value
5,000,000 shares authorized, no
shares issued and outstanding - - - -
Common stock; $.001 par value
40,000,000 shares authorized,
8,660,464 shares issued and outstanding 64,637 1 (58,173)(2) 8,660
(3,879)(3)
(1)(4)
6,075 (4)
Additional paid-in capital 1,238,294 1,759 58,173 (2) 1,273,765
3,879 (3)
1 (4)
(6,075)(4)
(22,266)(5)
Stock subscription receivable (168,500) - 168,500 (1)
Deficit accumulated prior to November 1,
1986 (654,259) - - (654,259)
Deficit accumulated during development
stage (453,054) (22,266) 22,266 (5) (453,054)
------------ ------------ ----------- ------------
Total stockholders' equity (deficit) 27,118 (20,506) 168,500 175,112)
------------ ------------ ----------- ------------
Total liabilities and
stockholders' equity (deficit) $ 30,615 $ 24,794 $ 138,500 $ 193,909
============ ============ =========== ============
The accompanying notes are an integral part of this balance sheet.
19
EZ CONNECT, INC.
(Formerly Diversified Industries, Inc.)
PROFORMA COMBINED STATEMENT OF INCOME
(Unaudited)
Giving effect to an Acquisition on October 15, 1999
EZConnect Proforma
EZConnect, USA Increase Proforma
Inc. Inc. (Decrease) Combined
------------ ------------ ------------ ------------
(Three months (9-23-99
ended to
9-30-99) (9-30-99)
Revenues $ - $ - $ - $ -
----------- ----------- ----------- -----------
Operating Expenses
General and administrative 11,382 22,266 - 33,648
----------- ----------- ----------- -----------
Total operating expenses 11,382 22,266 - 33,648
----------- ----------- ----------- -----------
Net Income (Loss) $ (11,382) $ (22,266) $ - $ (33,648)
=========== =========== =========== ===========
The accompanying notes are an integral part of this statement of income.
20
EZCONNECT, INC.
(Formerly Diversified Industries, Inc.)
EZCONNECT USA, INC.
PROFORMA COMBINED NOTES TO THE FINANCIAL STATEMENTS (Unaudited)
EZCONNECT, INC. (the Company) - (Formerly Diversified Industries, Inc.) from
November 1, 1996 through October 15, 1999, has been considered a "shell"
company and its business purpose has been to locate and consummate a merger or
acquisition with a private entity. On October 15, 1999, the Company completed
the acquisition of EZConnect USA, Inc., a Utah corporation. Prior to the
Company's acquisition, the Company was settling with creditors in order to
reduce the Company's liabilities so that the Company could recommence business
operations.
EZCONNECT USA, INC. (USA) - USA was incorporated in Utah on September 23,
1999. USA was formed to engage in the remote establishment and disconnection
of utility services. The Company has developed software which allows its
corporate clients to change the utility services of end users.
PROFORMA ADJUSTMENTS - (1) The Company received the rest of the cash under its
stock subscription receivable. (2) At the time the Company changed its
domicile to Nevada, it also changed its par value from $0.01 to $.001 per
share. The change in par value caused an increase in paid-in capital with a
corresponding decrease in common stock of $58,173. (3) The Company reversed
split its common stock on a 1 for 2.5 share basis. Common stock was reduced to
2,585,464 shares of common stock. (4) The Company acquired all of the issued
and outstanding shares of USA in exchange for 6,075,000 restricted shares of
previously authorized but unissued shares of its common stock. The business
combination is a reverse acquisition and has been treated as a
recapitalization of USA. (5) This is part of the recapitalization transaction
and entry. It eliminates the retained deficit of the Company accounting for
the transaction as if the shares were exchanged by USA for the net assets of
the Company. (6) This eliminates the intercompany loan receivable and note
payable.
STOCK OPTIONS - The Company has granted options to purchase 670,000 shares of
common stock of the Company at an exercise price of $1.50 per share, which was
$0.25 per share higher than the current bid price on the common stock at the
time of the grant. Of the 670,000 shares, 570,000 shares were granted to
officers and directors of the Company.
PRIVATE PLACEMENT - Following October 18, 1999, but no longer than 120 days
from such date, the Company intends to raise an additional $400,000 and up to
$1,000,000 in working capital through a private placement of the Company's
common stock. The price of the shares to be issued and the number of shares
to be offered has not yet been determined. If the Company is unable to raise
additional funds through the private placement, an officer and stockholder of
the Company has agreed to purchase the $400,000 minimum.
21
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 has been
considered a "shell" company and its business purpose has been 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"). (See "ITEM 5. OTHER INFORMATION.")
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. Additionally, management of the Company
was actively looking for a merger candidate. The Company has had unrestricted
discretion in seeking and participating in a business opportunity, subject to
the availability of such opportunities, economic conditions, and other
factors.
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. It is anticipated that the working
capital necessary to maintain the Company's corporate viability will most
likely be provided by the Company's existing shareholders and/or its officers
and directors in the immediate future.
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. (See "ITEM 5. OTHER INFORMATION.")
22
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 and the software which allows EZ to change
utilities and other services without the hassle of telephoning the individual
providers. EZ has filed for patent protection on its concept and software and
intends to make its services available via the internet.
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
- -------------------------------
During the reporting period the Company had only limited expenses, it
incurred additional legal and accounting costs to prepare and file a general
form of registration on Form 10SB with the Securities and Exchange Commission.
Management anticipates that as a result of the acquisition of EZ the Company
will incur more cost including legal and accounting fees associated with
completing the acquisition of EZ and meeting its ongoing reporting
requirements under the Securities Exchange Act of 1934, as amended.
At September 30, 1999, the Company had current assets of $30,615 and
current liabilities of $3,497, for working capital of $27,118. The Company
has only incidental ongoing expenses primarily associated with maintaining its
corporate status and professional fees associated with accounting and legal
costs. Officers of the Company have advanced $3,497 to the Company from time
to time for certain expenses during the period. On September 27, 1999, the
Company entered into subscription agreements to sell 2,850,000 shares of its
restricted common stock at $0.07 per share. At September 30, 1999, the
Company had received $31,000 cash under the subscriptions and had a
subscription receivable for $169,000. The balance of the subscription
receivable was paid to the Company on October 14, 1999.
Prior to the completion of the acquisition of EZ, the former president of
the Company was providing the Company with a location for its offices on a
"rent free basis" and no salaries or other form of compensation were paid by
the Company for the time and effort required by management to run the Company.
Following the acquisition of EZ the Company's executive offices have been
moved to the executive offices of EZ.
Results of Operations
- ---------------------
Since discontinuing operations in November 1996, the Company has not
generated revenue. For the three month period ended September 30, 1999, the
Company has incurred $11,382 in general and administrative expenses. Since
inception of the development stage the Company has an accumulated deficit of
$(453,054). For the three month period ended September 30, 1998, the Company
incurred $5,045 in general and administrative expenses.
23
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 quarter ended September 30, 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.
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 might be affected by the Year 2000 computer glitch. The
Registrant has made every effort to determine the Y2K preparedness of EZ, and
the paragraphs below address the preparedness of EZ, based on EZ's
representations.
EZ's State of Readiness
- -----------------------
Management of EZ has confirmed that EZ has completed its assessment of
potential Y2K problems and is confident that its existing hardware and
software is fully Y2K compliant.
Costs to Address Y2K
- --------------------
The costs of preparing for Y2K have been included as an integral part of
the development of EZ's proprietary technology, and EZ has no discreet costs
directly attributable to Y2K.
Risks of Y2K
- ------------
Management of EZ does not anticipate that Y2K poses any significant risks
to the internal operations of its proprietary technology. However, external
systemic failures of electrical or internet systems could have a significant
impact on the success of EZ's operations.
Contingency Plans
- -----------------
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.
24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In connection with the acquisition of EZ (discussed in "Item 5. OTHER
INFORMATION") below, the Company effected a 1 for 2.5 reverse stock split (the
"Reverse Split") of the Company's Common Stock, so that shareholders of the
Company prior to such Reverse Split received 1 share of the Company's Common
Stock for each 2.5 shares of Common Stock held on the Record Date (October 4,
1999). The Reverse Split reduced the Company's issued and outstanding stock
from 6,463,659 to 2,585,464 shares. After giving effect to the Reverse Split
and the issuance of 6,075,000 post-Reverse Split shares of Common Stock to the
EZ Shareholders, the Company has 8,660,464 shares issued and outstanding. The
issuance of the 6,075,000 shares of the Company's Common Stock resulted in a
change of control of the Company.
The rights of the Company's existing shareholders were not altered and no
shareholders were eliminated as a result of the Acquisition Agreement and the
Reverse Split.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the reporting period (see "Item 5. OTHER INFORMATION" below).
ITEM 5. OTHER INFORMATION
On September 27, 1999, the Company and EZConnect USA, Inc. entered into
an Agreement and Plan of Reorganization (the "Acquisition Agreement"), which
was approved by a majority of the Company's shareholders at a special meeting
held October 15, 1999.
The Acquisition Agreement provided that the Company acquire all the
issued and outstanding shares of EZ Common Stock held by the EZ Shareholders
in exchange for 6,075,000 shares of the Company's Common Stock pro rata based
on the EZ Shareholders' percentage ownership of the EZ Common Stock. As a
condition of the Acquisition Agreement, the Company merged with and into EZ
Merger Co., a Nevada corporation ("Merger Co."), established by the Company,
solely for the purpose of changing the Company's corporate domicile to the
state of Nevada.
As a condition to the Acquisition Agreement, the Company effected a 1 for
2.5 Reverse Split of the Company's Common Stock, so that shareholders of the
Company prior to such Reverse Split received 1 share of the Company's Common
Stock for each 2.5 shares of Common Stock held on the Record Date (October 4,
1999). The Reverse Split reduced the Company's issued and outstanding stock
from 6,463,659 to 2,585,464 shares. After giving effect to the Reverse Split
and the issuance of 6,075,000 shares of Common Stock to the EZ Shareholders,
the Company has 8,660,464 shares issued and outstanding. The issuance of the
6,075,000 shares of the Company's Common Stock resulted in a change of control
of the Company.
25
The rights of the Company's existing shareholders were not altered and no
shareholders were eliminated as a result of the Acquisition Agreement and the
Reverse Split.
As a condition precedent to the consummation of the Acquisition
Agreement, the shareholders of the Company adopted and approve all required or
necessary resolutions to adopt an amendment to the Company's certificate of
incorporation that provides for changing the name of the Company to
"EZConnect, Inc," and elected Adam Leffler, Vaughn Nelson, and Frank Gillen to
the Company's Board of Directors. The board of directors will be expanded to
five members once the Company's new board of directors locates suitable
candidates. The "Effective Date" of the acquisition was October 18, 1999.
The Company has raised $200,000 in working capital through a private
placement of the Company's common stock. Following the Effective Date, but in
no event longer than 120 days thereafter, the Company intends to raise an
additional minimum of $400,000 and up to $1,000,000 in working capital through
an additional private placement of the Company's common stock. The offering
price for the sale of the Company's common stock in the private placement will
be based on a percentage of market price of the Company's common stock at the
time of offering. If the Company is unable to raise additional funds through
the private placement, Mr. Gillen has agreed to purchase the $400,000 minimum.
Election of Board of Directors
- ------------------------------
Set forth below is certain information regarding the individuals elected
to serve as directors and the Company and appointed by the board of directors
to serve as officers of the Company:
Position with
Name Age the Company
- ----------------------------------------------------------------------------
Adam Leffler 28 President and Director
Vaughn Nelson 49 Vice-President and Director
Frank Gillen 30 Secretary/Treasurer, C.F.O. and Director
Certain biographical information with respect to each of such persons is
set forth herein below. Each director, if elected by the shareholders, will
serve until the next annual meeting and until his successor is duly elected
and qualified.
Adam Leffler, age28, is employed by Franklin Covey, Salt Lake City, Utah, as a
real estate coach helping clients understand basic real estate principals. In
Mr. Leffler has been a licensed real estate agent with Coldwell Banker
Premier, West Jordan, Utah from 1996. From 1995 through 1996, Mr. Leffler was
a manager for Arby's Restaurants, Salt Lake City, UT. Mr. Leffler received
his M.A. in Communications for the University of Illinois, Springfield,
Illinois in 1994 and his B.A. in Communications from Illinois College,
Jacksonville, Illinois, in 1993.
Vaughn Nelson, age 49, has been in sales most of his business career. Mr.
Nelson will be responsible for all marketing and operations of EZ. Mr. Nelson
is a vice president at Backman-Stewart Title Agency, Salt Lake City, Utah
since October 1998. Prior to joining Backman-Stewart Title Agency, Mr. Nelson
was with Equity Title and Associated Title for the previous six years.
26
Frank Gillen, age 30, is currently the president of Maven Properties, Ltd.
("Maven"), Salt Lake City, Utah, a business consulting firm. From 1991 to June
1999, Mr. Gillen was employed as a registered representative by Alpine
Securities Corporation ("Alpine"), Salt Lake City, Utah, a registered broker-
dealer. While at Alpine, Mr. Gillen headed several private placements and
public underwritings for companies. Mr. Gillen also acted as one of Alpine's
designated traders and covered market making activities for several public
companies. Mr. Gillen also serves as a director of Faraday Financial, Inc.,
Salt Lake City, Utah, a "shell" company with no operations.
Business of EZ
- --------------
All information with respect to EZ's business activities has been
provided by the management of EZ and is presented herein without independent
verification. EZ has represented that the information is accurate and
complete in all material respects.
EZ was formed in September 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 and the software which allows EZ and its
corporate clients to change the utility services of end users without the
hassle of telephoning the various utilities. EZ has filed for patent
protection on its concept and software. There is no assurance at this point
that EZ will receive patent protection for its concept or its software. Even
with patent protection, there can be no assurances that competitors will not
circumvent the patent and compete directly with EZ.
EZ has no material assets others than its software and intellectual
property rights. EZ borrowed $30,000 of interim working capital from the
Company for the purpose of developing is business and intends to utilize the
balance of the $200,000 of funding provided by the Company to further the
development of its internet web site and the marketing of its services. To
date EZ has had no sales and is only now soliciting business for its software.
Presently, when a user of utility services; whether that is gas,
electric, telephone or other services; moves, they must telephone or visit
each separate utility to have the services disconnected at their present
address and connected at their new address. This process is time consuming
and costly, in time, for the individual, and costly, monetarily, for the
utility which must employee telephone operators to assist the individual. EZ
has developed software and is completing development of an Internet site that
will allow individuals to change the services, for a small fee, without the
hassle of contacting each utility separately. EZ believes that its product
can be expanded into many different avenues and that its web site will
eventually be a prime advertising arena for the utilities and others trying to
direct business to their services.
Initially, EZ services will be available only through title companies who
will charge a fee to change utility services for customers. Once the
utilities become more accepting of the electronic format used by EZ, the
service will be expanded to allow individuals to access EZ's internet site and
change the services themselves.
Presently, EZ is installing its system in title companies who charge a
fee, at home closings, to its customers to change the utility services. EZ
provides its software free to the title companies to encourage them to use the
software. The title companies then profit by charging their customers a fee
at each closing. Part of this fee is paid to EZ for the use of its software.
27
EZ is completing a web based application of its software which will be
available in approximately 60 days. EZ believes once the web based
application is available EZ will be able to aggressively market its products
to every title company in the United States. EZ's software is designed to be
very user friendly with easy to follow templates directing the user on the
information required to be complete to change the appropriate utilities of the
customer. Each template is designed to be a similar and uniform as possible
to the format used by utilities across the country.
EZ is starting its marketing efforts with title companies as they are
perceived to be a very secure source of information by the utilities. As the
utilities become more accepting of the security aspects of EZ's software, EZ
will expand into offering its services to renters across the country and in
Canada who will be able to access EZ's web site.
Once established, EZ will eventually start offering advertising space on
its web site to utilities such as long distance carriers and other consumer
oriented business like credit card companies who would want to direct
individuals to their services. Initial discussions with these entities has
received very favorable response on wanting to advertise on EZ's web site.
Shareholders and potential investors should be aware that EZ is a start up
business and its core business concept has not been proven to be in demand nor
profitable.
EZ's management feels there is currently little competition for its
services. EZ's management knows of only one other internet site offering
services similar in nature to those offered by EZ. EZ's management feels that
it currently is positioned to take advantage of the lack of competition to
establish substantial market share for its services.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. SEC Ref. No. Title of Document
- ----------- ------------ -----------------
2 2.01 Articles of Merger and related Plan of Merger
between the Company and EZ Merger Co.
2 2.02 Agreement and Plan of Reorganization
3(i) 3.01 Articles of Incorporation of EZ Merger Co.
3(ii) 3.02 Bylaws of EZ Merger Co.
4 4.01 Specimen Stock Certificate of EZConnect, Inc.
27 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
28
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: October 26, 1999 /S/Frank Gillen, Secretary/Treasurer
and Principal Accounting Officer