SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
For the Quarter Ended Commission File Number
February 28, 2000 0-12423
MERIT DIVERSIFIED INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 94-2906927
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 Avenue of the Stars, Los Angeles, Ca 90067
(Address of principal executive offices)
Registrants telephone number, including area code: (310) 552-0870
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), 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 registrants classes of common
stock, as of February 28, 2000 was 30,042,257 shares, all of one class of $.00
par value Common Stock.
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MERIT DIVERSIFIED INTERNATIONAL, INC.
FORM 10-Q
Quarter Ended February 28, 2000
TABLE OF CONTENTS
FINANCIAL INFORMATION PAGE
Item 1- Consolidated Financial Statements
Consolidated Balance Sheets as of February 28, 2000
and August 31, 1999 3
Consolidated Statements of Operations for the three
months ended February 28, 2000 and February 29, 1999 4
Consolidated Statements of Operations for the six months
ended February 28, 2000 and February 29, 1999 5
Consolidated Statements of Cash Flows for the three months
ended February 28, 2000 and February 29, 1999 6
Notes to Consolidated Financial Statements 7,8
Item 2- Managements Discussion and Analysis of Financial
Condition and Results of Operations 9-11
OTHER INFORMATION
Item 1- Legal Proceedings 12
Item 2- Changes in Securities 12
Item 3- Defaults upon Senior Securities 12
Item 4- Submission of Matters to a Vote of Security Holders 12
Item 5- Other Information 12
Item 6- Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
PART 1: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 28, 2000 AND AUGUST 31, 1999
February 28, August 31,
2000 1999
(Unaudited) (Note 1)
Assets $ 70,000 $ -
Total Assets $ 70,000 $ -
Liabilities and Shareholders Equity
Current liabilities
Accounts and taxes payable $ - $ -
Total current liabilities - -
Commitments
Shareholders Equity
Common Stock-no par value;
50,000,000 shares authorized,
30,042,257 issued and outstanding
as of February 28, 2000 and
August 31, 1999 1,333,229 1,332,349
Additional paid-in capital 1,199,335 1,122,215
Accumulated deficit-accumulated
during the developmental stage (2,462,564) (2,462,564)
Total shareholders equity $ 70,000 $ -
Total liabilities and
shareholders equity $ 70,000 $ -
See Notes to Consolidated Financial Statements
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MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S>
<S>
Three Months Three Months Since Being
Ended Ended A
February 28, February 29, Developmental
2000 1999 Stage Company
(Note 1)
Net revenue $ - $ - $ -
Costs and expenses:
General and administrative - - 2,244,147
Depreciation and amortization - - 6,200
Income (loss) from operations $ - - $ (2,250,347)
Other income (expense):
Interest expense - - (22,518)
Loss on sale of fixed assets - - (918)
Loss on sale of investments - - (269,800)
Income from debt adjustment - - 86,419
Total other income (expense) - - (206,817)
Income before taxes
on income - - (2,457,164)
Taxes on income - - 5,400
Net income (loss) - - (2,462,564)
Net income (loss) per share nil nil
Weighted average number of shares
and share equivalents
outstanding 30,052,257 30,042,257
</TABLE>
See Notes to Consolidated Financial Statements
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MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S>
<S>
Six Months Six Months Since Being
Ended Ended A
February 28, February 28, Developmental
2000 1999 Stage Company
(Note 1)
Net revenue $ - $ - $ -
Costs and expenses:
General and administrative - - 2,244,147
Depreciation and amortization - - 6,200
Income (loss) from operations $ - - $ (2,250,347)
Other income (expense):
Interest expense - - (22,518)
Loss on sale of fixed assets - - (918)
Loss on sale of investments - - (269,800)
Income from debt adjustment - - 86,419
Total other income (expense) - - (206,817)
Income before taxes
on income - - (2,457,164)
Taxes on income - - 5,400
Net income (loss) - - (2,462,564)
Net income (loss) per share nil nil
Weighted average number of shares
and share equivalents
outstanding 30,042,257 30,042,257
</TABLE>
See Notes to Consolidated Financial Statements
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MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 28, 2000 AND 1999
(UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Three Months
Ended Ended
February 28, February 28,
2000 1999
Operating activities:
Net income (loss) $ - $ -
Adjustments to reconcile net loss
to cash used in operating activities:
Amortization expense - -
Changes in operating assets and
liabilities:
Accounts payable - (8,000)
Cash provided by (used in)
operating activities - (8,000)
Investing activities: - -
Financing activities:
Contribution by shareholder - (8,000)
Loan proceeds - -
Issuance of capital stock - -
Cash provided by financing
activities - 8,000
Net increase (decrease) in
cash and cash equivalents - -
Cash and cash equivalents,
beginning of period - -
Cash and cash equivalents,
end of period $ - $ -
See Notes to Consolidated Financial Statements
<PAGE>
MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2000
Note 1 - Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the three months ended February 28, 2000 are not
necessarily indicative of the results that may be expected for the year ended
August 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys Form
10-K for the year ended August 31, 1999.
Note 2 - Net Income (Loss) Per Share
Net income (loss) per share and common equivalent share is computed using the
weighted average number of shares outstanding during each period.
During April, 1996, the Board of Directors declared a reverse stock split,
reducing the number of common shares outstanding through the distribution of
one common share in exchange for twenty (20) common shares held by
shareholders of record as of April 30, 1996. All references to common
share and per share amounts in the accompanying financial statements have
been retroactively adjusted to reflect the effect of this transaction.
Note 3- Related Party Transactions
The Company has been able to continue in existence and reduce its debts and
obligations through the assistance of certain major shareholders who continue
to fund the Companys general and administrative expenses and to pay
outstanding obligations. There can be no assurance that these shareholders
will continue such funding in the future.
Note 4- Going Concern
The Company has incurred significant losses since its inception and as of
February 28, 2000, has no source of revenue. The Company has no cash and has
maintained its existence and paid ongoing expenses through the issuance of
common stock.
<PAGE>
MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2000
The Company has been able to continue because major shareholders have continued
to invest in the Company to meet its expenses. As of February 28, 2000,
the Company has been successful in converting most of its debt to equity.
The Company is considered a development stage Company and will remain in this
status until operations begin. There can be no assurance that the Company will
be able to merge with an operating company, acquire an ongoing business, or
that the major shareholders will continue to pay the expenses of the Company.
Note 5 - Investments
During the quarter ended February 28, 2000 the Company issued 20,000 shares in
exchange for the rights to several domain names to be used on the World Wide
Web. The transaction was valued at the average trading price of company shares
for the six months preceding the transaction, which was approximately $3.50
per share.
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(Balance of Page Left Blank Intentionally)
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MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
FEBRUARY 28, 2000
Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operation
The following review concerns the three and six month periods ended February
28, 2000 and February 28, 1999, which should be read in conjunction with
the financial statements and notes thereto presented in the Form 10-Q.
The information set forth in Managements Discussion and Analysis of Financial
Condition and Results of Operations below includes forward looking statements
within the meaning of Section 27A of the Securities Act, and is subject to the
safe harbor created by that section. Factors that could cause actual results
to differ materially from these contained in the forward looking statements are
set forth in Managements Discussion and Analysis of Financial Condition and
Results of Operations.
Plan of operation.
The Company has continued its efforts to acquire, merge with or enter into
another form of business combination with another entity, and the Company plans
to continue these efforts in the current fiscal year. It is presently unknown
whether any transaction will be concluded. The Company considers it current
cash and cash equivalent balances inadequate to satisfy its cash requirements
for the next twelve months. Legal and accounting and other expenses required
could increase significantly in connection with any contemplated business
combination. The Company may not have the liquidity and capital resources to
consummate such business combination. Due to the nature of the Companys
present activities, however the Company is unable to predict its likely
expenditure for professional fees and other expenses. The Company has no
major capital commitments nor access to mechanisms to fund working or operating
capital, and there can be no assurance that it will be successful in its
efforts to raise additional capital to maintain its plan of operation.
During the quarter ended February 28, 2000 the Company acquired the rights to
several domain names on the World Wide Web in exchange for shares of its
common stock. Among the names acquired were MP3Entertainment.com and
MP3hits.com. These acquisitions are significant to the long term strategy
of the company to be able to keep pace with emerging technologies and
to effectively exploit new markets.
<PAGE>
Results of Operations Three and Six Months Ended February 28, 2000 and
February 28, 1999
The Company has no assets and has not engaged in any operational activities
during the past four years. At present, the Company has no employees. The
Company does not expect any changes in its operations unless the Company
concludes a merger or other business combination.
During the three months ended February 28, 2000, the Company had no
operations. The Company maintained its existence through contributions from
its shareholders to satisfy its general and administrative expenses. As
detailed on the accompanying consolidated statements of cash flows, there were
no significant adjustments between the net loss and net change in cash.
<PAGE>
MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
FEBRUARY 28, 2000
Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operation (Continued)
As stated above in the Plan of Operation, due to the nature of the Companys
activities, the Companys prospects for the future are dependent on a number of
variables which cannot be predicted. Generally, after identifying a potential
business opportunity, the Company could incur significant costs in evaluating
the desirability of an acquisition or other form of business combination.
Should the Company determine to proceed with the business combination, the
transaction costs could be significant. Thereafter, results of operation would
likely be materially affected by the business acquired or merge with the
Company.
Recent accounting pronouncements: On March 3, 1997, the Financial Accounting
Standards Board (FASB) issued the Statement of Financial Accounting Standards
SFAS) No. 128, Earning Per Share. This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with Accounting Principles Board Opinion No. 15, Earnings Per Share. SFAS No.
128 provides for the calculation of Basic and Diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. The
Company will adopt SFAS No. 128 in the fiscal 1998 and its implementation
is not expected to have a material effect on the financial statements.
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income which
establishes standards for reporting and display of comprehensive income, as
components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 120
required that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
<PAGE>
Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operation (Continued)
Also, in June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS No.131 establishes
standards for the way that public companies report information bout operating
segments in annual financial statements and required reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standard for disclosure regarding products and
services, geographic areas and major customer. SFAS No. 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources in assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
(Balance of Page Left Blank Intentionally)
<PAGE>
MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
FEBRUARY 28, 2000
Item 1 Legal Proceedings
None
Item 2 Change 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
None
<PAGE>
MERIT DIVERSIFIED INTERNATIONAL, INC.
(A Developmental Stage Company)
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERIT DIVERSIFIED INTERNATIONAL, INC.
(Registrant)
Date: March 13, 2000 By :__________________/s/__________________
Dwight Mallette, Secretary, Chief Accountant
