Filed Pursuant to Rule 424(b)(3)
Registration No. 333-36290
PROSPECTUS
762,393 SHARES OF COMMON STOCK
ZYDANT CORPORATION
The stockholders of Zydant Corporation listed in this prospectus are
offering for sale up to 762,393 shares of common stock under this prospectus.
The selling stockholders will determine when they will sell their shares, and in
all cases they will sell their shares at the current market price or at
negotiated prices at the time of the sale. We will pay the expenses incurred to
register the shares for resale, but the selling stockholders will pay any
underwriting discounts, concessions, or brokerage commissions associated with
the sale of their shares of common stock. We will not receive any of the
proceeds of sales by the selling stockholders.
Our common stock is traded on the NASD Over-the-Counter Bulletin Board
under the symbol "ZYDT." On October 12, 2000, the last sale price of the common
stock as reported on the Over-the-Counter Bulletin Board was $3.03 per share.
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
UNDER THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 13, 2000.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH HEREIN AND
ELSEWHERE IN THIS PROSPECTUS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS."
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE MAKING AN INVESTMENT
DECISION.
OUR COMPANY
INTRODUCTION
We are a development stage company that plans to provide wireless Internet
access to users of a wide variety of hand-held personal digital assistants. Our
services will provide subscribers
* real-time information services, such as news, weather, sports, and
stock quotes formatted for use by personal digital assistants; and
* access to online applications that allow users of these devices to
perform time-critical activities, such as executing stock trades,
ordering medical prescription refills, checking and updating work
schedules and time reports, and managing real-time sales or client
account information.
During fiscal year ended February 29, 2000, we had no revenue and generated
a net loss of approximately $10.4 million. We believe that our current capital,
together with $1.0 million that is available to us under a revolving note
payable, will satisfy our operating capital needs through February 2001 based
upon our currently anticipated business activities. We plan to secure additional
equity or debt financings in the near future to satisfy our capital needs and to
execute our business plan.
We expect to have our services online by the end of this fiscal year and
plan to begin an introductory marketing campaign before December 2000. Key
obstacles to reaching our goals include the following:
* our ability to secure additional equity or debt financing;
* our ability to secure agreements with service providers; and
* our ability to implement our customer support and billing systems.
In order to bring our services online, we will need to enter into
relationships with service providers for various services, including the
following:
* wireless network access that we will resell to our subscribers;
* call center support for customer services; and
* financial contract management for our subscriber billing and
purchases.
We are currently pursuing agreements for all of these services.
OUR MARKET OPPORTUNITY
According to International Data Corporation, annual worldwide sales of
personal companions will increase from approximately one million units in 1997
to an estimated 16 million units in 2003. The Internet has become an important
way for consumers and professionals to access personal and business information,
download new applications, and access new services. We believe that the use of
wireless devices in conjunction with the Internet reflects a growing global
business and consumer demand for convenient mobile access to data.
Several companies, including Palm, Inc., AvantGo, Inc., OmniSky
Corporation, and GoAmerica, Inc., currently market various types of information
services similar to the services we plan to offer.
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OUR STRATEGY
Our goal is to be a leading provider of wireless information services and
online applications for hand-held personal digital assistants. Key elements of
our strategy to achieve this goal are the following:
* develop relationships with leading information service providers;
* locate and develop applications that enhance the utility of personal
digital assistants for both business and personal users;
* expand our subscriber base and build our company brand awareness;
* provide superior customer service and technical support; and
* utilize advanced technologies in our delivery of information services
and online applications.
We do not have any relationships with information service providers; we
have not yet developed or acquired any applications for our services; and do not
have any subscribers for our services.
OUR OFFICES
Our principal offices are located at 2525 South Shore Boulevard, Suite 309,
League City, Texas, 77573, telephone (281) 334-5940, facsimile (281) 334-0889.
All references to our company refer to Zydant Corporation (formerly
PalmWorks, Inc.), a Nevada corporation, and its predecessors, operating
divisions, and subsidiaries.
THE OFFERING
Securities offered by the selling
stockholders ................................ 762,393 shares of common stock
Common stock currently outstanding........... 14,920,031 shares
Use of Proceeds.............................. We will not receive any of the
proceeds of sales by the
selling stockholders.
Risk Factors................................. Investors should carefully
consider the factors discussed
under "Risk Factors."
Over the Counter Bulletin Board Symbol....... ZYDT
SUMMARY CONSOLIDATED FINANCIAL DATA
YEAR ENDED THREE MONTHS ENDED
----------------------------------------- --------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, MAY 31, MAY 31,
1998 1999 2000 1999 2000
--------- --------- ------------ --------- ------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue ................................ $ -- $ -- $ -- $ -- $ --
Operating expenses ..................... 19,798 899,984 9,943,000 68,566 347,767
Other income (expense), net ............ -- 155,453 (437,383) -- 161,471
Net loss ............................... (19,798) (744,531) (10,380,383) (68,566) (186,296)
Net loss per common share
- basic and diluted .................. (0.13) (2.37) (2.23) (0.15) (0.01)
Weighted average number of common shares
outstanding .......................... 156,115 314,737 4,661,865 444,045 14,900,031
AS OF
-------------------------------
CONSOLIDATED BALANCE SHEET DATA: FEBRUARY 29, MAY 31,
2000 2000
---------- ----------
Working capital ........................ $ 628,467 $ 443,494
Total assets ........................... 1,120,589 1,083,935
Total liabilities ...................... 199,330 348,972
Stockholders' equity ................... 921,259 734,963
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE
PURCHASING ANY OF OUR COMMON STOCK.
WE HAVE INCURRED SUBSTANTIAL LOSSES, OUR ABILITY TO GENERATE REVENUE TO SUPPORT
OUR OPERATIONS IS UNCERTAIN, AND OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
HAVE ISSUED A QUALIFIED OPINION ON OUR FINANCIAL STATEMENTS.
We have not generated revenue, have incurred substantial losses since our
inception, and currently are experiencing a substantial cash flow deficiency
from operations. We expect to incur substantial additional losses for the
foreseeable future. We incurred net losses of approximately $186,000 during the
three months ended May 31, 2000, $745,000 during fiscal 1999, and approximately
$10,380,000 during fiscal 2000. As of May 31, 2000, we had working capital of
approximately $443,500, and an accumulated deficit of approximately $12,128,000.
Our ability to generate significant revenue is uncertain, and we may never
achieve profitability. The report by our independent certified public
accountants on our financial statements for the year ended February 29, 2000
states that we have not commenced our planned operations, have suffered
recurring losses, and have no revenue from operations, all of which raise
substantial doubt about our ability to continue as a going concern. Our
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WE HAVE NOT YET INTRODUCED OUR SERVICES, HAVE NOT YET GENERATED REVENUE, AND
HAVE A VERY LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR POTENTIAL
FOR FUTURE SUCCESS.
We have not yet introduced our services. We have not generated revenue and
have a very limited operating history on which you can evaluate our potential
for future success. You should evaluate our company in light of the expenses,
delays, uncertainties, and complications typically encountered by early-stage
businesses, many of which will be beyond our control. These risks include the
following:
* lack of sufficient capital,
* unanticipated problems, delays, and expenses relating to product
development and implementation,
* lack of intellectual property,
* licensing and marketing difficulties,
* competition,
* technological changes, and
* uncertain market acceptance of our products and services.
As a result of our limited operating history, our plan for rapid growth,
and the increasingly competitive nature of the markets in which we will operate,
our historical financial data is of limited value in evaluating our future
revenue and operating expenses. Our planned expense levels will be based in part
on our expectations concerning future revenue, which is difficult to forecast
accurately based on our stage of development. We may be unable to adjust
spending in a timely manner to compensate for any unexpected shortfall in
revenue. Further, business development and marketing expenses may increase
significantly as we expand operations. To the extent that these expenses precede
or are not rapidly followed by a corresponding increase in revenue, our
business, operating results, and financial condition will suffer.
UNLESS FUTURE USERS OF WIRELESS PERSONAL DIGITAL ASSISTANTS USE THOSE DEVICES TO
ACCESS THE INTERNET, OUR SERVICES WILL NOT GENERATE REVENUE.
Our future success will depend upon a continued increase in the use of
wireless devices to access the Internet and interface with online applications
and upon the continued development of wireless devices as a
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medium for the delivery of network-based information content and services. In
particular, our success will require that future users of wireless personal
digital assistants, or PDAs, and other devices increasingly use those devices to
obtain Internet-based and other network-based services, as well as in
conjunction with online applications. We cannot predict whether this use will
increase or whether wireless device users will be willing to pay
profit-supporting prices for Internet-based and other network-based services.
IF WE DO NOT FIND ADDITIONAL SOURCES OF CAPITAL, WE MAY BE REQUIRED TO REDUCE
THE SCOPE OF OUR BUSINESS ACTIVITIES UNTIL WE CAN OBTAIN OTHER FINANCING.
We will not receive any proceeds from this offering. We anticipate
incurring substantial losses in the future and will likely require significant
additional financing in the future in order to satisfy our cash requirements.
Our need for additional capital to finance our operations and growth will be
greater should, among other things, our revenue or expense estimates prove to be
incorrect, particularly if we do not find additional sources of capital. If we
do not find additional sources of capital, we may be required to reduce the
scope of our business activities until other financing can be obtained. We
cannot predict the timing or amount of our capital requirements at this time.
Our actual funding requirements may differ materially as a result of many
factors, including the success of our service launch, the development of new
products and technologies, and the proposed growth of our company. We may not be
able to obtain additional financing in sufficient amounts or on acceptable terms
when needed, which could adversely affect our operating results and prospects.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES. IF WE FAIL
TO ADAPT TO THOSE CHANGES, OUR ONLINE APPLICATIONS AND WIRELESS INFORMATION
SERVICES MAY BECOME OBSOLETE.
We compete in an industry that is evolving rapidly. The wireless data
industry is characterized by the development of new technology, evolving
industry standards, the introduction of new products and services, and changing
customer demands. The emerging nature of the Internet and the large number of
companies offering Internet-based products and services intensify these
characteristics. Our success will depend on our ability to adapt our online
applications and wireless information services to rapidly changing technologies
and industry standards, to continually improve the performance of our systems,
and to respond to the shifting demands of the marketplace. In addition, we could
incur substantial costs if we need to modify our system to respond to the
widespread adoption of new technologies or changes in existing technologies. We
may fail to adapt to technological changes or the needs of the marketplace.
We face a number of related risks generally encountered by companies in the
developing wireless data industry, including the following:
* the uncertainty of market acceptance of commercial services using our
online applications and wireless information services;
* our substantial dependence on a system with only limited market
penetration to date;
* our need to initiate and expand our marketing, sales, distribution,
and support organizations;
* our ability to anticipate and respond to market competition; and
* our need to manage expanding operations.
Any failure by us to anticipate or respond adequately to technological
developments, customer requirements, or new design and production techniques or
any significant delays in product development or introduction could reduce our
opportunities to generate revenue and reduce our goodwill to customers.
OPEN INDUSTRY STANDARDS MAY CREATE A MORE COMPETITIVE MARKET FOR OUR ONLINE
APPLICATIONS AND WIRELESS INFORMATION SERVICES, RESULTING IN LOWER OPERATING
MARGINS FOR OUR BUSINESS.
The wireless market, within which our services compete, is becoming
increasingly competitive. The widespread adoption of open industry standards may
make it easier for new market entrants and existing competitors to introduce
products and services that compete with our system. We expect that we will
compete
5
primarily on the basis of time to market, functionality, quality, breadth of new
application offerings, customer service, and price of our services. We may not
be able to compete effectively on these or other bases. Many of our competitors
have significantly greater financial, marketing, and other resources, generate
greater revenue, and have greater name recognition and experience than we do.
Some of our competitors are emerging wireless Internet service providers that
already have competing services in the market. These competitors include OmniSky
Corporation, a joint venture of Aether Systems, Inc., 3Com Ventures, and
AvantGo, Inc.; Palm, Inc., the provider of Palm.net; and GoAmerica, Inc.
ANY ONLINE APPLICATIONS OR WIRELESS INFORMATION SERVICES WE PROVIDE MAY CONTAIN
DEFECTS OR ERRORS THAT COULD RESULT IN LOST REVENUE OR INCREASED SERVICE COSTS.
Any online applications and wireless information services we provide will
be complex and must meet stringent technical requirements. We must develop our
applications and services to keep pace with the rapidly changing wireless and
wireless data industries. Applications as complex as ours may contain undetected
errors or defects, especially when first introduced or when upgraded, which
could result in lost revenue and goodwill.
THE LOSS OF ANY OF OUR KEY EXECUTIVES OR OUR FAILURE TO ATTRACT, INTEGRATE,
MOTIVATE, AND RETAIN ADDITIONAL KEY EMPLOYEES WITH INTERNET, WIRELESS DATA, AND
TECHNOLOGY EXPERIENCE COULD HARM OUR BUSINESS.
Our success depends to a large degree upon the skills of our senior
management team and current key employees and upon our ability to identify,
hire, and retain additional sales, marketing, technical, and financial
personnel. Because of the technical nature of our wireless service and the
dynamic market in which we will compete, our performance will depend on
attracting and retaining highly qualified employees. Competition for these
personnel in the wireless data and technology industries is intense and
identifying personnel with experience in both industries is even more difficult.
We are in a relatively new market, and there are a limited number of people with
the appropriate combination of skills needed to provide the services that our
subscribers will require.
We depend particularly upon James T. Voss, Chief Executive Officer and
President, and Ellen S. Eckler, Executive Vice President and Chief Financial
Officer. We do not maintain key person life insurance for any of our officers or
key employees. Although we have employment agreements with our two executive
officers and our six other employees, those agreements do not require our
executives or our employees to enter non-competition agreements with us, and
those executives or employees could leave our company to form or join a
competitor. The loss of our key executives, the use of proprietary or trade
secret data by former employees who compete with us, or the failure to attract,
integrate, motivate, and retain additional key employees could delay the
execution of our business plan, which result in lost revenue and goodwill.
OUR PRODUCTS AND SERVICES MAY NOT BE BROADLY ACCEPTED BY THE MARKET.
We propose to deliver wireless information services and online applications
over the Internet to wireless PDAs. This market is in the early stage of
development. It is difficult to predict the rate at which this market will grow,
if at all, because this market is relatively new and current and future
competitors are likely to introduce competing services or applications. Any
services and online applications that we provide may not experience broad market
acceptance. Any market acceptance for our services or applications may not
develop in a timely manner or may not be sustainable. New or increased
competition may result in market saturation, more competitive pricing, or lower
margins. Critical issues concerning development and use of our proposed services
remain unresolved and may impact the growth of these services. These issues
include, among others, the practicality and functionality of our online
applications and our ability to enable our applications to interface with
wireless PDAs. Our opportunities to generate revenue would be limited and any
goodwill would be lost if the markets for our proposed services or applications
fail to grow, grow more slowly than anticipated, or become more competitive, or
if our proposed services or applications are not accepted by targeted customers
even if a substantial market develops.
6
INVESTORS MAY NOT BE ABLE TO EXERCISE CONTROL OVER OUR COMPANY AS A RESULT OF
MANAGEMENT'S AND OTHER PRINCIPAL STOCKHOLDERS' OWNERSHIP.
The current executive officers and directors of our company beneficially
own approximately 44.1% of our outstanding common stock and will beneficially
own 39.3% in the event that our officers and directors sell all shares covered
by this prospectus. As a result, the executive officers and directors of our
company will be able to significantly influence the management and affairs of
our company and all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership could have the effect of delaying or preventing a
change in control of our company, even when a change of control is in the best
interests of stockholders. Control by management might adversely affect the
market price of the common stock and the voting and other rights of our
company's other stockholders.
SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS AND
SERVICES THAT WOULD REDUCE OUR OPPORTUNITIES TO GENERATE REVENUE.
A fundamental requirement to conducting Internet-based communications is
the secure transmission of confidential information over public networks.
Failure to prevent security breaches of our network, or well-publicized security
breaches affecting the Internet in general, could deter consumers, retailers,
and manufacturers from conducting electronic transactions that transmit
confidential information. Advances in computer capabilities, new discoveries in
the field of cryptography, and other developments may result in a compromise or
breach of the algorithms we plan to use to protect content and transactions in
connection with our services. Anyone that is able to circumvent our security
measures could misappropriate proprietary confidential user information or cause
interruptions in operations. There may be significant cost requirements to
protect against security breaches or to alleviate problems caused by breaches.
Any of these occurrences could increase our costs and result in lost revenue and
goodwill.
ANY FUTURE ACQUISITIONS COULD DIVERT MANAGEMENT'S TIME AND ATTENTION, DILUTE THE
VOTING POWER OF EXISTING STOCKHOLDERS, AND HARM OUR BUSINESS.
As part of our growth strategy, we may acquire complementary businesses and
assets. Acquisitions that we may make in the future could result in the
diversion of time and personnel from our business. We also may issue shares of
common stock or other securities in connection with acquisitions, which could
result in the dilution of the voting power of existing stockholders and could
have a dilutive effect on earnings per share. Any acquisitions would be
accompanied by other risks commonly encountered in these types of transactions,
including the following:
* difficulties integrating the operations and personnel of acquired
companies;
* the additional financial resources required to fund the operations of
acquired companies;
* the potential disruption of our business;
* our ability to maximize our financial and strategic position by
incorporating acquired technology or businesses with our product and
service offerings;
* the difficulty of maintaining uniform standards, controls, procedures,
and policies;
* the potential loss of key employees of acquired companies;
* the impairment of employee and customer relationships as a result of
changes in management; and
* significant expenses we may incur to consummate acquisitions.
OUR PROPOSED GROWTH AND EXPANSION COULD HARM OUR BUSINESS.
Over the next several months, we will add many new employees, introduce new
systems, and effect other changes to address our rapid growth. The resulting
strain on our managerial, operational, financial, and other resources could be
significant. During the next several months, we also will begin forming
strategic relationships and entering into agreements with service providers to
enable us to offer our services online. Our ability to
7
achieve and maintain profitability will depend, in part, upon the ability of
senior management to manage effectively the growth of our company. Any failure
to manage our proposed growth and expansion could result in lost opportunities
to generate revenue or increased costs due to inefficiencies in our business.
RIGHTS TO ACQUIRE SHARES OF COMMON STOCK WILL RESULT IN DILUTION TO OTHER
HOLDERS OF COMMON STOCK AND MAY ENABLE HOLDERS OF OPTIONS TO ACQUIRE SHARES OF
COMMON STOCK AT PRICES BELOW FAIR MARKET VALUE.
We have outstanding 14,920,031 shares of common stock. In addition, we have
outstanding
* options held by our directors, officers, and employees to purchase
1,800,000 shares of common stock with exercise prices ranging from
$1.00 to $2.50 per share, and
* warrants to purchase 1,893 shares of common stock with exercise prices
ranging from $23.00 to $32.00 per share.
Holders of these securities will have the opportunity to profit from an
increase in the market price of our common stock, with resulting dilution in the
interests of the holders of common stock. For example, during September 1999 we
entered into a consulting agreement with Northwest Capital Partners, LLC, one of
our affiliates, in which we granted to Northwest options to purchase 1,000,000
shares of our common stock at an exercise price of $0.01 per share. During
January 2000, the options vested and Northwest exercised all 1,000,000 options.
The existence of these stock options and warrants could adversely affect the
terms on which we can obtain additional financing, and the holders can be
expected to exercise these securities at a time when, in all likelihood, we
would be able to obtain additional capital by offering shares of common stock on
terms more favorable to us than those provided by the exercise of these
securities.
OUR KEY OFFICERS HAVE THE RIGHT TO PURCHASE ADDITIONAL SHARES OF OUR COMMON
STOCK AT A DISCOUNTED RATE, WHICH WILL RESULT IN CONTINUED DILUTION TO EXISTING
STOCKHOLDERS, POSSIBLE UNFAVORABLE ACCOUNTING TREATMENT, AND POSSIBLE DOWNWARD
PRESSURE ON THE MARKET PRICE OF OUR COMMON STOCK.
Our employment agreements with Mr. Voss and Ms. Eckler provide each
executive with the option to purchase additional shares of our common stock at
the end of each quarter, so long as these purchases not to exceed 25% of the
executive's salary for that quarter. The executive may purchase these shares at
a price equal to 15% below the lowest fair market value of our common stock
during the quarter ended. To the extent these executives decide to acquire
additional shares at discounted prices, existing stockholders will experience
further dilution. In addition, we may be required to record compensation expense
in an amount equal to the discount of the purchases, if any. The existence of
these agreements could adversely affect the terms on which we can obtain
additional financing and may have an adverse impact on the fair market value of
our common stock.
OUR COMMON STOCK IS A "PENNY STOCK," AND COMPLIANCE WITH REQUIREMENTS FOR
DEALING IN PENNY STOCKS MAY MAKE IT DIFFICULT FOR HOLDERS OF OUR COMMON STOCK TO
RESELL THEIR SHARES.
Our common stock currently is deemed to be "penny stock" as that term is
defined in Rule 3a51-1 under the Securities Exchange Act of 1934, or Exchange
Act. Section 15(g) of the Exchange Act and Rule 15g-2 under the Exchange Act
require broker/dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain manually
signed and dated written receipt of the document before effecting a transaction
in a penny stock for the investor's account. Compliance with these requirements
may make it more difficult for holders of our common stock to resell their
shares to third parties or otherwise, which could have a material adverse affect
on the liquidity and market price of our common stock. Penny stocks are stocks
* with a price of less than $5.00 per share that are not traded on a
"recognized" national exchange;
* whose prices are not quoted on the Nasdaq automated quotation system;
or
* issued by companies with net tangible assets less than $2.0 million
(if the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than three
years), or with average revenue of less than $6.0 million for the last
three years.
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SHARES OF COMMON STOCK ELIGIBLE FOR SALE IN THE PUBLIC MARKET MAY ADVERSELY
AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Sales of substantial amounts of common stock by stockholders in the public
market, or even the potential for these sales, are likely to adversely affect
the market price of our common stock and could impair our ability to raise
capital by selling equity securities. As of the date of this prospectus,
approximately 6,200,000 of the 14,900,031 shares of common stock currently
outstanding were freely transferable without restriction or further registration
under the securities laws, unless held by "affiliates" of our company, as that
term is defined under the securities laws. We also have outstanding
approximately 8,700,000 restricted shares of common stock, as that term is
defined under Rule 144 under the securities laws, that are eligible for sale in
the public market, subject to compliance with the holding period, volume
limitations, and other requirements of Rule 144. We are registering for resale
760,500 of these restricted shares, plus 1,893 shares that may be sold upon
exercise of outstanding warrants, pursuant to the registration statement of
which this prospectus forms a part. Upon effectiveness of the registration
statement, those shares may be freely resold into the public markets. Moreover,
the exercise of outstanding options and warrants will result in additional
outstanding shares of common stock and will create additional potential for
sales of additional shares of common stock in the public market.
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE, PUTTING OUR COMPANY AT RISK OF
SECURITIES CLASS ACTION LITIGATION.
The trading volume of our common stock historically has been limited and
sporadic, and the stock prices have been volatile. For example, since September
1999, our common stock has traded at prices ranging from $0.93 to $19.88.
Because we are a development stage company, our stock price is subject to
considerable risk. In the past, securities class action litigation has often
been brought against a company following periods of volatility in the market
price of its securities. We may in the future be the target of similar
litigation. Regardless of its outcome, securities litigation may result in
substantial costs and divert management's attention and resources, which could
harm our business and results of operations. The price at which our common stock
will trade in the future may be highly volatile and may fluctuate as a result of
various factors, many of which are beyond our control.
OUR INVESTMENT IN A PETROLEUM EXPLORATION PERMIT MAY BE SUBJECT TO GOVERNMENTAL
LAWS OR REGULATIONS THAT MAY RESULT IN INCREASED COSTS TO OUR COMPANY.
We own a 15% working interest in a petroleum exploration permit covering
approximately 29,000 acres of the Taranaki Basin on the North Island of New
Zealand. This asset was the property of Titan Resources, Inc. of Houston, Texas,
a predecessor of our company, and is now our asset as a result of Titan's merger
with our company in October 1999. Exploration, production, and marketing
operations are regulated extensively. These regulations affect the costs,
manner, and feasibility of the operations of oil and gas properties. As an owner
of a working interest in this property, our interest may be adversely effected
if new regulations affect the operations of the properties. Changes in or
additions to regulations regarding the protection of the environment could
increase compliance costs and may have an adverse affect on our investment.
Owners and operators of the property are also subject to regulations that impose
permitting, reclamation, land use, conservation, and other restrictions on their
ability to drill and produce. These laws and regulations can require well and
facility sites to be closed and reclaimed.
LEGAL UNCERTAINTIES SURROUND THE DEVELOPMENT OF THE INTERNET, AND COMPLIANCE
WITH ANY NEWLY ADOPTED LAWS MAY PROVE DIFFICULT FOR OUR COMPANY AND MAY HARM OUR
BUSINESS.
The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws or regulations relating to the Internet could
adversely effect our business, operating results, and financial condition by
increasing our costs and administrative expenses. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel, consumer protection, and taxation apply to the Internet. Laws
and regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. We must comply with new regulations in the
United States, as well as any other regulations adopted by other countries in
which we may do business. The growth and development of the market
9
for online commerce may prompt calls for more stringent consumer protection
laws, both in the United States and abroad, as well as new laws governing the
taxation of Internet commerce. Compliance with any newly adopted laws may prove
difficult for our company and may harm our business, operating results, and
financial condition.
FORWARD-LOOKING STATEMENTS
Some of the statements and information contained in this prospectus
concerning our future, proposed, and anticipated activities, as well as
statements regarding certain trends with respect to our revenue, operating
results, capital resources, and liquidity or with respect to the markets in
which we compete or the wireless communication markets in general.
Forward-looking statements include statements that are not historical facts are
forward-looking statements, as this term is defined in the securities laws.
Forward-looking statements, by their very nature, include risks and
uncertainties, many of which are beyond our control. Accordingly, actual results
may differ, perhaps materially, from those expressed in or implied by the
forward-looking statements. Factors that could cause actual results to differ
materially include those discussed elsewhere in this section entitled "Risk
Factors."
USE OF PROCEEDS
We will not receive any of the proceeds of sales of common stock by the
selling stockholders.
10
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the OTCBB under the symbol "ZYDT"
since October 2000 and as "PMWK" since September 1999. The following table sets
forth the high and low bid information of our common stock for the calendar
quarters indicated as reported on the OTCBB.
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1999:
Fourth quarter .................................... $ 5.81 $ 0.93
YEAR ENDED DECEMBER 31, 2000:
First quarter ..................................... $19.88 $ 4.00
Second quarter .................................... $ 7.13 $ 2.25
Third quarter ..................................... $ 4.63 $ 2.50
Fourth quarter (through October 12, 2000) ......... $ 3.06 $ 2.13
Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission, and may not necessarily represent
actual transactions. As of October 12, 2000, there were approximately 291
holders of record of our common stock. On October 12, 2000, the closing sales
price of our common stock as quoted on the OTCBB was $3.03 per share.
DIVIDEND POLICY
The holders of common stock will be entitled to receive dividends, if any,
as may be declared by our board of directors from time to time out of legally
available funds. Payments of any cash dividends in the future will depend on our
financial condition, results of operations, and capital requirements as well as
other factors deemed relevant by our board of directors. For the foreseeable
future, we intend to retain any future earnings to finance our operations and we
do not anticipate paying any cash dividends with respect to our common stock.
11
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Consolidated Statements of Operations Data" for the year ended February 29,
2000 and "Consolidated Balance Sheet Data" as of February 29, 2000 are derived
from the consolidated financial statements of Zydant Corporation (formerly
PalmWorks, Inc.), which have been audited by L.L. Bradford & Company,
independent certified public accountants. The "Consolidated Statement of
Operations Data" presented below for the years ended February 28, 1997, February
28, 1998, and February 28, 1999 and "Consolidated Balance Sheet Data" as of
February 28, 1997, February 28, 1998, and February 28, 1999 are derived from the
consolidated financial statements of Zydant Corporation, which have been audited
by Bob Stephens & Associates, P.C., independent certified public accountants.
The "Consolidated Statements of Operations Data" for the nine months ended
February 28, 1996 and "Consolidated Balance Sheet Data" as of February 28, 1996
are derived from the unaudited consolidated financial statements of Monarch
Energy Corp., a predecessor of Zydant Corporation. The unaudited financial
statements of Monarch Energy Corp. are not included in this registration
statement. The selected consolidated statement of operations data for the three
months ended May 31, 2000 has been derived from our unaudited financial
statements that, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, that management considers
necessary for a fair presentation of the information set forth below. The
results of operations for the three months ended May 31, 2000 are not
necessarily indicative of the results for the full year.
The consolidated financial statements as of February 28, 1999 and February
29, 2000 and for the three years ended February 29, 2000, and the reports
thereon are included elsewhere in this registration statement. The consolidated
selected data should be read in conjunction with the consolidated financial
statements for the years ended February 29, 2000, the related notes and the
independent auditors' reports, which contain an explanatory paragraph that
states that our recurring losses from operations and net capital deficiency
raise substantial doubt about our ability to continue as a going concern,
appearing elsewhere in this prospectus. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes thereto included elsewhere in
this prospectus.
NINE MONTHS YEAR ENDED THREE MONTHS
ENDED -------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, MAY 31,
1996 1997 1998 1999 2000 2000
-------- --------- --------- --------- ------------ ------------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue ...................... $ 14,366 $ 4,088 -- $ -- $ -- $ --
Operating expenses ........... 13,310 596,000 19,798 899,984 9,943,000 347,767
Other income (loss), net ..... (15,686) (360) -- 155,453 (437,383) 161,471
Net loss ..................... (14,630) (592,272) (19,798) (744,531) (10,380,383) (186,296)
Net loss per common share -
basic and diluted .......... (0.28) (0.04) (0.13) (2.37) (2.23) (0.01)
Weighted average number of
common shares outstanding .. 52,000 156,115 156,115 314,737 4,661,865 14,900,031
CONSOLIDATED BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital (deficit) .... $(53,589) $ 225,411 $(136,543) $(753,156) $ 628,467 $ 443,494
Total assets ................. 1,056 267,351 266,631 649,642 1,120,589 1,083,935
Total liabilities ............ 49,190 377,703 361,780 755,203 199,330 348,972
Stockholders' equity (deficit) (48,134) (110,352) (95,149) (105,561) 921,259 734,963
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS WITH THE SELECTED
CONSOLIDATED FINANCIAL DATA AND OUR CONSOLIDATED FINANCIAL STATEMENTS INCLUDING
THE NOTES, WHICH APPEAR ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS REFLECTS A 1-FOR-100 REVERSE SPLIT
OF OUR COMMON STOCK ON OCTOBER 15, 1999. THE FOLLOWING DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT REFLECT OUR PLANS, ESTIMATES, AND BELIEFS. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS,
PARTICULARLY IN "RISK FACTORS."
OVERVIEW
We are a development stage company that plans to provide wireless Internet
access to users of a wide variety of hand-held personal digital assistants, or
PDAs. Our company was organized in June 1971 under the laws of the state of New
York under the name The Bolton Group, Ltd. Our company engaged in various
businesses and underwent several name changes between 1971 and 1994, when we
changed our name to Titan Resources, Inc. Between June 1994 and 1997, as Titan
Resources, we owned and operated an industrial mining and sales operation and
other oil interests through our subsidiary American Monarch Energy Corp.
Beginning in March 1997 and continuing to March 1998, we had no assets or
operations In March 1998, we entered into an asset purchase agreement with
Mobilelink Communications, for the rights and title to all of Mobilelink's
intellectual property, consisting of software and other intangibles, in exchange
for 220,000 shares of our company and 5% of the gross sales of licenses of the
intellectual property (which was to be paid to Affiliated Resources Corporation,
from which Mobilelink originally purchased the intellectual property). Pursuant
to that acquisition, if the gross sales from licenses did not equal at least
$200,000 within 24 months from the date of the purchase, then the acquired
assets would be returned to Mobilelink. We formed a subsidiary, Titan Wireless,
Inc., in March 1998 and immediately placed all of the acquired intellectual
property from Mobilelink into the subsidiary in exchange for 100% of the issued
stock of the subsidiary. We own 100% of the issued and outstanding stock of
Titan Wireless, Inc.
We have been in the development stage since we purchased the assets of
Mobilelink in March 1998. During October 1999 we acquired all the capital stock
of PalmWorks, Inc., a non-operating privately held Nevada corporation pursuant
to a stock-for-stock acquisition. Since that time, we have reincorporated our
company in Nevada, and have changed our name to Zydant Corporation in an effort
to further distinguish our company from our competitors. During fiscal 2000, we
determined that our investment in the intellectual property of Mobilelink was a
non-viable asset with no future benefits to our company, and we wrote-off that
investment resulting in a loss of $440,000. Although we do not plan to use any
of the assets purchased from Mobilelink as a part of our future business
activity, we plan to acquire and develop new software and software applications
and to use a combination of purchased and internally developed software and
software applications) to deliver wireless information services over the
Internet on a subscription basis to wireless PDAs.
During November 1999, through the settlement of a lawsuit involving Titan
Resources, we acquired an undivided 15% working interest in a petroleum
exploration permit covering approximately 29,000 acres of the Taranaki Basin on
the North Island of New Zealand. GEL Exploration of Houston, Texas is the
operator of the permit, and GEL recently notified us that it plans to begin
drilling during May 2000. The operator of the permit has targeted Mount
Messenger as the formation of the test well. In the event that the operator
discovers oil on our concession, we will be required to invest additional
capital to allow the operator to complete the well and begin production. We
believe that we would be able to obtain additional financing in the event that
the operator discovers oil on our concession. If the operator does not discover
oil on our concession and we determine that an opportunity for us to realize a
return on our investment does not exist, we do not intend to invest additional
capital in this asset and do not intend to pursue further this type of business
activity.
13
RESULTS OF OPERATIONS
The following table provides, for the periods shown, the line items
included in our consolidated statements of operations.
YEAR ENDED THREE MONTHS ENDED
------------------------------------------ ----------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, MAY 31, MAY 31,
1998 1999 2000 1999 2000
-------- --------- ------------ -------- ---------
Revenue ....................... $ -- $ -- $ -- $ -- $ --
-------- --------- ------------ -------- ---------
Operating expenses
Professional fees ........... -- 168,702 315,993 19,848 103,426
Wages and payroll taxes ..... -- -- 252,194 15,500 169,978
Consulting and contract labor -- 289,169 9,112,700 -- --
Depreciation ................ 546 13,100 25,563 -- 14,618
Interest expense ............ -- 14,500 7,755 -- 14
Advertising ................. -- 76,685 4,070 -- 1,860
General and administrative .. 19,252 337,828 224,725 33,218 57,871
-------- --------- ------------ -------- ---------
Total operating expenses .. 19,798 899,984 9,943,000 68,566 347,767
-------- --------- ------------ -------- ---------
Net loss from operations ...... $(19,798) $(899,984) (9,943,000) (68,566) $(347,767)
Other income (expense)
Forgiveness of debt ......... -- 306,019 -- -- --
Related party bad debts ..... -- (169,172) -- -- --
Interest income ............. -- -- 2,617 -- 8,573
Gain on sale of fixed assets -- 18,606 -- -- --
Loss on investments ......... -- -- (440,000) -- --
Other income (expense) ...... -- -- -- -- 152,898
-------- --------- ------------ -------- ---------
Total other income (expense) . -- 155,453 (437,383) -- 161,471
-------- --------- ------------ -------- ---------
Net loss ...................... $(19,798) $(744,531) $(10,380,383) $(68,566) $(186,296)
======== ========= ============ ======== =========
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2000 COMPARED WITH THE
THREE MONTHS ENDED MAY 31, 1999
We continued to incur first quarter operating losses. We incurred net
losses of approximately $186,000 for the quarter ended May 31, 2000 and $69,000
for the quarter ended May 31, 1999. For the quarter ended May 31, 2000, our
total operating costs were approximately $348,000 compared to $69,000 for
quarter ended May 31, 1999. The increase in operating expenses for quarter ended
May 31,2000 was primarily due to costs associated in building our infrastructure
to deliver wireless Internet access services. These costs include an increase in
overall payroll compensation and related taxes of approximately $155,000 and an
increase in professional fees of approximately $80,000 for first quarter ended
May 31, 2000 compared to quarter ended May 31, 1999.
Our company has realized an overall increase in professional fees of
approximately $80,000 in quarter ended May 31, 2000, over the quarter ended May
31, 1999. The majority of this increase during the last two fiscal quarters was
due to retained support in building our company infrastructure and our efforts
to become a "reporting company." Approximately 75% of the professional fees we
have anticipated were incurred during fiscal years ended February 28, 1999 and
2000. We are involved in litigation incurred in the normal course of business.
We do not believe the liabilities, if any, resulting from these matters will
have a material adverse effect on our business.
We expect a continued increase in operating costs as we prepare to bring
our services online. Although we expect to generate revenue during the year
ended February 28, 2001, we expect to continue to incur losses from operations.
We expect increases in our wage and payroll tax expenses over the next 12 to 18
months, as well as additional expenses for contract labor. We anticipate
increases in marketing and advertising expenses as we approach the launch of our
online services. We expect continued increases in marketing and advertising in
our attempt to gain market share. We also expect increases in general and
administrative expenses. These increases will be incurred from additional
staffing, management personnel, and increases in existing management personnel
salaries.
14
We reported other income of approximately $160,000 during quarter ended May
31, 2000 and did not report any such income for quarter ended May 31, 1999. This
increase was due to interest income of approximately $8,000 and a write off in
accounts payable of approximately $150,000. The write off of accounts payable
was due to overstated vendor debt from our predecessor company, Titan Resources,
Inc., which we believe will not result in any current or future liabilities to
us. As a result of the foregoing factors, we reported a net loss of
approximately $186,000 for the quarter ended May 31, 2000 and $69,000 for the
quarter ended May 31, 1999.
RESULTS OF OPERATIONS FOR FISCAL YEAR ENDED FEBRUARY 29, 2000 COMPARED WITH
FISCAL YEAR ENDED FEBRUARY 28, 1999 AND FISCAL YEAR ENDED FEBRUARY 28, 1998
Our company realized substantial increases in total operating costs over
the last three years, resulting in net losses of approximately $10,380,000,
$745,000, and $20,000 for the years ended February 29, 2000, February 28, 1999,
and 1998. For the year ended February 29, 2000, our total operating costs were
approximately $9,943,000 compared to $900,000 for year ended February 28, 1999.
The increase in operating expenses for year ended February 29, 2000 was
primarily due to consulting fees of approximately $9,113,000. These fees arose
from our consulting agreement with Northwest Capital Partners under which we
paid Northwest non-cash compensation upon Northwest achieving certain financial
milestones for our company. Accordingly, the consulting fees recorded relate
primarily to the value of (a) 1,500,000 shares of common stock issued in
connection with our company becoming a publicly traded company, and (b) options
to purchase 1,000,000 shares of common stock at an exercise price of $0.01
issued in connection with our company obtaining a market capitalization of $100
million. The shares of common stock were determined to have a value of
approximately $7.0 million and the value of the options were determined to have
a value of approximately $1.8 million. The increase in operating expenses also
relates to costs realized in the building of company infrastructure for wireless
Internet access. These costs include an increase in overall payroll compensation
and related taxes of approximately $252,000 and professional fees of
approximately $147,000 compared to the prior year. For the year ended February
28, 1999, our total operating costs were approximately $900,000 compared to
$20,000 for the year ended February 28, 1998. The increase in operating expenses
for the year ended February 28, 1999 was primarily due to consulting and
contract labor of approximately $289,000, professional fees of $169,000, and
general and administrative fees of $318,000.
We expect a continued increase in operating costs as we prepare to bring
our services online. Although we expect to generate revenue during the year
ending February 28, 2001, we expect to continue to incur losses from operations.
We expect to see increases in our wage and payroll tax expenses over the next 12
to 18 months, as well as additional expenses for contract labor. Approximately
75% of the professional fees incurred during fiscal years 1999 and 2000 were
related to litigation. We are involved in litigation incurred in the normal
course of business. We do not believe the liabilities, if any, resulting from
these matters will have a material adverse effect on our consolidated financial
statements.
Once we commence our services, we expect increases in marketing and
advertising expenses. We also expect increases in general and administrative
expenses. These increases will be incurred through adding additional management
personnel and increases in existing management personnel salaries.
During the fiscal years ended February 29, 2000, February 28, 1999, and
1998, we reported other income (loss) approximating $(438,000), $155,000, and
$-0-, respectively. For the year ended February 29, 2000, other loss of
approximately $438,000 was primarily due to the write-off of $440,000 relating
to intellectual property that we acquired from Mobilelink in March 1998, which
we ultimately determined had no future benefits to our company. For the year
ending February 28, 1999, other income of approximately $155,000 primarily
related to forgiveness of debt of approximately $306,000 from an acquisition
agreement that we entered into during 1996 with Ponder Industries.
15
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of a company's ability to meet potential cash
requirements, including ongoing commitments to research and development
activities and for general purposes. Our cash for research and development and
general operating expenses is primarily obtained through cash flows from
financing activities.
We have significant ongoing liquidity needs to support our existing
business and research and development activities. Our liquidity is actively
managed on a periodic basis and our financial status, including our liquidity,
is reviewed periodically by our management. This process is intended to ensure
the maintenance of sufficient funds to meet the needs of our company.
During the fiscal year ended February 29, 2000, we realized a net loss of
approximately $10,380,000. We used approximately $828,000 of cash in operating
activities, primarily due to our net loss offset by approximately $9,202,000 of
expenses paid with common stock, and the non-cash loss on investment of $440,000
related to the write-off of the intellectual property acquired from Mobilelink
discussed above. We also used approximately $106,500 of cash to repay amounts
due to related parties.
Capital expenses for fiscal year ended February 29, 2000 was approximately
$111,000. Capital expenses primarily related to the purchase of computer
hardware, software, and office furniture.
During February 2000, we raised approximately $1.8 million from the
issuance of 1,200,000 shares of common stock. We used approximately $55,000 of
these proceeds to repay notes payable that had been assumed from Titan
Resources.
On February 29, 2000, we had a cash balance of approximately $818,000 and
working capital of approximately $628,500.
During April 2000, we secured a revolving note with Northwest Capital
Partners for $1.0 million. The revolving note bears interest at the prime rate,
with interest payable quarterly, and matures in January 2002. The revolving note
is secured by all of our tangible and intangible assets. We may prepay the notes
from time to time without penalty. No amounts are outstanding under the
revolving note.
During the first quarter ended May 31, 2000, we realized a net loss of
approximately $186,000 compared to a net loss in the first quarter ended May 31,
1999 of approximately $69,000. We also realized a decrease in accounts payable
and accrued liabilities, due to a write off of vendor debt from our predecessor
company.
Capital expenses for quarter ended May 31, 2000 were approximately $13,000.
Capital expenses primarily related to the purchase of computer hardware,
software, telephone, and office equipment.
During May 2000, we issued a note payable to Northwest with the principal
amount of $300,000 due February 2001. The note does not bear interest, and does
not require monthly payments. We issued the note for working capital purposes
and we used this capital to support our working interest in a petroleum
exploration permit.
On May 31, 2000, we had a cash balance of approximately $782,500. We
currently are experiencing a net cash outflow of approximately $115,000 per
month. We believe that our current capital together with $1.0 million that is
available to us under a revolving note payable will satisfy our operating
capital needs through February 2001 based upon our currently anticipated
business activities.
We plan to raise equity capital in a private placement of our common stock
in the near future. We believe that approximately $5.0 million of operating
capital should satisfy our need for capital during the next 12 months based upon
our current operating capital requirements and business plan. This additional
capital should be sufficient to allow us to expand our operations and execute
our business plan. In the event that this equity capital is not received by the
time we require additional funding, we plan to draw on our $1.0 million
revolving note from Northwest.
16
We believe that the successful completion of the equity financing described
above will provide us with sufficient capital needed to further develop our
infrastructure and support our operations over the next 12 months. We have
forecasted approximately $4.9 million in operating expenses through September
2001. These operating expenses include
* approximately $1.1 million in payroll expense related to our increased
staffing requirements;
* approximately $1.0 million for legal, professional, and insurance
expenses related to our company becoming a "reporting company;" and
* approximately $2.0 million in marketing and advertising related to our
introductory marketing campaign.
We anticipate incurring substantial losses in the future and will likely
require significant additional financing in the future in order to satisfy our
cash requirements. We intend to raise additional capital through debt and equity
financings to fund our continued growth. In order for us to execute our business
plan and bring our service offerings online, we expect to incur a substantial
increase in our operating expenses. Our need for additional capital to finance
our operations and growth will be greater should, among other things, our
revenue or expense estimates prove to be incorrect, particularly if we do not
find additional sources of capital. If we do not find additional sources of
capital, we may be required to reduce the scope of our business activities until
other financing can be obtained. We cannot predict the timing or amount of our
capital requirements at this time. We may not be able to obtain additional
financing in sufficient amounts or on acceptable terms when needed, which could
adversely affect our operating results and prospects.
CHANGES IN CERTIFYING ACCOUNTANT
Bob Stephens & Associates, P.C. was previously our principal accountants.
During April 2000, we dismissed Bob Stephens & Associates, P.C. as our principal
accountants, and we appointed L.L. Bradford & Company as our principal
accountants. Our full board of directors approved our decision to change
accountants.
During the two fiscal years ended February 28, 1998 and 1999, and all
subsequent interim periods through April 2000, there were no disagreements
between us and Bob Stephens & Associates, P.C. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. No "reportable events" occurred within the two fiscal years ended
February 28, 1998 and 1999 and the subsequent interim periods through April
2000. We did not consult with L.L. Bradford & Company regarding any matters or
events until we engaged them as our principal accountants in April 2000.
The audit reports of Bob Stephens & Associates, P.C. on the financial
statements of Zydant Corporation as of and for the fiscal years ended February
28, 1998 and 1999 did not contain any adverse opinion or disclaimer of opinion,
however, the reports did state that our losses and accumulated deficit raise
substantial doubts about our ability to continue as a going concern.
17
BUSINESS
OUR COMPANY
We are a development stage company that plans to provide wireless Internet
access to users of a wide variety of hand-held personal digital assistants, or
PDAs. Our services will provide subscribers real-time information services and
access to online applications that allow PDA users to perform time-critical
activities.
THE NEED FOR SPECIALIZED WIRELESS INFORMATION SERVICES AND APPLICATIONS
While the wireless data services market is developing rapidly, widespread
adoption of wireless data services has been hindered by a number of factors,
including the following:
* the cost and effort required of independent software vendors to deploy
their applications over a wireless data network;
* incompatible mobile devices and wireless carrier networks;
* the high cost and inefficiencies associated with using wireless data
networks;
* an inability to access and transmit data over wireless networks at
adequate speeds;
* data security concerns; and
* a lack of personnel with the expertise to develop and deploy
information services and applications over wireless data systems.
In addition, most of the content and applications existing today are not
designed for delivery over the Internet to a handheld computer, but rather to a
traditional web browser. We believe there is a lack of Internet service
providers focused on the delivery of services and applications specifically for
the wireless PDA user base. As a result of these challenges, a significant
opportunity exists for wireless Internet service providers that are able to
offer an easy-to-use, cost-effective, and reliable wireless service.
OUR SOLUTION
We intend to offer comprehensive and flexible wireless data solutions that
permit subscribers to access information on the Internet on a nationwide basis
at any time. The following will be key components of our comprehensive Internet
solution:
PROVIDE NATIONWIDE SERVICES ACROSS MULTIPLE WIRELESS NETWORKS. We plan to
establish relationships with many of the leading wireless network carriers to
enable our subscribers to access information on a nationwide basis. We intend to
negotiate airtime agreements with wireless carriers that will permit us to offer
our subscribers a flat-rate pricing plan and a variable pricing plan with rates
that vary depending upon the level of data traffic utilized by a subscriber. In
addition, we intend to establish relationships with wireless network carriers to
enable us to adapt our solutions to integrate with new technologies and
platforms as they emerge for business or consumer use.
INTEGRATE VARIOUS SOFTWARE TECHNOLOGIES TO PROVIDE SEAMLESS INTERNET
SOLUTIONS. We plan to deliver content across a broad range of wireless carrier
networks to users of handheld devices. We initially plan to focus our target
market on users of PDAs. Delivery of content to a wireless device is different
from delivery of content to an Internet browser. Since information viewed on a
particular web site on the World Wide Web may be too complex for delivery to a
wireless device, our service offerings will format content from broadband
sources to enable faster and more cost-effective delivery over wireless
networks. In addition, our service offerings will allow information and
applications interfaces to be tailored more appropriately for use on PDAs than
traditional web browsers. We intend to develop services that can handle
increased capacity, enabling us to move quickly to meet the demands of increased
data traffic and expanding wireless network capabilities. We intend to utilize
technologies that will be able to interface easily with a wide array of systems
so that we can offer services and applications from various online providers and
independent software vendors.
18
USE ADVANCED TECHNOLOGY TO ASSURE SECURE TRANSMISSION OF DATA. We intend to
provide customers with the assurance that any confidential information can be
transmitted over our system. We will develop our system to incorporate
sophisticated encryption and other security features to enable the secure
transmission of data. Because these technologies may have the effect of
degrading the speed of the transmission of information, our services will be
designed to use secure transmission only when initiated by the user or the host
application.
REAL-TIME INFORMATION SERVICES. Our solutions will allow subscribers to
efficiently access real-time information services, such as news, weather,
sports, traffic, and stock quotes, formatted for use by handheld wireless
devices, such as PDAs. We will allow our subscribers to select from a wide
variety of information tailored to their particular needs, interests, and
locations.
ONLINE APPLICATIONS. Our solutions also will allow subscribers to access
online applications in order to perform time-critical activities, such as
executing stock trades, ordering medical prescription refills, checking and
updating work schedules and time reports, and managing real-time sales or client
account information. Because we believe that there are several applications that
could be useful to our subscribers, we plan to update continually the spectrum
of online applications that are available to our subscribers from multiple
independent software vendors.
OUR STRATEGY
Our goal is to be a leading provider of wireless information services and
online applications for hand-held PDAs. Key elements of our strategy to achieve
this goal include the following:
DEVELOP RELATIONSHIPS WITH LEADING INFORMATION SERVICE PROVIDERS.
As we develop our information services, we plan to develop strong
relationships with information service providers to deliver content services to
our customers. We plan to create relationships that will allow us to access,
aggregate, and deliver relevant content to the mobile user in a manner that is
cost-effective and beneficial to our customers.
LOCATE AND DEVELOP APPLICATIONS THAT ENHANCE THE UTILITY OF PDAS FOR BOTH
BUSINESS AND PERSONAL USERS.
We plan to locate and develop online applications in a variety of personal
and commercial information categories that are appealing, relevant, and
personalized to mobile individuals and that address the local and regional
interests of individual users. We intend to develop innovative, interactive, and
electronic commerce applications that enhance the functionality of the wireless
data medium for our users.
EXPAND OUR SUBSCRIBER BASE AND BUILD OUR COMPANY BRAND AWARENESS.
Through relationships and innovative online applications, we intend to
increase our subscriber base and build awareness of our services and our
corporate brand. As users become accustomed to and realize the benefit of
receiving information on their wireless PDAs, we believe they will subscribe for
additional services. We intend to increase our brand awareness through a focused
media campaign.
PROVIDE SUPERIOR CUSTOMER SERVICE AND TECHNICAL SUPPORT.
We intend to focus on providing superior levels of customer service and
technical support in an effort to achieve maximum levels of customer
satisfaction. We intend to offer our customer service and support 24 hours a
day, seven days a week. In addition, through our planned automation system,
subscribers will be able to manage their accounts and troubleshoot problems 24
hours a day through our web site. We believe that superior customer service will
help us to minimize subscriber cancellation and to promote customer referrals.
UTILIZE ADVANCED TECHNOLOGY IN OUR DELIVERY OF INFORMATION SERVICES AND ONLINE
APPLICATIONS
We intend to emphasize advanced technology in the delivery of information
systems and online applications that integrate with wireless networks. We
believe that using advanced technologies in connection
19
with our service offerings will assure that our subscribers receive high levels
of service and secure transmissions of information.
CUSTOMERS
We plan to market and sell our services to individuals, corporate
customers, and independent software vendors. We intend to focus our consumer and
business marketing and selling efforts towards
* high-end mobile professionals, who typically use computers and
traditional Internet access and have a strong professional or personal
need to stay in touch with Internet- or Intranet-based information;
* users of various applications that we plan to make available as part
of our services; and
* mobile labor forces that need to transmit information to their
supervisors or staff or to interact with a centralized application
that is required to perform their work.
As a means to further establish and develop our brand image, we intend to
develop strategic relationships with corporate partners to enable us to
introduce third-party applications to users of wireless PDAs. We also plan to
develop corporate solutions that enable us to expand our subscriber base while
allowing our corporate partners to enhance their service offerings to their
customers.
SALES AND MARKETING
Because we are a development stage company, we have not yet implemented a
sales and marketing campaign and have not yet sold our services. In the future,
however, we intend to sell our services through the following:
* relationships with retail vendors that sell PDAs;
* joint-selling relationships with hardware manufacturers; and
* through a direct sales force.
We also plan to enter into marketing relationships with other companies to
provide opportunities to cross-market our products with the products and
services of those companies.
We intend to create an awareness of our company brand name and to educate
the market about the features of our services that differentiate them from our
competitors. We plan to accomplish this goal through a media campaign and
participation in trade shows and industry seminars.
We plan to begin an introductory marketing campaign before December 2000
and to have our services online by the end of this fiscal year. The date we
select for the introduction of our services will depend upon completion of the
necessary agreements with service providers and content providers. We may launch
our marketing campaign simultaneously with planned marketing campaigns of device
manufacturers or nationwide retail outlets.
Key obstacles to reaching our marketing goals include the following:
* our ability to obtain additional equity or debt financings in the near
future;
* our ability to secure agreements with service providers; and
* our ability to implement our customer support and billing systems.
In order to bring our services online, we will need to enter into
relationships with service providers for various services, including the
following:
* wireless network access that we will resell to our subscribers;
20
* call center support for customer services; and
* financial contract management for our subscriber billing and
purchases.
We are currently pursuing agreements for all of these services. We do not have
any relationships with information service providers; we have not yet developed
or acquired any applications for our services; and do not have any subscribers
for our services.
OUR SERVICE OFFERINGS AND SOFTWARE TECHNOLOGY
The services we offer will be comprised of many offerings that will be
acquired through collaborative efforting, partnerships, reseller, and service
agreements with several other companies. In addition to identifying and
selecting content and service applications that are available to us to select as
part of our service package, we will develop the software interface and
deployment to the wireless PDA and handheld computing devices. These
applications will constantly evolve with the advancement of hardware and
software technologies. Our development effort will be minimal and we may decide
to use contract labor for such development from time to time.
We are currently identifying and selecting the composition of our service
offerings. As part of this process, we are currently negotiating the service
agreements comprising our service offerings with various potential business
partners. Although we are currently negotiating these agreements, none of them
have yet been signed and we may never be able to finalize any such agreements on
satisfactory terms. We plan to launch our initial service offering by December
2000. Our service offerings will include the resale of
* access time;
* various PDA and other handheld hardware devices; and
* content and applications services.
Our service offerings will include information provided by content providers. We
are currently negotiating with a potential content provider and expect to have
an agreement with this partner by the time we launch our primary service
offering.
We currently are developing a services platform that we believe will give
us a competitive advantage by enabling our subscribers to access and personalize
the Internet from their wireless PDA. We also are developing online applications
that can be used in conjunction with PDAs to allow them to perform specific
personal and business applications. We believe that our expertise lies in
modifying and customizing standard industry development tools to develop online
applications that can be deployed to PDAs to make them more useful.
In order to bring our services online, we expect to incur approximately
$800,000. This amount includes the following:
* approximately $136,000 of staffing costs;
* approximately $500,000 of marketing and advertising expenses prior to
launching our initial service offerings; and
* additional hardware and software expenses of approximately $150,000.
We expect to add approximately seven positions to our current staff to provide
product support and customer service. We expect this additional staff to add
approximately $34,000 to our monthly operating costs.
As our business expands and technology evolves, we may enter into
third-party license arrangements to incorporate third-party technology on our
operating platform. To date, we have not entered into any of these arrangements.
Our inability to acquire any third-party product licenses or to integrate
third-party products into our products and services could result in delays in
product development unless and until we can identify, license, and integrate
equivalent products. These licenses may not be available to us on commercially
reasonable terms.
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CUSTOMER SERVICE AND BILLING
We plan to contract with third parties to provide customer service,
billing, and product fulfillment services. Our customer service program will
enable our subscribers to contact us through toll free telephone, fax, web site,
or e-mail. Subscribers will be able to access our web site to obtain answers to
frequently asked questions and information about our services.
We have entered into a letter of intent to acquire all of the capital stock
of PDA Data, a joint venture between Excellular Incorporated and Covault
Corporation. In connection with the acquisition, we plan to enter into a
services agreement with Excellular under which Excellular will provide us with
the following:
* the right to co-locate our Internet servers and computers at
Excellular's facilities, which we plan to use as a hub for our west
coast operations;
* customer service, sales, and telephone technical support personnel for
up to 100 hours per month, with an option to purchase additional
customer support at an agreed-upon rate; and
* administration, acquisition, billing, and management of wholesale
airtime purchased from network carriers.
The services agreement will have an initial term of three years.
Thereafter, the services agreement will automatically be renewed for successive
one-year periods unless either party terminates by giving 180 days' notice.
Our acquisition of PDA Data will provide our company with the ability to
perform billing and collection services for our customers. After the
acquisition, our west coast facilities will serve as a secondary location for
our nationwide network of fault-tolerant Internet and application server
equipment. The acquisition is subject to execution of a definitive agreement
between our company, Excellular, and Covault, and is subject to approval by the
shareholders of our company, Excellular, and Covault. We cannot provide
assurance that our shareholders or the shareholders of Excellular or Covault
will approve the acquisition or that the acquisition will be completed.
COMPETITION
The market for wireless Internet services is becoming increasingly
competitive. The widespread adoption of industry standards in the wireless data
communications market may make it easier for new market entrants and existing
competitors to introduce competing services. We plan to develop our solutions
using standard industry development tools. If we enter into agreements with
wireless carriers and data providers, we do not anticipate that any of those
agreements will be on an exclusive basis. Our competitors may use the same
products and services to compete against us. With time and capital, it would be
possible for competitors to replicate our services. We expect that we will
compete primarily on the basis of time to market, functionality, quality,
breadth of new application offerings, customer service, and price of our
services.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do. We
currently or potentially compete with several types of companies, including the
following:
* emerging wireless Internet services providers, including OmniSky, a
joint venture of Aether Systems, Inc., 3Com Ventures, and AvantGo,
Inc.; Palm, Inc., the provider of Palm.net; and GoAmerica, Inc.;
* wireless device manufacturers, such as 3Com and its subsidiary Palm,
Inc., Motorola, and Research in Motion;
* wireless network carriers, such as AT&T Wireless Services, Bell
Atlantic Mobile, BellSouth Wireless Data, Sprint PCS, and Nextel
Communications, Inc.; and
* wireline Internet service providers and portals, such as America
Online and Yahoo!.
22
All of these companies have greater name recognition and more established
relationships with our target customers. Furthermore, these competitors may be
able to adopt more aggressive pricing policies and offer customers more
attractive terms than we can.
INTELLECTUAL PROPERTY
We plan to develop our solutions using standard industry development tools
with proprietary modification and customization. We do not have any patents or
copyrights for the technology we utilize. We plan to license a portion of the
technology integral to our business from third parties. Our success will depend
in part on this licensed technology not infringing the proprietary rights of
others. We have applications pending for the trademarks "We are not a company .
. . we are a culture!" and "Empowering humanity through technology." To our
knowledge, there has not yet been any opposition to the marks, although the
process is in its early stages and the registration of the marks may be
challenged. Although we are currently determining whether any of our business
processes may be the subject of a patent application, we have never filed patent
or copyright applications with the U.S. Patent and Trademark Office or filed for
patents, copyrights, or trademarks in any foreign countries.
OTHER ASSETS
We own a 15% working interest in a petroleum exploration permit covering
approximately 29,000 acres of the Taranaki Basin on the North Island of New
Zealand. This asset was the property of Titan Resources, Inc. of Houston, Texas,
a predecessor of our company, and is now our asset as a result of Titan's merger
with our company in October 1999. GEL Exploration of Houston, Texas is the
operator of the permit, and during August 2000 began drilling. In the event that
the operator discovers oil on our concession, we will be required to invest
additional capital to allow the operator to complete the well and begin
production. During May 2000, we issued a $300,000 note payable to Northwest for
working capital purposes and we used this capital to support our working
interest in this permit. The note does not bear interest and is due February
2001. If the operator does not discover oil on our concession and we determine
that an opportunity for us to realize a return on our investment does not exist,
we do not intend to invest additional capital in this asset and do not intend to
pursue further this type of business activity.
GOVERNMENT REGULATION
WIRELESS INFORMATION SERVICES
We currently are not subject to direct federal, state or local, government
regulation, other than regulations that apply to businesses generally. The
wireless network carriers we plan to contract with to provide airtime are
subject to regulation by the Federal Communications Commission. Changes in FCC
regulations could affect the availability of wireless coverage these carriers
will be willing or will be able to sell to us. Once we commence our service
offerings, we also could be adversely affected by developments in regulations
that govern or may in the future govern the Internet, the allocation of radio
frequencies, or the placement of cellular towers. Changes in these regulations
also could create uncertainty in the marketplace, which could reduce demand for
our services or increase the cost of doing business as a result of costs of
litigation or increased service delivery cost or could in some other manner have
a material adverse effect on our business, financial condition or results of
operations.
We do not plan to collect sales or other taxes with respect to the sale of
services or products in states and countries where we believe we are not
required to do so. We will collect sales and other taxes in the states in which
we have offices and are required by law to do so. One or more jurisdictions have
sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more jurisdictions that we should collect sales or other taxes on our products
and services, or remit payment of sales or other taxes for prior periods, could
have a material adverse effect on our business, financial condition or results
of operations.
23
OIL AND GAS
Our working interest in a petroleum exploration permit may be subject to
various regulations in New Zealand regarding the protection of human health and
the environment. Our interest in the petroleum exploration permit, particularly
with respect to the production, transportation, or sale of oil or gas, may be
subject to foreign regulation of oil and natural gas. These laws and regulations
may increase the costs of drilling and operating wells. Because these laws and
regulations change frequently, the costs of compliance with existing and future
environmental regulations cannot be predicted with certainty. International
regulatory authorities also regulate the amount of oil and gas produced by
assigning allowable rates of production to each well or proration unit.
Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could have an adverse effect on our business.
EMPLOYEES
As of October 12, 2000, we had seven full-time employees, including our two
executive officers. Four of our employees are involved in technical development
services and network administration and three are involved in administration,
executive, and finance. None of our employees are covered by any collective
bargaining agreements with us, and we believe that the relationship with our
employees is good.
PROPERTIES
We lease our corporate headquarters, which are located in an approximately
6,000 square-foot facility in League City, Texas. The lease expires in July
2001. The facility includes executive and administrative offices and a network
operations center. Although we believe the facility will be adequate for our
needs for the foreseeable future, we anticipate that we will need additional
space when we begin to hire additional personnel and to execute our business
plan.
LEGAL PROCEEDINGS
We are, and in the future may be, party to litigation arising in the
ordinary course of our business. We do not consider any current claims to be
material to our business, financial condition, or operating results. Our
insurance coverage may not be adequate to cover all liabilities arising out of
any claims that may be instituted in the future. A lack of insurance coverage
may have an adverse effect on our business, financial condition, and operating
results.
24
MANAGEMENT
The following table sets forth certain information regarding each of our
directors and executive officers:
NAME AGE POSITION
- ---- --- --------
James T. Voss................. 51 Chairman of the Board, Chief Executive
Officer, and President
Ellen S. Eckler............... 46 Executive Vice President, Chief
Financial Officer, Secretary, and
Director
Brent Nelson.................. 38 Director
JAMES T. VOSS has served as our Chairman of the Board, Chief Executive
Officer, and President since October 1999. From July 1998 until October 1999,
Mr. Voss served as the Senior Systems Engineer of our company. Mr. Voss has over
25 years of systems and software experience. Prior to joining our company, Mr.
Voss served as an engineering consultant for software systems for Contact
Network, Inc. from November 1997 until April 1998. Mr. Voss served as the Chief
Technology Officer for SunTech Processing Systems from August 1997 until
November 1997. Mr. Voss served as the Senior Systems Analyst for Computer
Language Research, Inc. from September 1993 until August 1997. Mr. Voss has also
served in various positions with Digital Image Systems Company, AT&T, and NEC
America.
ELLEN S. ECKLER has served as our Executive Vice President, Chief Financial
Officer, and Secretary and as a director since October 1999. Ms. Eckler served
as our Chief Accountant between April 1999 and October 1999. Ms. Eckler has over
20 years of experience working with various Silicon Valley technology companies.
Prior to joining our company, Ms. Eckler was the President and owner of SkyLonda
Total Business Solutions from January 1996 to July 1998. Ms. Eckler served as
Vice President of Marketing for IBM from January 1994 until January 1996. Prior
to that, Ms. Eckler served as a Product Manager for Novell, Inc. from December
1993 until January 1994. Ms. Eckler has also served in various senior and
executive management positions with the County of San Mateo, Redwood City,
California, Intel Corp., FileNet, and Teledyne.
BRENT NELSON has served as a director of our company since June 1994, when
he became a director of Titan Resources, Inc., our predecessor. Mr. Nelson has
more than 15 years of experience in investment banking and corporate finance
establishing, acquiring, and selling a range of companies in the businesses of
real estate development, natural resources, and import/export trade. Mr. Nelson
founded Pan Pacific Containers in 1995 and founded and has been the Managing
Director of Northwest Capital Partners, LLC, a Bellevue, Washington based
venture capital company since 1995. Mr. Nelson also serves on the board of
directors of CybeRecord, Inc., Eclipse Entertainment Group, Inc., Interactive
Objects, Inc., Mobile PET Systems, Inc., and Polar Cargo Systems, Inc., all of
which are public companies, as well as Esarati Electronic Technologies, Inc.,
Security Foils International, L.L.C., and Hot Shot Table Sports, Ltd., all of
which are privately held companies. Mr. Nelson advises our company with respect
to financial and corporate affairs.
Our company has established an Advisory Board consisting of individuals
with substantial business, management, and marketing experience. The Advisory
Board provides advice and recommendations to our officers and directors with
respect to marketing, finance, technology, and our overall business plan. The
Advisory Board has no right to take part in the management or control of our
business or affairs of our company, to transact business for our company, or to
sign or bind our company. The following sets forth certain information regarding
the current members of our Advisory Board:
PAUL KELLER has served on our Advisory Board since November 1999. Mr.
Keller served as Director of Business Development for AT&T WorldNet Service and
was responsible for customer acquisitions including Microsoft Corp., Dell
Computers, Hewlett Packard, and Toshiba. Mr. Keller holds a BA in Economics from
St. Olaf College, a Masters in Business Administration in Marketing from
Marquette University, and has more than 14 years of experience in the high-tech
industry.
TERESA MURPHY has served on our Advisory Board since November 1999. Ms.
Murphy has served as an Account Executive with Agile Software Corporation in San
Jose, California since June 2000. Prior to that time, Ms. Murphy served as an
Account Executive and Presales Solutions Engineer at SAP America, Inc. Ms.
Murphy
25
has a Bachelor of Science degree from California State University, Hayward, and
is a certified management accountant.
ERIC ROBISON has served on our Advisory Board since November 1999. Mr.
Robison has over 17 years of business and marketing experience. Mr. Robison has
been a member of Paul Allen's Vulcan Northwest investment team for over six
years. Mr. Robison is a member of the board of directors of several Vulcan
Northwest privately held portfolio companies, including Rocket Network, an
Internet recording studio for audio professionals; Harmony Central, a musician
community on the Internet; and Storyopolis, a children's entertainment
retailing/media production. Mr. Robison currently serves as a director of
several public companies, including CNET Networks and Cumulus Media. Until
December 1999, Mr. Robison served on the boards of Egghead.com and ARI Network
Services.
TOM HUDSON has served on our Advisory Board since November 1999. Mr. Hudson
has experience in senior financial and general management positions within the
high-tech industry. Mr. Hudson has served in various positions with Microsoft
Corp. since 1991, including International Finance Controller, Director of
Finance for Europe, General Manager for Western Region Operations, General
Manager for World Wide Programs, and General Manager in the World Wide Hardware
Operations group. Prior to that time, Mr. Hudson served as the Senior Financial
Executive for Key Tronic Corporation and managed that company's initial public
offering. Mr. Hudson serves as a director of several private technology
companies. Mr. Hudson has a Masters degree in Business Administration, and also
is a certified public accountant.
RONALD CURTIN has served on our Advisory Board since November 1999. Mr.
Curtin currently serves as the Vice President of Acentris/Excellular. Mr. Curtin
has a diverse background in management for customer fulfillment, including
several years building and managing a call support and billing center for the
cellular industry.
MARK PHILLIPS has served on our Advisory Board since November 1999. Mr.
Phillips serves as the Chief Technology Officer for Interactive Objects, Inc.
Mr. Phillips has extensive background in inventing new product markets and
executing technology for introduction into the marketplace. Mr. Phillips has
experience with developing and maintaining business alliances as well as
completing technology acquisitions. Mr. Phillips provides primary focus for
emerging devices such as described generally by Information Appliances, Internet
Appliances, or smart devices.
KEVIN WHITE has served on our Advisory Board since November 1999. Mr. White
serves as the Chief Operations Officer for WorldCom. Mr. White has over eight
years of progressive management experience in several important facets of the
wireless communications business. His expertise in data, wireless, and
telecommunications fields includes marketing program development, product
feasibility studies, product development, and distribution planning. Mr. White's
experience also includes significant business and personnel management practice.
Mr. White currently manages a division focusing on emerging products at
WorldCom. Prior to his position at WorldCom, Mr. White was employed with the
Canadian integrated energy company Westcoast Energy Inc. in their corporate
Strategic Planning division.
MEETINGS, COMMITTEES, AND COMPENSATION OF THE BOARD OF DIRECTORS
Our bylaws authorize the board of directors to appoint from among its
members one or more committees consisting of one or more directors. Upon our
company becoming a reporting company, our board of directors will establish an
audit committee and a compensation committee. The audit committee will review
the annual financial statements, any significant accounting issues, and the
scope of the audit with our independent auditors and will discuss with the
auditors, any other audit-related matters that may arise. The compensation
committee will review and act on matters relating to compensation levels and
benefit plans for our key executives. Our directors currently do not receive any
additional cash compensation for serving as members of our board of directors.
26
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors historically has made all compensation decisions
relating to our executive officers. We expect to appoint a compensation
committee that will consist primarily of non-employee members of our board of
directors. Once formed, the compensation committee will make all compensation
decisions regarding our executive officers.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth certain information concerning the
compensation for the fiscal years ended February 29, 2000 earned by our Chief
Executive Officer, who was the only executive officer whose cash salary and
bonus exceeded $100,000 during fiscal 2000. The following table also sets forth
certain information concerning our interim Chief Executive Officer during fiscal
2000.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------
AWARDS
-------------------------
RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) AWARDS OPTIONS
- --------------------------- ---- --------- --------- ------ -------
James T. Voss ....................... 2000 $105,760 $4,500(2) -- 400,000
Chief Executive Officer ........... 1999 $ 31,528(3) -- -- --
and President(1)
Brent Nelson ........................ 2000 -- -- 1,500,000(5) 1,200,000(6)
Interim Chief Executive Officer (4) 1999 -- -- -- --
- ----------
(1) Mr. Voss became our Chief Executive Officer beginning in October 1999. Mr.
Voss served as the Senior Systems Engineer of our company between July 1998
and October 1999.
(2) During fiscal 2000, we paid Mr. Voss a bonus in the form of a laptop
computer (approximately $3,500) and a digital camera (approximately
$1,000).
(3) Mr. Voss joined our company in July 1998 as the Senior Systems Engineer.
Amounts earned during fiscal 1999 is based on an annual salary of $75,000.
(4) Mr. Nelson served as our interim Chief Executive Officer from January 1999
to October 1999. Mr. Nelson did not receive any cash compensation during
his service as interim Chief Executive Officer of our company.
(5) Mr. Nelson is the Managing Director of Northwest Capital Partners, LLC.
After his term as our interim Chief Executive Officer, we entered into a
three-year consulting agreement with Northwest to advise us financially and
assist us in arranging financing for our business operations. Northwest
achieved certain milestones related to services to our company, and
pursuant to the agreement we issued to Northwest 1,500,000 shares of our
common stock. See "Certain Transactions - Consulting Agreement."
(6) Pursuant to our consulting agreement with Northwest, we granted Northwest
options to purchase 1,000,000 shares of our common stock at an exercise
price of $0.01 per share. The options become exercisable at any time upon
our market capitalization achieving a value of at least $100 million.
During January 2000, this milestone was met and Northwest exercised all
1,000,000 options. See
27
"Certain Transactions - Consulting Agreement."
Amount also represents options to purchase 100,000 shares of common stock
at an exercise price of $1.00 per share and 100,000 shares of common stock
at an exercise price of $2.50 per share. Mr. Nelson was granted these
options for his service as a director of our company.
OPTION GRANTS
The following table provides information on stock options granted to the
officers listed during the fiscal year ended February 29, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES
NUMBER OF % OF TOTAL EXPIRATION OF STOCK PRICE
SECURITIES OPTIONS MARKET APPRECIATION FOR
UNDERLYING GRANTED TO PRICE ON OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE THE DATE ----------------------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) OF GRANT DATE 0% 5% 10%
- ---- ----------- ----------- ------------ -------- ---- -- -- ---
James T. Voss... 100,000(2) 7.1% $1.00 $ 1.25 11/2/03 $ 25,000 $ 51,938 $ 83,013
200,000(3) 14.3% $2.50 $ 1.25 11/2/03 --(5) --(5) --(5)
100,000(4) 7.1% $2.50 $ 1.25 11/2/03 $ --(5) --(5) $ --(5)
Brent Nelson..... 1,000,000(6) --(6) $0.01 $ 0.01 9/28/03 -- -- --
100,000(2) 7.1% $1.00 $ 1.25 11/2/03 $ 25,000 $ 51,938 $ 83,013
100,000(4) 7.1% $2.50 $ 1.25 11/2/03 $ --(5) $ --(5) $ --(5)
- ----------
(1) Potential gains are net of the exercise price, but before taxes associated
with the exercise. The assumed 0% rate of stock price appreciation is
presented to show the value of certain options on the date of grant for
which the exercise price was below the market price of the option at the
date of grant. Other amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission and
do not represent our estimate or projection of the future price of our
common stock. Actual gains, if any, on stock option exercises will depend
upon the future market prices of our common stock.
(2) The options were vested immediately upon grant and have a four-year term.
(3) The options have four-year terms and vest and become exercisable as
follows: (a) 50,000 options will vest upon the filing of a registration
statement with the Securities and Exchange Commission to become a reporting
company; (b) 50,000 options will vest upon our company becoming listed on a
NASDAQ market; (c) 50,000 options will vest on the date we begin offering
our online services; and (d) 50,000 options will vest on October 28, 2001.
(4) The options were vested at February 29, 2000 and have a four-year term.
(5) The exercise price of these options are greater than the fair market value
of the common stock on the date of grant as well as the assumed price of
the common stock assuming the respective annual rates of stock price
appreciation.
(6) These options were granted to Northwest Capital Partners, LLC, of which Mr.
Nelson is Managing Director. The options were vested immediately upon
grant. Because these options were not granted to employees, the amount
representing a percentage of total options granted to employees during the
fiscal year is not presented.
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YEAR-END OPTION VALUES
The following table provides information regarding options exercised in the
last fiscal year by the officers listed and the value of each listed officer's
unexercised options as of February 29, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AS OF FEBRUARY 29, 2000
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($) (1)
SHARES ACQUIRED VALUE ------------------------------ ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
James T. Voss -- -- 200,000 200,000 $3,225,000 $3,075,000
Brent Nelson 1,000,000(2) $17,870,000 200,000 -- $3,225,000 --
- ----------
(1) Calculated based upon the closing price of our common stock as quoted on
the OTCBB on February 29, 2000 of $17.88 per share.
(2) Represents options exercised by Northwest Capital Partners, LLC, of which
Mr. Nelson is the Managing Director.
RECENT GRANTS OF STOCK OPTIONS
Between December 1999 and April 2000, we granted to each of our Advisory
Board members options to purchase 50,000 shares of common stock at an exercise
price of $1.00 per share. We have selected these individuals to advise our
company with respect to marketing, finance, technology, and our overall business
plan. The options vest and become exercisable as follows: (a) 20% upon agreement
to become an advisor, and (b) 20% on each six-month anniversary thereafter until
the options are fully vested.
EMPLOYMENT ARRANGEMENTS
We currently are a party to employment agreements with James T. Voss and
Ellen S. Eckler. In addition to the provisions of the individual employment
agreements as described below, the employment agreements generally require us to
* reimburse each executive for all travel, entertainment, and other ordinary
and necessary expenses incurred in connection with our business and their
duties under their respective employment agreements;
* indemnify each executive from certain claims arising out of his or her
employment that may be asserted against him or her by third parties; and
* provide other benefit plans that we make generally available to all of our
officers.
Both employment agreements have a term through October 28, 2000, and each
agreement automatically renews for successive one-year terms unless either party
terminates by giving the other party at least 30 days' written notice. Mr.
Voss's employment agreement provides for him to serve as our Chief Executive
Officer and President. The employment agreement provides for Mr. Voss to receive
an annual salary of $114,000, subject to adjustment from time to time by our
Board of Directors. Ms. Eckler's employment agreement provides for her to serve
as our Executive Vice President and Chief Financial Officer. The employment
agreement provides for Ms. Eckler to receive an annual salary of $114,000,
subject to adjustment from time to time by our Board of Directors. In addition,
the employment agreements provide that Mr. Voss and Ms. Eckler will be eligible
to receive discretionary bonuses or other compensation in amounts determined by
our Board of Directors.
29
If we terminate the employment agreement "for cause," as defined in the
agreement, or if the executive terminates the employment agreement without "good
reason," as defined in the agreement, the executive will not receive any further
compensation under the employment agreement and any unvested options will be
cancelled. If we terminate the executive's employment other than for cause or if
the executive terminates the agreement for good reason, the employment agreement
requires us to pay the executive six months' salary, or one year's salary in the
event the executive remains employed by us through April 2001.
The employment agreements also provide each executive with the option to
purchase additional shares of our common stock at the end of each quarter, so
long as these purchases not to exceed 25% of the executive's salary for that
quarter. The executive may purchase these shares at a price equal to 15% below
the lowest fair market value of our common stock during the quarter ended. In
the event our company is acquired, any common stock or options that were granted
to Mr. Voss or Ms. Eckler that remain unvested as of that date will become fully
vested and exercisable.
The employment agreements also prohibit the executives from disclosing
confidential information obtained while employed by us. Our executive officers
and other key personnel are eligible to receive stock options under any stock
option plan that we may adopt in the future.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation provide that our company may indemnify, to
the fullest extent permitted by the Nevada General Corporation Law, any
directors and officers of our company against any and all of the expenses,
liabilities, or other matters that the director or officer may incur for conduct
as a director or officer.
Section 78.751 of the Nevada General Corporation Law provides that the
articles of incorporation, the bylaws, or an agreement made by our company may
provide that the expenses of officers and directors incurred in defending a
civil or criminal action, suit, or proceeding must be paid by our company as
they are incurred and in advance of the final disposition of the action, suit,
or proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that the officer or director is not entitled to be
indemnified by our company. This indemnity and advancement of expenses may not
be made to or on behalf of any director if a final adjudication establishes that
the director's or officer's acts or omissions involved intentional misconduct,
fraud, or a knowing violation of the law and was material to the cause of
action.
We have entered into employment agreements with Mr. Voss and Ms. Eckler
that require us, to the extent permitted by law, to indemnify the executives
from and against any and all claims that may be asserted against them by third
parties (including derivative claims asserted on behalf of us) that are
connected with the executives' employment with our company. These rights are in
addition to any other rights to which the executives may be entitled. Under the
employment agreements, we will not be required to defend or indemnify the
executives
* in a criminal proceeding;
* in civil proceedings where the executive is the plaintiff; or
* to the extent it is finally adjudicated that the executive did not act in
good faith and with the reasonable belief that the executive's actions were
appropriate in the discharge of his or her duties to our company.
In addition, we have adopted provisions in our bylaws that require us to
indemnify our directors, officers, and certain other representatives of our
company against expenses and certain other liabilities arising out of their
conduct on behalf of our company.
30
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the shares of
our common stock beneficially owned as of October 12, 2000 by each of our
directors and executive officers, all of our directors and executive officers as
a group, and the one entity known by us to be the beneficial owner of more than
5% of our common stock. The table also sets forth the number of shares of common
stock that each selling stockholder may offer and sell under this prospectus.
SHARES OF
BENEFICIAL OWNERSHIP COMMON BENEFICIAL OWNERSHIP
BEFORE OFFERING STOCK BEING AFTER OFFERING
----------------------- OFFERED ----------------------
NAME OF BENEFICIAL OWNER (1) SHARES ERCENT(2) FOR SALE SHARES PERCENT(2)
DIRECTORS AND EXECUTIVE OFFICERS:
James T. Voss ................................ 2,225,500(3) 14.7% 250,000 1,975,500 13.0%
Ellen S. Eckler .............................. 1,665,000(4) 11.0% 250,000 1,415,000 9.3%
Brent Nelson ................................. 3,015,000(5) 19.9% 250,000 2,765,000 18.3%
Directors and executive officers as a group (3
persons) ..................................... 6,905,500 44.1% 750,000 6,155,500 39.3%
NON-MANAGEMENT 5% STOCKHOLDERS:
Northwest Capital Partners, LLC(5) ........... 2,800,000(5) 18.8% 250,000 2,550,000 17.1%
OTHER SELLING STOCKHOLDERS(6):
Aaron Rivas .................................. 3,500 * 3,500 -- --
Steven Hermer(7) ............................. 3,000 * 3,000 -- --
Margaret Meier ............................... 20,000 * 3,000 17,000 *
Steven Shufton(8) ............................ 1,000 * 1,000 -- --
Generation Capital Associates, L.P. .......... 1,714(9) * 1,714 -- --
Peter Ducoffe ................................ 89(9) * 89 -- --
Lawrence B. Fisher ........................... 54(9) * 54 -- --
Dorothy E. Holmes ............................ 36(9) * 36 -- --
- ----------
* Less than one percent.
(1) Beneficial ownership information is based on information provided to us,
and the beneficial owner has no obligation to inform us of or otherwise
report any changes in beneficial ownership. Except as indicated, and
subject to community property laws when applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them. Each director
or officer may be reached through our offices at 2525 South Shore
Boulevard, Suite 309, League City, Texas, 77573.
(2) The percentages shown are calculated based upon 14,920,031 shares of common
stock outstanding on October 12, 2000. The numbers and percentages shown
include the shares of common stock actually owned as of October 12, 2000
and the shares of common stock that the person or group had the right to
acquire within 60 days of October 12, 2000. In calculating the percentage
of ownership, all shares of common stock that the identified person or
group had the right to acquire within 60 days of October 12, 2000 upon the
exercise of options and warrants are deemed to be outstanding for the
purpose of computing the percentage of the shares of common stock owned by
the person or group, but are not deemed to be outstanding for the purpose
of computing the percentage of the shares of common stock owned by any
other person.
(3) Includes vested options to purchase 250,000 shares of common stock.
(4) Includes vested options to purchase 275,000 shares of common stock.
31
(5) Mr. Nelson is a control person of Northwest Capital Partners, LLC. The
amount listed as shares beneficially owned by Mr. Nelson includes vested
options to purchase 200,000 shares of common stock and 2,500,000 shares
held by Northwest. Amounts also include 15,000 shares of common stock held
in trust for the benefit of Mr. Nelson's children. Mr. Nelson has agreed to
sell to three of his business associates up to an aggregate of 1,100,000
shares of common stock at a price of $0.01 per share at any time prior to
November 2001. The address of Northwest Capital Partners LLC is 10900 8th
Street, Suite 900, Bellevue, Washington, 98004.
(6) Unless otherwise indicated, none of the other selling stockholders have
ever had any relationship with our company other than as stockholders.
(7) Mr. Hermer served as a consultant to our company between November 1999 and
March 2000.
(8) Mr. Shufton served as a consultant to our company between November 1999 and
March 2000.
(9) Represents shares of common stock issuable upon exercise of warrants at
exercise prices ranging from $23.00 to $32.00 per share.
CERTAIN TRANSACTIONS
CONSULTING AGREEMENT
Brent Nelson, a director of our company, is the Managing Director of
Northwest Capital Partners, LLC. During September 1999, we entered into a
three-year consulting agreement under which Northwest agreed to advise us
financially and assist us in arranging financing for our business operations.
Northwest has a right of first refusal to consult with us regarding financings
throughout the duration of its term. The consulting agreement provides for
payment of monthly consulting fees to Northwest in the amount of $5,000 per
month. The fee provision is subject to extension for 36 months upon the closing
of certain financing transactions set forth in the consulting agreement. In
addition, the consulting agreement required us to issue to Northwest 1,500,000
shares of our common stock if Northwest achieved certain milestones related to
locating $1.0 million of financing for our company or upon us becoming a public
company. Northwest met all milestones, and has been issued all of those shares.
Pursuant to the agreement, we granted Northwest options to purchase 1,000,000
shares of our common stock at an exercise price of $0.01 per share. The options
became exercisable upon our market capitalization achieving a value of at least
$100 million. During January 2000, this milestone was met and Northwest
exercised all 1,000,000 options. We granted certain "piggy-back" registration
rights with respect to the shares of common stock underlying the options. Under
these registration rights, Northwest will have the right to register these
shares if we propose to register any securities under the securities laws.
Northwest's obligations under the consulting agreement are subject to certain
conditions to be performed by us, including refraining from modifying our
capital structure without Northwest's prior written consent. In addition, the
consulting agreement provides that for three years following the date our common
stock began trading on the OTCBB in September 1999, if we propose an offering of
securities or any of our officers or directors who hold 5% or more of our common
stock desire to transfer their shares of our common stock to a third party,
* the first right of refusal for the shares will belong to our executive
officers;
* the second right of refusal for the shares will belong to us or the
other executive officers and directors who own at least 5% of our
common stock, as applicable;
* the third right of refusal for the shares will belong to Northwest;
and
* the fourth right of refusal for the shares will belong to the other
non-selling executive officers and directors who own at least 5% of
our common stock.
In addition, the consulting agreement provides that our officers and
directors will use their "best efforts" to cause each holder of at least 5% of
our common stock to enter into a lock-up agreement with Northwest whereby the
holder will not sell any shares on the OTCBB for one year after our common stock
began trading on
32
the OTCBB in September 1999. Any lock-up agreement, however, will allow each
holder to sell up to 1,000 shares every three months beginning in March 2000.
The consulting agreement also provides that Northwest is entitled to
nominate a director to our board of directors for a period of five years.
Northwest has nominated Mr. Nelson to the board.
We or Northwest may terminate the consulting agreement upon written notice
to the other party if
* the terminating party reasonably determines that the other party or
any of its directors, officers, or controlling stockholders have
engaged in any unlawful, wrongful, or fraudulent act against us or our
stockholders; or
* the terminating party determines that any material fact concerning the
other party represented is misstated or untrue or that the other party
has intentionally failed to provide the terminating party with
material facts concerning the other party.
Either party may terminate the consulting agreement at any time in the event of
* war;
* any material adverse change in our business;
* any proceeding against us or Northwest where an unfavorable decision
would have a material adverse effect on our business;
* adverse market conditions of which event the terminating party may
determine in its sole discretion.
If Northwest terminates the agreement based on the above factors, Northwest will
be entitled to accrued fees, expense reimbursements, and shares of common stock
otherwise payable under the agreement.
NOTES PAYABLE
From time to time, Northwest has provided us with working capital for our
operations evidenced by notes payable to Northwest. Northwest issued to us notes
payable for $101,000 during fiscal 1999, and $200,075 during fiscal 2000. We
repaid Northwest $151,820 during fiscal 2000. During October 1999, Northwest
agreed to convert $143,575 of principal amount of the notes into 300,000 shares
of common stock. As of February 29, 2000, we owed Northwest principal on the
notes payable of $5,680. The notes do not bear interest, are payable in full on
August 31, 2000, and we are not required to make periodic payments on the notes.
During April 2000, Northwest made available to us $1.0 million to be used
for operating expenses and other working capital pursuant to a revolving note
payable. The revolving note bears interest at the prime rate, with interest
payable quarterly, and matures in January 2002. The revolving note is secured by
all of our tangible and intangible assets. We may prepay the notes from time to
time without penalty. No amounts are outstanding under the revolving note.
During May 2000, Northwest issued to us a note payable in the aggregate
principal amount of $300,000. The note does not bear interest and is due
February 2001. We used this capital to support our working interest in the
petroleum exploration permit.
33
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of our company consists of 25,000,000 shares
of common stock, par value $.001 per share. As of October 12, 2000, there were
issued and outstanding 14,920,031 shares of common stock. In addition, we have
reserved the following:
* 1,800,000 shares of common stock for issuance upon exercise of
outstanding stock options at exercise prices ranging from $1.00 to
$2.50 per share; and
* 1,893 shares of common stock for issuance upon exercise of outstanding
warrants at exercise prices ranging from $23.00 to $32.00 per share.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, the holders of a majority of the common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. The holders of common stock will be entitled to receive dividends, if
any, as may be declared by the Board of Directors from time to time out of
legally available funds. Upon the liquidation, dissolution, or winding up of our
company, the holders of common stock will be entitled to share ratably in all
the assets that are legally available for distribution after payment of all
debts and other liabilities. The holders of common stock have no preemptive,
subscription, redemption, or conversion rights.
REGISTRATION RIGHTS
In connection with a consulting agreement with Northwest Capital Partners,
LLC, we granted to Northwest options to purchase 1,000,000 shares of common
stock at an exercise price of $0.01 per share. See "Certain Transactions." In
connection with this agreement, we granted certain "piggy-back" registration
rights with respect to the shares of common stock issuable upon exercise of the
options. Under these registration rights, Northwest may request us to register
the stock if we propose to register any securities under the securities laws.
Northwest's "piggy-back" rights apply to our first registration statement filed
subsequent to issuance of the stock. Northwest exercised the options during
February 2000.
In connection with the issuance of convertible notes payable during
September 1998, we issued warrants to four investors to purchase 1,893 shares of
common stock at exercise prices ranging from $23.00 to $32.00 per share. In
connection with this agreement, we agreed to use our best efforts to register
the shares issuable upon exercise of the warrants in the event we propose to
register securities under the securities laws. Under these registration rights,
we will not be obligated to file more than two registrations relating to the
shares. If the registration statement to be filed pursuant to these registration
rights is pursuant to an underwritten offering, the managing underwriter may
reduce the shares to be included in the registration if, in the judgment of the
underwriter, the shares to be included would interfere with the successful
marketing of the offering. We have agreed to pay all expenses associated with
any registration of the common stock acquired pursuant to the exercise of the
warrants, except that the holders will be responsible for any applicable
underwriting discounts, commissions, or other transfer taxes.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Liberty Transfer
Co., Huntington, New York.
34
PLAN OF DISTRIBUTION
This prospectus relates to the resale of a total of 762,393 shares of
common stock currently outstanding or issuable to the selling stockholders upon
exercise of warrants. These shares may be sold from time to time by the selling
stockholders. As used in this prospectus, "selling stockholders" include
transferees, donees, pledgees, legatees, heirs, or legal representatives that
sell shares received from a named selling stockholder after the date of this
prospectus.
The selling stockholders have advised us that they have not entered into
any agreements, understandings, or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the selling stockholders. At the time a particular offering of
common stock is made and to the extent required, the aggregate number of shares
being offered, the name or names of the selling stockholders, and the terms of
the offering, including the name of names of any underwriters, broker-dealers or
agents, any discounts, concessions or commissions and other terms constituting
compensation from the selling stockholders, and any discounts, concessions or
commissions allowed or reallowed or paid to broker-dealers, will be set forth in
an accompanying prospectus supplement.
Sales of the common stock offered hereby may be effected by or for the
account of the selling stockholders from time to time in transactions, which may
include block transactions, in the over-the-counter market, in negotiated
transactions, through a combination of methods of sale, or otherwise, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to the prevailing market price, or at negotiated prices. The
selling stockholders may effect these transactions by selling the common stock
offered hereby directly to purchasers, through broker-dealers acting as agents
for the selling stockholders, or to broker-dealers that may purchase the shares
as principals and thereafter sell the shares from time to time in transactions,
which may include block transactions, in the over-the-counter market, in
negotiated transactions, through a combination of such methods of sales or
otherwise. In effecting sales, broker-dealers engaged by selling stockholders
may arrange for other broker-dealers to participate. The broker-dealers, if any,
may receive compensation in the form of discounts, concessions, or commissions
from the selling stockholders and/or the purchasers of the common stock offered
hereby for whom the broker-dealers may act as agents or to whom they may sell as
principals, or both. As to a particular broker-dealer, the compensation might be
in excess of customary commissions.
The selling stockholders may resell the shares of common stock being
registered for resale hereby
* in transactions that are exempt from registration under the Securities
Act, or
* as long as the registration statement there is a qualification in
effect under, or an available exemption from, any applicable state
securities law with respect to the resale of the shares.
There is no assurance that any selling shareholder will sell any common
stock offered hereby, and any selling shareholder may transfer, devise or gift
the common stock by other means not described in this prospectus. For example,
in addition to selling pursuant to the registration statements of which this
prospectus is a part or to which it relates, the selling stockholders also may
sell under Rule 144.
The selling stockholders and any broker-dealers, agents, or underwriters
that participate with the selling stockholders in the distribution of common
stock offered hereby may be deemed to be "underwriters" within the meaning of
the Securities Act. Accordingly, the selling stockholders will be subject to the
prospectus delivery requirements of the Securities Act. Any commissions paid or
any discounts or concessions allowed to any of these persons, and any profits
received on the resale of the common stock offered hereby and purchased by them,
may be deemed to be underwriting commissions or discounts under the Securities
Act. We will not pay any compensation to any NASD member in connection with this
offering. Brokerage commissions, if any, attributable to the sale of the shares
of common stock offered hereby will be borne by the selling stockholders.
35
We will not receive any proceeds from the sale of any shares of common
stock by the selling stockholders. We have agreed to bear all expenses, other
than selling commissions, in connection with the registration and sale of the
common stock being offered by the selling stockholders. We have agreed to
indemnify certain of the selling stockholders against certain liabilities under
the Securities Act. Each selling shareholder may indemnify any broker-dealer
that participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
To comply with the securities laws of certain jurisdictions, if applicable,
the shares of common stock offered hereby will be offered or sold in those
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the common stock offered hereby may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualifications requirement is available
and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the common stock offered pursuant to this
prospectus may be limited in its ability to engage in market activities with
respect to the common stock. Without limiting the foregoing, each selling
shareholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including Regulation M. Those rules and
regulations may limit the timing of purchases and sales of any of the common
stock offered by the selling stockholders pursuant to this prospectus, which may
affect the marketability of the common stock offered hereby.
The selling stockholders also may pledge the shares of common stock being
registered for resale hereby to NASD broker/dealers pursuant to the margin
provisions of each selling shareholder's customer agreements with the pledgees.
Upon default by a selling shareholder, the pledgee may offer and sell shares of
common stock from time to time as described above.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon by Greenberg Traurig, LLP, Phoenix, Arizona. As of October 12, 2000, that
firm beneficially owned an aggregate of 20,000 shares of our common stock.
EXPERTS
The audited financial statements as of and for the year ended February 29,
2000 included in this prospectus and elsewhere in the registration statement
have been audited by L.L. Bradford & Company, independent public accountants, as
indicated in the report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The report of L.L. Bradford & Company covering the February 29, 2000
financial statements contains an explanatory paragraph that states that our
recurring losses from operations and net capital deficiency raise substantial
doubt about our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
The audited financial statements as of February 28, 1998 and 1999 and for
the years then ended included in this prospectus and elsewhere in this
registration statement have been audited by Bob Stephens & Associates, P.C.,
independent public accountants, as indicated in the report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed a registration statement on Form S-1 with the Securities and
Exchange Commission relating to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance we refer
36
you to the copy of the contract or other document filed as an exhibit to the
registration statement, each of the statements being qualified in all respects
by the respective reference. For further information with respect to Zydant
Corporation and the common stock offered by this prospectus, we refer you to the
registration statement, exhibits, and schedules.
Upon the effectiveness of the registration statement of which this
prospectus forms a part, we will be subject to the informational requirements of
the Securities Exchange Act of 1934 and will file reports, proxy statements, and
other information with the Securities and Exchange Commission. Anyone may
inspect and copy these reports, proxy statements, the registration statement,
and other information without charge at the public reference facilities
maintained by the Securities Exchange and Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; the Chicago Regional Office, Suite 1400,
500 West Madison Street, Citicorp Center, Chicago, Illinois 60661; and the New
York Regional Office, Suite 1300, 7 World Trade Center, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from the Public Reference Section of the Securities and Exchange Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees. The public may obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
registration statement also is available, and any reports, proxy statements, or
other information we file in the future will be available, through the
Securities and Exchange Commission's web site at the following address:
http://www.sec.gov.
37
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Interim Financial Statements at May 31, 2000:
Consolidated Financial Statements:
Consolidated Balance Sheets (Unaudited).............................. F - 2
Consolidated Statements of Operations (Unaudited).................... F - 3
Consolidated Statements of Cash Flows (Unaudited).................... F - 4
Notes to Consolidated Financial Statements (Unaudited)............... F - 5
Annual Financial Statements at February 29, 2000:
Report of Independent Certified Public Accountants..................... F - 6
Independent Auditors' Report........................................... F - 7
Consolidated Financial Statements:
Consolidated Balance Sheets.......................................... F - 8
Consolidated Statements of Operations................................ F - 9
Consolidated Statement of Stockholders' Equity (Deficit)............. F - 10
Consolidated Statements of Cash Flows................................ F - 11
Notes to Consolidated Financial Statements........................... F - 12
F-1
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MAY 31,
----------------------------
2000 1999
------------ -----------
ASSETS
Current assets
Cash ................................................. $ 782,466 $ 2,047
Notes receivable ..................................... 10,000 --
------------ -----------
Total current assets ............................... 792,466 2,047
Fixed assets, net ....................................... 136,469 46,204
Other assets ............................................ 155,000 595,000
------------ -----------
Total assets ............................................ $ 1,083,935 $ 643,251
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable ..................................... $ 12,168 $ 198,403
Accrued liabilities .................................. 31,124 4,500
Due to related parties ............................... 305,680 614,475
------------ -----------
Total current liabilities .......................... 348,972 817,378
Total liabilities .................................. 348,972 817,378
Stockholders' equity (deficit)
Common stock, $0.001 par value; 25,000,000 shares
authorized, 14,900,031 and 444,045 issued and
outstanding as of May 31, 2000 and 1999,
respectively ....................................... 14,900 444
Additional paid-in capital ........................... 12,847,735 1,454,988
Accumulated deficit prior to the development stage ... (816,462) (816,462)
Accumulated deficit during the development stage ..... (11,311,210) (813,097)
------------ -----------
Total stockholders' equity (deficit) ............... 734,963 (174,127)
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 1,083,935 $ 643,251
============ ===========
F-2
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, MARCH 1, 1998
---------------------------------------- THROUGH
2000 1999 1998 MAY 31, 2000
------------ --------- --------- ------------
Revenue ........................................ $ -- $ -- $ -- $ --
------------ --------- --------- ------------
Operating expenses
Professional fees ............................ 103,426 19,848 55,279 588,121
Wages and payroll taxes ...................... 169,978 15,500 -- 422,172
Consulting and contract labor ................ -- -- -- 9,401,869
Depreciation ................................. 14,618 -- 2,500 53,281
Interest expense ............................. 14 -- -- 22,269
Advertising .................................. 1,860 -- -- 82,615
General and administrative ................... 57,871 33,218 183,137 620,424
------------ --------- --------- ------------
Total operating expenses ..................... 347,767 68,566 240,916 11,190,751
------------ --------- --------- ------------
Net loss from operations ....................... (347,767) (68,566) (240,916) (11,190,751)
Other income (expense)
Forgiveness of debt .......................... -- -- 306,019 306,019
Related party bad debts ...................... -- -- -- (169,172)
Interest income .............................. 8,573 -- -- 11,190
Gain on sale of fixed assets ................. -- -- -- 18,606
Loss on investments .......................... -- -- -- (440,000)
Other income ................................. 152,898 -- 60,000 152,898
------------ --------- --------- ------------
Total other income (expense) ................. 161,471 -- 366,019 (120,459)
Net income (loss) before provision for income
taxes ........................................ (186,296) (68,566) 125,103 (11,311,210)
Provision for income taxes ..................... -- -- -- --
------------ --------- --------- ------------
Net income (loss) .............................. $ (186,296) $ (68,566) $ 125,103 $(11,311,210)
============ ========= ========= ============
Basic and diluted income (loss) per common share $ (0.01) $ (0.15) $ 0.64 $ (3.14)
============ ========= ========= ============
Basic and diluted weighted average common
shares outstanding ............................. 14,900,031 444,045 196,845 3,599,911
============ ========= ========= ============
F-3
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, MARCH 1, 1998
------------------------------------ THROUGH
2000 1999 1998 MAY 31, 2000
--------- -------- --------- ------------
Cash flows from operating activities:
Net income (loss) ................................ $(186,296) $(68,566) $ 125,103 $(11,311,210)
Adjustments to reconcile net loss to net
cash used by operating activities:
Common stock and options issued for expenses ... -- -- 39,008 9,246,419
Gain on sale of fixed assets ................... -- -- -- (18,606)
Depreciation ................................... 14,618 6,391 3,275 53,280
Related party bad debts ........................ -- -- -- 169,172
Loss on investment ............................. -- -- -- 440,000
Forgiveness of debt ............................ -- -- (306,019) (306,019)
Changes in operating assets and liabilities:
Decrease in accounts receivable ................ -- -- 304 304
Increase in due to/from related party .......... 300,000 62,175 221,335 715,883
Increase (decrease) in accounts payable and
accrued liabilities ............................ (150,359) -- 65,402 43,292
--------- -------- --------- ------------
Net cash used by operating activities ...... (22,037) -- 148,408 (967,485)
Cash flows from investing activities:
Purchase of fixed assets ......................... (13,294) -- (53,408) (189,749)
Purchase of other assets ......................... -- -- (155,000) (125,000)
Proceeds from sale of fixed assets ............... -- -- 60,000 60,000
--------- -------- --------- ------------
Net cash used by investing activities ...... (13,294) -- (148,408) (254,749)
Cash flows from financing activities:
Proceeds from issuance of common stock ........... -- -- -- 2,060,000
Proceeds from shareholder contribution ........... -- -- -- --
Principal payments on notes payable .............. -- -- -- (55,300)
--------- -------- --------- ------------
Net cash provided by financing activities .. -- -- -- 2,004,700
--------- -------- --------- ------------
Net increase (decrease) in cash .................... (35,331) -- -- 782,466
Cash, beginning of period .......................... 817,797 2,047 -- --
--------- -------- --------- ------------
Cash, end of period ................................ $ 782,466 $ 2,047 $ -- $ 782,466
========= ======== ========= ============
Supplemental disclosure of cash flow
Cash paid for interest ........................... $ -- $ -- $ -- $ --
========= ======== ========= ============
Cash paid for income taxes ....................... $ -- $ -- $ -- $ --
========= ======== ========= ============
Principal payments on notes payable through the
issuance of common stock ......................... $ -- $ -- $ -- $ 394,903
========= ======== ========= ============
Common stock issued for the acquisition of assets $ -- $ -- $ 440,000 $ 440,000
========= ======== ========= ============
F-4
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The financial statements should be read in
conjunction with this prospectus, specifically, the audited financial
statements for the preceding year ended February 29, 2000 of Zydant
Corporation (formerly PalmWorks, Inc.) ("the Company").
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the full year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operation. All such adjustments are of a
normal recurring nature.
2. Related party transactions
As of May 31, 2000, the balance due to related party totaling $305,680
consisted of advances from Northwest Capital Partners, LLC (an entity
wholly owned by a director and stockholder of the Company), bearing no
interest, and due August 2000.
3. OTHER INCOME
In May 2000, the Company's management evaluated its outstanding payables
and determined that certain payables have been absolved of future
liability. For the three months ended May 31, 2000, the absolved payables
have been recorded as Other Income approximating $150,000.
F-5
L.L. BRADFORD & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
2901 El Camino Avenue, Suite 105
Las Vegas, Nevada 89102
(702) 735-5030 facsimile (702) 735-4854
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Zydant Corporation (formerly PalmWorks, Inc.) (A Development Stage Company)
Houston, Texas
We have audited the accompanying consolidated balance sheets of Zydant
Corporation (formerly PalmWorks, Inc.) (A Development Stage Company) as of
February 29, 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of Zydant
Corporation (formerly PalmWorks, Inc.) (A Development Stage Company) as of
February 28, 1999 and for the years ended February 28, 1999 and 1998 were
audited by other auditors whose report dated December 20, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zydant Corporation
(formerly PalmWorks, Inc.) (A Development Stage Company) as of February 29,
2000, and the results of its activities and cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 11 to
the consolidated financial statements, the Company has not commenced its planned
operations and has suffered recurring losses with no revenues from operations,
all of which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 11. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ L.L. Bradford & Company
L.L. Bradford & Company
April 21, 2000
(except for Note 12, as to which the date is October 2, 2000)
Las Vegas, Nevada
F-6
Bob Stephens & Associates, P.C.
2825 Wilcrest, Suite 408
Houston, Texas 77042
Phone 713-339-3388
Fax 713-339-2355
INDEPENDENT AUDITORS' REPORT
Board of Directors
Zydant Corporation (formerly known as Titan Resources, Inc. and PalmWorks, Inc.)
Houston, Texas
We have audited the accompanying balance sheets of Zydant Corporation (formerly
know as PalmWorks, Inc. and Titan Resources, Inc.), a New York Corporation, and
consolidated subsidiaries as of February 28, 1999 and the related statements of
income, changes in stockholders' equity and cash flows for the years ended
February 28, 1999 and 1998. These financial statements are the responsibility of
the management of Zydant Corporation. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Zydant Corporation (formerly known
as PalmWorks, Inc. and Titan Resources, Inc.), and consolidated subsidiaries as
of February 28, 1999 and the results of their operations and cash flows for the
years ended February 28, 1999 and 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's significant operating
loss raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Bob Stephens & Associates, P.C.
Houston, Texas
December 20, 1999, except for Note 12,
as to which the date is January 10, 2000
F-7
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ -----------
ASSETS
Current assets
Cash ............................................... $ 817,797 $ 2,047
Due from related ................................... 10,000 --
------------ -----------
Total current assets ............................... 827,797 2,047
Fixed assets, net .................................... 137,792 52,595
Other assets ......................................... 155,000 595,000
------------ -----------
Total assets ......................................... $ 1,120,589 $ 649,642
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities ........... $ 193,650 $ 202,903
Due to related party ............................... 5,680 497,000
Notes payable ...................................... -- 55,300
------------ -----------
Total current liabilities .......................... 199,330 755,203
Total liabilities .................................. 199,330 755,203
Commitments and contingencies ........................ -- --
Stockholders' equity (deficit)
Preferred stock, $0.02 par value; 10,000,000 shares
authorized, no shares issued and outstanding ..... -- --
Common stock, $0.02 par value; 50,000,000 shares
authorized, 14,900,031 and 444,045 issued and
outstanding for fiscal years 2000 and 1999,
respectively ..................................... 298,001 8,881
Additional paid-in capital ......................... 12,564,634 1,446,551
Accumulated deficit prior to the development stage . (816,462) (816,462)
Accumulated deficit during the development stage ... (11,124,914) (744,531)
------------ -----------
Total stockholders' equity (deficit) ............... 921,259 (105,561)
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 1,120,589 $ 649,642
============ ===========
See Accompanying Notes to Financial Statements
F-8
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 1, 1998
------------------------------------------ THROUGH
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 1998 2000
------------ --------- --------- ------------
Revenue .................................. $ -- $ -- $ -- $ --
------------ --------- --------- ------------
Operating expenses
Professional fees ................... 315,993 168,702 -- 484,695
Wages and payroll taxes ............. 252,194 -- -- 252,194
Consulting and contract labor ....... 9,112,700 289,169 -- 9,401,869
Depreciation ........................ 25,563 13,100 546 38,663
Interest expense .................... 7,755 14,500 -- 22,255
Advertising ......................... 4,070 76,685 -- 80,755
General and administrative .......... 224,725 337,828 19,252 562,553
------------ --------- --------- ------------
Total operating expenses ............ 9,943,000 899,984 19,798 10,842,984
------------ --------- --------- ------------
Net loss from operations ................. (9,943,000) (899,984) (19,798) (10,842,984)
Other income (expense)
Forgiveness of debt ................. -- 306,019 -- 306,019
Related party bad debts ............. -- (169,172) -- (169,172)
Interest income ..................... 2,617 -- -- 2,617
Gain on sale of fixed assets ........ -- 18,606 -- 18,606
Loss on investments ................. (440,000) -- -- (440,000)
------------ --------- --------- ------------
Total other income (expense) ........ (437,383) 155,453 -- (281,930)
Net loss before provision for income taxes (10,380,383) (744,531) (19,798) (11,124,914)
Provision for income taxes ............... -- -- -- --
------------ --------- --------- ------------
Net loss ................................. $(10,380,383) $(744,531) $ (19,798) $(11,124,914)
============ ========= ========= ============
Basic and diluted loss per common share .. $ (2.23) $ (2.37) $ (0.13) $ (4.47)
============ ========= ========= ============
Basic and diluted weighted average common
shares outstanding ....................... 4,661,865 314,737 156,115 2,491,274
============ ========= ========= ============
See Accompanying Notes to Financial Statements
F-9
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
ACCUMULATED ACCUMULATED
COMMON STOCK DEFICIT DEFICIT
---------------------- ADDITIONAL PRIOR TO THE DURING THE TOTAL
NUMBER OF PAID-IN DEVELOPMENT DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE STAGE EQUITY (DEFICIT)
---------- -------- ------------ --------- ------------ ----------------
Balance, March 1, 1997 ................ 156,115 $ 3,122 $ 683,190 $(796,664) $ -- $ (110,352)
Shareholder contribution .............. -- -- 35,001 -- -- 35,001
Net loss .............................. -- -- -- (19,798) -- (19,798)
---------- -------- ------------ --------- ------------ ------------
Balance, February 28, 1998 ............ 156,115 3,122 718,191 (816,462) -- (95,149)
Common stock issued for assets, $2.00 . 220,000 4,400 435,600 -- -- 440,000
Common stock issued for cash, $4.46 ... 56,000 1,120 248,880 -- -- 250,000
Common stock issued for expenses, $3.70
weighted average price per share .... 11,930 239 43,880 -- -- 44,119
Net loss .............................. -- -- -- -- (744,531) (744,531)
---------- -------- ------------ --------- ------------ ------------
Balance, February 28, 1999 ............ 444,045 8,881 1,446,551 (816,462) (744,531) (105,561)
Common stock options issued for
expenses, $4.22 weighted average
price per share ..................... -- -- 7,221,600 -- -- 7,221,600
Common shares issued for cash, $1.50 .. 1,200,000 24,000 1,776,000 -- -- 1,800,000
Common shares issued for acquisition
of PalmWorks, Inc., a Nevada
Corporation, $0.01 .................. 3,650,000 73,000 (36,500) -- -- 36,500
Common shares issued for consulting
agreement, $1.18 .................... 1,500,000 30,000 1,741,200 -- -- 1,771,200
Common stock issued for expenses, $1.40
weighted average price per share ..... 123,986 2,480 170,520 -- -- 173,000
Common stock issued for principal
payments on debt, $0.06 ............. 6,982,000 139,640 255,263 -- -- 394,903
Common stock options exercised at
$0.01 per share ..................... 1,000,000 20,000 (10,000) -- -- 10,000
Net loss .............................. -- -- -- -- (10,380,383) (10,380,383)
---------- -------- ------------ --------- ------------ ------------
Balance, February 29, 2000 ............ 14,900,031 $298,001 $ 12,564,634 $(816,462) $(11,124,914) $ 921,259
========== ======== ============ ========= ============ ============
See Accompanying Notes to Financial Statements
F-10
ZYDANT CORPORATION (formerly PalmWorks, Inc.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 1, 1998
------------------------------------------ THROUGH
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 1998 2000
------------ --------- --------- ------------
Cash flows from operating activities:
Net loss ......................................... $(10,380,383) $(744,531) $ (19,798) $(11,124,914)
Adjustments to reconcile net loss to net cash used
by operating activities:
Common stock and options issued for expenses ... 9,202,300 44,119 -- 9,246,419
Gain on sale of equipment ...................... -- (18,606) -- (18,606)
Depreciation ................................... 25,563 13,100 546 38,663
Related party bad debts ........................ -- 169,172 -- 169,172
Loss on investment ............................. 440,000 -- -- 440,000
Forgiveness of debt ............................ -- (306,019) -- (306,019)
Changes in operating assets and liabilities:
Decrease in accounts receivable ................ -- 304 -- 304
Increase in due from related party ............. (10,000) -- -- (10,000)
Increase (decrease) in accounts payable and
accrued liabilities ............................ (9,253) 202,903 (174) 193,650
Increase (decrease) in due to related parties .. (96,417) 522,300 (15,749) 425,883
------------ --------- --------- ------------
Net cash provided by operating activities .. (828,190) (117,258) (35,175) (945,448)
Cash flows from investing activities:
Purchase of fixed assets ......................... (110,760) (65,695) -- (176,455)
Purchase of other assets ......................... (125,000) -- (125,000)
Proceeds from sale of fixed assets ............... 60,000 -- 60,000
------------ --------- --------- ------------
Net cash used in investing activities ...... (110,760) (130,695) -- (241,455)
Cash flows from financing activities:
Proceeds from issuance of common stock ........... 1,810,000 250,000 -- 2,060,000
Proceeds from shareholder contribution ........... -- -- 35,001 --
Principal payments on notes payable .............. (55,300) -- -- (55,300)
------------ --------- --------- ------------
Net cash provided by financing activities .. 1,754,700 250,000 35,001 2,004,700
------------ --------- --------- ------------
Net increase (decrease) in cash .................... 815,750 2,047 (174) 817,797
Cash, beginning of period .......................... 2,047 -- 174 --
------------ --------- --------- ------------
Cash, end of period ................................ $ 817,797 $ 2,047 $ -- $ 817,797
============ ========= ========= ============
Supplemental disclosure of cash flow
Cash paid for interest ........................... $ -- $ -- $ -- $ --
============ ========= ========= ============
Cash paid for income taxes ....................... $ -- $ -- $ -- $ --
============ ========= ========= ============
Schedule of non-cash financing activities:
Principal payments on notes payable through the
issuance of common stock ......................... $ 394,903 $ -- $ -- $ 394,903
============ ========= ========= ============
Common stock issued for the acquisition of assets .. $ -- $ 440,000 $ -- $ 440,000
============ ========= ========= ============
See Accompanying Notes to Financial Statements
F-11
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Zydant Corporation (formerly PalmWorks, Inc.) (hereinafter
referred to as the "Company" or "Zydant") is a development stage company
that plans to provide wireless Internet access to users of wide variety
hand-held personal digital assistants, or PDAs. The Company's future
services will provide potential subscribers:
* real-time information services such as news, weather, sports, and
stock quotes formatted for use by PDAs; and
* access to online applications in order to perform time-critical
activities such as execute stock trades, order medical prescription
refills, check and update work schedules and time reports, and manage
real-time sales or client account information.
HISTORY - Zydant, formerly known as PalmWorks, Inc. was organized under the
laws the State of New York in June 1971 under the name The Bolton Group,
Ltd. The Company underwent several name changes until June 1994, when it
changed its name to Titan Resources, Inc. In March 1998, the Company
entered into an asset purchase agreement with Mobilelink Communications,
Inc. ("Mobilelink") (a related party entity owned by a stockholder of the
Company), for the rights and title to all Mobilelink's intellectual
property (software and other intangibles) in exchange for 220,000 (post
1-for-100 reverse stock split) common shares of the Company.
In September 1999, the Company's Board of Directors adopted a resolution
whereby it approved a 1-for-100 reverse stock split of the issued and
outstanding shares of common stock. Accordingly, the accompanying financial
statements have been retroactively restated to reflect the 1-for-100
reverse stock split as if the reverse stock split occurred as of the
Company's date of inception.
In October 1999, the Company acquired all the capital stock of PalmWorks,
Inc., a non-operating privately held Nevada corporation (PalmWorks-Nevada),
in exchange for 3,650,000 shares of the Company's common stock pursuant to
a tax free stock-for-stock acquisition. The combination of PalmWorks-Nevada
has been accounted for in a manner similar to a pooling of interests, as
the companies were under common control in August 1999, the date of
inception of PalmWorks-Nevada.
Under generally accepted accounting principles, the acquisition of
PalmWorks-Nevada is considered to be a reorganization in substance, rather
than a business combination since PalmWorks-Nevada had no assets,
liabilities or operations, and the Company has since re-domiciled in the
State of Nevada through PalmWorks-Nevada, as further discussed in Note 13.
Accordingly, the accounting for the acquisition has been accounted for at
historical cost in a manner similar to a pooling of interests ("as-if
pooling of interest accounting"), and no goodwill was recorded.
The acquisition of intellectual property from Mobilelink in March 1998
established a new business for the Company. Therefore, the Company is
considered to be a development stage company since its planned principal
operations have not commenced.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
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.
F-12
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
FIXED ASSETS - Fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets, which are generally 3
to 5 years. The cost of repairs and maintenance is charged to expense as
incurred. Expenditures for property betterments and renewals are
capitalized. Upon sale or other disposition of a depreciable asset, cost
and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed
assets or whether the remaining balance of fixed assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the fixed assets in
measuring their recoverability.
EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per share excludes any
dilutive effects of options, warrants and convertible securities. Basic
earnings (loss) per share is computed using the weighted-average number of
outstanding common shares during the applicable period. Diluted earnings
per share is computed using the weighted average number of common and
common stock equivalent shares outstanding during the period. Common stock
equivalent shares are excluded from the computation if their effect is
antidilutive.
COMPREHENSIVE INCOME - The Company has no components of other comprehensive
income. Accordingly, net income (loss) equals comprehensive income for all
periods.
ADVERTISING COSTS - The Company recognizes advertising expenses in
accordance with Statement of Position 93-7 "Reporting on Advertising
Costs." Accordingly, the Company expenses the costs of producing
advertisements at the time production occurs, and expenses the costs of
communication advertising in the period in which the advertising space or
airtime is used. Advertising costs were incurred for the years ended
February 29, 2000, February 28, 1999 and 1998, in the amounts of $4,070,
$76,685 and $--, respectively.
STOCK-BASED COMPENSATION - The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statements of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's common stock and the exercise price. The Company accounts for
stock issued to non-employees in accordance with the provisions of SFAS No.
123 and the Emerging Issues Task Force ("EITF") Issue No. 96-18.
INCOME TAXES - The Company accounts for its income taxes in accordance with
SFAS No. 109, which requires recognition of deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
F-13
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED - The Company continually
monitors events and changes in circumstances that could indicate carrying
amounts of long-lived assets may not be recoverable. When these events or
changes in circumstances are present, the Company assesses the
recoverability of long-lived assets by determining whether the carrying
value of the assets will be recovered through undiscounted expected future
cash flows. If the total of the future cash flows is less than the carrying
amount of those assets, the Company recognizes an impairment loss based on
the excess of the carrying amount over the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or the
fair value less costs to sell.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In
July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," which deferred the effective date until the first
fiscal quarter ending on or after June 30, 2000. The Company will adopt
SFAS No. 133 in its quarter ending May 31, 2000. The Company has not
engaged in significant hedging activities or invested in derivative
instruments.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance for revenue
recognition under certain circumstances. The Company believes that the
implementation of SAB No. 101 will not have a material impact on its
consolidated financial statements.
In November 1999, the EITF commenced discussions on EITF No. 99-17,
"Accounting for Advertising Barter Transactions." The EITF provides
guidance on the recognition of Internet barter advertising revenues and
expenses under various circumstances. The EITF reached a conclusion that
revenues and expenses from advertising barter transactions should be
recognized at the fair value of the advertising surrendered or received
only when an entity has a historical practice of receiving or paying cash
for similar advertising transactions. The Company does not expect that the
adoption of EITF No. 99-17 will have a material impact on its consolidated
financial statements.
RECLASSIFICATIONS - Certain prior year balances have been reclassified to
conform to the current year presentation.
Fixed assets consist of the following:
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ ------------
Furniture and fixtures $ 37,886 $ 15,808
Computers, equipment and software 138,569 49,887
--------- --------
176,455 65,695
Less: accumulated depreciation 38,663 13,100
--------- --------
Fixed assets, net $ 137,792 $ 52,595
========= ========
F-14
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. OTHER ASSETS
Other assets totaling $155,000 at February 29, 2000, consists of
capitalized working interest in a petroleum exploration permit recorded at
historical cost.
Other assets totaling $595,000 at February 28, 1999, consist of capitalized
working interest in a petroleum exploration permit of $155,000 and an
investment in intellectual property of $440,000, both recorded at
historical cost.
For the years ended February 29, 2000, and February 28, 1999, amortization
expenses have not been recorded for the capitalized working interest in the
petroleum permit since revenues have not been recognized for these periods.
Management believes that this capitalized working interest in a petroleum
exploration permit will provide future revenue benefits. Accordingly, these
costs will be amortized in the related periods when the revenue is
generated.
For the year ended February 29, 2000, the Company had written-off its
investment in intellectual property acquired from Mobilelink in March 1998
and recorded a loss on investment of $440,000 based upon management's
evaluation that the software is a non-viable asset with no future benefits.
4. RELATED PARTY TRANSACTIONS
As of February 29, 2000, the balance due from related party totaling
$10,000 consisted of amounts loaned to a stockholder of the Company,
bearing no interest, and due August 2000.
As of February 29, 2000, the balance due to related party totaling $5,680
consisted of advances from Northwest Capital Partners, LLC (an entity
wholly owned by a director and stockholder of the Company), bearing no
interest, and due August 2000.
As of February 28, 1999, due to related party totaling $497,000 consisted
of advances from Northwest Capital Partners, LLC (an entity wholly owned by
a director and stockholder of the Company) in the amount of $187,500; and
$309,500 from various stockholders of the Company.
During October 1999, the Company converted a note payable to Northwest
Capital Partners, LLC (an entity owned by a director and stockholder of the
Company) of approximately $125,000 into 300,000 shares of the Company's
common stock.
The Company has a consulting agreement with Northwest Capital Partners, LLC
(an entity owned by a director and stockholder of the Company) (hereinafter
referred to as the "consultant"). The consultant's primary goal was to
assist the Company in obtaining equity financing. The agreement provides
for (a) monthly payments of $5,000; (b) issuance of 1,500,000 shares of the
Company's common stock to be issued at the time the Company goes public or
at the closing of the first interim financing; and (c) an option to
purchase 1,000,000 shares of the Company's common stock at an exercise
price of $0.01 per share which can be exercised at any time upon the
Company achieving a market capitalization of at least $100,000,000.
Compensation expense associated with the 1,500,000 shares and 1,000,000
options were based on a value of $1.18 and $7.05 per share, respectively.
The value of the 1,500,000 shares and 1,000,000 options were based on the
then-market closing price of the Company's common stock and weighted
average price of the Company's common stock during the 15-day period prior
to and after the date the options were earned, respectively. The Company
then discounted both the then-market closing price and weighted average
price, because the shares issued and options to purchase shares were
restricted and volume of trading of the Company's common stock that was not
restricted was relatively low. The resulting compensation expense
recognized for the stock and option issuance was $1,771,200 and $7,046,000,
respectively for the year ended February 29, 2000.
F-15
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTES PAYABLE
Notes payable totaling $55,300 as of February 28, 1999, were due to various
individuals with an imputed interest rate of 18%, and repayments were made
in fiscal year 2000.
6. STOCKHOLDERS' EQUITY
STOCK OPTIONS - The Company currently does not have any formal stock option
plans. At the discretion of the Company's Board of Directors, stock option
grants have been awarded to certain officers, employees, and non-employees.
The outstanding options granted as of February 29, 2000, have a term of 4
years from the date of grant for options to the officers and employees, and
a term that ranges from 4 to 5 years from the date of grant for options to
non-employees. Options granted to the officers, employees, and
non-employees generally vest and become exercisable with the following
vesting schedule: 20% at the date of employment, 20% every six months, and
fully vested in two years.
STOCK OPTION ACTIVITY - The following table summarizes the Company's stock
option activity:
NUMBER WEIGHTED
OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
Balance, March 1, 1997 -- $ --
Options granted and assumed -- --
Options canceled -- --
Options exercised -- --
---------- -------
Balance, February 28, 1998 -- --
Options granted and assumed 1,893 27.94
Options canceled -- --
Options exercised -- --
---------- -------
Balance, February 28, 1999 1,893 27.94
Options granted and assumed 2,800,000 1.19
Options canceled -- --
Options exercised 1,000,000 0.01
---------- -------
Balance, February 29, 2000 1,801,893 $ 1.86
========== =======
The following table summarizes information about options outstanding and
exercisable at February 29, 2000:
SHARES UNDERLYING OPTIONS OUTSTANDING SHARES UNDERLYING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
SHARES AVERAGE SHARES
UNDERLYING REMAINING WEIGHTED UNDERLYING WEIGHTED
RANGE OF OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---- -------------- ----------- --------------
$ 23.00 - $32.00 1,893 4.0 years $ 27.94 1,893 $ 27.94
$ 1.00 - $ 2.50 1,800,000 5.0 years $ 1.17 1,800,000 $ 1.17
- ---------------- --------- --------- ------- --------- -------
$ 1.00 - $32.00 1,801,893 4.5 years $ 1.86 1,801,893 $ 1.86
================ ========= ========= ======= ========= =======
PRO FORMA DISCLOSURE - SFAS No. 123 requires companies that follow APB No.
25 to provide a pro forma disclosure of the impact of applying the fair
value method of SFAS No. 123. Accordingly, had compensation cost been
recognized based on the fair value of options granted at the date of grant
in 2000
F-16
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCKHOLDERS' EQUITY (continued)
and 1999, the pro forma amounts of the Company's net loss and net loss per
share for the years ended February 29, 2000, February 28, 1999, and 1998
would have been as follows:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
-------------- ----------- ----------
Net loss - as reported $ (10,380,383) $ (744,531) $ (19,798)
Net loss - pro forma $ (11,156,931) $ (748,284) $ (19,798)
Basic and diluted loss per
share - as reported $ (2.23) $ (2.37) $ (0.01)
Basic and diluted loss per
share - pro forma $ (2.39) $ (2.38) $ (0.01)
PRO FORMA DISCLOSURE (continued) - The fair value for each option granted
was estimated at the date of grant using the Black-Scholes option pricing
model, assuming no expected dividends and the following weighted average
assumptions:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
---- ---- ----
Average risk-free interest rates 5.5% 4.7% --
Average expected life (in years) 4.5 5 --
Volatility 60% 60% --
The weighted average fair value of options granted with exercise prices at
the current fair value of the underlying stock during 2000 and 1999 were
$381,049 and $3,753, respectively. During 2000 and 1999, some options were
granted with exercise prices that were below the current fair value of the
underlying stock. The weighted average fair value of options granted with
exercise prices below the current fair value of the underlying stock during
2000 and 1999 were $395,489 and $0.00, respectively.
POTENTIAL COMMON STOCK WITH ANTIDILUTIVE EFFECT - As of February 29, 2000,
February 28, 1999, and February 28, 1998, options on 1,801,893, 1,893, and
0 shares of common stock, respectively, were not included in computing
earnings per share because their effects were antidilutive.
7. FORGIVENESS OF DEBT
As of February 28, 1999, the Company recorded a forgiveness of debt
totaling $306,019, which originated in the 1996 acquisition agreement with
Ponder Industries.
8. INCOME TAXES
The Company did not record any current or deferred income tax provision or
benefit for any of the periods presented due to continuing net losses and
nominal differences.
The Company has provided a full valuation allowance on the deferred tax
asset, consisting primarily of net operating losses, because of uncertainty
regarding its realizability.
As of February 29, 2000, the Company had a cumulative net operating loss of
approximately $2,700,000. Utilization of the net operating loss, which
begins to expire at various times starting in 2009, may be subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended, and other limitations under state and foreign tax laws. To the
extent that net operating losses, when realized, relate to stock option
deductions of approximately $9,200,000, the resulting benefits will be
credited to the stockholders.
F-17
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are
approximately as follows:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
--------- --------- ---------
Net operating loss $(916,285) $(515,737) $(277,597)
Depreciation -- -- --
--------- --------- ---------
Total deferred tax assets (916,285) (515,737) (277,597)
Valuation allowance for
deferred tax assets 916,285 515,737 277,597
--------- --------- ---------
Net deferred tax assets $ -- $ -- $ --
========= ========= =========
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts payable, accrued liabilities, due
to/from related parties, and notes payable approximate fair value because
of the short-term maturity of these instruments.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company operates from a leased facility under a
noncancellable operating lease. For the years ended February 29, 2000,
February 28, 1999 and 1998, total rent expense for the leased facility
approximated $78,179, $78,179, and $50,956, respectively.
Future minimum rental payments required under the operating lease for the
facility as of February 29, 2000 are as follows:
YEARS
-----
2001 $ 78,179
2002 32,575
----------
Total $ 110,754
==========
LITIGATION - The Company is a defendant in various lawsuits incurred in the
normal course of business. In the opinion of management, after consulting
with legal counsel, the liabilities, if any, resulting from these matters
will not have a material effect on the consolidated financial statements of
the Company.
11. GOING CONCERN
The Company incurred a net loss of approximately $10,380,000 for the year
ended February 29, 2000. The Company has not commenced its planned
operations and has recurring net losses along with no recorded revenues.
Those factors create an uncertainty about the Company's ability to continue
as a going concern. The Company's management has developed a plan to
complete the development of technology products and services to generate
future revenues. The Company will also seek additional sources of capital
through equity or debt offering, but there can be no assurance that the
Company will be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is dependent on
additional sources of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
F-18
ZYDANT CORPORATION (FORMERLY PALMWORKS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. SUBSEQUENT EVENTS
In March 2000, the Company signed a letter-of-intent with Excellular
Incorporated ("Excellular") and Covault Corporation ("Covault") whereby the
Company will acquire all the outstanding capital stock of PDA Data, an
entity owned by Excellular and Covault, in exchange for 400,000 shares of
the Company's common stock.
In April 2000, the Company re-domiciled from the State of New York to the
State of Nevada under a plan and agreement filed in both states whereby the
named surviving corporation is PalmWorks-Nevada. As a result of the merger,
the Company's articles of incorporation provide for 25,000,000 shares of
commons stock authorized for issuance at a par value of $.001 per share.
Accordingly, all past, present and future business activities will be
transacted through PalmWorks-Nevada as the surviving corporation.
The Company's common stock is currently quoted on the Over-the-Counter
Bulletin Board ("OTCBB") operated by the National Association of Securities
Dealers. On April 7, 2000, the OTCBB changed the Company's symbol from
"PMWK" to "PMWKE" after an initial evaluation by the OTCBB for compliance
with the OTCBB eligibility rule. The trading symbols of securities whose
issuers were not deemed compliant at that time with the OTCBB Eligibility
Rule, including the Company's symbol, were appended with an "E." The OTCBB
eligibility rule provides that no issuer may be quoted on the OTCBB unless
it is a reporting company pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. The Company is in the process of filing a Form S-1
registration statement, along with a Form 8-A with the SEC to try and meet
the OTCBB Eligibility Rule. However, if the Company is not successful in
meeting this requirement by the required compliance date of May 4, 2000,
the Company will no longer be eligible for quotation on the OTCBB after
that date, unless the Company is able to secure a waiver. If the Company's
common stock is no longer quoted on the OTCBB, the Company believes that
its common stock may be published in the "pink sheets," which does not
provide real time quotes.
In April 2000, the Company consummated a loan agreement with Northwest
Capital Partners, LLC (an entity owned by a director and shareholder of the
Company), whereby the LLC will provide the Company the ability to borrow up
to $1,000,000 as a revolving loan. The loan will be secured by the
Company's assets, with interest to be paid monthly at the prime lending
rate, and any outstanding principal balance will be due in full in January
2002.
During October 2000, a certificate of Amendment to the Articles of
Incorporation was filed changing the Company's name to Zydant Corporation.
F-19
======================================= =======================================
YOU SHOULD RELY ONLY ON THE INFORMATION 762,393 SHARES OF
CONTAINED IN THIS PROSPECTUS. WE HAVE COMMON STOCK
NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE
OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF ZYDANT CORPORATION
DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON STOCK.
--------
PAGE
----
Prospectus Summary.................. 2
Risk Factors........................ 4
Forward Looking Statements.......... 10
Use of Proceeds..................... 10
Price Range of Common Stock......... 11
Dividend Policy..................... 11
Selected Consolidated Financial ----------
Data.............................. 12
Management's Discussion and PROSPECTUS
Analysis of Financial Condition
and Results of Operations......... 13 ----------
Business ........................... 18
Management ......................... 25
Principal and Selling Stockholders.. 31
Certain Transactions................ 32
Description of Securities........... 34
Plan of Distribution................ 35
Legal Matters....................... 36
Experts ............................ 36
Where You Can Find Additional
Information....................... 36
Index to Consolidated Financial
Statements........................F-1 October 13, 2000
======================================= =======================================