UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission file number 0-26578
MYRIENT, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 33-0662114
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
65 Enterprise, Aliso Viejo, CA 92656
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(Address of principal executive offices) (Zip Code)
(949) 330-6500
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all the reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past twelve months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
As of April 5, 2002 the number of shares of common stock outstanding was
55,575,377.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Myrient, Inc.
Consolidated Balance Sheet
February 28, 2002
(Unaudited)
ASSETS
Current assets:
Cash$ 47,329
Accounts receivable, net of allowance for
doubtful accounts of approximately $1,100,000 2,018,028
-------------
Total current assets 2,065,357
Property and equipment, net of accumulated depreciation of $1,642,842 2,094,550
Deposits and other assets 276,944
-------------
Total assets $ 4,436,851
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 9,271,390
Line of credit borrowings 500,000
Current portion of notes payable 6,815,810
Convertible note payable 875,000
Accrued payroll and related liabilities 1,371,210
Accrued interest payable 619,777
Current portion of capital lease obligations 89,430
-------------
Total current liabilities 19,542,617
Long-term notes payable, net of current portion 377,120
Obligations under capital lease, net of current portion 18,540
Related party loans and notes payable 2,206,619
-------------
Total liabilities 22,144,896
-------------
Stockholders' deficit:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized, no shares issued and outstanding --
Common stock, $0.01 par value; 75,000,000 shares
authorized, 50,257,189 shares issued and outstanding 50,257
Additional paid-in capital 17,422,079
Accumulated deficit (35,180,381)
-------------
Total stockholders' deficit (17,708,045)
-------------
Total liabilities and stockholders' deficit $ 4,436,851
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
1
Myrient, Inc.
Consolidated Statements of Operations
(Unaudited)
Six Months Ended February 28,
2002 2001
------------- -------------
Net sales $ 4,987,322 $ 8,541,112
Cost of sales 2,554,275 5,916,501
------------- -------------
Gross profit 2,433,047 2,624,611
------------- -------------
Operating expenses:
Selling 779,810 1,916,134
General and administrative 2,659,527 4,041,231
Settlement Expense 502,496 --
Research and development 452,442 --
------------- -------------
Total operating expenses 4,394,275 5,957,365
------------- -------------
Operating loss (1,961,228) (3,332,754)
------------- -------------
Other income (expense):
Other income 475,000 --
Interest expense, net (622,520) (351,668)
Loss on disposal of fixed assets (159,333) --
------------- -------------
Total other income (expense) (306,853) (351,668)
------------- -------------
Net loss before extraordinary item (2,268,081) (3,684,422)
Extraordinary item - gain on extinguishment of debt 1,019,550 --
------------- -------------
Net loss $ (1,248,531) $ (3,684,422)
============= =============
Net loss available to common stockholder per common share:
Loss before extraordinary item $ (0.05) $ (0.11)
Extraordinary item 0.02 --
------------- -------------
Basic and diluted $ (0.03) $ (0.11)
============= =============
Weighted average shares outstanding 46,594,459 34,716,365
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
Myrient, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended February 28,
2002 2001
------------- -------------
Net sales $ 2,583,156 $ 4,901,917
Cost of sales 965,632 2,973,585
------------- -------------
Gross profit 1,617,524 1,928,332
------------- -------------
Operating expenses:
Selling 389,651 1,228,140
General and administrative 1,360,505 1,831,034
Settlement Expense 502,496 --
Research and development 206,024 --
------------- -------------
Total operating expenses 2,458,676 3,059,174
------------- -------------
Operating loss (841,152) (1,130,842)
------------- -------------
Other income (expense):
Other income 115,000 --
Interest expense, net (263,869) (274,394)
Loss on disposal of fixed assets (159,333) --
------------- -------------
Total other income (expense) (308,202) (274,394)
------------- -------------
Net loss before extraordinary item (1,149,354) (1,405,236)
Extraordinary item - gain on extinguishment of debt 1,019,550 --
------------- -------------
Net loss $ (129,804) $ (1,405,236)
============= =============
Net loss available to common stockholder per common share:
Loss before extraordinary item $ (0.02) $ (0.05)
Extraordinary item 0.02 --
------------- -------------
Basic and diluted $ (0.00) $ (0.05)
============= =============
Weighted average shares outstanding 48,197,422 29,872,071
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
Myrient, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended February 28,
---------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $(1,248,531) $(3,532,993)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Gain on extinguishment of debt (1,019,550) --
Bad debt expense 355,511 520,207
Depreciation 514,714 465,710
Vesting of previously issued options and warrants 12,027 310,584
Estimated fair market value of stock, options and
warrants issued for salaries and services, net 176,256 100,895
Loss on disposal of fixed assets 159,333 --
Non-cash portion of cost of sales 64,505 --
Non-cash portion of settlement expense 469,196 --
Changes in operating assets and liabilities:
Accounts receivable (1,410,354) (2,425,729)
Other assets (25,414) 16,202
Accounts payable and accrued liabilities 1,517,871 4,491,598
Accrued payroll and related liabilities (21,921) 562,644
Accrued interest payable 519,892 112,346
------------ ------------
Net cash provided by operating activities 63,535 621,464
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (151,170) (1,867,105)
Capitalized computer software development cost (203,976) --
Deposits -- (98,023)
------------ ------------
Net cash used in investing activities (355,146) (1,965,128)
------------ ------------
Cash flows from financing activities:
Principal repayments on notes payable (50,000) --
Proceeds from borrowings on lines of credit -- 644,000
Proceeds from notes payable -- 500,000
Repayments on related party notes payable (24,639) (93,645)
Proceeds from related party loans and notes payable 250,000 325,746
Repayment on capitalized leased obligations (46,719) (44,209)
Proceeds from sale of common stock and exercise of options 26,800 8,505
Proceeds from short swing-profits -- 16,380
------------ ------------
Net cash provided by financing activities 155,442 1,356,777
------------ ------------
Net change in cash (136,169) 13,113
Cash at beginning of period 183,498 12,877
------------ ------------
Cash at end of period $ 47,329 $ 25,990
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
Myrient, Inc.
Consolidated Statements of Cash Flows - Continued
(Unaudited)
Six Months Ended February 28,
----------------------------
2002 2001
------------- -------------
Supplemental cash flow disclosures:
Cash paid during the period for interest $ 102,700 $ 116,500
============= =============
Cash paid during the period for income taxes $ -- $ 12,600
============= =============
Supplemental disclosure of non-cash investing and financing activities:
See footnotes for non-cash investing and financing activities during the
six months ended February 28, 2002.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
Myrient, Inc.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Myrient,
Inc. (the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.
Operating results for the quarter ended February 28, 2002 are not
necessarily indicative of the results that may be expected for the year ending
August 31, 2002. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended August 31, 2001.
2. SOFTWARE DEVELOPMENT COSTS
On September 1, 2001, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 identifies three stages of a typical
software development project: preliminary project stage, application development
stage, and the post-implementation stage. As required by SOP 98-1, the Company
capitalizes certain qualifying costs (primarily employee salary expense)
incurred during the application development stage. All other internal use
development costs are expensed as incurred.
The Company has been developing certain computer software projects since
the third quarter of the prior year and incurred $191,679 research and
development cost in the prior year. The adoption of SOP 98-1 in the prior year
did not have a material impact on the Company's results of operations, financial
position or cash flows for the year. The $191,679 research and development cost
was presented as part of general and administrative expense in the Company's
statement of operations for the year ended August 31, 2001.
The Company incurred $656,418 of research and development expenditures
during the six months ended February 28, 2002, of which $203,976 was capitalized
under SOP 98-1 as property and equipment in the accompanying Balance Sheet and
$452,442 was expensed under research and development in the accompanying
Statement of Operations.
Amortization of capitalized computer software development cost is provided
on a project-by-project basis on the straight-line method over the estimated
economic life of the products (not to exceed five years).
The carrying value of capitalized computer software development cost is
periodically reviewed, and a loss is recognized when the value of estimated
undiscounted cash flow benefit related to the asset falls below the unamortized
cost, consistent with the Company's policy regarding long-lived assets.
6
Myrient, Inc.
Notes to Consolidated Financial Statements
3. LOSS PER SHARE
The Company has adopted Statement of Accounting of Financial Accounting
Standards No. 128 ("SFAS No. 128") "Earnings per Share." Under SFAS No. 128,
basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares assumed to be
outstanding during the period of computation. Diluted earnings per share is
computed similar to basic earnings per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential shares had been issued and if the additional common
shares were dilutive. Stock options and warrants outstanding on February 28,
2002 and 2001 are not considered common stock equivalents, as the affect on net
loss per share would be anti-dilutive.
4. SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way that public
companies report information about operating segments and related disclosures
about products and services, geographic areas and major customers in annual
consolidated financial statements. The Company accounts for its operations and
manages its business as one segment.
5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," established the standard for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The adoption of SFAS No. 130 has not
materially impacted the Company's financial position or results of operations,
as the Company has no items of comprehensive income.
6. RISKS AND UNCERTAINTIES
The Company operates in a highly competitive industry that is subject to
intense competition, government regulation and rapid technological change. The
Company's operations are subject to significant risk and uncertainties including
financial, operational, technological, regulatory and other risks associated
with an emerging business, including the potential risk of business failure.
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations or discrimination, or
breach of contract actions incidental to the normal operations of its business.
The Company is currently not involved in any such litigation which management
believes could have a material adverse effect on its financial position or
results of operations.
7
Myrient, Inc.
Notes to Consolidated Financial Statements
7. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and satisfaction of liabilities in the
normal course of business. As of February 28, 2002, the Company has negative
working capital of approximately $17,500,000, is in default on substantially all
notes payable, and has a stockholders' deficit of approximately $18,000,000.
The Company hopes to continue to increase revenues from additional revenue
sources and increase margins as a result of amending its contracts with vendors
and other cost cutting measures. In the absence of significant revenues and
profits, the Company intends to fund operations through additional debt and
equity financing arrangements which management believes may be insufficient to
fund its capital expenditures, working capital, and other cash requirements for
the fiscal year ending August 31, 2002. Therefore, the Company may be required
to seek additional funds to finance its long-term operations. The successful
outcome of future activities cannot be determined at this time and there are no
assurances that if achieved, the Company will have sufficient funds to execute
its intended business plan or generate positive operating results.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In September 2001, the Company entered into a consulting agreement with a
marketing firm to manage public relations for the Company. Upon execution of the
agreement, the Company issued 30,000 shares of common stock valued at $6,000
(based on the closing bid price of the Company's common stock on the date of the
agreement) recorded as compensation expense as an incentive for the marketing
firm to provide its services to the Company.
In October 2001, a total of 50,000 shares of common stock previously issued
to the Company's directors were returned to the Company due to the change of the
compensation plan which is still in process and the related $17,500 compensation
expense was reversed.
During the six months ended February 28, 2002, the Company issued to
several of its employees a total of 1,257,243 shares of common stock valued at
$151,091 (based on the closing bid prices of the Company's common stock on the
dates of issuance), which was recorded as compensation expense.
During the six months ended February 28, 2002, the Company recorded $12,027
of compensation expense associated with the vesting of warrants previously
issued to its outside service providers.
During the six months ended February 28, 2002, the Company issued to
several outside consultants a total of 195,948 shares of common stock valued at
$33,365 (based on the closing bid price of the Company's common stock on the
date of issuance), which was recorded as consulting expense.
In January 2002, the Company issued a total of 4,154,202 shares of the
common stock valued at $353,107 (based on the closing bid price of the Company's
common stock on the date of issuance) for conversion of $323,150 of related
party debt and $29,957 of related accrued interest.
8
Myrient, Inc.
Notes to Consolidated Financial Statements
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL, CONTINUED
In January 2002 the Company sold a total of 250,000 shares of common stock
for proceeds of $25,000.
In January 2002, an employee exercised options to purchase 15,000 shares of
the Company's common stock for total proceeds of $1,800.
In January 2002, the Company issued 30,000 shares of its common stock to a
third party as part of a settlement for terminating certain operating lease
agreements. These shares were valued at $3,300 based on the fair market value on
the date of grant.
In December 2001, the Company cancelled and returned to the Company's
treasury 500,000 shares of common stock previously issued to Seven Keys
Development Trust, of which Robert C. Weaver, Jr., the Company's former
director, is a trustee. The Company had investigated and concluded that these
cancelled shares were issued upon the exercise of the unauthorized stock options
granted by William J. Kettle, the Company's former Chairman of the Board
Directors and Chief Executive Officer.
9. NOTES PAYABLE
During the quarter ended November 30, 2001, a $5,500,000 accounts payable
balance owed to one of the Company's vendors was converted to a note payable
based on the agreement signed by and between the Company and the vendor. The
note, requiring various monthly payments of principal and interest beginning in
April 2002 and a balloon payment in December 2009, bears a 12% interest per
annum and contains prepayment incentives that provide the Company with potential
debt forgiveness in future years if certain payments are made. The Company did
not make the first scheduled payment. Pursuant to the terms of the note, this
non-payment has put the note into default and therefore the entire amount of
this note has been presented as current debt.
10. OTHER INCOME
During the six months ended February 2002, the Company generated one-time
revenue of $475,000 from the sale of certain digital subscriber line ("DSL")
accounts to a third-party supplier (which provides DSL communication access).
Pursuant to an agreement, the Company offset certain accounts payable owed to
the third party with this revenue gained.
9
Myrient, Inc.
Notes to Consolidated Financial Statements
11. SETTLEMENT OF LEASE
In December 2001, the Company entered into a Settlement Agreement and
Mutual release related to the termination of several leases. As a result of the
agreement, the Company was released of the remaining payments under the lease
(totaling over $1,100,000) in exchange for a non-interest bearing note with
payments totaling $610,000, a one time cash payment of $30,000 and the issuance
of 30,000 shares of the Company's common stock (see Note 8). The Company
discounted the note payable using a 12% interest rate to $469,196. This note
requires quarterly payments ranging from $10,000 to $40,000 beginning in June
2002. As a result, the Company has recorded a settlement expense of $502,496 in
the accompanying statement of operations. The Company also incurred a loss on
disposal of fixed assets of $159,733, representing the net book value of the
fixed assets associated with these leases.
12. EXTRAORDINARY ITEM - FORGIVENESS OF DEBT
During the six months ended February 28, 2002 the Company recognized an
extraordinary gain of $1,019,550 on the cancellation of a large account payable
balance by a vendor. The relief of the payable was partly due to the successful
sale and migration of certain DSL accounts to a third party's network (see Note
10).
13. RELATED PARTY TRANSACTIONS
During the quarter ended February 28, 2002, the President of the Company
loaned the Company $250,000. These loans are due on demand, and are non-interest
bearing. Subsequent to February 28, 2002 these loans were converted into common
stock (see Note 14).
14. RESIGNATION OF BOARD MEMBER
During the quarter ended February 28, 2002, Teresa Throenle resigned from
the Company's board of directors for personal reasons.
15. SUBSEQUENT EVENTS
In March 2002 a related party agreed to convert $100,000 of the principal
balance of a note payable into 904,977 shares of the Company's restricted common
stock (based on the fair market value of the stock on the date of grant).
In March 2002, the President of the Company was issued 1,572,302 shares of
the Company's restricted common stock as a one-time bonus. These shares are
valued at $166,664 (based on the fair market value of the stock on the date of
grant).
In March 2002, the President of the Company agreed to convert $250,000 of
the principal balance of notes payable into 2,840,909 shares of the Company's
restricted common stock (based on the fair market value of the stock on the date
of grant).
In April 2002, the Company's board of directors elected Stephen V. Cagnazzi
as a director to serve on its board of directors.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains certain forward-looking statements that
are subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
GENERAL
Myrient, Inc. (the "Company") is an outsourced Information Technology
solutions provider that delivers managed services that allow enterprises to
conduct secure communications with remote offices, partners and customers
worldwide. The Company enables its customers to outsource all of their
communications needs, while ensuring the highest level of security and
reliability. The Company manages and controls a nationwide data communications
network that allows it to offer high-quality integrated turnkey solutions. The
Company's services include Managed Virtual Private Networking, Broadband
Internet Access, Managed Web Hosting, Storage and off-site disaster recovery
services, Network and Systems Management, and Professional Services.
The Company's operating results have fluctuated in the past and may in the
future fluctuate significantly, depending upon a variety of factors, including
the timely deployment and expansion of new network architectures, the incurrence
of related capital costs, variability and length of the sales cycle associated
with the Company's product and service offerings, the receipt of new value-added
network services and consumer services subscriptions and the introduction of new
services by the Company and its competitors. Additional factors that may
contribute to variability of operating results include but not limited to: the
pricing and mix of services offered by the Company; customer retention rate;
market acceptance of new and enhanced versions of the Company's services;
changes in pricing policies by the Company's competitors; the Company's ability
to obtain sufficient supplies of sole or limited-source components; user demand
for network and Internet access services; balancing of network usage over a
24-hour period; the ability to manage potential growth and expansion; the
ability to identify, acquire and integrate successfully suitable acquisition
candidates; and charges related to acquisitions. In response to competitive
pressures, the Company may take certain pricing or marketing actions that could
have a material adverse affect on the Company's business. As a result,
variations in the timing and amounts of revenue could have a material adverse
affect on the Company's quarterly operating results. Currently, the Company does
not have the systems available to provide segment information. Due to the
foregoing factors, the Company believes the period-to-period comparisons of its
operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future performance. In the event that the
Company's operating results in any future period fall below the expectations of
securities analysts and investors, the trading price of the Company's common
stock would likely decline.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
REVENUE
Revenue totaled approximately $2,583,156 for the three months ended
February 28, 2002, a $2,318,761 decrease over revenue of $4,901,917 for the
three months ended February 28, 2001. Revenues generated from Broadband Internet
Access decreased to zero primarily due to the reduction of approximately 150
individuals involved in reselling retail based business class digital subscriber
lines ("DSL") connectivity during the three months ended February 28, 2002 as
11
compared to the three months ended February 28, 2001. The decrease was offset by
an increase in revenues generated from Real Private Networking, Internet and
Intranet based Web Hosting, Hosted Application Services, Intelligent Routing and
Content Delivery Services, Managed Virtual Private Networking and Professional
Services for the three months ended February 28, 2002 as compared to the
corresponding period of 2001.
COST OF SALES
Cost of sales for the three months ended February 28, 2002 was $965,632, a
decrease of $2,007,953 from $2,973,585 for the three months ended February 28,
2001. Cost of sales consists primarily of access charges from local exchange
carriers, backbone and Internet access costs, and the cost of customer equipment
to support network systems. The Company's Internet access costs significantly
decreased reflecting the decrease in revenues generated from Broadband Internet
Access during the three months ended February 28, 2002 as compared to the
corresponding period of 2001
SELLING EXPENSE
Selling expense consists primarily of personnel expenses, including salary
and commissions, and costs for customer support functions. Marketing and sales
expense was $389,651 for the three months ended February 28, 2002 and $1,228,140
for the three months ended February 28, 2001, which represents a $838,489
decrease. The decrease is primarily due to a decrease in selling commission
resulting from the decrease in revenues generated from Broadband Internet Access
for the three months ended February 28, 2002 as compared to the three months
ended February 28, 2001.
RESEARCH AND DEVELOPMENT
The Company incurred a $206,024 research and development cost for the three
months ended February 28, 2002. However, there was no such cost in the
corresponding period in 2001 (as the Company commenced to perform the research
and development activities in the third quarter of the prior year).
OTHER INCOME
The Company generated one-time revenue of $115,000 from sale of its certain
DSL accounts to a third-party supplier (which provides DSL communication access)
during the three months ended February 28, 2002. No such revenue was generated
in the corresponding period in 2001. Additionally, the Company also incurred a
loss on disposal of fixed assets of $159,733 during the three months ended
February 28,2002 representing the net book value of the fixed assets associated
with cancelled leases.
SETTLEMENT EXPENSE
In December 2001, the company was released from paying over $1.1 Million in
future lease payments after entering into a settlement agreement with a leasing
company that provided leases for networking equipment no longer needed that was
used to service DSL customers. Consequently, the company took a single
settlement expense charge of $502,496 during the quarter and wrote off
associated fixed assets of $159,333. The Company also incurred a loss on
disposal of fixed assets of $159,733, representing the net book value of the
fixed assets associated with these leases.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense consists primarily of personnel expense,
rent and professional fees. General and administrative expense was $1,360,505
12
for the three months February 28, 2002 and $1,831,034 for the three months ended
February 28, 2001, which represents a $470,529 decrease primarily due to a
decreased head count in the 2002 period.
INTEREST EXPENSE
Interest expense was $263,869 for the three months ended February 28, 2002
and $274,394 for the three months ended February 28, 2001. The increase in
interest expense resulted from the higher average interest-bearing borrowing
balance during the three months ended February 28, 2002 as compared to the
corresponding period in 2001. The higher average borrowing balance is primarily
related to the conversion of a $5.5 million balance from accounts payable to a
note payable as of August 31, 2001.
NET LOSS
As a result of the above factors, the Company incurred a net loss for the
three-month period ended February 28, 2002 a loss of $129,804 including an
extraordinary gain of $1,019,550 or $0.00 per share compared to a loss of
$1,405,236 or $0.05 per share for the three months ended February 28, 2001.
COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2002 AND 2001
NET SALES
Net sales decreased $3,553,790 to $4,987,322 for the six months ended
February 28, 2002 from $8,541,112 for the six months ended February 28, 2001.
Revenues generated from Broadband Internet Access decreased to zero primarily
due to the reduction of approximately 150 individuals involved in reselling
retail based business class digital subscriber lines ("DSL") connectivity during
the six months ended February 28, 2002 as compared to the six months ended
February 28, 2001. The decrease was offset by an increase in revenues generated
from Real Private Networking, Internet and Intranet based Web Hosting, Hosted
Application Services, Intelligent Routing and Content Delivery Services, Managed
Virtual Private Networking and Professional Services for the six months ended
February 28, 2002 as compared to the corresponding period of 2001.
COST OF SALES
Cost of sales decreased $3,362,226 to $2,554,275 for the six months ended
February 28, 2002 from $5,916,501 for the six months ended February 28, 2001.
Cost of sales consists primarily of access charges from local exchange carriers,
backbone and Internet access costs and the cost of customer equipment to support
network systems. The Company's Internet access costs significantly decreased
reflecting the decrease in revenues generated from Broadband Internet Access
during the six months ended February 28, 2002 as compared to the corresponding
period of 2001.
GROSS PROFIT
Gross profit decreased $191,564 to $2,433,047 for the six months ended
February 28, 2002 from $2,624,611 for the six months ended February 28, 2002 and
the profit margin increased 18% to 49% for the six months ended February 28,
2002 from 31% for the six months ended February 28, 2001. The decrease in gross
profit and the increase in gross profit margin resulted from a significant
decrease in revenues generated from the lower margin services (Broadband
Internet Access delivered over DSL) and an increase in revenues generated from
13
the higher margin services (managed services including Real Private Networking,
Internet and Intranet based Web Hosting, Hosted Application Services,
Intelligent Routing and Content Delivery Services, Managed Virtual Private
Networking and Professional Services) during the six months ended February 28,
2002 as compared to the corresponding period of 2001.
SELLING EXPENSE
Selling expense consists primarily of personnel expenses including salary,
commissions and costs for customer support functions. Selling expense decreased
$1,136,324 to $779,810 for the six months ended February 28, 2002 from
$1,916,134 for the six months ended February 28, 2001. The decrease is primarily
due to a decrease in selling commission resulting from the decrease in revenues
generated from Broadband Internet Access for the six months ended February 28,
2002 as compared to the six months ended February 28, 2001.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense consists primarily of personnel expense,
rent and professional fees. General and administrative expense decreased
$1,381,704 to $2,659,527 for the six month ended February 28, 2002 from
$4,041,231 for the six months ended February 28, 2001. Personnel expense
decreased $1,047,390 for the six months ended February 28, 2002 to the
corresponding period in 2001 primarily due to a decreased head count in the 2002
period.
RESEARCH AND DEVELOPMENT
The Company incurred a $452,442 research and development cost for the six
months ended February 28, 2002. However, there was no such cost in the
corresponding period in 2001 (as the Company commenced to perform the research
and development activities in the third quarter of the prior year). The $452,442
research and development cost included a $73,540 employee salary expense and a
total of $378,902 equipment rental expense associated directly with the research
and development activities performed by the Company's engineering department
during the six months ended February 28, 2002.
OTHER INCOME
The Company generated one-time revenue of $475,000 from sale of its certain
DSL accounts to a third-party supplier (which provides DSL communication access)
during the six months ended February 28, 2002. No such revenue was generated in
the corresponding period in 2001.
SETTLEMENT EXPENSE
In December 2001, the company was released from paying over $1.1 Million in
future lease payments after entering into a settlement agreement with a leasing
company that provided leases for networking equipment no longer needed that was
used to service DSL customers. Consequently, the company took a single
settlement expense charge of $502,496 during the second quarter and wrote off
associated fixed assets of $159,333. The Company also incurred a loss on
disposal of fixed assets of $159,733, representing the net book value of the
fixed assets associated with these leases.
INTEREST EXPENSE
Interest expense increased $270,852 to $622,520 for the six months ended
February 28, 2002 from $351,668 for the six months ended February 28, 2001. The
increase in interest expense resulted from the higher average interest-bearing
borrowing balance during the six months ended February 28, 2002 as compared to
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the corresponding period in 2001. The higher average borrowing balance is
primarily related to the conversion of a $5.5 million balance from accounts
payable to a note payable as of August 31, 2001.
EXTRAORDINARY GAIN
During the six months ended February 28, 2002 the Company recognized an
extraordinary gain of $1,019,550 on the cancellation of a large account payable
balance by a vendor. The relief of the payable was partly due to the successful
sale and migration of certain DSL accounts to a third party's network .
NET LOSS
As a result of the above, the Company incurred a net loss of $1,248,531
including $1,019,550 extraordinary gain for the six months ended February 28,
2002 as compared to a net loss of $3,684,422 for the six months ended February
28, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash balance decreased $136,169 to $47,329 on February 28, 2002 from
$183,498 on August 31, 2001 primarily due to an increase in Research and
Development spending and the development of certain computer software projects.
To date, the Company has satisfied its cash requirements primarily through
debt, equity and capitalized lease financings. The Company's principal uses of
cash are to fund working capital requirements and to service its capital lease
and debt financing obligations. The Company believes that its anticipated funds
from operations will be insufficient to fund its working capital and other
requirements through August 31, 2002. Therefore, the Company will be required to
seek additional funds either through debt or equity financing to finance its
long-term operations ("Additional Funds"). Should the Company fail to raise the
Additional Funds, the Company will have insufficient funds for the Company's
intended operations for the next nine months that may have a material adverse
effect on the Company's long-term results of operations.
The Company's independent certified public accountants have stated in their
report in the Company's Form 10-KSB for the year ended August 31, 2001, that the
Company had incurred operating losses in the last two years, had a working
capital deficit (including a significant accrued payroll taxes due to under
payment of payroll taxes), a significant long-term borrowing balance and a
significant stockholders' deficit. The Company's working capital deficit
increased $80,752 to $17,477,260 on February 28, 2002 from $17,396,508 on August
31, 2001 and the stockholders' deficit increased $608,340 to $17,708,045 on
February 28, 2002 from $17,027,705 on August 31, 2001. These financial
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
FORWARD-LOOKING INFORMATION
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "expect," "anticipate," "intend," and
"project" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be reviewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including changes in economic conditions in the
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markets served by the Company, increasing competition, fluctuations in raw
materials and energy prices, and other unanticipated events and conditions. It
is not possible to foresee or identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation that it believes could
have a materially adverse effect on its financial condition or results of
operations.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
In January 2002, the Company issued a total of 4,154,202 shares of the
common stock valued at $353,107 (based on the closing bid price of the Company's
common stock on the date of issuance) for conversion of $323,150 of related
party debt and $29,957 of related accrued interest, to two related individuals,
one of whom is an accredited investor. These transactions were issuances of
securities by the issuer not involving any public offering and are therefore
covered by the exemption allowed under Section 4(2) of the Securities Act of
1933.
In January 2002 the Company sold a total of 250,000 shares of common stock
for proceeds of $25,000 to an unrelated third-party investor. This transaction
was an issuance of securities by the issuer not involving any public offering
and is therefore covered by the exemption allowed under Section 4(2) of the
Securities Act of 1933.
In January 2002, the Company issued 30,000 shares of its common stock to an
accredited third-party as part of a settlement for terminating certain operating
lease agreements. These shares were valued at $3,300 based on the fair market
value on the date of grant. This transaction was an issuance of securities by
the issuer not involving any public offering and is therefore covered by the
exemption allowed under Section 4(2) of the Securities Act of 1933.
In January 2002, the Company issued 250,000 shares of common stock valued
at $35,000.00 (based on the closing bid price of the Company's common stock on
the date of issuance) to an employee, who is an accredited investor, as part of
his compensation package. This transaction was an issuance of securities by the
issuer not involving any public offering and is therefore covered by the
exemption allowed under Section 4(2) of the Securities Act of 1933.
In January 2002, the Company issued 43,479 to an outside consultant valued
at $10,000.00 (based on the closing bid price of the Company's common stock on
the date of issuance), which was recorded as consulting expense. This
transaction was an issuance of securities by the issuer not involving any public
offering and is therefore covered by the exemption allowed under Section 4(2) of
the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Myrient, Inc.
Date: April 15, 2002 by: /s/ BARRY H. HALL
-------------------------------------
Barry H. Hall
Chairman of the Board and Director
by: /s/ BRYAN L. TURBOW
-------------------------------------
Bryan L. Turbow
Director and President/CTO
by: /s/ STEPHEN V. CAGNAZZI
-------------------------------------
Stephen V. Cagnazzi
Director
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