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, 2003.
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.
---------------------------------------
(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
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 330-6500
-----------------------------------------
(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 May 27, 2003 the number of shares of common stock outstanding was
78,519,696.
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, 2003
(Unaudited)
ASSETS
Current assets:
Cash 970
Accounts receivable, net of allowance for doubtful accounts of
approximately $105,899 $ 8,954
-------------
Total current assets 8,954
Property and equipment, net of accumulated depreciation of $242,793 41,846
Deposits and other assets 16,036
-------------
Total assets $ 67,806
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 3,927,451
Line of credit borrowings 500,000
Current portion of notes payable 6,723,735
Convertible note payable 875,000
Accrued payroll and related liabilities 1,658,827
Accrued interest payable 1,756,227
Current portion of capital lease obligations 116,929
-------------
Total current liabilities 15,558,169
Related party loans and notes payable 6,135,964
-------------
Total liabilities 21,694,133
-------------
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,
71,990,904 shares issued and outstanding 71,990
Additional paid-in capital 18,594,836
Subscription Receivable (30,000)
Accumulated deficit (40,330,959)
-------------
Total stockholders' deficit (21,626,326)
-------------
Total liabilities and stockholders' deficit $ 67,806
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
1
Myrient, Inc.
Consolidated Statements of Operations
(Unaudited)
Six Months Ended February 28,
2003 2002
------------- -------------
Net sales $ 305,418 $ 4,987,322
Cost of sales 113,467 2,554,275
------------- -------------
Gross profit 191,951 2,433,047
------------- -------------
Operating expenses:
General and administrative 647,169 2,659,527
Selling 1,943 779,810
Settlement Expense 502,496
Research and development -- 452,442
------------- -------------
Total operating expenses 649,112 4,394,275
------------- -------------
Operating loss (457,161) (1,961,228)
Other income (expense):
Gain on outstanding collections and adjustments 35,742 475,000
Gain on settlement of debt and other obligations 1,978,502 1,019,550
Gain on sale of assets 92,000 --
Loss on disposal of fixed assets -- (159,333)
Interest expense, net (708,297) (622,520)
------------- -------------
Total other income (expense) 1,397,947 712,697
------------ ------------
Net Income (loss) 940,787 (1,248,531)
============= =============
Net Income available to common stockholder per common share:
Income $ (0.00) $ (0.03)
------------- -------------
Basic and diluted $ (0.00) $ (0.03)
============= =============
Basic and diluted weighted average shares outstanding 71,863,359 46,594,459
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
Myrient, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended February 28,
2003 2002
------------- -------------
Net sales $ 141,792 $ 2,583,156
Cost of sales 37,913 965,632
------------- -------------
Gross profit 103,879 1,617,524
------------- -------------
Operating expenses:
General and administrative 353,963 1,360,505
Selling 959 389,651
Settlement Expense 502,496
Research and development -- 206,024
------------- -------------
Total operating expenses 354,922 2,458,676
------------- -------------
Operating loss (251,043) (841,152)
Other income (expense):
Gain on outstanding collections and adjustments 35,742 115,000
Gain on settlement of debt and other obligations 417,973 1,019,550
Loss on disposal of fixed assets -- (159,333)
Interest expense, net (342,480) (263,869)
------------- -------------
Total other income (expense) 111,235 711,348
------------- -------------
Net Income (loss) (139,808) (129,804)
============= =============
Net Income available to common stockholder per common share:
Income $ (0.00) $ (0.02)
------------- -------------
Basic and diluted $ (0.00) $ (0.02)
============= =============
Basic and diluted weighted average shares outstanding 70,347,259 48,197,422
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Myrient, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended February 28,
---------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net profit (loss) $ 940,787 $(1,248,531)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Gain on extinguishment of debt and other income -- (1,109,550)
Bad debt expense (6,126) 355,511
Depreciation 9,343 514,714
Vesting of previously issued options and warrants -- 12,027
Estimated fair market value of stock, options and
warrants issued for salaries and services, net 122,450 176,256
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 34,635 (1,410,354)
Other assets (15,596) (25,414)
Accounts payable and accrued liabilities (1,915,546) 1,517,871
Accrued payroll and related liabilities 53,999 (21,921)
Accrued interest payable 708,107 519,892
------------ ------------
Net cash provided by (used in) operating activities (67,947) 65,535
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment 8,500 (151,170)
Capitalized computer software development cost -- (203,976)
------------ ------------
Net cash used in investing activities 8,500 (355,146)
------------ ------------
Cash flows from financing activities:
Principal repayments on notes payable -- (50,000)
Principal repayment on related party notes payable 8,341 (24,639)
Repayment on capitalized leased obligations -- (46,719)
Proceeds from short term loans 47,000 --
Proceeds from related party notes payable 5,076 250,000
Proceeds from sale of common stock and options -- 26,800
------------ ------------
Net cash provided by financing activities 60,417 155,442
------------ ------------
Net change in cash 970 (136,169)
Cash at beginning of period -- 183,498
------------ ------------
Cash at end of period $ 970 $ 47,329
============ ============
3
Myrient, Inc.
Consolidated Statements of Cash Flows - Continued
(Unaudited)
Six Months Ended February 28,
---------------------------
2003 2002
------------ ------------
Supplemental cash flow disclosures:
Cash paid during the period for interest $ -- $ 102,700
============ ============
Cash paid during the period for income taxes $ -- $ --
============ ============
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.
4
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, 2003 are not
necessarily indicative of the results that may be expected for the year ending
August 31, 2003. Our auditors have not reviewed the February 28, 2003 financial
statements. 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, 2002.
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 fiscal year 2001 and incurred 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 Company did not incur research & development costs
during the quarter ended February 28, 2003.
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.
5
Myrient, Inc.
Notes to Consolidated Financial Statements
3. IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets. At
February 28, 2003, management determined that none of the Company's remaining
long-lived asset were subject to impairment.
4. 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,
2003 and 2002 are not considered common stock equivalents, as the affect on net
loss per share would be anti-dilutive.
5. 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.
6. 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.
7. 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
6
Myrient, Inc.
Notes to Consolidated Financial Statements
7. RISKS AND UNCERTAINTIES, CONTINUED
management believes could have a material adverse effect on its financial
position or results of operations.
8. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
Under SFAS No. 109 deferred tax assets and liabilities are recognized for the
expected tax consequences of attributable differences between the tax bases and
reported amounts of assets and liabilities. Deferred tax assets and liabilities
are computed using enacted tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities from a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is provided for significant deferred tax assets when it is more likely
than not that such assets will not be recovered.
9. Stock-Based Compensation
The Company accounts for non-employee stock based compensation under
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock- Based Compensation." SFAS No. 123 defines a fair value
based method of accounting for stock-based compensation. However, SFAS No. 123
allows an entity to continue to measure compensation cost related to stock and
stock options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock issued to Employees". Under APB 25, compensation cost, if any, is
recognized over the respective vesting period based on the difference, on the
date of grant, between the fair value of the Company's common stock and the
grant price. Entities electing to remain with the accounting method of APB 25
must make pro forma disclosures of net income and earnings per share, as if the
fair value method of accounting defined in SFAS No. 123 had been applied. The
Company has elected to account for its stock-based compensation to employees
under APB 25.
10. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. The provisions of SFAS No.
144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001, and interim periods within these fiscal years, with
early adoption encouraged. The Company adopted SFAS No. 144 during fiscal year
2002. The adoption of SFAS No. 144 did not materially impact its financial
statements.
On April 30, 2002, the FASB issued Statement 145, "RESCISSION OF FASB
STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS." FASB 145 rescinds Statement 4, which required all gains and losses
from extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. Early application of the
provisions of FASB 145 may be as of the beginning of the fiscal year or as of
the beginning of the interim period in which FASB 145 is issued. The Company has
elected to adopt FASB 145 as of the beginning of the previous fiscal year, and
accordingly, reflected all gains on debt extinguishments during the fiscal year
(totaling $2,014,244) as other income instead of extraordinary in the
accompanying statements of operations.
11. 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, 2003, the Company has negative
working capital of approximately $15,558,169, is in default on substantially all
notes payable, and has a stockholders' deficit of approximately $21,626,326.
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
7
Myrient, Inc.
Notes to Consolidated Financial Statements
the fiscal year ending August 31, 2003. 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.
12. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In the second quarter ended February 28, 2003 the Company issued 2,666,667
shares of common stock to a consultant valued at $40,000 (based on the closing
price of the Company's common stock on the date of grant) which was recorded as
consulting expense.
In the first quarter ended November 30, 2002, the Company sold to an
employee 1,000,000 shares of common stock at a 15% discount from the closing
price at the date of the transaction in exchange for a subscription receivable
in the amount of $30,000.
In the first quarter ended November 30, 2002, the Company issued 1,469,389
shares of common stock, valued at $26,688 (based on the closing price of the
Company's common stock on the date of grant) to employees in lieu of net pay and
employee bonuses.
During the year ended August 31, 2002, the Company issued a total of
15,402,122 shares of the common stock valued at $1,018,191 (based on the closing
bid price of the Company's common stock on the date of issuance) for conversion
of $988,235 of related party debt and $29,957 of related accrued interest.
During the year ended August 31, 2002, the Company sold a total of
1,916,668 shares of common stock for proceeds of $175,000.
During the year ended August 31, 2002, an employee exercised options to
purchase 15,000 shares of the Company's common stock for total proceeds of
$1,800.
During the year ended August 31, 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.
During the year ended August 31, 2002, the Company issued 50,000 shares of
its common stock to a third party for the purchase of certain fixed assets.
These shares were valued at $8,000 based on the fair market value on the date of
grant.
During the year ended August 31, 2002, the Company cancelled and returned
to the Company's treasury 500,000 shares of common stock previously issued to
Seven Keys Development Trust ("Seven Keys"), 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. As a result of this
transaction the Company accrued the original $15,500 Robert Weaver paid for the
shares and offset this accrued liability against additional paid in capital.
Prior to August 31, 2002, Seven Keys obtained a judgment against the Company in
the amount of $310,000. Subsequently, the Company has negotiated a settlement
with holder of this judgment for $10,000 causing the Company to realize a net
gain of $300,000 which was recorded as Other Income in the accompanying
financial statements.
During the year ended August 31, 2002, the Company issued to several of its
employees a total of 4,277,767 shares of common stock valued at $398,256 (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 year ended August 31, 2002, the Company issued to several
outside consultants a total of 838,495 shares of common stock valued at $76,446
(based on the closing bid prices of the Company's common stock on the dates of
issuance), which was recorded as consulting expense.
8
Myrient, Inc.
Notes to Consolidated Financial Statements
12. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL, CONTINUED
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 April 2002, the Company issued 50,000 shares of its common stock to a
third party for the purchase of certain fixed assets. These shares were valued
at $8,000 based on the fair market value on the date of grant.
13. NOTES PAYABLE
Notes payable consists of the following as of February 28, 2003:
Unsecured note payable to a vendor pursuant to the terms of an
agreement to convert a trade account payable into a note
payable. The note requires various monthly payments of
principal and interest beginning in April 2002 and a balloon
payment in December 2009, bears interest at 12% 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 any of the scheduled
payments, and therefore the entire amount of this note has
been presented as current debt. The Company is negotiating
with the vendor to restructure this debt. $ 5,500,000
Unsecured note payable to a vendor per the terms of a
settlement agreement, which converted an accounts payable
balance into a note payable during fiscal year 2002. This note
requires various quarterly payments of principal beginning in
August 2004 with the final payment due in August 2007.
Interest will be accrued on the outstanding balance at a rate
of 6% per annum, but will be paid quarterly after the
principal payments have been completed. 2,000,000
Unsecured note payable to a vendor pursuant to the terms of a
judgment entered against the Company. This note has no
stipulated payment terms, and accrues interest on the
outstanding balance at a rate of 10% per annum. The Company is
currently negotiating the terms of this note with the vendor.
Due to uncertainties regarding the timing of the payment
obligations, the entire amount of this note has been presented
as current debt. 1,398,446
Secured convertible note payable to a financial institution.
Secured by substantially all assets of the Company. This note
bears interest at the prime rate (4.75% at August 31, 2002)
plus 2%, and was due May 30, 2002. This note is convertible
into shares of the Company's common stock at a conversion
price equal to the lesser of the share price on the date of
agreement or at a 30% discount of the share price as of the
date of conversion. The note calls for various monthly
payments of principal and interest with a balloon payment due
in May 2002. The Company did not make the required monthly
payments or the balloon payment, and therefore the entire
amount of this note has been presented as current debt. 875,000
9
Myrient, Inc.
Notes to Consolidated Financial Statements
Unsecured advances from the Company's former Vice-Chairman and
CEO. These advances were later evidenced by certain demand
notes upon which the Company has not made any payments. The
Company has retained outside legal counsel and consultants to
investigate the substance and propriety of all dealings
between the Company and the former Vice-Chairman and CEO.
These advances are due on demand and bear no interest.
Accordingly, the entire amount of this note has been presented
as current debt. 847,017
Unsecured note payable to Mesora Investments LLC ("Mesora") a
shareholder. This note is secured by certain shares of common
stock repurchased by the Company and is personally guaranteed
by the Company's former CEO. This note bears interest at 12%
per annum, provides for payment of principal and interest by
May 2001. The Company has not made the required payments under
this note, and a judgment has been entered in favor of Mesora
against the Company and the former CEO for the entire amount
of the debt plus interest and collection costs. 700,000
Unsecured note payable to a leasing company in settlement of
certain operating lease obligations during fiscal year 2002.
This note was originally non-interest bearing with payments
totaling $610,000, and payments ranging from $10,000 to
$40,000 beginning in June 2002. During fiscal 2002, the
Company did not make the required payments. Accordingly, the
interest rate increased to 18% per annum, per the terms of the
agreement. As a result of the default the entire amount of
this note has been presented as current debt. 609,000
Secured note payable to a financial institution with various
monthly principal payments and a balloon payment due in May
2002. This line is secured by substantially all assets of the
Company. This note bears interest as 10% per annum. The
Company failed to make the required monthly payments due under
this note, and has therefore presented the entire amount as
current debt. The Company is negotiating with this financial
institution to restructure this debt. 523,734
Secured line of credit with a financial institution bearing
interest at 10% per annum. This line was agreed to be secured
by 1,000,000 shares of the Company common stock owned by the
current President. This line was due in September 2001, and no
further draws are available to the Company. Based on current
ongoing investigations surrounding this arrangement, the
Company has retained outside counsel and consultants to
investigate the substance and propriety of all financial
dealings between the Company and the issuer of this line of
credit and all persons and entities affiliated with it. Due to
the fact that the line is fully matured, and no further
advances are available, the Company has presented the entire
amount of this debt in the current portion of notes payable. 500,000
Other various unsecured notes payable to individuals and
vendors (from judgments or settlement agreements) with various
monthly principal payments through 2007 and interest at rates
ranging from 6% to 19% per annum. Substantially all of these
notes are currently in default due to non-payment. In prior
fiscal years, some of these individuals were considered
related parties, but due to the fact they have either sold
their interests in the Company or have obtained judgments
against the Company these have now been presented as part of
notes payable. The Company is negotiating with certain of
these noteholders to restructure its debts. 1,314,834
------------
14,268,031
Less current portion (12,118,031)
------------
$ 2,150,000
============
Additionally, during the 2nd fiscal quarter 2003, the Company entered into
short-term loan agreements with several individuals for a total of $47,000.
These notes have a term of between 6 and 12 months bear simple interest at the
rate of 11%.
10
Myrient, Inc.
Notes to Consolidated Financial Statements
14. OTHER INCOME
During the six months ended February 28, 2003, the Company realized a
one-time gain in the amount of $300,000 for settling a judgment in the amount
of $310,000 for $10,000.
15. RELATED PARTY TRANSACTIONS
There were no related party transactions during the six months ended
February 28, 2003.
16. SUBSEQUENT EVENTS
On April 2, 2003, the Company's Board of Directors voted unanimously to
increase the number of authorized common shares from 75,000,000 to 150,000,000
shares.
On April 11, 2003, the Company filed a form S-8; Registration of Securities
to be offered to Employees Pursuant to an Employee Benefit Plan in the amount of
10,000,000 shares pursuant to its 2003 Stock Incentive Plan.
Subsequent to the close of the quarter ended February 28, 2003, Barry Hall
resigned as chairman of the Board of Directors of the Company.
Subsequent to the quarter ending February 28, 2003 the Company issued
3,470,588 shares of common stock to a consultant valued at $29,500 (based on the
closing price of the Company's common stock on the date of grant) for consulting
services.
11
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.
The Company's auditors have not reviewed its February 28, 2003 financial
statements.
12
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2003 AND 2002
NET SALES
Net Sales totaled $141,792 for the three months ended February 28, 2003, a
$2,441,364 decrease over revenue of $2,583,156 for the three months ended
February 28, 2002. The decrease in revenues is primarily due to the Company
divesting itself of all of its digital subscriber lines ("DSL").
COST OF SALES
Cost of sales for the three months ended February 28, 2003 was $37,913, a
decrease of $927,719 from $965,632 for the three months ended February 28, 2002.
The Company's Internet access costs significantly decreased reflecting the
decrease in revenues generated from Broadband Internet Access and associated
infrastructure during the three months ended February 28, 2003 as compared to
the corresponding period of 2002.
GROSS PROFIT
Gross profit decreased $1,513,375 to $103,879 for the three months ended
February 28, 2003 from $1,617,524 for the three months ended February 28, 2002
and the profit margin increased 14% to 73% for the three months ended February
28, 2003 from 59% for the three months ended February 28, 2002. 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
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).
SELLING EXPENSE
Selling expense consists primarily of personnel expenses, including salary
and commissions, and costs for customer support functions. Marketing and sales
expense was $959 for the three months ended February 28, 2003 and $389,651 for
the three months ended February 28, 2002, which represents a $388,692 decrease.
The decrease is primarily attributable to the Company's desire to focus its
available working capital on the reorganization of operations.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense consists primarily of personnel expense,
rent and professional fees. General and administrative expense was $353,963 for
the three months ended February 28, 2003 and $1,360,505 for the three months
ended February 28, 2002, which represents a $1,006,542 decrease primarily due to
reorganization of operations, the reduction of personnel and the related
expenses.
13
INTEREST EXPENSE
Interest expense was $342,480 for the three months ended February 28, 2003
and $263,869 for the three months ended February 28, 2002. The increase in
interest expense resulted from the higher average interest-bearing borrowing
balance during the three months ended February 28, 2003 as compared to the
corresponding period in 2002. The higher average borrowing balance is primarily
related to the conversion of accounts payable to notes payable pursuant to
negotiated settlements with certain creditors.
OTHER INCOME
During the quarter ending February 28, 2003 the Company recognized a gain
of $417,974 on the settlement of accounts payable balances with vendors.
Additionally, the company realized a $35,742 gain due to the successful
collection of outstanding debt.
NET LOSS
As a result of the above factors, the Company incurred a net loss for the
three-month period ended February 28, 2003 of $139,808 or $0.00 per share
compared to a loss of $129,804 or $0.00 per share for the three months ended
February 28, 2002.
COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2003 AND 2002
NET SALES
Net Sales totaled $305,418 for the six months ended February 28, 2003, a
$4,681,904 decrease over revenue of $4,987,322 for the six months ended February
28, 2002. The decrease in revenues is primarily due to the Company divesting
itself of all of its digital subscriber lines ("DSL").
COST OF SALES
Cost of sales for the six months ended February 28, 2003 was $113,467, a
decrease of $2,440,808 from $2,433,275 for the six months ended February 28,
2002. The Company's Internet access costs significantly decreased reflecting the
decrease in revenues generated from Broadband Internet Access and associated
infrastructure during the six months ended February 28, 2003 as compared to the
corresponding period of 2002.
GROSS PROFIT
Gross profit decreased $2,241,096 to $191,951 for the six months ended
February 28, 2003 from $2,433,047 for the six months ended February 28, 2002 and
the profit margin increased 14% to 63% for the six months ended February 28,
2003 from 49% for the six months ended February 28, 2002. 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
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).
SELLING EXPENSE
Selling expense consists primarily of personnel expenses, including salary
and commissions, and costs for customer support functions. Marketing and sales
expense was $1,943 for the six months ended February 28, 2003 and $779,810 for
the six months ended February 28, 2002, which represents a $777,867 decrease.
The decrease is primarily attributable to the Company's desire to focus its
available working capital on the reorganization of operations.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense consists primarily of personnel expense,
rent and professional fees. General and administrative expense was $647,169 for
the six months ended February 28, 2003 and $2,659,527 for the six months ended
February 28, 2002, which represents a $2,012,358 decrease primarily due to
reorganization of operations, the reduction of personnel and the related
expenses.
INTEREST EXPENSE
Interest expense was $708,297 for the six months ended February 28, 2003
and $622,520 for the six months ended February 28, 2002. The increase in
interest expense resulted from the higher average interest-bearing borrowing
balance during the six months ended February 28, 2003 as compared to the
corresponding period in 2002. The higher average borrowing balance is primarily
related to the conversion of accounts payable to notes payable pursuant to
negotiated settlements with certain creditors.
OTHER INCOME
During the six months ending February 28, 2003 the Company recognized a
gain of $1,978,502 on the settlement of accounts payable balances with vendors.
Additionally, the company realized a $35,742 gain due to the successful
collection of outstanding debt and a $92,000 gain on the sale of assets.
NET PROFIT
As a result of the above factors, the Company incurred a net profit for the
six month period ended February 28, 2003 of $940,787 or $0.01 per share compared
to a loss of $1,248,531 or $0.03 per share for the six months ended February 28,
2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its anticipated funds from operations will be
insufficient to fund its working capital and other requirements through August
31, 2003. 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.
Cash balance was $970 on February 28, 2003 and $0 on August 31, 2002.
To date, the Company has satisfied its cash requirements primarily through
related party debt, equity and capitalized lease financings. The Company's
principal uses of cash is to fund working capital requirements.
The Company expects to be successful in its ongoing effort to substantially
reduce its debt through aggressive negotiations with its creditors. The Company
has been successful with most creditors that it has negotiated with thus far and
expects to continue this trend.
14
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, 2002, 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
decreased $1,919,091 to $15,558,169 on February 28, 2003 from $17,477,260 on
February 28, 2002 and the stockholders' deficit decreased $1,006,907 to
$21,626,326 on February 28, 2003 from $22,633,233 on August 31, 2002. These
financial conditions raise substantial doubt about the Company's ability to
continue as a going concern.
The Company auditors have not reviewed its February 28, 2003 financial
statements.
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
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.
15
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.
Several of the Company's creditors have obtained judgments against the
Company totaling approximately $2,800,000. Said liabilities have been recorded
in accounts or notes payable in the accompanying balance sheet. Several other
such matters are pending. The Company has estimated the amounts due under these
pending matters in accounts payable.
Additionally, the Company has entered into settlement agreements with many
of its creditors that include mutual releases to avoid further litigation
expense. These settlements have been stipulated by a significant fraction of the
original claim, resulting in a gain being recorded on the Company's books for
the year ended August 31, 2002. With some exceptions, the settlements generally
call for no payments during the first year, relatively low quarterly payments
starting the second year which increase through the fifth year, and with accrued
interest to be paid in the final year.
In the second quarter ended February 28, 2003, the Company entered into
settlement agreements with several of its creditors that include mutual releases
to avoid further litigation expense. These creditors' claims totaled
approximately $450,000 have been settled for approximately $80,000 generally
with terms similar to those described above.
The Company has investigated a matter surrounding certain cash advances
made to the Company by the former Vice-Chairman and CEO and a line of credit
agreement entered into by the Company under the direction of its former
Vice-Chairman and CEO. As a result, the Company filed a lawsuit against him and
certain co-conspirators in State Superior Court, alleging, among other things,
that the defendants, in attempts to personally and illegally profit from an
artificially inflated stock price, colluded with each other to devise a phantom
credit line to deceive Myrient's officers, directors and shareholders and to
create an illusion that Myrient was in a better financial condition than it
really was. By initiating this action, the Company is seeking relief in the form
of compensatory, general and special damages as well as punitive damages. There
are no assurances that the Company will prevail in this action
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
In the second quarter ended February 28, 2003 the Company issued 2,666,667
shares of common stock to a consultant valued at $40,000 (based on the closing
price of the Company's common stock on the date of grant) which was recorded as
consulting expense.
16
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
17
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: May 27, 2003
by: /s/ BRYAN L. TURBOW
-------------------------------------
Bryan L. Turbow
Director and President/CTO
CERTIFICATION OF PRINCIPAL FINANCIAL AND EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bryan L. Turbow, certify that:
1) I have reviewed this quarterly report on Form 10-QSB of Myrient, Inc..
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report ("Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons fulfilling the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;
6) The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 27, 2003 /s/ Bryan L. Turbow
----------------------------
Bryan L. Turbow
Director and President/CTO
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Myrient, Inc. (the "Company") on Form
10-QSB for the quarter ended February 28, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Bryan L. Turbow, herby
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: May 27, 2003 /s/ Bryan L. Turbow
-------------------------------
Bryan L. Turbow
Director and President/CTO