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 MAY 31, 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 August 1, 2003 the number of shares of common stock outstanding was
100,861,492.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Myrient, Inc.
Consolidated Balance Sheet
May 31, 2003
(Unaudited)
ASSETS
Current assets:
Cash 9,113
Accounts receivable, net of allowance for doubtful accounts of
approximately $105,899 $ 12,108
------------
Total current assets 21,221
Property and equipment, net of accumulated depreciation of $247,465 37,175
Deposits and other assets 50
-------------
Total assets $ 58,446
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 3,970,882
Line of credit borrowings 500,000
Current portion of notes payable 6,726,561
Convertible note payable 875,000
Accrued payroll and related liabilities 1,657,923
Accrued interest payable 2,098,707
Current portion of capital lease obligations 116,929
-------------
Total current liabilities 15,946,002
Related party loans and notes payable 6,135,964
-------------
Total liabilities 22,081,966
-------------
Stockholders' deficit:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares
issued and outstanding --
Common stock, $0.01 par value; 150,000,000 shares authorized, 80,361,942
shares issued and outstanding 80,363
Additional paid-in capital 18,664,965
Subscription Receivable (30,000)
Accumulated deficit (40,738,848)
-------------
Total stockholders' deficit (22,023,520)
-------------
Total liabilities and stockholders' deficit $ 58,446
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
1
Myrient, Inc.
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended May 31,
2003 2002
------------- -------------
Net sales $ 403,389 $ 7,530,889
Cost of sales 144,623 2,851,855
------------- -------------
Gross profit 258,766 4,679,034
------------- -------------
Operating expenses:
General and administrative 872,369 6,045,786
Selling 2,173 1,420,114
Loss on impairment of fixed assets 1,260,257
Settlement Expense 502,496
Research and development -- 719,289
------------- -------------
Total operating expenses 874,541 9,947,942
------------- -------------
Operating loss (615,775) (5,268,908)
Other income (expense):
Gain on outstanding collections and adjustments 61,169 475,000
Gain on settlement of debt and other obligations 1,978,502 1,059,528
Gain on sale of assets 92,000 --
Loss on disposal of fixed assets -- (159,333)
Interest expense, net (1,050,777) (936,221)
------------- -------------
Total other income (expense) 1,080,894 438,974
------------- -------------
Net Income (loss) 465,119 (4,829,934)
============= =============
Net Income available to common stockholder per common share:
Income $ 0.01 $ (0.10)
------------- -------------
Basic and diluted $ 0.01 $ (0.10)
============= ============
Basic and diluted weighted average shares outstanding 75,237,997 49,603,888
============= ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
Myrient, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended May 31,
2003 2002
------------- -------------
Net sales $ 97,971 $ 2,543,567
Cost of sales 31,156 297,580
------------- -------------
Gross profit 66,815 2,245,987
------------- -------------
Operating expenses:
General and administrative 225,200 3,385,719
Selling 230 640,304
Settlement Expense -- --
Loss on impairment -- 1,260,257
Research and development -- 267,387
------------- -------------
Total operating expenses 225,430 5,553,667
------------- -------------
Operating loss (158,615) (3,307,680)
Other income (expense):
Gain on outstanding collections and adjustments 25,427 --
Gain on settlement of debt and other obligations -- 39,978
Loss on disposal of fixed assets -- --
Interest expense, net (342,480) (313,701)
------------- -------------
Total other income (expense) (317,053) (273,723)
------------- -------------
Net Income (loss) (475,668) (3,581,403)
============= =============
Net Income available to common stockholder per common share:
Income $ (0.01) $ (0.07)
------------- -------------
Basic and diluted $ (0.01) $ (0.07)
============= =============
Basic and diluted weighted average shares outstanding 76,294,281 53,125,559
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
Myrient, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended May 31,
---------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net profit (loss) $ 465,119 $(4,829,934)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Gain on extinguishment of debt and other income -- (1,059,528)
Bad debt expense (6,126) 3,672,127
Impairment -- 1,260,257
Depreciation 14,015 616,575
Vesting of previously issued options and warrants -- 12,027
Estimated fair market value of stock, options and
warrants issued for salaries and services, net 122,450 399,591
Loss on disposal of fixed assets -- 159,333
Non-cash portion of cost of sales -- 281,918
Non-cash portion of settlement expense -- 469,196
Changes in operating assets and liabilities:
Accounts receivable 31,619 (3,590,701)
Other assets 400 27,959
Accounts payable and accrued liabilities (1,822,442) 1,245,057
Accrued payroll and related liabilities 97,017 45,280
Accrued interest payable 1,050,587 820,099
------------ ------------
Net cash provided by (used in) operating activities (47,361) (470,744)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment 8,500 (152,332)
Capitalized computer software development cost -- (203,976)
------------ ------------
Net cash used in investing activities 8,500 (356,308)
------------ ------------
Cash flows from financing activities:
Principal repayments on notes payable -- (51,000)
Principal repayment on related party notes payable 8,341 (24,639)
Repayment on capitalized leased obligations -- (55,512)
Proceeds from short term loans 47,000 --
Proceeds from related party notes payable (6,397) 597,905
Proceeds from sale of common stock and options -- 176,800
------------ ------------
Net cash provided by financing activities 48,944 643,554
------------ ------------
Net change in cash 10,083 (183,498)
Cash at beginning of period 970 183,498
------------ ------------
Cash at end of period $ 9,113 $ --
============ ============
4
Myrient, Inc.
Consolidated Statements of Cash Flows - Continued
(Unaudited)
Nine Months Ended May 31,
---------------------------
2003 2002
----------- -----------
Supplemental cash flow disclosures:
Cash paid during the period for interest $ -- $ 116,100
=========== ===========
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
nine months ended May 31, 2003.
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 May 31, 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 May 31, 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 had 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 May 31, 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.
6
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 May
31, 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 May 31, 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
7
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 $1,978,502) 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 May 31, 2003 the Company has negative working
capital of approximately $15,946,002, is in default on substantially all notes
payable, and has a stockholders' deficit of approximately $22,023,521.
8
Myrient, Inc.
Notes to Consolidated Financial Statements
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, 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
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.
In the third quarter ended May 31, 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) which was recorded as
consulting expense.
In the third quarter ended May 31, 2003 the Company issued 1,500,000 shares
of common stock to an attorney valued at $15,000 (based on the closing price of
the Company's common stock on the date of grant) which was recorded as legal
fees.
In the third quarter ended May 31, 2003 the Company issued 3,400,000 shares
of common stock to a several individuals valued at $34,000 (based on the closing
price of the Company's common stock on the date of grant) which was recorded as
service expense.
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.
9
Myrient, Inc.
Notes to Consolidated Financial Statements
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.
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 May 31, 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
10
Myrient, Inc.
Notes to Consolidated Financial Statements
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
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.
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. 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
11
Myrient, Inc.
Notes to Consolidated Financial Statements
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 third 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%.
14. OTHER INCOME
During the nine months ended May 31, 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 nine months ended May 31,
2003.
16. RESIGNATION OF BOARD MEMBER
During the third fiscal quarter ended May 31, 2003, Barry Hall resigned as
chairman of the Board of Directors of the Company.
16. SUBSEQUENT EVENTS
Pending Foreclosure by Bank
Subsequent to the end of the third fiscal quarter ended May 31, 2003, the
Company has been notified by the holder of its primary line of credit bank that
it intends to foreclose on the collateral for its defaulted notes. The
obligation to repay the notes is secured by all the assets of the Company
including intellectual property and all accounts receivable. The Company has
been unable to repay the notes and has been advised by the holder that it
intends to exercise its rights in respect of the security interest the holder
has pursuant to the terms of the California Uniform Commercial Code and all
other applicable law and equitable principles.
In order to minimize its potential liability from customers, the Company has
referred its hosting customers to a qualified alternative provider that can
provide uninterrupted hosting services at the same price and terms. The Company
has agreed to provide technical assistance to this alternate provider for a fee.
As a result of the foregoing, the Company has ceased its business operations and
terminated all remaining full-time employees. The Company continues to employ
professionals and former employees on an hourly consulting basis for the
purposes of maintaining the Company's required financial functions including the
preparation of its quarterly and annual SEC filings, and to pursue the reduction
of the Company's liabilities through negotiations with its creditors.
12
Settlement with former CEO and Vice-Chairman
As was previously disclosed, most recently in Part II, Item 1 and in the related
Notes to the Company's Financial Statements in the Company's Form 10QSB (for the
quarter ended February 28, 2003) filed May 30, 2003, the Company was a party to
several lawsuits (the "Matter") involving Myrient, its former CEO and
Vice-Chairman Toan V. Dinh ("Dinh") and various other parties (the parties to
the Matter shall hereinafter be collectively referred to as the "Parties" and
individually as a "Party").
On June 20, 2003, the Parties to the Matter executed a Settlement and Release
Agreement ("Agreement").
With respect to the Agreement, it is relevant that: (i) the Agreement provides
for the dismissal, with prejudice, of all lawsuits, counter-claims and
cross-claims related to the Matter, by and between the Parties to the Matter;
(ii) the voluntary cancellation of approximately 3 million common shares and any
and all stock options owned by a Party to the Matter; (iii) the cancellation of
all outstanding promissory notes owed by Myrient in favor of a Party to the
Matter; (iv) the assumption by a Party to the Matter (other than Myrient) of all
responsibility to satisfy a judgment valued at more than USD $700,000.00**; and
(v) the cancellation and reversal of all obligations (the principal amount of
which was more than USD $1,370,000.00) owed by Myrient, and partially guaranteed
by Mr. Turbow, Myrient's President, in favor of two Parties to the Matter.
The aforementioned judgment liability and related accrued interest and expenses
will not be canceled and reversed until after the judgment has been satisfied
pursuant to the Agreement.
Subsequent to the end third quarter ended May 31, 2003 the Company agreed to
issue 7,500,000 shares of common stock to the company's President valued at
$7,500 (based on the closing price of the Company's common stock on the date of
grant) which was recorded as a one time executive compensation expense.
Subsequent to the end third quarter ended May 31, 2003 the Company issued
10,000,000 shares of common stock to a consultant valued at $10,000 (based on
the closing price of the Company's common stock on the date of grant) which was
recorded as consulting expense.
13
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 May 31, 2003 financial statements.
14
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MAY 31, 2003 AND 2002
NET SALES
Net Sales totaled $97,971 for the three months ended May 31, 2003, a
$2,445,596 decrease over revenue of $2,543,567 for the three months ended May
31, 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 May 31, 2003 was $31,156, a
decrease of $266,424 from $297,580 for the three months ended May 31, 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 May 31, 2003 as compared to the
corresponding period of 2002.
GROSS PROFIT
Gross profit decreased $2,179,172 to $66,815 for the three months ended
May 31, 2003 from $2,245,987 for the three months ended May 31, 2002. The
decrease in gross profit 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 $230 for the three months ended May 31, 2003 and $640,304 for
the three months ended May 31, 2002, which represents a $640,074 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 $225,200 for
the three months ended May 31, 2003 and $3,385,719 for the three months ended
May 31, 2002, which represents a $3,160,519 decrease primarily due to
reorganization of operations, the reduction of personnel and the related
expenses.
INTEREST EXPENSE
Interest expense was $342,480 for the three months ended May 31, 2003
and $313,701 for the three months ended May 31, 2002. The increase in interest
expense resulted from the higher average interest-bearing borrowing balance
during the three months ended May 31, 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 May 31, 2003 the Company recognized a gain
of $25,427 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 May 31, 2003 of $475,668 or $0.01 per share
compared to a loss of $3,581,403 or $0.07 per share for the three months ended
May 31, 2002.
15
COMPARISON OF NINE MONTHS ENDED MAY 31, 2003 AND 2002
NET SALES
Net Sales totaled $403,389 for the nine months ended May 31, 2003, a
$7,127,500 decrease over revenue of $7,530,889 for the nine months ended May 31,
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 nine months ended May 31, 2003 was $144,623,
a decrease of $2,707,232 from $2,851,855 for the nine months ended May 31, 2002.
The Company's Internet access costs significantly decreased reflecting the
decrease in revenues generated from Broadband Internet Access and associated
infrastructure during the nine months ended May 31, 2003 as compared to the
corresponding period of 2002.
GROSS PROFIT
Gross profit decreased $4,420,268 to $258,766 for the nine months ended
May 31, 2003 from $4,679,034 for the nine months ended May 31, 2002. The
decrease in
gross profit 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 $2,173 for the nine months ended May 31, 2003 and $1,420,114
for the nine months ended May 31, 2002, which represents a $1,417,941 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 $872,369 for
the nine months ended May 31, 2003 and $6,045,786 for the nine months ended May
31, 2002, which represents a $5,173,417 decrease primarily due to reorganization
of operations, the reduction of personnel and the related expenses.
INTEREST EXPENSE
Interest expense was $1,050,777 for the nine months ended May 31, 2003
and $936,221 for the nine months ended May 31, 2002. The increase in interest
expense resulted from the higher average interest-bearing borrowing balance
during the nine months ended May 31, 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 nine months ending May 31, 2003 the Company recognized a
gain of $1,978,502 on the settlement of accounts payable balances with vendors.
Additionally, the company realized a $61,169 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 nine month period ended May 31, 2003 of $465,119 or $0.01 per share compared
to a loss of $4,829,934 or $0.12 per share for the nine months ended May 31,
2002.
16
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 $9,113 on May 31, 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.
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 was
$15,946,002 on May 31, 2003 and the stockholders' deficit was $22,023,521 on May
31, 2003. These financial conditions raise substantial doubt about the Company's
ability to continue as a going concern.
The Company auditors have not reviewed its May 31, 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.
17
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.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
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.
In the third quarter ended May 31, 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) which was recorded as
consulting expense.
In the third quarter ended May 31, 2003 the Company issued 1,500,000 shares of
common stock to an attorney valued at $15,000 (based on the closing price of the
Company's common stock on the date of grant) which was recorded as legal fees.
In the third quarter ended May 31, 2003 the Company issued 3,400,000 shares of
common stock to a several individuals valued at $34,000 (based on the closing
price of the Company's common stock on the date of grant) which was recorded as
service expense.
18
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
The company filed a report on form 8-K on June 27, 2003 reporting
that the holder of its primary line of credit notified the company
that it intends to foreclose on the assets of the company, resulting
in the company ceasing its business operations, that the Company has
reached settlements with its former CEO and Vice-Chairman regarding
several lawsuits, and a correction of an error on its financial
statements within the Form 10QSB for the quarter ended February 28,
2003.
19
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: August 13, 2003
by: /s/ BRYAN L. TURBOW
-------------------------------------
Bryan L. Turbow
Director and President/CTO
20
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: August 13, 2003 /s/ Bryan L. Turbow
----------------------------
Bryan L. Turbow
Director and President/CTO
21
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 May 31, 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: August 13, 2003 /s/ Bryan L. Turbow
-------------------------------
Bryan L. Turbow
Director and President/CTO
22