U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
______________
COMMISSION FILE NUMBER: 0-31591
ZYDANT CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 65-0036344
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
2525 South Shore Boulevard, Suite 309, League City, Texas 77573
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (281) 334-5940
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock,
$0.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. Yes X No .
As of July 20, 2001, the Registrant had 15,206,936 shares of common
stock issued and outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF
FEBRUARY 28, 2001 AND MAY 31, 2001 3
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 2000
AND MAY 31, 2001, AND FROM INCEPTION
THROUGH MAY 31, 2001 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE THREE MONTHS ENDED MAY 31, 2000
AND MAY 31, 2001, AND FROM INCEPTION
THROUGH MAY 31, 2001 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE 12
ZYDANT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
February 28 May 31
2001 2001
(Unaudited)
ASSETS
Current assets
Cash $ 166,032 $ 12,709
Total current assets 166,032 12,709
Fixed assets, net 94,720 80,198
Other assets 554,027 554,027
Total assets 814,329 646,934
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 48,154 70,737
Due to related party 305,680 305,680
Total current liabilities 353,834 376,417
Total liabilities 353,834 376,417
Commitments and contingencies - -
Stockholders' equity
Common stock, $0.001 par value; 50,000,000
shares authorized, 14,900,031 and 15,196,936
issued and outstanding as of May 31, 2000
and 2001, respectively 15,197 15,197
Additional paid-in capital 13,679,083 13,679,083
Accumulated deficit prior to the development
stage (816,462) (816,462)
Accumulated deficit during the development
stage (12,417,323) (12,607,301)
Total stockholders' equity 460,495 270,517
Total liabilities and stockholders' equity 814,329 646,934
See Accompanying Notes to Consolidated Financial Statements
ZYDANT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
March 1, 1998
Three Months (Inception)
Ended May 31 through May 31
2000 2001 2001
Revenue
$ - $ - $ -
Operating expenses
Professional fees 103,426 14,332 881,116
Wages and payroll taxes 169,978 112,709 1,037,710
Consulting and contract labor - - 9,439,264
Depreciation 14,618 14,072 110,723
Interest expense 14 - 22,744
Advertising 1,860 600 100,256
General and administrative 57,871 49,181 905,328
Total operating expenses 347,767 190,894 12,497,141
Net loss from operations (347,767) (190,894) (12,497,141)
Other income (expense)
Forgiveness of debt - - 306,019
Related party bad debts - - (179,172)
Interest income 8,573 916 31,458
Gain (loss) on sale of fixed assets - - 18,287
Loss on investments - - (440,000)
Interest Income 152,898 - 153,248
Total other income (expense) 161,471 916 (110,160)
Net loss before provision for income
taxes (186,296) (189,978) (12,607,301)
Provision for income taxes - - -
Net loss (186,296) (189,978) (12,607,301)
Basic and diluted loss
per common share (0.01) (0.01) (1.00)
Basic and diluted
weighted average common
shares outstanding 14,900,031 15,196,936 12,632,761
See Accompanying Notes to Consolidated Financial Statements
ZYDANT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 1, 1998
Three Months (Inception)
Ended May 31 through May 31
2000 2001 2001
Cash flows from operating
activities:
Net loss $ (186,296) $ (189,978) (12,607,301)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Common stock issued for expenses - - 9,478,064
Loss (gain) on sale of fixed assets - - (18,287)
Depreciation 14,618 14,072 110,723
Related party bad debts - - 179,172
Loss on investment - - 440,000
Forgiveness of debt - - (306,019)
Changes in operating assets
and liabilities:
Decrease in accounts receivable - - 304
Increase (decrease) in due to related
Party 300,000 - 715,883
Increase in other assets - - (524,027)
Increase (decrease) in
accounts payable and accrued
liabilities (150,359) 22,583 70,737
Net cash used by
operating activities (22,037) (153,323) (1,936,724)
Cash flows from investing
activities:
Purchase of fixed assets (13,294) - (193,290)
Purchase of other assets - - (524,027)
Proceeds from sale of fixed assets - - 62,050
Net cash used by
investing activities (13,294) - (655,267)
Cash flows from financing
activities:
Proceeds from issuance of
common stock - - 2,660,000
Proceeds from shareholder
Contribution - -
Principal payments on notes payable - - (55,300)
Net cash provided by
financing activities - - 2,604,700
Net increase (decrease) in cash (35,331) (153,323) 12,709
Cash, beginning of period 817,797 166,032 -
Cash, end of period 782,466 12,709 12,709
Supplemental disclosure of cash flow
Cash paid for interest - - -
Cash paid for income taxes - - -
Principal payments on notes
payable through the issuance
of common stock - - 394,903
Common stock issued for the
Acquisition of assets - - 440,000
See Accompanying Notes to Consolidated Financial Statements
ZYDANT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM RESULTS
The accompanying consolidated financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. These financial statements should be read in
conjunction with our consolidated financial statements and the notes thereto
for the fiscal year ended February 29, 2001 contained in Annual Report on
Form 10-K.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows for the periods presented have been
made. The results of operations for the three-month periods ended May 31,
2000 and May 31, 2001 are not necessarily indicative of the operating results
that may be expected for the entire year ending February 28, 2002.
2. RELATED PARTY TRANSACTIONS
As of May 31, 2001, the balance due to related party totaling $305,680
consisted of advances from Northwest Capital Partners, LLC (an entity wholly
owned by a director and stockholder of the Company), bearing no interest, and
due February 28, 2002.
3. OTHER ASSETS
Other asset of $554,027 as of May 31, 2001 consists of a 15% working interest
in a petroleum exploration permit covering approximately 29,000 acres of the
Taranaki Basin on the North Island of New Zealand. Management believes that
this capitalized working interest in a petroleum exploration permit may
provide future revenue benefits, however has determined to discontinue future
additional investment in this asset since it does not compliment the
Company's current business direction. The Company is currently pursuing the
sale of this asset. For the three months ended May 31, 2001, amortization
expense has not been recorded for the capitalized working interest in the
petroleum permit since revenues related to the permit have not been
recognized for these periods.
4. GOING CONCERN
The Company incurred a net loss of approximately $190,000 for the three
months ended May 31, 2001. The Company has not commenced its planned
operations and has recurring net losses along with no recorded revenues.
Those factors create an uncertainty about the Company's ability to continue
as a going concern. The Company's management has developed a plan to
complete the development of technology products and services to generate
future revenues. The Company will also seek additional sources of capital
through equity or debt offering, but there can be no assurance that the
Company will be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is dependent on
additional sources of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are a development stage company that plans to provide wireless
Internet deployment services to end users of a wide variety of hand-held
personal digital assistants, or PDAs. Our company was organized in June 1971
under the laws of the state of New York under the name The Bolton Group, Ltd.
Our company engaged in various businesses and underwent several name changes
between 1971 and 1994, when we changed our name to Titan Resources, Inc.
Between June 1994 and 1997, as Titan Resources, we owned and operated an
industrial mining and sales operation and other oil interests through our
subsidiary American Monarch Energy Corp. Beginning in March 1997 and
continuing to March 1998, we had no assets or operations In March 1998, we
entered into an asset purchase agreement with Mobilelink Communications, for
the rights and title to all of Mobilelink's intellectual property, consisting
of software and other intangibles, in exchange for 220,000 shares of our
company and 5% of the gross sales of licenses of the intellectual property
(which was to be paid to Affiliated Resources Corporation, from which
Mobilelink originally purchased the intellectual property). We formed a
subsidiary, Titan Wireless, Inc., in March 1998 and immediately placed all of
the acquired intellectual property from Mobilelink into the subsidiary in
exchange for 100% of the issued stock of the subsidiary. We own 100% of the
issued and outstanding stock of Titan Wireless, Inc.
We have been in the development stage since we purchased the assets of
Mobilelink in March 1998. During October 1999 we acquired all the capital
stock of PalmWorks, Inc., a non-operating privately held Nevada corporation
pursuant to a stock-for-stock acquisition. Since that time, we have
reincorporated our company in Nevada, and have changed our name to Zydant
Corporation in an effort to further distinguish our company from our
competitors. During fiscal 2000, we determined that our investment in the
intellectual property of Mobilelink was a non-viable asset with no future
benefits to our company, and we wrote-off that investment resulting in a loss
of $440,000. We have developed our own patent pending software technology for
the deployment of online applications. We plan to offer our deployment
solution service on a subscription basis.
During November 1999, through the settlement of a lawsuit involving
Titan Resources, we acquired an undivided 15% working interest in petroleum
exploration permit PEP38721 covering approximately 29,000 acres of the
Taranaki Basin on the North Island of New Zealand. GEL Exploration of
Houston, Texas is the operator of the permit. Exploration work including a
drill and sidetrack began in August of 2000. There were some gas and oil
finds in the exploration drilling completed between August and November of
2000. Our company has invested approximately $497, 000 in this asset during
fiscal year ending February 28, 2001. During May 2000, we issued a $300,000
note payable to Northwest Capital Partners for working capital purposes and
we used this capital to support our 15% working interest in permit PEP38721,
these funds were used for the first exploration drill, Crusaders 1. The note
does not bear interest and is due February 2002. In August of 2000 our
company invested $97,000 of its working capital to support our 15% working
interest in permit PEP38721, these funds were used for an exploration
sidetrack drill, Crusaders 1A. GEL Exploration has shipped much of their
drilling equipment from Houston, TX to New Zealand to help minimize the
costs of exploration, and has re-engineered previous seismic as well as
performed new seismic on much of the permit area.
The company has not yet realized any return value from this asset.
Although the company recognizes the potential for future value from this
asset, it recognizes that any further investment in this asset would not
support the company's business plan. Therefore, the company is currently
pursuing the sale of this asset. The company does not intend to invest
additional capital in this asset and does not intend to pursue further this
type of business activity.
Results of Operations
The following table provides, for the periods shown, the line items
included in our consolidated statements of operations.
Year Ended Three Months Ended
February February February May 31 May 31
28 29 28 2000 2001
1999 2000 2001
Revenue $ - $ - $ - $ - $ -
Operating expenses
Professional fees 168,702 315,993 382,089 103,426 14,332
Wages and payroll
Taxes - 252,194 672,087 169,978 112,709
Consulting,
Contract labor 289,169 9,112,700 37,395 - -
Depreciation 13,100 25,563 57,988 14,618 14,072
Interest expense 14,500 7,755 489 14 -
Advertising 76,685 4,070 18,901 1,860 600
General and
Administrative 337,828 224,725 293,594 57,871 49,181
Total operating
Expenses 899,984 9,943,000 1,463,263 347,767 190,894
Net loss from
Operations (899,984)(9,943,000)(1,463,263) (347,767) (190,894)
Other income
(expense)
Forgiveness of
Debt 306,019 - - - -
Related party bad
Debts (169,172) - (10,000) - -
Interest income - 2,617 27,925 8,573 916
Gain on sale of
fixed assets 18,606 - (319) - -
Loss on
Investments - (440,000) - - -
Other income
(expense) - - 153,248 152,898 -
Total other income
(expense) 155,453 (437,383) 170,854 161,471 916
Net loss (744,531)(10,380,383(1,292,409) (186,296) (189,978)
Results of Operations for the Three Months Ended May 31, 2001 Compared with
the Three Months Ended May 31, 2000
We continued to incur operating losses during the first quarter. We
incurred net losses of approximately $190,000 for the three months ended May
31, 2001 compared with approximately $186,000 for the three months ended May
31, 2000. We realized a reduction in professional fees of approximately
$87,000 for the three months ended May 31, 2001, compared to the three months
ended May 31, 2000. For the period ended May 31, 2000, our professional fees
were higher primarily due to costs associated with the filing of our S-1
registration statement with the Securities and Exchange Commission, and
residual of pending litigation associated with the former company.
We realized a reduction in wages and payroll taxes, as result of a
temporary layoff at period ended May 31, 2001. This temporary layoff was
implemented to further reduce our operating costs, until additional funding
is secured.
Liquidity and Capital Resources
Liquidity is a measure of a company's ability to meet potential cash
requirements, including ongoing commitments to research and development
activities and for general purposes. Our cash for research and development
and general operating expenses is primarily obtained through cash flows from
financing activities.
We have significant ongoing liquidity needs to support our existing
business and research and development activities. Our liquidity is actively
managed on a periodic basis and our financial status, including our
liquidity, is reviewed periodically by our management. This process is
intended to ensure the maintenance of sufficient funds to meet the needs of
our company.
During the three months ended May 31, 2001, we realized a net loss of
approximately $190,000 compared with a net loss in the three months ended May
31, 2000 of approximately $348,000. The overall decrease in our net loss is
primarily due to a decrease in operations, until additional funding is secured.
We are continuing our efforts to raise additional capital through
equity or debt financings. We plan to raise approximately $1,000,000 in
equity or debt financing during the next fiscal quarter. We believe that we
will require approximately $5 million of operating capital to meet our needs
for the next 12 months based upon our full operation cost history and the
capital requirements needed to carry out our business plan.
A delay in any financing could inhibit our abilities to continue
operations, and carry out our business plan.
We have forecasted approximately $5 million in operating expenses
through May 31, 2002. These operating expenses include:
approximately $1.1 million in payroll expense related to our increased
staffing requirements;
approximately $1.0 million for legal, professional, and corporate
insurance expenses related to our company becoming a "reporting company;"
and preparing for online services; and
approximately $2.0 million in marketing and advertising related to our
introductory marketing campaign.
We anticipate incurring substantial losses in the future and will
likely require significant additional financing in the future in order to
satisfy our cash requirements. We intend to raise additional capital through
debt and equity financings to fund our continued growth. Our need for
additional capital to finance our operations and growth will be greater
should, among other things, our revenue or expense estimates prove to be
incorrect, particularly if we do not find additional sources of capital. If
we do not find additional sources of capital, we may be required to reduce
the scope of our business activities until other financing can be obtained.
We cannot predict the timing or amount of our capital requirements at this
time. We may not be able to obtain additional financing in sufficient
amounts or on acceptable terms when needed, which could adversely affect our
operating results and prospects.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Registrant is not a party to any material pending legal proceedings
and, to the best of its knowledge, no such action by or against the
Registrant has been threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
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
Exhibits.
Exhibits included or incorporated by reference herein are set forth in
the attached Exhibit Index.
Reports on Form 8-K.
There were no reports on Form 8-K filed during the first quarter of the
fiscal year covered by this Form 10-Q.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: July 23, 2001 ZYDANT CORPORATION
By: /s/ James T. Voss
James T. Voss, Chairman of the
Board of Directors,
Chief Executive Officer
and President
EXHIBIT INDEX
Exhibit Description
No.
2 Agreement of Merger and Plan of Merger and Reorganization dated
April 17, 2000 by and between Palm Works, Inc., a New York
corporation and the Registrant (incorporated by reference to
Exhibit 2.2 of the Form S-1/A filed on July 5, 2000).
3.1 Articles of Incorporation of the Registrant, dated July 26, 1999
(incorporated by reference to Exhibit 3.1 of the Form S-1 filed on
May 4, 2000).
3.2 Certificate of Amendment to Articles of Incorporation, dated
August 23, 2000 (incorporated by reference to Exhibit 3.2 of the
Form 10-K filed on June 26, 2001).
3.3 Certificate of Amendment to Articles of Incorporation, dated
October 4, 2000 (incorporated by reference to Exhibit 3.3 of the
Form 10-K filed on June 26, 2001).
3.4 Bylaws of the Registrant, dated April 20, 2000 (incorporated by
reference to Exhibit 3.2 of the Form S-1 filed on May 4, 2000).
4.1 Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Form S-1/A filed on July 5, 2000).
4.2 2000 Equity Incentive Compensation Plan, dated December 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form 10-K filed
on June 26, 2001).
10.1 Lease Agreement dated July 1, 1998 between the Registrant and
American National Insurance Company (incorporated by reference to
Exhibit 10.1 of the Form S-1/A filed on July 5, 2000).
10.2 Consulting Agreement dated September 28, 1999 between the
Registrant and Northwest Capital Partners, L.L.C (incorporated by
reference to Exhibit 10.2 of the Form S-1 filed on May 4, 2000).
10.3 Compensation Agreement dated October 28, 1999 between the
Registrant and James T. Voss (incorporated by reference to Exhibit
10.3 of the Form S-1 filed on May 4, 2000).
10.4 Compensation Agreement dated October 28, 1999 between the
Registrant and Ellen S. Eckler (incorporated by reference to
Exhibit 10.4 of the Form S-1 filed on May 4, 2000).
10.5 Loan Agreement, Revolving Note, and Security Agreement between the
Registrant and Northwest Capital Partners, L.L.C (incorporated by
reference to Exhibit 10.5 of the Form S-1/A filed on July 5,
2000).
10.6 Letter of intent from the Registrant to Excellular Incorporated
and Covault Corporation re: PDA Data (incorporated by reference to
Exhibit 10.6 of the Form S-1/A filed on July 5, 2000).
16 Letter from Bob Stephens & Associates, P.C. to the Commission re:
Change in Certifying Accountant (incorporated by reference to
Exhibit 16.1 of the Form S-1/A filed on July 5, 2000).
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the Form 10-K filed on June 26, 2001).