U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 000-28519
ZANN CORP.
(Name of small business issuer in its charter)
NEVADA 76-0510754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1549 N. LEROY ST., SUITE D-200, FENTON, MICHIGAN 48430
(Address of principal executive offices) (Zip Code)
(810) 714-2978
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 3, 2005, the
issuer had 28,020,296 shares of its common stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Financial Statements (Unaudited) . . . . . . . . . . . . . . 1
Condensed Consolidated Balance Sheets. . . . . . . . . . . . 1
Condensed Consolidated Statement of Losses . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flow . . . . . . . 3
Notes for Condensed Consolidated Financial Statements. . . . 3
Item 2. Management's Discussion and Analysis or Plan of Operation. . 13
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . 17
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 17
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 18
Item 3. Submission of Matters to a Vote of Security Holders. . . . . 19
Item 4. Other Information. . . . . . . . . . . . . . . . . . . . . . 19
Item 5. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ZANN CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2005 December 31, 2004
(Unaudited)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 7,496 $ 39,890
Inventory (Note D) 103,871 16,397
Prepaid expenses and other 1,506 2,314
Total Current Assets 112,873 58,601
Property and equipments, net of accumulated depreciation of $0 2,068,707 0
Other Assets
Intangibles Assets, net (Note C) 2,764,263 -
Total Assets $ 4,945,843 $ 58,601
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
- --------------------------------------------------
Current Liabilities
Accounts payable and accrued liabilities (Note E) $ 867,075 $ 704,934
Account payable-related party 103,656 1,600
Notes payable-others (Note F) 1,848,440 30,000
Total Current Liabilities 2,819,171 736,534
Notes Payable-Long Term 3,005,653 -
Total Liabilities 5,824,824 736,534
Minority Interest (Note B) 199,532 -
Deficiency in Stockholders' Equity (Note G)
Common stock, $.001 par value, 4,000,000,000 shares authorized, 22,325 660
22,324,583 and 659,399 shares issued and outstanding respectively.
Subscription receivable (65,000) (39,616)
Preferred Stock,
Series A, $.001 par, 20,000,000 shares authorized, 2,497,700 and 2,498 2,438
2,437,700 shares issued and outstanding, at June 30, 2005 and
December 31, 2004, respectively
Series B, par value $.001; authorized 1,250,000; 50,000 and 0 shares 50 -
issued and outstanding at June 30, 2005 and December 31, 2004,
respectively
Series C, $.001 par, 25,000,000 shares authorized 10,000,000 shares 10,000 10,000
issued and outstanding at June 30, 2005 and December 31, 2004
Additional paid-in-capital 36,586,555 35,468,213
Accumulated deficit (37,634,940) (36,119,628)
Total (Deficiency) in Stockholders' Equity (1,078,512) (677,933)
Total Liabilities and (Deficiency) in Stockholders' Equity $ 4,945,843 $ 58,601
<FN>
See accompanying notes to unaudited condensed consolidated financial statements
-1-
ZANN CORP.
CONDENSED CONSOLIDATED STATEMENT OF LOSSES
(UNAUDITED)
For the three months ended June 30 For the six months ended June 30
2005 2004 2005 2004
(Restated-Note J) (Restated-Note J)
REVENUES $ 254 $ - $ 599 $ -
Cost of Goods Sold 677 - 1,116 -
-------------------- ------------------ -------------------- ------------------
Gross (Loss) (424) - (518) -
OPERATING EXPENSES
Selling, General &
Administrative 369,737 714,327 1,310,823 1,987,268
-------------------- ------------------ -------------------- ------------------
(LOSS) FROM OPERATIONS (370,161) (714,327) ( 1,311,341) (1,987,268)
Other Income (Expense)
Interest Income (Expense)-
net (2,494) - (4,439) -
Debt Forgiveness - 606,728 - 616,132
-------------------- ------------------ -------------------- ------------------
Total Other Income
(Expense) (2,494) 606,728 (4,439) 616,132
NET (LOSS) BEFORE PROVISION
FOR INCOME TAX (372,655) (107,599) (1,315,780) (1,371,136)
PROVISION FOR INCOME TAX
NET (LOSS) $ (372,655) $ (107,599) $ (1,315,780) $ (1,371,136)
==================== ================== ==================== ==================
Loss per share (basic and fully diluted) $ (0.02) $ (43.85) $ (0.11) $ (571.31)
Basic and diluted weighted average
number of shares outstanding as restated
for reverse and forward stock splits 17,773,067 2,454 12,083,906 2,400
<FN>
See accompanying notes to unaudited condensed consolidated financial statements
-2-
ZANN CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
For the six months ended June 30,
2005 2004
Net (Loss) $ (1,315,780) $ (1,371,136)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Common stock issued for services 272,300 607,395
Employee stock option expense 449,295 401,812
Preferred series A issued for services 900
Reimbursement due from a related party and paid
in stock after the period-end - (150,000)
Debt forgiven - (616,132)
Changes in:
Accounts payable and accrued expenses 103,814 (255,709)
Inventory and prepaid expenses 2,361 -
Note payable-related - (90,000)
---------------------------------------
Net Cash (used) in Operating Activities (487,110) (1,473,770)
---------------------------------------
Cash Flows from Investing Activities
Cash acquired on acquisition of Sartam 394
Acquisition of subsidiary (200,000) -
-----------------
Net Cash provided (used) in Investing Activities (199,606)
Cash Flows from Financing Activities:
Proceeds from convertible debenture 100,000 -
Proceeds from notes payable 200,000
Payments on convertible debenture (1,615) -
Proceeds from sale of common stock 355,937 1,230,388
---------------------------------------
Net Cash provided (used) in Financing Activities 654,322 1,230,388
---------------------------------------
Net Change in Cash (32,394) (243,382)
Cash at beginning of period 39,890 357,493
---------------------------------------
Cash at end of period $ 7,496 $ 114,111
=======================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 4,439 $ -
---------------------------------------
Cash paid during the period for income taxes $ - $ -
---------------------------------------
Common stock issued in exchange for services rendered $ 272,300 $ 607,395
---------------------------------------
Preferred shares issued for services $ 900 $ -
---------------------------------------
Preferred shares issued for debt $ 36,300 $ 3,022,550
---------------------------------------
Employee stock option expense $ 449,295 $ 401,812
---------------------------------------
Income from Liabilities forgiven $ - $ 616,132
---------------------------------------
Acquisition: (Note B and C)
---------------------------------------
Assest acquired $ 4,922,392 $ -
---------------------------------------
Liabilities assumed $ (522,392) $ -
---------------------------------------
Cash paid $ (200,000) $ -
---------------------------------------
Notes payable $ (4,200,000) $ -
---------------------------------------
<FN>
See accompanying notes to unaudited condensed consolidated Financial Statements
-3-
ZANN CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE A - SUMMARY OF ACCOUNTING POLICIES
GENERAL
The accompanying unaudited condensed consolidated financial statements 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. 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 (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the six-month period ended June 30,
2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated December 31, 2004
financial statements and footnotes thereto included in the Company's SEC Form
10-KSB.
BUSINESS AND BASIS OF PRESENTATION
The Company incorporated in Florida on March 4, 1999 as Investra Enterprises
Inc. On March 6, 2000, we completed a Share Purchase Agreement in which
Pathobiotek Diagnostics, Inc., a Texas Corporation, acquired all of our
issued and outstanding shares for $150,000 for the purpose of completing a
merger of Pathobiotek Diagnostics, Inc. and Investra Enterprises. Pathobiotek
Diagnostics, Inc., a Texas corporation, was the surviving entity.
Effective September 7, 2001, we implemented a reverse split of our common stock
at the ratio of one post-consolidation share for each 40 pre-consolidation
shares, except that no shareholder was reduced to less than 10 shares.
On October 16, 2001, we completed the Plan and Agreement of Reorganization by
and between Pathobiotek Diagnostics Inc., ATNG Acquisition, Inc., a Texas
corporation, and ATNG, Inc., a Nevada corporation under which Pathobiotek
Diagnostics Inc. issued 27,836,186 shares of its common stock as consideration
for its wholly owned subsidiary, ATNG Acquisition, Inc. to acquire 100 percent
of the issued and outstanding stock of ATNG, Inc., a Nevada corporation.
Following the October 16, 2001 reorganization, ATNG Acquisition, Inc. and ATNG,
Inc. merged. On October 17, 2001, we changed our name to ATNG, Inc. On September
6, 2003 we changed our domicile from Texas to Nevada and changed our name to
ATNG Inc.
On August 10, 2004, the Company acquired Blue Kiwi, Inc., a Michigan Corporation
engaged in the marketing and sale of nutritional supplements. Blue Kiwi, Inc.
currently markets two lines of products: Fatigue Pack(R) and PMS(TM) Pack.
In November 2004, the shareholders and directors of the Company approved a
change in the name of the Company from ATNG, Inc. to Zann Corp., amended its
Articles of Incorporation, increasing the number of authorized shares to
4,000,000,000 and authorized a reverse stock split effective December 3, 2004 of
one post consolidation share for every 900 pre-consolidation share. On March 1,
2005 the sole Director approved a decrease in the authorized shares to
11,428,572 and authorized a reverse stock split effective March 10, 2005 of one
post consolidation share for every 350 pre-consolidation share. On April
19, 2005 the Sole Director approved a forward stock split of three shares for
every one share held as of May 3, 2005. The accompanying financial statements
reflect these changes. Accordingly, all historical weighted average share
and per share amounts have been restated to reflect the reverse and forward
stock splits. In addition the meeting approved and increase in the number of
shares of Preferred Stock to 350,000,000 and increased the authorized
number of common shares to 4,000,000,000.
-4-
On June 27, 2005 the Company acquired approximately 48% of the Common and 6.52%
of the Convertible Preferred Second Series of Sartam Industries, Inc, a Florida
Corporation engaged the manufacturing and sale of automatic riveting machines
and the re-supply of riveting belts. We are presently evaluating the assets of
Sartam Industries, Inc. and as a result no amounts have been included in the
consolidated financial statements except for the acquisition cost and related
notes payable.
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary, Blue Kiwi, Inc. Significant intercompany
transactions have been eliminated in consolidation.
INVENTORY
The Company values inventory at the first in, first out basis. Inventory is
reviewed periodically for obsolescence and any unsaleable products are written
off. Health and nutritional supplements are purchased from an outside
manufacturer and include all costs including labeling and packaging. Rivet guns
and magazines are manufactured and include all direct and indirect costs
associated with the manufacturing.
PROPERTY AND EQUIPMENT
Costs for property and equipment are accumulated in work in progress until
assets are placed in service at which time the accumulated cost is depreciated
or amortized over the estimated useful life of the asset.
Major classes of property and equipment at June 30, 2005 and December 31, 2004
consist of the following:
2005 2004
---------- -------
Equipment-computer and trucks $ 43,707 $ --
Packing machines 2,025,000 --
Net property and equipment $2,068,707 $ --
========== =======
IMPAIRMENT OF LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell. Intangibles acquired in the acquisition of Sartam will be
accounted according to SFAS 142. Such determination will be made by management
subsequent to June 30, 2005.
SEGMENT INFORMATION
The Company has various separate, reportable segments under Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein, materially represents all of the financial information related to the
Company's principal operating segments.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods financial statements
to conform to classifications used in the current period.
-5-
REVENUE RECOGNITION
For revenue from product sales, the Company recognizes revenue in accordance
with Staff Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which
superseded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS ("SAB101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required. SAB 104 incorporates Emerging Issues
Task Force 00-21 ("EITF 00-21") MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF
00-21 addresses accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use assets. The
effect of implementing EITF 00-21 on the Company's consolidated financial
position and results of operations was not significant. For the period
ended June 30, 2005 neither of the Company's subsidiaries had significant
revenue. Revenue recognized the third and fourth quarter will be in conformity
with the Revenue Recognition policy enumerated above. Revenue for Sartam will
be recognized when finished products are shipped to the customer against
confirmed purchase orders or contracts.
STOCK BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended December 31, 2003 and has
adopted the interim disclosure provisions for its financial reports for the
subsequent periods. The Company does not have any awards of stock-based employee
compensation issued and outstanding at June 30, 2005.
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123R (revised 2004), "Share-Based Payment" which is a
revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation".
Statement 123R supersedes APB opinion No. 25, "Accounting for Stock Issued to
Employees", and amends FASB Statement No. 95, "Statement of Cash Flows".
Generally, the approach in Statement 123R is similar to the approach described
in Statement 123. However, Statement 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company will have to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. Management has
not determined the impact that this statement will have on Company's
consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143," which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability's
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than its last quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact on
its consolidated financial position, results of operations or cash flows.
In May 2005 the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3." SFAS 154 requires retrospective application to
prior periods' financial statements for changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that retrospective
application of a change in
-6-
accounting principle be limited to the direct effects of the change. Indirect
effects of a change in accounting principle, such as a change in
non-discretionary profit-sharing payments resulting from an accounting change,
should be recognized in the period of the accounting change. SFAS 154 also
requires that a change in depreciation, amortization, or depletion method for
long-lived, non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date this
Statement is issued. The Company does not expect the adoption of this SFAS to
have a material impact on its consolidated financial position, results of
operations or cash flows.
NOTE B - MINORITY INTERESTS AND ACQUISITIONS
MINORITY INTERESTS
Minority interest reflects the other owners' proportionate share in the assets,
liabilities and equity of business ventures as of the date of purchase, adjusted
by the proportionate share of post-acquisition income or loss. As the operating
results of entities with minority interest are consolidated, minority interests
income, net represents the income or loss attributable to the other owners.
ACQUISITIONS
On August 10, 2004, the Company acquired Blue Kiwi, Inc., a Michigan Corporation
engaged in the marketing and sale of nutritional supplements. The Company
entered into an acquisition agreement with Robert C. Simpson, the Company's
president, chief executive officer, and majority shareholder, to purchase all of
the issued and outstanding capital stock of Blue Kiwi Inc., a Michigan
corporation, for the sum of $5 million, payable in monthly installments of up to
10 percent of our gross profit. The obligation to pay $5 million to Dr. Simpson
in connection with the Blue Kiwi is expressly conditioned upon the Company
generating profit. In the absence of profits, obligation to pay $5 million to
Dr. Simpson is without effect. The obligation will not bear any interest. As a
result of the Acquisition, Blue Kiwi became our wholly-owned subsidiary. The
following is the summary of assets acquired and liabilities assumed and
consideration paid relating to the transaction: assets acquired:
Cash $ 10,612
Other current assets 3,256
---------
Total assets acquired 13,868
Accounts payable 9,548
Due to related party 299,600
---------
Total liabilities assumed 309,148
Cash paid (1,000)
---------
Goodwill $296,280
---------
The acquisition was accounted for as a purchase in accordance with SFAS 141 and,
accordingly, the operating results of the acquired company have been included in
the Company's consolidated financial statements since the date of acquisition.
In June 2005, the Company acquired a 48% interest in Sartam, Inc. for $200,000
in cash and $4,200,000 in Promissory Notes. The acquisition of Sartam was
accounted for using the purchase method in accordance with SFAS 141, "Business
Combinations." The results of operations for Sartam have been included in the
condensed consolidated statements of losses for the three months ended June 30,
2005, since the date of acquisition i.e. June 27, 2005. Sartam did not have any
operations for period between June 27, 2005 and June 30, 2005. In accordance
with Financial Accounting Standard (SFAS) No. 141, Business Combinations, the
total purchase price was allocated to the estimated fair value of assets
acquired and liabilities assumed. The estimate of fair value of the assets
acquired was based on management's estimates. The total purchase price was
allocated to the assets and liabilities acquired as follows:
Assets acquired:
Cash $ 395
Inventory 89,027
Property and equipments-net 2,068,707
Intangibles 2,764,263
-------------
4,922,392
Liabilities assumed (522,392)
Cash paid (200,000)
Notes payable $ (4,200,000)
-------------
$ (4,922,392)
=============
-7-
Information required to complete the purchase price allocation for certain
tangible and intangible property is not yet available. Final allocation of the
purchase price will be completed as soon as this information is available. The
remaining 52% is owned by approximately 100 shareholders and is recognized as
minority interest. Sartam manufactures and sells patented Rivet Guns and Rivet
Belts to the manufacturing industry. Operating results are consolidated
consistent with the acquisition date of June 27, 2005.
Sartam Industries, Inc. is the Worldwide patent and license holder of the
AUTOFAST(R) 2000 Fastening System. The AUTOFAST 2000 semi-automatic riveting
system is comprised of the AUTOFAST 2000 riveting tool and magazine. The key
feature of this innovative product is its patented rivet magazine feeding
system. The magazine feature enables the user to semi-automatically feed most
conventional and structural blind rivets through a portable hand-held tool with
greater speed and reliability than current technology allows. The AUTOFAST 2000
is cost-effective, saving time and money by increased worker productivity. It is
fast and efficient, simple and easy to use, versatile, and compatible and
adaptable to other systems. Applications for the AUTOFAST 2000 are limitless.
Its portable, user-friendly design makes it ideal for fieldwork and use in tight
corners and hard-to-reach places. The AUTOFAST 2000 is the only self-contained,
portable, semi-automatic blind rivet application tool on the market today.
NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS 142
The Company has adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 142 addresses
how intangible assets that are acquired individually or with a group of other
assets should be accounted for in financial statements upon their acquisition.
This statement requires goodwill amortization to cease and for goodwill to be
periodically reviewed for impairment. Under SFAS No. 142, goodwill impairment
occurs if the net book value of a reporting unit exceeds its estimated fair
value. The Company's goodwill asset was with regard to the acquisitions of Blue
Kiwi for $296,280. The test completed in the last quarter ended on December 31,
2004 indicated that the recorded book value of reporting unit exceeded its fair
value, as determined by discounted cash flows. The decrease in fair value is a
result of:
- Significant operating losses during the past six months
- Unanticipated decline in revenues and profitability
- Loss of key personnel
As a result of these events and circumstances, Company management believes that
more likely than not the fair value of the reporting unit's goodwill has been
reduced below its carrying value. As a result, management performed an
evaluation of the reporting unit's tangible and intangible assets for purposes
of determining the implied fair value of goodwill at December 31, 2004. Upon
completion of the assessment, management recorded a non-cash impairment charge
of $(296,280), net of tax, or $(23.16) per share, to reduce the carrying value
of goodwill in this reporting unit to its estimated value of $0.
The Company does not have complete information relating to intangible property
acquired with Sartam acquisition. The Company will perform allocation of
purchase price, including intangibles and related impairment test subsequent to
June 30, 2005.
Considerable management judgment is necessary to estimate fair value.
Accordingly, actual results could vary significantly from managements'
estimates.
NOTE D - INVENTORIES
Inventories are stated at the lower of cost or market determined by the
first-in, first-out (FIFO) method. At As of June 30, 2005, inventories
consist of pre-packaged Health and Nutritional supplements of $14,844 and
Manufactured Rivet Guns and Belts of $89,027 available for sale to
customers.
Components of inventories as of June 30, 2005 and December 31,2004 are as
follows:
2005 2004
-------- -------
Finished Goods $103,871 $16,397
-8-
NOTE E - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2005 and December
31,2004 consist of the following:
2005 2004
-------- --------
Accounts payable $494,357 $346,801
Accrued salaries 137,788 116,903
Payroll taxes 234,930 234,930
Accrued interest - 6,300
------------------
Total $867,075 $704,934
-------- --------
NOTE F - NOTES PAYABLE
NOTES PAYABLE AT JUNE 30, 2005 AND DECEMBER 31, 2004 ARE AS FOLLOWS:
2005 2004
------------ ---------
Convertible Debenture, due April 1, 2005, interest 12%, convertible into
180,000 preferred shares-series A. On April 1, 2005 the holder of this
debenture agreed to accept 50,000 shares of preferred shares-series B. $ - $ 30,000
------------ ---------
Convertible Debenture, due January 1, 2006, interest 10%, payable
1,000 per month, convertible into 15,000 preferred shares-series A on
a basis of $.663 cents for each share converted 98,440 -
------------ ---------
Promissory Notes, Non-Interest Bearing, due $500,000 in December
2005; $1,000,000 in March 2006 and $2,700,000 in August 2006 4,200,000 -
------------ ---------
Promissory Note, Non-Interest Bearing, due in August 2005,
collateralized by 20,000 shares of Preferred Series A 150,000 -
------------ ---------
Promissory Note, Non-Interest Bearing, due in August 2005,
collateralized by 7,000 shares of Preferred Series A 50,000 -
------------ ---------
Promissory Note, Non-Interest Bearing, due from royalties or revenue
from Honsel until paid in full. If not paid from royalties or revenue
from Honsel then $50,000 due December 31, 2005 and remaining
balance due by December 31, 2006. 355,653 -
------------ ---------
Total 4,854,093 30,000
Less: current portion (1,848,440) (30,000)
------------ ---------
Notes payable: long-term $ 3,005,653 $ -
============ =========
NOTE G - CAPITAL STOCK
On December 3, 2004, the Shareholders and Directors of the Company approved a
change in the name of the Company from ATNG, Inc. to Zann Corp. and amended
its Articles of Incorporation; increasing the number of authorized shares
to 4,000,000,000, and authorizing a reverse stock split effective December 3,
2004 of one post consolidation share for every 900 pre-consolidation share. On
March 1, 2005 the sole Director approved a decrease in the authorized
shares to 11,428,572 and authorized a reverse stock split effective March 10,
2005 of one post consolidation share for every 350 pre-consolidation share.
On April 19, 2005 the sole Director approved a forward split of 3 shares for
every 1 share outstanding effective May 3, 2005. The sole Director also approved
increasing the authorized number of common shares to 4,000,000,000 and the
authorized preferred shares to 350,000,000. The accompanying financial
statements reflect these changes. Accordingly, all historical weighted
average share and per share amounts have been restated to reflect the
reverse and forward stock splits.
COMMON STOCK
The Company is authorized to issue 4,000,000,000 shares of common stock, with
$0.001 par value per share. As of June 30, 2005 and December 31, 2004 the
Company has issued and outstanding 22,324,583 and 659,399 shares respectively of
common stock with par value of $0.001 per share.
During the six months ended June 30, 2005 and 2004, the Company issued an
aggregate of 14,192,327 and 1,980 shares for employee stock incentive program
for $830,616 and $1,632,200 respectively. In relation to issuance
-9-
of shares for employee stock incentive program, the Company received cash of
$355,937 and $1,230,387 respectively and recorded a subscription receivable
at June 30, 2005 of $65,000. The Company recorded $449,295 and $401,813
respectively as employee compensation expenses for the six months ended June 30,
2005 and 2004.
During the six months ended June 30, 2005 and 2004, the Company issued an
aggregate of 7,472,857 and 383 shares respectively for various professional
services valued at $272,300 and $607,395 respectively. The Company valued the
shares issued at the closing price on the date the shares were issued, which
approximated the fair value of the services rendered. The compensation costs of
$272,300 and $607,395 were charged to operations during the six months
ended June 30, 2005 and 2004 respectively.
The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. The Company granted 14,192,327 and 1,980 options to
purchase common stock to employees in the six month periods ended June 30,
2005 and 2004, respectively. All options vest immediately, have an exercise
price of 90 percent of market value on the date of grant and expire 10 years
from the date of grant. All options are exercised on the day of grant. At June
30, 2005 and 2004 the Company recorded $830,616 and $1,632,200 for the
14,192,327 and 1,980 shares issued to employees. The Company also charged
expenses of $449,295 and $401,813 relating to these issuances.
All of the above share information has been adjusted to reflect the post
consolidation of 900:1 on December 3, 2004 and 350:1 on March 10, 2005
and the forward split of 3:1 on May 3, 2005.
PREFERRED STOCK
Series A shares are convertible into 10 shares of common stock. The Series A
preferred stock will have one vote per share on all matters submitted to a vote
of the holders of common stock, including, without limitation, the election of
directors. At June 30, 2005 and December 31, 2004 there were 2,497,700
and 2,437,700 shares issued and outstanding, respectively.
During the six months ended June 30, 2004, the Company issued an aggregate of
154,700 shares of series a preferred stock in exchange of debt for $3,022,550.
During the six months ended June 30, 2005, the Company issued an aggregate of
60,000 shares of series a preferred stock for various professional services
valued at $900. The Company valued the shares issued at $0.015 per share, which
approximated the fair value of the services rendered. The compensation costs of
$900 were charged to operations during the six months ended June 30, 2005.
Series B shares are convertible into 1 share of common stock. The Series B
preferred stock will have one vote per share on all matters submitted to a vote
of the holders of common stock, including, without limitation, the election of
directors. During the six months ended June 30, 2005 the Company issued 50,000
shares in exchange for a Convertible Debenture and Accrued Interest totaling
$36,300. At December 31, 2004 there were no shares issued and outstanding.
Series C shares have no conversion rights into shares of common stock. Each
share of Series C preferred stock will have voting rights equal to 500 votes
per share of common stock on all matters submitted to a vote of the holders
of common stock, including, without limitation, the election of directors.
At June 30, 2005 and December 31, 2004 there were 10,000,000 shares of
series C preferred stock issued and outstanding, respectively.
NOTE H - NON QUALIFIED STOCK COMPENSATION PLAN
In May 2005, the Company authorized the Non-Employee Directors and Consultants
Retainer Plan ("NDCRP") for the Year 2005. The purpose of the NDRCP is to
attract non-employee directors and consultants who are capable of improving the
success of the Company by providing a direct economic interest to Company
performance. Under the terms of the plan, non-employee directors or consultants
may be compensated through the issuance of Company stock at Market Value on the
date of issuance. The plan is administered by the Company's Board of Directors.
-10-
NOTE I - RELATED PARTY TRANSACTIONS
The Company advance funds to related entities for business development or
reimbursement of expenses. During six months ended June 30, 2005, the Company
has reimbursed net $182,523 to related parties. The Company provides management
and consulting services under agreements with entities controlled by the
Company's President. The Company's management has determined that the
collectibility and length of time to collect the amount due from these entities
can not be reasonably assured. Accordingly, revenues are recognized as collected
in connection with the services rendered. During the periods ended June 30, 2005
and 2004, the Company did not receive nor recognize revenues in connection with
providing these services.
At June 30, 2005 and December 31, 2004 accounts payable-related party
outstanding balances of $103,656 and $1,600 respectively. These amounts
represent funds advanced by an Officer for operating expenses.
During the periods ended June 30, 2005 and 2004 the employees of the Company
were paid through entities owned by the Company's President. These entities
are responsible for payroll, all payroll taxes, health insurance plans and all
other employee benefits. During the six months ended June 30, 2005 and 2004
the Company paid these entities approximately $220,986 and $182,380
respectively, which has been charged to operations. At June 30, 2005, $20,885
was owed to the related entity (included in accounts payable) for payroll
expenses. There were no amounts due to these entities as of June 30, 2004.
NOTE J - RESTATEMENT
During the audit of the Company's financial statements for the twelve months
ended December 31, 2004, the Company made accounting adjustments for certain
transactions that occurred during the six months ended June 30, 2004 as
follows:
- - Recorded Employee stock options at Fair Market Value at the date of the
grant less cash received from the employee exercise. Increased Employee
Stock Option expense $401,812 and increased Additional Paid in Capital by
$401,812.
- - Recorded Preferred Series shares issued for debt at the fair market value
of the shares at the date agreements were made with creditors to take
shares in exchange for their debts. The effect of this adjustment was to
increase the Accumulated Deficit at December 31, 2003 by $2,809,824,
decrease Debt Forgiveness income by $285,641 and increase Additional Paid
In Capital by $3,095,465 for the six months ended June 30, 2004.
- - Adjusted Other Obligations by negotiating the cancellation of certain
shares to be issued to a related party and others. This adjustment reduced
Debt Forgiveness by $135,600 and increasing Additional Paid in Capital by
$135,600.
- - Adjusted Common Stock to reflect the 900:1 and 350:1 reverse stock splits
on December 3, 2004 and March 10, 2005, respectively and the 3:1 forward
stock split on May 3, 2005. This adjustment increased Additional Paid in
Capital by $414,223 and decreased Common Stock by $414,223.
- - Adjusted the Par Value of Preferred Series A and C to reflect the correct
par value. This adjustment decreased the Par Value of Series A by $1,005,
Series C by $5,000 and increased Additional Paid in Capital by $6,005.
The net effect of these adjustments for the six months ended June 30, 2004 are
as follows:
Six Months Ended
June 30, 2004
As Originally
Reported Restated
------------- -------------
Total Assets $ 264,111 $ 264,111
------------- -------------
Liabilities and Other Obligations 915,070 915,070
------------- -------------
Common Stock 414,227 4
Preferred Series A 2,140 1,135
Preferred Series C 10,000 5,000
Additional Paid in Capital 22,215,904 26,269,009
Accumulated Deficit (23,293,230) (26,926,107)
------------- -------------
Total Liabilities and (Deficiency) in Stockholders' Equity $ 264,111 $ 264,111
------------- -------------
Net (Loss) $ (548,083) $ (1,371,136)
------------- -------------
Loss Per Share - Basic and Diluted $ (.00) $ (571.31)
------------- -------------
-11-
NOTE K - BUSINESS SEGMENTS
The Company reports its businesses as three reportable segments:
BUSINESS DEVELOPMENT: This segment provides management, financing and business
advice to other business units and subsidiaries for a fee.
HEALTH AND NUTRITION PRODUCTS: This segment consists of consumer products
designed to promote good health and wellness.
RIVET TOOLS AND MAGAZINES: This segment consists of manufactured products sold
the manufacturing industry to improve the riveting process through the use of
the Company's patented riveting process.
Segment operating income is total segment revenue reduced by operating expenses
identifiable with the business segment. Corporate includes general corporate
administrative costs.
The Company evaluates performance and allocates resources based upon operating
income. The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies. There are no inter-segment
sales. The following table summarizes segment asset and operating balances by
reportable segment:
2005 2004
------------- ------------
Net Sales to External Customers:
Health and Nutrition Products $ 599 $ -
Total Sales to External Customers $ 599 $ -
============= ============
Depreciation and Amortization:
Business Development $ - $ -
Helth and Nutrition Products - -
Revit Guns and Rivets - -
------------- ------------
Total Depreciation and Amortization $ - $ -
============= ============
General and Administrative Expense:
Business Development $ 1,281,755 $ 1,987,268
Health and Nutrition 29,068 -
Rivet Guns and Rivets - -
------------- ------------
Total General and Administrative Expense $ 1,310,823 $ 1,987,268
============= ============
Capital Expenditures:
Business Development $ - $ -
Health and Nutrition - -
Rivet Guns and Rivets - -
------------- ------------
Total Capital Expenditures $ - $ -
============= ============
Operating (Loss):
Business Development $ (1,282,273) $(1,987,268)
Health and Nutrition (29,068) -
Rivet Guns and Rivets - -
------------- ------------
Total Operating (Loss) $ (1,311,341) $(1,987,268)
============= ============
Segment Assets:
Business Development $ 1,653 $ 58,601
Health and Nutrition 21,798 -
Rivet Guns and Rivets 4,922,392 -
------------- ------------
Total Segment Assets $ 4,945,843 $ 58,601
============= ============
-12-
NOTE L - GOING CONCERN
The accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the condensed consolidated financial
statements during the six months ended June 30, 2005 the Company incurred a loss
of $1,315,780. The Company's current liabilities exceeded its current assets by
$2,706,298 as of June 30, 2005. These factors among others may indicate that the
Company will be unable to continue as a going concern for a reasonable period of
time.
The Company's existence is dependent upon management's ability to develop
profitable operations and resolve its liquidity problems. Management anticipates
the Company will attain profitable status and improve its liquidity through the
continued developing, marketing and selling of its products and additional
equity investment in the Company. The accompanying financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
In order to improve the Company's liquidity, the Company is actively pursing
additional equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful in
its effort to secure additional equity financing.
If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.
NOTE M - COMMITMENT AND CONTINGENCIES
On January 21, 2005, Plaintiff Investrend Communications, Inc. d/b/a Investrend
Research commenced an action via Verified Complaint in the Supreme Court of the
State of New York, County of Queens, against ATNG, Inc. The complaint, through
three causes of action, essentially alleges a breach of contract and seeks the
amount of $21,625.00 as well as reasonable attorneys' fees and consequential
damages.
The Company has formed a strategic alliance with Statewide Residential Lending
to originate residential mortgages throughout the State of Michigan. The Company
entered in to an agreement to manage and operate several Branches.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING INFORMATION
Much of the discussion in this Item is "forward looking" as that term is used in
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934. Actual operations and results may materially differ from present
plans and projections due to changes in economic conditions, new business
opportunities, changed business conditions, and other developments. Other
factors that could cause results to differ materially are described in our
filings with the Securities and Exchange Commission.
There are several factors that could cause actual results or events to
differ materially from those anticipated, and include, but are not limited to
general economic, financial and business conditions, changes in and compliance
with governmental laws and regulations, including various state and federal
environmental regulations, our ability to obtain additional financing from
outside investors and/or bank and mezzanine lenders and our ability to generate
sufficient revenues to cover operating losses and position us to achieve
positive cash flow.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We believe
the information contained in this Form 10-QSB/A to be accurate as of the date
hereof. Changes may occur after that date. We will not update that information
except as required by law in the normal course of its public disclosure
practices.
Additionally, the following discussion regarding our financial condition and
results of operations should be read in conjunction with the financial
statements and related notes contained in Item 1 of Part I of this Form
10-QSB/A, as well as the financial statements in Item 7 of Part II of our Form
10-KSB for the fiscal year ended, 2 December 31, 2004.
-13-
MANAGEMENT'S PLAN OF OPERATIONS
GENERAL
Zann Corp is approximately two and a half years into a turnaround period. During
2004, we made great progress in our turnaround and revitalization plan by
settling $9,000,000.00 in debt and legal exposure inherited from prior
management, with the exception of $235,000 in payroll taxes and $116,000 in
salaries. We expect these issues to be completely settled within 12 months
without expending any cash. Most of the liabilities currently shown in the
financials are expected to be written off as their statute of limitations
allows. One legal issue from prior management remains pending.
RECENT CHANGES IN OUR CORPORATE STRUCTURE
Effective March 10, 2005, we implemented a one for 350 reverse split of our
authorized, issued and outstanding shares of common stock by filing a
Certificate of Change with the Secretary of State of Nevada (the "Reverse
Split.") Following the Reverse Split, the number of authorized shares of our
common stock was reduced to 11,428,572 in accordance with the one for 350 split
ratio. The number of our authorized preferred shares remained at 350,000,000,
and the par value of our common and preferred stock remained at $0.001 per share
following the Reverse Split.
All fractional shares which would otherwise be held by our stockholders
following the Reverse Split were rounded up to one whole share. We issued one
new share of common stock for up to each 350 shares of common stock held as of
March 9, 2005.
Effective May 3, 2005, we implemented a three for one forward split of our
authorized, issued and outstanding shares of common stock by filing a
Certificate of Change with the Secretary of State of Nevada (the "Forward
Split"). Following the Forward Split, the number of authorized shares of our
common stock was increased to 34,285,716 in accordance with the three for one
split ratio. The number of our authorized preferred shares remained at
350,000,000, and the par value of our common and preferred stock remained at
$0.001 per share following the Forward Split.
The Forward Split was a mandatory exchange. Our stockholders were required
to surrender stock certificates representing their shares of our common stock in
order to receive stock certificates representing their post-Forward Split shares
of the Registrant's common stock.
Effective May 9, 2005, we increased the number of our authorized common shares
from 34,285,716 to 4,000,000,000 by filing Articles of Amendment to our Articles
of Incorporation with the Secretary of State of Nevada. The number of our
authorized preferred shares remained at 350,000,000, and the par value of our
common and preferred stock remained at $0.001 per share following the increase
in the number of our authorized common shares.
STRUCTURE
The company has four current business units:
Monoclonal antibodies and gene therapy
- ------------------------------------------
The research of our diagnostic development division resulted in the discovery,
identification, and characterization of novel microbial agents. This bacterium's
working title is "human blood-borne bacterium-1" (HBB1), and it is persistently
present in the human bloodstream. The levels of HBB-1 appear to be associated
symptom activity in Multiple Sclerosis (MS) patients and other disorders, such
as Chronic Fatigue Syndrome (CFS) and certain autoimmune diseases. It has the
Company taken several years and several million dollars to characterize this
organism and to produce antibodies. Now we can accelerate our commercialization
in the area of production and sale of monoclonal and polyclonal antibodies.
Nutritional supplements
- ------------------------
We completed the acquisition of Blue Kiwi Inc. in the 3rd Quarter of 2004. Blue
Kiwi is a nutraceutical company and currently has two products on the market,
the Fatigue Pack(R) and the PMS Pack(TM). Our new product development team has
24 additional products in the prototype state. We expect to launch these 24
products as resources allow.
Financial services (development stage)
- -----------------------------------------
ZANN Corp has recently formed a strategic alliance with Statewide Residential
Lending to originate residential mortgages throughout the State of Michigan. The
Company has an agreement to manage and operate several Branches, the first of
which is in Fenton. We have already hired several Loan Officers whose
professionalism will enable us to commence doing business immediately.
Additionally, we are involved in negotiations with several experienced mortgage
professionals from various lenders such as Washington Mutual, Countrywide, and
Flagstar Bank. We expect the financial services team to be profitable in the 3rd
quarter 2005 and gross revenues of $1,000,000 in 2006.
Sartam Industries-AutoFast Inc. (planned acquisition).
- ----------------------------------------------------------
We have recently purchased 48% of the Common stock and 6.52% of the Convertible
Preferred Second Series stock of Sartam Industries, Inc. Sartam is the world
patent owner of the AutoFast 2000 semi-automatic riveting technology. We have
signed a "Letter of Intent" with Sartam and are working on a "Definitive
Agreement" to purchase the balance of Sartam stock. An audit will be required
as one of the significant steps in the acquisition process.
At present, Zann Corp. is building tools and rivet magazines under the
AutoFast(R) brand name. AutoFast(R) has started to ship magazines this month and
expects purchase orders to grow rapidly with production capacity.
OBJECTIVES
Our current objectives are to:
- Raise operating capital to launch Sartam-AutoFast(R) Products;
- Manage legal issues, one new and one inherited from the prior
management team;
- Achieve profitability in 2005 as per plan;
- Create shareholder value.
-14-
TECHNOLOGY AND PATENTS
We have three promising patents, one for a blood-borne bacteria associated with
multiple sclerosis and chronic fatigue syndrome, one for an activating virus
associated with AIDS and several cancers, and one for analog compression
technology. The most promising of these is the bloodborne bacterium patent.
- Compression Technology, Patent Number US 6,724,326 B1, dated April 20,
2004, assigned to ZANN Corp. on February 21, 2005, serial number
10/345,834;
- Human Blood Bacterium, Patent Number US 6,255,467 B1, dated July 3,
2001, assigned to ZANN Corp. on February 21, 2005, serial number
09/187,946; and
- Human and Marmoset Activating Viruses, Patent Number US 6,177,081 B1,
dated January 23, 2001, assigned to ZANN Corp. on February 21, 2005,
serial number 08/901,128.
There are a number of Sartam patents; detailed information to be posted after
audit is complete.
OVERVIEW
Each of Zann Corp.'s business units own proprietary, scalable technologies with
a significant potential for growth and profits. Our mission is to develop and
accelerate the growth of each unit. The company manages functions of these
organizations, performing marketing, human resource, finance, customer service,
administration, sales, and most other normal company operations. The ZANN Corp
team of employees, expert consultants, advisors, and selected vendors is well
qualified to execute our business plan and grow the combined business within the
foreseeable future.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
REVENUE
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2004.
Total net sales and revenues were $599 for the six months ended June 30, 2005
compared to $0 for the period ended June 30, 2004, an increase of 599 percent.
Our gross profit (loss) for the six months ended June 30, 2005 compared to 2004
decreased to $(518) from $0. Gross (loss) as a percentage of sales increased
to (86) percent in 2005 from 0 percent in 2004.
Total operating expenses for the six months ended June 30, 2005 compared to 2004
decreased by $676,445 to $1,310,823 from $1,987,268 in the prior period.
Operating loss decreased from a loss of $1,987,268 to a loss of $1,311,341 for
the six months ended June 30, 2005 compared to the period ended June 30, 2004.
Interest expense, net for the six months ended June 30, 2005 was $4,439 as
compared to $0 for the same period of 2004.
Net loss from continuing operations for the six months ended June 30, 2005
decreased to a loss of $1,315,780 from a loss of $1,371,136 compared to the same
period 2004.
SETTLEMENT OF DEBTS AND LIABILITIES
We continued to pursue an active program to settle all outstanding debts and
liabilities from the predecessor company. During the years ended December 31,
2004 and December 31, 2003, a number of debts were settled by partial
payments of cash or issuance of Common or preferred Stock. We will continue
to pursue the same course during 2005 and until all debts have been settled or
forgiven.
-15-
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2005, we had a deficiency in working capital of $2,706,298.
During the six months ended June 30, 2005 we raised $100,000 through the
issuance of a one year 10% Convertible Debenture for working capital. We also
paid $4,440 of interest and made $1,615 payments on the principal balance. The
Debenture is convertible into shares of Series a Preferred stock at $.663 cents
per share at the option of the holder.
We also received $355,937 from the exercise of employee stock options. The
proceeds were used for working capital.
Cash used in investing activities was $199,605 and none was used for property,
plant, and equipment. Payments on a Convertible Debenture totaled $1,615.
AUDITOR'S OPINION EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
"GOING CONCERN"
The independent auditors report on our December 31, 2004 financial statements
included in the Company's Annual Report states that the Company's historical
losses and the lack of revenues raise substantial doubts about the Company's
ability to continue as a going concern. If we are unable to develop our
business, we have to discontinue operations or cease to exist, which would be
detrimental to the value of the Company's common stock. We can make no
assurances that our business operations will develop and provide us with
significant cash to continue operations.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policy involve the most complex, difficult and subjective
estimates and judgments.
STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation - Transition and Disclosure. This statement amends SFAS No. 123 -
Accounting for Stock-Based Compensation, providing alternative methods of
voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2002. We elected to continue to account for stock-based
compensation plans using the intrinsic value-based method of accounting
prescribed by APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Under the provisions of APB No. 25, compensation
expense is measured at the grant date for the difference between the fair value
of the stock and the exercise price.
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123R (revised 2004), "Share-Based Payment" which is a
revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation".
Statement 123R supersedes APB opinion No. 25, "Accounting for Stock Issued to
Employees", and amends FASB Statement No. 95, "Statement of Cash Flows".
Generally, the approach in Statement 123R is similar to the approach described
in Statement 123. However, Statement 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company will have to comply with Statement 123R and use the Fair Value
based method of accounting no later than the first quarter of 2006.
Management has not determined the impact that this statement will have on
Company's consolidated financial statements.
-16-
NEW ACCOUNTING PRONOUNCEMENTS
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143," which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability's
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than its last quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact on
its consolidated financial position, results of operations or cash flows.
In May 2005 the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3." SFAS 154 requires retrospective application to
prior periods' financial statements for changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that retrospective
application of a change in accounting principle be limited to the direct effects
of the change. Indirect effects of a change in accounting principle, such as a
change in non-discretionary profit-sharing payments resulting from an accounting
change, should be recognized in the period of the accounting change. SFAS 154
also requires that a change in depreciation, amortization, or depletion method
for long-lived, non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date this
Statement is issued. The Company does not expect the adoption of this SFAS to
have a material impact on its consolidated financial position, results of
operations or cash flows.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
INFLATION
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
ITEM 3. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is
-17-
accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
Evaluation of Disclosure and Controls and Procedures. As of the end of the
period covered by this Quarterly Report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Changes in Internal Controls over Financial Reporting. There was no change in
our internal controls, which are included within disclosure controls and
procedures, during our most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On December 28, 2004, R. Patrick Liska filed a lawsuit in a Minnesota District
Court asserting claims against the Company and a third party. The lawsuit has
since been transferred to the United States District Court in Minnesota. The
lawsuit alleges that Mr. Liska served as a director and Vice Chairman of the
Board of the Company in 2004. The lawsuit seeks recovery of 1,000,000 shares of
the Company's series a convertible preferred stock, salary, vacation pay, and
various business expense reimbursements. Additionally, the lawsuit alleges that
the Company was engaged in a joint enterprise with the third party, and as a
result, the Company is liable for any salary, vacation pay, stock grants, or
expense reimbursements allegedly due and owing to Mr. Liska by the third party.
All of the operative allegations in the lawsuit have been denied by the Company.
Because this proceeding is in its initial stage, it is difficult to predict with
any degree of certainty the potential liabilities, if any, associated with the
lawsuit.
On January 21, 2005, Plaintiff Investrend Communications, Inc. d/b/a Investrend
Research commenced an action via Verified Complaint in the Supreme Court of the
State of New York, County of Queens, against ATNG, Inc. The complaint, through
three causes of action, essentially alleges a breach of contract. Specifically,
it alleges that ATNG, Inc. did not pay Plaintiff for providing news coverage of
ATNG, Inc. At the current time, the parties are engaged in motion practice
regarding Plaintiff's efforts to strike Defendant's affirmative defenses.
Further, on July 18, 2005, Defendant served upon Plaintiff, its Notice of
Discovery and Inspection and Notice of Deposition. Plaintiff seeks the amount of
$21,625.00 as well as reasonable attorneys' fees and consequential damages.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On May 16, 2005, the Company entered into an agreement with Marshall Richardson,
whereby Marshall Richardson accepted 50,000 shares of the Company's Series B
preferred stock in exchange for a convertible debenture dated April 1, 2003 for
180,000 shares at 12 percent with a conversion date of April 1, 2005 (the
"Convertible Debenture"). Marshall Richardson received the Convertible Debenture
on April 1, 2003, in exchange for the promissory note for $25,000 in favor of
Marshall Richardson, executed by the Company on or about June of 2002.
On July 1, 2005, the Company executed a Subscription Agreement for the Series B
Preferred stock of the Company pursuant to which two private investors received
10,000 shares of the Series B Preferred stock in exchange for $10,000. The
$10,000 was used for working capital.
Each share of the Series B preferred stock is convertible into one share of our
common stock. On all matters submitted to a vote of the holders of our common
stock, including, without limitation, the election of directors, a holder of
shares of the Series B preferred stock is entitled to the number of votes on
such matters equal to the number of shares of the Series B preferred stock held
by such holder. The shares of the Series B preferred stock rank superior to the
shares of our common stock, and to the shares of all other series of our
preferred stock.The shares of the Series B Preferred stock were issued in
reliance upon an exemption from registration pursuant to Section 4(2) of the
Securities Act. All of the investors took their securities for investment
purposes without a view to distribution and had access to information concerning
Zann Corp. and our business prospects, as required by the Securities Act.
In addition, there was no general solicitation or advertising for the purchase
of our shares. Our securities were sold only to persons with whom we had a
direct personal preexisting relationship, and after a thorough discussion.
Finally, our stock transfer agent has been instructed not to transfer any of
such shares, unless such shares are registered for resale or there is an
exemption with respect to their transfer.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Effective May 9, 2005, the holder of the majority of our outstanding
capital stock, voted to approve the following corporate actions:
1. An amendment to our articles of incorporation to increase the authorized
number of shares of our common stock from 11,428,572 to 4,000,000,000; and
2 Grant of discretionary authority to our board of directors to implement a
reverse split of our common stock on the basis of one post-consolidation share
for up to each 350 pre-consolidation shares to occur at some time within 12
months of the date of the Company's information statement on Schedule 14C, with
the exact time of the reverse split to be determined by the board of directors.
We had a consenting stockholder, Robert C. Simpson, Ph. D., our president,
secretary, chairman of the board of directors and chief financial officer, who
held 62,858 shares of our common stock, 1,800,000 shares of our Series A
preferred stock, and 10,000,000 shares of our Series C preferred stock on the
record date for the forementioned corporate actions. Each share of our common
stock is entitled to one vote on all matters brought before the stockholders,
each share of our Series A preferred stock outstanding entitles the holder to
one vote of the common stock on all matters brought before the stockholders, and
each share of our Series C preferred stock outstanding entitles the holder to
500 votes of the common stock on all matters brought before the stockholders.
Therefore, Dr. Simpson had the power to vote 5,001,862,858 shares of the common
stock, which number exceeded the majority of the 4,228,861 issued and
outstanding shares of our common stock on the record date for the forementioned
corporate actions.
Dr. Simpson voted in favor of the proposed amendment to our articles of
incorporation and for the grant of discretionary authority with respect to the
stock split. Dr. Simpson had the power to approve the proposed corporate actions
without the concurrence of any of our other stockholders.
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ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------
3.1 ** Articles of Incorporation
3.2 ** Articles of Amendment to Articles of Incorporation
3.3 ** Articles of Amendment to Articles of Incorporation
3.4 ** Certificate of Designation establishing our Series A Preferred Stock, filed effective August 24, 2004
3.5 ** Certificate of Designation establishing our Series C Preferred Stock, filed effective August 24, 2004
3.6 ** Certificate of Amendment to the Certificate of Designation establishing our Series C Preferred Stock,
filed effective March 21, 2005
3.7 ** Articles of Amendment to our Articles of Incorporation, filed effective on December 3, 2004
3.8 ** Certificate of Designation establishing our Series B Preferred Stock, filed effective on March 8, 2005
3.9 ** Certificate of Change, filed effective on March 10, 2005
3.10 ** Certificate of Change, filed effective on May 3, 2005
3.11 ** Articles of Amendment to Articles of Incorporation, filed effective on May 9, 2005.
10.1 ** Blue Kiwi Acquisition Agreement
10.2 ** Investra Articles of Merger
10.3 ** Pathobiotek Acquisition Agreement
10.4 ** Sartam Stock Purchase Agreement
10.5 ** Sartam Promissory Note
10.6 ** Sartam Stock Pledge Agreement
10.7 ** Sartam Escrow Agreement
10.8 ** Consulting Agreement between Zann Corp. and Charles Duke
10.9 ** Consulting Agreement between Zann Corp. and Jonathon Derek Seltzer
10.10 ** Contribution and Assumption Agreement between Robert C. Simpson and Zann Corp.
31.1 * Certification of Robert C. Simpson, President, Secretary, and Chairman of the Board of Directors of
Zann Corp., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley
Act of 2002
31.2 * Certification of George E. Betts, Chief Financial Officer of Zann Corp., pursuant to 18 U.S.C. Sec.1350,
as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002
32.1 * Certification of Robert C. Simpson, President, Secretary, and Chairman of the Board of Directors of Zann
Corp., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of
2002.
32.2 * Certification of George E. Betts, Chief Financial Officer of Zann Corp., pursuant to 18 U.S.C.
Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002
__________
* Filed herewith.
** Previously Filed
SIGNATURES
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.
ZANN Corp.
Dated: September 8, 2005
By /s/ Robert C. Simpson
-------------------------------
Robert C. Simpson, President and
Chairman of the Board of Directors
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