-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EoUqsgGfEAJzsjC9vavDkjRCvbdkZBc4TeBR0g1onFv7eL398vFDDjK/+RxqeByV JKjz/b4moMU9zKiZV9VgwA== 0001019687-02-001372.txt : 20020722 0001019687-02-001372.hdr.sgml : 20020722 20020722165626 ACCESSION NUMBER: 0001019687-02-001372 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYRIENT INC CENTRAL INDEX KEY: 0000949113 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 330662114 STATE OF INCORPORATION: NV FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26578 FILM NUMBER: 02707935 BUSINESS ADDRESS: STREET 1: 65 ENTERPRISE CITY: ALISO VIEJO STATE: CA ZIP: 92656 BUSINESS PHONE: 9497943000 MAIL ADDRESS: STREET 1: 65 ENTERPRISE CITY: ALISO VIEJO STATE: CA ZIP: 92656 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK INTERNATIONAL INC DATE OF NAME CHANGE: 19950808 FORMER COMPANY: FORMER CONFORMED NAME: LANDMARK COMMUNICATIONS INC/NV DATE OF NAME CHANGE: 19990825 FORMER COMPANY: FORMER CONFORMED NAME: LMKI INC DATE OF NAME CHANGE: 19991012 10QSB 1 myrient_10q-053102.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2002 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ Commission file number 0-26578 MYRIENT, INC. --------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) Nevada 33-0662114 - ------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 65 Enterprise, Aliso Viejo, CA 92656 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (949) 330-6500 ----------------------------------------- (Registrant's telephone number, including area code) Check whether the issuer (1) filed all the reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 15, 2002 the number of shares of common stock outstanding was 64,275,498 Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- Myrient, Inc. Consolidated Balance Sheet May 31, 2002 (Unaudited)
ASSETS Current assets: Accounts receivable, net of allowance for doubtful accounts of approximately $1,680,000 $ 881,759 ------------- Total current assets 881,759 Property and equipment, net of accumulated depreciation of $364,711 524,181 Deposits and other assets 223,572 ------------- Total assets $ 1,629,512 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 8,913,409 Line of credit borrowings 500,000 Current portion of notes payable 7,252,621 Convertible note payable 875,000 Accrued payroll and related liabilities 1,438,411 Accrued interest payable 919,984 Current portion of capital lease obligations 99,177 ------------- Total current liabilities 19,998,602 Related party loans and notes payable 2,204,524 ------------- Total liabilities 22,203,126 ------------- Stockholders' deficit: Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued and outstanding -- Common stock, $0.01 par value; 75,000,000 shares authorized, 57,773,464 shares issued and outstanding 57,773 Additional paid-in capital 18,130,397 Accumulated deficit (38,761,784) ------------- Total stockholders' deficit (20,573,614) ------------- Total liabilities and stockholders' deficit $ 1,629,512 ============= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 1
Myrient, Inc. Consolidated Statements of Operations (Unaudited)
Nine Months Ended May 31, 2002 2001 ------------- ------------- Net sales $ 7,530,889 $ 12,323,423 Cost of sales 2,851,855 8,236,094 ------------- ------------- Gross profit 4,679,034 4,087,329 ------------- ------------- Operating expenses: General and administrative 6,045,786 5,421,838 Selling 1,420,114 2,383,123 Loss on impairment of fixed assets 1,260,257 -- Research and development 719,289 190,679 Settlement expense 502,496 -- ------------- ------------- Total operating expenses 9,947,942 7,995,640 ------------- ------------- Operating loss (5,268,908) (3,908,311) Other income (expense): Other income 475,000 -- Interest expense, net (936,221) (342,990) Loss on disposal of fixed assets (159,333) -- ------------- ------------- Total other income (expense) (620,554) (342,990) ------------- ------------- Net loss before extraordinary item (5,889,462) (4,251,301) Extraordinary item - gain on extinguishment of debt 1,059,528 -- ------------- ------------- Net loss $ (4,829,934) $ (4,251,301) ============= ============= Net loss available to common stockholder per common share: Loss before extraordinary item $ (0.12) $ (0.12) Extraordinary item 0.02 -- ------------- ------------- Basic and diluted $ (0.10) $ (0.12) ============= ============= Basic and diluted weighted average shares outstanding 49,603,888 35,749,535 ============= ============= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 2
Myrient, Inc. Consolidated Statements of Operations (Unaudited)
Three Months Ended May 31, 2002 2001 ------------- ------------- Net sales $ 2,543,567 $ 3,782,311 Cost of sales 297,580 2,319,593 ------------- ------------- Gross profit 2,245,987 1,462,718 Operating expenses: General and administrative 3,385,719 1,380,607 Selling 640,304 466,989 Loss on impairment 1,260,257 -- Research and development 267,387 190,679 ------------- ------------- Total operating expenses 5,553,667 2,038,275 ------------- ------------- Operating loss (3,307,680) (575,557) Other income (expense): Interest expense, net (313,701) (142,752) ------------- ------------- Net loss before extraordinary item (3,621,381) (718,309) Extraordinary item - gain on extinguishment of debt 39,978 -- ------------- ------------- Net loss $ (3,581,403) $ (718,309) ============= ============= Net loss available to common stockholder per common share: Loss before extraordinary item $ (0.07) $ (0.02) Extraordinary item 0.00 -- ------------- ------------- Basic and diluted $ (0.07) $ (0.02) ============= ============= Basic and diluted weighted average shares outstanding 53,125,559 37,388,928 ============= ============= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 3
Myrient, Inc. Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended May 31, --------------------------- 2002 2001 ------------ ------------ Cash flows from operating activities: Net loss $(4,829,934) $(4,251,301) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Gain on extinguishment of debt (1,059,528) -- Bad debt expense 3,672,127 -- Impairment expense 1,260,257 -- Depreciation 616,575 700,438 Vesting of previously issued options and warrants 12,027 313,591 Estimated fair market value of stock, options and warrants issued for salaries and services, net 399,591 284,139 Loss on disposal of fixed assets 159,333 -- Non-cash portion of cost of sales 281,918 -- Non-cash portion of settlement expense 469,196 -- Changes in operating assets and liabilities: Accounts receivable (3,590,701) (1,087,731) Other assets 27,959 16,893 Accounts payable and accrued liabilities 1,245,057 3,639,891 Accrued payroll and related liabilities 45,280 607,544 Accrued interest payable 820,099 155,302 ------------ ------------ Net cash provided by (used in) operating activities (470,744) 378,766 ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (152,332) (1,867,105) Capitalized computer software development cost (203,976) -- Deposits -- 111,082 ------------ ------------ Net cash used in investing activities (356,308) (1,756,023) ------------ ------------ Cash flows from financing activities: Principal repayments on notes payable (51,000) -- Proceeds from borrowings on lines of credit -- 792,735 Proceeds from notes payable -- 2,093,091 Repayments on related party notes payable (24,639) (709,718) Proceeds from related party loans and notes payable 597,905 -- Repayment on capitalized leased obligations (55,512) (66,774) Proceeds from sale of common stock and exercise of options 176,800 -- Proceeds from short swing-profits -- 16,380 Repurchase of preferred stock -- (500,000) Proceeds from employee purchase of common stock -- 8,505 ------------ ------------ Net cash provided by financing activities 643,554 1,634,219 ------------ ------------ Net change in cash (183,498) 256,962 Cash at beginning of period 183,498 12,877 ------------ ------------ Cash at end of period $ -- $ 269,839 ============ ============ 4
Myrient, Inc. Consolidated Statements of Cash Flows - Continued (Unaudited)
Nine Months Ended May 31, --------------------------- 2002 2001 ----------- ----------- Supplemental cash flow disclosures: Cash paid during the period for interest $ 116,100 $ 249,478 =========== =========== Cash paid during the period for income taxes $ -- $ 14,612 =========== ===========
Supplemental disclosure of non-cash investing and financing activities: See footnotes for non-cash investing and financing activities during the nine months ended May 31, 2002. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 5 Myrient, Inc. Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Myrient, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the quarter ended May 31, 2002 are not necessarily indicative of the results that may be expected for the year ending August 31, 2002. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended August 31, 2001. 2. SOFTWARE DEVELOPMENT COSTS On September 1, 2001, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 identifies three stages of a typical software development project: preliminary project stage, application development stage, and the post-implementation stage. As required by SOP 98-1, the Company capitalizes certain qualifying costs (primarily employee salary expense) incurred during the application development stage. All other internal use development costs are expensed as incurred. The Company has been developing certain computer software projects since the third quarter of the prior year and incurred $191,679 research and development cost in the prior year. The adoption of SOP 98-1 in the prior year did not have a material impact on the Company's results of operations, financial position or cash flows for the year. The $191,679 research and development cost was presented as part of general and administrative expense in the Company's statement of operations for the year ended August 31, 2001. The Company incurred $923,804 of research and development expenditures during the nine months ended May 31, 2002, of which $203,976 was capitalized under SOP 98-1 as property and equipment in the accompanying Balance Sheet and $719,828 was expensed under research and development in the accompanying Statement of Operations. Amortization of capitalized computer software development cost is provided on a project-by-project basis on the straight-line method over the estimated economic life of the products (not to exceed five years). The carrying value of capitalized computer software development cost is periodically reviewed, and a loss is recognized when the value of estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost, consistent with the Company's policy regarding long-lived assets. 6 Myrient, Inc. Notes to Consolidated Financial Statements 3. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates the recoverability of long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. At May 31, 2002, management determined that some of the Company's long-lived assets were impaired, resulting in an impairment loss of $1,260,257 in the consolidated statement of operations. 4. LOSS PER SHARE The Company has adopted Statement of Accounting of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings per Share." Under SFAS No. 128, basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares assumed to be outstanding during the period of computation. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional common shares were dilutive. Stock options and warrants outstanding on February 28, 2002 and 2001 are not considered common stock equivalents, as the affect on net loss per share would be anti-dilutive. 5. SEGMENT INFORMATION The Company has adopted Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public companies report information about operating segments and related disclosures about products and services, geographic areas and major customers in annual consolidated financial statements. The Company accounts for its operations and manages its business as one segment. 6. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," established the standard for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The adoption of SFAS No. 130 has not materially impacted the Company's financial position or results of operations, as the Company has no items of comprehensive income. 7. RISKS AND UNCERTAINTIES The Company operates in a highly competitive industry that is subject to intense competition, government regulation and rapid technological change. The Company's operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks associated with an emerging business, including the potential risk of business failure. The Company may from time to time be involved in various claims, lawsuits, disputes with third parties, actions involving allegations or discrimination, or breach of contract actions incidental to the normal operations of its business. The Company is currently not involved in any such litigation which 7 Myrient, Inc. Notes to Consolidated Financial Statements 7. RISKS AND UNCERTAINTIES, CONTINUED management believes could have a material adverse effect on its financial position or results of operations. 8. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of May 31, 2002, the Company has negative working capital of approximately $19,000,000, is in default on substantially all notes payable, and has a stockholders' deficit of approximately $21,000,000. The Company hopes to continue to increase revenues from additional revenue sources and increase margins as a result of amending its contracts with vendors and other cost cutting measures. In the absence of significant revenues and profits, the Company intends to fund operations through additional debt and equity financing arrangements which management believes may be insufficient to fund its capital expenditures, working capital, and other cash requirements for the fiscal year ending August 31, 2002. Therefore, the Company may be required to seek additional funds to finance its long-term operations. The successful outcome of future activities cannot be determined at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 9. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL In October 2001, a total of 50,000 shares of common stock previously issued to the Company's directors were returned to the Company due to the change of the compensation plan which is still in process and the related $17,500 compensation expense was reversed. During the nine months ended May 31, 2002, the Company issued to several of its employees a total of 3,222,228 shares of common stock valued at $359,345 (based on the closing bid prices of the Company's common stock on the dates of issuance), which was recorded as compensation expense. During the nine months ended May 31, 2002, the Company recorded $12,027 of compensation expense associated with the vesting of warrants previously issued to its outside service providers. During the nine months ended May 31, 2002, the Company issued to several outside consultants a total of 314,684 shares of common stock valued at $54,445 (based on the closing bid price of the Company's common stock on the date of issuance), which was recorded as consulting expense. 8 Myrient, Inc. Notes to Consolidated Financial Statements 9. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL, CONTINUED During the nine months ended May 31, 2002, the Company issued a total of 7,900,088 shares of the common stock valued at $703,107 (based on the closing bid price of the Company's common stock on the date of issuance) for conversion of $673,150 of related party debt and $29,957 of related accrued interest. During the nine months ended May 31, 2002, the Company sold a total of 1,916,668 shares of common stock for proceeds of $175,000. In January 2002, an employee exercised options to purchase 15,000 shares of the Company's common stock for total proceeds of $1,800. In January 2002, the Company issued 30,000 shares of its common stock to a third party as part of a settlement for terminating certain operating lease agreements. These shares were valued at $3,300 based on the fair market value on the date of grant. In April 2002, the Company issued 50,000 shares of its common stock to a third party for the purchase of certain fixed assets. These shares were valued at $8,000 based on the fair market value on the date of grant. In December 2001, the Company cancelled and returned to the Company's treasury 500,000 shares of common stock previously issued to Seven Keys Development Trust, of which Robert C. Weaver, Jr., the Company's former director, is a trustee. The Company had investigated and concluded that these cancelled shares were issued upon the exercise of the unauthorized stock options granted by William J. Kettle, the Company's former Chairman of the Board Directors and Chief Executive Officer. During the quarter ended May 31, 2002 the Company accrued the original $15,500 Robert Weaver paid for the shares and offset this accrued liability against additional paid in capital. 10. NOTES PAYABLE During the quarter ended November 30, 2001, a $5,500,000 accounts payable balance owed to one of the Company's vendors was converted to a note payable based on the agreement signed by and between the Company and the vendor. The note, requiring various monthly payments of principal and interest beginning in April 2002 and a balloon payment in December 2009, bears a 12% interest per annum and contains prepayment incentives that provide the Company with potential debt forgiveness in future years if certain payments are made. The Company did not make the first scheduled payment. Pursuant to the terms of the note, this non-payment has put the note into default and therefore the entire amount of this note has been presented as current debt. 11. OTHER INCOME During the nine months ended May 31, 2002, the Company generated one-time revenue of $475,000 from the sale of certain digital subscriber line ("DSL") accounts to a third-party supplier (which provides DSL communication access). Pursuant to an agreement, the Company offset certain accounts payable owed to the third party with this revenue gained. 9 Myrient, Inc. Notes to Consolidated Financial Statements 12. SETTLEMENT OF LEASE In December 2001, the Company entered into a Settlement Agreement and Mutual release related to the termination of several leases. As a result of the agreement, the Company was released of the remaining payments under the lease (totaling over $1,100,000) in exchange for a non-interest bearing note with payments totaling $610,000, a one time cash payment of $30,000 and the issuance of 30,000 shares of the Company's common stock (see Note 8). The Company discounted the note payable using a 12% interest rate to $469,196. This note requires quarterly payments ranging from $10,000 to $40,000 beginning in June 2002. As a result, the Company has recorded a settlement expense of $502,496 in the accompanying statement of operations. The Company also incurred a loss on disposal of fixed assets of $159,333, representing the net book value of the fixed assets associated with these leases. 13. EXTRAORDINARY ITEM - FORGIVENESS OF DEBT During the nine months ended May 31, 2002, the Company recognized an extraordinary gain of $1,019,550 on the cancellation of a large account payable balance by a vendor. The relief of the payable was partly due to the successful sale and migration of certain DSL accounts to a third party's network (see Note 10). During the nine months ended May 31, 2002, the Company recognized an extraordinary gain of $39,978 on the conversion of an account payable balance to a note payable by a vendor. The vendor agreed to accept less than the original account payable due to the fixed payment terms of the note. 14. RELATED PARTY TRANSACTIONS In March 2002 a director agreed to convert $100,000 of the principal balance of a note payable into 904,977 shares of the Company's restricted common stock (based on the fair market value of the stock on the date of grant). During the nine months ended May 31, 2002, the President of the Company loaned the Company $597,905. These loans are due on demand, and are non-interest bearing. In March 2002, the President of the Company converted $250,000 of the principal balance of this loan into 2,840,909 shares of common stock (based on the fair market value of the stock on the date of grant). Subsequent to May 31, 2002, $315,085 of the remaining balance was converted into common stock (see Note 15). During the nine months ended May 31, 2002, certain other related parties converted $323,150 of principal and $29,957 of interest into 4,154,202 shares of the Company's restricted common stock (based on the fair market value of the stock on the date of grant.). During the nine months ended May 31, 2002, the Company transferred equipment with a net book value of $14,910 to the President of the Company in exchange for relief of debt in the amount of $14,910. As the amount of debt relief was equal to the net book value of the assets transferred, no gain or loss was recognized. 15. SUBSEQUENT EVENTS In June 2002, the President of the Company agreed to convert $315,085 of the principal balance of notes payable into 7,502,034 shares of the Company's restricted common stock (based on the fair market value of the stock on the date of grant). In June 2002, the Company negotiated a settlement with a IT consulting firm in the amount of $2,000,000. The terms of this settlement call for payments to be made quarterly over 6 years beginning in September of 2003 bearing 6% interest. The Company recognized an extraordinary gain on debt extinguishment of approximately $450,000 that will be reflected in the Company's year-end financial statements. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and the Company's actual results could differ materially from those forward-looking statements. The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements and notes thereto. GENERAL Myrient, Inc. (the "Company") is an outsourced Information Technology solutions provider that delivers managed services that allow enterprises to conduct secure communications with remote offices, partners and customers worldwide. The Company enables its customers to outsource all of their communications needs, while ensuring the highest level of security and reliability. The Company manages and controls a nationwide data communications network that allows it to offer high-quality integrated turnkey solutions. The Company's services include Managed Virtual Private Networking, Broadband Internet Access, Managed Web Hosting, Storage and off-site disaster recovery services, Network and Systems Management, and Professional Services. The Company's operating results have fluctuated in the past and may in the future fluctuate significantly, depending upon a variety of factors, including the timely deployment and expansion of new network architectures, the incurrence of related capital costs, variability and length of the sales cycle associated with the Company's product and service offerings, the receipt of new value-added network services and consumer services subscriptions and the introduction of new services by the Company and its competitors. Additional factors that may contribute to variability of operating results include but not limited to: the pricing and mix of services offered by the Company; customer retention rate; market acceptance of new and enhanced versions of the Company's services; changes in pricing policies by the Company's competitors; the Company's ability to obtain sufficient supplies of sole or limited-source components; user demand for network and Internet access services; balancing of network usage over a 24-hour period; the ability to manage potential growth and expansion; the ability to identify, acquire and integrate successfully suitable acquisition candidates; and charges related to acquisitions. In response to competitive pressures, the Company may take certain pricing or marketing actions that could have a material adverse affect on the Company's business. As a result, variations in the timing and amounts of revenue could have a material adverse affect on the Company's quarterly operating results. Currently, the Company does not have the systems available to provide segment information. Due to the foregoing factors, the Company believes the period-to-period comparisons of its operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. In the event that the Company's operating results in any future period fall below the expectations of securities analysts and investors, the trading price of the Company's common stock would likely decline. 11 RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED MAY 31, 2002 AND 2001 NET SALES Net Sales totaled approximately $2,543,567 for the three months ended May 31, 2002, a $1,238,744 decrease over revenue of $3,782,311 for the three months ended May 31, 2001. Revenues generated from Broadband Internet Access decreased to zero primarily due to the reduction of approximately 150 individuals involved in reselling retail based business class digital subscriber lines ("DSL") connectivity during the three months ended May 31, 2002 as compared to the three months ended May 31, 2001. The decrease was offset by an increase in revenues generated from Real Private Networking, Internet and Intranet based Web Hosting, Hosted Application Services, Intelligent Routing and Content Delivery Services, Managed Virtual Private Networking and Professional Services, as well as a non-recurring increase in revenue of $2,180,326 resulting from the sale of customer premises equipment for the three months ended May 31, 2002 as compared to the corresponding period of 2001. COST OF SALES Cost of sales for the three months ended May 31, 2002 was $297,580, a decrease of $2,022,013 from $2,319,593 for the three months ended May 31, 2001. Cost of sales consists primarily of access charges from local exchange carriers, backbone and Internet access costs, and the cost of customer equipment to support network systems, and a non-recurring cost associated with the purchase of customer premises equipment of $197,413. The Company's Internet access costs significantly decreased reflecting the decrease in revenues generated from Broadband Internet Access during the three months ended May 31, 2002 as compared to the corresponding period of 2001. GROSS PROFIT Gross profit increased $783,269 to $2,245,987 for the three months ended May 31, 2002 from $1,462,718 for the three months ended May 31, 2001 and the profit margin increased 49% to 88% for the three months ended May 31, 2002 from 39% for the three months ended May 31, 2001. The increase in gross profit and the increase in gross profit margin resulted from a significant decrease in revenues generated from the lower margin services (Broadband Internet Access delivered over DSL) and an increase in revenues generated from the higher margin services (managed services including Real Private Networking, Internet and Intranet based Web Hosting, Hosted Application Services, Intelligent Routing and Content Delivery Services, Managed Virtual Private Networking and Professional Services), as well as a non-recurring increase in profit resulting from the sale of customer premises equipment of $1,982,913 which accounted for 88% of the gross profit, during the three months ended May 31, 2002 as compared to the corresponding period of 2001. SELLING EXPENSE Selling expense consists primarily of personnel expenses, including salary and commissions, and costs for customer support functions. Marketing and sales expense was $640,304 for the three months ended May 31, 2002 and $466,989 for the three months ended May 31, 2001, which represents a $173,315 increase. The increase is primarily due to an increase in a higher sales commission rate being paid resulting from the Company's focus on higher margin products and services for the three months ended May 31, 2002 as compared to the three months ended May 31, 2001. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense consists primarily of personnel expense, rent and professional fees. General and administrative expense was $3,653,106 for the three months May 31, 2002 and $1,571,286 for the three months ended May 31, 2001, which represents a $2,081,820 increase primarily due to a one-time reserve for bad debt associated with inactive customers that failed to pay for their service fees and for customer premises equipment during their transition to a vendor's network. Subsequently, these outstanding accounts have been placed with several collection agencies for recovery. 12 LOSS ON IMPAIRMENT OF FIXED ASSETS For the three months ended May 31, 2002, the Company incurred a loss of $1,260,257 on the impairment of a substantial portion of its fixed assets that are no longer being used in the course of business. Additionally, the Company has returned capitalized leased equipment to the respective leasing companies that provided leases for DSL based network equipment that the company no longer requires to service its existing customer base. There was no such cost in the corresponding period in 2001. RESEARCH AND DEVELOPMENT For the three months ended May 31, 2002, the Company incurred a cost of $267,387 for Research and Development activities, an increase of $76,708 from $190,679 for the three months ended May 31, 2001. The increase is primarily due to the addition of engineering personnel. INTEREST EXPENSE Interest expense was $313,701 for the three months ended May 31, 2002 and $142,752 for the three months ended May 31, 2001. The increase in interest expense resulted from the higher average interest-bearing borrowing balance during the three months ended May 31, 2002 as compared to the corresponding period in 2001. The higher average borrowing balance is primarily related to the conversion of a $5.5 million balance from accounts payable to a note payable as of August 31, 2001. NET LOSS As a result of the above factors, the Company incurred a net loss for the three-month period ended May 31, 2002 a loss of $3,581,403 or $0.07 per share compared to a loss of $718,309 or $0.02 per share for the three months ended May 31, 2001. COMPARISON OF NINE MONTHS ENDED MAY 31, 2002 AND 2001 NET SALES Net sales decreased $4,792,534 to $7,530,889 for the nine months ended May 31, 2002 from $12,323,423 for the nine months ended May 31, 2001. Revenues generated from Broadband Internet Access decreased to zero primarily due to the reduction of approximately 150 individuals involved in reselling retail based business class digital subscriber lines ("DSL") connectivity during the nine months ended May 31, 2002 as compared to the nine months ended May 31, 2001. The decrease was offset by an increase in revenues generated from Real Private Networking, Internet and Intranet based Web Hosting, Hosted Application Services, Intelligent Routing and Content Delivery Services, Managed Virtual Private Networking and Professional Services as well as a non-recurring increase in revenue of $ 2,969,103 resulting from the sale of customer premises equipment for the nine months ended May 31, 2002 as compared to the corresponding period of 2001. COST OF SALES Cost of sales decreased $5,384,239 to $2,851,855 for the nine months ended May 31, 2002 from $8,236,094 for the nine months ended May 31, 2001. Cost of sales consists primarily of access charges from local exchange carriers, backbone and Internet access costs and the cost of customer equipment to support network systems, and a non-recurring cost associated with the purchase of customer premises equipment of $261,918. The Company's Internet access costs significantly decreased reflecting the decrease in revenues generated from Broadband Internet Access during the nine months ended May 31, 2002 as compared to the corresponding period of 2001. 13 GROSS PROFIT Gross profit increased $591,705 to $4,679,034 for the nine months ended May 31, 2002 from $4,087,329 for the nine months ended May 31, 2001 and the profit margin increased 29% to 62% for the nine months ended May 31, 2002 from 33% for the nine months ended May 31, 2001. The increase in gross profit and the increase in gross profit margin resulted from a significant decrease in revenues generated from the lower margin services (Broadband Internet Access delivered over DSL) and an increase in revenues generated from the higher margin services (managed services including Real Private Networking, Internet and Intranet based Web Hosting, Hosted Application Services, Intelligent Routing and Content Delivery Services, Managed Virtual Private Networking and Professional Services), as well as a non-recurring increase in profit resulting from the sale of customer premises equipment of $2,707,185 which accounted for 58% of the gross profit during the nine months ended May 31, 2002 as compared to the corresponding period of 2001. SELLING EXPENSE Selling expense consists primarily of personnel expenses including salary, commissions and costs for customer support functions. Selling expense decreased $963,009 to $1,420,114 for the nine months ended May 31, 2002 from $2,383,123 for the nine months ended May 31, 2001. The decrease is primarily due to a decrease in selling commission resulting from the decrease in revenues generated from Broadband Internet Access for the nine months ended May 31, 2002 as compared to the nine months ended May 31, 2001. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense consists primarily of personnel expense, rent and professional fees. General and administrative expense increased $1,152,558 to $6,765,075 for the nine months ended May 31, 2002 from $5,612,517 for the nine months ended May 31, 2001 primarily due to a one-time reserve for bad debt associated with inactive customers that failed to pay their service fees and for customer premises equipment during their transition to a vendor's network. Subsequently, these outstanding accounts have been placed with several collection agencies for recovery. LOSS ON IMPAIRMENT OF FIXED ASSETS For the nine months ended May 31, 2002, the Company incurred a loss of $1,260,257 on the impairment of a substantial portion of its fixed assets that are no longer being used in the course of business. Additionally, the Company has returned capitalized leased equipment to the respective leasing companies that provided leases for DSL based network equipment that the company no longer requires to service its existing customer base. There was no such cost in the corresponding period in 2001. RESEARCH AND DEVELOPMENT For the nine months ended May 31, 2002, the Company incurred a cost of $719,289 for research and development activities, an increase of $528,610 from $190,679 for the three months ended May 31, 2001. The increase is due to the fact that these activities did not commence until the quarter ended May 31, 2001. 14 OTHER INCOME The Company generated one-time revenue of $475,000 from sale of its certain DSL accounts to a third-party supplier (which provides DSL communication access) during the nine months ended May 31, 2002. No such revenue was generated in the corresponding period in 2001. Additionally, the Company also incurred a loss on disposal of fixed assets of $159,333 during the nine months ended May 31, 2002 representing the net book value of the fixed assets associated with cancelled leases. SETTLEMENT EXPENSE In December 2001, the Company was released from paying over $1.1 Million in future lease payments after entering into a settlement agreement with a leasing company that provided leases for networking equipment no longer needed that was used to service DSL customers. Consequently, the Company took a one-time settlement expense charge of $502,496 during the second quarter and wrote off associated fixed assets of $159,333, recognizing a loss on disposal of fixed assets of $159,333. INTEREST EXPENSE Interest expense increased $593,231 to $936,221 for the nine months ended May 31, 2002 from $342,990 for the nine months ended May 31, 2001. The increase in interest expense resulted from the higher average interest-bearing borrowing balance during the nine months ended May 31, 2002 as compared to the corresponding period in 2001. The higher average borrowing balance is primarily related to the conversion of a $5.5 million balance from accounts payable to a note payable as of August 31, 2001. EXTRAORDINARY GAIN During the nine months ended May 31, 2002 the Company recognized an extraordinary gain of $1,059,528 on the settlement of accounts payable balances with vendors. The relief of the payable was primarily due to the successful sale and migration of certain DSL accounts to a third party's network. NET LOSS As a result of the above, the Company incurred a net loss of $4,829,934 for the nine months ended May 31, 2002 as compared to a net loss of $4,251,301 for the nine months ended May 31, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company believes that its anticipated funds from operations will be insufficient to fund its working capital and other requirements through August 31, 2002. Therefore, the Company will be required to seek additional funds either through debt or equity financing to finance its long-term operations ("Additional Funds"). Should the Company fail to raise the Additional Funds, the Company will have insufficient funds for the Company's intended operations for the next nine months that may have a material adverse effect on the Company's long-term results of operations. Cash balance decreased $183,498 to $0 on May 31, 2002 from $183,498 on August 31, 2001. To date, the Company has satisfied its cash requirements primarily through related party debt, equity and capitalized lease financings. The Company's principal uses of cash are to fund working capital requirements and to service its capital lease and debt financing obligations. The Company expects to be successful in its attempt to reduce its debt substantially through aggressive negotiations with its creditors. The Company has been successful with the creditors that it has negotiated with thus far and expects to continue this trend. 15 The Company's independent certified public accountants have stated in their report in the Company's Form 10-KSB for the year ended August 31, 2001, that the Company had incurred operating losses in the last two years, had a working capital deficit (including a significant accrued payroll taxes due to under payment of payroll taxes), a significant long-term borrowing balance and a significant stockholders' deficit. The Company's working capital deficit increased $1,720,335 to $19,116,843 on May 31, 2002 from $17,396,508 on August 31, 2001 and the stockholders' deficit increased $3,545,905 to $20,573,614 on May 31, 2002 from $17,027,705 on August 31, 2001. These financial conditions raise substantial doubt about the Company's ability to continue as a going concern. FORWARD-LOOKING INFORMATION Certain statements in this Section and elsewhere in this report are forward-looking in nature and relate to trends and events that may affect the Company's future financial position and operating results. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The terms "believe," "expect," "anticipate," "intend," and "project" and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. The statements are based on current expectations, are inherently uncertain, are subject to risks, and should be reviewed with caution. Actual results and experience may differ materially from the forward-looking statements as a result of many factors, including changes in economic conditions in the markets served by the Company, increasing competition, fluctuations in raw materials and energy prices, and other unanticipated events and conditions. It is not possible to foresee or identify all such factors. The Company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- The Company may from time to time be involved in various claims, lawsuits, disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any such litigation that it believes could have a materially adverse effect on its financial condition or results of operations. Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- In March 2002, the Company issued 88,736 shares of common stock to an outside consultant valued at $15,080 (based on the closing bid price of the Company's common stock on the date of issuance) in exchange for three months of services from the consultant. This transaction was an issuance of securities by the issuer not involving any public offering and is therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. In March 2002, the Company issued a total of 1,666,668 shares of the common stock in exchange for the receipt of a total of $150,000 in private placements from four separate private investors. These transactions were issuances of securities by the issuer not involving any public offering and are therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. In March 2002 the Company issued a total of 904,977 shares of common stock valued at $100,000 (based on a conversion formula defined in the promissory note) as a related party debt conversion to equity pursuant to a partial cancellation of a promissory note. This transaction was an issuance of securities by the issuer not involving any public offering and is therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. In March 2002, the Company issued 2,840,909 shares of its common stock in exchange for the conversion of $250,000 (based on the closing bid price of the Company's common stock on the date of issuance) of related party loans from the President of the Company. This transaction was an issuance of securities by the issuer not involving any public offering and is therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. In March 2002, the Company issued 1,572,302 shares of common stock valued at $166,664 (based on a fifteen percent discount on the closing bid price of the Company's common stock on the date of issuance) to the President of the Company as part of his compensation package. This transaction was an issuance of securities by the issuer not involving any public offering and is therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. During the quarter ended May 31, 2002, the Company issued 392,683 shares of common stock valued at $41,589 (based on a 15% discount on the closing bid price of the Company's common stock on the date of issuance) to certain employees as compensation. This transaction was an issuance of securities by the issuer not involving any public offering and is therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. In April 2002, the Company issued 50,000 shares of common stock valued at $8,000 (based on the closing bid price of the Company's common stock on the date of issuance) to an employee pursuant to an asset purchase agreement. This transaction was an issuance of securities by the issuer not involving any public offering and is therefore covered by the exemption allowed under Section 4(2) of the Securities Act of 1933. 17 Item 3. Defaults Upon Senior Securities ------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5. Other Information ----------------- None. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits None. (b) Reports on Form 8-K None. 18 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Myrient, Inc. Date: July 22, 2002 by: /s/ BARRY H. HALL ------------------------------------- Barry H. Hall Chairman of the Board and Director by: /s/ BRYAN L. TURBOW ------------------------------------- Bryan L. Turbow Director and President/CTO by: /s/ STEPHEN V. CAGNAZZI -------------------------------------- Stephen V. Cagnazzi Director 19 -----END PRIVACY-ENHANCED MESSAGE-----