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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended
March 31, 2004 Commission File No. 0-18399
SIRICOMM, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 62-1386759
------------------------------ -------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2900 Davis Boulevard, Suite 130, Joplin, Missouri 64804
------------------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (417) 626-9961
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a 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 [ ]
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of April 30, 2004 was 15,859,153.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations for the six
months ended March 31, 2004 and March 31, 2003 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the period ended March 31, 2004 5
Condensed Consolidated Statements of Cash Flows for the six
months ended March 31, 2004 and March 31, 2003 6-7
Notes to the Condensed Consolidated Financial Statements 8-14
2
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2004 September 30,
(unaudited) 2003
-------------- --------------
ASSETS
Current assets:
Cash $ 1,365,921 $ 56,300
Prepaid expenses and other current assets 194,863 639,316
Deferred loan costs, net 22,677 181,940
-------------- --------------
Total current assets 1,583,461 877,556
Furniture and equipment, net of accumulated depreciation
of $51,631 and $41,701 as of March 31, 2004 and
September 30, 2003, respectively 47,670 54,764
-------------- --------------
Total assets $ 1,631,131 $ 932,320
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, bank $ - $ 96,640
Current maturities of long-term debt:
Officers and directors 4,757 59,757
Other 210,000 633,637
Accounts payable 55,578 101,181
Accrued expenses and other current liabilities 365,094 376,099
-------------- --------------
Total current liabilities 635,429 1,267,314
Notes payable and long-term debt, less current maturities - 150,000
Other liabilities - 20,000
-------------- --------------
Total liabilities 635,429 1,437,314
-------------- --------------
Stockholders' equity (deficit):
Preferred stock - par value $.001; 5,000,000 shares authorized;
213,417 and 0 shares issued and outstanding as of March 31, 2004
and September 30, 2003, respectively 213 -
Common stock - par value $.0001; 50,000,000 shares authorized;
15,342,528 and 12,966,593 shares issued and 15,342,528 and
12,771,343 shares outstanding as of March 31, 2004 and
September 30, 2003, respectively 15,343 12,967
Additional paid-in capital 6,107,260 3,847,485
Deficit accumulated during the development stage (5,127,114) (3,906,608)
Treasury stock, 0 and 195,250 shares at cost as of March 31, 2004
and September 30, 2003, respectively - (458,838)
-------------- --------------
Total stockholders' equity (deficit) 995,702 (504,994)
-------------- --------------
Total liabilities and stockholders' equity (deficit) $ 1,631,131 $ 932,320
============== ==============
See Notes to Condensed Consolidated Financial Statements.
3
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
March 31, 2004 March 31, 2003
---------------------------- ---------------------------
For the Three For the Six For the Three For the Six From Inception
Months Then Months Then Months Then Months Then (April 24, 2000) to
Ended Ended Ended Ended March 31, 2004
------------ ------------ ------------ ------------ ------------
Revenues $ - $ - $ - $ - $ -
Operating expenses:
General and administrative 92,172 157,835 81,419 134,047 774,277
Salaries and consulting fees 359,958 770,918 173,549 256,674 3,012,353
Stock-based employee compensation - 50,000 - - 50,000
Research and development 14,770 29,470 8,950 44,593 365,689
Write-off of notes receivable - - - - 50,000
Depreciation 5,107 9,930 4,823 9,646 52,389
------------ ------------ ------------ ------------ ------------
Total operating expenses 472,007 1,018,153 268,741 444,960 4,304,708
------------ ------------ ------------ ------------ ------------
Operating loss (472,007) (1,018,153) (268,741) (444,960) (4,304,708)
Interest income 1,572 1,572 - - 1,572
Other income 18 18 - - 18
Interest expense (3,903) (18,680) (11,113) (28,908) (113,280)
Loan costs (69,133) (185,263) (42,123) (231,672) (710,716)
------------ ------------ ------------ ------------ ------------
Net loss $ (543,453) $ (1,220,506) $ (321,977) $ (705,540) $ (5,127,114)
============ ============ ============ ============ ============
Net loss per share, basic and diluted $ (0.04) $ (0.09) $ (0.03) $ (0.09) $ (1.21)
============ ============ ============ ============ ============
Weighted average shares,
basic and diluted 13,555,555 13,250,744 11,752,143 7,665,868 4,236,561
============ ============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
4
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2000) THROUGH MARCH 31, 2004
Preferred Stock Common Stock Additional
------------------ --------------------- Paid-in Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
------- --------- ---------- --------- ----------- ----------- ------------ -----------
Issuance of founder shares
at inception - $ - 3,333 $ 3,333 $ - $ - $ - $ 3,333
Conversion of debt to equity - - 6,372 6,372 379,844 - - 386,216
Net loss for the period - - - - - (398,391) - (398,391)
------- --------- ---------- --------- ----------- ----------- ------------ -----------
Balance, September 30, 2000 - - 9,705 9,705 379,844 (398,391) - (8,842)
Issuance of common stock - - 295 295 288,709 - - 289,004
Net loss for the year - - - - - (470,597) - (470,597)
------- --------- ---------- --------- ----------- ----------- ------------ -----------
Balance, September 30, 2001 - - 10,000 10,000 668,553 (868,988) - (190,435)
Acquisition of 1,694 treasury
shares - - - - - - (253,524) (253,524)
Issuance of 1,472 treasury
shares - - - - (184,641) - 220,311 35,670
Net loss for the year - - - - - (911,611) - (911,611)
------- --------- ---------- --------- ----------- ----------- ------------ -----------
Balance, September 30, 2002 - - 10,000 10,000 483,912 (1,780,599) (33,213) (1,319,900)
Reverse merger and reorganization - - 9,712,867 (277) (247,892) - 33,213 (214,956)
Conversion of debt to equity - - 2,029,000 2,029 1,104,971 - - 1,107,000
Stock issued for loan costs - - 137,782 138 272,574 - - 272,712
Stock issued for services - - 1,001,944 1,002 1,144,157 - - 1,145,159
Stock warrants issued for services - - - - 185,000 - - 185,000
Stockholder contributions - - - - 829,838 - (458,838) 371,000
Proceeds from stock issuance - - 75,000 75 74,925 - - 75,000
Net loss for the period - - - - - (2,126,009) - (2,126,009)
------- --------- ---------- --------- ----------- ----------- ------------ -----------
Balance, September 30, 2003 - - 12,966,593 12,967 3,847,485 (3,906,608) (458,838) (504,994)
Conversion of debt to equity 213,417 213 426,592 426 642,759 - - 643,398
Stock issued for loan costs - - 9,593 10 13,670 - - 13,680
Stock issued for services - - 34,000 34 38,590 - - 38,624
Stock warrants exercised - - 176,000 176 87,824 - - 88,000
Stock options issued for services - - - - 57,500 - - 57,500
Proceeds from stock issuance - - 1,925,000 1,925 1,828,075 - - 1,830,000
Issuance of options to employees - - - - 50,000 - - 50,000
Treasury stock retired - - (195,250) (195) (458,643) - 458,838 -
Net loss for the period - - - - - (1,220,506) - (1,220,506)
------- --------- ---------- --------- ----------- ----------- ------------ -----------
Balance, March 31, 2004 213,417 $ 213 15,342,528 $ 15,343 $ 6,107,260 $(5,127,114) $ - $ 995,702
======= ========= ========== ========= =========== =========== ============ ===========
See Notes to Condensed Consolidated Financial Statements.
5
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended From Inception
------------------------------------- (April 24, 2000) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- -------------------
Cash flows from operating activities:
Net loss $ (1,220,506) $ (705,540) $ (5,127,114)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 9,930 9,647 52,389
Amortization of loan costs - - 525,453
Loan costs 159,264 210,710 159,264
Stock-based compensation for services 181,066 - 802,487
Stock-based compensation to employees 50,000 - 50,000
Settlement expense funded from debt acquisition - - 128,672
Write-off of note receivable - - 50,000
Other non-cash charges 1,373 - 16,327
Changes in assets and liabilities:
Current assets 359,512 15,000 359,512
Current liabilities 30,459 115,272 432,419
------------ ------------ --------------
Net cash used in operating activities (428,902) (354,911) (2,550,591)
------------ ------------ --------------
Cash flows from investing activities:
Cash acquired in business combination - 1,479 1,479
Acquisition of furniture and equipment (2,837) - (102,796)
Proceeds from sale of equipment - - 1,406
------------ ------------ --------------
Net cash used in (provided by) financing activities (2,837) 1,479 (99,911)
------------ ------------ --------------
Cash flows from financing activities:
Issuance of notes receivables - - (50,000)
Borrowings under line of credit, net - - 97,043
Proceeds from notes payables - 380,000 1,731,035
Payment of notes payable (176,640) (66,136) (383,208)
Payment of loan costs - - (50,000)
Advances from (repayments to) officers, net - - 386,216
Proceeds from sale of common stock 1,918,000 - 2,285,337
------------ ------------ --------------
Net cash provided by financing activities 1,741,360 313,864 4,016,423
------------ ------------ --------------
Increase (decrease) in cash 1,309,621 (39,568) 1,365,921
Cash, beginning of period 56,300 44,304 -
------------ ------------ --------------
Cash, end of period $ 1,365,921 $ 4,736 $ 1,365,921
============ ============ ==============
See Notes to Condensed Consolidated Financial Statements.
6
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 9,385 $ 7,637 $ 25,860
============ ============ ==============
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Issuance of 34,000 shares of common stock for services $ 38,624 $ - $ 38,624
============ ============ ==============
Conversion of debt to equity $ 642,026 $ 1,000,000 $ 2,135,242
============ ============ ==============
Issuance of 9,842 shares of common stock for loan costs $ 13,680 $ - $ 13,680
============ ============ ==============
Loan cost funded through issuance of stock $ - $ 210,611 $ -
============ ============ ==============
Debt assumed pursuant to reverse acquisition $ - $ 100,000 $ 100,000
============ ============ ==============
Stock offering costs funded through issuance of stock $ - $ 26,670 $ -
============ ============ ==============
Acquisition of 1,694 shares of treasury stock $ - $ - $ 253,524
============ ============ ==============
Stockholder contribution of stock options on behalf of
the Company $ - $ - $ 371,000
============ ============ ==============
Issuance of 1,189 shares of treasury stock for prepaid
services $ - $ - $ 35,670
============ ============ ==============
Stockholder contribution of 195,250 shares of
common stock to the Treasury $ - $ - $ 829,838
============ ============ ==============
See Notes to Condensed Consolidated Financial Statements.
7
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2004
1. Nature of operations and summary of significant accounting policies:
Nature of operations:
SiriCOMM, Inc. - a Missouri corporation (the "Company"), incorporated in
the State of Missouri on April 24, 2000, has developed broadband wireless
application service technologies intended for use in the marine and
transportation industries. The Company's development activities include
integrating multiple technologies such as satellite communications, the
Internet, wireless networking, and productivity enhancing software into
commercially viable products and services. The Company expects to complete
installation of the first phase of its proprietary wireless network and
commence revenue-generating activities in late 2004.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Interim information:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that are in the opinion of the company's
management, necessary to fairly present the financial position, results of
operations and cash flows of the Company. Those adjustments consist only of
normal recurring adjustments. The condensed consolidated balance sheet of
the Company as of September 30, 2003 has been derived from the audited
consolidated balance sheet of the Company as of that date.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Form 10-K annual report for
2003 filed with the Securities and Exchange Commission.
The results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
8
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2004
Stock-based compensation:
The Company accounts for compensation costs associated with stock options
issued to employees under the provisions of Accounting Principles Board
Opinion No. 25 whereby compensation is recognized to the extent the market
price of the underlying stock at the grant date exceeds the exercise price
of the option granted. Stock-based compensation to non-employees is
accounted for using the fair-value based method prescribed by Financial
Accounting Standard No. 123 - Accounting for Stock-Based Compensation. The
Company uses the Black-Scholes options-pricing model to determine the fair
value of stock-based compensation and capital contributions.
Had compensation cost for the Company's stock option plan been determined
on the fair value at the grant dates for stock-based employee compensation
arrangements consistent with the method required by SFAS 123, the Company's
net loss and net loss per common share would have been the pro forma
amounts indicated below for the three and six months ended March 31, 2004.
Three Months Six Months
-------------- --------------
Net loss, as reported $ (543,453) $ (1,220,506)
Add back intrinsic values of stock
issued to employees -- 50,000
Less: stock-based employee compensation
under the fair value based method (22,500) (179,450)
-------------- --------------
Pro forma net loss under fair value method $ (565,953) $ (1,349,956)
============== ==============
Net loss per common share-basic and diluted:
As reported $ (.04) $ (.09)
Pro forma under fair value method $ (.04) $ (.10)
9
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2004
1. Nature of operations and summary of significant accounting policies
(continued):
Research and development costs:
The Company incurs costs, principally paid to outside consultants,
associated with computer software to be marketed in the future. Costs
incurred in connection with establishing technological feasibility have
been expensed as research and development costs. Costs incurred subsequent
to establishing technological feasibility, including coding and testing,
will be capitalized.
Net loss per share:
Net loss per share represents the net loss available to common stockholders
divided by the weighted average number of common shares outstanding during
the year. Diluted earnings per share reflect the potential dilution that
could occur if convertible debt was converted into common stock. Diluted
net loss per share is considered to be the same as basic net loss per share
since the effect of the issuance of common stock associated with the
convertible debt is anti-dilutive.
2. Notes payable:
Notes payable consist of the following March 31, 2004:
Bank line of credit, due on demand, but if no demand is
made due in monthly payments of principal plus accrued
interest through August 25, 2009. (a) --
Note payable, former officer, bearing interest at 2.5%,
unsecured, principal and interest due in monthly
installments of $10,000 through May 2004. (b) 135,000
Notes payable, bearing interest at 4%, unsecured,
interest and principal due the earlier of the date
which the Company shall receive sufficient invested or
borrowed sums to pay all amounts due or the dates
ranging from March 3 through April 30, 2004. (c) 75,000
10
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2004
Note payable officer, bearing interest at 4%,
unsecured, interest and principal due interest and
principal due the earlier of the date that the Company
shall receive sufficient invested or borrowed sums to
pay all amounts due. (d) 4,757
---------
$ 214,757
=========
(a) Line of credit of $1,000,000, 80% guaranteed by the United States
Department of Agriculture. Advances bear interest at prime plus
1.5% (adjusted quarterly) on the federally guaranteed portion and
prime plus 3% (adjusted quarterly) on the remainder. Secured by
substantially all assets of the Company, personally guaranteed by
an officer. No proceeds have been drawn on this line of credit as
of March 31, 2004.
(b) As of March 31, 2004, the Company was in default of this note due
to non-payment. In May 2004, this note was paid in full,
including accrued interest (See Note 4.)
(c) As of April 27, 2004, this amount was reduced to $25,000 due to
repayment with interest.
(d) This note was retired on April 27, 2004 with accrued interest.
3. Stockholders' equity:
The Company authorized the issuance of a class of convertible Preferred
Stock. The Company agreed to issue Preferred Stock to preserve a lender's
continuing accrued interest and create a class superior to the common
stock. In December 2003, the Company designated 500,000 shares of Series A
Cumulative Convertible Preferred Stock. This stock has a par value of
$0.001 and an annual dividend rate of $0.10 per share, payable in quarterly
payments of $0.025 per share. The preferred stock has a liquidating
preference of $1.00 per share and is convertible to Common Stock at $2.00
per share. At September 30, 2003, a stockholder agreed to convert $20,000
in accounts payable to equity. This conversion and stock issuance of 20,000
shares of common stock occurred in October 2003.
In November 2003, the Company converted an aggregate of $400,000 in debt
from existing shareholders along with accrued interest thereon. The Company
issued 213,417 shares of newly issued Preferred Stock Series A in
consideration for two debtholders conversion of $200,000 in notes and
further issued 205,043 shares of common stock to an existing shareholder
and a director who converted notes of $150,000 and $50,000 respectively.
Stock-based stock issuance costs associated with these conversions
aggregated $31,091.
11
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2004
3. Stockholders' equity (continued):
Also November 2003, the Company entered into a broker-dealer exclusive
letter agreement of services, which included introduction to certain
parties desirous of establishing a mutually advantageous relationship. The
term of this agreement is six months. The compensation for these services
is 34,000 shares of restricted stock, $2,500 per month paid over the term
of the agreement, and an additional 66,000 shares of restricted stock to be
issued later. The 100,000 shares include piggyback registration rights.
This agreement was amended in early April to forego further monthly
installments and the 66,000 additional shares.
In addition, an aggregate of 176,000 shares were issued in connection with
the exercise of a like amount of warrants for aggregate proceeds of
$88,000.
In the first quarter of fiscal 2004, the Company issued 9,842 shares of its
common stock, at the fair market value of the stock for loan costs
previously accrued.
In February 2004, a stockholder agreed to convert $24,000 in accounts
payable to equity. In March 2004, certain debtholders agreed to convert
$180,931 in principal and interest to equity. As discussed in Note 2, in
the first and second quarters of fiscal 2004, the Company raised $1,515,000
and $410,000 respectively in connection with a private placement offering.
The Company also raised $75,000 during the fourth quarter of fiscal 2003 in
connection with the same offering.
In March 2004, the Company issued 14,500 stock options to consultants for
services rendered, and has committed to issue an additional 10,500 options
with the same terms at a future date. The options are excercisable for $1
per share through December 31, 2013 and have an aggregate fair value of
$57,500.
4. Commitments and contingencies:
Litigation:
On July 26, 2003, the Company was named a defendant in a lawsuit for breach
of settlement contract. In May, 2004, this matter was settled for $135,000
principal plus accrued interest of $10,000. This settlement releases the
Company from any other liability in this matter.
12
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2004
Employment agreements:
The Company has three executive employee agreements with certain
officers/directors. As part of these agreements the Company is obligated to
pay these individuals aggregate compensation of $425,000 annually through
February 2005.
5. Subsequent Events:
In April 2004, the Company entered into a five (5) year consulting
agreement with a company owned by a shareholder, whereby they would provide
the Company with consulting services including utilizing their
relationships with certain entities that may be beneficial to the business
of the Company. The compensation for their services is 436,000 restricted
shares of the Company's common stock.
In April 2004, the Company entered into a two (2) year consulting agreement
with a third party, whereby they would provide the Company with consulting
services including certain internet technologies, industry introduction and
support from political lobbyists that may be beneficial to the business of
the Company. The compensation for their services is 100,000 restricted
shares of the Company's common stock.
13
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
SiriCOMM, Inc. ("Company"), was incorporated in the State of Delaware
on March 23, 1989 as Fountain Pharmaceuticals, Inc. The Company ceased
operations and had been inactive since July 2001.
On November 21, 2002, the Company completed the acquisition of
SiriCOMM, Inc., a company organized under the laws of the State of Missouri in
April 2000 ("SiriCOMM"). As a result of the acquisition, the Company's business
operations are those of SiriCOMM.
Critical Accounting Policies and Estimates:
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosure of contingent assets and liabilities.
We evaluate our estimates, including those related to contingencies, on an
ongoing basis. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policy, among others;
involve the more significant judgments and estimates used in the preparation of
our consolidated financial statements:
The Company accounts for compensation costs associated with stock
options and warrants issued to non-employees using the fair-value based method
prescribed by Financial Accounting Standard No. 123 - Accounting for Stock-Based
Compensation. The Company uses the Black-Scholes options-pricing model to
determine the fair value of these instruments as well as to determine the values
of options granted to certain lenders by the principal stockholder. The
following estimates are used for grants in 2004: Expected future volatility over
the expected lives of these instruments is estimated to mirror historical
experience, measured by a weighted average of closing share prices prior to each
measurement date. Expected lives are estimated based on management's judgment of
the time period by which these instruments will be exercised.
14
Information Relating To Forward-Looking Statements
This report, including the documents incorporated by reference in this
report, includes forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events. Our
actual results may differ materially from those discussed herein, or implied by
these forward-looking statements. Forward-looking statements are identified by
words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may"
and other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements.
Plan of Operations
SiriCOMM is engaged in the development of broadband wireless software
and network infrastructure solutions for the commercial transportation industry
and government market. The Company has a vertically integrated technology
platform incorporating both software applications and broadband network
infrastructure and access. The vertical-specific, enterprise-grade software
solutions are designed to help businesses of any size and the government to
significantly increase profitability, reduce operating costs, improve
productivity and operational efficiencies, enhance safety, and strengthen
security. The Company's unique, commercial-grade private network solution is
built for enterprises and integrates multiple technologies to enable an ultra
high-speed, open-architecture wireless data network for its software
applications and Internet access. The Company believes that its
vertical-specific software, network technology, deep industry relationships, and
low cost of operations represent significant value to the commercial
transportation industry and the government market.
SiriCOMM's patent-pending network infrastructure solution provides
considerable benefits when compared to other solutions competing in the space.
The architecture transmits data at speeds of up to 48,000 kilobits per seconds
("kbps"), or 20 to 100 times faster than other wireless solutions such as GSM
(9.6 kbps), CDMA2000-1XRTT (144 kbps), or Qualcomm's USAT (2 kbps). SiriCOMM
will install network access nodes using Wireless Fidelity (Wi-Fi) access points
at strategic locations nationwide. Each wireless local area network is
interconnected using satellite communications and the company's proprietary
server solution. The point-to-multipoint broadcast feature of the company's
network provides considerable cost-to-bandwidth efficiencies. SiriCOMM's
software applications leverage this optimized data network to deliver
significant cost reduction and productivity improvement opportunities to
subscribing companies. For a flat, low monthly fee subscribers will have access
to a suite of productivity software, the Internet, e-mail, proprietary company
intranet information, and similar business tools. Users will connect to the
network using any 802.11-compatible device. For the most mobile subscribers,
SiriCOMM recommends a Wi-Fi-enabled Palm OS handheld computer. SiriCOMM's
solutions are expected to become commercially available during the third quarter
of fiscal year 2004.
15
SiriCOMM's Business and Products
Since our inception we have focused our efforts principally in three
key areas - product development, pre-market demonstrations to potential
customers, and the formation of critical industry alliances. The results of this
disciplined approach are significant. First, a working prototype of the
broadband wireless network and applications software was developed and refined
into a highly marketable product. Patent applications are on file for the entire
end-to-end system. Second, demonstrations of the prototype to qualified
potential customers reaffirmed the feasibility of the network and the solid need
for its unique services. SiriCOMM has made technical presentations to more than
30 communication, automobile, trucking and mobile technology companies during
the last 24 months and has received favorable feedback at such demonstrations.
As a result, the Company has letters of intent, memorandums of understanding,
whitepapers, and similar strong expressions of support from multiple industry
stakeholders. These include trucking companies, truck manufacturers, technology
partners, trade associations, government agencies, etc.
The first generation of SiriCOMM products can significantly improve the
availability, timeliness, and accuracy of communications and decision support
tools for most of the nation's law enforcement agencies and trucks that operate
in North America. Ultimately, with minor modifications, the SiriCOMM products
will be applicable in any industry requiring mobile communications from remote
locations, such as recreational vehicles, yachts, and construction sites.
SiriCOMM intends to charge a monthly subscription fee of $49.95 per
user per month for its services.
The five principal components of the SiriCOMM service include:
1. An I.E.E.E. 802.11 standard compatible wireless device (PC or
Palm OS(TM)) for the users. The 802.11 is a wireless standard
governed by the Institute of Electrical and Electronics
Engineers that operates in the 2.4 Ghz unregulated frequency
spectrum;
2. Wireless transmission and receiving equipment installed in
strategic locations such as marinas, truck stops, weigh
stations, and major shipper facilities;
3. Access to the AMC-6 geo-synchronous satellite;
4. Proprietary software processes and applications; and
5. Broadband wireless channels that enable transmission of
extremely large amounts of data at speeds 20 to 100 times
faster than current wireless solutions.
16
Users will be able to connect to the SiriCOMM network whenever they are
within range (up to approximately one-half mile) of one of several planned
access locations. SiriCOMM has had fixed test locations in Joplin, Missouri,
Blacksburg, Virginia, Columbia, Missouri, Oklahoma City, Oklahoma and Rock Hill,
South Carolina. The Company has deployed multiple mobile demonstration sites
throughout the U.S. While in range, the subscriber will have wireless, universal
access to the Internet and to an agency, or fleet intranet, if one exists. For a
low, fixed monthly subscription fee subscribers will be able to communicate
unlimited amounts of data and messages to their homes, offices, or client
support centers using SiriCOMM's high-speed wireless network.
SiriCOMM intends to purchase its satellite services from ViaSat, Inc.
of Norcross, GA. The agreement will include redundant teleport (ground
transmission station) services, satellite data transmission bandwidth, and
remote site maintenance services at each of the SiriCOMM installations. Term of
the agreement will be sixty months and automatically renews an additional twelve
months. ViaSat, under a separate agreement with SatNet, will perform the
complete installation of each SiriCOMM network site. At each ground location the
satellite receiving equipment is linked to SiriCOMM's remote server and the
wireless local area network (WLAN) that provides connectivity for individual
subscribers. This architecture enables high speed two-way data communications as
well as store and forward services based at the local server. The Company
believes that this architecture provides the best possible combination of
bandwidth, services, price, and suitability for service for its customers.
SiriCOMM does not have a commercial network presently running
implementing its wireless data transmission technology. SiriCOMM is in the
process of completing memorandums of understandings with three (3) major
truck-stop chains which would enable it to build out 440 sites. To that end,
SiriCOMM has entered into a memorandum of understanding with Sat-Net
Communications LLC, whereby Sat-Net will install terminals at up to 400 truck
stop locations at a turn-key price of $3,700 per location. The memorandum of
understanding also provides that Sat-Net will provide software and network
support for a monthly per site fee of $30.00. In connection with this
transaction the Company has agreed to issue Sat-Net 2,000,000 shares of its
common stock and 1,000,000 three (3) year warrants exercisable at $2.00 per
share. It plans to build a network with the capacity to service up to 250,000
simultaneous users within 6 months of raising the needed capital. As of the date
of this filing the agreement has not yet been finalized.
17
The construction of the initial network is estimated to cost $1-2
million and financing has been arranged by private sales of the Company's debt
and equity securities. In additions to the proceeds of a $2,000,000 private
placement, the Company closed a $1,000,000 loan from Southwest Missouri Bank
(SMB) which is partially guaranteed by the United States Department of
Agriculture in late February, 2004. The terms of this financing are very
favorable to the Company. The private placement consisted of 2,000,000 units,
each unit consisted of one share of the Company's common stock and one
three-year warrant exercisable at $2.00 per share. In May 2004, the Company
completed a subsequent private placement of 328,143 units at $3.40 per unit.
Each unit consists of one share of common stock and one quarter (1/4) of a
three-year common stock purchase warrant exercisable at $4.75 per share. The
Company received proceeds of $1,115,686.
Results of Operations
From inception (April 24, 2000) through March 31, 2004, SiriCOMM has
not generated any revenues. During the period from inception (April 24, 2000)
through March 31, 2004, SiriCOMM had net losses totaling $5,127,114. During the
three and six months ended March 31, 2004, net losses totaled $543,453 and
$1,220,506, respectively. From inception through March 31, 2004, SiriCOMM's
general and administrative expenses totaled $774,277 or 18% of total operating
expenses, while for the three and six months ended March 31, 2004 general and
administrative expenses totaled $92,172 and $157,835 or 19.5% and 15.5% of total
operating expenses, respectively. From inception through March 31, 2004,
SiriCOMM incurred salaries and consulting fees of $3,012,353 or 70.0% of
operating expenses, of which $359,958 and $770,918, or 76.3% and 75.7% of total
operating expenses were incurred during the three and six months ended March 31,
2004, respectively. Of such amounts $671,421 and $50,000 were stock-based
non-cash costs for the period from inception and the six months ended March 31,
2004, respectively. Research and development costs were $365,689 or 8.5% of
total operating expenses incurred in the period from inception (April 24, 2000)
through March 31 2004, while expenses incurred during the three and six months
ended March 31, 2004 totaled $14,700 and $29,470 or 3.1% and 2.9% of total
operating expenses. These substantial declines were a result of 1) substantial
completion of this research and development phase and 2) cash flow
considerations.
From inception through March 31, 2004, the Company has incurred
interest expenses $113,280, of which $3,903 and $18,680 was incurred during the
three and six months ended March 31, 2004.
Liquidity and Capital Resources
On November 21, 2002, Fountain completed the acquisition of all of the
issued and outstanding shares of SiriCOMM, Inc., a Missouri Corporation. An
aggregate 9,623,195 post-reverse split shares were issued to SiriCOMM's 18
shareholders. Furthermore, the Company agreed to issue the equivalent of 15.5%
of the post-merger entity to retire $1,000,000 of convertible debentures issued
by SiriCOMM. As a result and following completion of the acquisition, the sole
18
director of Fountain resigned and four of SiriCOMM's principal shareholders were
elected in his place. In connection with this transaction the Company changed
its name to "SiriCOMM, Inc."
Since SiriCOMM is considered the acquirer for accounting and financial
reporting purposes, the transaction will be accounted for in accordance with
reverse acquisition accounting principles as though it were a recapitalization
of SiriCOMM and a sale of shares by SiriCOMM in exchange for the net assets of
Fountain. These financial statements include the historical results of
operations and cash flows of SiriCOMM-Missouri.
SiriCOMM is a development-stage entity engaged in the development of
broadband wireless applications service provider technologies for the marine and
highway transportation industries. The Company's current development activities
include integrating multiple technologies including satellite communications,
the Internet and intranets, wireless networking and productivity enhancing
software into commercially viable products and services for its target
industries.
Since its inception, SiriCOMM has financed its activities primarily
from short-term loans and private sale of its securities. During fiscal 2003,
the Company borrowed an aggregate of $680,000 from several lenders. The Company
issued promissory notes to these lenders. The notes have varying interest rates
ranging from 4% to 10% and matured either during 2003 or mature as late as
November 2004. In addition, of the $680,000, an aggregate of $550,000 was
converted into preferred or common equity of the Company during the first and
second quarters of fiscal 2004. The Company has raised proceeds through the
private sale of its equity in March 2004. The private placement consisted of
2,000,000 units, each unit consisted of one share of the Company's common stock
and one three-year warrant exercisable at $2.00 per share. In May 2004, the
Company has recently completed a subsequent private placement of 328,143 units
at $3.40 per unit. Each unit consisted of one share of common stock and one
quarter (1/4) three year warrant exercisable at $4.75 per share. The Company
received proceeds of $1,115,686.
SiriCOMM also issued a Demand Note to a Bank. The Demand Note bears
interest at the annual rate of 7% and SiriCOMM makes monthly installments of
$2,409 per month, maturing July 20, 2004. The loan is secured by all assets of
SiriCOMM and guaranteed by the Company's President and CEO. This note was
retired upon closing of the $1,000,000 USDA loan.
SiriCOMM was indebted to a former officer in the principal amount of
$135,000. In connection with this indebtedness, SiriCOMM issued the former
officer a Note in the original principal amount of $290,000. This Note was
unsecured and called for payments in monthly installments of $10,000 through May
2004. The Company was in default and the former officer commenced legal
proceedings in July 2003 against the Company seeking damages in excess of
$150,000. (See Legal Proceedings) The Company recorded the liability with
interest thereon at the default rate of 9 percent. Subsequent to March 31, the
Company paid $145,000 in satisfaction of judgement releasing it from all further
claims.
19
Item 3: Controls and Procedures
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms and that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the quarter
covered by this report. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective at the reasonable assurance level.
There has been no change in the Company's internal controls over
financial reporting during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
20
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
On July 26, 2003 the Company was named a defendant in a lawsuit
entitled Greg Sanders v. SiriComm, Inc. The action was brought in the Circuit
Court of Newton County, Neosho, Missouri (CV303-559CC). The action was for
breach of contract and seeks damages in the principal amount of $135,000 plus an
additional $30,000 in alleged acceleration interest. In May, 2004 this matter
was settled by the Company paying the plaintiff $145,000, inclusive of accrued
but unpaid interest.
Item 2: Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) On January 15, 2004, the Company issued 56,000 shares of its common
stock to Mr. Robert Smith pursuant to the exercise of a stock option for a like
number of shares. The option was granted to Mr. Smith under the Company's 2002
Equity Incentive Plan. The exercise price of the option was $.50. The shares
underlying the option were registered on Form S-8 on April 14, 2003 (SEC File
No. 333-104508).
On February 23, 2004, the Company issued an aggregate of 20,610 shares
to Joel C. Schneider, Esq. (10,305) and Herbert H. Sommer, Esq. (10,306),
partners of the Company's securities counsel, Sommer & Schneider LLP. The share
were issued in lieu of $24,000 of outstanding legal fees due the firm. The
shares were issued under the Company's 2002 Equity Incentive Plan and were
registered on Form S-8 on April 14, 2003 (SEC File No. 333-104508).
On March 10, 2004 we closed the sale of 2,000,000 units ("Units") at
$1.00 per Unit to twenty-seven accredited investors. Each Unit consists of one
share of the Company's common stock and one three-year warrant exercisable at
$2.00 per share. Among the investors in this offering was Mr. Terry W. Thompson,
a director of the Company who purchased 100,000 Units. The Units were issued
under the exemption from registration provided in Section 4(2) of the Act.
On March 10, 2004 we issued 331,951 Units to five investors upon the
conversion of an aggregate of $331,951 of debt due by the Company to these
investors. Among the investors converting their debt was Mr. Terry W. Thompson,
direct of the Company who converted $50,600 of debt into 50,600 Units. These
Units were issued under the exemption from registration provided in Section 4(2)
of the Act.
21
On March 15, 2004 we granted an aggregate of 25,000 stock options to
Mr. Derrick Woolworth, our Director of Architecture Engineering. The options are
exercisable at the price of $3.40 per share. Of the 25,000 options, 15,000
vested immediately and the balance of 10,000 are subject to vesting based on him
achieving certain performance goals. The options were granted pursuant to our
2002 Equity Incentive Plan.
On March 18, 2004 we issued 27,656 Units to Marvin and Donna McDaniel
upon the conversion of $27,656 of debt due by the Company to the McDaniels. The
Units were issued under the exemption from registration provided in Section 4(2)
of the Act.
On April 7, 2004, the Company issued 436,000 shares of its Common Stock
to Gunner Investments, Inc. pursuant to a consulting agreement. The shares were
issued under the exemption from registration provided in Section 4(2) of the
Act.
On April 7, 2004 the Company issued to the principals of Layne Morgan
Technology Group an aggregate of 100,000 shares of its common stock and 150,000
three-year common stock purchase warrants exercisable at $1.50 per share
pursuant to a consulting agreement. The shares and warrants were issued under
the exemption from registration provided in Section 4(2) of the Act.
On April 21, 2004 the Company issued 7,000 shares of its Common Stock
to Mr. Bobby Ray Weant pursuant to the exercise of a stock option for a like
number of shares. The option was granted to Mr. Weant under the Company's 2002
Equity Incentive Plan. The exercise price of the option was $1.00. The shares
underlying the option were registered on Form S-8 on April 14, 2003 (SEC File
No. 333-104508).
On May 4, 2004 we closed the sale of 328,143 units ("Units") at $3.40
per Unit to fourteen accredited investors. Each Unit consists of one share of
the Company's common stock and one quarter (1/4) of a three-year warrant
exercisable at $4.75 per share. The Units were issued under the exemption from
registration provided in Section 4(2) of the Act.
In May 2004 the Company agreed to issue to Mark Sullivan 150,000
three-year options, exercisable at $3.40 per share. The options were granted to
Mark Sullivan and his designees under the Company's 2002 Equity Incentive Plan.
(d) Not Applicable
Item 3.: Defaults upon Senior Securities
None
22
Item 4.: Submission of Matters to a Vote of Security Holders
None
Item 5.: Other Information
In April 2004 the Company entered into a five (5) year consulting
agreement with Gunner Investments, Inc. ("Gunner"). Pursuant to this agreement,
Gunner is to provide the Company with consulting services including utilizing
its relationship with certain entities that may be beneficial to the business of
the Company. As consideration for Gunner's services, the Company issued 436,000
shares of its common stock to Gunner. The shares are subject to forfeiture based
on the following schedule:
If the agreement is terminated during:
Year 1 - 348,800 shares will be forfeited
Year 2 - 261,600 shares will be forfeited
Year 3 - 174,400 shares will be forfeited
Year 4 - 87,200 shares will be forfeited
Year 5 - 0 shares will be forfeited
In April 2004 the Company entered into a two (2) year consulting
agreement with Layne Morgan Technology Group ("Layne"), whereby they agreed to
provide the Company with consulting services including certain internet
technologies, industry introductions and support from political lobbyists. As
consideration for Layne's services, the Company issued 100,000 restricted shares
of its common stock and 150,000 common stock purchase warrants, exercisable for
three years at an exercise price of $1.50 per share.
In May 2004 the Company entered into a Memorandum of Understanding with
Mark Sullivan ("Sullivan"), whereby Sullivan agreed to assist the Company in the
development of its wireless network infrastructure, its software applications
and certain other related products. As consideration for Sullivan's services,
the Company agreed to issue 150,000 options, exercisable for three years at an
exercise price of $3.40.
In May 2004 the Company entered into a Memorandum of Understanding
("MOU") with Christenson Transportation, Inc. ("Christenson"). The primary
purpose of this transaction is for the Company to provide Christenson with
ongoing productivity software applications that are designed to improve
Christenson's fleet's daily operational functions, reduce operating costs,
increase Christenson's employee productivity and enhance safety and security.
The MOU has an initial term of 36 months and Christenson has agreed to pay the
Company $49.95 each month for each registered subscriber.
23
Item 6.: Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
4.1 Form of Warrant issued to the principals of Layne
Morgan.
4.2 Form of Warrant issued to investors on May 4, 2004.
10.1 Consulting Agreement dated April 22, 2004 between the
Company and Layne Morgan Technology Group.
10.2 Consulting agreement dated April 1, 2004 between the
Company and Gunner Investments, Inc.
10.3 Memorandum of Understanding between the Company and
Christenson Transportation, Inc.
10.4 Memorandum of Understanding between the Company and
Mark Sullivan.
31.1 Certification of Chief Executive Officer of Periodic
Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of Chief Financial Officer of Periodic
Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350
(b) Reports on Form 8-K
(1) A Current Report on Form 8-K was filed on February
24, 2004 to report the completion of the Company's
$2,000,000 private placement.
(2) A Current Report on Form 8-K was filed on February
26, 2004 to report the consummation of a $1,000,000
loan.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 24, 2004 SIRICOMM, INC.
By: /s/ Henry P. Hoffman
------------------------------------------
Henry P. Hoffman, President and
Chief Executive Officer
By: /s/ J. Richard Iler
------------------------------------------
J Richard Iler, Executive Vice President
and Chief Financial Officer
25