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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
December 31, 2003 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 Identification No.)
incorporation or organization)
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 February 13th, 2004 was 12,926,094.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations for the three
months ended December 31, 2003 and December 31, 2002 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the period ended December 31, 2003 5
Condensed Consolidated Statements of Cash Flows for the three
months ended December 31, 2003 and December 31, 2002 6-7
Notes to the Condensed Consolidated Financial Statements 8-14
2
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2003 September 30,
(unaudited) 2003
-------------------- -------------------
ASSETS
Current assets:
Cash $ 1,457,531 $ 56,300
Prepaid expenses and other current assets 409,112 639,316
Deferred loan costs, net 34,718 181,940
---------------- ---------------
Total current assets 1,901,361 877,556
Furniture and equipment, net 49,940 54,764
---------------- ---------------
$ 1,951,301 $ 932,320
================ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable, bank $ 92,939 $ 96,640
Current maturities of long-term debt:
Officers and directors 9,757 59,757
Other 435,000 633,637
Accounts payable 145,949 101,181
Accrued expenses and other current liabilities 487,790 376,099
---------------- ---------------
Total current liabilities 1,171,435 1,267,314
Notes payable and long-term debt, less current maturities - 150,000
Other liabilities - 20,000
---------------- ---------------
Total liabilities 1,171,435 1,437,314
---------------- ---------------
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Preferred stock - par value $.001; 5,000,000 shares authorized; 213 -
Series A - par value $.001; 500,000 authorized; 213,417 issued and
outstanding
Common stock - par value $.0001; 50,000,000 shares authorized;
14,776,468 and 12,891,593 shares issued and 14,851,468 and
12,966,593 shares outstanding as of December 31, 2003 and
September 30, 2003, respectively 14,852 12,967
Additional paid-in capital 5,807,300 3,847,485
Deficit accumulated during the development stage (4,583,661) (3,906,608)
Treasury stock, 195,250 shares at cost (458,838) (458,838)
---------------- ---------------
Total stockholders' equity (deficit) 779,866 (504,994)
---------------- ---------------
$ 1,951,301 $ 932,320
================ ===============
See Notes to Condensed Consolidated Financial Statements.
3
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended From Inception
------------------------------------------- (April 24, 2000) to
December 31, 2003 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
Revenues $ - $ - $ -
--------------- --------------- ---------------
Operating expenses:
General and administrative 65,663 52,628 682,105
Salaries and consulting fees 410,960 83,125 2,030,974
Stock-based compensation 50,000 - 671,421
Research and development 14,700 35,643 350,919
Write-off of notes receivable - - 50,000
Depreciation 4,823 4,823 47,282
--------------- --------------- ---------------
Total operating expenses 546,146 176,219 3,832,701
--------------- --------------- ---------------
Operating loss (546,146) (176,219) (3,832,701)
Interest expense (14,777) (17,795) (109,377)
Loan costs (116,130) (189,549) (641,583)
--------------- --------------- ---------------
Net loss $ (677,053) $ (383,563) $ (4,583,661)
=============== =============== ===============
Net loss per share, basic and diluted $ (0.05) $ (0.10) $ (1.28)
=============== =============== ===============
Weighted average shares,
basic and diluted 12,949,245 3,782,212 3,577,792
=============== =============== ===============
See Notes to Condensed Consolidated Financial Statements.
4
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2000) THROUGH DECEMBER 31, 2003
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 los 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)
Treasury stock acquisition
(1,694 shares) (253,524) (253,524)
Issuance of 1,472 treasury
shares of common stock (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,
net - - 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,
net 213,417 213 225,033 225 406,921 407,359
Stock issued for loan costs 9,842 10 13,671 13,681
Stock issued for services 34,000 34 38,590 38,624
Stock warrants exercised 176,000 176 87,824 88,000
Proceeds from stock issuance 1,440,000 1,440 1,362,809 1,364,249
Issuance of options to
employees, net - 50,000 50,000
Net loss for the period - (677,053) (677,053)
------- --------- ---------- ---------- ----------- ----------- ------------- ----------
Balance, December 31, 2003 213,417 $ 213 14,851,468 $ 14,852 $ 5,807,300 $(4,583,661) $ (458,838) $ 779,866
======= ========= ========== ========== =========== =========== ============= ==========
See Notes to Condensed Consolidated Financial Statements.
5
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
From Inception
Three Months Ended From Inception
--------------------------------------- (April 24, 2000) to
December 31, 2003 December 31, 2002 December 31, 2003
------------------- ----------------- ------------------
Cash flows from operating activities:
Net loss $ (677,053) $ (383,563) $ (4,583,661)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation 4,823 4,824 47,282
Amortizaton of loan costs - - 525,453
Loan costs 116,130 84,244 200,374
Stock-based compensation 50,000 - 671,421
Settlement expense funded from debt
acquisition - - 128,672
Write-off of note receivable - - 50,000
Other non-cash charges 1,363 - 16,317
Changes in assets and liabilities:
Current assets 268,828 14,844 268,828
Current liabilities 112,840 43,153 430,556
------------ ------------ ------------
Net cash flows from operating activities (123,069) (236,498) (2,244,758)
------------ ------------ ------------
Cash flows from investing activities:
Cash acquired in business combination - 1,479 1,479
Acquisition of furniture and equipment - - (99,959)
Proceeds from sale of equipment - - 1,406
------------ ------------ ------------
Net cash flows from financing activities - 1,479 (97,074)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of notes receivables - - (50,000)
Borrowings under line of credit, net - - 97,043
Procceds from notes payables - 250,000 1,731,035
Payment of notes payable (3,700) (34,029) (210,268)
Payment of loan costs - - (50,000)
Advances from (repayments to) officers, net - 55,000 386,216
Proceeds from sale of common stock 1,528,000 - 1,895,337
------------ ------------ ------------
Net cash flows from financing activities 1,524,300 270,971 3,799,363
------------ ------------ ------------
Increase in cash 1,401,231 35,952 1,457,531
Cash, beginning of period 56,300 44,304 -
------------ ------------ ------------
Cash, end of period $ 1,457,531 $ 80,256 $ 1,457,531
============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
6
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,815 $ 3,197 $ 22,290
============ ============ ============
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 to equity $ 407,359 $ - $ 407,359
============ ============ ============
Issuance of 9,842 shars of common stock for
loan costs $ 13,681 $ - $ 13,681
============ ============ ============
Issuance of 716,000 shares of common stock for
services to be performed in the future $ - $ 1,532,240 $ -
============ ============ ============
Loan cost funded through issuance of stock $ - $ 82,244 $ -
============ ============ ============
Debt assumed pursuant to reverse acquisition $ - $ 100,000 $ 100,000
============ ============ ============
Increase in accrued expenses for stock to
be issued $ - $ 105,305 $ -
============ ============ ============
Stock offering costs funded through issuance
of stock $ 31,091 $ 26,670 $ 31,091
============ ============ ============
Conversion of debt to 6,372 shares of
common stock $ - $ - $ 386,216
============ ============ ============
Acquisition of 1,694 shares of treasury stock $ - $ - $ 253,524
============ ============ ============
Conversion of debt to 1,922,000 shares of
common stock $ - $ - $ 1,107,000
============ ============ ============
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 DECEMBER 31, 2003
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, is engaged in the development of
broadband wireless application service technologies intended for use in the
marine and transportation industries. The Company's development activities
include integrating multiple technologies including satellite
communications, the Internet, wireless networking, and productivity
enhancing software into commercially viable products and services. The
Company expects to complete development activities and commence
revenue-generating activities in mid 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:
In the opinion of management, all adjustments necessary for a fair
presentation of the results of operations for the periods presented have
been included. The results of operations for the period ended December 31,
are not necessarily indicative of the results for a full year.
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. The Company granted an aggregate 200,000 stock
options to employees in November 2003. 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.
8
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO DECEMBER 31, 2003
1. Nature of business and summary of significant accounting policies
(continued):
Stock-based compensation (continued):
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 months ended December 31, 2003.
Net loss, as reported $ (677,053)
Add back intrinsic values of stock
issued to employees 50,000
Less: stock-based employee compensation
under the fair value based method,
net of related tax effects (165,640)
------------
Pro forma net loss under fair value method $ (792,693)
============
Net loss per common share-basic and diluted:
As reported $ (.05)
Pro forma under fair value method $ (.06)
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. There were no capitalizable costs incurred in the
period ended December 31, 2003.
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.
9
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO DECEMBER 31, 2003
2. Management's plan of operation:
Since its inception, SiriCOMM has financed its activities primarily from
short-term loans, a portion of which are in default (Note 4). The Company
has raised approximately $2,000,000 through February 12, 2004 in connection
with a private placement of the sale of 2,000,000 units. Of the $2,000,000,
$1,515,000 was received by December 31, 2003 and the balance was received
in the first quarter of 2004. The $1,515,000 received through December 31,
2003 is included in the Company's December 31, 2003 balance sheet as are
the shares issuable as part of the units. Each unit consists of one share
of stock at $1.00 and a 3 year warrant exercisable at $2.00 per share.
Although there are no legal restrictions on the use of proceeds from the
private placement, the Company has segregated $1,400,000 into an escrow
fund, pending closing of the economic development loan discussed below. To
date, SiriCOMM has not introduced its products and services commercially,
and has limited assets, significant liabilities and limited business
operations. The construction of the initial network is estimated to cost
$2,000,000 and is expected to be financed with the proceeds of the private
placement and an economic development loan of $1,000,000. The loan is
anticipated to close prior to March 1, 2004. Furthermore, the Company is in
discussions with two technology companies to provide products and services
in exchange for equity in the Company.
Managements' plan of operations has been for the Company to raise
additional capital ($3-5 million) and build a network to service up to
250,000 simultaneous users. The Company will need to seek additional
financing. There can be no assurances that the Company, even with the
private placement and development loan, will be able to achieve its
financial objectives, as well as raise the additional financing and
continue as a going concern. The financial statements do not include any
adjustments to the carrying amount of assets and the amounts and
classifications of liabilities that might result from the outcome of this
uncertainty.
3. Note payable, bank:
Note payable, bank consists of a demand loan payable with interest at 7% in
monthly installments of $2,409 per month, maturing July 20, 2004. The loan
is secured by all assets of the Company and guaranteed by the principal
stockholder.
10
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO DECEMBER 31, 2003
4. Notes payable:
Long-term debt consists of the following at December 31,2003:
Note payable, former officer, bearing interest at a 9% default rate,
unsecured, principal and interest due in monthly installments of
$10,000 through May 2004, currently in default. (a) 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 October 31, 2003 through April 30, 2004. 300,000
------------
435,000
Other 9,757
------------
$ 444,757
============
(a) As of December 31, 2003, the Company was in default of this note
payable. The former officer filed suit for breach of contract in July
2003. (See Note 7.)
5. Stockholders' deficit:
The Company authorized the issuance of a class of convertible Preferred
Stock. Subsequent to December 31, 2003, the Company improved its current
ratio and its shareholders' equity, pursuant to a debt conversion. 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, therefore, the Company designated 500,000 shares of Series A
Cumulative Convertible Preferred Stock. This stock has a par value of $.001
and an annual dividend rate of $.10 per share, payable in quarterly
payments of $.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.
11
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO DECEMBER 31, 2003
5. Stockholders' deficit (continued):
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, 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.
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.
As discussed in Note 2, in the first quarter of fiscal 2004, the Company
raised 1,440,000 in connection with a private placement offering.
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 November 2003, the Company entered into a broker-dealer exclusive letter
agreement for services which included introduction to certain parties
desirous of establishing a mutually advantageous business relationship. The
term of this agreement is six months. The compensation for these services
is 34,000 shares of restricted stock, valued at $38,624, a total of $15,000
paid monthly over the term of the agreement, and an additional 66,000
shares of restricted stock to be issued on the 90th (33,000 shares) and
180th (33,000 shares) day of the agreement The 100,000 shares include
piggyback registration rights.
Black Scholes Assumptions:
The Company used the Black-Scholes options-pricing model to determine the
fair value of warrants as well as to determine the values of options
granted to employees for disclosure purposes. The following assumptions
were used for grants in 2004: No dividend yield, expected volatility of
122.18%; risk-free interest rates of 2% and expected lives of 2 years.
12
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO DECEMBER 31, 2003
6. Income taxes:
Deferred tax assets consist of the following at December 31, 2003:
Net operating loss carryover $ 625,000
Valuation allowance (625,000)
-----------------
$ -
=================
Income tax (expense) benefit consists of the following at December 31, 2003:
Current:
Federal $ -
-----------------
Deferred:
Deferred -
Benefit of net operating loss carryover 235,000
Change in valuation allowance (235,000)
-----------------
-
-----------------
$ -
=================
The expected income tax benefit at the statutory tax rate differed from
income taxes in the accompanying statements of operations as follows:
Percentage
of loss before
income taxes
December 31,
2003
-----------------
Statutory tax rate 35.0%
State tax 3.5%
Change in deferred tax asset
valuation allowance (38.5%)
-----------------
Effective tax rate in accompanying statement of operations 0%
=================
13
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO DECEMBER 31, 2003
7. Commitments and contingencies:
Litigation:
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. The action is for breach of settlement
contract and seeks damages in the principal amount of $135,000 plus alleged
acceleration interest. The Company acknowledges the debt (which is
recorded, along with accrued interest thereon: See Note 4) although
disputes the principal amount claimed and accelerated interest. Management
is attempting to negotiate a settlement of this matter.
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.
14
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. 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 of 122.18%; expected lives of 2 years is estimated based on
management's judgment of the time period by which these instruments will be
exercised.
15
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
16
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 second
quarter of the year 2004.
Development of 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
17
5. Broadband wireless channels that enable transmission of
extremely large amounts of data at speeds 20 to 100 times
faster than current wireless solutions.
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.
At present SiriCOMM leases transponder access to the AMC-6 satellite on
a month to month basis for $350 per month per ground location pursuant to an
informal agreement with Cislunar, the satellite teleport operator. The agreement
with Cislunar is an oral agreement for month-to-month supply and purchase of
transponder usage. Cislunar has accommodated SiriCOMM by reselling a very small
amount of capacity to SiriCOMM on an as-needed basis and Cislunar is willing to
continue to do so until SiriCOMM is in a position to build out its network. At
that time, usage will likely increase substantially and both Cislunar and
SiriCOMM recognize that a written agreement will need to be in place. SiriCOMM
plans to enter into a formal agreement for monthly transponder usage when the
system is offered commercially. At each ground location, the satellite receiver
is linked to the 2.4 Ghz wireless network utilizing a local server and
SiriCOMM's technology for rapidly cache and serve network requests. There are no
limitations or special licenses required to operate local two-way data
communications at 2.4Ghz wireless frequencies.
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.
18
The construction of the initial network is estimated to cost $1-2
million and is expected to be financed 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 has a commitment for a $1,000,000 loan from Southwest
Missouri Bank (SMB) to guaranteed by the United States Department of Agriculture
which is expected to close by March 1, 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. The Company has segregated a
portion of the proceeds of the private placement pending the closing of the
$1,000,000 loan from SMB.
Results of Operations
From inception (April 24, 2000) through December 31, 2003, SiriCOMM has
not generated any revenues. During the period from inception (April 24, 2000)
through December 31, 2003, SiriCOMM had net losses totaling $4,583,661. During
the three months ended December 31, 2003, net losses totaled $677,053. From
inception through December 31, 2003, SiriCOMM's general and administrative
expenses totaled $682,105 or 18% of total operating expenses, while for the
three months ended December 31, 2003 general and administrative expenses totaled
$65,663 or 9.70% of total operating expenses. From inception through December
31, 2003, SiriCOMM incurred salaries and consulting fees of $2,030,974 or 53.00%
of operating expenses, of which $410,960, or 75.25% of total operating expenses
was incurred during the three months ended December 31, 2003 of such amounts
$671,421 and $50,000 were stock-based related. Research and development costs
were $350,919 or 9.20% of total operating expenses incurred in the period from
inception (April 24, 2000) through December 31 2003, while expenses incurred
during the three months ended December 31, 2003 totaled $14,700 or 2.7% 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 December 31, 2003, the Company has incurred
interest expenses $109,377, of which $14,777 was incurred during the three
months ended December 31, 2003.
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%
19
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
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. 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 $400,000 was converted into preferred or common
equity of the Company during the first quarter of fiscal 2004. The Company has
received further indications that notes totaling $125,000 will be converted into
equity in the near future but there can be no assuances thereto.
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 will be
retired upon closing of the $1,000,000 USDA loan.
SiriCOMM is 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 is
unsecured and called for payments in monthly installments of $10,000 through May
2004. The Company is 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 has recorded the liability with
interest thereon at the default rate of 9 percent.
To date, SiriCOMM has not introduced its products and services
commercially, has limited assets, significant liabilities and limited business
operations. Managements' plan of operation for fiscal 2003 is to build a network
20
to service up to 80,000 simultaneous users. The construction of the initial
network is estimated to cost $1-2 million and is expected to be financed by a
private sale of the Company's debt or equity securities. The Company has
commitments totaling $3,000,000 to be used in part for network implementation.
These funds include a $1,000,000 note from Southwest Missouri Bank (SMB)
guaranteed by the United States Department of Agriculture. The terms of this
financing are very favorable to the Company. The remaining funding commitments
have been raised through a $2,000,000 million private placement. These funds are
currently being held in escrow pending the closing of the SMB/USDA loan.
There can be no assurances that the Company will be successful in
obtaining further debt or equity financing in order to achieve its financial
objectives.
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.
21
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 is for breach
of contract and seeks damages in the principal amount of $135,000 plus an
additional $30,000 in alleged acceleration interest. The Company acknowledges
the debt and will attempt to negotiate a settlement of this matter. The Company
has retained counsel to respond to the Complaint.
Item 2: Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) On December 5, 2003, the Company issued 34,000 shares of its Common
Stock to MCC Securities, Inc. pursuant to an agreement. The shares were issued
under the exemption from registration provided in Section 4(2) of the Act.
On December 10, 2003, the Company issued an aggregate of 213,417 shares
of its Series A Preferred Stock to Quest Capital Alliance L.L.C. (161,165) and
William and Joy Fotsch (52,252) pursuant to the conversion of an aggregate of
$200,000 of debt due by the Company. The shares were issued under the exemption
from registration provided in Section 4(2) of the Act.
On December 31, 2003, we completed the sale of $1,515,000 units
("Units") to twenty-four 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 Terry Thompson, a director
of the Company. These funds are currently being held in escrow pending the
closing of the $1,000,000 loan from SMB although there are no legal restrictions
on these funds. The Units were sold under the exemption from registration
provided in Section 4(2) of the Act.
In November 2003, Robert J. Smith converted $154,443 of debt due to him
by the Company into a like number of the Units. These Units were issued under
the exemption from registration provided in Section 4(2) of the Act.
22
The Company privately placed 2,000,000 shares of common stock and
2,000,000 warrants in the last quarter of 2003 and first quarter of 2004. Each
warrant allows the holder to acquire an additional share of common stock for
$2.00. The offering was made without any general solicitation and each investor
represented in the securities purchase agreement that they were "accredited"
investors as defined in Rule 501(a) of Regulation D under the Securities Act of
1933. The securities we issued are "restricted" securities and the certificates
representing the securities bear a legend to that effect. No brokers were
retained to assist us with the offering and we filed a Form D with the SEC and
in the states where the investors reside where such filing is required under
state law. The offering is claimed to be exempt under Rule 506 of Regulation D,
Section 4(2) and Section 4(6) of the Securities Act of 1933.
(d) Not Applicable
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) The following exhibits are filed as part of this report:
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
None
23
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: February 19, 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
24