As filed with the Securities and Exchange Commission on April 26, 2005
REGISTRATION NO. 333-123132
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SIRICOMM, INC.
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(Name of small business issuer in its charter)
Delaware 7372 62-1386759
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(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
2900 Davis Boulevard, Suite 130
Joplin, Missouri 64804
(417) 626-9961
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(Address and Telephone Number of Principal Executive Office
and Principal Place of Business)
Henry P. Hoffman
President and Chief Executive Officer
2900 Davis Boulevard, Suite 130
Joplin, Missouri 64804
(417) 626-9961
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(Name, address and telephone number of agent for service)
Copies to:
John J. Concannon, III, Esq.
Bingham McCutchen LLP
150 Federal Street
Boston, Massachusetts 02110
(617) 951-8000
(617) 951-8736 (fax)
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time
after this Registration Statement becomes effective.
If any of the securities being registered on the Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 of the Securities Act, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
------------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered (1) Offering Price Per Aggregate Offering Registration Fee
Security (2) Price
------------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Shares of common stock, $0.001 par 2,404,000 $1.95 $4,687,800 $593.94(4)
value per share
------------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Shares of common stock, $0.001 par 534,900 $1.95 $1,043,055 $132.16(4)
value per share (3)
------------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
Total 2,938,900 $1.95 $5,730,855 $726.10(4)
------------------------------------ ----------------------- ----------------------- ----------------------- -----------------------
(1) All 2,938,900 shares registered pursuant to this registration statement are
to be offered by the selling shareholders. Pursuant to Rule 416 under the
Securities Act, this registration statement also covers such number of
additional shares of common stock to prevent dilution resulting from stock
splits, stock dividends and similar transactions pursuant to the terms of
the warrants referenced below.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act, using
the average of the bid and asked price as reported on the Over the Counter
Bulletin Board on March 1, 2005.
(3) Represents a total of 534,900 shares of common stock issuable upon the
exercise of warrants held by the selling shareholders.
(4) $628.62 of this registration fee was previously paid in connection with the
initial filing of the registration statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL AND IS NOT A SOLICITATION OF AN OFFER TO BUY IN ANY STATE IN WHICH AN
OFFER, SOLICITATION, OR SALE IS NOT PERMITTED.
Subject to completion, dated April 26, 2005
PROSPECTUS
SIRICOMM, INC.
2,938,900 SHARES OF COMMON STOCK
This prospectus relates to an aggregate of up to 2,938,900 shares of
our common stock, which may be offered by the selling shareholders identified in
this prospectus for their own account. Of such shares, 2,404,000 shares were
outstanding as of March 1, 2005 and 534,900 shares are issuable upon the
exercise of warrants that we have issued to the selling shareholders, including
31,900 shares issuable upon the exercise of warrants issued to Laidlaw Co. (UK)
Ltd (f/k/a Sands Brothers International Limited) as partial compensation for
services rendered to us as placement agent. Our filing of the registration
statement of which this prospectus is a part is intended to satisfy our
obligations to certain of the selling shareholders to register for resale the
shares issued to them and the shares issuable upon exercise of the warrants
issued to them.
We will not receive any proceeds from the sale of the shares by these
selling shareholders. We may, however, receive proceeds in the event that some
or all of the warrants held by the selling shareholders are exercised.
Unless the context otherwise requires, the terms "SiriCOMM", "we," "us"
or "our" refer to SiriCOMM, Inc.
Our common stock is listed on the OTC Bulletin Board under the symbol
""SIRC". From May 31, 1994 until November 21, 2002, our predecessor's common
stock traded on the OTC Bulletin Board under the symbol "FPHI."". The last
reported sales price per share of our common stock, as reported by the OTC
Bulletin Board on April 25, 2005, was $1.85.
---------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2005
TABLE OF CONTENTS
NOTICE ABOUT FORWARD LOOKING STATEMENTS.....................................2
PROSPECTUS SUMMARY..........................................................2
RISK FACTORS................................................................4
USE OF PROCEEDS.............................................................8
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS....................8
BUSINESS ................................................................9
LEGAL PROCEEDINGS..........................................................14
DESCRIPTION OF PROPERTY....................................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.....................................................14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE......................................................18
MANAGEMENT............................................................... 18
EXECUTIVE COMPENSATION.....................................................20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............22
DESCRIPTION OF SECURITIES..................................................23
PLAN OF DISTRIBUTION.......................................................24
SELLING SHAREHOLDERS.......................................................25
LEGAL MATTERS..............................................................27
EXPERTS ...............................................................27
AVAILABLE INFORMATION......................................................27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................F-1
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.........II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION..................II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES......................II-1
ITEM 27. EXHIBITS.....................................................II-4
ITEM 28. UNDERTAKINGS.................................................II-6
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER.
NOTICE ABOUT FORWARD LOOKING STATEMENTS
When used in this prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "intend," "plans", and similar expressions
are intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") regarding events, conditions and financial trends which may
affect our future plans of operations, business strategy, operating results and
financial position. Forward looking statements in this prospectus include
without limitation statements relating to:
o trends affecting our financial condition or results of
operations;
o our business and growth strategies;
o our technology; and
o our financing plans.
Such statements are not guarantees of future performance and are
subject to risks and uncertainties and actual results may differ materially from
those included within the forward-looking statements as a result of various
factors. Such factors include, among other things:
o our ability to obtain additional sources of capital to fund
continuing operations, in the event that we are unable to
timely generate revenues;
o our ability to retain existing or obtain additional licensees
who will act as distributors of our products;
o our ability to obtain additional patent protection for our
technology; and
o other economic, competitive and governmental factors affecting
our operations, market, products and services.
Additional factors are described in our other public reports and
filings with the Securities and Exchange Commission (the "SEC"). Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date made. SiriCOMM undertakes no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK
FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL
STATEMENTS.
Our Company
SiriCOMM was founded as a broadband wireless application service
provider to supply productivity and cost reduction software applications to the
commercial vehicle industry and other users whose effectiveness "over-the-road"
requires affordable driver connectivity and vehicle-access software productivity
tools.
On October 8, 2004, we announced that we had completed and opened the
first phase installation of a nationwide broadband wireless network that will
enable delivery of a wide range of service provider applications to those
businesses and governmental entities directly and indirectly dependent on the
nation's highway transportation system. To date, we have generated $20,000 in
revenues from our ISP product; and future significant revenues cannot be
guaranteed.
SiriCOMM was incorporated as a Delaware corporation under the name
"Fountain Pharmaceuticals, Inc." in April 1989. In approximately November 2002,
the shareholders of SiriCOMM, Inc., a privately-held Missouri corporation,
incorporated in 2000, exchanged all of the issued and outstanding common stock
of SiriCOMM, Inc. for a controlling interest in Fountain Pharmaceuticals, Inc.,
with the result that all of the then officers and directors of Fountain
Pharmaceuticals, Inc. resigned and were replaced by persons designated by
SiriCOMM, Inc., and the name of Fountain Pharmaceuticals, Inc. was changed to
"SiriCOMM, Inc."
SiriCOMM's corporate address is 2900 Davis Boulevard, Suite 130,
Joplin, Missouri 64809, our telephone number is 417-626-9971 and our fax number
is 417-782-0475.
Summary of the Offering
As of December 31, 2004, we consummated a private placement of units
pursuant to a Confidential Investment Proposal, dated October 11, 2004 and
amended on December 20, 2004. Each unit consisted of 50,000 shares of common
stock and a warrant to purchase 37,500 shares of common stock. As part of the
private placement, we sold an aggregate of 6.38 units (319,000 shares and
warrants to purchase 239,250 shares of common stock) for an aggregate purchase
price of $638,000, or $100,000 per unit. The warrants entitle the holders to
purchase shares of the common stock for a period of five years from the date of
issuance at an exercise price of $2.40 per share. The warrants contain certain
anti-dilution rights and are redeemable by us, on terms specified in the
warrants.
In connection with the private placement, Laidlaw Co. (UK) Ltd (f/k/a
Sands Brothers International Limited) the placement agent in the private
placement, received a cash commission fee of 9% of the gross proceeds to us of
the securities sold at the closing, a payment of $30,000 representing the fees
and expenses of our counsel in the private placement and warrants to purchase
31,900 shares of common stock, or 10% of the shares sold in the private
placement. The warrants are exercisable for a period of five years at an
exercise price of $2.40 per share and contain the same anti-dilution rights as
the common stock warrants issued in the December 2004 private placement.
In January 2005, we issued 85,000 shares of common stock upon the
exercise of certain warrants originally issued in January 2004 pursuant to a
private placement of units consisting of common stock and warrants. We received
$170,000 as a result of the exercise of these warrants. As an inducement to the
investors exercising their warrants, we also issued warrants to purchase an
aggregate of 63,750 shares of common stock. The warrants are exercisable for a
period of five years at an exercise price of $2.40 per share and contain the
same anti-dilution rights as the common stock warrants issued in the December
2004 private placement.
We are registering the 404,000 shares of common stock and the 334,900
shares of common stock underlying the warrants in connection with registration
rights agreements we entered into with certain of the selling shareholders. Our
registration of these shares does not necessarily mean that the selling
shareholders will exercise any of these warrants or sell any or all of the
underlying securities we have registered.
We are also registering 2,000,000 shares of common stock that we issued
to Sat-Net, Inc. in connection with services provided to us by Sat-Net, Inc.,
pursuant to the terms of a network installation agreement we entered into with
Sat-Net.
In February 2004, we issued warrants to purchase an aggregate of
200,000 shares of common stock to Messrs. Clark Burns and Philip Snowden
pursuant to a Finder's Agreement, dated November 14, 2003, between SiriCOMM and
Messrs. Burns and Snowden. We are registering the 200,000 shares of common stock
underlying these warrants pursuant to the terms of the Finder's Agreement.
Common stock offered by SiriCOMM: None.
Common stock offered by selling 2,938,900 shares, which includes 534,900
shareholders: shares issuable upon exercise of the
warrants described above.
Common stock outstanding: As of March 1, 2005, 18,686,450 shares of
our common stock were issued and
outstanding.
Proceeds to SiriCOMM: We will not receive proceeds from the resale
of shares by the selling shareholders. If
all warrants are fully exercised without
using any applicable cashless exercise
3
provisions, we will receive approximately
$903,760 in cash from the warrant holders.
Use of proceeds: Working capital.
OCT Bulletin Board Symbol: SIRC.
RISK FACTORS
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU
SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE
OTHER INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ARE
REALIZED, OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE
HARMED AND THE VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL
OR A PART OF YOUR INVESTMENT.
Risks Related to Our Business
We have a history of significant losses, and we may never achieve or sustain
profitability.
Since our inception, we have generated minimal revenues, incurred
substantial net losses, and currently are experiencing a substantial cash flow
deficiency from operations. Based upon our audited financial statements, we
incurred net losses of $2,778,407 for the fiscal year ended September 30, 2004.
As of September 30, 2004, we had a deficit accumulated during our development
stage of $6,701,021. As of the three months ended December 31, 2004, our
unaudited net loss was $495,614, while we generated minimal revenues of $6,273.
For the three months ended December 31, 2004, our accumulated deficit increased
to $7,201,970.
We have a limited operating history making it difficult to evaluate our business
and our future prospects.
To date, we have generated minimal revenues and have a very limited
operating history on which investors can evaluate our potential for future
success. Potential investors should evaluate us in light of the expenses,
delays, uncertainties, and complications typically encountered by early-stage
businesses, many of which will be beyond our control. These risks include the
following:
o Lack of sufficient capital,
o Unanticipated problems, delays, and expenses relating to
product development and implementation,
o Lack of intellectual property,
o Licensing and marketing difficulties,
o Competition,
o Technological changes, and
o Uncertain market acceptance of our products and services.
As a result of our limited operating history, our plan for rapid
growth, and the increasingly prospective competitive nature of the markets in
which we compete, our historical financial data are of limited value in
anticipating future operating expenses. Our planned expense levels will be based
in part on our expectation concerning future revenue, which is difficult to
forecast accurately based on our stage of development. We may be unable to
adjust spending in a timely manner to compensate for any unexpected shortfall in
revenue. Further, business development and marketing expenses may increase
significantly as we expand operations. To the extent that these expenses precede
or are not rapidly followed by a corresponding increase in revenue, our
business, operating results, and financial condition may be materially and
adversely affected. Our ability to generate revenue is uncertain and we may
never achieve profitability.
4
Our assumption of commercialization.
There can be no assurance that, when our products and services are
fully operational, either (i) our target market prospective customers will do
business with us or (ii) the level of business we generate, if any, will be
sufficient for us to generate a profit and sustain our business activities.
We will require significant additional capital to complete the installation of
our national broadband wireless network.
Our nationwide broadband wireless network is only partially built and
we will require significant capital to install the full number of WLAN sites we
believe are required to offer a nationwide network offering our products and
services. There can be no assurance that we will be able to raise this
additional required capital. If such capital is not raised, there can be no
assurance that the Network as it is currently installed in 38 states is
sufficiently dense or nationally robust enough to have functional utility for
our potential customers.
We expect to compete with large, well-capitalized companies.
Although we believe that we have no direct competitors, certain
companies "overlap" parts of our business model. There can be no assurance that
these companies, which are larger and better capitalized, will not respond to
competitive pressures presented by our business model. There can be no assurance
that we will be able to establish the credibility, products and services and
financial position needed to successfully compete against these companies.
Failure to do so could mean that we will substantially under-perform versus our
expectations.
We will compete in an industry that is characterized by rapid changes in
technology.
The business that we are launching is subject to rapid change and
evolution of the technology platforms, products and services available to
customers. There can be no assurance that either (i) the suite of products and
services that we have developed are currently the most up-to-date and
competitively priced or (ii) that such suite of products and services will not
be made obsolete as a result of the technology developments of competitors.
Our failure to have, maintain and continue to develop or acquire leading edge
technology could mean that we will substantially under-perform versus our
expectations.
Our business model requires that we continually develop and augment our suite of
products through internal development and acquisitions.
Our business model is dependent on our ability to augment our initial
suite of products and services with additional products and services important
to providing customers with an integrated communication and productivity suite
of products and services. There can be no assurance we have either the ability
or resources to accomplish this, the implication of which is that our
contemplated growth is subject to substantial risk.
Our ability to implement our business plan is dependent on our ability to
attract and retain key management employees.
While we believe that we have recruited the nucleus of a solid
management team, owing to our small size and thin capitalization, there can be
no assurance that we can retain these key management employees or that we can
hire the additional management and key employees that we need to grow. Our
failure to attract and retain key management employees could mean that we will
substantially under-perform versus our expectations and that investors in our
securities could lose some or all of their investment. We maintain key man
insurance on our Chief Executive Officer pursuant to a USDA loan agreement. We
are a party to employment contracts with three (3) of our executive officers who
are also inside directors.
Disruption of our services due to accidental or intentional security breaches
may harm our reputation, potentially causing a loss of sales and an increase in
our expenses.
A significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Our systems could be disrupted
5
by unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. If a third
party were able to misappropriate our users' personal or proprietary information
or credit card information, we could be subject to claims, litigation or other
potential liabilities that could materially adversely impact our revenue and may
result in the loss of customers.
There is no established market for SiriCOMM's services; we may not be able to
sell enough of our services to become profitable.
The markets for wireless data and transaction services are still
emerging. Continued growth in demand for, and acceptance of, these services
remains uncertain. Current barriers to market acceptance of these services
include cost, reliability, functionality and ease of use. We cannot be certain
that these barriers will be overcome. Our competitors may develop alternative
wireless data communications systems that gain broader market acceptance than
our systems. If the market for our services does not grow, or grows more slowly
than we currently anticipate, we may not be able to attract customers for our
services and our revenues would be adversely affected.
Our strategic alliances may not deliver the value we paid or will pay for them.
Excessive expenses may result if we do not successfully integrate our
strategic alliances, or if the costs and management resources we expend in
connection with these integrations exceed our expectations. Although we expect
that our strategic alliances (and any acquisitions or investments we may pursue
in the future) will have a continuing, significant impact on our business,
financial condition and operating results. No assurances can be given that any
such events will have the intended effects and results.
We may not achieve profitability if we are unable to maintain, improve and
develop the wireless data services we offer.
We believe that our future business prospects depend in part on our
ability to maintain and improve our current services and to develop new ones on
a timely basis. Our services will have to achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. As a result of the complexities inherent in our service offerings,
major new wireless data services and service enhancements require long
development and testing periods. We may experience difficulties that could delay
or prevent the successful development, introduction or marketing of new services
and service enhancements. Additionally, our new services and service
enhancements may not achieve market acceptance. If we cannot effectively develop
and improve services, we may not be able to recover our fixed costs or otherwise
become profitable.
Any type of systems failure could reduce sales, increase costs or result in
claims of liability.
Any disruption from our satellite feeds or backup landline feeds could
result in delays in our subscribers' ability to receive information. We cannot
be sure that our systems will operate appropriately if we experience a hardware
or software failure or if there is an earthquake, fire or other natural
disaster, a power or telecommunications failure, intentional disruptions of
service by third parties, an act of God or an act of war. A failure in our
systems could cause delays in transmitting data, and as a result we may lose
customers or face litigation that could involve material costs and distract
management from operating our business.
We anticipate that our sales cycle will be long, and our stock price could
decline if sales are delayed or cancelled.
Quarterly fluctuations in our future operating performance will be
exacerbated by the length of time between our first contact with a business
customer and the first revenue from sales of services to that customer or end
users. Because our services represent a significant investment for our business
customers, we will spend a substantial amount of time educating them regarding
the use and benefits of our services and they, in turn, spend a substantial
amount of time performing internal reviews and obtaining capital expenditure
approvals before deciding to purchase our services. As much as a year may elapse
between the time we approach a business customer and the time we begin to
deliver services to a customer or end user. Any delay in sales of our services
could cause our quarterly operating results to vary significantly from projected
6
results, which could cause our stock price to decline. In addition, we may spend
a significant amount of time and money on a potential customer that ultimately
does not purchase our services.
New laws and regulations that impact our industry could increase our costs or
reduce our opportunities to earn revenue.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than general
business regulations and regulations applicable to publicly traded Delaware
corporations of similar size that are headquartered in Missouri. However, in the
future, we may become subject to regulation by the FCC or other regulatory
agencies. In addition, the wireless carriers that supply our airtime and certain
of our hardware suppliers are subject to regulation by the FCC and regulations
that affect them could increase our costs or reduce our ability to continue
selling and supporting our services.
We are dependent upon long-term financing
Our ability to implement our business plan and grow is dependent on
raising a significant amount of capital. We have sustained our operations in
large part from sales of our equity. There can be no assurance that we will be
able to successfully generate revenues or raise additional funds sufficient to
finance our continued operations. In the long term, failure to generate
sufficient revenues or obtain financing would have a material adverse effect on
our business, operations and financial condition and would jeopardize our
ability to continue our operations. If we do raise additional funds by issuing
equity securities, further dilution to existing stockholders would result, and
future investors may be granted rights superior to those of existing
stockholders.
Risks Related to Our Common Stock
Our common stock has experienced volatility in the past, and may experience
significant volatility in the future, which substantially increases the risk of
loss to persons owning our common stock
Because of the limited trading market for our common stock, and because
of the significant price volatility, stockholders may not be able to sell their
shares of common stock when they desire to do so. In 2003, our stock price
ranged from a high of $4.00 to a low of $.02, and in 2004, our stock price
ranged from a high of $6.00 to a low of $0.95. The inability to sell shares in a
rapidly declining market may substantially increase the risk of loss as a result
of such illiquidity and the price for our common stock may suffer greater
declines due to its price volatility.
Our common stock is traded on the OTC Bulletin Board, which may be detrimental
to investors
Our shares of common stock are currently traded on the OTC Bulletin
Board. Stocks traded on the OTC Bulletin Board generally have limited trading
volume and exhibit a wide spread between the bid/ask quotations. We cannot
predict whether a more active market for our stock will develop in the future.
In the absence of an active trading market:
o investors may have difficulty buying and selling our common
stock or obtaining market quotations;
o market visibility for our common stock may be limited; and
o a lack of visibility for our common stock may have a
depressive effect on the market price for our common stock.
Our common stock is subject to penny stock rules, which may be detrimental to
investors.
Our common stock is subject to Rule 15g-1 through 15g-9 under the
Exchange Act, which imposes certain sales practice requirements on
broker-dealers which sell our common stock to persons other than established
customers and "accredited investors" (generally, individuals with net worth in
excess of $1,000,000 or annual incomes exceeding $200,000 (or $300,000 together
with their spouses)). For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to the sale.
7
This rule adversely affects the ability of broker-dealers to sell our common
stock and purchasers of our common stock to sell their shares of such common
stock. Additionally, our common stock is subject to SEC regulations for "penny
stock." Penny stock includes any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. The
regulations require that prior to any non-exempt buy/sell transaction in a penny
stock, a disclosure schedule set forth by the SEC relating to the penny stock
market must be delivered to the purchaser of such penny stock. This disclosure
must include the amount of commissions payable to both the broker-dealer and the
registered representative and current price quotations for the common stock. The
regulations also require that monthly statements be sent to holders of penny
stock that disclose recent price information for the penny stock and information
of the limited market for penny stocks. These requirements adversely affect the
market liquidity of our common stock.
USE OF PROCEEDS
This prospectus relates to 2,938,900 shares of our common stock, which
may be sold from time to time by the selling shareholders. We will not receive
any part of the proceeds from the sale of common stock by the selling
shareholders. If all warrants are fully exercised without using any applicable
cashless exercise provisions, we will receive approximately $903,760 in cash
from the warrant holders. Any proceeds received by us from the exercise of the
warrants will be used by us for general corporate purposes.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information
Our common stock presently trades on the OTC Bulletin Board under the
symbol "SIRC". From May 31, 1994 until November 21, 2002 our predecessor's
common stock traded on the OTC Bulletin Board under the symbol "FPHI."
As of March 1, 2005, we had 18,686,450 outstanding shares of common
stock, $.001 par value. As of March 1, 2005, we had outstanding 213,417 shares
of Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock").
Each share of Series A Preferred Stock converts into our common stock at the
rate of $2.00 per share. As of March 1, 2005 we had outstanding 4,803,018
warrants and options.
The following table sets forth certain information with respect to the
high and low market prices of our common stock for the fiscal years ended
September 30, 2003 and 2004:
Year Period High Low
---- ------ ---- ---
Fiscal Year 2003 First Quarter $4.00 $1.20
Second Quarter $2.25 $0.02
Third Quarter $2.40 $0.99
Fourth Quarter $2.00 $0.80
Fiscal Year 2004 First Quarter $1.40 $0.95
Second Quarter $4.90 $1.02
Third Quarter $6.00 $3.70
Fourth Quarter $5.15 $2.75
Fiscal Year 2005 First Quarter $4.30 $2.35
The closing price of our common stock on April 25, 2005 was $1.85.
The high and low prices are based on the average bid and ask prices for
common stock, as reported by the OTC Bulletin Board. Such prices are
inter-dealer prices without retail mark-ups, mark-downs or commissions and may
not represent actual transactions.
Shareholders
Records of our stock transfer agent indicate that as of March 1, 2005,
we had 129 record holders of our common stock. Since a significant number of our
shares are held by financial institutions in "street name," it is likely that we
have significantly more stockholders than indicated above. We estimate that we
have approximately 1,000 beneficial holders, including such shares held in
"street name."
8
Dividend Policy
Our board of directors determines any payment of dividends. We have
never declared or paid any cash dividends, and we do not anticipate or
contemplate paying cash dividends in the foreseeable future. It is our Board of
Directors intention to utilize all available funds for working capital of
SiriCOMM.
BUSINESS
Overview
SiriCOMM was founded as a broadband wireless application service
provider to supply productivity and cost reduction software applications to the
commercial vehicle industry and other users whose effectiveness "over-the-road"
requires affordable driver connectivity and vehicle-access software productivity
tools.
On October 8, 2004, we announced that we had completed and opened the
first phase installation of a nationwide broadband wireless network that will
enable delivery of a wide range of service provider applications to those
businesses and governmental entities directly and indirectly dependent on the
nation's highway transportation system. To date, we have generated $20,000 in
revenues from our ISP product; and there can be no guarantee of future
significant revenue generation.
Corporate Structure
SiriCOMM was incorporated as a Delaware corporation under the name
"Fountain Pharmaceuticals, Inc." in April 1989. In approximately November 2002,
the shareholders of SiriCOMM, Inc., a privately-held Missouri corporation,
incorporated in 2000, exchanged all of the issued and outstanding common stock
of SiriCOMM, Inc. for a controlling interest in Fountain Pharmaceuticals, Inc.,
with the result that all of the then officers and directors of Fountain
Pharmaceuticals, Inc. resigned and were replaced by persons designated by
SiriCOMM, Inc., and the name of Fountain Pharmaceuticals, Inc. was changed to
"SiriCOMM, Inc."
Our Network
We are in the process of building a national broadband wireless network
that involves populating "hot spots" (i.e., user access sites located at
optimal, high density national highway locations) using standard IEEE 802.11b/g
technology and a dedicated proxy remote site server (RSS). The wireless local
area networks (WLANs) are connected by satellite uplink to our central hub
server, which, in turn, provides subscribers with high speed, two-way, broadband
access to the Internet. We have completed the installation and are currently
providing service from approximately 255 sites at Pilot Travel Centers to be
followed by an approximately 145 additional sites at other high traffic
locations, which we believe will give us an initial national network presence.
On December 28, 2004, we entered into a memorandum of understanding
with ACS State and Local Solutions, Inc. ("ACS") regarding a pilot project to
assess the value and service delivery capacity for our network services at ACS's
Prepass sites. The pilot project is limited to no more than ten (10) Prepass
weigh station locations. Upon successful completion of the pilot project, the
parties agreed to explore the possibility of providing value added service to
both the government market and the commercial carrier market through its full
implementation in approximately 255 sites.
There are four key components to SiriCOMM's network architecture: the
wireless local area network (WLAN), the remote site server (RSS), the satellite
communications link, and the central hub server. We believe these components use
the most advanced, proven technologies available today. We believe that we are
unique in that these proven technologies have, to our knowledge, never before
been integrated into an end-to-end solution.
Our satellite link is secured through an agreement with ViaSat, a
California-based satellite communications service provider. We selected ViaSat's
LinkStar product, which uses Ku-band to enable wideband transmission of data
between the RSS stations and the central hub server. ViaSat's service, when
combined with SiriCOMM's database replication and data compression technologies,
we believe, maximizes the capacity of the satellite bandwidth and substantially
9
reduces the cost of satellite data communications. As a result, we believe, the
system will provide greater bandwidth-to-cost ratios when compared to other
communications options.
SiriCOMM's proprietary RSS incorporates the functions of router,
caching-proxy server, video-on-demand server, web server and e-mail server into
a single compact package. The RSS stations are custom-built computers running a
custom operating system based on the BSD 5.2 kernel (Unix). The servers are
designed for reliable, unattended 24x7 operation and feature mechanisms that
enhance reliability. The operating firmware runs from nonvolatile solid-state
memory, not a mechanical hard disk, which enables the servers to be remotely and
completely reformatted from our Network Operations Center (NOC). We believe that
the unique design features and capacity of the RSS's will provide substantial
opportunity for future applications to include pay-per-view video, audio file
downloading, fleet intranet hosting, distance learning and other similar
services.
With our central hub server (located in Kansas City, Missouri) and
satellite interfaces in place and the first approximately 255 WLANs completed,
our broadband wireless network was "switched on" as of October 7, 2004 and is
technically operational and available for use in 38 states. We currently plan,
within calendar year 2005, to complete the installation of approximately 600
WLANs to allow us to be available for service in the entire "lower 48 states"
with sufficient locational "hot spot" density to permit customers convenient,
full service, national access. Such additional installations will be subject to
our raising additional sufficient capital.
Subscribers will be able to access our portal website,
signup.subscribers-siricomm.com, to sign up for services, using 802.11b/g
wireless enabled computers and handheld devices. The devices can communicate
with the WLAN from within approximately one-half a mile of the WLAN access
point-- currently at Pilot Travel Centers with plans to expand to other a
highway truck stops, rest areas, weigh stations, or ports of entry.
Subscribers will be able to access each SiriCOMM WLAN using any of
several devices. The network supports common devices including Palm OS or
PocketPC hand held computers or a PC, laptop or tablet running Mac OS or Windows
98, NT, 2000, or XP PCs, laptops, and tablets. The only requirements are a
compatible 802.11 card having a MAC number properly registered with us.
When connected to the WLAN, subscribers will be able to exchange
application data, send and receive e-mail, communicate with their company/agency
headquarters' intranet, get updated road conditions, news and weather, and
download games, access business and travel software applications. The satellite
link allows up to 58 megabit per second bursts to all RSS stations from the
central hub server and the RSS stations can communicate back to the central hub
server at data rates up to 3.3 Mbps.
We are also negotiating with additional organizations to enter into
strategic alliances to further build out our "hot spot" infrastructure with a
goal of installing approximately 145 additional "hot spots" within 120 days of
finalizing such agreements. By the end of calendar year 2005, we plan to have a
total of approximately 1,000 sites installed, but have not yet raised sufficient
capital to achieve this goal. No assurances can be given that we will be able
to achieve such goal and such goals are dependent upon our success in the
raising of additional capital.
Initial Target Markets
With a national network presence, we believe our market of opportunity
can serve the commercial trucking industry, federal and state law enforcement,
recreation vehicles, business travelers, and the general driving public as our
initial "Target Markets"
Initially, we have directed our market initiatives with a two-pronged
focus:
o Trucking. According to the American Trucking Association
Economics and Statistics Group in a report published for the
period January-May 2004, in 2002 the United States trucking
industry had over 485,000 fleets, with over 2.6 million Class
8 trucks (excluding government and farm) in use (by
definition, a fleet is one or more trucks with a U.S.
Department of Transportation issued motor carrier number). To
include Classes 3-8, this number rises to 6.1 million trucks
used for business purposes. In this same report, it stated
that 4.9 million commercial trailers were registered in 2002.
We believe that only 10% of trucks on the road today utilize
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in-cab data communications because current solutions are
expensive to install, feature variable monthly service fees,
and offer no clearly documented return on investment.
We believe our products and services offer fleet owners low
up-front costs, fixed monthly fees and verifiable returns on
investment. To attempt to provide these returns on investment,
our solution will combine (i) affordable basic broadband
Internet network access coupled with (ii) a suite of products
and services, some proprietary to us and others developed by
third-parties where we have forged an alliance. These products
and services, we believe, address long-standing industry
problems through proprietary software that enables: paperless
shipping documents with signature capture, paperless driver
logs, fuel purchasing productivity software, electronic
vehicle performance data, decision support tools, and other
two-way, high bandwidth wireless communications opportunities.
o Government. We are also attempting to develop a suite of
products to be marketed to government agencies. We believe we
have a business opportunity with both state and local highway
and traffic authorities as well as, potentially, the Office of
Home Land Security--especially if our WLANs are authorized for
points of entry into the United States of America. No
assurances can be given that these attempts will be successful
or result in any significant revenues.
Products and Services
Our business model is a subscription-based customer access model where
businesses and governmental customers will pay monthly network access fees to
subscribe for various services that we plan to provide through a combination of:
(i) proprietary application specific products developed by us which are
accessible by customers via the network and (ii) other products and services
developed by third parties which require network access for delivery to the
user.
These products and services fall generically into two categories:
o Basic Internet Access - IN TOUCH(TM) : We believe certain of
our target market customers will seek to subscribe to our
service solely to gain access to the Internet. These target
market customers are likely to be independent truckers, others
in the private sector and certain state and local governmental
highway safety and law enforcement agencies who seek only
basic email and informational access afforded by the Internet.
For this portion of our target market, we will offer our IN
TOUCH(TM) Internet Services Provider service for a monthly
service fee.
o Application Specific Productivity Software. Our founders'
believe through experience that next generation commercial
vehicle cost reductions and productivity improvements will
come from driver-based decision support tools. SiriCOMM was
founded as a broadband wireless application service provider
to supply productivity and cost reduction software
applications to the commercial vehicle industry. For this
target market segment, we intend to offer the following
initial suite of proprietary productivity software tools (the
"Proprietary Software Productivity Tools"):
PULSE(TM): This is a passive wireless device connected to the
vehicle ECM (engine control module) which is programmed with
our software to provide trucking fleet operators with:
o Wireless, remote vehicle diagnostics
o Driver performance diagnostics
o Global Positioning System coordinates
BEACON(TM): We have developed this proprietary software
product to address critical productivity needs of the trucking
industry--i.e., cost reduction, productivity improvement,
safety and security enhancements. The BEACON(TM) package
includes IN TOUCH and, when bundled with the PULSE(TM)
product, will enable greater functionality. The initial suite
of applications within BEACON includes:
E-freight bill E-maintenance tracking
E-fuel network purchasing E-Pay settlement
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E-load finder E-logbook
E-driver referral Fleet intranet hosting
The proposed monthly subscription includes access to the
entire suite of software described above, unlimited Internet
access (IN TOUCH), and a wireless enabled Palm OS client
device. The individual components (i.e., PULSE or BEACON) can
also be subscribed as stand alone options. We have developed a
cost justification model, which we believe can demonstrate
expected savings of up to six times the monthly fee per truck.
In addition, we believe the BEACON platform can easily support
expansion for other revenue opportunities to include:
pay-per-view movies, advertising, networked gaming and
distance learning, to name a few. However, no specific
economic model has been completed to cost justify these
enhancements.
Sales and Marketing.
With the initial phase of our network backbone in place and operational
in approximately 38 states, we believe that the sales and marketing initiatives
that we undertook while the network was being installed now have the possibility
of generating revenue. These efforts are two-pronged as follows:
o Direct Sales. To market and sell our Proprietary Software
Productivity Tools, we employ our own direct sales force. This
direct sales force is primarily (i) marketing to the nation's
larger commercial trucking fleet operators and (ii) following
up in an effort to up-sell selected customers originated by
our sales and marketing alliance partners (see next below). At
present, our sales force is comprised of an Executive Vice
President of Sales and a National Sales Manager. We expect
that we will hire additional sales persons as opportunities
arise to support such expansion.
o Alliance Partners/VAR's. We have established, among others,
the following sales and marketing alliance
partners/value-added resellers (VAR's) in an effort to
escalate the time period within which we and our products and
services gain traction in our target markets.
Idling Solutions. Idling Solutions, LLC ("ISL") is a supplier
of integrated idle reduction solutions for the trucking
industry. Its principal product, the IS9000, includes a high
capacity battery pack and auxiliary heating and cooling unit
for installation on commercial heavy-duty trucks. The IS9000
will enable truck fleets to promote fuel conservation by
eliminating idling and, as a result, will also sharply reduce
exhaust emissions and engine maintenance costs. We believe
that, because off-duty truck drivers sleep in the cabs of
their trucks, they have had to depend on idling their truck
engines to generate heat or air conditioning as well as power
for appliances such as laptops, radios, and televisions. The
IS9000 power pack replaces the conventional starterbatteries
and also supports comfort amenities for drivers. The system
contains enough power to keep a truck tractor sleeper
comfortable for ten or more hours. We have an exclusive
arrangement with ISL pursuant to which we will provide
wireless subscription service for trucks using the IS9000
product. Through this agreement we will deliver data necessary
for ISL to verify warranty performance of the IS9000 and file
on behalf of our customers Mobile Emissions Reductions Credits
(MERC) tax credits. We will charge a nominal subscription rate
per month, which will provide the ISL customers with minimal
amounts of data and we expect to "upsell" our BEACON and PULSE
services to a substantial number of the ISL subscribers. The
purpose of these services is to provide a real-time,
certifiable record that the truck was not moving and was,
indeed, turned off.
Getloaded.com. We have entered into a value-added reseller
(VAR) agreement with Getloaded.com, one of the nation's
largest freight matching services. Getloaded.com currently
serves approximately 16,000 fleets and approximately 250,000
trucks subscribing to its freight matching services.
Getloaded.com believes that its relationship with us will
enable it to migrate from a call center-based business model
to a primarily on-line service. Getloaded.com has verbally
informed us that it plans to sell subscriptions to our ISP
through its call center and its billing services operations.
DriverTech. We have signed an agreement with DriverTech, a
Salt Lake City-based supplier of ruggedized vehicle computers
for the U.S. military pursuant to which DriverTech's TruckPC,
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the commercial version of its military product that is in wide
use in Iraq and Afghanistan, will use our network as its
primary communications medium. In addition, DriverTech will be
a value-added reseller of our BEACON(TM) products. The
addition of BEACON, we believe, gives TruckPC far greater
functionality and portability. Presently, DriverTech has
verbally informed us that it has scheduled several large
truckload fleets to beta test its product.
In each of these VAR arrangements, we compensate the VAR with a
percentage of the revenues generated as a result of the VAR's sales and
marketing success. No assurances can be given as to when, if ever, these
arrangements will generate significant revenue to us.
Competition
Based upon our business approach and pioneering technology, we believe that
there currently are no direct competitors in the trucking or highway wireless
market. However, competition is inevitable and we believe existing entities as
well as new entities will enter the marketplace. Many of such entities will have
substantially more funds, experience, employees and other resources than us. As
a result, no assurances can be given that we will be able to compete with such
entities. We, however, believe that we have certain technological advantages,
and our affordable productivity tools, extensive industry experience, and
patents pending present certain entry barriers for potential competitors.
Notwithstanding, there are several competitors whose services "overlap" our
service offerings to some extent. These include Qualcomm, Aether Systems,
@tracks (formally Highway Master), PeopleNet, PSTN-based WLAN providers, and
wireless telecommunications companies.
o Qualcomm. Qualcomm's satellite communications and tracking
system provides Global Positioning System (GPS) truck locating
and low bandwidth text messaging transmissions. Qualcomm
currently has approximately 425,000 units installed worldwide.
The system functions well, but offers limited benefits to
companies according to many subscribers. Our management
believes that this system is very costly to purchase, install,
and operate. There is a minimum monthly messaging fee and
additional charges per character when the minimum is exceeded.
o Aether Systems (acquired by Platinum Equity- Sept. 20, 2004).
Aether's transportation services division provides services
very similar to those of Qualcomm. Although it has several
truckload fleet customers as a result of its acquisition of
@tracks, its principal base of customers is service fleets
such as Sears, JC Penney, etc. Like Qualcomm its principal
services include tracking and text messaging. Its equipment
and monthly usage fees are expensive, management believes, by
industry standards.
o @tracks. Acquired by Aether in April, 2002, this mobile
communication product is designed to address communication and
information needs of the trucking industry. The system allows
trucking companies, brokers, and families to communicate with
drivers who are on the road. In addition, the system can send
and receive data and messages, determine GPS truck location,
manage and track loads, and track vehicle mileage. Data is
transferred using a combination of cellular and satellite
technology. Consequently, the system is viewed by our
management to be expensive to purchase and install, though
less than Qualcomm. The monthly usage fees, however, are
extremely high compared to Qualcomm due principally to the
cellular component of the service. Relatively few of these
units are in service compared to Qualcomm.
o PeopleNet. PeopleNet provides web-based fleet communications
ranging from GPS tracking only to low bandwidth text, voice
and applications. PeopleNet operates on Aeris.Net's Microburst
service, a technology that uses underutilized portions of
partner cellular provider's channels to send and receive small
packets of data. For fleets electing to install the full suite
of equipment and services, PeopleNet offers several
applications similar to our applications. However, as it is a
low bandwidth solution it does not offer Internet, intranets,
or other applications requiring higher bandwidth. Equipment
costs and monthly service fees are comparatively high, though
somewhat less than Qualcomm, and equipment installation must
be performed at one of PeopleNet's hub facilities.
o PSTN-Based WLAN Providers. PSTN-based WLAN providers are
companies that install wireless LANs using public switched
telephone networks (PSTN), usually T-1 lines or digital
13
subscriber lines, for access to the Internet. These businesses
typically target business travelers with Internet and email
access in airports, coffee shops and hotel lobbies. Monthly
service charges are high in comparison to the other services
and applications provided. For example, Boingo, a nationwide
hot spot aggregator, charges $79.95 per month for unlimited
access. Though these providers are identified as competition,
we anticipate developing roaming agreements with key
identified hot spot providers.
Government Regulation and Industry Standards
Our products and services are currently not regulated by the FCC or
local governments. The regulatory process in the United States can be
time-consuming and can require the expenditure of substantial resources. There
is no assurance that the FCC or state regulatory agencies will not seek to
regulate the use of frequencies utilized by our services or, if such services
are regulated, grant the requisite approvals for any of our products on a timely
basis, or at all. The failure of our products to comply, or delays in
compliance, with the various existing and evolving standards could negatively
impact our ability to market our products and services. United States and state
regulations regarding the manufacture and sale of modems and other data
communications devices are subject to future change. We cannot predict what
impact, if any, such changes may have on our business.
LEGAL PROCEEDINGS
On December 17, 2004, Henry Hoffman, Kory Dillman, David Mendez, Tom
Noland, Richard Iler and Terry Thompson were named defendants in a lawsuit
entitled Greg Sanders v. Henry Hoffman et al. Messrs. Hoffman, Dillman, Mendez
and Iler are officers and directors of SiriCOMM, Mr. Thompson is a director of
SiriCOMM and Mr. Noland is a former officer and director of SiriCOMM. The action
was brought in the Circuit Court of Jackson County, Missouri at Kansas City
(04CV236387). The action alleges fraud, misrepresentation and breach of
fiduciary duty relating to a settlement agreement entered into with Mr. Sanders.
SiriCOMM is not a party to this lawsuit. The complaint seeks damages in excess
of $9,679,903. We will pay all expenses relating to the defense of this matter.
In management's opinion this case is without merit and the defendants intend on
defending this matter vigorously.
We are not a party to any other legal or administrative proceedings.
DESCRIPTION OF PROPERTY
Our principal executive offices are located at 2900 Davis Blvd., Suite
130 Joplin, MO 64804, where we occupy approximately 1,200 square feet of office
space. Our rent for this space is $1,200 per month. We lease this space on a
month-to-month basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Financial
Statements and the related notes. This discussion contains forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Our actual results
and the timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risks Relating to Our Business," "Description of
Business" and elsewhere in this document. See "Forward-Looking Statements."
Background
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
14
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,
involves the more significant judgments and estimates used in the preparation of
our consolidated financial statements.
We account 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.
We use the tri-nominal 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 fiscal years 2004 and 2005: Expected future volatility over the
expected lives of these instruments is estimated to mirror historical experience
of 75 %; expected lives of 2 years is estimated based on management's judgment
of the time period by which these instruments will be exercised.
Plan of Operations
We are engaged in the development of broadband wireless software and
network infrastructure solutions for the commercial transportation industry and
government market. We have 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. Our 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 our software applications and
Internet access. We believe that our 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.
Our patent-pending network infrastructure solution provides
considerable benefits when compared to other solutions competing in the wireless
sector. We 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 our
network provides considerable cost-to-bandwidth efficiencies. Our 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, we recommend a
Wi-Fi-enabled Palm OS handheld computer. Our productivity enhancing solutions
are expected to become commercially available during the third quarter of the
year 2005.
Results of Operations for the Three Months Ended December 31, 2004 and 2003
During the quarter ended December 31, 2004, we completed and activated
255 access points on our network and commenced selling our InTouchTM Internet
Service. As a result we generated revenue of $6,273 compared to $0 in the same
period last year.
During the three months ended December 31, 2004, net losses totaled
$495,614. For the three months ended December 31, 2004, our general and
administrative expenses totaled $150,193 or 30.1 % of total operating expenses,
while for the three months ended December 31, 2003 general and administrative
expenses totaled $347,343 or 63.6% of total operating expenses. The decrease was
mostly attributable to decreased professional expenses and other costs
associated with raising debt or equity financing. For the three months ended
December 31, 2004, we incurred salaries of $235,337, or 47.1% of operating
expenses, as compared to the three months ended December 31, 2003, $129,180, or
23.7% of total operating expenses. The increase was due to the addition of
15
several individuals necessary to continue our growth goals. Network access fees
of $93,870 had been incurred in the three-month period ending December 31, 2004
as we commenced operations of our network. The previously mentioned changes
resulted in the total operating expenses decreasing to $499,288 in 2005 from
$546,146 in 2004.
For the three months ending December 31, 2004, interest expense was
$4,460 as compared to $14,777 for the three months ended December 31, 2003.
Network equipment in progress of installation increased in the
three-month period ended December 31, 2004, to $846,000 from $646,000 for fiscal
year ended September 30, 2004, as we made a further progress payment on the
installation of 255 WLAN sites.
Other accrued expenses increased to $157,858 for the three-month period
ended December 31, 2004 compared to $45,928 as of September 30, 2004, as we
incurred network access fees from opening our network for commercial usage.
Results of Operations 2004 Compared to 2003
During fiscal 2004, we advanced our efforts towards commercialization
of our products and services. To that end, we reached various agreements with
original equipment manufacturers, truck-stop operators and other sales agents.
Operating expenses increased from $1,599,608 in 2003 to $2,585,327 in 2004 as a
direct result of our developing and marketing our products and services,
increased professional expenses and costs associated with raising debt and
equity financing. Included in operating expenses in 2004 is an aggregate of
$50,000 in stock-based compensation charges for the intrinsic value of options
granted to our personnel. Research and development expenses were minimal and
decreased to $26,450 in 2004 from $77,567 in 2003 due to cash flow
considerations.
Interest expense decreased to $26,578 in 2004 from $50,948 in 2003. The
decrease is attributable to the retirement of notes and conversion of several
debt obligations into equity.
Liquidity and Capital Resources
Since our inception, we have financed our activities primarily from
short-term loans and private sales of our securities. During fiscal 2003, we
borrowed an aggregate of $680,000 from several lenders. We issued promissory
notes to these lenders. The notes had varying interest rates ranging from 4% to
10%. In addition, of the $680,000, an aggregate of approximately $570,000 was
converted into our preferred or common equity during the first and second
quarters of fiscal 2004. We have also raised proceeds through the private sale
of our equity. In March 2004 a private placement consisting of 2,000,000 units
at a $1.00 per unit was completed, each unit consisting of one share of our
common stock and one three-year warrant exercisable at $2.00 per share. In May
2004, we completed a 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. We received proceeds in connection with
these private placements of $1,115,689.
In October 2004, we borrowed $200,000 on our line of credit facility
with Southwest Missouri Bank. The proceeds were paid to Sat-Net in conjunction
with the installation and distribution of hotspots. Amounts borrowed pursuant to
this line of credit facility can be used for infrastructure equipment purchases
and cannot be used for general operating purposes.
Pursuant to a contract between Pilot Travel Centers and us, in
consideration for Pilot's permitting us to install our broadband wireless
network in Pilot's 255 travel centers, we issued, upon completion of the
installation and testing in October 2004, 255,000 common stock purchase warrants
exercisable for five years, expiring on May 27, 2009 at an exercise price of
$4.50 per share.
As of December 31, 2004, we consummated a private placement of units
pursuant to a Confidential Investment Proposal dated October 11, 2004 and
amended on December 20, 2004. Each unit consisted of 50,000 shares of our common
stock and a common stock warrant to purchase 37,500 shares of common stock . In
the private placement, we sold an aggregate of 6.38 Units (319,000 shares and
16
warrants to purchase 239,250 shares of common stock) for an aggregate purchase
price of $638,000, or $100,000 per unit. The warrants entitle the holders to
purchase shares of the common stock for a period of five years from the date of
issuance at an exercise price of $2.40 per share. The warrants contain certain
anti-dilution rights and are redeemable by us, on terms specified in the
warrants.
In connection with the private placement, Laidlaw Co. (UK) Ltd. (f/k/a
Sands Brothers International Limited) the placement agent in the private
placement, received a cash commission fee of nine (9%) of the gross proceeds to
us of the securities sold at the closing, a payment of $30,000 representing the
fees and expenses of our counsel in the private placement and warrants to
purchase 31,900 shares of common stock, or ten percent (10%) of the shares of
our common stock sold in the private placement. These warrants are exercisable
for a period of five years at an exercise price of $2.40 per share and contain
the same anti-dilution rights as the warrants issued in the private placement.
In connection with the private placement, we also agreed to file with
the SEC a registration statement covering the shares of common stock issued in
the private placement and the shares of common stock issued underlying the
warrants issued in the private placement, including the warrant issued to the
placement agent. If such registration statement is not filed within the required
time frame, or does not become effective within 120 days of the closing date, we
have agreed to pay to the investors 1% of the gross proceeds of the private
placement for each thirty (30) day period in which we fail to comply with such
requirements
On January 5, 2005, we issued an aggregate of 85,000 shares of our
common stock upon the exercise of a like number of warrants, exercisable at
$2.00 per share. The warrants were originally issued in January 2004 pursuant to
a private placement of our units consisting of common stock and warrants.
As an inducement to the investors exercising their warrants, we issued
warrants to purchase an aggregate of 63,750 shares of common stock to the
investors. The new warrants entitle the holders to purchase shares of our common
stock reserved for issuance thereunder for a period of five years from the date
of issuance at an exercise price of $2.40 per share. The warrants contain
anti-dilution rights and are redeemable by us, in whole or in part, on terms
specified in the warrants.
As a further inducement to the investors exercising their warrants, we
also agreed to file with the SEC a registration statement covering the shares
purchased by each investor as part of the units, the shares issued upon exercise
of the warrants and the shares underlying the new warrants.
On February 7, 2005, we entered into a network installation agreement
with Sat-Net Communications, Inc., pursuant to which Sat-Net agreed to provide
us certain services in exchange for 2,000,000 shares of our common stock,
warrants to purchase 1,000,000 shares of our common stock at an exercise price
of $2.00 per share that are exercisable upon the completion of certain services,
and cash consideration. We have agreed to register the 2,000,000 shares held by
Sat-Net pursuant to the terms of the network installation agreement.
The cash proceeds of the above sales of our securities were used for
general corporate purposes in developing our planned services.
We will continue our installation plans toward denser coverage of our
nation wide network. Additional financing will be required to fund such
installations, but there can be no assurances that we will be able to obtain
such funds under acceptable terms.
On January 24, 2005, we repaid a note payable of $25,000 plus accrued
interest to an individual investor.
Contractual Obligations and Commercial Commitments
Contractual obligations as of December 31, 2004 are as follows:
Contractual Obligations
Total Less than 1 year 1-3 years 4-5 years After 5 years
----- ---------------- --------- --------- -------------
Line of credit and note
payable $ 334,604 $ 334,604 - - -
17
Operating leases - - - - -
Total contractual cash
obligations $ 334,604 $ 334,604 - - -
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a
revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
employees, and amends FASB Statement No. 95, Statement of Cash Flows. The
approach to accounting for share-based payments in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
and no longer allows pro forma disclosure as an alternative to financial
statement recognition. We will be required to adopt Statement 123(R) at the
beginning of our fiscal year beginning October 1, 2006. We have not determined
what financial statement impact Statement 123(R) will have on us.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On April 7, 2004, based upon the recommendation of and approval by our
board of directors, we dismissed Aidman Piser & Company, P.A. ("Aidman Piser")
as our independent auditor and engaged BKD, LLP to serve as our independent
auditor for the fiscal year ending September 30, 2004. On May 11, 2004, at the
annual shareholders meeting, our shareholders affirmed the engagement of BKD,
LLP as our independent auditors.
Aidman Piser's reports on our consolidated financial statements for the
fiscal year ended September 30, 2003, contained a qualified opinion as to our
ability to continue as a "going concern" in our absence of revenues, or the
ability to attract additional capital. During the years ended September 30, 2003
and 2002 and through April 7, 2004, there were no disagreements with Aidman
Piser on any matter of accounting principle or practice, financial statement
disclosure or auditing scope or procedure, which, if not resolved to Aidman
Piser's satisfaction, would have caused them to make references to the subject
matter in connection with their reports of our consolidated financial statements
for such years. In addition, we believe there were no reportable events as
defined in Item 304(a)(1)(iv)(B) of Regulation S-B.
We provided Aidman Piser with a copy of the foregoing statements and
requested that Aidman Piser provide it with a letter addressed to the SEC
stating whether it agrees with the foregoing statements. A copy of Aidman
Piser's letter, dated April 7, 2004, was filed as Exhibit 16.1 to our Current
Report on Form 8-K filed with the SEC on April 12, 2004.
MANAGEMENT
The following table sets forth certain information with respect to each
of our executive officers and directors as of March 1, 2005.
Name Age Position
---- --- --------
Henry P. (Hank) Hoffman 53 President, CEO and Chairman
David N. Mendez 44 Executive Vice President - Sales and Marketing
and Director
Kory S. Dillman 34 Executive Vice President - Internet Business
Development and Director
18
J. Richard Iler 52 Chief Financial Officer and Director
Terry W. Thompson 54 Director
Henry P. (Hank) Hoffman was appointed our President and CEO on November
21, 2002. On that same date Mr. Hoffman was elected to our Board of Directors to
serve as its Chairman. Mr. Hoffman co-founded SiriCOMM in January 2000 and has
been our President, CEO and Chairman since our inception. Mr. Hoffman has over
twenty years experience in the transportation industry. From September 1, 1996
to January 21, 2000 Mr. Hoffman was President and Chief Operating Officer of
Hook Up, Inc. of Joplin, MO, a small niche motor carrier. From 1990 to 1995 Mr.
Hoffman was President and COO of Tri-State Motor Transit, the nation's largest
transporter of munitions for the U.S. Government. Prior to his term at
Tri-State, he served in several Operations/Management positions with both
Schneider National, Inc. and Viking Freight System. As an industry leader he has
been a Vice President of the American Trucking Associations, President and
Chairman of the Board of the Munitions Carriers Conference, member of the Board
of Directors of the National Automobile Transporters Association, and Forum
Co-Chairman of the National Defense Transportation Association. Prior to his
trucking industry career, Mr. Hoffman served as an officer in the United States
Army Field Artillery for six years where he completed two command assignments.
Mr. Hoffman earned a Bachelor of Science degree from the United States Military
Academy, West Point, NY and a Master of Business Administration from the
University of Wisconsin, Oshkosh, WI.
David N. Mendez was appointed our Executive Vice President - Sales and
Marketing on November 21, 2002. On that same date Mr. Mendez was also elected to
our Board of Directors. Mr. Mendez co-founded SiriCOMM in April 2000 and has
been our Executive Vice President Sales and Marketing and a director since our
inception. Mr. Mendez has over nine years experience in telecommunications sales
and marketing. Mr. Mendez's telecommunications expertise focuses on domestic and
international data communication networks including Frame Relay and ATM
infrastructures and Internet and intranet networks. From October 1998 to
February 2000 he was National Sales Manager for DRIVERNet where he managed such
national accounts as Ford, Kenworth, Peterbilt, Paccar Corporation, and Cue
Paging. From 1995 to 1998 Mr. Mendez worked as a Major Account Manager for
Sprint. Mr. Mendez graduated with a Bachelor of Science degree from Southwest
Missouri State University, Springfield, MO.
Kory S. Dillman was appointed our Executive Vice President - Internet
Business Development on November 21, 2002. On that same date Mr. Dillman was
also elected to our Board of Directors. Mr. Dillman co-founded SiriCOMM in April
2000 and has been our Executive Vice President - Internet Business Development
and a director since our inception. From 1996 to 1999 Mr. Dillman was Creative
Director for DRIVERNet. In that position he produced intranet and Internet
applications for DRIVERNet and its customers. He developed specific web-based
products for Volvo Trucks North America, Pilot Travel Centers, Ambest,
Caterpillar Engines, and TravelCenters of America. Prior to joining DRIVERNet
Mr. Dillman was Art Director for Wendfall Productions. In this position he
managed development for Sony Music and Ardent Records. Mr. Dillman earned a
Bachelor of Fine Arts degree from the University of Tulsa, Tulsa, OK.
J. Richard Iler was appointed our Chief Financial Officer and elected
to the Board of Directors in April 2003. From 2001 through 2003, Mr. Iler was
managing director of a private equity fund responsible for financing activities,
management consulting and investor relations of the funds portfolio companies.
From 1998 through 2001, Mr. Iler was Chief Financial Officer of United American
e-Health Technologies, a publicly traded company. Mr. Iler assisted this company
in raising capital and preparation of regulatory filings. Mr. Iler graduated
form Grand Valley State University in Allendale, Michigan with a B.S. and
attended South Texas College of Law in Houston, Texas.
Terry W. Thompson was elected to our Board of Directors in August 2003.
In January 2003, Mr. Thompson retired as President of Jack Henry and Associates,
a provider of integrated computer systems and processor of ATM and debit card
transactions for banks and credit unions. Mr. Thompson joined Jack Henry in 1990
as Chief Financial Officer and was appointed President in 2001 guiding that
company from $15 million in revenues to more than $396 million and from 98
employees to 2,300 employees. Mr. Thompson was named Chairman of our Audit
Committee and serves as its financial expert.
19
EXECUTIVE COMPENSATION
Our compensation and benefits program is designed to attract, retain
and motivate employees to operate and manage SiriCOMM for the best interests of
our constituents. Executive compensation is designed to provide incentives for
those senior members of management who bear responsibility for our goals and
achievements. The compensation philosophy is based on a base salary, with
opportunity for significant bonuses to reward outstanding performance and a
stock option program.
The Summary Compensation Table shows certain compensation information
for services rendered in all capacities for the fiscal years ended September 30,
2002, 2003 and 2004. Other than as set forth herein, no executive officer's
salary and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
Annual Compensation Long Term Compensation
Fiscal Year Ended --------------------------- -------------------------
Name and Principal Position September 30 Salary ($) Bonus ($) Options/SARS (#)
--------------------------- ------------ ---------- --------- ----------------
Henry P. Hoffman (a) 2004 175,000 - -
President and Chief Executive 2003 150,000 - -
Officer and Chairman 2002 118,269 - -
David N. Mendez (b) 2004 125,000 - -
Executive Vice President - Sales 2003 125,000 - -
and Marketing 2002 93,750 - -
Kory S. Dillman (b) 2004 125,000 - -
Executive Vice President - 2003 125,000 - -
Internet Business Development 2002 98,558 - -
and Director
J. Richard Iler 2004 75,831 - -
Chief Financial Officer and 2003 - - -
Director 2002 - - -
-------------------
(a) includes $93,750 in accrued and unpaid compensation.
(b) includes $78,125 each in accrued and unpaid salary
Employment Contracts
We have employment agreements with three of our executive officers,
Henry P. Hoffman, David N. Mendez and Kory S. Dillman.
Mr. Hoffman's employment agreement, dated February 19, 2002 has an
initial term of three (3) years and a base annual salary of $150,000 and was
increased to $175,000 in 2004. Thereafter the agreement automatically renews for
additional one-year periods. Bonuses, if any, are to be paid at the sole
discretion of our Board of Directors.
Mr. Mendez' employment agreement, dated February 19, 2002 has an
initial term of three (3) years and a base annual salary of $125,000. Thereafter
the agreement automatically renews for additional one-year periods. Bonuses, if
any, are to be paid at the sole discretion of our Board of Directors.
Mr. Dillman's employment agreement, dated February 19, 2002 has an
initial term of three (3) years and a base annual salary of $115,000, which has
been increased to $125,000. Thereafter the agreement automatically renews for
additional one-year periods. Bonuses, if any, are to be paid at the sole
discretion of our Board of Directors.
20
Stock Options
Option/SAR Grants in the Last Fiscal Year
Individual Grants
Percent of Total
Options/SARs
Options/SARS Granted to Employees in Exercise or Base
Name Granted (#) Fiscal Year (%) Price ($/share) Expiration Date
----- ----------- --------------- --------------- ---------------
Henry P. Hoffman 0 0.0% 0 --
David N. Mendez 0 0.0% 0 --
Kory S. Dillman 0 0.0% 0 --
J. Richard Iler 145,000 100% $1.00 November 17, 2013
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Options/SAR Value
Number of Unexcerised Value of Unexercised
Securities Underlying In-The-Money Options/SARs
Shares Options/SARs At FY-End at FY-End
Acquired on Value Realized ---------------------- -------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------------- ----------- ------------- ----------- -------------
Henry P. Hoffman 0 0 0 0 0 0
David N. Mendez 0 0 0 0 0 0
Kory S. Dillman 0 0 0 0 0 0
J. Richard Iler 4,200 0 140,800 0 0 0
Director Compensation
On August 30, 2004, our Board of Directors authorized the following
compensation package for its independent board members.
o Annual Cash Retainer - $3,500 per fiscal year
o Meeting Fee - $1,000 plus reasonable travel-related expenses
for on-site board meetings and/or on-site committee meetings.
o Stock Options - New independent board members receive an
initial grant of ten thousand (10,000) stock options. The
options vest over three years, 4,000 year one, 3,000 year two
and 3,000 year three. In addition, on their anniversary of
appointment, all board members will receive an annual grant of
3,000 options. Each option granted hereunder will be priced at
market.
In fiscal year 2004, the directors listed below received stock options
as part of the director's compensation:
Number of
Name Options Granted Exercise Price Date of Grant Expiration Date
---- --------------- -------------- ------------- ---------------
Terry W. Thompson 10,000 $4.05 September 2, 2004 September 1, 2014
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From December 2002 through September 2003, we borrowed an aggregate of
$375,000 from unaffiliated third parties and $30,000 from Mr. Henry P. Hoffman,
our President, Chief Executive Officer and Chairman of our Board of Directors.
This loan was repaid in 2004. In connection with this loan, Mr. Hoffman issued
an aggregate of 375,000 options to purchase shares of his own stock at $1.00 per
share to several persons, including Mr. Terry Thompson and Quest Capital
Alliance LLC. On August 8, 2003, Mr. Terry Thompson, who had loaned us an
aggregate of $50,000 and received 19,684 of shares of our common stock and
50,000 of the options issued by Mr. Hoffman, was elected to our Board of
21
Directors. The shares were issued under the exemption from registration provided
in Section 4(2) of the Securities Act. The lenders represented their intention
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution of the securities and appropriate legends
were affixed to the certificates. We utilized the proceeds of these loans for
general working capital purposes.
On February 26, 2004 Southwest Missouri Bank extended a $1 million line
of credit to us. The loan is federally guaranteed by the United States
Department of Agriculture as part of the Rural Development Program. This loan is
also guaranteed by Mr. Hoffman, as well as by his wife. We have not compensated
Mr. Hoffman for providing this guaranty.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 2005, information with
respect to the securities holdings of all persons which we, pursuant to filings
with the SEC, have reason to believe may be deemed the beneficial owners of more
than 5% of our outstanding common stock. The following table indicates the
beneficial ownership of such individuals numerically calculated based upon the
total number of shares of common stock outstanding. Also set forth in the table
is the beneficial ownership of all shares of our outstanding stock, as of such
date, of all officers and directors, individually and as a group.
Shares Beneficially Owned
Name and Address of Owner Number (1) Percent (%) (2)
------------------------- ---------- ---------------
Henry P. Hoffman, Director, Chairman of the Board, Chief Executive 5,712,303 30.57
Officer and President
2900 Davis Boulevard, Suite 130
Joplin, MO 64804
Sat-Net Communications, Inc.(3) 2,000,000 10.70
5000 Legacy Drive, Suite 470
Plano, Texas 75024
David N. Mendez, Executive Vice President - Sales and Marketing and 1,088,331 5.82
Director
2900 Davis Boulevard, Suite 130
Joplin, MO 64804
Kory S. Dillman, Executive Vice President - Internet Business Development 1,023,535 5.48
and Director
2900 Davis Boulevard, Suite 130
Joplin, MO 64804
J. Richard Iler, Chief Financial Officer and Director (4) 140,000 0.75
2900 Davis Boulevard, Suite 130
Joplin, MO 64804
Terry W. Thompson, Director (5) 374,884 2.00
406 N. Belaire
Monett, MO 65708
William P. Moore, III, as Trustee of the William P. Moore III Revocable 1,700,000 9.10
Trust dated October 9, 2001 (6)
10801 Mastin, Suite 920
Overland Park, KS
Quest Capital Alliance LLC 1,154,000 6.18
3140 E. Division
Springfield, MO 65802
Robert J. Smith (7) 1,553,931 8.32
3865 E. Turtle Hatch
Springfield, MO 65809
All Directors and Officers as a Group (6 persons) 8,335,053 44.62
------------------
22
(1) Except as otherwise indicated, includes total number of shares outstanding
and the number of shares which each person has the right to acquire within
60 days through the exercise of warrants or the conversion of Preferred
Stock pursuant to Item 403 of Regulation S-B and Rule 13d-3(d)(1),
promulgated under the Exchange Act.
(2) Based upon 18,686,450 shares issued and outstanding.
(3) Allen Wheeler, Henry Burkhalter and David Webb, who are the directors of
Sat-Net Communications, Inc., may be deemed to have beneficial ownership of
the shares owned by Sat-Net Communications, Inc. The foregoing shall not be
construed in and of itself as an admission by such person as to beneficial
ownership of any such shares.
(4) Includes 120,000 shares which may be obtained by Mr. Iler upon the exercise
of a like number of options exercisable at $1.00 per share and 20,000
shares which may be obtained by Mr. Iler upon the exercise of options
exercisable at $1.49 per share.
(5) Includes 150,600 shares which may be obtained by Mr. Thompson upon the
exercise of a like number of warrants exercisable at $2.00 per share and
4,000 shares which may be obtained upon the exercise of options at $4.05
per share.
(6) Includes 850,000 shares which may be obtained upon the exercise of a like
number of warrants exercisable at $2.00 per share.
(7) Includes 436,000 shares owned by Gunner Investments Corp., a company
controlled by Mr. Smith. Includes 154,600 shares which may be obtained upon
the exercise of a like number of warrants exercisable at $2.00 per share.
Includes 78,000 shares which may be obtained upon the exercise of a like
number of warrants exercisable at $.50 per share.
DESCRIPTION OF SECURITIES
The following description includes the material terms of our common
stock. However, it is a summary and is qualified in its entirety by the
provisions of our Certificate of Incorporation, with amendments, all of which
have been filed as exhibits to our registration statement of which this
prospectus is a part.
Our authorized capital stock consists of 50,500,000 shares of stock. We
are authorized to issue two classes of stock that consist of 500,000 shares of
preferred stock, par value $0.001 per share, and 50,000,000 shares of common
stock, par value $0.001 per share.
As of March 1, 2005, we had outstanding 213,417 shares of Series A
Preferred Stock. Each share of Series A Preferred Stock converts into our common
stock at the rate of $2.00 per share. The shares may be converted to fully-paid
and non-assessable shares of common stock at the option of the holder at $2.00
per share. The shares of Series A Preferred Stock are redeemable at the option
of the holder three years subsequent to the date of issuance at a redemption
price equal to 110% of the stated value, plus an amount per share equal to all
accrued and unpaid dividends. No dividends were declared during the year ended
September 30, 2004, but dividends were accrued in accordance with the cumulative
dividends rate of $.10 per share per annum.
As of March 1, 2005, we had 18,686,450 outstanding shares of common
stock, $.001 par value. We have reserved [5,701,118] shares of common stock for
issuance pursuant to outstanding options and warrants. Each issued and
outstanding share is fully paid and non-assessable. No pre-emptive rights exist
with respect to any of our common stock. Holders of shares of our common stock
are entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of shares of our common stock have no cumulative voting
rights. Holders of shares of our common stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by our Board of
Directors in its discretion, from funds legally available for any such
dividends. In the event of a liquidation, dissolution or winding up of SiriCOMM,
the holders of shares of our common stock are entitled to their pro rata share
of all assets remaining after payment in full of all liabilities.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Delaware General Corporation Law and our Bylaws provide for
indemnification of our directors for liabilities and expenses that they may
incur in such capacities. In general, our directors and officers are indemnified
with respect to actions taken in good faith and in a manner such person believed
23
to be in our best interests, and with respect to any criminal action or
proceedings, actions that such person has no reasonable cause to believe were
unlawful. Furthermore, the personal liability of our directors is limited as
provided in our Certificate of Incorporation.
We maintain directors and officers liability insurance with an
aggregate coverage limit of $1,000,000.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC, such indemnification is against public policy as expressed in the Act and
is therefore unenforceable.
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker/dealer solicits purchasers;
o block trades in which the broker/dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker/dealer as principal and resale by the
broker/dealer for its account;
o an exchange distribution in accordance with the Rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker/dealers may agree with the selling shareholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker/dealers engaged by the selling shareholders may arrange for
other brokers/dealers to participate in sales. Broker/dealers may receive
commissions from the selling shareholders (or, if any broker/dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions to exceed
what is customary in the types of transactions involved.
The selling shareholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling shareholders to include the pledgee, transferee or
other successors in interest as selling shareholders under this prospectus.
The selling shareholders and any broker/dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker/dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions under the Securities Act. The selling shareholders have informed us
that they do not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock.
We are required to pay all fees and expenses incident to the
registration of the shares. We have agreed to indemnify the selling shareholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
24
SELLING SHAREHOLDERS
This prospectus covers the offer and sale by the selling shareholders
of up to 2,404,000 shares of common stock and an additional 534,900 shares of
common stock issuable upon exercise of outstanding warrants. 334,900 of these
warrants have an exercise price of $2.40 per share and 200,000 of these warrants
have an exercise price of $0.50 per share.
We are registering for resale shares issued by us in private placements
and shares issuable on exercise of warrants issued by us in private placements.
All such shares issued or to be issued are and will be restricted securities as
that term is defined in Rule 144 under the Securities Act, and will remain
restricted unless and until such shares are sold pursuant to this prospectus or
otherwise are sold in compliance with Rule 144.
On February 7, 2005, we entered into a network installation agreement
with Sat-Net Communications, Inc., pursuant to which Sat-Net agreed to provide
us certain services in exchange for 2,000,000 shares of our common stock,
warrants to purchase 1,000,000 shares of our common stock at an exercise price
of $2.00 per share that are exercisable upon the completion of certain services,
and cash consideration. We have agreed to register the 2,000,000 shares held by
Sat-Net pursuant to the terms of the network installation agreement.
In the purchase agreements, each of the selling shareholders
represented that it had acquired the shares for investment purposes only and
with no present intention of distributing those shares, except in compliance
with all applicable securities law. In addition, each of the selling
shareholders represented that each qualifies as an "accredited investor" as such
term is defined in Rule 501 under the Securities Act.
The table below sets forth information concerning the resale of the
shares of common stock by the selling shareholders. We will not receive any
proceeds from the resale of the common stock by the selling shareholders. We
will receive proceeds from the warrants, if exercised. The following table also
sets forth the name of each person who is offering the resale of shares of
common stock by this prospectus, the number of shares of common stock
beneficially owned by each person, the number of shares of common stock that may
be sold in this offering and the number of shares of common stock each person
will own after the offering, assuming they sell all of the shares offered.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rule, beneficial ownership includes any shares as to which the selling
shareholder has sole or shared voting power or investment power and also any
shares the selling shareholder has the right to acquire within 60 days.
Percentages are based on a total of 18,686,450 shares of common stock
outstanding on March 1, 2005. Shares of common stock subject to options and
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of March 1, 2005, are deemed outstanding for computing the
percentage of the selling shareholder holding such option or warrant but are not
deemed outstanding for computing the percentage of any other selling
shareholder.
Shares Owned Prior to the Shares Owned After the
No of Shares Offered Offering Offering
(including stock -------------------------- -----------------------
Name underlying warrants) Number Percentage(%) Number Percentage
---- -------------------- ------ ---------- ------ ----------
Michael B. and Shiela Carroll (1) 43,750 43,750 * 0 *
Allessandro Cornale (2) 17,500 17,500 * 0 *
John W. Eilers Trust (3) 43,750 43,750 * 0 *
William & Catherine Graham (4) 43,750 43,750 * 0 *
Don Early (5) 17,500 17,500 * 0 *
Tom Enright (6) 17,500 17,500 * 0 *
25
Herman Ezzell IRA (7) 43,750 43,750 * 0 *
Marino Ferrari and Helvica Chaile (8) 43,750 43,750 * 0 *
Erik B. Hollensen (9) 17,500 17,500 * 0 *
Patrick E. and Barbara J. Kaminski (10) 21,875 21,875 * 0 *
Sheldon L. Miller (11) 43,750 43,750 * 0 *
Kevin O'Connell (12) 43,750 43,750 * 0 *
James A. and Dawn K. Petrocelli (13) 21,875 21,875 * 0 *
Richard Pitt (14) 28,875 28,875 * 0 *
Louis Quagliata (15) 21,875 21,875 * 0 *
Dorit and Joseph Ringelstein (16) 43,750 43,750 * 0 *
Stephen Rowe (17) 17,500 17,500 * 0 *
Patrick Scherzer (18) 17,500 17,500 * 0 *
Jane Snowden Trust (19) 17,500 17,500 * 0 *
William Stanley (20) 17,500 17,500 * 0 *
Sat-Net Communications, Inc.(21) 2,000,000 2,000,000 10.70 0 *
The Russell Harris Living Trust (22) 43,750 43,750 * 0 *
Rick Van Den Toorn (23) 35,000 35,000 * 0 0
Hubert Wieser (24) 43,750 43,750 * 0 *
Laidlaw Co. (UK) Ltd.(25) 31,900 31,900 * 0 *
Philip H. Snowden(26) 100,000 110,200 * 10,200 *
Clark Burns(27) 100,000 108,500 * 8,500 *
-----------------------
*Less than 1%
(1) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(2) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(3) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(4) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(5) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(6) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(7) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(8) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(9) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(10) Includes stock underlying a warrant to purchase 9,375 shares of common
stock at an exercise price of $2.40 per share.
(11) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(12) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(13) Includes stock underlying a warrant to purchase 9,375 shares of common
stock at an exercise price of $2.40 per share.
(14) Includes stock underlying a warrant to purchase 12,375 shares of common
stock at an exercise price of $2.40 per share.
(15) Includes stock underlying a warrant to purchase 9,375 shares of common
stock at an exercise price of $2.40 per share.
(16) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(17) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(18) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(19) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(20) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(21) Allen Wheeler, Henry Burkhalter, and David Webb, who are the directors of
Sat-Net Communications, Inc. may be deemed to have beneficial ownership of
the shares owned by Sat-Net Communications, Inc. The foregoing shall not be
construed in and of itself as an admission by such person as to beneficial
ownership of any such shares.
(22) Includes stock underlying a warrant to purchase 7,500 shares of common
stock at an exercise price of $2.40 per share.
(23) Includes stock underlying a warrant to purchase 15,000 shares of common
stock at an exercise price of $2.40 per share.
(24) Includes stock underlying a warrant to purchase 18,750 shares of common
stock at an exercise price of $2.40 per share.
(25) Includes stock underlying a warrant to purchase 31,900 shares of common
stock at an exercise price of $2.40 per share. Robert Bonaventure, as
president of Laidlaw Co. (UK) Ltd. (f/k/a Sands Brothers International
Ltd.), may be deemed to have beneficial ownership of these shares. The
foregoing shall not be construed in and of itself as an admission by such
person as to beneficial ownership of any such shares.
(26) Includes stock underlying a warrant to purchase 108,500 shares of common
stock at an exercise price of $0.50 per share. Philip H. Snowden, as
trustee, may be deemed to beneficially own all 110,200 shares.
(27) Includes stock underlying a warrant to purchase 108,500 shares of common
stock at an exercise price of $0.50 per share.
26
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for us by Bingham McCutchen LLP.
EXPERTS
The consolidated financial statements of SiriCOMM, Inc. as of and for
the year ended September 30, 2004 and for the period from inception (April 2000)
through September 30, 2004, appearing in this Prospectus and Registration
Statement has been audited by BKD, LLP, independent accountants as set forth in
its report appearing elsewhere herein and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of SiriCOMM, Inc. as of and for
the year ended September 30, 2003 and for the period from inception (April 2000)
through September 30, 2003, appearing in this Prospectus and Registration
Statement has been audited by Aidman, Piser & Company, P.A., independent
accountants as set forth in its report appearing elsewhere herein and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of SiriCOMM, Inc., filed
as part of the registration statement, and it does not contain all information
in the registration statement, as certain portions have been omitted in
accordance with the rules and regulations of the SEC.
We are subject to the informational requirements of the Exchange Act,
which requires us to file reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information may be inspected
at the public reference room of the SEC at Judiciary Plaza, 450 Fifth Street
N.W., Washington D.C. 20549. Copies of such material can be obtained from the
facility at prescribed rates. Please call the SEC toll free at 1-800-SEC-0330
for information about its public reference room. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet website at http://www.sec.gov or our website at
http://www.siricomm.com. Information contained in our web site is not part of
this prospectus.
Our statements in this prospectus about the contents of any contract or
other document are not necessarily complete. You should refer to the copy of our
contract or other document we have filed as an exhibit to the registration
statement for complete information.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. The selling shareholders are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front of the document.
We furnish our shareholders with annual reports containing audited
financial statements.
27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet as of December 31, 2004 F-2
Statements of Operations for the quarter ended F-3
December 31, 2004
Statements of Stockholders' Deficit for the F-4
quarter ended December 31, 2004
Statements of Cash Flows for the quarter ended F-5
December 31, 2004
Notes to Financial Statements for the quarter F-7
ended December 31, 2004
F-1
SIRICOMM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 662,079
Prepaid expenses and other 23,177
--------------
Total current assets 685,256
--------------
Property and Equipment, At Cost
Equipment 118,792
Network equipment in progress of installation 846,000
--------------
964,792
Less accumulated depreciation 68,152
--------------
896,640
Software, net of amortization 21,784
--------------
Other prepaid consulting services 87,210
--------------
Total assets $ 1,690,890
==============
Liabilities and Stockholders' Equity
Current Liabilities
Note payable to bank $ 309,604
Current maturities of long-term debt 25,000
Accounts payable 64,264
Accrued salaries 269,125
Other accrued expenses 157,858
Deferred Revenue 3,022
Dividends payable 21,342
--------------
Total current liabilities 850,215
--------------
Total liabilities 850,215
--------------
Stockholders' Equity
Preferred stock - Series A par value $.001; 500,000 shares authorized;
213,417 shares issued and outstanding; dividend rate of $0.025 per share per
quarter commencing March 2004; liquidation preference of $1 per outstanding
share cash payment 213
Common stock - par value $.001; 50,000,000 shares authorized; 16,282,450
shares issued and outstanding 16,279
Additional paid-in capital 8,748,169
Deferred compensation (722,016)
Retained deficit (7,201,970)
--------------
Total stockholders' equity 840,675
--------------
Total liabilities and stockholders' equity $ 1,690,890
==============
See Notes to Condensed Consolidated Finanical Statements
F-2
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
------------------------------------
December 31, December 31,
2004 2003
------------- -------------
(Unaudited) (Unaudited)
Revenues $ 6,273 $ -
------------- -------------
Operating Expenses:
General and administrative 150,193 347,443
Salaries 235,337 129,180
Satellite access fees 93,870 -
Stock-based compensation - 50,000
Research and development 12,600 14,700
Depreciation and amortization 7,288 4,823
------------- -------------
Total operating expenses 499,288 546,146
------------- -------------
Operating loss (493,015) (546,146)
------------- -------------
Other Income (Expense)
Interest income 1,861 -
Interest expense (4,460) (14,777)
Loan costs - (116,130)
------------- -------------
(2,599) (130,907)
------------- -------------
Net loss $ (495,614) $ (677,053)
============= =============
Net loss per share, basic and diluted $ (0.03) $ (0.05)
============= =============
Weighted average shares,
basic and diluted 16,270,568 12,949,245
============= =============
See Notes to Condensed Consolidated Financial Statements
F-3
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Preferred Stock Common Stock Additional Deferred
--------------- ------------------ Paid-in Compen- Retained Treasury
Shares Amount Shares Amount Capital sation Deficit Stock Total
------- ------ --------- ------- ---------- --------- ----------- --------- ----------
For the three months ended
December 31, 2003:
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 - - - - - - (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
======= ===== ========== ======= ========== ========= =========== ========= ==========
For the three months ended
December 31, 2004:
Balance, September 30, 2004 213,417 $ 213 16,255,650 $16,252 $8,629,596 $(722,016) $(6,701,021) $ - $1,223,024
Stock options exercised - - 26,800 27 26,773 - - - 26,800
Stock options issued for services - - - - 91,800 - - - 91,800
Accrued dividends - - - - - - (5,335) - (5,335)
Net loss - - - - - - (495,614) - (495,614)
------- ----- ---------- ------- ---------- --------- ----------- --------- ----------
Balance, December 31, 2004 213,417 $ 213 16,282,450 $16,279 $8,748,169 $(722,016) $(7,201,970) $ - $ 840,675
======= ===== ========== ======= ========== ========= =========== ========= ==========
See Notes to Condensed Consolidated Financial Statements
F-4
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
------------------------------------------
December 31, December 31,
2004 2003
------------ --------------
(Unaudited) (Unaudited)
Operating Activities
Net loss $ (495,614) $ (677,053)
Items not requiring cash
Depreciation 7,288 4,823
Loan costs - 116,130
Stock-based compensation - 50,000
Other non-cash charges - 1,363
Changes in assets and liabilities:
Current assets (2,024) 268,828
Current liabilities 128,401 112,840
------------ --------------
Net cash flows used in operating activities (361,949) (123,069)
------------ --------------
Investing Activities
Purchase of equipment (209,992) -
------------ --------------
Net cash flows used in investing activities (209,992) -
------------ --------------
Financing Activities
Borrowings under line of credit, net 200,000 -
Payment of notes payable (12,396) (3,700)
Proceeds from sale of common stock 26,800 1,528,000
------------ --------------
Net cash flows provided by financing activities 214,404 1,524,300
------------ --------------
Increase (Decrease) in Cash (357,537) 1,401,231
Cash and Cash Equivalents, beginning of period 1,019,616 56,300
------------ --------------
Cash and Cash Equivalents, end of period $ 662,079 $ 1,457,531
============ ==============
See Notes to Condensed Consolidated Finanical Statements
F-5
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended
------------------------------------------
December 31, December 31,
2004 2003
------------ --------------
(Unaudited) (Unaudited)
Supplemental Cash Flows Information
Interest paid $ 4,208 $ 5,815
Stock options issued in exchange for prepaid
consulting services $ 91,800 $ -
Accrued dividends for Series A preferred stock $ 5,335 $ -
Issuance of 34,000 shares of common stock
for services $ - $ 38,624
Conversion of debt to equity $ - $ 407,359
Issuance of 9,842 shares of common stock for
loan costs $ - $ 13,681
Stock offering costs funded through issuance
of stock $ - $ 31,091
See Notes to Condensed Consolidated Financial Statements
F-6
SIRICOMM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(UNAUDITED)
1. Nature of operations and summary of significant accounting policies:
Nature of Operations:
SiriCOMM, Inc., a Delaware corporation (the "Company"), through its
wholly owned subsidiary of the same name, which was incorporated in the
State of Missouri on April 24, 2000, has developed broadband wireless
application service technologies intended for use in the transportation
industries. The Company opened its network in December for commercial
operation and has commenced selling its InTouch(TM) Internet Service to
individual subscribers.
The Company was considered to be in the development stage during its
most recent reporting period ending September 30, 2004. Since September
30, 2004, the Company has commenced revenue producing operations and
continues to market its service technologies, including satellite
communications, wireless networking, and productivity enhancing
software.
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.
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-KSB annual report for fiscal year ended September 30,
2004 filed with the Securities and Exchange Commission.
F-7
SIRICOMM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(UNAUDITED)
1. Nature of operations and summary of significant accounting policies
(continued):
The results of operations for the period are not necessarily indicative
of the results to be expected for the 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. 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 trinomial
options-pricing model to determine the fair value of stock-based
compensation and capital contributions. Previously, the Company had
used the Black-Scholes model, but it has determined that the trinomial
model is better suited to evaluate the variability of uncertain holding
horizons.
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.
Three Months Ended
December 31,
2004 2003
---------- ----------
(Unaudited) (Unaudited)
Net loss, as reported $ (495,614) $ (677,053)
Add back intrinsic values of stock
issued to employees -- 50,000
Less: stock-based employee compensation
under the fair value based method (14,669) (165,640)
---------- ----------
Pro forma net loss under fair value method $ (510,283) $ (792,693)
========== ==========
Net loss per common share-basic and diluted:
As reported $ (.03) $ (.05)
Pro forma under fair value method $ (.03) $ (.06)
F-8
SIRICOMM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(UNAUDITED)
1. Nature of operations and summary of significant accounting policies
(continued):
Research and development costs:
The Company incurs costs, 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.
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 preferred stock 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 stock is
anti-dilutive.
Reclassification
Certain reclassifications have been made to the December 31, 2003
financial statements to conform to the December 31, 2004 financial
statement presentation. These reclassifications had no effect on net
losses.
2. Line of Credit:
During 2004, the Company entered into a line of credit with Southwest
Missouri Bank for the purchase of network infrastructure equipment up
to a maximum of $1,000,000. This note is 80% guaranteed by the US
Department of Agriculture and is secured by the network equipment. This
note is further personally guaranteed by the Company's majority
shareholder. The note is a demand note, but if no demand is made then
monthly payments of accrued interest at an initial rate of 5.5% on the
guaranteed portion and 7.0% on the unguaranteed portion plus monthly
principal payments of $2,358. The note is amortized over 59 months
beginning September 25, 2004 with a final payment on August 25, 2009.
F-9
SIRICOMM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(UNAUDITED)
3. Stockholders' Equity:
Pursuant to a contract between Pilot Travel Centers and the Company
which stated, in consideration for Pilot's permitting the Company to
install its broadband wireless network in Pilot's 255 travel centers,
the Company issued, upon completion of the installation and testing in
October 2004, 255,000 Common Stock Purchase Warrants exercisable for
five years, expiring on May 27, 2009 at an exercise price of $4.50 per
share. The transaction resulted in the Company recording $91,800 as a
prepaid consulting service and additional paid-in capital. The prepaid
asset is being amortized over the contract period which expires May 27,
2009.
On October 18, 2004 and December 15, 2004, the Company's Chief
Financial Officer and a Director, exercised 700 and 800 stock options,
respectively, at $1.00 per share. The options were granted pursuant to
the Company's 2002 Equity Incentive Plan.
On November 1, 2004, an employee of the Company exercised 7,500 stock
options at $1.00 per share. The options were granted pursuant to the
Company's 2002 Equity Incentive Plan.
4. Commitments and Contingencies:
Litigation:
On December 17, 2004, certain officers and directors of the Company
were named defendants in a lawsuit entitled Greg Sanders v. Henry
Hoffman et al. Messrs. Hoffman, Dillman, Mendez and Iler are officers
and directors of the Company, Mr. Thompson is a director of the Company
and Mr. Noland is a former officer and director of the Company. The
action alleges fraud, misrepresentation and breach of fiduciary duty
relating to a settlement agreement entered into between the Company and
Mr. Sanders. The complaint seeks damages in excess of $9,679,903.
Although the Company was not named as a defendant, it will pay all
expenses relating to the defense of this matter. In management's
opinion this case is without merit and the defendants intend on
defending this matter vigorously.
5. Subsequent Events:
SiriCOMM, Inc. consummated the private placement of its units (the
"Units") pursuant to a Confidential Investment Proposal dated October
11, 2004 and amended on December 20, 2004. Funds were disbursed from
escrow to the
F-10
SIRICOMM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(UNAUDITED)
5. Subsequent Events (continued):
Company as of January 3, 2005 and shares and warrant certificates were
issued at that time. Each Unit consisted of 50,000 shares (the
"Shares") of the Company's common stock and a Common Stock Warrant to
purchase 37,500 shares of Common Stock. In the private placement, the
Company sold an aggregate of 6.38 Units (319,000 Shares and Warrants to
purchase 239,250 shares of Common Stock) for an aggregate purchase
price of $638,000, or $100,000 per Unit.
The Warrants entitle the holders to purchase shares of the Common Stock
(the "Warrant Shares") for a period of five years from the date of
issuance at an exercise price of $2.40 per share. The Warrants contain
certain anti-dilution rights and are redeemable by the Company, on
terms specified in the Warrants.
In connection with the private placement, Laidlaw Co. (UK) Ltd. (f/k/a
Sands Brothers International Limited) the placement agent in the
private placement, received subsequent to this quarter's filing, a cash
commission fee of nine (9%) of the gross proceeds to the Company of the
securities sold at the closing, a payment of $30,000 representing the
fees and expenses of its counsel in the private placement and Warrants
(the "Agent Warrants") to purchase ten percent (10%) of the Shares sold
in the Private Placement (the "Agent Shares"). The Agent Warrants are
exercisable for a period of five years at an exercise price of $2.40
per share and contain the same anti-dilution rights as the Warrants.
Pursuant to the Offering Documents, the Company also agreed to file
with the Securities and Exchange Commission a Registration Statement
covering the Shares, the Warrant Shares and the Agent Shares. If such
Registration Statement is not filed within the required time frame, or
does not become effective within 120 days of the closing date, the
Company has agreed to pay to the investors 1% of the gross proceeds of
the Private Placement for each thirty (30) day period in which the
Company fails to comply with such requirements.
On January 5, 2005 the Company issued an aggregate of 85,000 shares of
its Common Stock upon the exercise of a like number of warrants,
exercisable at $2.00 per share. The warrants were originally issued in
January 2004 pursuant to a private placement of the Company's units
consisting of common stock and warrants.
As an inducement to the investors exercising their warrants, the
Company issued an aggregate of 63,750 new warrants to the investors.
The new warrants entitle the holders to purchase shares of the
Company's common stock reserved for issuance thereunder for a period of
five years from the date
F-11
SIRICOMM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(UNAUDITED)
5. Subsequent Events (continued):
of issuance at an exercise price of $2.40 per share. The warrants
contain anti-dilution rights and are redeemable by the Company, in
whole or in part, on terms specified in the warrants.
As a further inducement to the investors exercising their warrants, the
Company also agreed to file with the Securities and Exchange Commission
a Registration Statement covering the shares purchased by each investor
as part of the units, the shares issued upon exercise of the warrants
and the shares underlying the new warrants.
On February 7, 2005 the Company entered into a Network Installation
Agreement (the "Agreement") with Sat-Net Communications, Inc.
("Sat-Net"). The term of the Agreement is for sixty (60) months
commencing on February 7, 2005. The Agreement will be automatically
extended on a year-to-year basis upon expiration of the initial term
unless terminated in writing by either party.
During the term of the Agreement, Sat-Net will provide and install VSAT
terminals at up to 400 truck-stop locations at a predetermined turnkey
price.
Pursuant to the Agreement, the Company is issuing to Sat-Net 2,000,000
shares of its Common Stock and 1,000,000 Common Stock Purchase Warrants
(the "Warrants") exercisable for a period of three years at a price of
$2.00 per share. The Warrants are subject to vesting at the rate of
2,500 warrants per truck-stop location installed; provided, however,
that the vesting with respect to the first 250 locations will be deemed
to occur when the wireless infrastructure is "network operational," as
defined in the Agreement.
In addition, the 2,000,000 shares of Common Stock have "piggy-back"
registration rights.
F-12
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm F-14
Report of Independent Certified Public Accountants F-15
Balance Sheet as of September 30, 2004 F-16
Statements of Operations for the years ended F-17
September 30, 2004 and 2003
Statements of Stockholders' Equity for the F-18
years ended September 30, 2004 and 2003
Statements of Cash Flows for the years ended F-19
September 30, 2004 and 2003
Notes to Financial Statements for the years F-21
ended September 30, 2004 and 2003
F-13
BKD LLP Southern Missouri Practice Hammons Tower
Springfield 901 E. St. Louis Street, Suite 1000
Joplin P.O. Box 1190
Branson Springfield, MO 65601-1190
Pittsburg, Kansas 417 865-8701 Fax 417 865-0682
--------------------------------------------------------------------------------
bkd.com
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
SiriCOMM, Inc.
Joplin, Missouri
We have audited the accompanying consolidated balance sheet of
SiriCOMM, Inc. as of September 30, 2004, and the related consolidated
statements of operations, stockholders' equity and cash flows for the
year ended September 30, 2004, and for the period from inception (April
24, 2000) through September 30, 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
SiriCOMM, Inc. as of September 30, 2004, and the results of its
operations and its cash flows for the year ended September 30, 2004,
and for the period from inception (April 24, 2000) through September
30, 2004, in conformity with accounting principles generally accepted
in the United States of America, generally accepted in the United
States of America.
Solutions /s/ BKD, LLP
for
Success
BKD, LLP
Joplin, Missouri
November 8, 2004, except for Note 12,
as to which the date is January 5, 2005
A member of
Moores Rowland
International
F-14
AIDMAN, PISER & COMPANY
Certified Public Accountants
& Business Advisors
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
SiriCOMM, Inc. and Subsidiary
Joplin, Missouri
We have audited the accompanying consolidated balance sheet of SiriCOMM, Inc.
and Subsidiary (the "Company"), a development stage enterprise, as of September
30, 2003, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years ended September 30, 2003 and 2002 and for
the period from inception (April 24, 2000) through September 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
September 30, 2003, and the results of its operations and its cash flows for the
years ended September 30, 2003 and 2002 and for the period from inception (April
24, 2000) through September 30, 2003, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2, the Company is in the development stage, and has not yet
earned revenues from operations, has working capital and equity deficiencies of
$389,758 and $504,994, respectively, at September 30, 2003 and is in default
with respect to a substantial portion of its loan agreements. These conditions
raise substantial doubt regarding the Company's ability to continue as a going
concern. Management's plans related to these conditions are also discussed in
Note 2. The financial statements do not include any adjustments that may result
from the outcome of this uncertainty.
/s/ Aidman, Piser & Company, P.A.
Tampa, Florida
January 11, 2004
401 East Jackson St., Suite 3400
Tampa, FL 33602 813-222-8555 Fax: 813-222-8560
F-15
SiriCOMM, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheet
September 30, 2004
ASSETS
Current Assets
Cash and cash equivalents $ 1,019,616
Prepaid expenses and other 16,563
------------------
Total current assets 1,036,179
------------------
Property and Equipment, At Cost
Equipment 111,818
Network equipment in progress of installation 646,000
------------------
757,818
Less accumulated depreciation 62,032
------------------
695,786
------------------
Software, net of amortization 19,934
------------------
Total assets $ 1,751,899
==================
Liabilities and Stockholders' Equity
Current Liabilities
Note payable to bank $ 122,000
Current maturities of long-term debt 25,000
Accounts payable 50,816
Accrued salaries 269,125
Other accrued expenses 45,928
Dividends payable 16,006
------------------
Total current liabilities 528,875
------------------
Total liabilities 528,875
------------------
Stockholders' Equity
Preferred stock - Series A par value $.001; 500,000 shares authorized;
213,417 shares issued and outstanding; dividend rate of $0.025 per share
per quarter commencing March 2004;
liquidation preference of $1 per outstanding share cash payment 213
Common stock - par value $.001; 50,000,000 shares authorized;
16,255,650 shares issued and outstanding 16,252
Additional paid-in capital 8,629,596
Deferred compensation (722,016)
Deficit accumulated during the development stage (6,701,021)
------------------
Total stockholders' equity 1,223,024
------------------
Total liabilities and stockholders' equity $ 1,751,899
==================
See Notes to Consolidated Finanical Statements
F-16
SiriCOMM, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
Years Ended September 30, From Inception (April From Inception (April
------------------------------ 24, 2000) to 24, 2000) to
2004 2003 September 30, 2004 September 30, 2003
------------- -------------- ---------------------------------------
Revenues $ - $ - $ - $ -
Operating Expenses
General and administrative 407,597 252,758 1,024,044 616,447
Salaries and consulting fees 2,079,477 1,249,990 4,320,907 2,241,430
Stock-based compensaton 50,000 - 50,000 -
Write-off of note receivable - - 50,000 50,000
Research and development 26,450 77,567 362,669 336,219
Depreciation and amortization 21,803 19,293 64,262 42,459
------------ ------------ ------------ ------------
Total operating expenses 2,585,327 1,599,608 5,871,882 3,286,555
------------ ------------ ------------ ------------
Operating Loss (2,585,327) (1,599,608) (5,871,882) (3,286,555)
------------ ------------ ------------ ------------
Other Income (Expense)
Interest income 4,215 - 4,215 -
Other income 37,223 - 37,223 -
Interest expense (26,578) (50,948) (121,178) (94,600)
Loan costs (207,940) (475,453) (733,393) (525,453)
------------ ------------ ------------ ------------
Net Loss $ (2,778,407) $ (2,126,009) $ (6,685,015) $ (3,906,608)
============ ============ ============ ============
Net Loss Per Share, Basic and Diluted $ (0.19) $ (0.21) $ (1.20) $ (1.34)
============ ============ ============ ============
Weighted average shares,
basic and diluted 14,684,210 10,014,621 5,578,687 2,921,094
============ ============ ============ ============
See Notes to Consolidated Finanical Statements
F-17
SiriCOMM, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
Preferred Stock Common Stock Additional
--------------- ------------------- Paid-in Deferred Accumulated Treasury
Shares Amount Shares Amount Capital Compensation Deficit Stock Total
------- ----- ---------- ------- ---------- ------------ ----------- ---------- ----------
April 24, 2000
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 - - - - - - (470,597) - (470,597)
------- ----- ---------- ------- ---------- --------- ----------- ---------- ----------
Balance, September 30, 2001 - - 10,000 10,000 668,553 - (868,988) - (190,435)
Treasury stock purchased (253,524) (253,524)
Issuance of 1,472 treasury shares (184,641) 220,311 35,670
Net loss - - - - - - (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 (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 preferred
shares 213,417 213 213,204 213,417
Conversion of debt to equity 429,571 429 443,552 443,981
Stock issued for loan costs 9,593 10 13,670 13,680
Stock issued for services 570,000 570 1,306,610 (722,016) 585,164
Stock warrants exercised 176,000 176 87,824 88,000
Stock options issued for services 137,000 137,000
Stock options exercised 46,000 42 45,458 45,500
Proceeds from stock issuance
completed March 10, 2004; net of
consideration of $95,000 1,925,000 1,925 1,828,075 1,830,000
Proceeds from stock issuance
completed May 4, 2004 328,143 328 1,115,361 1,115,689
Issuance of options to employees, net 50,000 50,000
Accrued dividends (16,006) (16,006)
Treasury stock retired (195,250) (195) (458,643) 458,838 -
Net loss (2,778,407) (2,778,407)
------- ----- ---------- ------- ---------- --------- ----------- ---------- ----------
Balance, September 30, 2004 213,417 $ 213 16,255,650 $16,252 $8,629,596 $(722,016) $(6,701,021) $ - $1,223,024
======= ===== ========== ======= ========== ========= =========== ========== ==========
See Notes to Consolidated Finanical Statements
F-18
SiriCOMM, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Years Ended September 30, From Inception (April From Inception (April
----------------------------------- 24, 2000) to 24, 2000) to
2004 2003 September 30, 2004 September 30, 2003
------------ ------------ --------------------- ---------------------
Operating Activities
Net loss $ (2,778,407) $ (2,126,009) $ (6,685,015) $ (3,906,608)
Items not requiring (providing) cash
Depreciation and software amortization 21,803 19,293 64,262 42,459
Amortizaton of loan costs 181,940 475,453 707,393 525,453
Stock-based compensation for services 822,245 612,421 1,443,666 621,421
Stock-based compensation to employees 50,000 - 50,000 -
Settlement expense funded from debt
assumption - 100,672 128,672 128,672
Accrued interest forgiven (37,205) - (37,205) -
Write-off of note receivable - - 50,000 50,000
Other non-cash charges - 14,954 14,954 14,954
Changes in
Other current assets 538,045 15,000 538,045 -
Accounts payable (3,865) 88,745 50,816 101,181
Accrued and other liabilities 15,364 158,606 362,643 300,779
------------ ------------ ------------ ------------
Net cash used in operating activities (1,190,080) (640,865) (3,311,769) (2,121,689)
------------ ------------ ------------ ------------
Investing Activities
Cash acquired in business combination - 1,479 1,479 1,479
Purchase of property and equipment (682,760) - (782,719) (99,959)
Proceeds from sale of property and equipment - - 1,406 1,406
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (682,760) 1,479 (779,834) (97,074)
------------ ------------ ------------ ------------
Financing Activities
Net borrowings under line of credit 122,000 - 122,000 -
Issuance of note receivable - - (50,000) (50,000)
Advances from (repayments to) officers, net - - 386,216 386,216
Proceeds from sale of common stock 2,945,689 75,000 3,313,026 367,337
Proceeds from exercise of stock options 133,500 - 133,500 -
Proceeds from long-term debt - 680,000 1,731,035 1,731,035
Payment of loan costs - - (50,000) (50,000)
Payment of notes payable and long-term debt (365,033) (103,618) (474,558) (109,525)
------------ ------------ ------------ ------------
Net cash provided by financing activities 2,836,156 651,382 5,111,219 2,275,063
------------ ------------ ------------ ------------
Increase in Cash 963,316 11,996 1,019,616 56,300
Cash and Cash Equivalents, Beginning of Year 56,300 44,304 - -
------------ ------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 1,019,616 $ 56,300 $ 1,019,616 $ 56,300
============ ============ ============ ============
See Notes to Consolidated Finanical Statements
F-19
Supplemental Cash Flows Information
Interest paid $ 26,578 $ 51,241 $ 43,053 $ 16,475
============ ============ ============ ============
Issuance of 74,610 shares of common stock
for services $ 85,122 $ - $ 85,122 $ -
============ ============ ============ ============
Conversion of debt or payables to equity $ 595,529 $ 1,107,000 $ 2,088,745 $ 1,493,216
============ ============ ============ ============
Issuance of 9,842 shares of common stock
for loan costs $ 13,680 $ - $ 13,680 $ -
============ ============ ============ ============
Acquisition of treasury stock for note payable $ - $ - $ 253,524 $ 253,524
============ ============ ============ ============
Issuance of treasury stock for prepaid services $ - $ - $ 35,670 $ 35,670
============ ============ ============ ============
Debt assumed pursuant to reverse acquisition $ - $ 100,000 $ 100,000 $ 100,000
============ ============ ============ ============
Stock offering costs funded through issuance
of stock $ - $ 26,670 $ 26,670 $ 26,670
============ ============ ============ ============
Stockholder contribution of stock options on
behalf of the Company $ - $ 371,000 $ 371,000 $ 371,000
============ ============ ============ ============
Deferred compensation $ 721,667 $ - $ 721,667 $ -
============ ============ ============ ============
Accrued dividends for 213,417 shares of
series A preferred stock $ 16,006 $ - $ 16,006 $ -
============ ============ ============ ============
Retirement of 195,250 shares of common
stock to the treasury $ 459,187 $ - $ 459,187 $ -
============ ============ ============ ============
Stockholder contribution of 195,250 shares of
common stock to the treasury $ - $ 829,838 $ 829,838 $ 829,838
============ ============ ============ ============
See Notes to Consolidated Finanical Statements
F-20
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
SiriCOMM, Inc.- Missouri, incorporated in the State of Missouri on
April 24, 2000, has developed broadband wireless application service
technologies intended for use in the transportation industries.
As part of the transaction treated as a reverse merger on November 21,
2002, SiriCOMM, Inc. (f/k/a Fountain Pharmaceuticals, Inc.), a Delaware
corporation (the "Company" or "SiriCOMM") completed the acquisition of
all the issued and outstanding shares of SiriCOMM, Inc. - Missouri
("SiriCOMM Missouri"). An aggregate 9,622,562 shares of common stock
were issued to SiriCOMM Missouri shareholders. Furthermore, the Company
issued 1,922,000 shares to retire $1,000,000 of convertible notes
issued by SiriCOMM Missouri.
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 has commenced its initial
product offering of Internet Services Subscriptions, but has not
generated any meaningful revenue as of the filing of these financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiary, SiriCOMM Missouri. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
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 disclosure 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.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities
of three months or less to be cash equivalents. At September 30, 2004,
cash equivalents consisted primarily of money market accounts with
banking institutions. Approximately $900,000 was held in one
institution in excess of guaranteed amounts.
F-21
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Property and Equipment
Property and equipment are depreciated over the estimated useful life
of each asset. Annual depreciation is primarily computed using
straight-line methods.
Income Taxes
Deferred tax assets and liabilities are recognized for the tax effects
of differences between the financial statement and tax bases of assets
and liabilities. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that a deferred tax
asset will not be realized. The Company files consolidated income tax
returns with its subsidiary.
Research and Development
The Company incurs costs 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.
Advertising
The Company had advertising expenses of $6,799 and $0 in 2004 and 2003,
respectively, and are included in general and administrative expenses
in the financial statements.
Net Loss Per Share
Net loss per share represents the net loss available to common
stockholders after giving effect to preferred share dividends divided
by the weighted average number of common shares outstanding during the
year. Diluted earnings per share reflect the potential dilution which
could occur if convertible preferred stock 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 stock is anti-dilutive.
Stock Option Plan
At September 30,2004, the Company has a stock-based employee
compensation plan, which is described more fully in Note 8. The Company
accounts for this plan under the recognition and measurement principles
of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Stock-based employee compensation cost is
reflected in net income whereby certain options granted under the plan
had an exercise price less than the market value of the underlying
common stock on the grant date. The following table illustrates the
effect on net income and earnings per share if the Company had applied
the fair value provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
F-22
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Year Ended September 30
2004 2003
----------------------------------------
Net income, (loss) as reported $ (2,778,407) $ (2,126,009)
Add back intrinsic values of options issued to employees 50,000 --
Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes (280,469) --
------------- -------------
Pro forma net income $ (3,008,876) $ (2,126,009)
============= =============
Earnings (loss) per share:
Basic and diluted - as reported $ 0.19 $ 0.21
============= =============
Basic and diluted - pro forma $ 0.21 $ 0.21
============= =============
Recent Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46 (revised),
"Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51," ("FIN 46R"). FIN 46R addresses how a business enterprise
should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and, accordingly, should
consolidate the variable interest entity ("VIE"). Fin 46R replaces
FIN46 that was issued in January 2003. All public companies were
required to fully implement FIN 46R no later than the end of the first
reporting period ending after March 15, 2004. The adoption of FIN 46R
had no impact on SiriCOMM's financial condition or results of
operations.
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment,
which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees, and amends FASB Statement
No. 95, Statement of Cash Flows. The approach to accounting for
share-based payments in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123(R) requires all
share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their
fair values and no longer allows pro forma disclosure as an alternative
to financial statement recognition. The Company will be required to
adopt Statement 123(R) at the beginning of its quarter ending March 31,
2006. The Company has not determined what financial statement impact
Statement 123(R) will have on the Company.
F-23
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Reclassifications
Certain reclassifications have been made to the 2003 financial
statements to conform to the 2004 financial statement presentation.
These reclassifications had no effect on net earnings.
Note 2: Liquidity Matters
The Company is in development and has not generated any revenue through
September 30, 2004. It has financed its activities thus far primarily
from the placement of private equity and from short-term loans.
The Company recently completed the first 255 of the 400 sites which
were part of its initial network plan. In December 2004, the Company
commenced selling its In TouchTM Internet Service Provider design,
although to date no meaningful revenues have been realized.
Management has established several alliance partners to market its
products and services, and is in negotiations with certain significant
potential customers for its services. There can be no assurances
offered that these relationships and negotiations will result in
realization of significant revenues. If revenues are not realized as
planned, additional financing through equity issuances and draws on the
Company's line of credit may be required for working capital needs and
to complete the long-term financial objectives of the Company.
Note 3: Line of Credit
During 2004, the Company entered into a line of credit with Southwest
Missouri Bank for the purchase of network infrastructure equipment up
to a maximum of $1,000,000. This note is 80% guaranteed by the U.S.
Department of Agriculture and is secured by the network equipment. This
note is further personally guaranteed by the Company's majority
shareholder. The note is a demand note, but if no demand is made then
monthly payments of accrued interest at an initial rate of 5.5% on the
guaranteed portion and 7.0% on the unguaranteed portion plus monthly
principal payments of $2,358. The note is amortized over 59 months
beginning September 25, 2004 with a final payment on August 25, 2009.
Note 4: Long-term Debt
Unsecured note payable to an individual due March 3, 2004
accruing interest at 4%. The note is classified as current in
the financial statements. $ 25,000
========
F-24
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Note 5: Stockholders' Equity
Preferred Stock
The Company authorized 500,000 shares of Series A Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock"), par value
of $.001 per share, during fiscal 2004. The shares may be converted to
fully-paid and non-assessable shares of Common Stock at the option of
the holder at $2.00 per share. The Series A Preferred Stock are
redeemable at the option of the holder three years subsequent to the
date of issuance at a redemption price equal to 110% of the stated
value, plus an amount per share equal to all accrued and unpaid
dividends. No dividends were declared during the year ending September
30, 2004, but dividends were accrued in accordance with the cumulative
dividends rate of $.10 per share per annum.
In December 2003, the Company issued an aggregate of 213,417 shares of
its Series A Preferred Stock to pursuant to the conversion of an
aggregate of $200,000 of debt due by the Company.
Common Stock
On March 10, 2004, the Company closed the sale of 2,000,000 units
("Units") at $1.00 per Unit to 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 net proceeds resulting from the sale were
$1,830,000.
On May 4, 2004, the Company closed the sale of 328,143 units ("Units")
at $3.40 per Unit to 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 net proceeds resulting from the
sale were $1,115,689.
The Company issued an aggregate of 388,961 shares to individuals to
convert $388,961 of debt to equity. Among the investors converting
their debt was Mr. Terry W. Thompson, a director of the Company who
converted $50,600 of debt into 50,600 Units. Additionally, the Company
issued an aggregate of 40,610 shares to partners of the Company's
securities counsel, Sommer & Schneider LLP. The shares were issued in
lieu of $44,000 of outstanding legal fees due the firm.
The Company issued 570,000 shares pursuant to three consulting
arrangements entered into during 2004. The Company also issued 176,000
shares pursuant to exercise of warrants which had an exercise price of
$.50 per unit during fiscal 2004.
Deferred Compensation
During 2004, the Company entered into a consulting agreement for the
issuance of 436,000 shares whereby 87,200 shares can be realized
annually upon meeting certain performance measurements over a 5-year
period. As of September 30, 2004, 348,800 shares were issued but
F-25
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
potentially forfeitable if performance measures are not met by the
consultant. The Company has recorded a deferred compensation of
$722,016 against equity as of September 30, 2004 to account for the
potentially forfeitable shares.
Non-Employee Warrants and Options
The Company issued warrants and options during the year for various
purposes, including completion of consulting arrangements and private
placements with regard to common stock. The Company issued 3,545,270
warrants or options during 2004 of which 218,500 were exercised at a
weighted-average exercise price of $.60. At September 30, 2004, the
Company had 3,326,770 warrants or options outstanding with exercise
prices ranging from $.50 to $4.75. The weighted-average exercise price
of the outstanding warrants was $1.89 at September 30, 2004.
Note 6: Operating Lease
The Company currently occupies 1,200 square feet within an office
building and operates on month-to-month lease term. Rent expense for
the building and other non-reoccurring items was $29,700 and $25,500
for 2004 and 2003, respectively.
Income Taxes
The provision for income taxes includes these components:
2004 2003
----------------------------------------
Taxes currently payable $ -- $ --
Deferred income taxes -- --
---------------- ----------------
Income tax expense (benefit) $ 0 $ 0
================ ================
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
2004 2003
----------------------------------------
Computed at the statutory rate (34%) $ (944,658) $ (720,000)
Increase (decrease) resulting from
Nondeductible expenses 2,081 405,000
State income taxes (68,396) (75,000)
Changes in the deferred tax asset valuation allowance 1,010,973 390,000
---------------- ----------------
Actual tax expense (benefit) $ 0 $ 0
=============== ================
F-26
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
The tax effects of temporary differences related to deferred taxes
shown on the balance sheet were:
Deferred tax assets
Stock-based compensation and loan costs $ 732,221
Accrued shareholder salaries 87,500
Start-up costs 37,833
Net operating loss carryforwards 808,919
Other 17,500
----------------
Net deferred tax asset before valuation allowance 1,683,973
----------------
Valuation allowance
Beginning balance 673,000
Increase during the period 1,010,973
----------------
Ending balance 1,683,973
----------------
Net deferred tax asset $ 0
================
The Company also has unused operating loss carryforwards of
approximately $2,310,000 which expire through 2024.
Note 8: Employee Stock Plans
Stock Option Plan
The Company has adopted a stock option plan under which the Company may
grant options that vest immediately to its employees for up to
3,000,000 shares of common stock. Pursuant to the stock option plan,
the Company may issue to eligible persons, stock options, stock
appreciation rights, restricted stock performance awards and bonus
stock until May 15, 2012. The exercise price of each qualified
incentive option is equal to the fair value of the Company's stock on
the date of grant. The Company may issue non-qualified options at any
price the Board of Directors deems fair. An option's maximum term is 10
(ten) years.
F-27
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
A summary of the status of the plan at September 30, 2004 and changes
during the year then ended is presented below:
2004 2003
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
-------------------------------------------------------------------------------
Outstanding,
beginning of year -- $ -- -- $ --
Granted 310,000 $ 1.88 -- $ --
Exercised 3,500 $ 1.00 -- $ --
--------- ---------
Outstanding, end of
year 306,500 $ 1.89 0 $ --
========= =========
Options exercisable,
end of year 250,500 $ 1.40 0 $ --
========= =========
The fair value of options granted is estimated on the date of the grant
using the minimum value method with the following weighted-average
assumptions:
2004 2003
----------------------------------------
Dividend per share $ 0 $ 0
Risk-free interest rate 2-5% --
Expected life of options 1-6 years --
Weighted-average fair value of options granted during the
year $ 1.40 $ --
The following table summarizes information about stock options under
the plan outstanding at September 30, 2004.
Options Outstanding Options Exercisable
Weighted-Average
Range of Exercise Number Remaining Contractual Weighted-Average Number Weighted-Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------------------------------
$1.00 - 1.49 216,500 9 years $1.05 216,500 $1.05
$3.40 - 3.40 25,000 5 years $3.40 20,000 $3.40
$4.05 - 4.50 65,000 8 years $4.12 14,000 $4.05
F-28
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Note 9: Related Party Transactions
The Company repaid the majority shareholder $9,787 in principal and
interest during 2004 for a note payable issued previously.
Mr. Iler, the Chief Financial Officer, was retained as a consultant to
advise on strategic capital formation prior to his election as a
Director and Chief Financial Officer. Mr. Iler was paid $37,500 in
consulting fees and reimbursement of office expenses of $12,500 in 2004
and $46,000 in 2003, for his services.
Note 10: Disclosures About Fair Value of Financial Instruments
The following methods were used to estimate the fair value of financial
instruments.
The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant
judgments by management and uncertainties. Fair value is the estimated
amount at which financial assets or liabilities could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these
financial instruments and because management does not intend to sell
these financial instruments, the Company does not know whether the fair
values shown below represent values at which the respective financial
instruments could be sold individually or in the aggregate.
Notes Payable and Long-term Debt
Fair value is estimated based on the borrowing rates currently
available to the Company for bank loans with similar terms and
maturities.
The following table presents estimated fair values of the Company's
financial instruments at September 30, 2004.
Carrying Amount Fair Value
------------------------------------
Financial assets
Cash and cash equivalents $ 1,019,616 $ 1,019,616
Financial liabilities
Notes payable $ 122,000 $ 122,000
Long-term debt $ 25,000 $ 25,000
F-29
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
Note 11: Commitments
The Company has three executive employee agreements with certain
officers and directors. As a part of these agreements the Company is
obligated to pay these individuals aggregate compensation of $425,000
annually through February 2005. At September 30, 2004, the Company had
paid $646,000 for the installation of the initial network and was
committed to paying approximately $226,000 for completion of the
installation.
Note 12: Subsequent Events
On December 17, 2004, certain officers and directors of the Company
were named defendants in a lawsuit entitled Greg Sanders v. Henry
Hoffman et al. Messrs. Hoffman, Dilman, Mendez and Iler are officers
and directors of the Company, Mr. Thompson is a director of the Company
and Mr. Noland is a former officer and director of the Company. The
action alleges fraud, misrepresentation and breach of fiduciary duty
relating to a settlement agreement entered into between the Company and
Mr. Sanders. The complaint seeks damages in excess of $9,679,903. The
Company will pay all expenses relating to the defense of this matter.
In management's opinion this case is without merit and the defendants
intend on defending this matter vigorously.
Effective as of December 31, 2004, the Company consummated a private
placement of its Units pursuant to a Confidential Investment Proposal
dated October 11, 2004 and amended on December 20, 2004. Each Unit
consisted of 50,000 shares of the common stock and a Common Stock
Warrant to purchase 37,500 shares of common stock. As part of the
private placement, the Company sold an aggregate of 6.38 Units (319,000
shares and warrants to purchase 239,250 shares of common stock) for an
aggregate purchase price of $638,000, or $100,000 per Unit. The
warrants entitle the holders to purchase shares of the common stock for
a period of five years from the date of issuance at an exercise price
of $2.40 per share. The warrants contain certain anti-dilution rights
and are redeemable by the Company, on terms specified in the warrants.
In connection with the private placement, Laidlaw Co. (UK) Ltd. (f/k/a
Sands Brothers International Limited) the placement agent in the
private placement, received a cash commission fee of 9% of the gross
proceeds to the Company of the securities sold at the closing, a
payment of $30,000 representing the fees and expenses of its counsel in
the private placement and warrants to purchase 10% of the shares sold
in the private placement. The warrants are exercisable for a period of
five years at an exercise price of $2.40 per share and contain the same
anti-dilution rights as the common stock warrants.
F-30
SiriCOMM, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
September 30, 2004 and 2003
On January 5, 2005, the Company issued an aggregate of 85,000 shares of
its common stock upon the exercise of a like number of warrants,
exercisable at $2.00 per share. The warrants were originally issued in
January 2004 pursuant to a private placement of the Company's Units
consisting of common stock and warrants.
As an inducement to the investors exercising their warrants, the
Company issued an aggregate of 63,750 new warrants to the investors.
The new warrants entitle the holders to purchase shares of the
Company's common stock reserved for issuance thereunder for a period of
five years from the date of issuance at an exercise price of $2.40 per
share. The warrants contain anti-dilution rights and are redeemable by
the Company, in whole or in part, on terms specified in the warrants.
F-31
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors F-33
Balance Sheet as of September 30, 2003 F-34
Statements of Operations for the years ended F-35
September 30, 2003 and 2002
Statements of Stockholders' Deficit for the F-36
years ended September 30, 2003 and 2002
Statements of Cash Flows for the years ended F-37
September 30, 2003 and 2002
Notes to Financial Statements for the years F-39
ended September 30, 2003 and 2002
F-32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
SiriCOMM, Inc. and Subsidiary
Joplin, Missouri
We have audited the accompanying consolidated balance sheet of SiriCOMM, Inc.
and Subsidiary (the "Company"), a development stage enterprise, as of September
30, 2003, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years ended September 30, 2003 and 2002 and for
the period from inception (April 24, 2000) through September 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
September 30, 2003, and the results of its operations and its cash flows for the
years ended September 30, 2003 and 2002 and for the period from inception (April
24, 2000) through September 30, 2003, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2, the Company is in the development stage, and has not yet
earned revenues from operations, has working capital and equity deficiencies of
$389,758 and $504,994, respectively, at September 30, 2003 and is in default
with respect to a substantial portion of its loan agreements. These conditions
raise substantial doubt regarding the Company's ability to continue as a going
concern. Management's plans related to these conditions are also discussed in
Note 2. The financial statements do not include any adjustments that may result
from the outcome of this uncertainty.
/s/ Aidman, Piser & Company, P.A.
Tampa, Florida
January 11, 2004
F-33
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
ASSETS
Current assets:
Cash $ 56,300
Prepaid expenses and other current assets 639,316
Deferred loan costs, net 181,940
--------------
Total current assets 877,556
Furniture and equipment, net of accumulated depreciation of $41,701 54,764
--------------
$ 932,320
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable, bank $ 96,640
Current maturities of long-term debt:
Officers and directors 59,757
Other 633,637
Accounts payable:
Stockholder 25,000
Other 76,181
Accrued expenses and other current liabilities 376,099
--------------
Total current liabilities 1,267,314
Long-term debt, less current maturities 150,000
Other liabilities 20,000
--------------
Total liabilities 1,437,314
--------------
Commitments and contingencies (Note 8)
Stockholders' deficit:
Common stock, par value $.001, 50,000,000 shares authorized;
12,891,593 shares issued; 12,696,343 shares outstanding 12,967
Additional paid-in capital 3,847,485
Deficit accumulated during the development stage (3,906,608)
Treasury stock, 195,250 shares at cost (458,838)
--------------
Total stockholders' deficit (504,994)
--------------
$ 932,320
==============
See notes to consolidated financial statements.
F-34
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
From Inception
Years ended September 30, (April 24, 2000)
---------------------------------------- to September 30,
2003 2002 2003
----------------- ----------------- ----------------
Revenues $ 0 $ 0 $ 0
---------------- ---------------- ---------------
Operating expenses:
General and administrative 252,758 128,780 616,442
Salaries and consulting fees 1,249,990 544,377 2,241,430
Research and development 77,567 134,660 336,219
Write-off of note receivable - - 50,000
Depreciation 19,293 14,751 42,459
---------------- ---------------- ---------------
Total operating expenses 1,599,608 822,568 3,286,550
---------------- ---------------- ---------------
Operating loss (1,599,608) (822,568) (3,286,555)
Interest expense (50,948) (39,043) (94,600)
Loan costs (475,453) (50,000) (525,453)
---------------- ---------------- ---------------
Net loss $ (2,126,009) $ (911,611) $ (3,906,608)
================ ================ ===============
Net loss per share, basic and diluted $ (0.21) $ (0.09) $ (1.33)
================ ================ ===============
Weighted average shares, basic and diluted 10,014,621 10,712,867 2,921,094
================ ================ ===============
See notes to consolidated financial statements.
F-35
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Deficit
Accumulated
Common Stock Additional during the Total
---------------------- Paid-in Development Treasury Stockholders'
Shares Amount Capital Stage Stock Deficit
---------- --------- ------------ ------------ ---------- ------------
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)
---------- --------- ------------ ------------ ---------- ------------
Balances, 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)
---------- --------- ------------ ------------ ---------- ------------
Balances, 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)
---------- --------- ------------ ------------ ---------- ------------
Balances, 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 services 1,001,944 1,002 1,144,157 - - 1,145,159
Stock issued for loan costs 137,782 138 272,574 - - 272,712
Stock warrants issued for services - - 185,000 - - 185,000
- -
Stockholder contributions - - 829,838 - (458,838) 371,000
- -
Proceeds from stock issuance - 75 74,925 - - 75,000
Net loss for the period - - - (2,126,009) - (2,126,009)
---------- --------- ------------ ------------ ---------- ------------
12,891,593 $ 12,967 $ 3,847,485 $ (3,906,608) $ (458,838) $ (504,994)
========== ========= ============ ============ ========== ============
See notes to consolidated financial statements.
F-36
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
From Inception
Years ended September 30, (April 24, 2000) to
--------------------------------- September 30,
2003 2002 2003
------------- ------------- -------------
Cash flows from operating activities:
Net loss $ (2,126,009) $ (911,611) $ (3,906,608)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation 19,293 14,751 42,459
Amortization of loan costs (stock-based) 475,453 50,000 525,453
Stock-based compensation 612,421 9,000 621,421
Settlement expense funded from debt
assumption 100,672 - 128,672
Write-off of note receivable - - 50,000
Other non-cash charges 14,954 14,954
Changes in assets and liabilities:
Current assets 15,000 (15,000) -
Current liabilities 247,351 86,940 401,960
------------- ------------- -------------
Net cash flows from operating activities (640,865) (765,920) (2,121,689)
------------- ------------- -------------
Cash flows from investing activities:
Cash acquired in business combination 1,479 1,479
Acquisition of furniture and equipment - (59,656) (99,959)
Proceeds from sale of furniture and
equipment - 1,406 1,406
------------- ------------- -------------
Net cash flows from investing activities 1,479 (58,250) (97,074)
------------- ------------- -------------
Cash flows from financing activities:
Issuance of note receivable - - (50,000)
Borrowings under line of credit, net - - 97,043
Proceeds from long-term debt 680,000 1,050,000 1,731,035
Payments of long-term debt (103,618) (102,950) (206,568)
Payment of loan costs - (50,000) (50,000)
Advances from (repayments to) officers, net - (29,471) 386,216
Proceeds from sale of common stock
subscriptions 75,000 367,337
------------- ------------- -------------
Net cash flows from financing activities 651,382 867,579 2,275,063
------------- ------------- -------------
Change in cash 11,996 43,409 56,300
Cash, beginning of period 44,304 895 -
------------- ------------- -------------
Cash, end of period $ 56,300 $ 44,304 $ 56,300
============= ============= =============
(Continued)
F-37
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
From inception
Years ended September 30, (April 24, 2000) to
----------------------------- September 30,
2003 2002 2003
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 51,241 $ 13,008 $ 16,475
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Conversion of debt to 6,372 shares of common
stock $ - $ - $ 386,216
=========== =========== ===========
Acquisition of 1,694 shares of treasury stock
for a note payable $ - $ 253,524 $ 253,524
=========== =========== ===========
Debt assumed pursuant to reverse acquisition $ 100,000 $ - $ 100,000
=========== =========== ===========
Conversion of debt to 1,922,000 shares of common
stock $ 1,107,000 $ - $ 1,107,000
=========== =========== ===========
Stockholder contribution of stock options on behalf
of the Company $ 371,000 $ - $ 371,000
=========== =========== ===========
Issuance of 1,189 shares of treasury stock for
for prepaid services $ - $ 35,670 $ 35,670
=========== =========== ===========
Stockholder contribution of 195,250 shares of
common stock to the Treasury $ 829,838 $ - $ 829,838
=========== =========== ===========
See notes to consolidated financial statements.
F-38
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 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
early 2004.
Acquisition:
On November 21, 2002, SiriCOMM, Inc. (f/k/a Fountain Pharmaceuticals,
Inc.), a Delaware corporation (the "Company" or "SiriCOMM") completed
the acquisition of all the issued and outstanding shares of SiriCOMM,
Inc. - a Missouri corporation ("SiriCOMM Missouri"). An aggregate
9,662,562 post-reverse split shares were issued to SiriCOMM Missouri
shareholders. Furthermore, the Company agreed to issue the equivalent
of 15.5% of the post-merger shares (1,922,000 post reverse split
shares) to retire $1,000,000 of convertible notes issued by SiriCOMM
Missouri. As a result and following completion of the acquisition, the
sole director of the Company resigned and four of SiriCOMM Missouri's
principal shareholders were elected in his place. In connection with
this transaction the Company changed its name to "SiriCOMM, Inc."
Since SiriCOMM Missouri is considered the acquirer for accounting and
financial reporting purposes, the transaction has a been accounted for
in accordance with reverse acquisition accounting principles as though
it were a recapitalization of SiriCOMM Missouri and a sale of shares by
SiriCOMM Missouri in exchange for the net assets of the Company. The
financial statements include the historical results of operations and
cash flows of SiriCOMM Missouri from inception and operations of
SiriCOMM Delaware from November 21, 2002 through September 30, 2003.
All intercompany accounts and balances have been eliminated in
consolidation.
Reporting periods:
In connection with the acquisition discussed above, the financial
information has been presented on a September 30 fiscal year end.
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.
F-39
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
1. Nature of operations and summary of significant accounting policies
(continued):
Financial instruments:
The carrying value of the Company's financial instruments, including
cash, accounts payable, and notes payable, approximate their fair
market values.
Deferred loan costs:
The Company incurs costs to obtain financing. These costs primarily
represent the fair market values of 1) common stock issued to lenders
pursuant to the Company's loan agreements and 2) stock options granted
by the President on the shares he holds of the Company's common stock.
(Notes 4 and 5) Loan costs are amortized over the terms of the notes
payable.
Furniture and equipment:
Furniture and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of 5 years.
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. (There have been no
options issued to employees since inception.) 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.
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.
Recent accounting pronouncements:
During April 2002, the FASB issued SFAS No. 145, Rescission of SFAS No.
4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections (SFAS
145). SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses From
Extinguishments of Debt (SFAS No. 4), which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect.
As a result of the rescission of SFAS No. 4, the classification of gain
and losses arising from debt extinguishments requires consideration of
the criteria for extraordinary accounting treatment provided in APB No.
30, Reporting the Results of Operations. In the absence of SFAS No. 4,
debt extinguishments that are not unusual in nature and infrequent in
occurrence would be treated as a component of net income or loss from
continuing operations. SFAS No. 145 is effective for financial
statements issued for fiscal years beginning after May 15, 2002. The
adoption of this standard currently has no financial reporting
implications.
F-40
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
1. Nature of business and summary of significant accounting policies
(continued):
Recent accounting pronouncements (continued):
During November 2002, the FASB issued Interpretation 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (Interpretation 45).
Under Interpretation 45 guarantees, contracts and indemnification
agreements are required to be initially recorded at fair value. Current
practice provides for the recognition of a liability under such
agreements only when a loss is probable and reasonably estimable, as
those terms are defined under SFAS No. 5, Accounting for Contingencies.
In addition, Interpretation 45 requires significant new disclosures for
all guarantees even if the likelihood of the guarantor having to make
payments under the guarantee is remote. The disclosure requirements are
effective for financial statements of interim and annual periods ending
after December 15, 2002. The initial recognition and measurement
provisions of Interpretation 45 are applicable on a prospective basis
to guarantees, contracts or indemnification agreements issued or
modified after December 31, 2002. The Company currently has no
guarantees, contracts or indemnification agreements that would require
accounting recognition under the new standard.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Valuable Interest Entities. This interpretation clarifies rules
relating to consolidation where entities are controlled by means other
than a majority voting interest and instances in which equity investors
do not bear the residual economic risks. This interpretation, as
deferred, is effective for interim and annual periods beginning after
December 15, 2003. The Company currently has no ownership in variable
interest entities and, therefore, adoption of this standard currently
has no financial reporting implications.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. The statement amends
and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts,
and hedging activities. This statement is designed to improve financial
reporting such that contracts with comparable characteristics are
accounted for similarly. The statement, which is generally effective
for contracts entered into or modified after June 30, 2003, is not
anticipated to have a significant effect on the Company's financial
position or results of operations as the Company does not anticipate
engaging in hedging activities in the near future.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity. This statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. This statement is
effective for financial instruments entered into or modified after May
31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. The Company currently has
no such financial instruments outstanding or under consideration and
therefore adoption of this standard currently has no financial
reporting implications.
F-41
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
1. Nature of business and summary of significant accounting policies
(continued):
Income taxes:
Effective November 21, 2002, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. This
method also requires the recognition of future tax benefits such as net
operating loss carry-forwards, to the extent that realization of such
benefits is more likely than not. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The deferred tax assets are reviewed
periodically for recoverability and valuation allowances are provided,
as necessary.
Prior to November 21, 2002, the operations of SiriCOMM Missouri were
included in the personal income tax returns of the stockholders under
Subchapter S of the Internal Revenue Code. The acquisition described in
Note 1 resulted in the revocation of the Company's S corporation
election.
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.
Earnings per share for 2002 has been restated to reflect the reverse
aquisition/reverse stock split.
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). To
date, SiriCOMM has not introduced its products and services
commercially, and has limited assets, significant liabilities and
limited business operations. Managements' plan of operations for fiscal
2004 is for the Company to raise additional capital ($6-$10 million)
and build a network to service up to 250,000 simultaneous users. The
construction of the initial network is estimated to cost $4-$6 million
and is expected to be financed by a private sale of securities. The
Company is in discussions with two technology companies to provide "in
kind" products and services in exchange for equity in the Company.
Additionally, the Company has been the recipient of a $1,000,000
Federally Guaranteed Economic Development loan by the U.S. Department
of Agriculture predicated upon the Company's demonstration of raising
$1,000,000 of equity. The Company has raised approximately $1,500,000
through January 9, 2004 and such funds have been deposited into escrow
pending closing of the loan, which is anticipated to occur in late
January. Further, loans aggregating $400,000 have been converted to
equity subsequent to September 30, 2003. The Company believes the loan
will close as anticipated and all escrowed funds will be released.
There can be no assurances that the Company, upon receipt of such
funding, will be able to achieve its short-term financial objectives.
Additionally as the long-term financial objectives require funding in
excess of the $2.5 million contemplated above, the Company will need to
seek additional financing beyond that currently secured. There are no
assurances that the Company will be able to raise the additional
financing necessary to construct the aforementioned network 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.
F-42
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
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.
4. Notes payable and long-term debt:
Notes payable and long-term debt consists of the following at September
30, 2003:
Note payable, former officer, bearing interest at 2.5%, unsecured,
principal and interest due in monthly installments of $10,000 through
May 2004, currently in default (a) 133,367
Note payable, bearing interest at 4%, unsecured, principal and interest
due November 2004 150,000
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. (b) 350,000
Notes payable, bearing interest at 10%, unsecured, principal and
interest due August 18, 2003. 150,000
Notes payable officers and directors, bearing interest at 4%,
unsecured, interest and principal due 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. (b) 59,757
-------------
843,394
Less current maturities (693,394)
-------------
$ 150,000
=============
F-43
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
4. Notes payable and long-term debt (continued):
Future maturities of notes payable and long-term debt are as follows:
Year ending September 30,
2004 $ 693,394
2005 150,000
-----------
$ 843,394
===========
(a) As of September 30, 2003, the Company was in default of this note
payable. The former officer filed suit for breach of contract in
July 2003. (See Note 8.)
(b) In connection with certain of these loans the Company also issued
an aggregate of 137,782 shares of stock as incentive to granting
such loans. Furthermore, the principal stockholder, on behalf of
the Company, granted 375,000 options to purchase stock to the
lenders (accounted for as a capital contribution by such
stockholder).
Note: Subsequent to September 30, 2003 an aggregate of $400,000 in
loans has been converted to equity.
5. Stockholders' deficit:
Reverse merger and reorganization::
In November 2002, in connection with the merger discussed in Note 1,
the Company combined the outstanding shares of common stock to a single
class of common stock and affected a one-for-sixty reverse split of the
outstanding shares. In connection therewith, the par value of the stock
was decreased to $0.001. Additionally, the authorized number of shares
of common stock was increased to 50,000,000 shares and preferred stock
authorized increased to 5,000,000 shares.
On November 21, 2002, the Company issued 9,662,562 post-reverse split
common shares in exchange for all of the outstanding common stock of
SiriCOMM Missouri.
Conversion of debt to equity:
In January 2003, the Company issued 1,922,000 shares of its common
stock in satisfaction of $1,000,000 of convertible notes issued by
SiriCOMM Missouri.
On April 9, 2003, the Company issued an aggregate of 107,000 shares of
its common stock to an unaffiliated third party in connection with the
conversion of $107,000 of a subordinated convertible debenture and
accrued interest. The shares were issued under the exemption from
registration provided in Section 4(2) of the Securities Act of 1933.
At September 30, 2003 a stockholder has agreed to convert $20,000 in
accounts payable to equity. This conversion occurred in October 2003
and such amounts are included in other liabilities in the accompanying
balance sheet.
F-44
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
5. Stockholders' deficit (continued):
Stock issued for services:
In November 2002, the Company issued 716,000 shares of its common stock
registered with the SEC on Form S-8, at the fair market value of the
stock for services based on a consulting agreement. In February 2003,
it was determined by mutual consent of the parties to the consulting
agreement that the agreement would be cancelled and all shares issued
were returned to the Company. The registration statement with regard to
these shares was withdrawn on March 12, 2003.
On April 14, 2003, the Company issued an aggregate of 330,000 shares of
common stock to the partners of Sommer & Schneider LLP (Joel C.
Schneider (15,000) and Herbert H. Sommer (15,000)) in consideration of
legal services performed on behalf of the Company and Robert Smith
(300,000) for services rendered from April 2003 through June 2003 to
the Company. These shares were issued under the Company's 2002
Incentive Stock Option Plan and are fully paid, non-assessable, validly
issued and registered with the SEC pursuant to a Registration Statement
on Form S-8 filed with the SEC on April 14, 2003.
In June 2003, the Company entered into an agreement for equity research
services. The term of the agreement expires July 2004. In consideration
for such services, the Company issued 55,944 shares of stock (valued at
$80,000). These expenses are being recognized as the services are
performed over the term of the agreement.
In July 2003, the Company entered into a consulting agreement for
strategic planning and marketing services. The term of the agreement is
six months. In exchange for such services the Company issued 200,000
shares of stock, which were valued at $151,600 based on the average
trading price for the 5 days preceding the agreement. These expenses
are being recognized over the term of the agreement.
In July 2003, the Company entered into a consulting agreement with a
related party. The term of the agreement is twelve months. In
consideration for such consulting services, the Company issued 416,000
shares of common stock, which were valued at $461,760, based on average
trading price for the 5 days preceding the agreement. These expenses
are being recognized over the term of the agreement. Consulting expense
to this related party recognized in 2003 aggregated $76,960.
Stock issued for loan costs:
From January through September 2003, the Company issued an aggregate of
137,782 shares of common stock (valued based on the average trading
price of the stock for the previous 90 days or $272,712) for loan costs
incurred. The Company has also accrued approximately $13,000 for loan
costs related to shares due to be issued. The related expense of
approximately $203,000 is included as loan costs and the remaining
balance of approximately $83,000 is included in deferred loans costs in
the accompanying financial statements.
Common stock warrants:
In May 2003, the Company entered into a consulting agreement whereby
they issued 370,000 common stock warrants with an exercise price of
$1.00 and a fair market value of $458,838.
F-45
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
5. Stockholders' deficit (continued):
Stockholder contributions:
In April 2003, the Company reacquired 195,250 shares of common stock as
a contribution from a stockholder. These shares are recorded as a
stockholder contribution and treasury stock at the fair market value of
the Company's common on the date the shares were received by the
Company. See Notes 4 and 7 for discussion of stockholder grant of
options.
Black-scholes assumptions:
The Company used the Black-Scholes options-pricing model to determine
the fair value of the warrants as well as to determine the values of
options granted to certain lenders by the principal stockholder for
consulting expenses and fair value of the capital contributions,
respectively. The following assumptions were used for grants in 2003:
No dividend yield, expected volatility of 122.18%; risk-free interest
rates of 2% and expected lives of 2 years.
2002 Incentive stock option plan:
The Company has adopted and the shareholders have approved an incentive
stock option plan (the "Plan") covering 3,000,000 post-reverse split
shares of the Company's common stock, pursuant to which eligible
participants of the Company and its subsidiaries and affiliates are
eligible to receive stock options, stock appreciation rights,
restricted stock performance stock awards and bonus stock until May 15,
2012.
The Plan permits the granting of non-transferable stock options that
are intended to qualify as incentive stock options ("ISO's) under
section 422 of the (Internal Revenue code of 1986) and stock options
that do not so qualify ("Non-Qualified Stock Options"). The option
exercise price for each share covered by an option shall be determined
by the Stock Option Committee but shall not be less than 100% of the
fair market value of a share on the date of grant. The term of each
option will be fixed by the Stock Option Committee, but may not exceed
10 years from the date of the grant in the case of an ISO or 10 years
and two days from the date of the grant in the case of a Non-Qualified
Stock Option. In the case of 10% stockholders, no ISO shall be
exercisable after the expiration of five years from the date the ISO is
granted.
Non-transferable stock appreciations rights ("SAR's") may be granted in
conjunction with options, entitling the holder upon exercise to receive
an amount in any combination of cash or unrestricted common stock of
the Company as determined by the Stock Option Committee, not greater in
value than the increase since the date of grant in the value of the
shares covered by such right. Each SAR will terminate upon the
termination of the related option.
Restricted shares of the common stock may be awarded by the Stock
Option Committee subject to such conditions and restrictions as they
may determine. The Stock Option Committee shall also determine whether
a recipient of restricted shares will pay a purchase price per share or
will receive such restricted shares without any payment in cash or
property. No restricted stock award may provide for restrictions beyond
ten (10) years from the date of grant.
F-46
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
5. Stockholders' deficit (continued):
2002 Incentive stock option plan (continued):
Performance shares of common stock may be awarded without any payment
for such shares by the Stock Option Committee if specified performance
goals established by the Committee are satisfied. The Committee shall
establish the maximum number of shares of stock to be issued to a
designated employee if the performance goals are attained. The
Committee must certify in writing that a performance goal has been
attained prior to issuance of any certificate for a performance stock
awarded to any employee.
The committee may also award shares of common stock as bonus stock to
senior officers, consultants and employees designated by the Committee,
without any payment for such shares and without any specified
performance goals.
The Plan provides (a) in the event of a "Change of Control" (as defined
in the Plan), unless otherwise determined by the Stock Option Committee
prior to such Change of Control, or (b) to the extent expressly
provided by the Stock Option Committee at or after the time of grant,
in the event of a "Potential Change of Control" (as defined in the
Plan), (i) all stock options and related SAR's (to the extent
outstanding for at least six months) will become immediately
exercisable; (ii) the restrictions and deferral limitations applicable
to outstanding restricted stock awards and deferred stock awards will
lapse and the shares in question will be fully vested; and (iii) the
value of such options and awards, to the extent determined by the Stock
Option Committee, will be cashed out on the basis of the highest price
paid (or offered) during the preceding 60-day period, as determined by
the Stock Option Committee. The Change of Control and Potential Change
of Control provisions may serve as a disincentive or impediment to a
prospective acquirer of the Company and, therefore, may adversely
affect the market price of the common stock of the Company.
6. Income taxes:
Deferred tax assets consist of the following at September 30, 2003:
Net operating loss carryover $ 390,000
Valuation allowance (390,000)
-----------------
$ -
=================
Income tax (expense) benefit consists of the following at September 30,
2003:
Current:
Federal $ -
-----------------
Deferred:
Deferred -
Benefit of net operating loss carryover
of $1,040,000 that expires 2028 390,000
Change in valuation allowance (390,000)
-----------------
-
-----------------
$ -
=================
F-47
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
6. Income taxes (continued):
Unaudited pro forma income taxes for 2002 consists of the following:
Years Ended From Inception (April 24, 2000) to
September 30, September 30,
---------------------- ----------------------------------
2002 2001 2002 2001
--------- --------- ------------ ------------
Current income taxes $ - $ - $ - $ -
Deferred income taxes:
Benefit of net operating loss
carryforward and start-up
costs 341,800 147,300 668,000 326,200
Other 2,300 1,200 5,000 2,700
Change in valuation allowance (344,100) (148,500) (673,000) (328,900)
--------- --------- ------------ ------------
$ - $ - $ - $ -
========= ========= ============ ============
Unaudited pro forma deferred tax assets consist of the following at
September 30, 2002:
Net operating loss carryforward and start-up costs $ 668,000
Book depreciation in excess of tax 5,000
Less: valuation allowance (673,000)
-------------
$ -
=============
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
September 30,
2003
--------------
Statutory tax rate (35.0%)
State tax (3.5%)
Effect of stock-based compensation & loan costs (permanent) 19.5%
Change in deferred tax asset valuation allowance (18.0%)
---------
Effective tax rate in accompanying statement of operations 0%
=========
7. Related party transactions:
Stockholder contributions:
An officer and a major stockholder issued stock options on the
Company's common stock owned by him on behalf of the Company. The fair
value on the date of issuance of these stock options of approximately
$350,000 (calculated using the Black-Scholes formula - see Note 5) was
F-48
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
7. Related party transactions (continued):
recorded as a capital contribution to the Company. Loan costs of
approximately $200,000 and deferred loan costs of approximately
$150,000 have been included in accompanying financial statements.
Legal:
As discussed in Note 5, legal counsel was issued stock in satisfaction
of certain outstanding payables. Total legal expense paid to this
stockholder aggregated approximately $50,000 in 2003.
8. 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 $150,000 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 four executive employee agreements with certain
officers/directors. As part of these agreements the Company is
obligated to pay these individuals aggregate compensation of $525,000
annually through February 2005.
9. Subsequent Events:
The Company has previously authorized the issuance of a class of
Preferred Stock. By substitution of equity for debt, the Company will
improve the company's current ratio and its shareholders' equity.
Pursuant to the debt conversion, the Company agreed to issue a
Preferred Stock class to preserve the 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.
10. Details to Balance Sheet:
Prepaid expenses and other current assets:
Prepaid expenses and other current assets consists of prepaid
stock-based consulting fees. Those expenses are associated with
consulting agreements discussed in Note 5 (Stock issued for services)
and are being written off over the terms of the agreements which range
from six to twelve months and will be fully expensed by June 30, 2004.
F-49
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2003
10. Details to Balance Sheet (continued):
Accrued expenses and other liabilities consist of the following:
Accrued payroll $ 259,257
Accrued interest 62,344
Accrued consulting 40,000
Accrued loan costs 13,680
Other 818
---------
$ 376,099
=========
F-50
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION
WHERE AN OFFER OR SOLICITATION IS NOT PERMITTED. NO SALE MADE PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS SIRICOMM SINCE THE DATE OF THIS PROSPECTUS.
SiriCOMM, Inc.
2,938,900 SHARES OF COMMON STOCK
________________________________________
PROSPECTUS
________________________________________
, 2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Delaware General Corporation Law and our Bylaws provide for
indemnification of the Registrant's officers and directors for liabilities and
expenses that they may incur in such capacities. In general, the Registrant's
directors and officers are indemnified with respect to actions taken in good
faith and in a manner such person believed to be in our best interests, and with
respect to any criminal action or proceedings, actions that such person has no
reasonable cause to believe were unlawful. Furthermore, the personal liability
of the Registrant's directors is limited as provided in the Registrant's
Certificate of Incorporation.
The Registrant maintains directors and officers liability insurance
with an aggregate coverage limit of $1,000,000.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission (the "SEC"), such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered, other than the underwriting
discount, are estimated as follows:
SEC Registration Fee.......................................$ 726.10
Printing and Engraving Expenses............................$ 2,500
Legal Fees and Expenses....................................$10,000
Accountants' Fees and Expenses.............................$ 5,375
Miscellaneous Costs........................................$ 500
Total......................................................$19,101.10
All of these expenses, except for the SEC registration and filing fees,
represent estimates only. We will pay all of the expenses of this offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On November 21, 2002, the Registrant completed the acquisition of all
of the issued and outstanding shares of SiriCOMM, Inc. (Missouri). An aggregate
of 9,712,867 shares were issued to SiriCOMM's 18 shareholders, including
5,762,303 issued to Henry P. Hoffman, the Registrant's President, CEO and
Chairman, 1,098,331 issued to David N. Mendez, the Registrant's Executive V.P. -
Sales and Marketing and a Director and 1,023,535 issued to Kory S. Dillman, the
Registrant's Executive V.P. - Internet Business Development and a Director. The
shares were issued under the exemption from registration provided in Section
4(2) of the Act.
On January 7, 2003, the Registrant issued 29,525 shares of its common
stock to David and Rebecca Seidl and issued 19,683 shares of its common stock to
John Cesta and Patti Ann's Dreams, Inc. in connection with loans made to the
Registrant in the aggregate amount of $125,000. The shares were issued under the
exemption from registration provided in Section 4(2) of the Act.
On January 7, 2003, the Registrant issued 868,000 shares of its common
stock to Jeff Wasson and 1,054,000 shares of its common stock to Quest Capital
Alliance, L.L.C., pursuant to the conversion of convertible debt in the
aggregate of $1,000,000. The shares were issued under the exemption from
registration provided in Section 4(2) of the Act.
II-1
On February 12, 2003, the Registrant issued 9,842 shares of its common
stock to Carlye Wannenmacher in connection with a loan made to the Registrant in
the amount of $25,000. The shares were issued under the exemption from
registration provided in Section 4(2) of the Act.
On April 14, 2003, the Registrant issued 107,000 shares of its common
stock to Finter Bank Zurich pursuant to the conversion of convertible debt in
the principal amount of $100,000 plus $7,000 of accrued interest. The shares
were issued under the exemption from registration provided in Section 4(2) of
the Act.
On July 23, 2003, the Registrant issued an aggregate of 39,366 shares
of its common stock to four individuals including 9,842 shares to Terry W.
Thompson, who later became a Director of the Registrant in August 2003, in
connection with loans made to the Registrant in the aggregate amount of
$100,000. The shares were issued under the exemption from registration provided
in Section 4(2) of the Act.
On August 18, 2003, the Registrant issued 55,944 shares of its common
stock to The Research Works, Inc. pursuant to a letter agreement. The shares
were issued under the exemption from registration provided in Section 4(2) of
the Act.
On December 5, 2003, the Registrant 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 Registrant 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 principal plus $13,417 of interest due by the
Registrant. The shares were issued 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 Registrant into a like number of the Units comprised of shares and 3 year
warrants exercisable at $2.00 per share.
On March 10, 2004 the Registrant 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 Registrant'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 Registrant who purchased 100,000 Units.
The units were issued under the exemption from registration provided in Section
4(2) of the Act.
In February 2004, the Registrant issued an aggregate of 200,000
warrants to Clark Burns (100,000) and Philip Snowden (100,000). The warrants are
exercisable for three (3) years at an exercise price of $.50 per share. The
warrants were issued under the exemption from registration provided in Section
4(2) of the Act.
On March 10, 2004 the Registrant issued 331,951 Units to five investors
upon the conversion of an aggregate of $331,951 of debt due by the Registrant to
these investors. Among the investors converting their debt was Mr. Terry W.
Thompson, direct of the Registrant 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.
On March 18, 2004 the Registrant issued 27,656 units comprised of
27,656 shares and 27,656 three year warrants exercisable at $2.00 per share to
Marvin and Donna McDaniel upon the conversion of $27,656 of debt due by the
Registrant 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 Registrant 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 Registrant 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
II-2
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 May 4, 2004 the Registrant closed the sale of 328,143 units at $3.40
per unit to fourteen accredited investors. Each unit consists of one share of
the Registrant'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.
On September 23, 2004, the Registrant issued 26,375 units comprised of
26,375 shares and 26,375 three year warrants exercisable at $2.00 per share to
William and Susann Perkin upon the conversion of $26,375 of debt due by the
Registrant to the Perkins. The units were issued under the exemption from
registration provided in Section 4(2) of the Act
As of December 31, 2004, the Registrant consummated the private
placement of its units pursuant to a Confidential Investment Proposal dated
October 11, 2004 and amended on December 20, 2004. Each unit consisted of 50,000
shares of the common stock and a common stock warrant to purchase 37,500 shares
of common stock . In the private placement, the Registrant sold an aggregate of
6.38 Units (319,000 shares of common stock and warrants to purchase 239,250
shares of common stock) for an aggregate purchase price of $638,000, or $100,000
per unit. The warrants entitle the holders to purchase shares of the common
stock for a period of five years from the date of issuance at an exercise price
of $2.40 per share. The warrants contain certain anti-dilution rights and are
redeemable by the Registrant, on terms specified in the warrants.
In connection with the December 2004 private placement, Laidlaw Co.
(UK) Ltd. (f/k/a Sands Brothers International Limited) the placement agent,
received a cash commission fee of nine (9%) of the gross proceeds to the
Registrant of the securities sold at the closing, a payment of $30,000
representing the fees and expenses of its counsel in the Private Placement and
warrants to purchase 31,900 shares of common stock, or ten percent (10%) of the
shares of common stock sold in the private placement. These warrants are
exercisable for a period of five years at an exercise price of $2.40 per share
and contain the same anti-dilution rights as the warrants issued in the private
placement.
In connection with the December 2004 private placement, the Registrant
also agreed to file with the SEC a registration statement covering the shares of
common stock issued in the private placement and the shares of common stock
issued underlying the warrants issued in the private placement, including the
warrant issued to the placement agent. If such registration statement is not
filed within the required time frame, or does not become effective within 120
days of the closing date, the Registrant has agreed to pay to the investors 1%
of the gross proceeds of the private placement for each thirty (30) day period
in which the Registrant fails to comply with such requirements.
On January 5, 2005 the Registrant issued an aggregate of 85,000 shares
of its common stock upon the exercise of a like number of warrants, exercisable
at $2.00 per share. The warrants were originally issued in January 2004 pursuant
to a private placement of the Registrant's units consisting of common stock and
warrants. As an inducement to the investors exercising their warrants, the
Registrant issued warrants for an aggregate of 63,750 new warrants to the
investors. The new warrants entitle the holders to purchase shares of the
Registrant's common stock reserved for issuance thereunder for a period of five
years from the date of issuance at an exercise price of $2.40 per share. The
warrants contain anti-dilution rights and are redeemable by the Registrant, in
whole or in part, on terms specified in the warrants.
As a further inducement to the investors exercising their warrants, the
Registrant also agreed to file with the SEC a registration statement covering
the shares purchased by each investor as part of the units, the shares issued
upon exercise of the warrants and the shares underlying the new warrants. The
cash proceeds of the above sales of securities of the Registrant were used for
general corporate purposes in developing the Registrant's planned services.
On February 7, 2005, the Registrant entered into a network installation
agreement with Sat-Net Communications, Inc., pursuant to which Sat-Net agreed to
provide the Registrant certain services in exchange for 2,000,000 shares of
common stock, warrants to purchase 1,000,000 shares of common stock at an
exercise price of $2.00 per share, and cash consideration. The Registrant has
agreed to register the 2,000,000 shares held by Sat-Net pursuant to the terms of
the network installation agreement.
On April 11, 2005, the Registrant consummated a private placement of
1,066,667 units to Sunflower Capital, LLC at an aggregate purchase price of
$1,600,000, or $1.50 per unit. The units consisted of 1,066,667 shares of common
stock and warrants to purchase 1,066,667 shares of common stock. The warrants
entitle the holder to purchase shares of common stock for a period of five years
from the date of issuance at an exercise price of $2.50 per share. In a separate
transaction also consummated on April 11, 2005, the Registrant sold warrants to
purchase 413,605 shares of common stock to Sunflower Capital, LLC at a purchase
price of $53,333, or approximately $0.13 per warrant. These warrants entitle the
holder to purchase shares of common stock for a period of five years from the
date of issuance at an exercise price of $3.00 per share. These securities were
issued under the exemption from registration provided in Section 4(2) of the
Act.
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ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
Exhibit No. Description
3.1 Certificate of Incorporation of the Registrant, filed March
23, 1989 (Incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form S-1 filed on January 4, 1990,
Registration Number 33-32824 (the "Form S-1"))
3.2 Certificate of Amendment of Certificate of Incorporation,
filed April 10, 1989 (Incorporated by reference to Exhibit 3.2
of the Form S-1)
3.3 Restated Certificate of Incorporation of the Registrant, filed
November 13, 1989 (Incorporated by reference to Exhibit 3.3 of
the Form S-1)
3.4 By-Laws of the Registrant (Incorporated by reference to
Exhibit 3.4 of the Form S-1)
3.5 Certificate of Designation, Preference and Rights of Series A
Preferred Stock (Incorporated by reference to Exhibit 3.5 of
the Company's Current Report on Form 8-K filed on July 31,
1997 (July 1997 Form 8-K))
3.6 Amended and Restated Certificate of Incorporation of Fountain
Pharmaceuticals, Inc. dated November 21, 2002, as filed in the
office of the Secretary of State, State of Delaware on
November 21, 2002. (Incorporated by reference to Exhibit 99.1
to the November 21, 2002 Form 8-K)
4.1 Copy of Specimen Stock Certificate (Incorporated by reference
to Exhibit 4.1 of the Form S-1)
4.2 Copy of Specimen Stock Certificate of Series A Preferred Stock
(Incorporated by reference to Exhibit 4.3 to the July 1997
Form 8-K)
4.3 Form of Warrant issued to the principals of Layne Morgan
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2004.)
4.4 Form of Warrant issued to investors on May 4, 2004
(Incorporated by reference to Exhibit 4.2 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2004.)
5.1 Opinion of Bingham McCutchen LLP *
10.1 Capital Stock Purchase Agreement between Fountain Holdings
LLC, Joseph S. Schuchert, Jr. and Park Street Acquisition
Corporation dated December 31, 2001. (Incorporated by
reference to Exhibit 1.1 to the Registrant's Form 8-K Report
dated December 31, 2001)
10.2 Capital Stock Purchase Agreement between Fountain
Pharmaceuticals, Inc. and Park Street Acquisition Corp. dated
December 31, 2001. (Incorporated by reference to Exhibit 1.2
to the Registrant's Form 8-K Report dated December 31, 2001)
10.3 Securities Exchange Agreement dated as of April 5, 2002
between the Company and the holders of the common stock of
SiriCOMM, Inc. (Missouri) (Incorporated by reference to
Exhibit 2.1 to the November 21, 2002 Form 8-K)
10.4 Amendment to Securities Exchange Agreement dated as of June 5,
2002 between the Company and the shareholders of SiriCOMM,
Inc. (Missouri) (Incorporated by reference to Exhibit 2.2 to
the November 21, 2002 Form 8-K)
10.5 Amendment No. 2 to Securities Exchange Agreement dated as of
November 21, 2002 between the Company and the shareholders of
SiriCOMM, Inc. (Missouri) (Incorporated by reference to
Exhibit 2.3 to the November 21, 2002 Form 8-K)
10.6 Consulting Agreement dated July 2, 2003 between the Company
and CLX & Associates (Incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-QSB for the quarter ended
June 30, 2003)
10.7 Consulting Agreement dated June 2, 2003 between the Company
and The Research Works, Inc. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-QSB for the quarter
ended June 30, 2003)
10.8 Consulting Agreement and addendums dated May 30, 2003 between
the Company and Staunton McLane LLC. (Incorporated by
reference to Exhibit 10.3 to the Registrant's Form 10-QSB for
the quarter ended June 30, 2003)
10.9 Employment Agreement dated February 19, 2002 between the
Company and Henry P. Hoffman (Incorporated by reference to
Exhibit 10.10 to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 2003)
--------
* Filed herewith.
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10.10 Employment Agreement dated February 19, 2002 between the
Company and Kory S. Dillman (Incorporated by reference to
Exhibit 10.11 to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 2003)
10.11 Employment Agreement dated February 19, 2002 between the
Company and David N. Mendez (Incorporated by reference to
Exhibit 10.12 to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 2003)
10.12 Letter to Staunton McLane from the Company dated November 28,
2003 terminating the service agreement. (Incorporated by
reference to Exhibit 10.13 to the Registrant's Form 10-KSB for
the fiscal year ended September 30, 2003)
10.13 Consulting Agreement dated April 22, 2004 between the Company
and Layne Morgan Technology Group (Incorporated by reference
to Exhibit 10.1 to the Registrant's Form 10-QSB for the
quarter ended March 31, 2004)
10.14 Consulting Agreement dated April 22, 2004 between the Company
and Gunner Investments, Inc. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-QSB for the quarter
ended March 31, 2004)
10.15 Memorandum of Understanding between the Company and
Christenson Transportation, Inc. (Incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-QSB for the quarter
ended March 31, 2004)
10.16 Memorandum of Understanding between the Company and Mark
Sullivan (Incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-QSB for the quarter ended March 31, 2004)
10.17 Form of Subscription Agreement (Incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K dated December 31,
2004)
10.18 Form of Common Stock Purchase Warrant (Incorporated by
referenced to Exhibit 10.2 to the Registrant's Form 8-K dated
December 31, 2004)
10.19 Form of Common Stock Purchase Warrant (Incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K dated
January 5, 2005)
10.20 Form of Registration Rights Agreement (Incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K dated
January 5, 2005)
10.21 Network Access Service Agreement, dated February 7, 2005
between the Company and Idling Solutions, L.L.C. (Incorporated
by reference to Exhibit 10.8 to the Registrant's Form 10-QSB
for the quarter ended December 31, 2004)
10.22 Network Installation Agreement between the Company and Sat-Net
Communications, Inc. dated February 7, 2005 (Incorporated by
referenced to Exhibit 10.1 of Form 8-K dated February 7, 2005)
10.23 Form of Registration Rights Agreement (Incorporated by
referenced to Exhibit 10.2 of Form 8-K dated February 7, 2005)
10.24 Form of Warrant (Incorporated by referenced to Exhibit 10.3 of
Form 8-K dated February 7, 2005) 13.1 Consent of independent
auditors 14.1 Code of Business Conduct (Incorporated by
reference to Exhibit 14.1 to the Registrant's Form 10-KSB for
the fiscal year ended September 30, 2003)
10.25 Subscription Agreement, dated April 11, 2005, between the
Registrant and Sunflower Capital, LLC (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K filed
April 13, 2005).
10.26 Common Stock Purchase Warrant (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 8-K filed April 13,
2005).
10.27 Common Stock Purchase Warrant (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 8-K filed April 13,
2005).
10.28 Warrant Purchase Agreement dated April 11, 2005, between the
Registrant and Sunflower Capital, LLC (incorporated by
reference to Exhibit 10.4 to the Registrant's Form 8-K filed
April 13, 2005).
14.2 Code of Ethics for Financial Executives (Incorporated by
reference to Exhibit 14.2 to the Registrant's Form 10-KSB for
the fiscal year ended September 30, 2003)
14.3 Audit Committee Charter (Incorporated by reference to Exhibit
14.3 to the Registrant's Form 10-KSB for the fiscal year ended
September 30, 2004)
23.1 Consent of Bingham McCutchen LLP is contained in Exhibit 5.1
to this Registration Statement*
23.2 Consent of BKD, LLP*
23.3 Consent of Aidman, Piser & Company, P.A.*
24.1 Power of Attorney is contained on the Signature page of this
Registration Statement
-------
* Filed herewith.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
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1. Include any prospectus required by Section 10(a)(3) of the
Securities Act;
2. Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
the securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities Act if, in
the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement, and
3. Include any additional or changed material information on the plan
of distribution.
For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Joplin,
State of Missouri, on this 26 day of April, 2005.
SIRICOMM, INC.
By: /s/ Henry P. Hoffman
----------------------------------------
Name: Henry P. Hoffman
Title: President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below hereby constitutes and appoints Henry P. Hoffman and J. Richard
Iler as his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do them in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or any of them, or their or his substitute or
substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates indicated:
Name Title Date
---- ----- ----
/s/ Henry P. Hoffman President, Chief Executive Officer and April 26, 2005
---------------------- Chairman of the Board (principal
Henry P. Hoffman executive officer)
/s/ David M. Mendez Executive Vice President -Sales and April 26, 2005
---------------------- Marketing and Director
David M. Mendez
/s/ Kory S. Dillman Executive Vice President - Internet April 26, 2005
---------------------- Business Development and Director
Kory S. Dillman
/s/ J. Richard Iler Chief Financial Officer and Director April 26, 2005
---------------------- (principal financial and accounting
J. Richard Iler officer)
/s/ Terry W. Thompson Director April 26, 2005
----------------------
Terry W. Thompson
II-7