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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended
June 30, 2004 Commission File No. 0-18399
SIRICOMM, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 62-1386759
------------------------------- --------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2900 Davis Boulevard, Suite 130, Joplin, Missouri 64804
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (417) 626-9961
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of August 3, 2004 was 16,209,775
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations for the nine
months ended June 30, 2004 and June 30, 2003 4
Condensed Consolidated Statements of Changes in Stockholders' 5
Equity for the period ended June 30, 2004
Condensed Consolidated Statements of Cash Flows for the nine
months ended June 30, 2004 and June 30, 2003 6-7
Notes to the Condensed Consolidated Financial Statements 8-13
2
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
June 30, 2004 September 30,
(unaudited) 2003
------------ ------------
ASSETS
Current assets:
Cash $ 1,400,282 $ 56,300
Prepaid expenses and other current assets 695,784 639,316
Deferred loan costs, net 2,786 181,940
------------ ------------
Total current assets 2,098,852 877,556
Furniture and equipment, net of accumulated depreciation
of $56,809 and $41,701 as of June 30, 2004 and
September 30, 2003, respectively 66,967 54,764
------------ ------------
Total assets $ 2,165,819 $ 932,320
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, bank $ 122,000 $ 96,640
Current maturities of long-term debt:
Officers and directors 59,757
Other 25,000 633,637
Accounts payable 63,310 101,181
Accrued expenses and other current liabilities 300,219 376,099
------------ ------------
Total current liabilities 510,529 1,267,314
Notes payable and long-term debt, less current maturities - 150,000
Other liabilities - 20,000
------------ ------------
Total liabilities 510,529 1,437,314
------------ ------------
Stockholders' equity (deficit):
Preferred stock - par value $.001; 5,000,000 shares authorized; 213 -
Series A - par value $.001; 500,000 authorized; 213,417 issued and
outstanding
Common stock - par value $.001; 50,000,000 shares authorized; 16,226,671 and
12,966,593 shares issued and 16,005,046 and 12,771,343 shares outstanding
as of June 30, 2004 and September 30, 2003, respectively 16,227 12,967
Additional paid-in capital 8,590,121 3,847,485
Deferred compensation (722,016) -
Deficit accumulated during the development stage (6,229,255) (3,906,608)
Treasury stock, 195,250 shares at cost at September 30, 2003 - (458,838)
------------ ------------
Total stockholders' equity (deficit) 1,655,290 (504,994)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 2,165,819 $ 932,320
============ ============
See Notes to Consolidated Financial Statements.
3
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
Unaudited June 30, 2004 Unaudited June 30, 2003
------------------------------ -----------------------------
For the Three For the Nine For the Three For the Nine From Inception
Months Then Months Then Months Then Months Then (April 24, 2000) to
Ended Ended Ended Ended June 30, 2004
------------ ------------ ------------ ------------ ------------
Revenues $ - $ - $ - $ - $ -
Operating expenses:
General and administrative 125,220 283,055 83,097 217,144 899,497
Salaries and consulting fees 1,000,368 1,771,286 561,004 817,678 4,012,721
Stock-based compensation - 50,000 - - 50,000
Research and development (15,200) 14,270 18,274 62,867 350,489
Write-off of notes receivable - - - 50,000
Depreciation 5,177 15,107 4,824 14,470 57,566
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,115,565 2,133,718 667,199 1,112,159 5,420,273
------------ ------------ ------------ ------------ ------------
Operating loss (1,115,565) (2,133,718) (667,199) (1,112,159) (5,420,273)
Interest income 1,299 2,871 - - 2,871
Other income 37,205 37,223 - - 37,223
Interest expense (5,189) (23,869) (10,565) (39,473) (118,469)
Loan costs (19,891) (205,154) (112,497) (344,169) (730,607)
------------ ------------ ------------ ------------ ------------
Net loss $ (1,102,141) $ (2,322,647) $ (790,261) $ (1,495,801) $ (6,229,255)
============ ============ ============ ============ ============
Net loss per share, basic and diluted $ (0.07) $ (0.16) $ (0.07) $ (0.16) $ (1.26)
============ ============ ============ ============ ============
Weighted average shares,
basic and diluted 16,019,569 14,170,317 12,137,063 9,156,266 4,938,298
============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
4
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2000) THROUGH JUNE 30, 2004
Preferred Stock Common Stock Additional
---------------- ------------------- Paid-in Deferred Accumulated Treasury
Shares Amount Shares Amount Capital Compensation Deficit Stock Total
------- ------- ---------- ------- ---------- --------- ----------- ---------- -----------
Issuance of founder shares
at inception - $ - 3,333 $ 3,333 $ - $ - $ - $ - $ 3,333
Conversion of debt to
equity 6,372 6,372 379,844 386,216
Net loss for the period (398,391) (398,391)
------- ------- ---------- ------- ---------- --------- ----------- ---------- -----------
Balance, September 30, 2000 - - 9,705 9,705 379,844 - (398,391) - (8,842)
Issuance of common stock 295 295 288,709 289,004
Net loss for the year (470,597) (470,597)
------- ------- ---------- ------- ---------- --------- ----------- ---------- -----------
Balance, September 30, 2001 - - 10,000 10,000 668,553 - (868,988) - (190,435)
Treasury stock acquisition
(1,694 shares) (253,524) (253,524)
Issuance of 1,472 treasury
shares of common stock (184,641) 220,311 35,670
Net loss for the year (911,611) (911,611)
------- ------- ---------- ------- ---------- --------- ----------- ---------- -----------
Balance, September 30, 2002 - - 10,000 10,000 483,912 - (1,780,599) (33,213) (1,319,900)
Reverse merger and
reorganization 9,712,867 (277) (247,892) 33,213 (214,956)
Conversion of debt to
equity 2,029,000 2,029 1,104,971 1,107,000
Stock issued for loan costs 137,782 138 272,574 272,712
Stock issued for services 1,001,944 1,002 1,144,157 1,145,159
Stock warrants issued for
services 185,000 185,000
Stockholder contributions 829,838 (458,838) 371,000
Proceeds from stock issuance 75,000 75 74,925 75,000
Net loss for the period (2,126,009) (2,126,009)
------- ------- ---------- ------- ---------- --------- ----------- ---------- -----------
Balance, September 30, 2003
(unaudited) - - 12,966,593 12,967 3,847,485 - (3,906,608) (458,838) (504,994)
Conversion of debt to
equity 213,417 213 426,592 426 642,759 643,398
Stock issued for loan costs 9,593 10 13,670 13,680
Stock issued for services 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 20,000 20 19,980 20,000
Proceeds from stock
issuance 2,253,143 2,253 2,943,436 2,945,689
Issuance of options to
employees, net 50,000 50,000
Treasury stock retired (195,250) (195) (458,643) 458,838 -
Net loss for the period (2,322,647) (2,322,647)
------- ------- ---------- ------- ---------- --------- ----------- ---------- -----------
Balance, June 30, 2004 213,417 $ 213 16,226,671 $16,227 $8,590,121 $(722,016) $(6,229,255) $ - $ 1,655,290
======= ======= ========== ======= ========== ========= =========== ========== ===========
See Notes to Consolidated Financial Statements.
5
SIRICOMM, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF
CASH FLOWS
Nine Months Ended From Inception
------------------------------------- (April 24, 2000) to
June 30, 2004 June 30, 2003 June 30, 2004
------------ ------------ ------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (2,322,647) $ (1,495,801) $ (6,229,255)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 15,107 14,470 57,566
Loan costs 179,154 344,172 704,607
Stock-based compensation for services 806,872 473,370 1,428,293
Stock-based compensation to employees 50,000 - 50,000
Settlement expense funded from debt
acquisition - - 128,672
Write-off of note receivable - - 50,000
Other non-cash charges 1,373 - 16,327
Changes in assets and liabilities:
Current assets (141,175) 15,000 (141,175)
Current liabilities (44,440) 175,426 357,520
------------ ------------ ------------
Net cash used in operating activities (1,455,756) (473,363) (3,577,445)
------------ ------------ ------------
Cash flows from investing activities:
Cash acquired in business combination - 1,479 1,479
Acquisition of furniture and equipment (27,311) - (127,270)
Proceeds from sale of equipment - - 1,406
------------ ------------ ------------
Net cash provided by (used in)
investing activities (27,311) 1,479 (124,385)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of notes receivables - - (50,000)
Borrowings under line of credit, net - - 97,043
Proceeds from notes payables - 530,000 1,731,035
Payment of notes payable (226,640) (91,904) (433,208)
Payment of loan costs - - (50,000)
Advances from (repayments to) officers, net - - 386,216
Proceeds from sale of common stock 3,053,689 - 3,421,026
------------ ------------ ------------
Net cash provided by financing activities 2,827,049 438,096 5,102,112
------------ ------------ ------------
Increase (decrease in) cash 1,343,982 (33,788) 1,400,282
Cash, beginning of period 56,300 44,304 -
------------ ------------ ------------
Cash, end of period $ 1,400,282 $ 10,516 $ 1,400,282
============ ============ ============
See Notes to Consolidated Financial Statements.
6
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 11,385 $ 10,596 $ 27,860
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Issuance of 570,000 shares of common stock for services $ 574,624 $ - $ 574,624
============ ============ ============
Conversion of debt to equity $ 642,026 $ 1,107,000 $ 2,135,242
============ ============ ============
Issuance of 9,842 shares of common stock for loan costs $ 13,680 $ - $ 13,680
============ ============ ============
Debt assumed pursuant to reverse acquisition $ - $ 100,000 $ 100,000
============ ============ ============
Stock offering costs funded through issuance of stock $ - $ 26,670 $ 26,670
============ ============ ============
Acquisition of 1,694 shares of treasury stock $ - $ - $ 253,524
============ ============ ============
Stockholder contribution of stock options on behalf of
the Company $ - $ 351,250 $ 371,000
============ ============ ============
Issuance of 1,189 shares of treasury stock for prepaid
services $ - $ - $ 35,670
============ ============ ============
Stockholder contribution of 195,250 shares of
common stock to the Treasury $ - $ - $ 829,838
============ ============ ============
See Notes to Consolidated Financial Statements.
7
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO JUNE 30, 2004
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 marine and transportation
industries. The Company's development activities include integrating
multiple technologies such as satellite communications, the Internet,
wireless networking, and productivity enhancing software into commercially
viable products and services. The Company expects to complete installation
of the first phase of its proprietary wireless network and commence
revenue-generating activities in late 2004.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Interim information:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that are in the opinion of the company's
management, necessary to fairly present the financial position, results of
operations and cash flows of the Company. Those adjustments consist only of
normal recurring adjustments. The condensed consolidated balance sheet of
the Company as of September 30, 2003 has been derived from the audited
consolidated balance sheet of the Company as of that date.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Form 10-K annual report for
2003 filed with the Securities and Exchange Commission.
The results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
8
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO JUNE 30, 2004
UNAUDITED
Stock-based compensation:
The Company accounts for compensation costs associated with stock options
issued to employees under the provisions of Accounting Principles Board
Opinion No. 25 whereby compensation is recognized to the extent the market
price of the underlying stock at the grant date exceeds the exercise price
of the option granted. Stock-based compensation to non-employees is
accounted for using the fair-value based method prescribed by Financial
Accounting Standard No. 123 - Accounting for Stock-Based Compensation. The
Company uses the Black-Scholes options-pricing model to determine the fair
value of stock-based compensation and capital contributions.
Had compensation cost for the Company's stock option plan been determined
on the fair value at the grant dates for stock-based employee compensation
arrangements consistent with the method required by SFAS 123, the Company's
net loss and net loss per common share would have been the pro forma
amounts indicated below for the three and nine months ended June 30, 2004.
Three Months Nine Months
------------ -----------
Net loss, as reported $ (1,102,141) $ (2,322,647)
Add back intrinsic values of stock
issued to employees -- 50,000
Less: stock-based employee compensation
under the fair value based method (21,500) (200,950)
------------- -------------
Pro forma net loss under fair value method $ (1,123,641) $ (2,473,597)
============= =============
Net loss per common share-basic and diluted:
As reported $ (.07) $ (.16)
Pro forma under fair value method $ (.07) $ (.17)
9
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO JUNE 30, 2004
UNAUDITED
1. Nature of operations and summary of significant accounting policies
(continued):
Research and development costs:
The Company incurs costs, principally paid to outside consultants,
associated with computer software to be marketed in the future. Costs
incurred in connection with establishing technological feasibility have
been expensed as research and development costs. Costs incurred subsequent
to establishing technological feasibility, including coding and testing,
will be capitalized.
Net loss per share:
Net loss per share represents the net loss available to common stockholders
divided by the weighted average number of common shares outstanding during
the year. Diluted earnings per share reflect the potential dilution that
could occur if convertible debt was converted into common stock. Diluted
net loss per share is considered to be the same as basic net loss per share
since the effect of the issuance of common stock associated with the
convertible debt is anti-dilutive.
2. Note payable and long-term debt:
Note payable and long-term debt consist of the following June 30, 2004:
Bank line of credit, due on demand, but if no demand is
made due in monthly payments of principal plus accrued
interest through August 25, 2009. (a) $ 122,000
Notes payable, bearing interest at 4%, unsecured,
interest and principal due the earlier of the date
which the Company shall receive sufficient invested or
borrowed sums to pay all amounts due or the dates
ranging from March 3 through April 30, 2004. (b) 25,000
---------
$ 147,000
=========
(a) Line of credit of $1,000,000, 80% guaranteed by the United States
Department of Agriculture. Advances bear interest at prime plus
1.5% (adjusted quarterly) on the federally guaranteed portion and
prime plus 3% (adjusted quarterly) on the remainder. Secured by
substantially all assets of the Company, personally guaranteed by
an officer.
(b) As of April 27, 2004, this amount was reduced by $50,000 due to
repayment with interest. The remaining note of $25,000 is
currently being renewed under similar terms.
10
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO JUNE 30, 2004
UNAUDITED
3. Stockholders' equity:
The Company authorized the issuance of a class of convertible Preferred
Stock. The Company agreed to issue Preferred Stock to preserve a lender's
continuing accrued interest and create a class superior to the common
stock. In December 2003, the Company designated 500,000 shares of Series A
Cumulative Convertible Preferred Stock. This stock has a par value of
$0.001 and an annual dividend rate of $0.10 per share, payable in quarterly
payments of $0.025 per share. The preferred stock has a liquidating
preference of $1.00 per share and is convertible to Common Stock at $2.00
per share. At September 30, 2003, a stockholder agreed to convert $20,000
in accounts payable to equity. This conversion and stock issuance of 20,000
shares of common stock occurred in October 2003.
In November 2003, the Company converted an aggregate of $400,000 in debt
from existing shareholders along with accrued interest thereon. The Company
issued 213,417 shares of newly issued Preferred Stock Series A in
consideration for two debtholders conversion of $200,000 in notes and
further issued 205,043 shares of Common Stock to an existing shareholder
and a director who converted notes of $150,000 and $50,000 respectively.
Stock-based stock issuance costs associated with these conversions
aggregated $31,091.
Also November 2003, the Company entered into a broker-dealer exclusive
letter agreement of services, which included introduction to certain
parties desirous of establishing a mutually advantageous relationship. The
term of this agreement is six months. The compensation for these services
is 34,000 shares of restricted stock, $2,500 per month paid over the term
of the agreement, and an additional 66,000 shares of restricted stock to be
issued later. The 100,000 shares include piggyback registration rights.
This agreement was amended in early April to reduce further monthly
installments to a total of $7,500 and the 66,000 additional shares.
In addition, an aggregate of 176,000 shares were issued in connection with
the exercise of a like amount of warrants for aggregate proceeds of
$88,000.
In the first quarter of fiscal 2004, the Company issued 9,842 shares of its
common stock, at the fair market value of the stock for loan costs
previously accrued.
In February 2004, a stockholder agreed to convert $24,000 in accounts
payable to equity. In March 2004, certain debtholders agreed to convert
$180,931 in principal and interest to equity. As discussed in Note 2, in
the first and second quarters of fiscal 2004, the Company raised $1,515,000
and $410,000 respectively in connection with a private placement offering.
The Company also raised $75,000 during the fourth quarter of fiscal 2003 in
connection with the same offering.
11
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO JUNE 30, 2004
UNAUDITED
3. Stockholders' equity (continued):
In March 2004, the Company issued 14,500 stock options to consultants for
services rendered, and has committed to issue an additional 10,500 options
with the same terms at a future date. The options are excercisable for $1
per share through December 31, 2013 and have an aggregate fair value of
$57,500.
On April 5, 2004, the Company granted to Les Hazen, our National Sales
Manager, 25,000 stock options, the shares underlying this option are
registered on Form S-8 filed with the SEC on April 14, 2003 (SEC File No.
333-104508). The options are exercisable at $4.05 and have a ten year term.
The options were granted under the Company's 2002 Equity Incentive Plan.
On April 7, 2004, the Company issued 436,000 shares of its Common Stock to
Gunner Investments, Inc. pursuant to a consulting agreement. The shares
were issued under the exemption from registration provided in Section 4(2)
of the Act.
On April 7, 2004, the Company issued to the principals of Layne Morgan
Technology Group an aggregate of 100,000 shares of its Common Stock and
150,000 three-year common stock purchases warrants exercisable at $1.50 per
share pursuant to a consulting agreement. The shares and warrants were
issued under the exemption from registration provided in Section 4(2) of
the Act.
On April 21, 2004, the Company issued 7,000 shares of its Common Stock to
Mr. Bobby Ray Weant as consideration for consulting services pursuant to
the exercise of a stock option for a like number of shares. The option was
granted to Mr. Weant under the Company's 2002 Equity Incentive Plan. The
exercise price of the option was $1.00. The shares underlying the option
were registered on Form S-8 on April 14, 2003 (SEC File No. 333-104508).
On May 1, 2004, the Company agreed to issue to Mark Sullivan, a network
consultant, 150,000 three-year options, exercisable at $3.40 per share. The
options were granted to Mark Sullivan and his designees under the Company's
2002 Equity Incentive Plan.
On May 4, 2004, the Company closed the sale of 328,143 units ("Units") at
$3.40 per Unit to fourteen accredited investors. Each Unit consists of one
share of the Company's Common Stock and one quarter (1/4) of a three-year
warrant exercisable at $4.75 per share. The Units were issued under the
exemption from registration provided in Section 4(2) of the Act.
12
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO JUNE 30, 2004
UNAUDITED
4. Commitments and contingencies:
Litigation:
On July 26, 2003, the Company was named a defendant in a lawsuit for breach
of settlement contract. In May, 2004, this matter was settled for $135,000
principal plus accrued interest of $10,000. This settlement releases the
Company from any other liability in this matter.
Employment agreements:
The Company has three executive employee agreements with certain
officers/directors. As part of these agreements the Company is obligated to
pay these individuals aggregate compensation of $425,000 annually through
February 2005.
5. Subsequent Events:
On July 5, 2004, the Company granted to Vincent Toms, Senior Software
Architect 10,000 options, the shares underlying this option are registered
on Form S-8 filed with the SEC on April 14, 2003 (SEC File No. 333-104508).
The options are exercisable at $4.50 per share. The options were granted
under the Company's 2002 Equity Incentive Plan.
On July 24, 2004, the Company granted an additional 10,000 options to
Derrick Woolworth, exercisable at $4.05 per share. The option was granted
to Mr. Woolworth under the Company's 2002 Equity Incentive Plan. The shares
underlying this option are registered on Form S-8 filed with the SEC on
April 14, 2003 (SEC File No. 333-104508).
On July 30, 2004, the Company granted to ServeTheWeb.com, L.L.C. 2,979
shares of Common Stock as consideration for the purchase of billing
software to be used by the Company. These shares are registered on Form
S-8 filed with the SEC on April 14, 2003 (SEC File No. 333-104508). The
shares were granted pursuant to the Company's 2002 Equity Incentive Plan.
As of August 4, 2004, the Company issued 19,500 shares of its Common Stock
to Staunton McLane pursuant to the exercise of a stock option for a like
number of shares. The exercise price of these options is $1.00. As of the
date of this report, Staunton McLane has a balance of 80,500 options, each
exercisable at $1.00 per share.
As of August 10, 2004, Mr. J. Richard Iler, the Company's Chief Financial
Officer and a Director, exercised 3,500 stock options at $1.00 per share.
The options were granted pursuant to the Company's 2002 Equity Incentive
Plan.
13
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
SiriCOMM, Inc. ("Company or SiriCOMM"), was incorporated in the State
of Delaware on March 23, 1989 as Fountain Pharmaceuticals, Inc. The Company
ceased operations and had been inactive since July 2001.
On November 21, 2002, the Company completed the acquisition of
SiriCOMM, Inc., a company organized under the laws of the State of Missouri As a
result of the acquisition, the Company's business operations are those of the
Missouri Corporation.
Critical Accounting Policies and Estimates:
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make significant
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosure of contingent assets and liabilities.
We evaluate our estimates, including those related to contingencies, on an
ongoing basis. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies, among others,
involve the more significant judgments and estimates used in the preparation of
our consolidated financial statements:
The Company accounts for compensation costs associated with stock
options and warrants issued to non-employees using the fair-value based method
prescribed by Financial Accounting Standard No. 123 - Accounting for Stock-Based
Compensation. The Company uses the Black-Scholes options-pricing model to
determine the fair value of these instruments The following estimates are used
for grants in 2004: Expected future volatility over the expected lives of these
instruments is estimated to mirror historical experience, measured by a weighted
average of closing share prices prior to each measurement date. Expected lives
are estimated based on management's judgment of the time period by which these
instruments will be exercised.
14
Information Relating To Forward-Looking Statements
This report, including the documents incorporated by reference in this
report, includes forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events. Our
actual results may differ materially from those discussed herein, or implied by
these forward-looking statements. Forward-looking statements are identified by
words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may"
and other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements.
Plan of Operations
SiriCOMM is engaged in the development of broadband wireless software
and network infrastructure solutions for the commercial transportation industry
and government market. The Company has a vertically integrated technology
platform incorporating both software applications and broadband network
infrastructure and access. The vertical-specific, enterprise-grade software
solutions are designed to help businesses of any size and to the extent
applicable governments at various levels to reduce operating costs, improve
productivity and operational efficiencies, enhance safety, and strengthen
security. The Company's unique, commercial-grade private network solution is
built for enterprises and integrates multiple technologies to enable an ultra
high-speed, open-architecture wireless data network for its software
applications and Internet access. The Company believes that its planned
vertical-specific software, network technology, industry relationships, and low
cost of operations will represent value to the commercial transportation
industry and the government market.
SiriCOMM believes that its patent-pending network infrastructure
solution will provide economic benefits when compared to other solutions. The
architecture was developed to enable cost-efficient communications between truck
drivers and their centralized management. Utilizing Wireless Fidelity (Wi-Fi)
equipment and a proprietary remote server, the company will make available
broadband data access at locations frequented by truck drivers. SiriCOMM is in
the process of installing network access nodes at strategic locations
nationwide. Each wireless local area network will be interconnected using
satellite communications and the company's proprietary server solution. The
point-to-multipoint broadcast feature of the company's network is expected to
provide considerable cost-to-bandwidth efficiencies. At each ground location the
satellite receiving equipment will be linked to SiriCOMM's remote server and the
wireless local area network that provides connectivity for individual
subscribers. This architecture enables high-speed two-way data communications as
well as store and forward services based at the local server. The Company
believes that this architecture provides the best possible combination of
bandwidth, services, price, and suitability for service to its future customers.
15
SiriCOMM's software applications, branded Beacon, are intended to
leverage this optimized data network to deliver cost reduction and productivity
improvement opportunities to subscribing companies. For a flat monthly fee,
Beacon subscribers will have access to a suite of productivity software, the
Internet, e-mail, proprietary company intranet information, and similar business
tools. Each Beacon subscription will initially include one Wi-Fi-enabled Palm OS
handheld computer. Beacon is expected to become commercially available in late
2004, at which time SiriCOMM intends to charge a monthly subscription fee of
$49.95 per user per month for its services.
The Company also will sell wireless Internet access subscriptions using
its existing network infrastructure currently under installation. The service,
branded "InTouch", will be available for sale to owner operators, highway
travelers, or any individual requiring Internet access. InTouch is expected to
become commercially available in late 2004.
Development of SiriCOMM's Business and Products
Since our inception we have focused our efforts principally in three
key areas - product development, pre-market demonstrations to potential
customers, and the formation of critical industry alliances. This disciplined
approach is important to the future success of the Company. First, a working
prototype of the broadband wireless network and applications software was
developed and refined. Patent applications are on file for the entire
end-to-end system. Second, demonstrations of the prototype to qualified
potential customers reaffirmed the feasibility of the network and the potential
need for its unique services. SiriCOMM has made technical presentations to more
than 30 communication, automobile, trucking and mobile technology companies
during the last 24 months and has received favorable feedback at such
demonstrations. As a result, the Company has letters of intent, memorandums of
understanding, whitepapers, and similar favorable expressions from multiple
industry sources. These include trucking companies, truck manufacturers,
technology partners, trade associations, and government agencies.
The first generation of SiriCOMM products are intended to improve the
availability, timeliness, and accuracy of communications and decision support
tools for law enforcement agencies and trucking companies that operate in North
America. Ultimately, with minor modifications, the SiriCOMM products will be
applicable in any industry requiring mobile communications from remote
locations, such as recreational vehicles, yachts, and construction sites.
SiriCOMM has executed a services agreement with ViaSat, Inc. of
Norcross, GA. The agreement includes redundant teleport (ground transmission
station) services, satellite data transmission bandwidth, and remote site
maintenance services at each of the SiriCOMM installations. The term of the
agreement is sixty months and automatically renews an additional twelve months.
ViaSat, under a separate agreement with Sat-Net, the manufacturer of the
equipment, is performing the complete installation of each SiriCOMM network
site.
16
SiriCOMM has executed a contract with Pilot Travel Centers, an operator
of truck service facilities to install its network at each of the 255 Pilot
Travel Centers locations nationwide. In addition to being a location partner,
Pilot also will market SiriCOMM's services to its customers as a business
partner in SiriCOMM's value-added reseller program. Together, the two companies
anticipate leveraging their alliance to develop industry-related business
solutions to benefit their mutual customer base.
SiriCOMM is negotiating with additional major truck stop organizations
whose facilities would fill out the Company's initial plan for 400 network
sites. SiriCOMM has entered into an agreement with Sat-Net Communications, LLC
in which Sat-Net will construct and install SiriCOMM's network components
including remote servers, VSAT dishes, and wireless LANs. The appraised value of
each SiriCOMM installation is $10,000 exclusive of installation. The turnkey
agreement provides cash and equity compensation to Sat-Net to include a cash
payment per location for the first 400 sites and a maximum cash price increase
of 15% on all subsequent turnkey installations. In addition, following
installation of the first 400 sites, Sat-Net will receive 2 million (2,000,000)
shares of SiriCOMM's common stock and 1 million (1,000,000) three year common
stock purchase warrants exercisable at $2 per share. The agreement also provides
that Sat-Net will provide software and network support for a monthly per site
fee of $30.00. The initial 400 sites will have available capacity to service up
to 250,000 users.
17
Results of Operations
From inception (April 24, 2000) through June 30, 2004, SiriCOMM has not
generated any revenues. During the period from inception (April 24, 2000)
through June 30, 2004, SiriCOMM had net losses totaling $ 6,229,255. During the
three months and nine months ended June 30, 2004, net losses totaled $1,102,141
and $2,322, 647, respectively. From inception through June 30, 2004, SiriCOMM's
general and administrative expenses totaled 899,497 or 16.6 % of total operating
expenses, while for the three and nine months ended June 30, 2004 general and
administrative expenses totaled $125,220 and $283,055 or 11.2 % and 13.2% of
total operating expenses, respectively. From inception through June 30, 2004,
SiriCOMM incurred salaries and consulting fees of $4,012,721 or 74% of operating
expenses, of which $1,000,368 and $1,771,286, or 89.7 % and 83 % of total
operating expenses were incurred during the three and nine months ended June 30,
2004, respectively. Of such amounts $1,428,293 and $806,872 were stock-based
non-cash costs for the period from inception and the nine months ended June 30,
2004, respectively. Research and development costs were $350,489 or 6.4% of
total operating expenses incurred in the period from inception (April 24, 2000)
through June 30, 2004, while expenses incurred during the three and nine months
ended June 30, 2004 totaled $(15,200) and $14,270 or 0.6 % of total operating
expenses.
From inception through June 30, 2004, the Company has incurred interest
expense $118,469, of which $5,189 and $23,869 was incurred during the three and
nine months ended June 2004.
Liquidity and Capital Resources
On November 21, 2002, The Company completed the acquisition of all of
the issued and outstanding shares of SiriCOMM, Inc., a Missouri Corporation.
9,623,195 shares of common stock were issued to the former shareholders of the
Missouri Corporation. Furthermore, the Company issued 1,922,000 shares to retire
$1,000,000 of convertible debentures issued by the Missouri Corporation. As a
result and following completion of the acquisition, the sole director of
SiriCOMM resigned and four of SiriCOMM's new principal shareholders were elected
in his place.
Since SiriCOMM was the acquirer for accounting and financial reporting
purposes, the transaction was accounted for in accordance with reverse
acquisition accounting principles as though it were a recapitalization of
SiriCOMM and a sale of shares by the Missouri Corporation in exchange for the
net assets of SiriCOMM. These financial statements include the historical
results of operations and cash flows of SiriCOMM-Missouri.
Since its inception, SiriCOMM has financed its activities primarily
from short-term loans and private sales of its securities. During fiscal 2003,
the Company borrowed an aggregate of $680,000 from several lenders. The Company
18
issued promissory notes to these lenders. The notes have varying interest rates
ranging from 4% to 10% and matured either during 2003 or mature as late as
November 2004. In addition, of the $680,000, an aggregate of $550,000 was
converted into preferred or common equity of the Company during the first and
second quarters of fiscal 2004. The Company has also raised proceeds through the
private sale of its equity. In March 2004 a private placement consisting of
2,000,000 units was completed, each unit consisting of one share of the
Company's common stock and one three-year warrant exercisable at $2.00 per
share. In May 2004, the Company completed a private placement of 328,143 units
at $3.40 per unit. Each unit consisted of one share of common stock and one
quarter (1/4) three year warrant exercisable at $4.75 per share. The Company
received proceeds of $1,115,686.
Item 3: Controls and Procedures
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms and that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the quarter
covered by this report. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective at the reasonable assurance level.
There has been no change in the Company's internal controls over
financial reporting during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
19
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
On July 26, 2003 the Company was named a defendant in a lawsuit
entitled Greg Sanders v. SiriCOMM, Inc. The action was brought in the Circuit
Court of Newton County, Neosho, Missouri (CV303-559CC). The action was for
breach of contract and sought damages in the principal amount of $135,000 plus
an additional $30,000 in alleged acceleration interest. In May 2004 this matter
was settled by the Company paying the plaintiff $145,000, inclusive of accrued
but unpaid interest.
Item 2: Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) On April 5, 2004, the Company granted to Les Hazen, our National
Sales Manager, 25,000 stock options, the shares underlying this option are
registered on Form S-8 filed with the SEC on April 14, 2003 (SEC File No.
333-104508). The options are exercisable at $4.05 and have a ten year term. The
options were granted under the Company's 2002 Equity Incentive Plan
On April 7, 2004, the Company issued 436,000 shares of its Common Stock
to Gunner Investments, Inc. pursuant to a consulting agreement. The shares were
issued under the exemption from registration provided in Section 4(2) of the
Act.
On April 7, 2004, the Company issued to the principals of Layne Morgan
Technology Group an aggregate of 100,000 shares of its common stock and 150,000
three-year common stock purchases warrants exercisable at $1.50 per share
pursuant to a consulting agreement. The shares and warrants were issued under
the exemption from registration provided in Section 4(2) of the Act.
On April 21, 2004, the Company issued 7,000 shares of its Common Stock
to Mr. Bobby Ray Weant as consideration for consulting services pursuant to the
exercise of a stock option for a like number of shares. The option was granted
to Mr. Weant under the Company's 2002 Equity Incentive Plan. The exercise price
of the option was $1.00. The shares underlying the option were registered on
Form S-8 on April 14, 2003 (SEC File No. 333-104508).
On May 1, 2004, the Company agreed to issue to Mark Sullivan a network
consultant, 150,000 three-year options, exercisable at $3.40 per share. The
options were granted to Mark Sullivan and his designees under the Company's 2002
Equity Incentive Plan.
20
On May 4, 2004, we closed the sale of 328,143 units ("Units") at $3.40
per Unit to fourteen accredited investors. Each Unit consists of one share of
the Company's Common Stock and one quarter (1/4) of a three-year warrant
exercisable at $4.75 per share. The Units were issued under the exemption from
registration provided in Section 4(2) of the Act.
On July 5, 2004, the Company granted to Vincent Toms, Senior Software
Architect 10,000 options, the shares underlying this option are registered on
Form S-8 filed with the SEC on April 14, 2003 (SEC File No. 333-104508). The
options are exercisable at $4.50 per share. The options were granted under the
Company's 2002 Equity Incentive Plan.
On July 24, 2004, the Company granted an additional 10,000 options to
Derrick Woolworth, exercisable at $4.05 per share. The option was granted to Mr.
Woolworth under the Company's 2002 Equity Incentive Plan. The shares underlying
this option are registered on Form S-8 filed with the SEC on April 14, 2003 (SEC
File No. 333-104508).
On July 30, 2004, we granted to ServeTheWeb.com, L.L.C. 2,979 shares of
Common Stock as consideration for the purchase of billing software to be used by
the Company. These shares are registered on Form S-8 filed with the SEC on
April 14, 2003 (SEC File No. 333-104508). The shares were granted pursuant to
the Company's 2002 Equity Incentive Plan.
As of August 4, 2004, the Company issued 19,500 shares of its Common
Stock to Staunton McLane pursuant to the exercise of a stock option for a like
number of shares. The exercise price of these options is $1.00. As of the date
of this report, Staunton McLane has a balance of 80,500 options, each
exercisable at $1.00 per share.
As of August 10, 2004, Mr. J. Richard Iler, the Company's Chief
Financial Officer and a Director, exercised 3,500 stock options at $1.00 per
share. The options were granted pursuant to the Company's 2002 Equity Incentive
Plan.
The cash proceeds of the above sales of securities of the company were
used for general corporate purposes in developing the company's planned
services.
(d) Not Applicable
Item 3.: Defaults upon Senior Securities
None
21
Item 4.: Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting held on May 11, 2004, the following
five directors were elected by a majority of the outstanding shares of common
stock of the Company. Each director was elected to one-year terms.
Henry P. (Hank) Hoffman
David N. Mendez
Kory S. Dillman
J. Richard Iler
Terry W. Thompson
At the same meeting, the shareholders ratified the appointment of BKD,
LLP to serve as the Company's independent auditors for the fiscal year ended
September 30, 2004.
Item 5.: Other Information
In April 2004, the Company entered into a five (5) year consulting
agreement with Gunner Investments, Inc. ("Gunner"). Pursuant to this agreement,
Gunner is to provide the Company with consulting services including utilizing
its relationship with certain entities that may be beneficial to the business of
the Company. As consideration for Gunner's services, the Company issued 436,000
shares of its common stock to Gunner. The shares are subject to forfeiture at
Company's option based upon Gunner's non-performance based on the following
schedule:
If the agreement is terminated during:
Year 1 - 348,800 shares will be forfeited
Year 2 - 261,600 shares will be forfeited
Year 3 - 174,400 shares will be forfeited
Year 4 - 87,200 shares will be forfeited
Year 5 - 0 shares will be forfeited
In April 2004, the Company entered into a two (2) year consulting
agreement with Layne Morgan Technology Group ("Layne"), whereby they agreed to
provide the Company with consulting services including certain internet
technologies, industry introductions and support from political lobbyists. As
consideration for Layne's services, the Company issued 100,000 restricted shares
of its common stock and 150,000 common stock purchase warrants, exercisable for
three years at an exercise price of $1.50 per share.
In May 2004, the Company entered into a Memorandum of Understanding
with Mark Sullivan ("Sullivan"), whereby Sullivan agreed to assist the Company
in the development of its wireless network infrastructure, its software
applications and certain other related products. As consideration for Sullivan's
services, the Company agreed to issue 150,000 options, exercisable for three
years at an exercise price of $3.40 in consideration of Consulting services.
22
In May 2004, the Company entered into a Memorandum of Understanding
("MOU") with Christenson Transportation, Inc. ("Christenson"), a trucking
operator. The primary purpose of this transaction is for the Company to provide
Christenson with ongoing productivity software applications that are designed to
improve Christenson's fleet's daily operational functions, reduce operating
costs, increase Christenson's employee productivity and enhance safety and
security. The MOU has an initial term of 36 months and Christenson has agreed to
pay the Company $49.95 each month for each registered subscriber.
In May 2004, the Company entered into a service agreement with Pilot
Travel Centers LLC by which the parties agreed to become strategic partners.
Through this partnership, the companies will work together to deliver SiriCOMM's
value-based services to Pilot Travel Centers' 255 locations nationwide.
In June 2004, the Company entered into Memorandum of Understanding
("MOU") with Wil-Trans Transportation Management Corporation. The purpose of
this transaction is for SiriCOMM to provide Wil-Trans with ongoing productivity
software applications designed to improve Wil-Trans fleet's daily operational
functions, reduce their operating costs, increase Wil-Trans employee
productivity and enhance safety and security. To that end, SiriCOMM will provide
its BEACON software and one PDA for each subscriber. In addition, SiriCOMM will
provide its PULSE products which is SiriCOMM's remote vehicle diagnostics data
and driver performance information tool. The term of this agreement is for 36
months.
In July 2004, the Company entered into a Memorandum of Understanding
with DriverTech, Inc. of Salt Lake City, UT, a manufacturer of mobile client
devices. This agreement provides for DriverTech to package and resell SiriCOMM's
wireless network service along with its on-board computer system to the vehicle
fleet market.
Item 6.: Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
31.1 Certification of Chief Executive Officer of Periodic
Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of Chief Financial Officer of Periodic
Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350
23
(b) Reports on Form 8-K
(1) A Current Report on Form 8-K was filed on April 12,
2004 to report the change of the Company's
independent auditors.
(2) A Current Report on Form 8-K was filed on May 4, 2004
to report the consummation of a $1,000,000 loan from
Southwest Missouri Bank.
(3) A Current Report on Form 8-K was filed on June 3,
2004 to report the formation of a strategic
partnership with Pilot Travel Centers LLC.
(4) A Current Report on Form 8-K was filed on June 17,
2004 concerning the election of Austin O'Toole to the
Company's Board of Directors and appointment to the
Audit Committee.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 16, 2004 SIRICOMM, INC.
By: /s/ Henry P. Hoffman
-----------------------------------------
Henry P. Hoffman, President and
Chief Executive Officer
By: /s/ J. Richard Iler
-----------------------------------------
J. Richard Iler, Executive Vice President
and Chief Financial Officer
25