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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended
March 31, 2003 Commission File No. 0-18399
SIRICOMM, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 62-1386759
------------------------------ ---------------------------------
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2900 Davis Boulevard, Suite 130, Joplin, Missouri 64804
------------------------------------------------- -----------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (417) 626-9961
Former name, former address and former fiscal year, if changed since last
report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares issued and outstanding of the Registrant's Common Stock,
$.001 par value, as of May 14, 2003 was 12,903,283
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2003 3
Condensed Consolidated Statements of Operations for the three
and six months ended March 31, 2003 and March 31, 2002 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the period ended March 31, 2003 5
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 2003 and March 31, 2002 6
Notes to the Condensed Consolidated Financial Statements 7-17
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2003 September 30,
(unaudited) 2002
------------------- -----------------
ASSETS
Current assets:
Cash $ 4,736 $ 44,304
Prepaid expenses and other current assets - 26,670
Due from affiliates - 15,000
------------------- -----------------
Total current assets 4,736 85,974
Furniture and equipment, net of accumulated depreciation
of $32,055 and $22,408 as of March 31, 2003 and
September 30, 2002, respectively 64,410 74,057
------------------- -----------------
Total assets $ 69,146 $ 160,031
=================== =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of notes payable and long-term debt $ 610,078 $ 1,284,397
Notes payable, related parties 47,500 -
Subordinated convertible debenture 100,000 -
Accounts payable 137,610 12,436
Accrued expenses and other current liabilities 183,805 103,843
------------------- -----------------
Total current liabilities 1,078,993 1,400,676
Notes payable and long-term debt, less current maturities 19,938 79,255
------------------- -----------------
Total liabilities 1,098,931 1,479,931
------------------- -----------------
Stockholders' deficit:
Common stock - par value $.001; 50,000,000 shares authorized; 11,743,283 and
10,000,000 shares issued and outstanding as of
March 31, 2003 and September 30, 2002, respectively 11,743 10,000
Additional paid-in capital 1,444,611 483,912
Deficit accumulated during the development stage (2,486,139) (1,780,599)
Treasury stock, 222 shares at cost - (33,213)
------------------- -----------------
Total stockholders' deficit (1,029,785) (1,319,900)
------------------- -----------------
Total liabilities and stockholders' deficit $ 69,146 $ 160,031
=================== =================
See Notes to Condensed Consolidated Financial Statements
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
March 31, 2003 March 31, 2002
------------------------------- -----------------------------
For the For the For the For the From Inception
Three Months Six Months Three Months Six Months (April 24, 2000) to
Then Ended Then Ended Then Ended Then Ended March 31, 2003
--------------- -------------- ------------ ------------- -------------------
Revenues $ - $ - $ - $ - $ -
Operating expenses:
General and administrative 81,419 134,047 21,312 74,242 497,731
Salaries and consulting fees 173,549 256,674 187,111 270,236 1,248,119
Research and development 8,950 44,593 10,423 46,066 303,245
Write-off of notes receivable - - - - 50,000
Depreciation 4,823 9,646 - 4,521 32,812
--------------- -------------- ------------ ------------- --------------
Total operating expenses 268,741 444,960 218,846 395,065 2,131,907
--------------- -------------- ------------ ------------- --------------
Operating loss (268,741) (444,960) (218,846) (395,065) (2,131,907)
Interest expense (11,113) (28,908) 5,246 (12,549) (72,560)
Loan costs (42,123) (231,672) 139,549 (50,000) (281,672)
--------------- -------------- ------------ ------------- --------------
Net loss $ (321,977) $ (705,540) $ (74,051) $ (457,614) $ (2,486,139)
=============== ============== ============ ============= ==============
Net loss per share, basic and diluted $ (0.03) $ (0.09) $ (0.01) $ (48.02) $ (1.90)
=============== ============== ============ ============= ==============
Weighted average shares, basic and diluted 11,752,143 7,665,868 10,477,284 9,530 1,309,900
=============== ============== ============ ============= ==============
See Notes to Condensed Consolidated Financial Statements
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
From Inception
Six Months Six Months (April 24, 2000)
Ended Ended Through
March 31, March 31, March 31,
2003 2002 2003
------------ ------------ -----------------
Cash flows from operating activities:
Net loss $ (705,540) $ (457,614) $ (2,486,139)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation 9,647 4,521 32,812
Amortizaton of loan costs - 50,000 50,000
Loan costs funded from stock issuance 210,710 9,000 210,612
Stock-based compensation - - 9,000
Settlement expense funded from debt acquisition - - 28,000
Write-off of note receivable - - 50,000
Changes in assets and liabilities:
Current assets 15,000 (3,000) -
Current liabilities 115,272 53,217 268,650
---------- ---------- ------------
Net cash flows from operating activities (354,911) (343,876) (1,837,065)
---------- ---------- ------------
Cash flows from investing activities:
Cash acquired in business combination 1,479 - 149
Acquisition of furniture and equipment - (44,324) (98,629)
Proceeds from sale of equipment - 1,408 1,406
---------- ---------- ------------
Net cash flows from financing activities 1,479 (42,916) (97,074)
---------- ---------- ------------
Cash flows from financing activities:
Issuance of notes receivables - - (50,000)
Borrowings under line of credit, net - - 97,043
Procceds from notes payables 325,000 527,304 1,376,035
Proceeds from notes payable, related parties 55,000 - 55,000
Payment of notes payable (66,136) - (169,086)
Payment of loan costs - (50,000) (50,000)
Advances from (repayments to) officers, net - (3,471) 386,216
Proceeds from sale of common stock - - 292,337
---------- ---------- ------------
Net cash flows from financing activities 313,864 473,833 1,937,545
---------- ---------- ------------
Change in cash (39,568) 87,041 3,406
Cash, beginning of period 44,304 895 -
---------- ---------- ------------
Cash, end of period $ 4,736 $ 87,936 $ 3,406
========== ========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 7,637 $ 1,517 $ 22,290
========== ========== ============
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
========== ========== ============
Loan costs funded through issuance of stock $ 210,611 $ - $ 210,611
========== ========== ============
Stock offering costs funded through issuance of stock $ 26,670 $ 26,670 $ 26,670
========== ========== ============
Debt assumed pursuant to reverse acquisition $ 100,000 $ - $ 100,000
========== ========== ============
Conversion of debt to 1,922,000 shares of common stock $1,000,000 $ - $ 1,000,000
========== ========== ============
See Notes to Condensed Consolidated Financial Statements
SIRICOMM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2000) THROUGH MARCH 31, 2003
Common Stock Additional
----------------------- Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
---------- -------- ----------- ------------ ----------- ------------
Issuance of founder shares
at inception 3,333 $ 3,333 $ - $ - $ - $ 3,333
Conversion of debt to equity 6,372 6,372 379,844 - - 386,216
Net loss for the period - - - (398,391) - (398,391)
---------- -------- ----------- ------------ ----------- ------------
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 9,712,865 (277) (247,892) - 33,213 (214,956)
Stock issued for loan costs 98,418 98 210,513 - - 210,611
Conversion of debt to equity 1,922,000 1,922 998,078 - - 1,000,000
Net loss for the period - - - (705,540) - (705,540)
---------- -------- ----------- ------------ ----------- ------------
Balances, March 31, 2003 11,743,283 $ 11,743 $ 1,444,611 $ (2,486,139) $ - $ (1,029,785)
========== ======== =========== ============ =========== ============
See Notes to Condensed Consolidated Financial Statements
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
1. Nature of operations and summary of significant accounting polices:
Nature of business and basis of presentation:
SiriCOMM, Inc. is engaged in the development of broadband wireless
application services technologies intended for use in the marine and
transportation industries. SiriCOMM's development activities include
integrating multiple technologies including satellite communications,
the Internet, wireless networking, and productivity enhancing software
into commercially viable products and services. SiriCOMM, Inc. expects
to complete development activities and commence revenue-generating
activities in late 2003.
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 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 March 31, 2003.
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
1. Nature of operations and summary of significant accounting polices
(continued):
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 financials statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumption 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 financial information:
The financial statements for the quarter ended March 31, 2003 and notes
thereto should be read in conjunction with the financial statements and
notes thereto for the year ended September 30, 2002 for the Company as
filed in the annual report on Form 10-KSB, the quarter ended December
31, 2002 as filed on Form 10QSB and SiriCOMM Missouri as filed in an
Amendment to Form 8K filed with the SEC on February 4, 2003.
In the opinion of management, all adjustments necessary for a fair
presentation of the results of operations for the periods presented
have been included. The results of operations for the six months ended
March 31, 2003 and 2002 are not necessarily indicative of the results
for a full year.
The report of the Company's independent auditors for the year ended
September 30, 2002 contains an explanatory paragraph as to the
substantial doubt of the Company's ability to continue as a going
concern. No adjustments have been made to the accompanying financial
statements to give effect to this uncertainty.
Financial instruments:
The carrying value of the Company's financial instruments, including
cash, accounts payable and notes payable approximate their fair market
values.
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
1. Nature of operations and summary of significant accounting polices
(continued):
Furniture and equipment:
Furniture and equipment is 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 options granted. (There have been no
options granted 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. Cost incurred
subsequent to establishing technological feasibility, including coding
and testing, will be capitalized.
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 carryforwards, 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.
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
1. Nature of operations and summary of significant accounting polices
(continued):
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 period. Diluted earnings per share reflect the
potential 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. 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 3). 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
2003 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. At this
time, there are no firm commitments on anyone's part to invest in the
Company and if the Company is unable to obtain such financing, the
technology may never be commercially sold. 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 issued a term sheet to several interested
individuals with the intention of raising $1,500,000.
There can be no assurances that the Company will be successful in
obtaining debt or equity financing in order to achieve its financial
objectives and continue as a going concern. The financial statements do
not include any adjustments to the carrying amount of assets and the
amounts and classifications of liabilities that might result from the
outcome of this uncertainty.
3. Notes payable and long-term debt:
Notes payable and long-term debt consists of the following at March 31,
2003.
Line of credit, bank, interest at 7%, secured by all assets of the
Company (currently existing or thereafter acquired) and personally
guaranteed by a stockholder of the Company, due July 20, 2003, or upon
demand by the bank. $ 107,487
Note payable, former stockholder, bearing interest at 2.5%, unsecured
principal and interest due in monthly installments of $10,000 through
May 2004. 147,529
Notes payable bearing interest at 10%, unsecured, interest and
principal due ranging from January 27, 2003 (a) through May 5, 2003. 100,000
Notes payable, bearing interest ranging from 4% to 8%, unsecured,
interest and principal due on the date that the Company shall receive
sufficient invested or borrowed sums to pay all amounts due. 50,000
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
3. Notes payable and long-term debt (continued):
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 May 5, 2004. 225,000
-----------
630,016
Less current maturities (610,078)
-----------
$ 19,938
===========
Future maturities of notes payable and long-term debt are as follows:
Year ending March 31,
2004 $ 610,078
2005 19,938
-----------------
$ 630,016
=================
(a) As of May 14, 2003, the Company was in default with respect to
notes payable covering $75,000 of indebtedness.
4. Notes payable, related parties:
Related party promissory note:
In November and December 2002, the Company borrowed $55,000 from major
stockholders. The notes bear interest at 4%, are unsecured, and are due
the earlier of either the date on which the Company shall receive
sufficient invested or borrowed sums to pay all amounts owed on
December 26, 2003. As of March 31, 2003, $7,500 has been repaid.
Interest expense on these notes was nominal in the period ending March
31, 2003.
5. Subordinated convertible debenture:
On February 20, 2002, the Company issued a 6% Subordinated Convertible
Debenture (the "Debenture") due May 31, 2002, in the principal amount
of $100,000. The Debenture (principal and interest) is convertible into
the Company's common stock at $1.00 per share, which resulted in a
beneficial conversion feature of $100,000 at the time of conversion.
The beneficial conversion feature amount was allocated to paid in
capital and immediately charged to operations. Despite the fact that
the Debenture was past due, the Debenture holder had not made a demand
for payment or conversion as of March 31, 2003. On April 7, 2003, the
Debenture holder submitted a notice of conversion to the Company and,
in accordance with the terms of the Debenture, a conversion was made
and affected and the Company issued 107,000 shares of the Company's
common stock to the Debenture holder as full satisfaction of the
Debenture.
6. Stockholders' deficit:
Common stock:
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.
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.
In January 2003, the Company issued 1,922,000 shares of its common
stock in satisfaction of a $1,000,000 of convertible notes issued by
SiriCOMM Missouri.
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
6. Stockholders' deficit (continued):
The Company issued 98,416 shares of common stock (valued based on the
average trading price of the stock for the previous 90 days or
$210,611) for loan costs incurred. The related expense is included as
loan costs in the accompanying financial statements. The Company has
also accrued approximately $21,000 for loan costs for shares of common
stock that were issued in April 2003.
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.
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
6. 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.
7. Income taxes:
Deferred tax assets consist of the following at March 31, 2003:
Net operating loss carryover $ 272,000
Valuation allowance (272,000)
-----------------
$ -
=================
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
7. Income taxes (continued):
Income tax (expense) benefit consists of the following at March 31,
2003:
Current:
Federal $ -
--------------
Deferred:
Deferred -
Benefit of net operating loss carryover 215,000
Change in valuation allowance (215,000)
--------------
-
--------------
$ -
==============
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
March 31, 2003
--------------
Statutory tax rate 35.0%
State tax 3.5%
Change in deferred tax asset
valuation allowance (38.5%)
--------
Effective tax rate in accompanying
statement of operations 0%
========
8. Subsequent events:
Conversion of a convertible note payable to common stock:
On April 9, 2003, the Company issued an aggregate of 107,000 shares to
an unaffiliated third party in connection with the conversion of
$107,000 of a subordinated convertible debenture and interest. The
shares were issued under the exemption from registration provided in
Section 4(2) of the Securities Act of 1933. 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.
SIRICOMM, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (APRIL 24, 2000) TO MARCH 31, 2003
(Unaudited)
8. Subsequent events (continued):
Issuance of Bonus Stock:
On April 14, 2003, the Company issued an aggregate of 330,000 shares of
Bonus 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 to be rendered 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.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
SiriCOMM, Inc. ("Company"), was incorporated in the State of Delaware on March
23, 1989 as Fountain Pharmaceuticals, Inc. The Company ceased operations and had
been inactive since July 2001.
On November 21, 2002, the Company completed the acquisition of SiriCOMM, Inc., a
company organized under the laws of the State of Missouri in April 2000
("SiriCOMM"). In connection with the acquisition, the Company changed its name
to SiriCOMM, Inc. and the former director resigned his positions with the
Company and appointed Henry P. Hoffman, David Mendez, Kory S. Dillman and Tom
Noland officers and directors of the Company. As a result of the acquisition,
the Company's business operations are those of SiriCOMM.
Plan of Operations
SiriCOMM was incorporated in April 2000. SiriCOMM is engaged in the development
of broadband wireless applications service provider technologies serving the
marine and highway transportation industries. SiriCOMM's current development
activities include integrating multiple technologies including satellite
communications, the Internet (and intranets), wireless networking, and
productivity enhancing software into commercially viable products and services
for its target industries. SiriCOMM, to date, has not introduced its products
and services commercially and is considered a development stage enterprise.
SiriCOMM has limited assets, significant liabilities and limited business
operations. To date, activities have been limited to organizational matters,
development of its products and services and capital raising.
Management's plan of operation for the next twelve months is to raise additional
capital and build a network to service up to 250,000 simultaneous users within
six (6) months of raising capital. The construction of the initial network is
estimated to cost $4-6 million and is expected to be financed by the private
sale of the Company's securities following the SiriCOMM Acquisition. There are
no firm commitments on anyone's part to invest in the Company or SiriCOMM and if
the combined entity is unable to finance the acquisition through the private
sale of its securities or other financing, the SiriCOMM technology may never be
commercially sold. 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 issued a term sheet to several interested individuals
with the intention of raising $1,500,000. The Company at this point has no
assurances as to its ability to complete any of the above transactions.
From inception (April 24, 2000) through March 31, 2003, SiriCOMM has not
generated any revenues. During the period from inception (April 24, 2000)
through March 31 2003, SiriCOMM had net losses totaling $2,486,139. During the
three months ended March 31, 2003, net losses totaled $321,977. From inception
through March 31, 2003, SiriCOMM's general and administrative expenses totaled
$497,731 or 23% of total expenses, while for the three months ended March 31,
2003 general and administrative expenses totaled $81,419 or 30% of total
expenses. From inception through March 31, 2003, SiriCOMM incurred salaries and
consulting fees of $1,248,119 or 59% of expenses, of which $173,549, or 65% of
total expenses, was incurred during the three months ended March 31, 2003.
Research and development costs were $303,245 or 14% of total expenses incurred
in the period from inception (April 24, 2000) through March 31, 2003, while
expenses incurred during the three months ended March 31, 2003 totaled $8,950 or
3% of total expenses.
From inception through March 31, 2003, the Company has incurred interest
expenses primarily related to the issuance of convertible notes aggregating
$1,000,000 (the "Convertible Notes") or $72,560, of which $28,908 was incurred
during the three months ended March 31, 2003. The Convertible Notes were
converted into 1,922,000 shares of common stock of the Company on January 7,
2003.
In February 2002, SiriCOMM entered into four executive employee agreements with
certain officers/directors. As part of these agreements, SiriCOMM is obligated
to pay these individuals an aggregate annual compensation of $525,000 through
February 2005.
Liquidity and Capital Resources
Since inception, SiriCOMM has financed its activities primarily from short-term
loans. As of January 1, 2003, the balance due on these loans aggregated
$1,579,623. In January 2003, 1,922,000 shares of common stock of the Company was
issued in exchange for the satisfaction of $1,000,000 of these loans. During the
three months ended March 31, 2003, the Company borrowed an additional $75,000.
As of March 31, 2003, the balance due on these loans aggregated $630,016
As of March 31, 2003, SiriCOMM had total assets of $69,146 and total current
assets of $4,736. At March 31, 2003, SiriCOMM had total liabilities of
$1,098,931 and total current liabilities of $1,078,993. SiriCOMM's working
capital deficit at March 31, 2003 was $1,074,257 and an equity deficiency of
$1,029,785.
SiriCOMM is dependent on raising additional funding necessary to implement its
business plan as outlined above. SiriCOMM's auditors have issued a "going
concern" opinion on the financial statements for the year ended September 30,
2002, indicating that SiriCOMM is in the development stage of operations, has a
working capital and net equity deficiency, is in default with respect to a
portion of its loan agreements and has not yet generated revenues through May
14, 2003. These factors raise substantial doubt in SiriCOMM's ability to
continue as a going concern. If SiriCOMM is unable to raise the funds necessary
to build a network and fund its operations, it is unlikely that SiriCOMM will
remain as a viable going concern.
Forward Looking Statements. This report contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth above and
elsewhere in this report, the inclusion of forward-looking information herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. The Company may
encounter competitive, technological, financial and business challenges making
it more difficult than expected to continue to market its products and services;
competitive conditions within the industry may change adversely; the Company may
be unable to retain existing key management personnel; the Company's forecasts
may not accurately anticipate market demand; and there may be other material
adverse changes in the Company's operations or business. Certain important
factors affecting the forward looking statements made herein include, but are
not limited to (i) accurately forecasting capital expenditures and (ii)
obtaining new sources of external financing. Assumptions relating to budgeting,
marketing, product development and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause the Company to alter its capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of operations.
Item 3: Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and, based on their evaluation, our principal executive officer and
principal financial officer have concluded that these controls and procedures
are effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) In December 2002 and January 2003, the Company borrowed an
aggregate of $150,000 from three unaffiliated third parties.
In connection with these loans, the Company issued the lenders
an aggregate 59,050 shares of its common stock. The shares
were issued under the exemption from registration provided in
Section 4(2) of the Securities Act of 1933. 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. The
Company utilized the proceeds of these loans for general
working capital purposes.
On January 7, 2003, the Company issued an aggregate of
1,922,000 shares to two unaffiliated third parties in
connection with the conversion of an aggregate of $1,000,000
of convertible notes. The shares were issued under the
exemption from registration provided in Section 4(2) of the
Securities Act of 1933. 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.
On April 9, 2003, the Company issued an aggregate of 107,000
shares to an unaffiliated third party in connection with the
conversion of $107,000 of a subordinated convertible debenture
and interest. The shares were issued under the exemption from
registration provided in Section 4(2) of the Securities Act of
1933. 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.
On April 14, 2003, the Company issued an aggregate of 330,000
shares of Bonus 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
to be rendered to the Company. Such 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.
(d) Not Applicable
Item 3.: Defaults upon Senior Securities
None
Item 4.: Submission of Matters to a Vote of Security Holders
None
Item 5.: Other Information
On March 14, 2003, Tom Noland resigned as Executive Vice President -
Administrations, General Counsel, Secretary and Director. Mr. Noland
will remain as Special Counsel to the Company.
On March 21, 2003, J. Richard Iler was appointed Executive Vice
President, - Chief Financial Officer and Corporate Secretary.
On December 12, 2002 the Company entered into a consulting agreement
with RJ Diamond Consulting. Pursuant to the agreement, the Company
agreed to issue 716,000 shares to the consultant. On December 23, 2002,
pursuant to the agreement, the Company filed a Registration Statement
on Form S-8 registering these shares and the shares were issued to the
consultant. On February 23, 2003, the Company and the Consultant agreed
to terminate the agreement and the 716,000 shares were returned to the
Company. Additionally, on March 12, 2003 the Company withdrew from the
SEC the S-8 Registration Statement registering these 716,000 shares.
Item 6.: Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
99.1 Certification pursuant to 18 U.S.C. Section 1350
99.2 Certification pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on March 14, 2003 to
report the resignation of Tom Noland as Executive Vice
President - Administrations, General Counsel, Secretary and
Director and J. Richard Iler was appointed Executive Vice
President, - Chief Financial Officer and Corporate Secretary.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 19, 2003 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
CERTIFICATION
I, Henry P. Hoffman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SiriCOMM,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, is made
known to me by others, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
May 19, 2003
/s/ Henry P. Hoffman
------------------------------------
Henry P. Hoffman, President and CEO
CERTIFICATION
I, J. Richard Iler, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SiriCOMM,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, is made
known to me by others, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
May 19, 2003
/s/ J. Richard Iler
---------------------------------------
J. Richard Iler, Vice President and CFO