As filed with the Securities and Exchange Commission on April 5, 2006
REGISTRATION NO. 333-132066
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SIRICOMM, INC.
---------------------------------------------
(Name of small business issuer in its charter)
Delaware 7372 62-1386759
------------------------------ ---------------------------- -------------------
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
4710 East 32nd Street
Joplin, Missouri 64804
(417) 626-9961
-----------------------------------------------------------
(Address and Telephone Number of Principal Executive Office
and Principal Place of Business)
Henry P. Hoffman
President and Chief Executive Officer
4710 East 32nd Street
Joplin, Missouri 64804
(417) 626-9961
---------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Joel C. Schneider, Esq.
Sommer & Schneider LLP
595 Stewart Avenue, Suite 710
Garden City, NY 11530
(516) 228-8181
(516) 228-8211 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time
after this Registration Statement becomes effective.
If any of the securities being registered on the Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If the Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities
Act"), check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of the
Securities Act, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to Amount to be Offering Price Per Aggregate Offering Registration Fee
be Registered Registered (1) Security (2) Price
-------------------------------------- --------------------- ---------------------- ---------------------- ------------------
Shares of Common Stock, $0.001 par 4,757,263 $2.00 $9,514,526 $1,119.86
value per share
-------------------------------------- --------------------- ---------------------- ---------------------- ------------------
Shares of Common Stock, $0.001 par 5,396,876 $2.00 $10,793,752 $1,270.42
value per share (3)
-------------------------------------- --------------------- ---------------------- ---------------------- ------------------
Total 10,154,139 $2.00 $20,308,278 $2,390.28
-------------------------------------- --------------------- ---------------------- ---------------------- ------------------
(1) All 10,154,139 shares registered pursuant to this registration statement are
to be offered by the selling shareholders. Pursuant to Rule 416 under the
Securities Act, this registration statement also covers such number of
additional shares of common stock to prevent dilution resulting from stock
splits, stock dividends and similar transactions pursuant to the terms of
the warrants referenced below.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act, using
the average of the bid and asked price as reported on the Over the Counter
Bulletin Board on February 14, 2006.
(3) Represents a total of 5,396,876 shares of common stock issuable upon the
exercise of warrants held by the selling shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL AND IS NOT A SOLICITATION OF AN OFFER TO BUY IN ANY STATE IN WHICH AN
OFFER, SOLICITATION, OR SALE IS NOT PERMITTED.
Subject to completion, dated April 5, 2006
2
PROSPECTUS
SIRICOMM, INC.
10,154,139 SHARES OF COMMON STOCK
This prospectus relates to an aggregate of up to 10,154,139 shares of our common
stock, which may be offered by the selling shareholders identified in this
prospectus for their own account. Of such shares, 4,757,263 shares were
outstanding as of February 27, 2006 and 5,396,876 shares are issuable upon the
exercise of warrants that we have issued to the selling shareholders, including
234,613 shares issuable upon the exercise of warrants issued to Sanders Morris
Harris, Inc. as partial compensation for services rendered to us as placement
agent. Our filing of the registration statement of which this prospectus is a
part is intended to satisfy our obligations to certain of the selling
shareholders to register for resale the shares issued to them and the shares
issuable upon exercise of the warrants issued to them.
We will not receive any proceeds from the sale of the shares by these selling
shareholders. We may, however, receive proceeds in the event that some or all of
the warrants held by the selling shareholders are exercised.
Unless the context otherwise requires, the terms "SiriCOMM", "we," "us" or "our"
refer to SiriCOMM, Inc.
Our common stock is listed on the OTC Bulletin Board under the symbol ""SIRC".
From May 31, 1994 until November 21, 2002, our predecessor's common stock traded
on the OTC Bulletin Board under the symbol "FPHI.". The last reported sales
price per share of our common stock, as reported by the OTC Bulletin Board on
February 24, 2006, was $1.50.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ___________, 2006
3
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................5
RISK FACTORS...................................................................8
NOTICE ABOUT FORWARD LOOKING STATEMENTS.......................................13
USE OF PROCEEDS...............................................................14
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS......................14
BUSINESS......................................................................15
LEGAL PROCEEDINGS.............................................................20
DESCRIPTION OF PROPERTY.......................................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...............................................................20
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..................................................................28
MANAGEMENT....................................................................29
EXECUTIVE COMPENSATION........................................................31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................35
DESCRIPTION OF SECURITIES.....................................................36
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES................................37
PLAN OF DISTRIBUTION..........................................................37
SELLING SHAREHOLDERS..........................................................38
LEGAL MATTERS.................................................................40
EXPERTS.......................................................................40
AVAILABLE INFORMATION.........................................................41
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES............II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.....................II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.........................II-2
ITEM 27. EXHIBITS........................................................II-6
ITEM 28. UNDERTAKINGS...................................................II-10
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER.
4
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK
FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL
STATEMENTS.
Our Company
We are a provider of broadband wireless connectivity and application
services to the commercial vehicle industry. We are rolling out a low-cost
communications network combining a satellite backbone with Wireless Fidelity
("Wi-Fi") access points at strategic locations nationwide. The network allows us
to provide both productivity and cost reduction software applications to the
commercial vehicle industry and other users whose effectiveness "over-the-road"
requires affordable driver connectivity and in-vehicle access to software
productivity tools.
The industry we are targeting is principally composed of the fleet
owners and drivers of the approximately four million commercial trucks on US
highways that generate well in excess of $500 billion per year in revenues.
Currently, a relatively small percentage of these trucks utilize in-cab data
communications (short text messaging and GPS tracking), chiefly because these
solutions are expensive to install, feature costly variable service fees, and
offer no clearly stated return on investment. We believe that our low cost
network and suite of application solutions, combined with our subscription-based
business model, are better suited to address the industry's needs than previous
solutions.
Our patent-pending network infrastructure solution provides lower cost
and higher throughput connectivity when compared to other competing solutions.
The point-to-multipoint broadcast feature of our network provides considerable
cost-to-bandwidth efficiencies. As a result, our architecture transmits data at
speeds up to 20 to 100 times faster than other competing wireless solutions. To
date we have installed over 300 Wi-Fi "hot spots" at major truck stops and weigh
stations and have agreements with leading truck stop chains and weigh station
operators such as Pilot Travel Centers, Love's Travel Stops, Petro Truck Stops,
Freight and More/DIS and others, to install access points at approximately 450
additional sites.
We offer broadband internet access ("ISP") to our customers as well as
value added applications for the commercial transportation industry which reduce
costs and improve productivity for fleet operators. Our product and service
offerings include:
InTouch(TM). We formally launched our ISP service in December 2004.
InTouch(TM) delivers wireless broadband connectivity for both
commercial and non-commercial drivers nationwide through daily,
monthly, or annual subscriptions.
Idling Solutions. Through an exclusive agreement with Idling Solutions,
LLC we provide data connectivity for one of the most innovative fuel
conservation and anti-pollution systems available to the trucking
industry. Through a monthly subscription we will wirelessly extract and
transmit data from each of the Idling Solutions-equipped vehicles to
the Idling Solutions data center. With the data we deliver, Idling
Solutions monitors the performance of its product and calculates
Mobile-source Emissions Reduction Credits. We currently have an
expression of interest from Idling Solutions for a 50,000 unit order,
however, there is no assurance that Idling Solutions will complete the
purchase of 50,000 units.
Other Applications
- Pulse(TM). Our Pulse(TM) Box is able to extract from the
truck, and wirelessly transmit to the fleet manager, key
vehicle diagnostic data, driver behavior information, as well
5
as Global Positioning (GPS) data. Pulse(TM) has significant
cost reduction implications for fleets in areas such as
maintenance, accident reduction, fuel efficiency, out of route
miles, and fuel tax.
- Beacon(TM). Beacon(TM) includes a suite of software
applications (e.g., e-logbook, e-freight bill, etc.) that
operate on a Wi-Fi enabled Personal Digital Assistant. We
estimate that fleets may realize cost reductions of up to $300
per truck per month using these applications. We believe this
system will enable fleets, for the first time, to economically
utilize significant computing power and broadband wireless
Internet connectivity in the cabs of their trucks.
- i-Link. The i-Link service is designed to prevent fuel
purchase fraud while increasing fuel island throughput at
truck stops. This service is in beta testing in a major fleet,
and we believe that it has the potential to be the most widely
adopted and greatest revenue producing application launched on
the SiriCOMM network.
We market our products and services principally through assorted value
added reseller agreements and a direct sales force. As the trucking industry is
highly fragmented and comprises many small to medium-sized fleets, we use
numerous resellers to maximize our sales reach. Our direct sales force is
focused on the large fleets as well as coordinating the efforts of our value
added resellers. Currently we are continuing to concentrate our sales efforts on
InTouch(TM) while installing additional hot spots across the country. Sales of
Pulse and Beacon will commence once nationwide network density reaches 400-500
sites.
Our senior management team, led by CEO Henry (Hank) Hoffman and
composed primarily of the founders of the Company, has significant experience in
both the transportation and communications industries.
We were incorporated as a Delaware corporation under the name DFW
Technologies, Inc., in March 1989. In 1992, DFW Technologies, Inc. changed their
name to Fountain Pharmaceuticals, Inc. In approximately November 2002, the
shareholders of SiriCOMM, Inc., a privately-held Missouri corporation,
incorporated in 2000 ("SiriCOMM Missouri"), exchanged all of the issued and
outstanding common stock of SiriCOMM Missouri for a controlling interest in
Fountain Pharmaceuticals, Inc. (the "Reverse Transaction"). As part of the
Reverse Transaction, all of the then officers and directors of Fountain
Pharmaceuticals, Inc. resigned and were replaced by persons designated by
SiriCOMM Missouri and the name of Fountain Pharmaceuticals, Inc. was changed to
SiriCOMM, Inc. As a result of the Reverse Transaction, SiriCOMM Missouri became
a wholly-owned subsidiary of the Company and the prior shareholders of SiriCOMM
Missouri became the controlling shareholders, officers and directors of the
Company. The Company and SiriCOMM Missouri are hereinafter collectively referred
to as the "Company."
Our corporate address is 4710 East 32nd Street, Joplin, Missouri 64804, and
our telephone number is 417-626-9971 and our fax number is 417-782-0475.
Summary of the Offering
As of January 31, 2006, we consummated a private placement of units
pursuant to a Confidential Private Placement Memorandum, dated December 6, 2005
and supplemented on January 23, 2006. Each unit consisted of one share of common
stock and one redeemable common stock purchase warrant. As part of the private
placement, we sold an aggregate of 4,692,263 units (4,692,263 shares and
4,692,263 warrants) for an aggregate purchase price of $5,396,610.45 or $1.15
per unit. The warrants entitle the holders to purchase shares of the common
stock for a period of five years from the date of issuance at an exercise price
of $1.50 per share. The warrants contain certain anti-dilution rights and are
redeemable by us, on terms specified in the warrants.
Sunflower Capital, LLC, a limited liability company managed by William
P. Moore, a director of the Company, purchased an aggregate of 1,764,872 units
in the offering, which consisted of a new investment of $1,525,000 to purchase
1,326,087 units and the conversion of a $500,000 promissory note plus accrued
interest in the amount of $4,602 to purchase 438,785 units.
In connection with the private placement, Sanders Morris Harris, Inc.,
the placement agent in the private placement, received a commission equal to 5%
of the offering price of the units sold by them in the private placement, a
6
commission equal to 2 1/2% on the 1,764,872 units by Sunflower Capital and a
financial advisory fee equal to 2% of the offering price of the units sold in
the private placement and a warrant to purchase 234,613 shares of common stock,
or 5% of the units sold in the private placement. The warrants are exercisable
for a period of five years at an exercise price of $1.15 per share and contain
the same anti-dilution rights as the common stock warrant issued in the January
2006 private placement.
On December 27, 2005, we entered into a loan agreement with Sunflower.
The loan was in the principal amount of $500,000 which was converted into
438,785 units of the January 2006 private placement as discussed above. As
consideration for Sunflower making the loan, we issued to Sunflower a warrant to
purchase 200,000 shares of common stock. The warrants are exercisable at $1.26
per share and expire on December 15, 2010. We are registering the 200,000 shares
underlying this warrant.
On September 21, 2005 we issued warrants to purchase an aggregate of
200,000 shares of common stock to Messrs. Clark Burns and Philip Snowden
pursuant to a finder's agreement dated November 14, 2003, between SiriCOMM and
Messrs. Burns and Snowden. We are registering the 200,000 shares of common stock
underlying these warrants pursuant to the terms of the finder's agreement.
On July 8, 2005, we issued 15,000 shares of common stock and warrants
to purchase 20,000 shares of common stock to Interactive Resource Group ("IRG")
pursuant to a consulting agreement. The warrants are exercisable for four (4)
years and have varying exercise prices , 10,000 at $2.50, 5,000 at $3.00 and 5,
000 at $4.00. We are registering herein the 15,000 shares and the 20,000 shares
underlying the warrants.
We are also registering 50,000 shares of common stock and 50,000 shares
underlying warrants issued to IRG pursuant to a consulting agreement dated
November 30, 2005. The warrants are exercisable for four (4) years and have
varying exercise prices, 16,666 at $1.25, 166,667 at $1.35 and 16,667 at $1.45.
Common stock offered by SiriCOMM: None.
Common stock offered by selling 10,154,139 shares, which
shareholders: includes 5,396,876 shares
issuable upon exercise of the
warrants described above.
Common stock outstanding: As of February 21, 2006,
24,913,713 shares of our
common stock were issued and
outstanding.
Proceeds to SiriCOMM: We will not receive proceeds
from the resale of shares by
the selling shareholders. If
all warrants are fully
exercised, we will receive
approximately $7,987,700 in
cash from the warrant
holders.
Use of proceeds: Working capital.
OCT Bulletin Board Symbol: SIRC.
7
RISK FACTORS
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ARE REALIZED, OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE HARMED AND THE
VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL OR A PART OF
YOUR INVESTMENT.
Risks Related to Our Business
Because we have a limited operating history, you may not be able to accurately
evaluate our operations.
We have had limited operations to date and have never generated meaningful
revenue. Therefore, we have a limited operating history upon which to evaluate
the merits of investing in the Company. Because we are in the early stages of
operating our business, we are subject to many of the same risks inherent in the
operation of a business with a limited operating history, including the
potential inability to continue as a going concern.
We are dependent on outside financing for continuation of our operations.
Because we have never generated meaningful revenue and currently operate at a
loss, we are completely dependent on the continued availability of financing in
order to continue our business. There can be no assurance that financing
sufficient to enable us to continue our operations will be available to us in
the future. Our failure to obtain future financing or to produce levels of
revenue to meet our financial needs could result in our inability to continue as
a going concern and, as a result, investors in the Company could lose their
entire investment.
SiriCOMM launched its initial product for commercialization in December 2004 and
there can be no assurance that our products will be accepted by potential
customers.
Since our founding in 2000, we have invested nearly seven million dollars in our
business plan and into the development of infrastructure. However, we only
recently commenced marketing our initial product offering, InTouch(TM) internet
service, in December 2004. There can be no assurance that our target market of
prospective customers will commercially accept our products. A failure to gain a
certain level of acceptance in the market may result in a level insufficient for
us to generate a profit and sustain our business activities.
SiriCOMM requires significant additional capital to complete the installation of
its national Network and these funds may not be available when we need them.
The Company's Network (defined below) became operational in October 2004, is
only partially built, and significant capital is required by the Company to
install the number of WLAN site locations which the Company believes are
required to offer a robust national business service to its target market. While
the Company believes it has adequate capital to install up to 750 additional
sites, there can be no assurance that the capital will be available when it is
needed. If such capital is not available, there can be no assurance that the
Network, as it is currently installed in 38 states, is sufficiently dense or
nationally robust enough to have functional utility to its target market. If
these funds are not available when we need them, we will be required to raise
additional capital, which there can be no assurance that such capital will be
available and we may need to change our business strategy and limit the
expansion of our Network, which would limit its functional utility and thus our
ability to develop our business in the manner intended.
We compete with large, well-capitalized companies.
While we believe that there are currently no direct competitors in the trucking
or highway wireless broadband market, the overlapping mobile wireless broadband
industry is dominated by several large, well-capitalized companies such as
Qualcomm and PeopleNet. Several of these entities have greater financial
resources than us and as a result, we may not be able to invest comparable
levels of funding into our business. There can be no assurance that we will be
8
successful in establishing the credibility, products and services and financial
position necessary to successfully compete against these large, well-established
competitors. A failure to do so could mean that we will perform substantially
below our expectations and that investors in the Company could lose some or all
of their investment. Furthermore, existing competitors may grow their business,
and new competition may enter the market over time, all of which may increase
competition and our ability to be successful in our industry.
Our industry is characterized by rapidly changing technology.
The mobile wireless broadband service industry is subject to rapid change and
evolution of the technology platforms, products and services available to
customers. There can be no assurance that either the suite of products and
services that we have developed are currently the most up-to-date and
competitively priced or that such products and services will not be made
obsolete as a result of the technology developments of competitors. A failure by
us to have, maintain and continue to develop or acquire leading edge technology
could mean that we will substantially under-perform versus our expectations and
thus have a materially detrimental effect on our business operations.
Our business model requires us to continually develop and augment our suite of
products through internal development and product acquisitions.
Our business model is dependent on our ability to augment our initial suite of
products and services with additional products and services important to
providing customers with an integrated communication and productivity suite of
products and services. There can be no assurance that we have either the ability
or resources to accomplish this, thus affecting our ability to develop a
profitable business enterprise. A failure to develop existing or additional
products and services or obtain additional products and services necessary to
maintain a productive suite of products and services may have a materially
detrimental effect on our business operations.
Our inability to recruit and retain qualified employees could cause our
financial condition to suffer.
We believe that we have recruited the nucleus of a solid management team,
however, due to our small size and thin capitalization, there can be no
assurance that we can retain our management team or that we can hire the
additional management and employees that we will need to employ as the Company
grows or to sustain such growth. Our inability to attract and retain qualified
employees could affect our ability to successfully implement our business plan
and expand our business.
We are heavily dependant on key personnel, and a loss of such personnel could
have a detrimental effect on our business.
We are highly dependent upon the efforts of our senior management team,
including our President and Chief Executive Officer, Mr. Henry P. Hoffman. The
loss of the services of one or more of these individuals might impede the
achievement of our development objectives. Because of the specialized nature of
our business, we are highly dependent upon our ability to attract and retain
qualified personnel. The loss of such key personnel could have a materially
detrimental effect on our business. We do not maintain key person insurance on
any employees' life.
Disruption of our services due to accidental or intentional security breaches
may harm our reputation, potentially causing a loss of sales and an increase in
our expenses.
A significant barrier to the growth of wireless data services or transactions on
the Internet or by other electronic means has been the need for secure
transmission of confidential information. Our systems could be disrupted by
unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. If a third
party were able to misappropriate our users' personal or proprietary information
or credit card information, we could be subject to claims, litigation or other
potential liabilities that could materially adversely impact our revenue and
could result in the loss of customers.
9
There is no established market for our products and services; we may not be able
to sell enough of our services to become profitable.
The markets for wireless data and transaction services are not fully developed.
Continued growth in demand for, and acceptance of, these services remains
uncertain. Current barriers to market acceptance of these services include cost,
reliability, functionality and ease of use. We cannot determine with any
certainty whether these barriers will be overcome. Our competitors may develop
alternative wireless data communications systems that gain broader market
acceptance than our current and future systems. If the market for our services
does not grow, or grows more slowly than we currently anticipate, we may not be
able to attract and maintain customers and our financial condition would be
adversely affected.
Our strategic alliances may not deliver the value we paid or will pay for them.
We may incur excessive expenses if we do not successfully integrate our
strategic alliances or if the costs and management resources we expend in
connection with integration exceed our expectations. We expect that our
strategic alliances and any acquisitions and investments we may pursue in the
future will have a continuing, significant impact on our business, financial
condition and operating results. The value of the companies that we acquire or
invest in may be less than our estimates and our financial results may be
adversely affected if:
o we fail to assimilate the acquired assets with our
pre-existing business;
o our management's attention is diverted by other business
concerns; or
o we assume unanticipated liabilities related to the acquired
assets.
In addition, the companies we have acquired or invested in or may acquire or
invest in are subject to each of the business risks we describe in this section,
and such risks may affect the value of such acquisitions and investments.
Further, we cannot guarantee that we will realize the benefits or strategic
objectives we were seeking to obtain by acquiring, investing or partnering with
these companies.
We may not achieve profitability if we are unable to maintain, improve and
develop the wireless data services we offer. We believe that our future business
prospects depend in part on our ability to maintain and improve our current
services and to develop new products and services on a timely basis. Our
services will have to achieve market acceptance, maintain technological
competitiveness and meet an expanding range of customer requirements. As a
result of the complexities inherent in our service offerings, major new wireless
data services and service enhancements require long development and testing
periods. We may experience difficulties that could delay or prevent the
successful development, introduction or marketing of new services and service
enhancements. Additionally, our new services and service enhancements may not
achieve market acceptance. If we cannot effectively develop and improve
services, we may not be able to recover our fixed costs or otherwise become
profitable.
Any type of systems failure could reduce sales, increase costs or result in
claims of liability.
Any disruption from our satellite feeds or backup landline feeds could result in
delays in our subscribers' ability to receive information. We cannot be sure
that our systems will operate appropriately if we experience a hardware or
software failure or if there is an earthquake, fire or other natural disaster, a
power or telecommunications failure, intentional disruptions of service by third
parties, an act of God or an act of terrorism or war. A failure in our systems
could cause delays in transmitting data, and as a result we may lose customers
or face litigation that could involve substantial costs and distract management
from operating our business.
Failure of satellite(s) or loss of satellite capacity would materially and
adversely affect our network.
The operation of our network and our subscriber's ability to receive and
exchange information is dependent upon our continued access to satellite
transmission capacity and the proper performance of the satellite(s) utilized by
the Company. We have contracted with ViaSat, Inc., a California-based satellite
10
communications service provider ("ViaSat"), for satellite bandwidth capacity in
the Ku-band frequency range to support our network. While the Company's
satellite service may not be preempted by ViaSat to restore another customer's
service, in the event of a failure or significant disruption in the satellite
capacity provided by ViaSat, we would have to obtain alternative satellite
capacity rights. While we believe that in such an event we will be able to
obtain alternative satellite capacity, we do not currently have rights for
redundant capacity and there can be no assurance that we will be able to obtain
such satellite capacity on terms favorable to us. Our inability to obtain
alternative satellite capacity in a timely manner, or on terms favorable to us
would have a material adverse effect on our operations and financial results.
A significant portion of our business is dependent upon relationships with three
customers.
We have deployed a network of SiriCOMM Wi-Fi spots at locations convenient to
highway travelers for wireless Internet access, which is currently the most
widely available Internet access network built for the highway transportation
market. The SiriCOMM Wi-Fi spots are located at participating Pilot locations,
select roadside weigh stations that feature PrePass(TM) ("PrePass") and
participating Love's locations. The Company's contracts with Pilot and Love's to
install and maintain these Wi-Fi spots may be terminated upon 90 days advance
notice. If Pilot or Love's terminate their contracts with us, we would
experience an immediate detrimental impact on our business, resulting in a
materially detrimental effect on our results of operations. The initial term of
our contract with ACS for the installation of 10 PrePass sites expired December
28, 2005 and all indications by ACS have been to the effect that SiriCOMM has
complied with the terms as so stated. The Company is currently in discussions
with ACS to extend its contract and to significantly expand the number of
PrePass site installations. While the Company expects that such an extension of
the ACS contract will be entered into, there can be no assurance that such
contract extension will be consummated on terms acceptable to the Company or for
the number of additional sites anticipated. Failure to successfully extend the
ACS contract on these terms would materially and adversely affect the Company's
ability to expand its network as currently anticipated.
If we fail to comply with the new rules under the Sarbanes-Oxley Act related to
accounting controls and procedures, or if material weaknesses or other
deficiencies are discovered in our internal accounting procedures, our stock
price could decline significantly.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of
the effectiveness of our internal controls over financial reporting and a report
by our independent auditors addressing these assessments. We are in the process
of documenting and testing our internal control procedures, and we may identify
material weaknesses in our internal control over financial reporting and other
deficiencies. If material weaknesses and deficiencies are detected, it could
cause investors to lose confidence in our Company and result in a decline in our
stock price and consequently affect our financial condition. In addition, if we
fail to achieve and maintain the adequacy of our internal controls, we may not
be able to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and are important to helping prevent
financial fraud. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading price of our
Common Stock could drop significantly. In addition, we cannot be certain that
additional material weaknesses or significant deficiencies in our internal
controls will not be discovered in the future.
New laws and regulations that impact our industry could increase our costs or
reduce our opportunities to earn revenue.
We are not currently subject to direct regulation by the Federal Communications
Commission (the "FCC") or any other governmental agency, other than regulations
applicable to publicly traded Delaware corporations of similar size that are
headquartered in Missouri. However, in the future, we may become subject to
regulation by the FCC or other state and federal agencies. In addition, the
wireless carriers that supply us airtime and certain of our hardware suppliers
are subject to regulation by the FCC and regulations that affect them could
increase our costs or reduce our ability to continue selling and supporting our
services.
11
A pending lawsuit, if successful, could have an adverse effect on our financial
condition and business operations.
On December 17, 2004, Henry Hoffman, Kory Dillman, David Mendez, Tom Noland,
Richard Iler and Terry Thompson were named defendants in a lawsuit entitled Greg
Sanders v. Henry Hoffman et al. Messrs. Hoffman, Dillman, Mendez and Iler are
officers and directors of the Company, Mr. Thompson is a director of the Company
and Mr. Noland is a former officer and director of the Company. The action was
brought in the Circuit Court of Jackson County, Missouri at Kansas City
(04CV236387). The action alleges fraud, misrepresentation and breach of
fiduciary duty relating to a settlement agreement entered into between the
Company and Mr. Sanders. The Company was not a party to this lawsuit. The
complaint seeks damages in excess of $9,679,903. The defendants' filed a motion
to dismiss which was denied by the Court. The defendants have subsequently filed
counter claims against the plaintiff as part of their answer on August 18, 2005.
Subsequently on February 8, 2006 the Plaintiff sought to amend the complaint to
add the Company as a defendant. The Company has filed a motion in opposition of
this petition. The Company will pay all expenses relating to the defense of this
matter. In management's opinion this case is without merit and the defendants
intend on defending this matter vigorously.
Risks Related to Our Common Stock
Our common stock has experienced volatility in the past, and may experience
significant volatility in the future, which substantially increases the risk of
loss to persons owning our common stock
Because of the limited trading market for our common stock, and because of the
significant price volatility, stockholders may not be able to sell their shares
of common stock when they desire to do so. In 2004, our stock price ranged from
a high of $6.00 to a low of $.95, and in 2005, our stock price ranged from a
high of $4.30 to a low of $1.15. The inability to sell shares in a rapidly
declining market may substantially increase the risk of loss as a result of such
illiquidity and the price for our common stock may suffer greater declines due
to its price volatility.
Our common stock is traded on the OTC Bulletin Board, which may be detrimental
to investors
Our shares of common stock are currently traded on the OTC Bulletin Board.
Stocks traded on the OTC Bulletin Board generally have limited trading volume
and exhibit a wide spread between the bid/ask quotations. We cannot predict
whether a more active market for our stock will develop in the future. In the
absence of an active trading market:
o investors may have difficulty buying and selling our common
stock or obtaining market quotations;
o market visibility for our common stock may be limited; and
o a lack of visibility for our common stock may have a
depressive effect on the market price for our common stock.
Our common stock is subject to penny stock rules, which may be detrimental to
investors
Our common stock is subject to Rule 15g-1 through 15g-9 under the Exchange Act,
which imposes certain sales practice requirements on broker-dealers which sell
our common stock to persons other than established customers and "accredited
investors" (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 (or $300,000 together with their spouses)).
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale.
This rule adversely affects the ability of broker-dealers to sell our common
stock and purchasers of our common stock to sell their shares of such common
stock. Additionally, our common stock is subject to SEC regulations for "penny
stock." Penny stock includes any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. The
regulations require that prior to any non-exempt buy/sell transaction in a penny
stock, a disclosure schedule set forth by the SEC relating to the penny stock
market must be delivered to the purchaser of such penny stock. This disclosure
must include the amount of commissions payable to both the broker-dealer and the
registered representative and current price quotations for the common stock. The
regulations also require that monthly statements be sent to holders of penny
stock that disclose recent price information for the penny stock and information
of the limited market for penny stocks. These requirements adversely affect the
market liquidity of our common stock.
12
NOTICE ABOUT FORWARD LOOKING STATEMENTS
When used in this prospectus, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "intend," "plans", and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") regarding
events, conditions and financial trends which may affect our future plans of
operations, business strategy, operating results and financial position. Forward
looking statements in this prospectus include without limitation statements
relating to:
o trends affecting our financial condition or results of
operations;
o our business and growth strategies;
o our technology; and
o our financing plans.
Such statements are not guarantees of future performance and are subject to
risks and uncertainties and actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Such factors include, among other things:
o our ability to obtain additional sources of capital to fund
continuing operations, in the event that we are unable to
timely generate revenues;
o our ability to retain existing or obtain additional licensees
who will act as distributors of our products;
o our ability to obtain additional patent protection for our
technology; and
o other economic, competitive and governmental factors affecting
our operations, market, products and services.
Additional factors are described in our other public reports and filings with
the Securities and Exchange Commission (the "SEC"). Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date made. SiriCOMM undertakes no obligation to publicly release the result
of any revision of these forward-looking statements to reflect events or
circumstances after the date they are made or to reflect the occurrence of
unanticipated events.
13
USE OF PROCEEDS
This prospectus relates to 10,154,139 shares of our common stock, which may be
sold from time to time by the selling shareholders. We will not receive any part
of the proceeds from the sale of common stock by the selling shareholders. If
all warrants are fully exercised, we will receive approximately $7,987,700 in
cash from the warrant holders. Any proceeds received by us from the exercise of
the warrants will be used by us for general corporate purposes.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information
Our common stock presently trades on the OTC Bulletin Board under the symbol
"SIRC." From May 31, 1994 until November 21, 2002 our predecessor's common stock
traded on the OTC Bulletin Board under the symbol "FPHI."
As of February 21, 2006, we had 24,913,713 outstanding shares of common stock,
$.001 par value. As of February 21, 2006, we had outstanding 213,417 shares of
Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock").
Each share of Series A Preferred Stock converts into our common stock at the
rate of $2.00 per share. As of February 21, 2006 we had outstanding 12,205,449
warrants and options.
The following table sets forth certain information with respect to the high and
low market prices of our common stock for the fiscal years ended September 30,
2003, 2004 and 2005 and the first quarter of fiscal year 2006:
Year Period High Low
---- ------ ---- ---
Fiscal Year 2003 First Quarter $4.00 $1.20
Second Quarter $2.25 $0.02
Third Quarter $2.40 $0.99
Fourth Quarter $2.00 $0.80
Fiscal Year 2004 First Quarter $1.40 $0.95
Second Quarter $4.90 $1.02
Third Quarter $6.00 $3.70
Fourth Quarter $5.15 $2.75
Fiscal Year 2005 First Quarter $4.30 $2.35
Second Quarter $2.80 $1.35
Third Quarter $2.05 $1.53
Fourth Quarter $1.95 $1.15
Fiscal Year 2006 First Quarter $1.65 $0.99
The closing price of our common stock on February 13, 2006 was $2.06.
The high and low prices are based on the average bid and ask prices for common
stock, as reported by the OTC Bulletin Board. Such prices are inter-dealer
prices without retail mark-ups, mark-downs or commissions and may not represent
actual transactions.
Shareholders
Records of our stock transfer agent indicate that as of February 21, 2006, we
had 145 record holders of our common stock. Since a significant number of our
shares are held by financial institutions in "street name," it is likely that we
have significantly more stockholders than indicated above. We estimate that we
have approximately 1,000 beneficial holders, including such shares held in
"street name."
14
Dividend Policy
Our board of directors determines any payment of dividends. We have never
declared or paid any cash dividends, and we do not anticipate or contemplate
paying cash dividends in the foreseeable future. It is our Board of Directors
intention to utilize all available funds for working capital of SiriCOMM.
BUSINESS
Introduction. SiriCOMM is an application service provider specializing in
wireless Internet connectivity and productivity applications tailored to the
highway transportation industry. The company is guided by its mission of helping
truck fleets to improve productivity, reduce costs, increase safety, and
strengthen security. To achieve that goal, SiriCOMM has deployed a network of
SiriCOMM Wi-Fi hot spots at locations convenient to highway travelers.
SiriCOMM's proprietary network, the foundation for its applications, delivers
wireless broadband connectivity by what management believes to be a fraction of
the cost of conventional wireless networks. By providing both Internet access
and a robust application host platform, SiriCOMM delivers a more responsive and
convenient way for all industry stakeholders to interact with information needed
on a regular basis.
Presently, SiriCOMM's network is the most widely available wireless Internet
access network built for the highway transportation market. To date we have
installed over 300 Wi-Fi "hot spots" at major truck stops and weigh stations and
have agreements with leading truck stop chains and weigh station operators such
as Pilot Travel Centers ("Pilot"), Love's Travel Stops ("Loves"), Petro Truck
Stops ( "Petro"), Freight and More, Inc./DIS - Direct Internet Services and
others to install access points at approximately 450 additional sites.
The Company's network technology is built upon a distributed server model that
uses satellite for data backhaul. This architecture provides key advantages: 1)
the network is truly go-anywhere and operates independently of any
terrestrial-based communication infrastructure; 2) the satellite multicast
features allows data to be simultaneously available at all SiriCOMM Wi-Fi hot
spots; 3) bandwidth management is handled from a single location as opposed to
multiple points that would be required by a nationwide terrestrial network; 4)
the remote server makes each hot spot an extension of fleet operations; and, 5)
proprietary technologies mitigate inherent weaknesses found in conventional
satellite networks.
SiriCOMM completed phase one installations in 2004 and opened the network for
business in December 2004. Initially, network access subscriptions were limited
to only credit card sales through the company's web site. By June 2005 Pilot
began offering cash point of sales (POS) subscriptions at its in-store
registers.
We market our products and services principally through assorted value added
reseller agreements and a direct sales force. As the trucking industry is highly
fragmented and comprises many small to medium-sized fleets, we use numerous
resellers to maximize our sales reach. Our direct sales force is focused on the
large fleets as well as coordinating the efforts of our value added resellers.
Currently we are continuing to concentrate our sales efforts on InTouch(TM)
while installing additional hot spots across the country. Sales of Pulse and
Beacon will commence once nationwide network density reaches 400-500 sites.
Our senior management team, led by CEO Henry (Hank) Hoffman and composed
primarily of the founders of the Company, has significant experience in both the
transportation and communications industries.
We were incorporated as a Delaware corporation under the name DFW Technologies,
Inc., Inc., in March 1989. In 1992, DFW Technologies, Inc. changed their name to
Fountain Pharmaceuticals, Inc. In approximately November 2002, the shareholders
of SiriCOMM, Inc., a privately-held Missouri corporation, incorporated in 2000
("SiriCOMM Missouri"), exchanged all of the issued and outstanding common stock
of SiriCOMM Missouri for a controlling interest in Fountain Pharmaceuticals,
Inc. (the "Reverse Transaction"). As part of the Reverse Transaction, all of the
then officers and directors of Fountain Pharmaceuticals, Inc. resigned and were
replaced by persons designated by SiriCOMM Missouri and the name of Fountain
Pharmaceuticals, Inc. was changed to SiriCOMM, Inc. As a result of the Reverse
Transaction, SiriCOMM Missouri became a wholly-owned subsidiary of the Company
and the prior shareholders of SiriCOMM Missouri became the controlling
shareholders, officers and directors of the Company.
15
Our corporate address is 4710 East 32nd Street, Joplin, Missouri 64804, our
telephone number is 417-626-9971, and our fax number is 417-782-0475.
The Network.
There are four key components to SiriCOMM's network architecture--the wireless
local area network (WLAN), the remote server (RS), the satellite communication
link, and the Hub server (the "Network"). SiriCOMM believes it is unique in that
these proven technologies have never before been integrated into such an
end-to-end solution. Internet protocol data is transmitted from the Hub across
the satellite system to each WLAN using technologies that optimize network
performance. As a result, customers enjoy wireless Internet access at locations
convenient to highway travel.
The network is made up of a series of connected wireless local area networks
that serve as "hot spots." Each hot spot is installed at optimal, high density
locations near Interstate and secondary highway systems. Every WLAN hot spot
consists of Wi-Fi technology and a dedicated proxy server (RS) and is connected
by satellite uplink to the Company's central Hub data server. The complete
network provides subscribers with wireless access to the Internet and a robust
host platform of application services. Each hot spot involves a capital cost of
approximately $4,000.
SiriCOMM's satellite link is secured through an agreement with ViaSat. SiriCOMM
selected ViaSat's LinkStar product, which uses Ku-band to enable wideband
transmission of IP-based data between the remote servers and the Hub. ViaSat's
service, when combined with SiriCOMM's proprietary database replication
technologies, maximizes the capacity of the satellite bandwidth, creating an
optimized wide-area network communication channel. As a result, the system
provides greater bandwidth-to-cost ratios when compared to any other
communications options.
SiriCOMM's proprietary RS incorporates the functions of router, caching-proxy
server, video-on-demand server, and web server into a single compact package.
The RS stations are custom-built computers running a custom operating system
based on the BSD 5.2 kernel (Unix). The servers are designed for reliable,
unattended 24x7 operation and feature mechanisms that enhance reliability. The
operating firmware runs from nonvolatile solid-state memory, not a mechanical
hard disk, which enables the servers to be remotely and completely reformatted
from SiriCOMM's Network Operations Center (NOC). The unique design features of
the RS and capacity of the system provide substantial opportunity for future
applications to include pay-per-view video, audio file downloading, fleet
intranet hosting, distance learning, and much more.
The system is designed to simplify the customer experience. Any computer or
hand-held device with a standard 802.11 wireless device can connect to the hot
spot. Once connected, the company's web site presents a simple e-commerce
subscription form. Once subscribed, the Company's proprietary MAC filter
automates access to the network. Each hot spot is installed to provide adequate
coverage over the entire location partner's property. When connected to the hot
spot, subscribers enjoy always-on wireless Internet access.
To date, hot spots have been installed at 272 Pilot Travel Centers locations, 14
Love's Travel Stops, 9 roadside weigh stations that feature PrePass, 1 Celadon
Trucking terminal, 1 J.B. Hunt fleet terminal, and 1 independent travel center,
as well as various test sites throughout the country. Additionally, the company
has entered into an agreement with Love's Travel Stops and Country Stores and
Petro to install network service in each of its 110 travel stops and 66 travel
stops respectively across the country. These sites, taken together, are intended
to give the Company its initial network presence of 400 sites by early 2006,
with a target of nearly 1000 sites by year-end 2006.
On December 28, 2004, the Company entered into a memorandum of understanding
with ACS State and Local Solutions, Inc. ("ACS") regarding a pilot project to
assess the value and service delivery capacity for our network services at ACS's
PrePass weigh station sites. The Company has successfully installed network
systems at 9 PrePass sites and 1 operations center, and anticipates that ACS
will allow the Company to install its hot spots at the remaining 244 PrePass
sites.
With its Hub (located in Overland Park, KS) and satellite interfaces all in
place and the first 255 hot spots installed, the Network was "switched on" for
commercial use as of October 1, 2004 and has since been operational and
available for customer use. As of the date of this Memorandum the Company has
280 hot spots installed and operational. By the end of calendar 2006 the Company
16
plans to complete the installation of approximately 730 additional hot spots,
although presently the Company has not yet identified sites beyond the
approximately 450 sites under contract for these additional hot spots. The
Company believes that 1,000 hot spots will provide sufficient density for truck
fleet customers to view the service as a reliable means for communicating with
drivers. The Company has not yet identified locations for the additional hot
spots and there can be no assurance that the Company will be able to identify
such additional locations, although a finalized agreement with ACS/PrePass would
bring it to the desired 1000 hot spots.
SiriCOMM's Initial Target Markets. With a national Network presence, the
Company's market of opportunity includes the commercial trucking industry,
federal and state law enforcement, recreation vehicles, mobile sales forces, and
the general driving public.
While the Company's early sales have been focused almost entirely upon Internet
connectivity (InTouch(TM)) for individual subscribers, the completion of 400+
hot spot installation will enable sales to shift to the two primary
markets--commercial truck fleets and government law enforcement agencies.
Trucking. The United States trucking industry has over 500,000 fleets employing
over 3.4 million drivers (by definition, a fleet is one or more trucks with a
U.S. Department of Transportation issued motor carrier number). Management
estimates that only 10% of trucks on the road today utilize in-cab data
communications because current solutions are expensive to install, feature
variable monthly service fees, and offer no clearly stated return on investment.
SiriCOMM's products and services offer fleet owners low up-front costs, fixed
monthly fees and verifiable returns on investment.
To provide these returns on investment, SiriCOMM's solution combines (i)
affordable basic wireless Internet access coupled with (ii) a suite of initial
products and services, some proprietary to the Company and others developed by
third-parties where the Company has forged an alliance (the "Strategic
Alliances"). These products and services address problems that have plagued the
industry for decades through proprietary software that enables paperless
shipping documents with signature capture, paperless driver logs, fuel
purchasing oversight, electronic vehicle performance data, decision support
tools, and other two-way, wireless communications opportunities.
Government. The Company believes that it has a significant business opportunity
with both state and local highway and traffic authorities as well as,
potentially, the Office of Home Land Security--especially if its hot spots are
authorized for points of entry into the US.
Products and Services. SiriCOMM's business model is a subscription-based
customer access model where individual, business and governmental customers will
pay monthly Network access fees to subscribe for various services. The Company
plans to provide the services through a combination of: (i) proprietary
application specific products developed by the Company which are accessible by
customers via the Network and (ii) other products and services developed by
others that require Network access for delivery to the user.
These products and services fall generically into two categories:
Basic Internet Access. Certain of the Company's target market customers
will seek to subscribe to the Company's service solely to gain access
to the Internet. These target market customers are likely to be
independent truckers and others in the private sector, who seeks only
basic email and informational access afforded by the Internet. For this
portion of its target market, the Company offers InTouch(TM) ISP
service. Depending on the customer, its size and number of users, the
Company seeks a target monthly retail subscription fee of $24.95 per
truck per month for basic Internet access.
Application Specific Productivity Software. Based on its management's
experience and judgment that next generation commercial vehicle cost
reductions and productivity improvements would come from driver-based
decision support tools. SiriCOMM was founded as a wireless application
service provider to supply productivity and cost reduction software
applications to the commercial vehicle industry. For this target market
segment, the Company has the following initial suite of proprietary
productivity software tools available (the "Proprietary Software
Productivity Tools"):
17
PULSE(TM): This is a passive wireless device connected to the
vehicle ECM (engine control module) that is programmed with
SiriCOMM software to provide trucking fleet operators with:
o Wireless, remote vehicle diagnostics
o Driver performance diagnostics
o Global Positioning System coordinates
o Host platform for other functions
The Company will charge $9.95 per truck per month for basic
diagnostic information and $14.95 when GPS is included. The
PULSE device, wholesale priced between $200 and $300 based on
volume discount, can be installed OEM by truck manufacturers
or installed on existing trucks.
BEACON(TM): This proprietary software service has been
developed by the Company to address critical productivity
needs of the trucking industry - i.e., cost reduction,
productivity improvement, safety and security enhancements.
The Beacon(TM) package includes InTouch(TM) and, when bundled
with the Pulse(TM) product, enables substantially greater
functionality. The initial suite of applications within Beacon
includes:
E-freight bill E-maintenance tracking
E-fuel network purchasing E-Pay settlement
E-load finder E-logbook
E-driver referral
The monthly subscription of $49.95 per truck per month
includes access to the entire suite of software (above),
unlimited Internet access (InTouch(TM)). Based upon actual
fleet information, the Company's Cost Justification Model can
demonstrate expected savings of approximately $300 per truck
per month. In addition, the Beacon platform can easily support
expansion for other revenue opportunities to include:
o pay-per-view movies
o advertising
o networked gaming
o distance learning, etc.
No estimates have been made by management as to potential
revenues which might be realized from such sources.
Fleet Private Network: (fleet intranet) This hosting service
utilizes existing capabilities built into the RS to extend
fleet operations to each hot spot. Fleets may post their
secure fleet intranet sites. The hosting fee will be based
upon the fleet's total monthly storage requirements. Fleet
drivers will be required to have an InTouch(TM) subscription
to access their secure intranet site.
Sales and Marketing. With its Network in place and operational in 38 states, the
Company believes that the sales and marketing initiatives that it has undertaken
while the Network was being installed will begin to generate substantial
revenue. These efforts are two-pronged as follows:
Direct Sales. To market and sell its Proprietary Software Productivity
Tools, the Company employs its own direct sales force. This direct
sales force is primarily (i) marketing to the nation's larger
commercial trucking fleet operators and (ii) following up in an effort
to up-sell selected customers originated by the Company's sales and
marketing alliance partners.
Alliance Partners/VAR's. The Company has succeeded in establishing,
among others, the following sales and marketing alliance
partners/value-added resellers (VAR's) in an effort to telescope the
time period within which the Company and its Products and Services gain
traction in their Target Markets. These are:
18
Idling Solutions. Through an exclusive agreement with Idling
Solutions, LLC we provide data connectivity for one of the
most innovative fuel conservation and anti-pollution system
available to the trucking industry. Through a monthly
subscription we will wirelessly extract and transmit data from
each of the Idling Solutions-equipped vehicles to the Idling
Solutions data center. With the data we deliver, Idling
Solutions monitors the performance of its product and
calculates Mobile-source Emissions Reduction Credits. We
currently have an expression of interest from Idling Solutions
for a 50,000 unit order, however, there is no assurance that
Idling Solutions will complete the purchase of 50,000 units.
DriverTech. DriverTech, a Salt Lake City-based supplier of
ruggedized vehicle computers for the U.S. military, has signed
a Memorandum of Understanding ("MOU") with the Company. The
MOU contemplates that, DriverTech's TruckPC, the commercial
version of its military product that is in wide use in Iraq
and Afghanistan, will use SiriCOMM's network as its primary
communications medium. In addition, DriverTech will be a
value-added reseller of SiriCOMM's BEACON(TM) products. The
Company expects to sign a definitive agreement with DriverTech
in the near future. The addition of BEACON(TM) gives TruckPC
far greater functionality and portability. Presently,
DriverTech has scheduled several major fleets, including Swift
Transportation, to beta test its product. Retail pricing for
the BEACON(TM) service is $49.95 while the connectivity only
subscription price is $29.95.
Others. In connection with its strategic Network location
agreements with Pilot, Love's, Petro and Freight and More/DIS
these alliance partners have also entered into VAR
arrangements with the Company to be resellers of the Company's
products and services. The company anticipates similar
arrangements as part of the services agreement with ACS.
SiriCOMM Outlook for Business Generation. SiriCOMM opened its Network for
customer use in December 2004. As indicated in the Terms of the Offering, the
Company believes that it will generate approximately $4.5 million in revenue for
the fiscal year ended September 2006 and $25 million for the fiscal year ended
September 2007. Based on its current costs of doing business and as such costs
are expected to increase as its business ramps up, the Company believes that it
should be operating profitably on a run-rate basis by the end of its fiscal 2006
year.
Competition. Based upon our business approach and pioneering technology, we
believe that there currently are no direct competitors in the trucking or
highway wireless Internet access market. However, competition is inevitable and
we believe existing entities as well as new entities will enter the marketplace.
Many of such entities will have substantially more funds, experience, employees
and other resources than us. As a result, no assurances can be given that we
will be able to compete with such entities. We, however, believe that we have
certain technological advantages, and our affordable productivity tools,
extensive industry experience, and patents pending present certain entry
barriers for potential competitors. Notwithstanding, there are several
competitors whose services "overlap" our service offerings to some extent. These
include Qualcomm, PeopleNet, PSTN-based WLAN providers, and wireless
telecommunications companies.
o Qualcomm. Qualcomm's satellite communications and tracking
system provides Global Positioning System (GPS) truck locating
and low bandwidth text messaging transmissions. Qualcomm
currently has approximately 425,000 units installed worldwide.
The system functions well, but offers limited benefits to
companies according to many subscribers. Our management
believes that this system is very costly to purchase, install,
and operate. There is a minimum monthly messaging fee and
additional charges per character when the minimum is exceeded.
o PeopleNet. PeopleNet provides web-based fleet communications
ranging from GPS tracking only to low bandwidth text, voice
and applications. PeopleNet operates on Aeris.Net's Microburst
service, a technology that uses underutilized portions of
partner cellular provider's channels to send and receive small
packets of data. For fleets electing to install the full suite
of equipment and services, PeopleNet offers several
applications similar to our applications. However, as it is a
low bandwidth solution it does not offer Internet, intranets,
or other applications requiring higher bandwidth. Equipment
19
costs and monthly service fees are comparatively high, though
somewhat less than Qualcomm, and equipment installation must
be performed at one of PeopleNet's hub facilities.
o PSTN-Based hot spot Providers. PSTN-based hot spot providers
are companies that install hot spots using public switched
telephone networks (PSTN), usually T-1 lines or digital
subscriber lines, for access to the Internet. These businesses
typically target business travelers with Internet and email
access in airports, coffee shops and hotel lobbies. For
example, Boingo, a nationwide hot spot aggregator, operates
hot spots in locations convenient to business travelers and
charges $21.95 per month for unlimited access. Though these
providers are identified as competition, we anticipate
developing roaming agreements with key identified hot spot
providers.
Government Regulation and Industry Standards
Our products and services are currently not regulated by the FCC or local
governments. The regulatory process in the United States can be time-consuming
and can require the expenditure of substantial resources. There is no assurance
that the FCC or state regulatory agencies will not seek to regulate the use of
frequencies utilized by our services or, if such services are regulated, grant
the requisite approvals for any of our products on a timely basis, or at all.
The failure of our products to comply, or delays in compliance, with the various
existing and evolving standards could negatively impact our ability to market
our products and services. United States and state regulations regarding the
manufacture and sale of modems and other data communications devices are subject
to future change. We cannot predict what impact, if any, such changes may have
on our business.
LEGAL PROCEEDINGS
On December 17, 2004, Henry Hoffman, Kory Dillman, David Mendez, Tom Noland,
Richard Iler and Terry Thompson were named defendants in a lawsuit entitled Greg
Sanders v. Henry Hoffman et al. Messrs. Hoffman, Dillman, Mendez and Iler are
officers and directors of the Company, Mr. Thompson is a director of the Company
and Mr. Noland is a former officer and director of the Company. The action was
brought in the Circuit Court of Jackson County, Missouri at Kansas City
(04CV236387). The action alleges fraud, misrepresentation and breach of
fiduciary duty relating to a settlement agreement entered into between the
Company and Mr. Sanders. The Company was not a party to this lawsuit. The
complaint seeks damages in excess of $9,679,903. The defendants' filed a motion
to dismiss which was denied by the Court. The defendants have subsequently filed
counter claims against the plaintiff as part of their answer on August 18, 2005.
Subsequently on February 8, 2006 the Plaintiff sought to amend the complaint to
add the Company as a defendant. The Company has filed a motion in opposition of
this petition. The Company will pay all expenses relating to the defense of this
matter. In management's opinion this case is without merit and the defendants
intend on defending this matter vigorously.
We are not a party to any other legal or administrative proceedings.
DESCRIPTION OF PROPERTY
Our principal executive offices are located at 2900 Davis Blvd., Suite 130
Joplin, MO 64804, where we occupy approximately 1,200 square feet of office
space. Our rent for this space is $1,200 per month. We lease this space on a
month-to-month basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements and the
related notes. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Our actual results and the timing of
certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risks Relating to Our Business," "Description of Business" and
elsewhere in this document. See "Forward-Looking Statements."
20
Background
SiriCOMM is an application service provider specializing in wireless Internet
connectivity and productivity applications tailored to the highway
transportation industry. The company is guided by its mission of helping truck
fleets to improve productivity, reduce costs, increase safety, and strengthen
security. To achieve that goal, SiriCOMM has deployed a network of SiriCOMM
Wi-Fi hot spots at locations convenient to highway travelers. SiriCOMM's
proprietary network, the foundation for its applications, delivers wireless
broadband connectivity at a fraction of the cost of conventional wireless
networks. By providing both Internet access and a robust application host
platform, SiriCOMM delivers a more responsive and convenient way for all
industry stakeholders to interact with information needed on a regular basis.
Presently, SiriCOMM's network is the most widely available wireless Internet
access network built for the highway transportation market. To date we have
installed over 300 Wi-Fi "hot spots" at major truck stops and weigh stations and
have agreements with leading truck stop chains and weigh station operators such
as Pilot Travel Centers ("Pilot"), Love's Travel Stops ("Loves"), Petro, Freight
and More, Inc./DIS - Direct Internet Services and others to install access
points at approximately 430 additional sites.
The Company's network technology is built upon a distributed server model that
uses satellite for data backhaul. This architecture provides key advantages: 1)
the network is truly go-anywhere and operates independently of any
terrestrial-based communication infrastructure; 2) the satellite multicast
features allows data to be simultaneously available at all SiriCOMM Wi-Fi hot
spots; 3) bandwidth management is handled from a single location as opposed to
multiple points that would be required by a nationwide terrestrial network; 4)
the remote server makes each hot spot an extension of fleet operations; and, 5)
proprietary technologies mitigate inherent weaknesses found in conventional
satellite networks.
SiriCOMM completed phase one installations in 2004 and opened the network for
business in December 2004. Initially, network access subscriptions were limited
to only credit card sales through the company's web site. By June 2005 Pilot
began offering cash point of sales (POS) subscriptions at its in-store
registers.
We market our products and services principally through assorted value added
reseller agreements and a direct sales force. As the trucking industry is highly
fragmented and comprises many small to medium-sized fleets, we use numerous
resellers to maximize our sales reach. Our direct sales force is focused on the
large fleets as well as coordinating the efforts of our value added resellers.
Currently we are continuing to concentrate our sales efforts on InTouch(TM)
while installing additional hot spots across the country. Sales of Pulse and
Beacon will commence once nationwide network density reaches 400-500 sites.
Our senior management team, led by CEO Henry (Hank) Hoffman and composed
primarily of the founders of the Company, has significant experience in both the
transportation and communications industries.
We were incorporated as a Delaware corporation under the name DFW Technologies,
Inc., Inc., in March 1989. In 1992, DFW Technologies, Inc. changed their name to
Fountain Pharmaceuticals, Inc. In approximately November 2002, the shareholders
of SiriCOMM, Inc., a privately-held Missouri corporation, incorporated in 2000
("SiriCOMM Missouri"), exchanged all of the issued and outstanding common stock
of SiriCOMM Missouri for a controlling interest in Fountain Pharmaceuticals,
Inc. (the "Reverse Transaction"). As part of the Reverse Transaction, all of the
then officers and directors of Fountain Pharmaceuticals, Inc. resigned and were
replaced by persons designated by SiriCOMM Missouri and the name of Fountain
Pharmaceuticals, Inc. was changed to SiriCOMM, Inc. As a result of the Reverse
Transaction, SiriCOMM Missouri became a wholly-owned subsidiary of the Company
and the prior shareholders of SiriCOMM Missouri became the controlling
shareholders, officers and directors of the Company.
Our corporate address is 4710 East 32nd Street, Joplin, Missouri 64804, our
telephone number is 417-626-9971, and our fax number is 417-782-0475.
21
Critical Accounting Policies and Estimates:
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make significant estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and liabilities. We
evaluate our estimates, including those related to contingencies, on an ongoing
basis. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policy, among others; involve the
more significant judgments and estimates used in the preparation of our
consolidated financial statements:
The Company accounts for compensation costs associated with stock options and
warrants issued to non-employees using the fair-value based method prescribed by
Financial Accounting Standard No. 123 - Accounting for Stock-Based Compensation.
The Company uses the trinomial options-pricing model to determine the fair value
of these instruments as well as to determine the values of options granted to
certain lenders by the principal stockholder. The following estimates are used
for grants in fiscal year 2006: Expected future volatility over the expected
lives of these instruments is estimated to mirror historical experience of 75%;
expected lives of 1-2 years is estimated based on management's judgment of the
time period by which these instruments will be exercised.
Information Relating To Forward-Looking Statements
When used in this Report on Form 10-QSB, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "intend," "plans", and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends which may affect the Company's future plans of operations, business
strategy, operating results and financial position. Such statements are not
guarantees of future performance and are subject to risks and uncertainties and
actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Such factors include,
among others: (i) the Company's ability to obtain additional sources of capital
to fund continuing operations; in the event it is unable to timely generate
revenues (ii) the Company's ability to retain existing or obtain additional
licensees who will act as distributors of its products; (iii) the Company's
ability to obtain additional patent protection for its technology; and (iv)
other economic, competitive and governmental factors affecting the Company's
operations, market, products and services. Additional factors are described in
the Company's other public reports and filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
Fair Value of Equity Instruments
The valuation of certain items, including valuation of warrants or
restricted stock that may be offered as compensation for goods or services
received within its contracts, involve significant estimations with underlying
assumptions judgmentally determined. Warrants are valued using the most reliable
measure of fair value, such as the value of the goods or services rendered, if
obtainable, if such value is not readily obtainable, the valuation of warrants
and stock options are then based upon a trinomial valuation model, which
involves estimates of stock volatility, expected life of the instruments and
other assumptions. As the Company's stock is thinly traded, the amounts recorded
for equity instruments, which are based partly on historical pricing of the
Company's stock, are subject to the assumption used by management in determining
the fair value.
22
Results of Operations
For the Three Months Ended December 31, 2005, and 2004
Revenues
SiriCOMM generated revenues of $153,952 for the three months ending
December 31, 2005 while generating revenues of only $6,273 during the same
period ending December 31, 2004. Revenues were solely derived from the Company's
offering of its InTouch Internet service. Limited advertising has been conducted
to date and no assurances can be offered that the Company will generate future
revenues from the offering of the In Touch service.
Operating Expenses
Our operating expenses consist of product research and development
costs, general and administrative, selling, depreciation and amortization, as
well as amortization of long-term intangible assets. During the three months
ended December 31, 2005, net operating losses totaled $870,400 as compared to
net operating losses of $493,015 for the three months ended December 31, 2004.
The Company has increased its number of employees in accounting, software
development and customer service which has contributed to the increase in net
operating losses. These expenses are necessary to increase the Company's
infrastructure, support the InTouch service and improve the Company's
administration.
General and Administrative Expenses
Our General and Administrative expenses consist of corporate overhead
costs, administrative support, professional fees and amortization of prepaid
consulting fees. For the three months ending December 31, 2005, SiriCOMM's
general and administrative expenses totaled $326,100, or 31.8% of total
operating expenses, while for the three months ended, December 31, 2004 general
and administrative expenses totaled $150,193 or 30.1% of total operating
expenses. General and administrative expenses increased as a result of the
Company's engaging an investor relations and network maintenance costs which
contributed principally to the net operating loss.
Salaries
For the three months ending December 31, 2005, SiriCOMM incurred
salaries of $317,696, representing 31.0% of operating expenses, as compared to
$235,337, or 47.1%, of total operating expenses for the three months ended
December 31, 2004. The Company has increased its personnel in accounting and
customer support to operate its InTouch ISP service.
Satellite Access Fees
With the opening of the network for introduction of its InTouch
service, the Company will incur bandwidth costs associated with providing this
service and its other products. The contract with its satellite provider
provides for a fixed monthly cost per site which will increase as the Company
adds additional sites. Satellite access fees for the three months ending
December 31, 2005 were $246,543, or 24.1% of total operating expenses, as
compared to $93,870, or 18.8% of total operating expenses, for the three months
ending December 31, 2004. With the signing of an agreement with Sat-Net in
February 2005, the Company is now amortizing intangible satellite access that
was the benefit derived from this agreement. The Company expensed $126,009 as
the non-cash amortization for the three months ending December 31, 2005.
Depreciation and Amortization
Depreciation expense was $127,291 for the three month period ending
December 31, 2005 as compared to $7,288 for the same period ending December 31,
2004 due to the increase in the network infrastructure.
23
Interest Expense
For the three months ending December 31, 2005, interest expense was
$10,477 as compared to $4,460 during the three months ended December 30, 2004.
The increase in interest expense is attributable to the Company increasing its
borrowing on its equipment line to $385,435 from $309,604 during the same period
ending December 31, 2004, and an increase in interest rates.
For the years ended September 30, 2005 and 2004
Revenues
SiriCOMM generated revenues of $193,741, for the fiscal year ending
September 30, 2005 while not generating any revenues during fiscal year 2004.
Revenues were solely derived from the Company's offering of its In Touch
Internet service. In late June, Pilot Travel Centers introduced the Company's In
Touch Service as a cash point of purchase transaction at the registers to
facilitate purchases. Previously, the Company was limited to accepting only
credit card purchases. Limited advertising has been conducted to date and no
assurances can be offered that the Company will generate any meaningful revenues
from the offering of the In Touch service in the future.
Operating Expenses
Our operating expenses consist of product research and development
costs, general and administrative, selling, depreciation and amortization, as
well as amortization of long-term prepaid assets as compared to the same period
in 2004.
During fiscal year 2005, net operating losses totaled $3,236,245 as
compared to net operating losses of $2,585,327 for 2004.
The Company has increased its number of employees in accounting,
software development and customer service which have contributed to the increase
in net operating losses. These expenses were necessary to build the Company's
infrastructure, support the In Touch service and improve the Company's Corporate
Governance.
General and Administrative Expenses
Our General and Administrative expenses consist of corporate overhead
costs, administrative support, professional fees and amortization of prepaid
consulting fees.
For fiscal year 2005, SiriCOMM's general and administrative expenses
totaled $1,199,045, or 35.0% of total operating expenses, while for 2004 general
and administrative expenses totaled $1,823,959 or 70.6% of total operating
expenses. For 2005 and 2004, $300,840 and $0, respectively, of general and
administrative expenses represents a non-cash vesting of consulting fees paid by
the issuance of stock which was granted in 2004. Accounting and legal fees
increased during 2005 by $105,865 due to the Company's filing of a Registration
Statement on Form SB-2.
Salaries
For fiscal year 2005, SiriCOMM incurred salaries of $1,112,889,
representing 32.4% of operating expenses, as compared to $663,115, or 25.6%, of
total operating expenses for 2004. The Company hired an additional nine
employees including a Controller since the same period ending September 30,
2004.
Satellite Access Fees
Satellite access fees have been incurred as a result of the Company's
launching its proprietary network, expenses were realized for fiscal year 2005
of $711,702 or 20.7% of operating expenses. The non-cash component of the
satellite access fees for fiscal year 2005 was $378,027. The Company had not yet
launched the Network, thus no satellite access fees had been incurred during
2004.
24
Research and Development
Research and development costs increased $23,810 during fiscal year
2005 to $50,260 compared to $26,450 for 2004. The 2004 costs were low compared
to 2005 due to a credit received for services from a consultant that is aiding
in the development of the wireless network.
Depreciation and Amortization
Depreciation expense was $356,090 or 10.4% of operating expenses for
fiscal year 2005 as compared to $21,803 or 0.8% of operating expenses for 2004.
The increase is attributable to extensive expansion and installation of network
equipment.
Interest Expense
For fiscal year 2005, interest expense was $26,593 as compared to
$26,578 during 2004. The nominal change in interest expense is attributable to
the Company increasing its borrowing on its line of credit during 2005 but
conversely had paid other notes off during the latter part of 2004 and early in
2005.
The valuation of certain items, including valuation of warrants or
restricted stock that may be offered as compensation for goods or services
received within its contracts, involve significant estimations with underlying
assumptions judgmentally determined. Warrants are valued using the most reliable
measure of fair value, such as the value of the goods or services rendered, if
not obtainable, if such value is not readily obtainable, the valuation of
warrants and stock options are then based upon a trinomial valuation model,
which involves estimates of stock volatility, expected life of the instruments
and other assumptions. As the Company's stock is thinly traded, the amounts
recorded for equity instruments, which are based partly on historical pricing of
the Company's stock, are subject to the assumptions used by management in
determining the fair value.
Liquidity
We continue to finance our operations entirely from invested funds and
limited borrowing for capital expenditures. No assurances can be given that
revenues will increase sufficiently to cover operating expenses or that the
Company can continue to attract capital under terms favorable to it
shareholders.
As of December 31, 2005, our current assets including cash and cash
equivalents, investments, accounts receivables and other current assets amounted
to approximately $780,060. Current liabilities amounted to $1,349,158 and
include notes payable to Southwest Missouri Bank and Sunflower Capital, LLC,
accounts payable, accrued salaries, and other accrued expenses.
On February 13, 2006 we retired the note payable to Southwest Missouri
Bank by paying them $389,793, representing the principal and interest due under
the note on that date. This loan was secured by various assets of the Company
which were released upon making the payment.
On February 8, 2006 the Company opened a $500,000 line of credit with
Liberty Bank of Springfield, Missouri. The loan is secured by a six month
certificate of deposit, which earns interest at the rate of 4.25%, deposited
with Liberty Bank in the same amount. The interest rate on this line of credit
is 5.25% on the outstanding principal balance. The line of credit has a six
month term expiring on August 7, 2006.
To date, the Company has not take any advances under this line of
credit. The Company anticipates drawing against the line of credit when
necessary for general corporate purposes, including the purchase of additional
wireless equipment.
As an emerging wireless applications services provider, we are involved
in a number of business development projects, continued network installation and
general operating capital requirements that will continue to require external
capital to finance the Company as it introduces its applications within its
business model. No assurances can be given as to the industry's willingness to
purchase the Company's products or services.
25
As described below, the Company completed a private placement whereby
the Company sold Units at an aggregate purchase price of $5,396,103, which
netted the Company approximately $5,000,000. The Company believes this capital
is sufficient to fund its operations for a period of no less than twelve months,
during which time the Company expects to achieve positive cash flow and will not
need to raise additional capital to fund its planned operations.
The Company to date has only introduced its InTouch Internet Service
which is offered through its installations within the 275 Pilot Travel Centers.
Month-to-month revenues have increased by 15-20%, evidenced as growth in
revenues grew from $6,000 to $154,000 for the same period for periods ended
December 2005 and December 2004 respectively With the installation of Love's
Travel Centers and Petro Truckstops expected to be completed by April 30, 2006,
this will bring total installations to 432. The Company is similarly of the
belief that it will achieve positive cash flow for operations from InTouch
singularly with these installations as of early summer 2006. Our current rate
for using capital for quarter ended December 31, 2005 versus December 31, 2004
was $572,000 compared to $362,000 for the comparable period.
The Company has expressed that a density of hotspots of 400-500 sites
would enable it to introduce its other product lines through the installation of
Love's and Petro thus, enabling the Pulse product to be introduced. The Company
believes that orders for its Pulse Box product will generate revenues within 60
days. This will produce recurring subscription revenues as well. As expressed in
its Form 8-K, the Company believes that Idling Solutions' orders will generate
sales of nearly 20,000 units by calendar year-end 2006. On an annual adjusted
basis, this will translate to $6,600,000 with a margin of $600,000 and recurring
revenue of $3 per truck per month as installations occur.
The Company expects to expend about $2,500,000 to install an additional
625 sites. The Company believes that the nearly $2,000,000 it has in addition to
these capital requirements are sufficient to offset non-recurring expenditures
or any adverse variances in operating expenses.
As we continue to ramp-up our business and obtain new ISP contracts,
the Company believes that it has adequate liquidity and that we can achieve
profitability in 2006. The Company is dedicating its efforts currently to
building its Internet Service and growing its network site density in order to
facilitate the launch of its other planned software products.
Capital Resources
On December 27, 2005, the Company entered into a Loan Agreement with
Sunflower Capital, LLC. The loan is in the principal amount of $500,000 and is
evidenced by a Convertible Promissory Note due July 1, 2006. As consideration
for Sunflower making the loan, the Company issued to Sunflower a warrant to
purchase 200,000 shares of the Company's common stock at $1.26 per share. The
warrant expires December 15, 2010. The estimated fair value of the warrants
required a discount of $76,271 be recorded against the note. This discount will
be expensed over the life of the loan.
The Note mandatorily converts into the Company's units consisting of
one share of common stock and one redeemable common stock purchase warrant
exercisable at $1.50 per share during the period commencing on the date of
issuance and expiring five (5) years thereafter. As discussed below, the Note
converted into such units at the rate of $1.15 per unit on February 1, 2006.
On January 31, 2006, the Company consummated the private placement of
its securities pursuant to a Placement Agent Agreement entered into between it
and Sanders Morris Harris, Inc. as Placement Agent dated December 12, 2005. The
securities sold were units consisting of one share of the Company's common
stock, $.001 par value and one redeemable Common Stock purchase warrant. At the
closing, the Company sold an aggregate of 4,692,263 Units at an aggregate
purchase price of $5,396,103 or $1.15 per unit. At the closing, the Company
delivered an aggregate of 4,692,263 Shares and 4,692,263 Warrants to the
purchasers.
Each Warrant entitles the holder to purchase one Share of Common Stock
at an exercise price of $1.50 per share commencing on the date of issuance and
expiring at the close of business on the fifth anniversary of the issuance date.
26
The Warrants contain provisions that protect the holder against dilution by
adjustment of the exercise price in certain events including, but not limited
to, stock dividends, stock splits, reclassifications, or mergers. The Company
may redeem the Warrants, at a price of $.10 per Warrant, at any time following
the issuance date upon not less than 30 days nor more than 60 days prior written
notice if (a) the Common Stock underlying the Warrants has been registered with
the SEC, and (b) the closing price of the Common Stock exceeds a 200% premium of
the exercise price of the Warrants for 20 out of 30 consecutive trading days.
In connection with the private placement, Sanders Morris Harris, Inc.,
the placement agent in the private placement, received a commission equal to 5%
of the offering price of the units sold by them in the private placement, a
commission equal to 2 1/2% on the 1,764,872 units by Sunflower Capital and a
financial advisory fee equal to 2% of the offering price of the units sold in
the private placement and a warrant to purchase 234,613 shares of common stock,
or 5% of the units sold in the private placement. The warrants are exercisable
for a period of five years at an exercise price of $1.15 per share and contain
the same anti-dilution rights as the common stock warrant issued in the January
2006 private placement.
As part of the Private Placement, the Company entered into a
registration rights agreement with each subscriber who purchased Units in the
Private Placement. Under the Registration Rights Agreement, the Company, as
promptly as reasonably practicable after closing of the Private Placement but in
no event later than 30 days following the closing, the Company is obligated to
file a registration statement on Form SB-2, relating to the resale by the
holders of the Common Stock underlying the Units, Warrants and Placement Agent
Warrant. If such Registration Statement is not filed within the required time
frame, or does not become effective within 90 days after closing (or 120 days
after closing, if the Registration Statement is subject to review by the SEC),
the Company has agreed to pay to the investors 1% of the gross proceeds of the
offering for each month in which the Company fails to comply with such
requirements.
Sunflower Capital, LLC, a limited liability company managed by William
P. Moore, a director of the Company, purchased an aggregate of 1,764,872 Units
in the offering, which consisted of a new investment of $1,525,000 to purchase
1,326,087 Units and the conversion of the Note plus accrued interest in the
amount of $4,602 to purchase 438,785 Units.
The aforementioned securities have been and will be issued under the
exemption from registration provided in Section 4(2) of the Act.
The cash proceeds of the above sales of securities of the Company will
be used for general corporate purposes in developing the Company's planned
services.
Contractual Obligations and Commercial Commitments
Contractual obligations as of December 31, 2005 are as follows:
------------------------------ -----------------------------------------------------------------------
Payments Due by Period
------------------------------ -----------------------------------------------------------------------
Contractual Less than
Obligations Total 1 year 1-3 years 4-5 years After 5 years
------------------------------ --------------- ------------- ------------ ------------ ---------------
Line of credit and note
payable $ 809,164 $ 809,164 $ - $ - $ -
------------------------------ --------------- ------------- ------------ ------------ ---------------
Operating leases - - - - -
------------------------------ --------------- ------------- ------------ ------------ ---------------
Total contractual cash
obligations $ 809,164 $ 809,164 $ - $ - $ -
------------------------------ --------------- ------------- ------------ ------------ ---------------
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a
revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95, Statement of Cash Flows. The
approach to accounting for share-based payments in Statement 123(R) is similar
27
to the approach described in Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
and no longer allows pro forma disclosure as an alternative to financial
statement recognition. The Company will be required to adopt Statement 123(R) in
the first quarter of its year ending September 30, 2007. The Company has not
determined what financial statement impact Statement 123(R) will have on the
Company.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On April 7, 2004, based upon the recommendation of and approval by our
board of directors, we dismissed Aidman Piser & Company, P.A. ("Aidman Piser")
as our independent auditor and engaged BKD, LLP to serve as our independent
auditor for the fiscal year ending September 30, 2004. On May 11, 2004, at the
annual shareholders meeting, our shareholders affirmed the engagement of BKD,
LLP as our independent auditors.
Aidman Piser's reports on our consolidated financial statements for the
fiscal year ended September 30, 2003, contained a qualified opinion as to our
ability to continue as a "going concern" in our absence of revenues, or the
ability to attract additional capital. During the years ended September 30, 2003
and 2002 and through April 7, 2004, there were no disagreements with Aidman
Piser on any matter of accounting principle or practice, financial statement
disclosure or auditing scope or procedure, which, if not resolved to Aidman
Piser's satisfaction, would have caused them to make references to the subject
matter in connection with their reports of our consolidated financial statements
for such years. In addition, we believe there were no reportable events as
defined in Item 304(a)(1)(iv)(B) of Regulation S-B.
We provided Aidman Piser with a copy of the foregoing statements and
requested that Aidman Piser provide it with a letter addressed to the SEC
stating whether it agrees with the foregoing statements. A copy of Aidman
Piser's letter, dated April 7, 2004, was filed as Exhibit 16.1 to our Current
Report on Form 8-K filed with the SEC on April 12, 2004.
28
MANAGEMENT
The Company's Board of Directors currently consists of six directors. Set forth
below is certain information regarding our directors and key executive officers.
Director
Name Age Position Since
---- --- -------- -----
Henry P. (Hank) Hoffman 54 President, CEO and 2002
Chairman
David N. Mendez 45 Executive Vice President - 2002
Sales and Marketing;
Director
Kory S. Dillman 35 Executive Vice President - 2002
Internet Business
Development; Director
J. Richard Iler 53 Chief Financial Officer; Director 2003
Terry W. Thompson 55 Director 2003
William P. Moore 60 Director 2005
Directors are elected to serve until the next Annual Meeting of shareholders and
until their successors have been elected and qualified. The Company's officers
are appointed by the Board of Directors and hold office at the will of the
Board.
Henry P. (Hank) Hoffman
Mr. Hoffman was appointed President and CEO of the Company on November 21, 2002.
On that same date Mr. Hoffman was elected to the Board of Directors of the
Company and to serve as its Chairman. Mr. Hoffman co-founded SiriCOMM in January
2000 and has been its President, CEO and Chairman since SiriCOMM's inception.
Mr. Hoffman has over twenty years experience in the transportation industry.
From September 1, 1996 to January 21, 2000 Mr. Hoffman was President and Chief
Operating Officer of Hook Up, Inc. of Joplin, MO, a small niche motor carrier.
From 1990 to 1995 Mr. Hoffman was President and COO of Tri-State Motor Transit,
the nation's largest transporter of munitions for the U.S. Government.
Prior to his term at Tri-State, he served in several Operations/Management
positions with both Schneider National, Inc. and Viking Freight System. As an
industry leader he has been a Vice President of the American Trucking
Association, President and Chairman of the Board of the Munitions Carriers
Conference, member of the Board of Directors of the National Automobile
Transporters Association, and Forum Co-Chairman of the National Defense
Transportation Association. Prior to his trucking industry career, Mr. Hoffman
served as an officer in the United States Army Field Artillery for six years
where he completed two command assignments. Mr. Hoffman earned a Bachelor of
Science degree from the United States Military Academy, West Point, NY and a
Master of Business Administration from the University of Wisconsin, Oshkosh, WI.
David N. Mendez
Mr. Mendez was appointed Executive Vice President - Sales and Marketing on
November 21, 2002. On that same date Mr. Mendez was also elected a director of
the Company. Mr. Mendez co-founded SiriCOMM in April 2000 and has been its
Executive Vice President Sales and Marketing and a director since SiriCOMM's
inception. Mr. Mendez has over nine years experience in telecommunications sales
and marketing. Mr. Mendez's telecommunications expertise focuses on domestic and
international data communication networks including Frame Relay and ATM
infrastructures and Internet and intranet networks. From October 1998 to
February 2000 he was National Sales Manager for DRIVERNet where he managed such
national accounts as Ford, Kenworth, Peterbilt, Paccar Corporation, and Cue
Paging. From 1995 to 1998 Mr. Mendez worked as a Major Account Manager for
Sprint. Mr. Mendez graduated with a Bachelor of Science degree from Southwest
Missouri State University, Springfield, MO.
29
Kory S. Dillman
Mr. Dillman was appointed Executive Vice President - Internet Business
Development on November 21, 2002. On that same date Mr. Dillman was also elected
a director of the Company. Mr. Dillman co-founded SiriCOMM in April 2000 and has
been its Executive Vice President - Internet Business Development and a director
since SiriCOMM's inception. From 1996 to 1999 Mr. Dillman was Creative Director
for DRIVERNet. In that position he produced intranet and Internet applications
for DRIVERNet and its customers. He developed specific web-based products for
Volvo Trucks North America, Ambest, Petro Travel Centers, Pilot Travel Centers,
Caterpillar Engines, and TravelCenters of America. Prior to joining DRIVERNet,
Mr. Dillman was Art Director for Wendfall Productions. In this position he
managed development for interactive gaming and mixed-mode CD's for Sony Music
and Ardent Records. Mr. Dillman earned a Bachelor of Fine Arts degree from the
University of Tulsa, Tulsa, OK.
J. Richard Iler
Mr. Iler was appointed Chief Financial Officer and elected to the Board of
Directors in April 2003. From 2001 through 2003, Mr. Iler was managing director
of a private equity fund responsible for financing activities, management
consulting and investor relations of the funds portfolio companies and served as
a management consultant to SiriCOMM, Inc from June 2002 to the time of his
appointment in April 2003. From 1998 through 2001, Mr. Iler was Chief Financial
Officer of United American e-Health Technologies, a publicly traded company,
which he assisted in raising capital and preparation of regulatory filings. Mr.
Iler graduated from Grand Valley State University in Allendale, Michigan with a
B.S. and attended South Texas College of Law in Houston, Texas.
Terry W. Thompson
Mr. Thompson was elected to the Board of Directors in August 2003. In 2002, Mr.
Thompson retired as President of Jack Henry and Associates, a provider of
integrated computer systems and processor of ATM and debit card transactions for
banks and credit unions. Mr. Thompson joined Jack Henry in 1990 as Chief
Financial Officer and was appointed President in 2001 guiding the Company from
$15 million in revenues to more than $365 million and from 98 employees to 2300
employees. Mr. Thompson was named Chairman of the Company's Audit Committee and
serves as its financial expert and will serve on the Company's newly created
Compensation Committee.
William P. Moore
William P. Moore was elected to the Board of Directors in May 2005 and has
served as a member of the Audit Committee and will serve on the Company's newly
created Compensation Committee. Mr. Moore has pursued a career as an
entrepreneur since 1980, when he founded Continental Exploration, Inc., an oil
and gas exploration company operating in the Eastern Kansas. In 1990, he
acquired a significant ownership position in Crude Marketing, Inc., a newly
formed company which purchased crude oil at the wellhead in Eastern Kansas,
transported the oil by truck to pipeline terminals, and sold it to major oil
refining companies. In 1995, Mr. Moore co-founded Continental Coal, Inc. which
operates surface coal mines in Western Missouri and Eastern Kansas. In 2003, Mr.
Moore co-founded Watersports, LLC which owns and operates a cable wakeboard lake
and other recreational facilities in the Kansas City area. More recently, he
co-founded Sunflower Energy, LLC, an oil and gas exploration company operating
in Western Kansas.
Mr. Moore graduated from the United States Military Academy, West Point, New
York, in 1967 with a Bachelor of Science degree. Following four years of
military service, including nineteen months in the Republic of South Vietnam,
Mr. Moore enrolled at Harvard University where he received a Master of Business
Administration degree in 1973.
30
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below shows certain compensation information for services rendered in
all capacities for the fiscal years ended September 30, 2003, 2004 and 2005.
Other than as set forth herein, no executive officer's salary and bonus exceeded
$100,000 in any of the applicable years. The following information includes the
dollar value of base salaries, bonus awards, the number of stock options granted
and certain other compensation, if any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
-------------------------------------------------- ------------------
Fiscal Year
Ended
Name and Principal Position September 30 Salary ($) Bonus ($) Options/SARS (#)
--------------------------- ------------ ---------- --------- ----------------
Henry P. Hoffman 2005 $ 218,750(a) - -
President, CEO and Chairman 2004 175,000(b) - -
2003 150,000 - -
David N. Mendez 2005 $ 161,458(a) - -
EVP-Sales and Marketing; 2004 125,000(c) - -
Director 2003 125,000 - -
Kory S. Dillman 2005 $ 161,458(a) - -
EVP-Internet Business 2004 125,000(c) - -
Development; Director 2003 125,000 - -
J. Richard Iler 2005 $ 130,000 - -
Chief Financial Officer; 2004 75,831 - -
Director 2003 - - -
-------------
(a) reflects payments of accrued and unpaid salary of $43,750 to Mr. Hoffman and
$36,458 each to Messrs. Dillman and Mendez.
(b) includes $93,750 in accrued and unpaid compensation.
(c) includes $78,125 each in accrued and unpaid salary.
Employment Contracts
We have employment agreements with three of our executive officers, Henry P.
Hoffman, David N. Mendez and Kory S. Dillman.
Mr. Hoffman's employment agreement, dated February 19, 2002 had an initial term
of three (3) years and a base annual salary of $150,000 and was increased to
$175,000 in 2004. Thereafter, the agreement automatically renews for additional
one-year periods. Bonuses, if any, are to be paid at the sole discretion of our
Compensation Committee.
Mr. Mendez' employment agreement, dated February 19, 2002 had an initial term of
three (3) years and a base annual salary of $125,000. Thereafter, the agreement
automatically renews for additional one-year periods. Bonuses, if any, are to be
paid at the sole discretion of our Compensation Committee .
Mr. Dillman's employment agreement, dated February 19, 2002 had an initial term
of three (3) years and a base annual salary of $115,000, which has been
increased to $125,000. Thereafter, the agreement automatically renews for
additional one-year periods. Bonuses, if any, are to be paid at the sole
discretion of our Compensation Committee.
31
Stock Options
OPTIONS/SAR GRANTS TABLE
Option/SAR Grants in the Last Fiscal Year
Individual Grants
% of Total
Options/SARs
Granted to Exercise or
Fiscal Options/SARs Employees in Fiscal Base Price Expiration
Name and Principal Position Year Granted (#) Year ($/Sh) Date
--------------------------- ------ ----------- ------------------- ----------- ----------
Henry P. Hoffman 2005 -0- 0.0% -0- --
President, CEO and Chairman of the Board 2004 -0- 0.0% -0- --
David N. Mendez 2005 -0- 0.0% -0- --
EVP- Sales and Marketing and Director 2004 -0- 0.0% -0- --
Kory S. Dillman 2005 -0- 0.0% -0- --
EVP - Internet Business Development and 2004 -0- 0.0% -0- --
Director
J. Richard Iler 2005 15,000 11.0% $1.90 4/13/15
Chief Financial Officer and Director 2004 145,000 46.8% $1.07 2/26/14
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR Value
Number of Value of Unexercised
Unexercised In-the-money
Shares Options/SARs at Options/SARs at
Acquired on Value FY-End (#) FY-End ($)
Fiscal Exercise Realized Exercisable / Exercisable /
Name and Principal Position Year (#) ($) Unexercisable Unexercisable
--------------------------- ---- --- --- ------------- ---------------------
Henry P. Hoffman 2005 -0- -0- (E)-0- / (U)-0- (E)$0 /(U)$0
President, CEO and Chairman of the Board 2004 -0- -0- (E)-0- / (U)-0- (E)$0 /(U)$0
David N. Mendez 2005 -0- -0- (E)-0- / (U)-0- (E)$0 /(U)$0
EVP- Sales and Marketing and Director 2004 -0- -0- (E)-0- / (U)-0- (E)$0 /(U)$0
Kory S. Dillman 2005 -0- -0- (E)-0- / (U)-0- (E)$0 /(U)$0
EVP - Internet Business Development and 2004 -0- -0- (E)-0- / (U)-0- (E)$0 /(U)$0
Director
J. Richard Iler 2005 1,500 $ 1,560 (E)155,000/(U)-0-
Chief Financial Officer and Director 2004 3,500 $13,045 (E)141,500/(U)-0- (E)$143,400 /(U)$0
32
Compensation of Directors
On December 20, 2005, the Board authorized the following compensation package
for its independent board members:
o Annual Cash Retainer - $5,000 per fiscal year
o Meeting Fee - $1,000 plus reasonable travel-related expenses
for on-site board meetings and/or on-site committee meetings,
and $500 for meetings conducted or attended by telephone.
Stock Options. New independent board members receive an initial grant of
twenty-five thousand (25,000) options to purchase Common Stock. The options vest
over thirty months in the following manner: (i) 10,000 options in six (6) months
from date of election; (ii) 7,500 options on the eighteen-month anniversary of
the date of election; and (iii)7,500 options on the thirty-month anniversary of
the date of election. Each of these options will be priced at 110% of the market
price of the Company's common stock at the date of issuance. In addition, on
their anniversary of appointment, all board members will receive an annual grant
of 10,000 three (3) year options to purchase Common Stock. These options will be
priced at market on the date of issuance and shall vest immediately.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From December 2002 through September 2003, the Company borrowed an aggregate of
$375,000 from unaffiliated third parties and $30,000 from the Company's CEO. The
loan to its CEO was repaid in 2004. In connection with these loans, the Company
issued the lenders an aggregate 137,782 shares of its common stock. In
connection with these loans, the Company's CEO issued an aggregate of 375,000
options to purchase shares of his own stock at $1.00 per share. On August 8,
2003, Mr. Terry Thompson, who had lent the Company an aggregate of $50,000 and
received 19,684 of these shares and 50,000 of the aforementioned options, was
elected a director of the Company. 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 February 26, 2004 the Company borrowed $1 million from Southwest Missouri
Bank. The loan is federally guaranteed by the United States Department of
Agriculture as part of the Rural Development Program. This loan is also
guaranteed by Mr. Henry P. Hoffman, the Company's Chairman and CEO, as well as
by his wife. The Company has not compensated Mr. Hoffman for providing this
guaranty. This loan was subsequently retired as of February 13, 2006.
On April 11, 2005, SiriCOMM, Inc. consummated the private sale of its securities
to Sunflower Capital, LLC. The securities sold consisted of units comprised of
shares of the Company's common stock and warrants to purchase shares of the
Company's common stock. At the closing, the Company sold an aggregate of
1,066,667 units at an aggregate purchase price of $1,600,000 or $1.50 per unit.
At the closing, the Company delivered an aggregate of 1,066,667 shares and
delivered warrants to purchase an additional 1,066,667 shares of the Company's
common stock.
The warrants entitle the holder to purchase shares of the Company's common stock
reserved for issuance thereunder for a period of five years from the date of
issuance at an exercise price of $2.50 per share. The warrants contain certain
anti-dilution rights and are redeemable by the Company, in whole or in part, on
terms specified in the warrants.
In a separate transaction also consummated on April 11, 2005, the Company sold
413,605 warrants to Sunflower Capital, LLC at a purchase price of $53,333 or
approximately $.13 per warrant. These warrants entitle the holder to purchase
shares of the Company's common stock reserved for issuance thereunder for a
period of five (5) years from the date of issuance at an exercise price of $3.00
per share. These warrants contain certain anti-dilution rights and are
redeemable by the Company, in whole or in part, on terms specified in these
warrants.
William P. Moore, a director of the Company, is the managing member of Sunflower
Capital, LLC.
33
The securities discussed above were offered and sold in reliance upon exemptions
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended (the "Act"), pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder. Such securities were sold exclusively to accredited
investors as defined by Rule 501(a) under the Act.
On July 7, 2005, the Company consummated the private sale of its securities to
ten (10) investors, including Sunflower Capital, LLC a limited liability company
managed by William P. Moore, a director of the Company. The securities sold
consisted of units comprised of shares of the Company's common stock and
warrants to purchase shares of the Company's common stock. At the closing, the
Company sold an aggregate of 267,833 units at an aggregate purchase price of
approximately $401,750 or $1.50 per unit. At the closing, the Company delivered
an aggregate of 267,833 shares and delivered warrants to purchase an additional
267,833 shares of the Company's common stock.
The warrants entitle the holder to purchase shares of the Company's common stock
reserved for issuance thereunder for a period of five years from the date of
issuance at an exercise price of $2.50 per share. The warrants contain certain
anti-dilution rights and are redeemable by the Company, in whole or in part, on
terms specified in the warrants.
In a separate transaction also consummated on April 11, 2005, the Company sold
25,850 warrants to Sunflower Capital, LLC at a purchase price of $3,333.50 or
approximately $.13 per warrant. These warrants entitle the holder to purchase
shares of the Company's common stock reserved for issuance thereunder for a
period of five (5) years from the date of issuance at an exercise price of $3.00
per share. These warrants contain certain anti-dilution rights and are
redeemable by the Company, in whole or in part, on terms specified in these
warrants.
On December 27, 2005, the Company entered into a Loan Agreement with Sunflower
Capital, LLC. The loan was in the principal amount of $500,000 and was evidenced
by a Convertible Promissory Note due July 1, 2006. The principal plus accrued
interest of $4,602 was converted into 438,785 units of the January 2006 private
placement. As consideration for Sunflower making the loan, the Company issued to
Sunflower a warrant to purchase 200,000 shares of the Company's common stock at
$1.26 per share. The warrant expires December 15, 2010.
The securities discussed above were offered and sold in reliance upon exemptions
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended (the "Act"), pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder. Such securities were sold exclusively to accredited
investors as defined by Rule 501(a) under the Act.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 13, 2006, the number and
percentage of shares of Common Stock of the Company, owned of record and
beneficially, by each person known by the Company to own 5% or more of such
stock, each director of the Company, and by all executive officers and directors
of the Company, as a group:
Amount and Nature of Beneficial Ownership
Amount of Percent of
Name and Address Beneficial Ownership (1) Beneficial Ownership (2)
----------------- ------------------------ ------------------------
Henry P. Hoffman 5,665,023 22.74%
4710 East 32nd Street
Joplin, MO 64804
David N. Mendez 1,063,331 4.27%
4710 East 32nd Street
Joplin, MO 64804
Kory S. Dillman 1,023,535 4.11%
4710 East 32nd Street
Joplin, MO 64804
J. Richard Iler (3) 155,200 0.06%
3720 Arbor Road
Joplin, MO 64804
Terry W. Thompson (4) 374,884 1.50%
406 N. Belaire
Monett, MO 65708
William P. Moore, III (5) 8,135,867 27.77%
10801 Mastin, Suite 920
Overland Park, KS
Quest Capital Alliance LLC (6) 1,334,582 5.32%
3140 E. Division
Springfield, MO 65802
Robert J. Smith (7) 1,853,931 7.37%
3865 E. Turtle Hatch
Springfield, MO 65809
Sat-Net Communications (8) 1,600,000 6.17%
5000 Legacy Drive, Suite 470
Plano, TX 75024
All Directors and Officers as a
Group (6 Persons)(3)(4)(5) 16,417,840 60.45%
--------------
(1) Except as otherwise indicated, includes total number of shares
outstanding and the number of shares which each person has the right to
acquire within 60 days through the exercise of warrants or the
conversion of Preferred Stock pursuant to Item 403 of Regulation S-B
and Rule 13d-3(d)(1), promulgated under the Securities Exchange Act of
1934.
(2) Based upon 24,913,713 shares issued and outstanding.
35
(3) Includes 120,000 shares which may be obtained by Mr. Iler upon the
exercise of a like number of options exercisable at $1.00 per share,
20,000 shares which may be obtained by Mr. Iler upon the exercise of a
like number of options exercisable at $1.49 per share, and 15,000
shares which may be obtained by Mr. Iler upon the exercise of a like
number of options exercisable at $1.90 per share. Mr. Iler also owns
200 shares that are held in street name.
(4) Includes 150,600 shares which may be obtained by Mr. Thompson upon the
exercise of a like number of warrants exercisable at $2.00 per share.
Also includes 4,000 shares which may be obtained by Mr. Thompson upon
the exercise of a like number of options exercisable at $1.90, does not
include 6,000 options which are also exercisable at $1.90 but have not
yet vested.
(5) Includes 850,000 shares of common stock and 850,000 shares which may be
obtained upon the exercise of a like number of warrants exercisable at
$2.00 per share which are held in the William P. Moore III Revocable
Trust dated October 9, 2001. Mr. Moore is the trustee of this Trust.
Also includes 2,898,206 shares of common stock and an aggregate
3,537,661 shares which may be obtained upon the exercise of a like
number of warrants exercisable between $1.26 - $3.00 per share owned by
Sunflower Capital, LLC, a limited liability company in which Mr. Moore
is the managing member. Does not include 10,000 shares which may be
obtained by Mr. Moore upon the exercise of a like number of options.
These options have not yet vested.
(6) Includes 100,000 shares which may be obtained by Quest Capital Alliance
upon the exercise of a like number of warrants exercisable at $2.00 per
share. Includes 80,582 shares which may be obtained upon the conversion
of 161,165 shares of Series A Preferred Stock owned by Quest Capital
Alliance.
(7) Includes 436,000 shares owned by Gunner Investments Corp., a company
controlled by Mr. Smith. Includes 154,600 shares which may be obtained
upon the exercise of a like number of warrants exercisable at $2.00 per
share. Includes 78,000 shares which may be obtained upon the exercise
of a like number of warrants exercisable at $.50 per share. Mr. Smith
also owns 152,933 shares that are held in street name.
(8) Includes 1,000,000 shares which may be obtained by Sat-Net
Communications upon the exercise of a like number of warrants
exercisable at $2.00 per share.
As ownership of shares of the Common Stock by each of the Company's directors
and executive officers is included within the foregoing table, and as the
Company currently employs no additional executive officers, no separate table
has been provided to identify Company stock ownership by management personnel.
DESCRIPTION OF SECURITIES
The following description includes the material terms of our common stock.
However, it is a summary and is qualified in its entirety by the provisions of
our Certificate of Incorporation, with amendments, all of which have been filed
as exhibits to our registration statement of which this prospectus is a part.
Our authorized capital stock consists of 50,500,000 shares of stock. We are
authorized to issue two classes of stock that consist of 500,000 shares of
preferred stock, par value $0.001 per share, and 50,000,000 shares of common
stock, par value $0.001 per share.
As of March 1, 2005, we had outstanding 213,417 shares of Series A Preferred
Stock. Each share of Series A Preferred Stock converts into our common stock at
the rate of $2.00 per share. The shares may be converted to fully-paid and
non-assessable shares of common stock at the option of the holder at $2.00 per
share. The shares of Series A Preferred Stock are redeemable at the option of
the holder three years subsequent to the date of issuance at a redemption price
equal to 110% of the stated value, plus an amount per share equal to all accrued
and unpaid dividends. No dividends were declared during the year ended September
30, 2004, but dividends were accrued in accordance with the cumulative dividends
rate of $.10 per share per annum.
As of February 13, 2006, we had 24,913,713 outstanding shares of common stock,
$.001 par value. We have reserved 12,205,449 shares of common stock for issuance
pursuant to outstanding options and warrants. Each issued and outstanding share
is fully paid and non-assessable. No pre-emptive rights exist with respect to
any of our common stock. Holders of shares of our common stock are entitled to
one vote for each share on all matters to be voted on by the stockholders.
Holders of shares of our common stock have no cumulative voting rights. Holders
36
of shares of our common stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by our Board of Directors in its
discretion, from funds legally available for any such dividends. In the event of
a liquidation, dissolution or winding up of SiriCOMM, the holders of shares of
our common stock are entitled to their pro rata share of all assets remaining
after payment in full of all liabilities.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Delaware General Corporation Law and our Bylaws provide for indemnification
of our directors for liabilities and expenses that they may incur in such
capacities. In general, our directors and officers are indemnified with respect
to actions taken in good faith and in a manner such person believed to be in our
best interests, and with respect to any criminal action or proceedings, actions
that such person has no reasonable cause to believe were unlawful. Furthermore,
the personal liability of our directors is limited as provided in our
Certificate of Incorporation.
We maintain directors and officers liability insurance with an aggregate
coverage limit of $3,000,000.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker/dealer solicits purchasers;
o block trades in which the broker/dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker/dealer as principal and resale by the
broker/dealer for its account;
o an exchange distribution in accordance with the Rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker/dealers may agree with the selling shareholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker/dealers engaged by the selling shareholders may arrange for other
brokers/dealers to participate in sales. Broker/dealers may receive commissions
from the selling shareholders (or, if any broker/dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling shareholders do not expect these commissions to exceed what is customary
in the types of transactions involved.
The selling shareholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act of 1933 amending the list of
selling shareholders to include the pledgee, transferee or other successors in
interest as selling shareholders under this prospectus.
37
The selling shareholders and any broker/dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker/dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions under the
Securities Act. The selling shareholders have informed us that they do not have
any agreement or understanding, directly or indirectly, with any person to
distribute the common stock.
We are required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the selling shareholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Because selling stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each selling
stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling
stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the selling stockholders without registration
and without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. Our obligation to keep the registration
statement to which this prospectus relates effective is subject to specified,
permitted exceptions. In these cases, we may suspend offers and sales of the
securities pursuant to the prospectus to which this prospectus relates. The
resale shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
selling stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
selling stockholders or any other person. We will make copies of this prospectus
available to the selling stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
SELLING SHAREHOLDERS
This prospectus covers the offer and sale by the selling shareholders of up to
4,757,263 shares of common stock and an additional 5,396,876 shares of common
stock issuable upon exercise of outstanding warrants. 4,892,263 of these
warrants have an exercise price of $1.50 per share, 234,613 of these warrants
have an exercise price of $1.15 per share, 200,000 of these warrants have an
exercise price of $1.26 per share, 16,666 of these warrants have an exercise
price of $1.25 per share, 16,667 of these warrants have an exercise price of
$1.35 per share, 16,667 of these warrants have an exercise price of $1.45 per
share, 5,000 of these warrants have an exercise price of $3.00 per share, 10,000
of these warrants have an exercise price of $2.50 per share and 5,000 of these
warrants have an exercise price of $4.00 per share.
We are registering for resale shares issued by us in private placements and
shares issuable on exercise of warrants issued by us in private placements. All
such shares issued or to be issued are and will be restricted securities as that
term is defined in Rule 144 under the Securities Act, and will remain restricted
unless and until such shares are sold pursuant to this prospectus or otherwise
are sold in compliance with Rule 144.
In the purchase agreements, each of the selling shareholders represented that it
had acquired the shares for investment purposes only and with no present
intention of distributing those shares, except in compliance with all applicable
38
securities law. In addition, each of the selling shareholders represented that
each qualifies as an "accredited investor" as such term is defined in Rule 501
under the Securities Act.
The table below sets forth information concerning the resale of the shares of
common stock by the selling shareholders. We will not receive any proceeds from
the resale of the common stock by the selling shareholders. We will receive
proceeds from the warrants, if exercised. The following table also sets forth
the name of each person who is offering the resale of shares of common stock by
this prospectus, the number of shares of common stock beneficially owned by each
person, the number of shares of common stock that may be sold in this offering
and the number of shares of common stock each person will own after the
offering, assuming they sell all of the shares offered.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rule, beneficial ownership includes any shares as to which the selling
shareholder has sole or shared voting power or investment power and also any
shares the selling shareholder has the right to acquire within 60 days.
Percentages are based on a total of 24,913,713 shares of common stock
outstanding on February 13, 2006. Shares of common stock subject to options and
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of February 13, 2006, are deemed outstanding for computing the
percentage of the selling shareholder holding such option or warrant but are not
deemed outstanding for computing the percentage of any other selling
shareholder.
39
Shares Owned Prior Shares Owned After
to the Offering the Offering
------------------------ ------------------------
No. of Shares
Offered (including
stock underlying
Name warrants) Number Percentage (%) Number Percentage(%)
---- --------- ------ -------------- ------ -------------
Crescent International Ltd. (1) 400,000 400,000 1.6% 0 *
Dolphin Offshore Partners LP (2) 940,000 940,000 3.7% 0 *
Harborview Master Fund LP (3) 434,782 434,782 1.7% 0 *
Iroquois Master Fund Ltd. (4) 782,610 782,610 3.1% 0 *
K and A Holdings LLC (5) 130,434 130,434 0.5% 0 *
Kuekenhof Equity Fund (6) 434,782 434,782 1.7% 0 *
Meadowbrook Opportunity 480,000 480,000 1.9% 0 *
Fund LLC (7)
Nite Capital LP (8) 347,826 347,826 1.4% 0 *
Paragon Capital LP (9) 200,000 200,000 0.8% 0 *
Stellar Capital Fund LLC (10) 400,000 400,000 1.6% 0 *
Whalehaven Capital Fund Limited (11) 1,304,348 1,304,348 5.1% 0 *
Sunflower Capital LLC (12) 3,729,744 6,435,867 22.62% 2,706,123 10.22
Sanders Morris Harris, Inc. (13) 234,613 234,613 0.9% 0 *
Philip H. Snowden (14) 100,000 185,500 0.7% 85,500 *
Clark Burns (15) 100,000 148,500 0.6% 48,500 *
Interactive Resources Group, Inc. (16) 135,000 135,000 0.5% 0 *
*Less than 1%
(1) Includes stock underlying a warrant to purchase 200,000 shares of common
stock at an exercise price of $1.50 per share. Maxi Brezzi, who holds
voting and dispositive power with respect to the securities held by
Crescent International Ltd. disclaims beneficial ownership of such
securities.
(2) Includes stock underlying a warrant to purchase 470,000 shares of common
stock at an exercise price of $1.50 per share. Peter Salas, who holds
voting and dispositive power with respect to the securities held by
Dolphin Offshore Partners LP disclaims beneficial ownership of such
securities.
(3) Includes stock underlying a warrant to purchase 217,391 shares of common
stock at an exercise price of $1.50 per share. Harborview Special
Situations LTD is a special purpose investment vehicle. Richard Rosenblum
and David Stefansky have ultimate responsibility for trading with respect
to Harborview Special Situations LTD . Messrs. Rosenblum and Stefansky
disclaim beneficial ownership of the shares being registered hereunder.
(4) Includes stock underlying a warrant to purchase 391,305 shares of common
stock at an exercise price of $1.50 per share. John Silverman, who holds
voting and dispositive power with respect to the securities held by
Iroquois Master Fund Ltd. disclaims beneficial ownership of such
securities.
(5) Includes stock underlying a warrant to purchase 65,217 shares of common
stock at an exercise price of $1.50 per share. Keith Kettler, who holds
voting and dispositive power with respect to the securities held by K and
A Holdings LLC disclaims beneficial ownership of such securities.
(6) Includes stock underlying a warrant to purchase 217,391 shares of common
stock at an exercise price of $1.50 per share. Michael James, who holds
voting and dispositive power with respect to the securities held by
Kuekenhof Equity Fund) disclaims beneficial ownership of such securities.
40
(7) Includes stock underlying a warrant to purchase 240,000 shares of common
stock at an exercise price of $1.50 per share. Michael Ragins, who holds
voting and dispositive power with respect to the securities held by
Meadowbrook Opportunity Fund LLC disclaims beneficial ownership of such
securities.
(8) Includes stock underlying a warrant to purchase 173,913 shares of common
stock at an exercise price of $1.50 per share. Keith Goodman, who holds
voting and dispositive power with respect to the securities held by Nite
Capital LP disclaims beneficial ownership of such securities.
(9) Includes stock underlying a warrant to purchase 100,000 shares of common
stock at an exercise price of $1.50 per share. Alan Donenfield, who holds
voting and dispositive power with respect to the securities held by
Paragon Capital LP disclaims beneficial ownership of such securities.
(10) Includes stock underlying a warrant to purchase 200,000 shares of common
stock at an exercise price of $1.50 per share. Richard Schmidt, who holds
voting and dispositive power with respect to the securities held by
Stellar Capital Fund LLC disclaims beneficial ownership of such
securities.
(11) Includes stock underlying a warrant to purchase 652,174 shares of common
stock at an exercise price of $1.50 per share. Evan Schemenauer, who holds
voting and dispositive power with respect to the securities held by
Whalehaven Capital Fund Limited disclaims beneficial ownership of such
securities.
(12) Includes (i) stock underlying a warrant to purchase 200,000 shares of
common stock at an exercise price of $1.26 per share and (ii) stock
underlying a warrant to purchase 1,764,872 shares of common stock at an
exercise price of $1.50 per share. Sunflower also owns 1,334,500 shares
and warrants to purchase an aggregate of 1,572,789 shares at exercise
prices ranging between $2.50 and $3.00. William P. Moore holds voting and
dispositive power with respect to the securities held by Sunflower
Capital.
(13) Includes stock underlying a warrant to purchase 234,613 shares of common
stock at an exercise price of $1.15 per share. Steven Bonebrake, President
of Sanders Morris Harris, Inc., may be deemed to have beneficial ownership
of these shares. The foregoing shall not be construed in and of itself as
an admission by such person as to beneficial ownership of any such shares.
(14) Includes stock underlying a warrant to purchase 100,000 shares of common
stock at an exercise price of $1.50 per share. Mr. Snowden also owns
warrants to purchase 77,000 shares at $.50 and 8,500 shares at $2.50.
(15) Includes stock underlying a warrant to purchase 100,000 shares of common
stock at an exercise price of $1.50 per share. Mr. Burns also owns
warrants to purchase 40,000 shares at $.50 and 8,500 at $2.50.
(16) Includes (i) stock underlying a warrant to purchase 16,666 shares of
common stock at an exercise price of $1.25 per share, (ii) stock
underlying a warrant to purchase 16,667 shares at $1.35 per share, (iii)
stock underlying a warrant to purchase 16, 667 shares at $1.45 per share,
(iv) stock underlying a warrant to purchase 10,000 shares at $2.50 per
share, (v) stock underlying a warrant to purchase 5,000 shares at $3.00
per share, and (vi) stock underlying a warrant to purchase 5,000 shares at
$4.00 per share. Hugh L. Clark, Jr., President of Interactive Resources
Group, Inc. holds voting and dispositive power with respect to the
securities held by Interactive Resources Group, Inc.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be passed
upon for us by Sommer & Schneider LLP.
EXPERTS
The consolidated financial statements of SiriCOMM, Inc. as of and for the years
ended September 30, 2005 and 2004, appearing in this Prospectus and Registration
Statement has been audited by BKD, LLP, independent accountants as set forth in
41
its report appearing elsewhere herein and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of SiriCOMM, Inc., filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the SEC.
We are subject to the informational requirements of the Exchange Act, which
requires us to file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information may be inspected at
the public reference room of the SEC at Room 1580 100 F Street, N.E., Washington
D.C. 20549. Copies of such material can be obtained from the facility at
prescribed rates. Please call the SEC toll free at 1-800-SEC-0330 for
information about its public reference room. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet website at http://www.sec.gov or our website at
http://www.siricomm.com. Information contained in our web site is not part of
this prospectus.
Our statements in this prospectus about the contents of any contract or other
document are not necessarily complete. You should refer to the copy of our
contract or other document we have filed as an exhibit to the registration
statement for complete information.
You should rely only on the information incorporated by reference or provided in
this prospectus. We have not authorized anyone else to provide you with
different information. The selling shareholders are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
We furnish our shareholders with annual reports containing audited financial
statements.
4
INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of December 31, 2005 F-2
Condensed Consolidated Statements of Operations for the three
months ended December 31, 2005 and December 31, 2004 F-3
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the three months ended December 31, 2005 and
December 31, 2004 F-4
Condensed Consolidated Statements of Cash Flows for the three
months ended December 31, 2005 and December 31, 2004 F-5
Notes to the Condensed Consolidated Financial Statements F-6-F-10
F-1
SIRICOMM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
12/31/2005
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 715,892
Accounts receivable 31,070
Prepaid expenses and other 33,098
-----------
Total current assets 780,060
-----------
Property and Equipment, at cost
Equipment 2,547,001
Network equipment in progress of installation 305,769
-----------
2,852,770
Less accumulated depreciation 539,479
-----------
2,313,291
Software, net of amortization 144,273
-----------
Intangible assets, net of amortization 2,084,994
-----------
Total assets $ 5,322,618
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ 385,435
Convertible note payable to related party 423,729
Accounts payable 289,650
Accrued salaries 92,170
Other accrued expenses 98,361
Deferred revenue 59,813
-----------
Total current liabilities 1,349,158
-----------
Total liabilities 1,349,158
-----------
Preferred stock - Series A par value $.001; 500,000 shares authorized;
213,417 shares issued and outstanding; dividend rate of $0.025 per share
per quarter commencing March 2004; liquidation preference of $1 per
outstanding share cash payment 277,443
-----------
Stockholders' Equity
Common stock - par value $.001; 50,000,000 shares authorized;
20,162,950 shares issued; 20,072,950 outstanding 20,159
Additional paid-in capital 15,199,181
Deferred compensation (631,176)
Retained deficit (10,802,147)
Treasury stock, at cost (90,000)
-----------
Total stockholders' equity 3,696,017
-----------
Total liabilities and stockholders' equity $ 5,322,618
===========
See Notes to Condensed Consolidated Financial Statements
F-2
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31,
2005 2004
(Unaudited) (Unaudited)
----------- -----------
Revenues $ 153,952 $ 6,273
Operating Expenses:
General and administrative 326,100 150,193
Salaries 317,696 235,337
Satellite access fees 246,543 93,870
Research and development 6,722 12,600
Depreciation and amortization 127,291 7,288
----------- -----------
Total operating expenses 1,024,352 499,288
----------- -----------
Operating loss (870,400) (493,015)
----------- -----------
Other Income (Expense)
Interest income 4,013 1,861
Interest expense (10,477) (4,460)
----------- -----------
(6,464) (2,599)
----------- -----------
Net loss $ (876,864) $ (495,614)
=========== ===========
Add: Dividends declared on preferred stock (5,335) (5,335)
----------- -----------
Loss available to common shareholders $ (882,199) $ (500,949)
=========== ===========
Net loss per share, basic and diluted $ (0.04) $ (0.03)
=========== ===========
Weighted average shares,
basic and diluted 20,104,309 16,270,568
=========== ===========
See Notes to Condensed Consolidated Financial Statements
F-3
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Common Stock Paid-in Deferred Retained Treasury
Shares Amount Capital Compensation Deficit Stock Total
---------- ------- ------------ ---------- ------------ -------- -----------
For the three months ended
December 31, 2004:
Balance, September 30, 2004 16,255,650 $16,252 $ 8,379,044 $ (722,016) $ (6,685,015) $ - $ 988,265
Stock options exercised 26,800 27 26,773 26,800
Stock options issued for services 91,800 91,800
Accrued dividends (5,335) (5,335)
Net loss (495,614) (495,614)
---------- ------- ------------ ---------- ------------ -------- -----------
Balance, December 31, 2004 16,282,450 $16,279 $ 8,492,282 $ (722,016) $ (7,180,629) $ - $ 605,916
========== ======= ============ ========== ============ ======== ===========
For the three months ended December 31, 2005:
Balance, September 30, 2005 20,092,950 $20,089 $ 15,063,814 $ (631,176) $(9,925,283) $ - $ 4,527,444
Treasury stock purchased, 90,000 shares (90,000) (90,000)
Imputed discount on convertible debt issued 76,271 76,271
Stock and warrants issued for services 40,000 40 49,461 49,501
Exercise of warrants 30,000 30 14,970 15,000
Accrued dividends (5,335) (5,335)
Net loss (876,864) (876,864)
---------- ------- ------------ ---------- ------------ -------- -----------
Balance, December 31, 2005 20,162,950 $20,159 $ 15,199,181 $ (631,176) $(10,802,147) $(90,000) $ 3,696,017
========== ======= ============ ========== ============ ======== ===========
` See Notes to Condensed Consolidated Financial Statements.
F-4
SIRICOMM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
2005 2004
---- ----
(Unaudited) (Unaudited)
------------- -------------
Operating Activities
Net loss $ (876,864) $ (495,614)
Items not requiring cash
Depreciation 127,292 7,288
Stock based compensation for services 49,501 -
Amortization of bandwidth access and license 130,599 -
Current assets (46,875) (2,024)
Deferred revenues 13,252 -
Other current liabilities 31,554 128,401
------------- -------------
Net cash flows used in operating activities (571,541) (361,949)
------------- -------------
Investing Activities
Purchase of furniture and equipment (47,443) (209,992)
------------- -------------
Net cash flows used in investing activities (47,443) (209,992)
------------- -------------
Financing Activities
Net borrowings (repayments) under line of credit, net (21,911) 200,000
Borrowings from related party 500,000 -
Payment of notes payable - (12,396)
Purchase of treasury stock (90,000) -
Proceeds from warrants exercised 15,000 -
Proceeds from sale of common stock - 26,800
------------- -------------
Net cash flows provided by financing activities 403,089 214,404
------------- -------------
Decrease in Cash (215,895) (357,537)
Cash and Cash Equivalents, beginning of period 931,787 1,019,616
------------- -------------
Cash and Cash Equivalents, end of period $ 715,892 $ 662,079
============= =============
Supplemental Cash Flows Information
Interest paid $ 9,381 $ 4,208
============= =============
Stock options issued in exchange for prepaid consulting services $ - $ 91,800
============= =============
Imputed discount for warrants issued with convertible debt $ 76,271 $ -
============= =============
Accrued dividends for Series A preferred stock $ 5,335 $ 5,335
============= =============
See Notes to Condensed Consolidated Financial Statements
F-5
SIRICOMM, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 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 opened its network in December, 2004 for commercial operation and has
commenced selling its InTouch(TM) Internet Service to individual subscribers.
Since December, 2004, the Company has commenced revenue producing
operations and continues to market its service technologies, including satellite
communications, wireless networking, and productivity enhancing software.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Interim Information: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that are in the opinion of the Company's management,
necessary to fairly present the financial position, results of operations and
cash flows of the Company. Those adjustments consist only of normal recurring
adjustments.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-KSB annual report for fiscal year ended
September 30, 2005 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.
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.
F-6
SIRICOMM, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
It is the Company's practice to issue stock options to employees at or above the
market value of the Company's stock on the date of grant. Stock-based
compensation to non-employees is accounted for using the fair-value based method
prescribed by Financial Accounting Standard No. 123 - Accounting for Stock-Based
Compensation. The Company uses the trinomial options-pricing model to determine
the fair value of stock-based compensation and capital contributions.
Had compensation cost for the Company's stock option plan been determined
on the fair value at the grant dates for stock-based employee compensation
arrangements consistent with the method required by SFAS 123, the Company's net
loss and net loss per common share would have been the pro forma amounts
indicated below.
Three Months Ended
December 31,
2005 2004
---- ----
Net loss, as reported $ (876,864) $ (495,614)
Less: stock-based employee compensation
under the fair value based method (2,004) (14,669)
----------- ----------
Pro forma net loss under fair value method $ (878,868) $ (510,283)
Net loss per common share-basic and diluted:
As reported $ (0.04) $ (0.03)
Pro forma under fair value method $ (0.04) $ (0.03)
Research and development costs:
The Company incurs costs, associated with computer software to be marketed
in the future. Costs incurred in connection with establishing technological
feasibility have been expensed as research and development costs.
Net loss per share:
Net loss per share represents the net loss available to common stockholders
divided by the weighted average number of common shares outstanding during the
year. Diluted earnings per share reflect the potential dilution that could occur
if convertible preferred stock was converted into common stock. Diluted net loss
per share is considered to be the same as basic net loss per share since the
effect of the issuance of common stock associated with the convertible stock is
anti-dilutive.
F-7
SIRICOMM, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
2. Line of Credit:
During 2004, the Company entered into a line of credit with Southwest
Missouri Bank for the purchase of network infrastructure equipment up to a
maximum of $1,000,000. This note is 80% guaranteed by the U.S. Department of
Agriculture ("USDA") and is secured by the network equipment. This note is
further personally guaranteed by the Company's majority shareholder. The note is
a demand note, but if no demand is made then monthly payments of accrued
interest at an initial rate of 5.5% on the USDA guaranteed portion and 7.0% on
the unguaranteed portion plus monthly principal payments of $2,358.
3. Convertible Note Payable to Related Party
On December 27, 2005, the Company entered into a loan agreement with
Sunflower Capital, LLC, a limited liability company managed by William P. Moore,
a director of the Company. The loan is in the principal amount of $500,000 and
is evidenced by a convertible promissory note due July 1, 2006. As consideration
for Sunflower making the loan, the Company issued to Sunflower a warrant to
purchase 200,000 shares of the Company's common stock at $1.26 per share. The
warrant expires December 15, 2010. A discount of $76,271 was recorded based on
the estimated fair value of the warrant issued and will be expensed over the
life of the loan.
The note mandatorily converts into the Company's units consisting of one
share of common stock and one redeemable common stock purchase warrant
exercisable at $1.50 per share during the period commencing on the date of
issuance and expiring five years thereafter. The note will convert into such
units at the rate of $1.15 per unit upon the closing of a private placement as
described in the Loan Agreement. In the event the private placement does not
close, Sunflower Capital will have the option to convert the note into shares of
the Company's common stock and common stock purchase warrants at a variable
conversion price determined by taking the value weighted average price of the
Company's common stock for the 20 trading days prior to the date the conversion
notice is sent to the Company. In addition, the Company will issue to Sunflower
Capital such number of warrants equal to the number of shares being issued upon
conversion. The exercise price of such warrants shall be equal to the conversion
price plus $0.25. These warrants will be exercisable for a period of five years
from the date of issuance. (See Note 6)
4. Stockholders' Equity:
During the three-months ended December 31, 2005, the Company repurchased
90,000 common shares at a price of $90,000.
On December 15, 2005, the Company issued 25,000 shares of its common stock
to IRG pursuant to a consulting agreement dated November 15, 2005. The
consulting agreement also requires the Company to issue an additional 15,000
shares on or before January 1, 2006 and 10,000 shares on or before February 1,
2006. Additionally, the consulting agreement calls for the issuance on January
15, 2006 of 50,000 four year warrants with the following exercise prices:
F-8
SIRICOMM, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
16,666 at $1.25
16,667 at $1.35
16,667 at $1.45
5. Commitments and Contingencies:
Litigation:
On December 17, 2004, certain officers and directors of the Company were
named defendants in a lawsuit entitled Greg Sanders v. Henry Hoffman et al.
Messrs. Hoffman, Dillman, Mendez and Iler are officers and directors of the
Company, Mr. Thompson is a director of the Company and Mr. Noland is a former
officer and director of the Company. The action alleges fraud, misrepresentation
and breach of fiduciary duty relating to a settlement agreement entered into
between the Company and Mr. Sanders. The complaint seeks damages in excess of
$9,679,903. Although the Company was not named as a defendant, it will pay all
expenses relating to the defense of this matter. In management's opinion this
case is without merit and the defendants intend on defending this matter
vigorously. The defendants subsequently have answered the complaints and have
filed counter claims to this action as of August 15th, 2005. Subsequently on
February 8, 2006 the Plaintiff sought to amend the complaint to add the Company
as a defendant. The Company has filed a motion in opposition of this petition.
The Company will pay all expenses relating to the defense of this matter. In
management's opinion this case is without merit and the defendants intend on
defending this matter vigorously.
6. Subsequent Events:
On January 31, 2006, SiriCOMM, Inc. consummated a private placement of its
securities. The securities sold were units consisting of one share of the
Company's common stock, $.001 par value and one redeemable common stock purchase
warrant. At the closing, the Company sold an aggregate of 4,692,263 units at an
aggregate purchase price of $5,396,103, or $1.15 per unit. At the closing, the
Company delivered an aggregate of 4,692,263 shares and 4,692,263 warrants to the
purchasers.
Each warrant entitles the holder to purchase one share of common stock at
an exercise price of $1.50 per share commencing on the date of issuance and
expiring at the close of business on the fifth anniversary of the issuance date.
The warrants contain provisions that protect the holder against dilution by
adjustment of the exercise price in certain events including, but not limited
to, stock dividends, stock splits, reclassifications, or mergers. The Company
may redeem the warrants, at a price of $.10 per warrant, at any time following
the issuance date upon not less than 30 days nor more than 60 days prior written
notice if (a) the common stock underlying the warrants has been registered with
the SEC, and (b) the closing price of the common stock exceeds a 200% premium of
the exercise price of the warrants for 20 out of 30 consecutive trading days.
The placement agent received a commission equal to 5% of the offering price
of the units sold by them in the private placement, a commission equal to 2 1/2%
on the 1,764,872 units purchased by Sunflower Capital, LLC and a financial
advisory fee equal to 2% of the offering price of the units sold in the private
placement and a warrant to purchase common stock equal to 5% of the shares of
common stock underlying the units sold in the private placement at an exercise
price of $1.15 per share.
As part of the private placement, the Company entered into a registration
rights agreement with each subscriber who purchased units in the private
placement. Under the agreement, the Company,
F-9
SIRICOMM, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
as promptly as reasonably practicable after closing of the private placement but
in no event later than 30 days following the closing, the Company is obligated
to file a registration statement on Form SB-2, relating to the resale by the
holders of the common stock underlying the units, warrants and placement agent
warrant. If such registration statement is not filed within the required time
frame, or does not become effective within 90 days after closing (or 120 days
after closing, if the registration statement is subject to review by the SEC),
the Company has agreed to pay to the investors 1% of the gross proceeds of the
offering for each month in which the Company fails to comply with such
requirements.
Sunflower Capital, LLC, a limited liability company managed by William P.
Moore, a director of the Company, purchased an aggregate of 1,764,872 units in
the offering, which consisted of a new investment of $1,525,000 to purchase
1,326,087 units and the conversion of the note payable plus accrued interest in
the amount of $4,602 to purchase 438,785 units. (See Note 3)
F-10
INDEX TO FINANCIAL STATEMENTS
Page
Reference
Report of Independent Registered Public
Accounting Firm F-12
Balance Sheet for the years ended September 30, 2005
and 2004 F-13
Statements of Operations for the years ended
September 30, 2005 and 2004 F-14
Statements of Stockholders' Equity for the years
ended September 30, 2005 and 2004 F-15
Statements of Cash Flows for the years ended
September 30, 2005 and 2004 F-16
Notes to Financial Statements for the years ended
September 30, 2005 and 2004 F-17 through F-25
F-11
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
SiriCOMM, Inc.
Joplin, Missouri
We have audited the accompanying consolidated balance sheets of SiriCOMM, Inc.
as of September 30, 2005 and 2004, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended September 30, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SiriCOMM, Inc as of
September 30, 2005 and 2004, and the results of its operations and its cash
flows for each of the two years in the period ended September 30, 2005, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2, the Company has
suffered recurring losses and negative operating cash flows which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BKD, LLP
BKD, LLP
Joplin, Missouri
November 9, 2005, except for Note 14 as
to which the date is December 27, 2005
F-12
SIRICOMM, INC
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 AND 2004
2005 2004
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 931,787 $ 1,019,616
Accounts receivable 11,370 -
Prepaid expenses and other 5,923 16,563
----------- -----------
Total current assets 949,080 1,036,179
----------- -----------
Property and Equipment, at cost
Equipment 2,547,001 111,818
Network equipment in progress of installation 258,326 646,000
----------- -----------
2,805,327 757,818
Less accumulated depreciation 412,956 62,032
----------- -----------
2,392,371 695,786
----------- -----------
Software, net of amortization 145,042 19,934
----------- -----------
Intangible assets, net of amortization 2,215,593 -
----------- -----------
Total assets $ 5,702,086 $ 1,751,899
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ 407,346 $ 122,000
Current maturities of long-term debt - 25,000
Accounts payable 190,221 50,816
Accrued salaries 146,324 269,125
Other accrued expenses 112,083 45,928
Deferred revenue 46,561 -
----------- -----------
Total current liabilities 902,535 512,869
----------- -----------
Total liabilities 902,535 512,869
----------- -----------
Preferred stock - redeemable and convertible, Series A par value $.001; 500,000
shares authorized; 213,417 shares issued and outstanding; dividend rate of
$0.025 per share per quarter commencing March 2004; liquidation preference of
$1 per
outstanding share cash payment 272,107 250,765
----------- -----------
Stockholders' Equity
Common stock - par value $.001; 50,000,000 shares authorized; shares issued and
outstanding 2005 - 20,092,950 shares,
2004 - 16,255,650 shares 20,089 16,252
Additional paid-in capital 15,063,814 8,379,044
Deferred compensation (631,176) (722,016)
Retained deficit (9,925,283) (6,685,015)
----------- -----------
Total stockholders' equity 4,527,444 988,265
----------- -----------
Total liabilities and stockholders' equity $ 5,702,086 $ 1,751,899
============ ===========
See Notes to Consolidated Financial Statements
F-13
SIRICOMM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2005 AND 2004
2005 2004
---- ----
Revenues $ 193,741 $ -
------------ ------------
Operating Expenses:
General and administrative 1,199,045 1,823,959
Salaries 1,112,889 663,115
Satellite access fees 711,702 -
Stock-based compensation - 50,000
Research and development 50,260 26,450
Depreciation and amortization 356,090 21,803
------------ ------------
Total operating expenses 3,429,986 2,585,327
------------ ------------
Operating loss (3,236,245) (2,585,327)
------------ ------------
Other Income (Expense)
Interest income 22,570 4,215
Other income - 37,223
Interest expense (26,593) (26,578)
Loan costs - (207,940)
------------ ------------
(4,023) (193,080)
------------ ------------
Net loss $ (3,240,268) $ (2,778,407)
============ ============
Add: Dividends declared on preferred stock (21,342) (16,006)
------------ ------------
Loss available to common shareholders $ (3,261,610) $ (2,794,413)
============ ============
Net loss per share, basic and diluted $ (0.18) $ (0.19)
============ ============
Weighted average shares, basic and diluted 18,407,888 14,684,210
============ ============
See Notes to Consolidated Financial Statements
F-14
SIRICOMM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2005 AND 2004
Common Stock Additional
---------------------- Paid-in Deferred Accumulated Treasury
Shares Amount Capital Compensation Deficit Stock Total
------ ------ ------- ------------ ------- ----- -----
Balance, October 1, 2003 12,966,593 $12,967 $ 3,847,485 $ - $(3,906,608) $ (458,838) $ (504,994)
---------- ------- ----------- ---------- ----------- ---------- -----------
Fair value of conversion options added
to preferred stock due to restatement (21,342) (21,342)
Conversion of debt to equity 429,571 429 443,552 443,981
Stock issued for loan costs 9,593 10 13,670 13,680
Stock issued for services 570,000 570 1,306,610 (722,016) 585,164
Stock warrants exercised 176,000 176 87,824 88,000
Stock options issued for services 137,000 137,000
Stock options exercised 46,000 42 45,458 45,500
Proceeds from stock issuance
completed March 10, 2004; net of
consideration of $95,000 1,925,000 1,925 1,828,075 1,830,000
Proceeds from stock issuance completed 0
completed May 4, 2004 328,143 328 1,115,361 1,115,689
Issuance of options to employees, net 50,000 50,000
Accrued dividends on preferred stock (16,006) (16,006)
Treasury stock retired (195,250) (195) (458,643) 458,838 0
Net loss (2,778,407) (2,778,407)
---------- ------- ----------- ---------- ----------- ---------- -----------
Balance, September 30, 2004 16,255,650 16,252 8,379,044 (722,016) (6,685,015) - 988,265
Stock options and warrants exercised 121,800 122 206,678 206,800
Proceeds from stock issuance; net of
consideration of $191,379 1,653,500 1,653 2,446,718 2,448,371
Proceeds from issuance of warrants 56,666 56,666
Stock and warrants issued for services 2,062,000 2,062 3,996,050 (210,000) 3,788,112
Vesting of deferred compensation 300,840 300,840
Accrued dividends on preferred stock (21,342) (21,342)
Net Loss (3,240,268) (3,240,268)
---------- ------- ----------- ---------- ----------- ---------- -----------
Balance September 30, 2005 20,092,950 $20,089 $15,063,814 $ (631,176) $(9,925,283) $ - $ 4,527,444
========== ======= =========== ========== =========== ========== ===========
See Notes to Consolidated Financial Statements.
F-15
SIRICOMM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2005 AND 2004
2005 2004
---- ----
Operating Activities
Net loss $(3,240,268) $(2,778,407)
Items not requiring cash
Depreciation and software amortization 356,090 21,803
Loan costs - 181,940
Stock-based compensation for services 106,313 822,245
Stock-based compensation to employees - 50,000
Vested deferred compensation 300,840 -
Accrued interest forgiven - (37,205)
Amortization of bandwidth access and license 396,387 -
Changes in:
Accounts receivable (11,370) -
Other current assets 10,640 538,045
Accounts payable 139,405 (3,865)
Accrued expenses (56,646) 15,364
Deferred revenues 46,561 -
----------- -----------
Net cash flows used in operating activities (1,952,048) (1,190,080)
----------- -----------
Investing Activities
Purchase of held to maturity investments (494,935) -
Maturity of held to maturity investments 494,935 -
Software development costs capitalized (130,274) -
Purchase of property and equipment (977,690) (682,760)
----------- -----------
Net cash flows used in investing activities (1,107,964) (682,760)
----------- -----------
Financing Activities
Borrowings under line of credit, net 285,346 122,000
Payment of notes payable (25,000) (365,033)
Proceeds from exercise of stock options and warrants 206,800 133,500
Proceeds from issuance of warrants 56,666 -
Proceeds from sale of common stock 2,448,371 2,945,689
----------- -----------
Net cash flows provided by financing activities 2,972,183 2,836,156
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (87,829) 963,316
Cash and Cash Equivalents, beginning of period 1,019,616 56,300
----------- -----------
Cash and Cash Equivalents, end of period $ 931,787 $ 1,019,616
=========== ===========
Supplemental Cash Flows Information
Interest paid $ 28,282 $ 26,578
Common stock and warrants issued for goods and services net
of deferred compensation $ 3,590,000 $ 85,122
Stock options issued in exchange for prepaid consulting services $ 91,800 $ -
Conversion of debt or payables to equity $ - $ 595,529
Common stock issued for loan costs $ - $ 13,680
Deferred compensation $ - $ 721,667
Accrued dividends on preferred stock $ 21,342 $ 16,006
Retirement of common stock shares to the treasury $ - $ 459,187
See Notes to Consolidated Financial Statements
F-16
SiriCOMM, Inc.
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
SiriCOMM, Inc.- Missouri (the "Company"), incorporated in the State of
Missouri on April 24, 2000, ("SiriCOMM Missouri") has developed broadband
wireless application service technologies intended for use in the transportation
industries.
As part of the transaction treated as a reverse merger on November 21,
2002, SiriCOMM, Inc. (f/k/a Fountain Pharmaceuticals, Inc.), a Delaware
corporation (the "Company" or "SiriCOMM") completed the acquisition of all the
issued and outstanding shares of SiriCOMM, Inc,- a Missouri corporation
("SiriCOMM Missouri"). An aggregate 9,622,562 shares of common stock were issued
to SiriCOMM Missouri shareholders. Furthermore, the Company issued 1,922,000
shares to retire $1,000,000 of convertible notes issued by SiriCOMM Missouri.
The Company commenced its initial product offering of Internet Services
Providing in October 2004 and began revenue generation in December 2004. As the
Company is providing services to customers, it no longer considers itself in the
development stage.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiary, SiriComm, Missouri. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At September 30, 2005 and 2004,
cash equivalents consisted primarily of money market accounts with banking
institutions. Approximately $800,000 was held in one institution in excess of
guaranteed amounts as of September 30, 2005.
Accounts Receivable
Accounts receivable are stated at the amount billed to customers. The
Company provides an allowance for doubtful accounts if deemed necessary, which
is based upon a review of outstanding receivables, historical collection
information and existing economic conditions. Accounts receivable are ordinarily
due 30 days after the issuance of the invoice.
Accounts past due more than 120 days are considered delinquent.
Delinquent receivables are written off based on individual credit evaluation and
specific circumstances of the customer.
F-17
Property and Equipment
Property and equipment are depreciated over the estimated useful life of
each asset. Annual depreciation is primarily computed using straight-line
methods.
Description Assigned Lives
----------- --------------
Equipment 5 years
Software
Costs associated with the planning and design phase of software
development, including coding and testing activities necessary to establish
technological feasibility, are classified as research and development and
expensed as incurred. Once technological feasibility has been determined, costs
incurred, including coding, testing and product quality assurance, are
capitalized.
Amortization is provided using the straight-line method over the
estimated economic life of the software. Amortization commences when a product
is available for general resale to customers. Unamortized capitalized costs
determined to be in excess of the net realizable value of a product are expensed
at the date of such determination. The Company has yet to amortize capitalized
costs associated with internally developed software. Amortization expense for
software acquired externally was $6,638 and $0 for 2005 and 2004, respectively.
Intangible Assets
The costs of licenses and satellite bandwidth access acquired are
amortized over the estimated useful life of each asset. Annual amortization is
computed using the straight-line method.
Income Taxes
Deferred tax assets and liabilities are recognized for the tax effects
of differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
The Company files consolidated income tax returns with its subsidiary.
Preferred Stock - Redeemable and Convertible
The Company authorized 500,000 shares of Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock"), par value of $.001 per share,
during fiscal year 2004. The shares may be converted to fully-paid and
non-assessable shares of Common Stock at the option of the holder at $2.00 per
share. The Series A Preferred Stock are redeemable at the option of the holder
three years subsequent to the date of issuance at a redemption price equal to
110% of the stated value, plus an amount per share equal to all accrued and
unpaid dividends.
Cumulative preferred dividends in arrears for 2005 and 2004 were $37,348
and $16,006, respectively.
In December 2003, the Company issued an aggregate of 213,417 shares of
its Series A Preferred Stock pursuant to the conversion of an aggregate of
$200,000 of debt due by the Company.
Revenue Recognition
Revenue from the sale of the Company's internet services are recognized
ratably based on customer subscription rates and terms. Although Company
management has the discretion to provide refunds due to customer cancellations,
payments for internet services are generally non-refundable.
F-18
Research and Development
The Company incurs costs associated with computer software to be
marketed in the future. Costs incurred in connection with establishing
technological feasibility have been expensed as research and development costs.
Advertising
The Company incurred advertising expenses of $41,612 and $6,799 during
2005 and 2004, respectively.
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 which
could occur if convertible preferred stock, warrants and stock options were
converted into common stock. Diluted net loss per share is considered to be the
same as basic net loss per share since the effect of the issuance of common
stock associated with the convertible stock, warrants and stock options is
anti-dilutive.
Equity Incentive Plan
At September 30, 2005, the Company has a stock-based equity incentive
plan, which is described more fully in Note 9. The Company accounts for this
plan under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. Certain
stock-based employee compensation costs are reflected in net income for 2004
whereby certain options granted under the plan had an exercise price less than
the market value of the underlying common stock on the grant date. The following
table illustrates the effect on net loss and earnings per share if the Company
had applied the fair value provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
Year Ended December 31
2005 2004
------------------------------------
Net loss as reported $ (3,240,268) $ (2,778,407)
Add back intrinsic values of options issued to employees -- 50,000
Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes (131,393) (280,469)
------------- --------------
Pro forma net income $ (3,371,661) $ (3,008,876)
============= ==============
Earnings (loss) per share:
Basic and diluted - as reported $ 0.18 $ 0.19
============= ==============
Basic and diluted - pro forma $ 0.18 $ 0.21
============= ==============
Fair Value of Equity Instruments
The valuation of certain items, including valuation of warrants or
restricted stock that may be offered as compensation for goods or services
received within its contracts, involve significant estimations with underlying
assumptions judgmentally determined. Warrants are valued using the most reliable
measure of fair value, such as the value of the goods or services rendered, if
not obtainable, the valuation of warrants and stock options are then based upon
a trinomial valuation model, which involves estimates of stock volatility,
expected life of the instruments and other assumptions. As the Company's stock
is thinly traded, the amounts recorded for equity instruments, which are based
partly on historical pricing of the Company's stock, are subject to the
assumptions used by management in determining the fair value.
Reclassifications
Certain reclassifications have been made to the 2004 financial
statements to conform to the 2005 financial statement presentation. These
reclassifications had no effect on net earnings.
F-19
Note 2: Management's Consideration of Going Concern Matters
The Company has incurred losses and negative operating cash flows for
several years. The financial statements have been prepared using the going
concern basis of accounting. This basis assumes realization of assets and
liquidation of liabilities in the ordinary course of business. Since its
inception, SiriCOMM has financed its activities primarily from short term loans
and the placement of private equity. SiriCOMM has completed approximately 260 of
the 400 sites which were part of its initial network. The Company commenced
selling its InTouch(TM) Internet Service Provider design in December 2004.
Additionally, as the long-term financial objectives of the Company
requires funding to complete its plan to build an additional 500-750 sites in
excess of the initial network and provide additional working capital, there can
be no assurances that the Company will be able to raise the additional financing
necessary to construct the balance of the Company's planned network. Although
not currently planned, realization of assets in other than the ordinary course
of business in order to meet liquidity needs could incur losses not reflected in
these financial statements.
Note 3: Intangible Assets
The carrying basis and accumulated amortization of recognized intangible
assets at September 30, 2005 are noted below. The Company did not have any
intangible assets as of September 30, 2004.
2005
Gross Carrying Accumulated
Amount Amortization
---------------- ----------------
Amortized intangible assets
License to operate hubs $ 91,800 $ 18,360
Bandwidth access 2,520,180 378,027
---------------- ----------------
$ 2,611,980 $ 396,387
================ ================
Amortization expense of intangible assets for the years ended December
31, 2005 and 2004 was $396,387 and $0, respectively. Estimated amortization
expense for each of the following five years is:
2006 $ 522,396
2007 522,396
2008 522,396
2009 522,396
2010 126,009
Note 4: Line of Credit
The Company entered into a line of credit with Southwest Missouri Bank
for the purchase of network infrastructure equipment. This note is 80%
guaranteed by the US Department of Agriculture and is secured by the network
equipment. This note is further personally guaranteed by SiriCOMM's majority
shareholder. The note is a demand note, but if no demand is made then monthly
payments of accrued interest at an initial rate of 5.5% on the guaranteed
portion and 7.0% on the unguaranteed portion plus monthly principal payments of
$2,358. The note is amortized over 59 months beginning Sept. 25, 2004 with a
final payment on August 25, 2009. The Company may prepay the note at any time
without penalty.
The line of credit also has certain loan covenant requirements. As of
September 30, 2005, the Company was not in compliance with certain working
capital and debt service coverage ratios. The Bank has formally waived these
requirements.
F-20
Note 5: Long-term Debt
2005 2004
----- ----
Unsecured note payable to an individual due
March 3, 2004 accruing interest at 4%. The
note was repaid during 2005. $ 0 $25,000
========= =======
Note 6: Stockholders' Equity
Common Stock
The Company consummated a private placement during 2005 whereby the
Company issued 319,000 common shares and certain warrants to purchase additional
shares. The net proceeds from this placement were $550,580.
During 2005, the Company consummated the private sale of common stock
with another investor whereby 1,066,667 shares and a like number of warrants
were issued for $1,600,000. The investor, Sunflower Capital, LLC, is managed by
William P. Moore, who was subsequently elected to serve on the Company's Board
of Directors and Audit Committee.
During 2005, the Company received funds from the private sale of its
securities to ten investors, including Sunflower Capital, LLC. The Company
received $401,750 for issuing 267,833 common shares and certain warrants to
purchase additional shares.
Additional payments were made for fees associated with the above
placements in the amount of $103,959. The fees were recorded as a reduction to
the proceeds in Additional Paid in Capital.
During 2005, the Company entered into a network installation agreement
with Sat-Net Communications, Inc. ("Sat-Net"). Pursuant to the agreement, the
Company issued to Sat-Net 2,000,000 shares of its common stock and 1,000,000
common stock purchase warrants exercisable for a period of three years at a
price of $2.00 per share. The value of the transaction resulted in $3,590,000 in
equity being recorded.
Also during 2005, 62,000 common shares were issued for various services
provided. The total equity value recorded based on these transactions was
$106,312.
During 2004, the Company completed the sale of 2,000,000 common shares
and certain warrants to investors resulting in proceeds of $1,830,000. Among the
investors in this offering was Terry W. Thompson, a director of the Company who
purchased 100,000 shares.
The Company also sold 328,143 common shares and certain warrants during
2004 which resulted in proceeds of $1,115,689.
The Company issued an aggregate of 388,961 shares to individuals to
convert $388,961 of debt to equity. Among the investors converting their debt
was Terry W. Thompson, a director of the Company, who converted $50,600 of debt
to common stock. Additionally, the Company issued 40,610 shares to the Company's
SEC counsel as payment for $44,000 of legal services rendered to the Company.
Also during 2004, the Company issued 570,000 common shares pursuant to
three consulting arrangements. The total equity value recorded based on these
transactions was $585,164.
Additional Paid in Capital
During 2005, the Company received $56,666 from William P. Moore, a
director, in exchange for warrants to purchase common stock at a future date.
F-21
Pursuant to an agreement entered into during 2005, the Company recorded
$91,800 for the value of options granted as payment for a 5-year license
agreement.
Deferred Compensation
In association with the Sat-Net agreement discussed above, the Company
recorded $210,000 of deferred compensation to account for the value of warrants
not vested at the time of issuance.
During 2004, the Company entered into a consulting agreement for the
issuance of 436,000 shares whereby 87,200 shares can be realized annually upon
meeting certain performance measurements over a 5-year period. As of September
30, 2005 and 2004, 261,600 and 348,800 shares, respectively, were outstanding
but potentially forfeitable if performance measures are not met by the
consultant. As of September 30, 2005 and 2004, the Company has recorded a
deferred compensation in the amount of $421,176 and $722,016, respectively,
against equity to account for the potentially forfeitable shares. $300,840 of
equity was realized to account for the 87,200 shares that vested during 2005.
Non-Employee Warrants and Options
The Company issued non-employee warrants and options during 2005 and
2004 for various purposes, including completion of consulting arrangements,
private placements, and installation of network assets. Exercise dates of all
non-employee warrants and options range from October 2005 to December 2013. A
summary of the non-employee warrants and options activity for the years ended
September 30, 2005 and 2004 is presented below.
2005 2004
Weighted-Average Weighted-Average
Warrants Exercise Price Warrants Exercise Price
-------------------------------------------------------------------------------
Outstanding,
beginning of year 3,274,518 $ 1.89 -- $ --
Granted 3,600,855 $ 2.50 3,493,018 $ 1.93
Exercised (112,800) $ 1.75 (218,500) $ 0.60
--------------- ---------------
Outstanding, end of year 6,762,573 $ 2.22 3,274,518 $ 1.89
=============== ===============
The following table summarizes information about non-employee warrants
and options outstanding at September 30, 2005:
Warrants and Options Outstanding
Range of Exercise Number Weighted-Average Remaining Weighted-Average Exercise
Prices Outstanding Contractual Life Price
------ ----------- ---------------- -----
$0.50 - $1.00 478,700 2.6 years $0.56
$1.50 - $2.00 3,650,982 1.9 years $1.95
$2.40 - $2.50 1,696,400 4.4 years $2.48
$3.00 - $4.00 599,455 3.8 years $3.11
$4.50 - $4.75 377,036 3.1 years $4.56
Note 7: Operating Leases
The Company currently occupies 1,200 square feet within an office
building and operates on a month-to-month lease. Rent expense for 2005 and 2004
was $14,900 and $29,700, respectively.
F-22
Note 8: Income Taxes
The provision for income taxes includes these components:
2005 2004
----------------- -----------------
Taxes currently payable $ -- $ --
Deferred income taxes -- --
----------------- -----------------
Income tax expense (benefit) $ 0 $ 0
================= ==================
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
2005 2004
----------------- -----------------
Computed at the statutory rate (34%) $ (1,101,691) $ (944,658)
Increase (decrease) resulting from
Nondeductible expenses 72,114 170,316
State income taxes (106,663) (68,396)
Changes in the deferred tax asset valuation allowance 1,136,240 842,738
----------------- -----------------
Actual tax expense (benefit) $ 0 $ 0
================= ==================
The tax effects of temporary differences related to deferred taxes shown
on the balance sheets were:
2005 2004
----------------- -----------------
Deferred tax assets
Stock-based compensation and loan costs $ 385,842 $ 230,088
Accrued salaries 44,520 87,500
Start-up costs 111,686 130,149
Net operating loss carryforwards 2,355,235 1,057,841
Other 17,322 17,500
--------------- ---------------
2,914,605 1,523,078
--------------- ---------------
Deferred tax liabilities
Depreciation (64,416) (7,340)
Stock-based bandwidth expenses (82,801) --
Software development costs (43,713) --
Network installation expenses (71,697) --
--------------- ----------------
(262,627) (7,340)
--------------- ----------------
Net deferred tax asset (liability) before
valuation allowance 2,651,978 1,515,738
--------------- ---------------
Valuation allowance
Beginning balance 1,515,738 673,000
Increase during the period 1,136,240 842,738
--------------- ---------------
Ending balance 2,651,978 1,515,738
--------------- ---------------
Net deferred tax asset (liability) $ 0 $ 0
=============== ===============
The Company also has unused tax operating loss carryforwards of
approximately $6,729,000 which expire between 2023 - 2025.
Note 9: Equity Incentive Plan
Stock Option Plan
The Company has adopted a stock option plan under which the Company may
grant options that vest immediately to its employees for up to 3,000,000 shares
of common stock. Pursuant to the stock option plan, the Company may issue to
eligible persons, stock options, stock appreciation rights, restricted stock
performance awards and bonus stock until May 15, 2012. The exercise price of
F-23
each qualified incentive option is equal to the fair value of the Company's
stock on the date of grant. The Company may issue non-qualified options at any
price the Board of Directors deems fair. An option's maximum term is 10 years.
A summary of the status of the plan at September 30, 2005 and 2004 and
changes during the years then ended is presented below:
2005 2004
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
-------------------------------------------------------------------------------
Outstanding,
beginning of year 306,500 $ 1.89 -- $ --
Granted 136,000 $ 1.84 310,000 $ 1.88
Exercised (9,000) $ 1.00 (3,500) $ 1.00
Forfeited (10,000) $ 4.05 -- $ --
---------------- ----------------
Outstanding, end of year 423,500 $ 1.84 306,500 $ 1.89
=============== ===============
Options exercisable,
end of year 418,000 $ 1.83 250,500 $ 1.40
=============== ===============
The fair value of options granted is estimated on the date of the grant
using the fair value based method (tri-nomial model in 2005, Black-Scholes model
in 2004) with the following weighted-average assumptions:
2005 2004
-------------- ------------
Dividend per share $ 0 $ 0
Risk-free interest rate 2-5% 2-5%
Expected life of options 1-6 years 1-6 years
Expected volatility 75% 75%
Weighted-average fair value of options granted during the
year $ 0.78 $ 1.40
The following table summarizes information about stock options under the
plan outstanding at September 30, 2005:
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------------
Weighted-Average
Range of Exercise Number Remaining Contractual Weighted-Average Number Weighted-Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------------------------------
$1.00 - 2.00 343,500 8.7 years $1.36 341,000 $1.36
$3.40 25,000 4.4 years $3.40 25,000 $3.40
$4.05 - 4.50 55,000 6.1 years $4.13 52,000 $4.14
Note 10: Related Party Transactions
As described in Note 6, Sunflower Capital, LLC, purchased certain
Company common stock and warrants during 2005. William P. Moore, managing member
of Sunflower Capital, LLC, was also elected to serve on the Company's Board of
Directors and Audit Committee in 2005.
The Company repaid $9,787 in principal and interest during 2004 for a
note payable issued previously lent to the Company by its Chief Executive
Officer.
The Chief Financial Officer was retained as a consultant to advise on
strategic capital formation prior to his election as a Director and Chief
Financial Officer. He was paid $37,500 in 2004 for services incurred prior to
his employment.
F-24
Note 11: Disclosures About Fair Value of Financial Instruments
The following methods were used to estimate the fair value of financial
instruments.
The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management
does not intend to sell these financial instruments, the Company does not know
whether the fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
Notes Payable and Long-term Debt
Fair value is estimated based on the borrowing rates currently available
to the Company for bank loans with similar terms and maturities.
The following table presents estimated fair values of the Company's
financial instruments at September 30, 2005 and 2004.
2005 2004
Carrying Carrying
Amount Fair Value Amount Fair Value
-------------------------------------------------------------------------
Financial assets
Cash and cash equivalents $ 931,787 $ 931,787 $ 1,019,616 $ 1,019,616
Financial liabilities
Notes payable and long-term debt $ 407,346 $ 407,346 $ 147,000 $ 147,000
Note 12: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America
require disclosure of certain significant estimates and current vulnerabilities
due to certain concentrations. Those matters include the following:
Contingencies
On December 17, 2004, certain officers and directors of the Company were
named defendants in a lawsuit entitled Greg Sanders v. Henry Hoffman et al.
Messrs. Hoffman, Dilman, Mendez and Iler are officers and directors of the
Company, Mr. Thompson is a director of the Company and Mr. Noland is a former
officer and director of the Company. The action alleges fraud, misrepresentation
and breach of fiduciary duty relating to a settlement agreement entered into
between the Company and Mr. Sanders. The complaint seeks damages in excess of
$9,600,000. The Company has paid and expects to pay all expenses relating to the
defense of this matter. In management's opinion this case is without merit and
the defendants intend on defending this matter vigorously.
Note 13: Commitments
Employment agreements
The Company has three executive employee agreements with certain
officers and directors. As part of these agreements the Company is obligated to
pay these individuals aggregate compensation of $425,000 annually through
February 2006. These contracts were automatically renewed per their respective
contracts requiring no further action by the Board.
F-25
Note 14: Subsequent Events
On November 15, 2005, the Company purchased 90,000 shares of its common
stock at a purchase price of $1.00 per share in an open market transaction. The
stock repurchase was authorized by the Company's board of directors.
On December 15, 2005, the Company issued 25,000 shares of its common
stock to IRG pursuant to a consulting agreement dated November 30, 2005. The
consulting agreement also requires the Company to issue an additional 15,000
shares on or before January 1, 2006 and 10,000 shares on or before February 1,
2006. Additionally, the consulting agreement calls for the issuance on January
15, 2006 of 50,000 four (4) year warrants with the following exercise prices:
16,666 at $1.25
16,667 at $1.35
16,667 at $1.45
On December 27, 2005, the Company entered into a loan agreement with
Sunflower Capital, LLC. The loan is in the principal amount of $500,000 and is
evidenced by a Convertible Promissory Note due July 1, 2006. As consideration
for Sunflower making the loan, the Company issued to Sunflower a warrant to
purchase 200,000 shares of the Company's common stock at $1.26 per share. The
warrant expires December 15, 2010.
The note mandatorily converts into the Company's units consisting of one
share of common stock and one redeemable common stock purchase warrant
exercisable at $1.50 per share during the period commencing on the date of
issuance and expiring five years thereafter. The note will convert into such
units at the rate of $1.15 per unit upon the closing of a private placement as
described in the loan agreement. In the event the private placement does not
close, Sunflower Capital will have the option to convert the note into shares of
the Company's common stock and common stock purchase warrants at a variable
conversion price determined by taking the value weighted average price of the
Company's common stock for the 20 trading days prior to the date the conversion
notice is sent to the Company. In addition, the Company will issue to Sunflower
Capital such number of warrants equal to the number of shares being issued upon
conversion. The exercise price of such warrants shall be equal to the conversion
price plus $0.25. These warrants will be exercisable for a period of five years
from the date of issuance.
Note 15: Future Change in Accounting Principle
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a
revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95, Statement of Cash Flows.
The approach to accounting for share-based payments in Statement 123(R)
is similar to the approach described in Statement 123. However, Statement 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values and no longer allows pro forma disclosure as an alternative to financial
statement recognition. The Company will be required to adopt Statement 123(R) at
the beginning of the first interim or annual period beginning after December 15,
2005. The Company has not determined what financial statement impact Statement
123(R) will have on the Company.
F-25
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION
WHERE AN OFFER OR SOLICITATION IS NOT PERMITTED. NO SALE MADE PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS SIRICOMM SINCE THE DATE OF THIS PROSPECTUS.
SiriCOMM, Inc.
10,154,139 SHARES OF COMMON STOCK
PROSPECTUS
_________, 2006
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Delaware General Corporation Law and our Bylaws provide for indemnification
of the Registrant's officers and directors for liabilities and expenses that
they may incur in such capacities. In general, the Registrant's directors and
officers are indemnified with respect to actions taken in good faith and in a
manner such person believed to be in our best interests, and with respect to any
criminal action or proceedings, actions that such person has no reasonable cause
to believe were unlawful. Furthermore, the personal liability of the
Registrant's directors is limited as provided in the Registrant's Certificate of
Incorporation.
The Registrant maintains directors and officers liability insurance with an
aggregate coverage limit of $3,000,000.
Insofar as indemnification for liabilities arising under the Securities Act, as
amended, may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission (the "SEC"), such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered, other than the underwriting discount, are
estimated as follows:
SEC Registration Fee........................ $ 2,390.28
Printing and Engraving Expenses............. $ 2,500.00
Legal Fees and Expenses..................... $ 30,000.00
Accountants' Fees and Expenses.............. $ 7,500.00
Miscellaneous Costs......................... $ 2,500.00
-----------
Total....................................... $ 44,890.28
===========
All of these expenses, except for the SEC registration and filing fees,
represent estimates only. We will pay all of the expenses of this offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On November 21, 2002, the Registrant completed the acquisition of all of the
issued and outstanding shares of SiriCOMM, Inc. (Missouri). An aggregate of
9,712,867 shares were issued to SiriCOMM's 18 shareholders, including 5,762,303
issued to Henry P. Hoffman, the Registrant's President, CEO and Chairman,
1,098,331 issued to David N. Mendez, the Registrant's Executive V.P. - Sales and
Marketing and a Director and 1,023,535 issued to Kory S. Dillman, the
Registrant's Executive V.P. - Internet Business Development and a Director. The
shares were issued under the exemption from registration provided in Section
4(2) of the Act.
On January 7, 2003, the Registrant issued 29,525 shares of its common stock to
David and Rebecca Seidl and issued 19,683 shares of its common stock to John
Cesta and Patti Ann's Dreams, Inc. in connection with loans made to the
Registrant in the aggregate amount of $125,000. The shares were issued under the
exemption from registration provided in Section 4(2) of the Act.
On January 7, 2003, the Registrant issued 868,000 shares of its common stock to
Jeff Wasson and 1,054,000 shares of its common stock to Quest Capital Alliance,
L.L.C., pursuant to the conversion of convertible debt in the aggregate of
$1,000,000. The shares were issued under the exemption from registration
provided in Section 4(2) of the Act.
On February 12, 2003, the Registrant issued 9,842 shares of its common stock to
Carlye Wannenmacher in connection with a loan made to the Registrant in the
amount of $25,000. The shares were issued under the exemption from registration
provided in Section 4(2) of the Act.
On April 14, 2003, the Registrant issued 107,000 shares of its common stock to
Finter Bank Zurich pursuant to the conversion of convertible debt in the
principal amount of $100,000 plus $7,000 of accrued interest. The shares were
issued under the exemption from registration provided in Section 4(2) of the
Act.
On July 23, 2003, the Registrant issued an aggregate of 39,366 shares of its
common stock to four individuals including 9,842 shares to Terry W. Thompson,
who later became a Director of the Registrant in August 2003, in connection with
loans made to the Registrant in the aggregate amount of $100,000. The shares
were issued under the exemption from registration provided in Section 4(2) of
the Act.
On August 18, 2003, the Registrant issued 55,944 shares of its common stock to
The Research Works, Inc. pursuant to a letter agreement. The shares were issued
under the exemption from registration provided in Section 4(2) of the Act.
On December 5, 2003, the Registrant issued 34,000 shares of its common stock to
MCC Securities, Inc. pursuant to an agreement. The shares were issued under the
exemption from registration provided in Section 4(2) of the Act.
On December 10, 2003, the Registrant issued an aggregate of 213,417 shares of
its Series A Preferred Stock to Quest Capital Alliance L.L.C. (161,165) and
William and Joy Fotsch (52,252) pursuant to the conversion of an aggregate of
$200,000 of principal plus $13,417 of interest due by the Registrant. The shares
were issued under the exemption from registration provided in Section 4(2) of
the Act.
In November 2003, Robert J. Smith converted $154,443 of debt due to him by the
Registrant into a like number of the Units comprised of shares and 3 year
warrants exercisable at $2.00 per share.
II-2
On March 10, 2004 the Registrant closed the sale of 2,000,000 units ("Units") at
$1.00 per unit to twenty-seven accredited investors. Each unit consists of one
share of the Registrant's common stock and one three-year warrant exercisable at
$2.00 per share. Among the investors in this offering was Mr. Terry W. Thompson,
a director of the Registrant who purchased 100,000 Units. The units were issued
under the exemption from registration provided in Section 4(2) of the Act.
In February 2004, the Registrant issued an aggregate of 200,000 warrants to
Clark Burns (100,000) and Philip Snowden (100,000). The warrants are exercisable
for three (3) years at an exercise price of $.50 per share. The warrants were
issued under the exemption from registration provided in Section 4(2) of the
Act.
On March 10, 2004 the Registrant issued 331,951 Units to five investors upon the
conversion of an aggregate of $331,951 of debt due by the Registrant to these
investors. Among the investors converting their debt was Mr. Terry W. Thompson,
direct of the Registrant who converted $50,600 of debt into 50,600 Units. These
Units were issued under the exemption from registration provided in Section 4(2)
of the Act.
On March 18, 2004 the Registrant issued 27,656 units comprised of 27,656 shares
and 27,656 three year warrants exercisable at $2.00 per share to Marvin and
Donna McDaniel upon the conversion of $27,656 of debt due by the Registrant to
the McDaniels. The units were issued under the exemption from registration
provided in Section 4(2) of the Act.
On April 7, 2004, the Registrant issued 436,000 shares of its common stock to
Gunner Investments, Inc. pursuant to a consulting agreement. The shares were
issued under the exemption from registration provided in Section 4(2) of the
Act.
On April 7, 2004 the Registrant issued to the principals of Layne Morgan
Technology Group an aggregate of 100,000 shares of its common stock and 150,000
three-year common stock purchase warrants exercisable at $1.50 per share
pursuant to a consulting agreement. The shares and warrants were issued under
the exemption from registration provided in Section 4(2) of the Act.
On May 4, 2004 the Registrant closed the sale of 328,143 units at $3.40 per unit
to fourteen accredited investors. Each unit consists of one share of the
Registrant's common stock and one quarter (1/4) of a three-year warrant
exercisable at $4.75 per share. The units were issued under the exemption from
registration provided in Section 4(2) of the Act.
On September 23, 2004, the Registrant issued 26,375 units comprised of 26,375
shares and 26,375 three year warrants exercisable at $2.00 per share to William
and Susann Perkin upon the conversion of $26,375 of debt due by the Registrant
to the Perkins. The units were issued under the exemption from registration
provided in Section 4(2) of the Act
As of December 31, 2004, the Registrant consummated the private placement of its
units pursuant to a Confidential Investment Proposal dated October 11, 2004 and
amended on December 20, 2004. Each unit consisted of 50,000 shares of the common
stock and a common stock warrant to purchase 37,500 shares of common stock . In
the private placement, the Registrant sold an aggregate of 6.38 Units (319,000
shares of common stock and warrants to purchase 239,250 shares of common stock)
for an aggregate purchase price of $638,000, or $100,000 per unit. The warrants
entitle the holders to purchase shares of the common stock for a period of five
years from the date of issuance at an exercise price of $2.40 per share. The
warrants contain certain anti-dilution rights and are redeemable by the
Registrant, on terms specified in the warrants.
In connection with the December 2004 private placement, Laidlaw Co. (UK) Ltd.
(f/k/a Sands Brothers International Limited) the placement agent, received a
cash commission fee of nine (9%) of the gross proceeds to the Registrant of the
securities sold at the closing, a payment of $30,000 representing the fees and
expenses of its counsel in the Private Placement and warrants to purchase 31,900
shares of common stock, or ten percent (10%) of the shares of common stock sold
in the private placement. These warrants are exercisable for a period of five
years at an exercise price of $2.40 per share and contain the same anti-dilution
rights as the warrants issued in the private placement.
In connection with the December 2004 private placement, the Registrant also
agreed to file with the SEC a registration statement covering the shares of
common stock issued in the private placement and the shares of common stock
issued underlying the warrants issued in the private placement, including the
warrant issued to the placement agent. The Company complied with the
registration rights agreement that required the Company to file a registration
statement and such statement becoming effective within 120 days. This relieved
the Registrant of the penalty to pay to the investors 1% of the gross proceeds
of the private placement for each thirty (30) day period in which the Registrant
fails to comply with such requirements.
II-3
On January 5, 2005 the Registrant issued an aggregate of 85,000 shares of its
common stock upon the exercise of a like number of warrants, exercisable at
$2.00 per share. The warrants were originally issued in January 2004 pursuant to
a private placement of the Registrant's units consisting of common stock and
warrants. As an inducement to the investors exercising their warrants, the
Registrant issued warrants for an aggregate of 63,750 new warrants to the
investors. The new warrants entitle the holders to purchase shares of the
Registrant's common stock reserved for issuance thereunder for a period of five
years from the date of issuance at an exercise price of $2.40 per share. The
warrants contain anti-dilution rights and are redeemable by the Registrant, in
whole or in part, on terms specified in the warrants.
As a further inducement to the investors exercising their warrants, the
Registrant also agreed to file with the SEC a registration statement covering
the shares purchased by each investor as part of the units, the shares issued
upon exercise of the warrants and the shares underlying the new warrants. The
cash proceeds of the above sales of securities of the Registrant were used for
general corporate purposes in developing the Registrant's planned services.
On February 7, 2005, the Registrant entered into a network installation
agreement with Sat-Net Communications, Inc., pursuant to which Sat-Net agreed to
provide the Registrant certain services in exchange for 2,000,000 shares of
common stock, warrants to purchase 1,000,000 shares of common stock at an
exercise price of $2.00 per share, and cash consideration. The Registrant has
agreed to register the 2,000,000 shares held by Sat-Net pursuant to the terms of
the network installation agreement.
On April 11, 2005, the Registrant consummated a private placement of 1,066,667
units to Sunflower Capital, LLC at an aggregate purchase price of $1,600,000, or
$1.50 per unit. The units consisted of 1,066,667 shares of common stock and
warrants to purchase 1,066,667 shares of common stock. The warrants entitle the
holder to purchase shares of common stock for a period of five years from the
date of issuance at an exercise price of $2.50 per share. In a separate
transaction also consummated on April 11, 2005, the Registrant sold warrants to
purchase 413,605 shares of common stock to Sunflower Capital, LLC at a purchase
price of $53,333, or approximately $0.13 per warrant. These warrants entitle the
holder to purchase shares of common stock for a period of five years from the
date of issuance at an exercise price of $3.00 per share. These securities were
issued under the exemption from registration provided in Section 4(2) of the
Act.
In June 2005, the Company consummated the private sale of its securities to ten
(10) investors, including Sunflower Capital, LLC a limited liability company
managed by William P. Moore, a director of the Company. The securities sold
units comprised of shares of the Company's common stock and warrants to purchase
shares of the Company's common stock. At the closing, the Company sold an
aggregate of 267,833 units at an aggregate purchase price of approximately
$401,750 or $1.50 per unit. At the closing, the Company delivered an aggregate
of 267,833 shares and delivered warrants to purchase an additional 267,833
shares of the Company's common stock. The warrants entitle the holder to
purchase shares of the Company's common stock reserved for issuance thereunder
for a period of five years from the date of issuance at an exercise price of
$2.50 per share. The warrants contain certain anti-dilution rights and are
redeemable by the Company, in whole or in part, on terms specified in the
warrants.
In a separate transaction the Company sold 25,850 warrants to Sunflower Capital,
LLC at a purchase price of $3,333.50 or approximately $.13 per warrant. These
warrants entitle the holder to purchase shares of the Company's common stock
reserved for issuance thereunder for a period of five (5) years from the date of
issuance at an exercise price of $3.00 per share. These warrants contain certain
anti-dilution rights and are redeemable by the Company, in whole or in part, on
terms specified in these warrants.
On July 8, 2005, the Company issued 15,000 shares of its common stock and 20,000
common stock purchase warrants to Interactive Resource Group ("IRG") pursuant to
a consulting agreement. The warrants are exercisable for four (4) years and have
varying exercise prices as set forth below:
o 10,000 at $2.50;
o 5,000 at $3.00; and
o 5,000 at $4.00.
The shares and warrants were issued under the exemption from registration
provided in Section 4(2) of the Act.
II-4
On September 22, 2005, the Company issued 4,000 shares (valued at $6,000) of its
common stock to Satellite Dish Communications ("SDC") in exchange for SDC's
installation and removal of WLAN equipment purchased from Truckstop.net and
located at various truck stops nationwide. The shares were issued under the
exemption from registration provided in Section 4(2) of the Act.
On September 22, 2005, the Company issued an aggregate of 200,000 warrants to
Clark Burns (100,000) and Philip Snowden (100,000). The warrants are exercisable
for five (5) years at an exercise price of $1.50 per share. The warrants were
issued under the exemption form registration provided in Section 4(2) of the
Act.
On December 15, 2005, the Company issued 25,000 shares of its common stock to
IRG pursuant to a consulting agreement dated November 30, 2005. The consulting
agreement also requires the Company to issue an additional 15,000 shares on or
before January 1, 2006 and 10,000 shares on or before February 1, 2006.
Additionally, the consulting agreement calls for the issuance on January 15,
2006 of 50,000 four (4) year warrants with the following exercise prices:
16,666 at $1.25
16,667 at $1.35
16,667 at $1.45
On December 27, 2005, the Company entered into a Loan Agreement with Sunflower
Capital, LLC. The loan is in the principal amount of $500,000 and is evidenced
by a Convertible Promissory Note due July 1, 2006. As consideration for
Sunflower making the loan, the Company issued to Sunflower a warrant to purchase
200,000 shares of the Company's common stock at $1.26 per share. The warrant
expires December 15, 2010.
As discussed below, the principal due under the Note plus accrued interest of
$4,602 was converted into 438,785 units of the Company's securities.
The aforementioned securities have been and will be issued under the exemption
from registration provided in Section 4(2) of the Act.
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.
On January 31, 2006, the Company consummated the private placement of its
securities pursuant to a Placement Agent Agreement entered into between it and
Sanders Morris Harris, Inc. as Placement Agent dated December 12, 2005. The
securities sold were units consisting of one share of the Company's common
stock, $.001 par value and one redeemable Common Stock purchase warrant. At the
closing, the Company sold an aggregate of 4,692,263 units at an aggregate
purchase price of $5,396,103 or $1.15 per unit. At the closing the Company
delivered an aggregate of 4,692,263 shares and 4,692,263 warrants to the
purchasers.
Each warrant entitles the holder to purchase one share of common stock at an
exercise price of $1.50 per share commencing on the date of issuance and
expiring at the close of business on the fifth anniversary of the issuance date.
The warrants contain provisions that protect the holder against dilution by
adjustment of the exercise price in certain events including, but not limited
to, stock dividends, stock splits, reclassifications, or mergers. The Company
may redeem the warrants, at a price of $.10 per warrant, at any time following
the issuance date upon not less than 30 days nor more than 60 days prior written
notice if (a) the Common Stock underlying the warrants has been registered with
the SEC, and (b) the closing price of the Common Stock exceeds a 200% premium of
the exercise price of the warrants for 20 out of 30 consecutive trading days.
In connection with the private placement, Sanders Morris Harris, Inc., the
placement agent in the private placement, received a commission equal to 5% of
the offering price of the units sold by them in the private placement, a
commission equal to 2 1/2% on the 1,764,872 units by Sunflower Capital and a
financial advisory fee equal to 2% of the offering price of the units sold in
the private placement and a warrant to purchase 234,613 shares of common stock,
or 5% of the units sold in the private placement. The warrants are exercisable
II-5
for a period of five years at an exercise price of $1.15 per share and contain
the same anti-dilution rights as the common stock warrant issued in the January
2006 private placement.
As part of the Private Placement, the Registrant entered into a registration
rights agreement with each subscriber who purchased units in the Private
Placement. Under the Registration Rights Agreement, the Registrant, as promptly
as reasonably practicable after closing of the Private Placement but in no event
later than 30 days following the closing, the Registrant is obligated to file a
registration statement on Form SB-2, relating to the resale by the holders of
the Common Stock underlying the units, warrants and Placement Agent Warrant. If
such Registration Statement is not filed within the required time frame, or does
not become effective within 90 days after closing (or 120 days after closing, if
the Registration Statement is subject to review by the SEC), the Registrant has
agreed to pay to the investors 1% of the gross proceeds of the offering for each
month in which the Registrant fails to comply with such requirements.
Sunflower Capital, LLC, a limited liability company managed by William P. Moore,
a director of the Registrant, purchased an aggregate of 1,764,872 units in the
offering, which consisted of a new investment of $1,525,000.05 to purchase
1,326,087 units and the conversion of a $500,000 Convertible Promissory Note
plus accrued interest in the amount of $4,602 to purchase 438,785 units.
The securities discussed above were offered and sold in reliance upon exemptions
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended (the "Act"), pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder. Such securities were sold exclusively to accredited
investors as defined by Rule 501(a) under the Act.
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
Exhibit No. ...Description
3.1 Certificate of Incorporation of the Registrant, filed March
23, 1989 (Incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form S-1 filed on January 4, 1990,
Registration Number 33-32824 (the "Form S-1"))
3.2 Certificate of Amendment of Certificate of Incorporation,
filed April 10, 1989 (Incorporated by reference to Exhibit 3.2
of the Form S-1)
3.3 Restated Certificate of Incorporation of the Registrant, filed
November 13, 1989 (Incorporated by reference to Exhibit 3.3 of
the Form S-1)
3.4 By-Laws of the Registrant (Incorporated by reference to
Exhibit 3.4 of the Form S-1)
3.5 Certificate of Designation, Preference and Rights of Series A
Preferred Stock (Incorporated by reference to Exhibit 3.5 of
the Company's Current Report on Form 8-K filed on July 31,
1997 (July 1997 Form 8-K))
3.6 Amended and Restated Certificate of Incorporation of Fountain
Pharmaceuticals, Inc. dated November 21, 2002, as filed in the
office of the Secretary of State, State of Delaware on
November 21, 2002. (Incorporated by reference to Exhibit 99.1
to the November 21, 2002 Form 8-K)
4.1 Copy of Specimen Stock Certificate (Incorporated by reference
to Exhibit 4.1 of the Form S-1)
4.2 Copy of Specimen Stock Certificate of Series A Preferred Stock
(Incorporated by reference to Exhibit 4.3 to the July 1997
Form 8-K)
II-6
4.3 Form of Warrant issued to the principals of Layne Morgan
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2004.)
4.4 Form of Warrant issued to investors on May 4, 2004
(Incorporated by reference to Exhibit 4.2 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2004.)
5.1 Opinion of Sommer & Schneider LLP*
10.1 Capital Stock Purchase Agreement between Fountain Holdings
LLC, Joseph S. Schuchert, Jr. and Park Street Acquisition
Corporation dated December 31, 2001. (Incorporated by
reference to Exhibit 1.1 to the Registrant's Form 8-K Report
dated December 31, 2001)
10.2 Capital Stock Purchase Agreement between Fountain
Pharmaceuticals, Inc. and Park Street Acquisition Corp. dated
December 31, 2001. (Incorporated by reference to Exhibit 1.2
to the Registrant's Form 8-K Report dated December 31, 2001)
10.3 Securities Exchange Agreement dated as of April 5, 2002
between the Company and the holders of the common stock of
SiriCOMM, Inc. (Missouri) (Incorporated by reference to
Exhibit 2.1 to the November 21, 2002 Form 8-K)
10.4 Amendment to Securities Exchange Agreement dated as of June 5,
2002 between the Company and the shareholders of SiriCOMM,
Inc. (Missouri) (Incorporated by reference to Exhibit 2.2 to
the November 21, 2002 Form 8-K)
10.5 Amendment No. 2 to Securities Exchange Agreement dated as of
November 21, 2002 between the Company and the shareholders of
SiriCOMM, Inc. (Missouri) (Incorporated by reference to
Exhibit 2.3 to the November 21, 2002 Form 8-K)
10.6 Consulting Agreement dated July 2, 2003 between the Company
and CLX & Associates (Incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-QSB for the quarter ended
June 30, 2003)
10.7 Consulting Agreement dated June 2, 2003 between the Company
and The Research Works, Inc. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-QSB for the quarter
ended June 30, 2003)
10.8 Consulting Agreement and addendums dated May 30, 2003 between
the Company and Staunton McLane LLC. (Incorporated by
reference to Exhibit 10.3 to the Registrant's Form 10-QSB for
the quarter ended June 30, 2003)
10.9 Employment Agreement dated February 19, 2002 between the
Company and Henry P. Hoffman (Incorporated by reference to
Exhibit 10.10 to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 2003)
10.10 Employment Agreement dated February 19, 2002 between the
Company and Kory S. Dillman (Incorporated by reference to
Exhibit 10.11 to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 2003)
10.11 Employment Agreement dated February 19, 2002 between the
Company and David N. Mendez (Incorporated by reference to
Exhibit 10.12 to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 2003)
10.12 Letter to Staunton McLane from the Company dated November
28,2003 terminating the service agreement. (Incorporated by
reference to Exhibit 10.13 to the Registrant's Form 10-KSB for
the fiscal year ended September 30, 2003)
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10.13 Consulting Agreement dated April 22, 2004 between the Company
and Layne Morgan Technology Group (Incorporated by reference
to Exhibit 10.1 to the Registrant's Form 10-QSB for the
quarter ended March 31, 2004)
10.14 Consulting Agreement dated April 22, 2004 between the Company
and Gunner Investments, Inc. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-QSB for the quarter
ended March 31, 2004)
10.15 Memorandum of Understanding between the Company and
Christenson Transportation, Inc. (Incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-QSB for the quarter
ended March 31, 2004)
10.16 Memorandum of Understanding between the Company and Mark
Sullivan (Incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-QSB for the quarter ended March 31, 2004)
10.17 Form of Subscription Agreement (Incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K dated December 31,
2004)
10.18 Form of Common Stock Purchase Warrant (Incorporated by
referenced to Exhibit 10.2 to the Registrant's Form 8-K dated
December 31, 2004)
10.19 Form of Common Stock Purchase Warrant (Incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K dated
January 5, 2005)
10.20 Form of Registration Rights Agreement (Incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K dated
January 5, 2005)
10.21 Network Access Service Agreement, dated February 7, 2005
between the Company and Idling Solutions, L.L.C. Incorporated
by reference to Exhibit 10.8 to the Registrant's Form 10-QSB
for the quarter ended December 31, 2004)
10.22 Network Installation Agreement between the Company and Sat-Net
Communications, Inc. dated February 7, 2005 (Incorporated by
referenced to Exhibit 10.1 of Form 8-K dated February 7, 2005)
10.23 Form of Registration Rights Agreement (Incorporated by
referenced to Exhibit 10.2 of Form 8-K dated February 7, 2005)
10.24 Form of Warrant (Incorporated by referenced to Exhibit 10.3 of
Form 8-K dated February 7, 2005) 13.1 Consent of independent
auditors 14.1 Code of Business Conduct (Incorporated by
reference to Exhibit 14.1 to the Registrant's Form 10-KSB for
the fiscal year ended September 30, 2003)
10.25 Subscription Agreement, dated April 11, 2005, between the
Registrant and Sunflower Capital, LLC (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K filed
April 13, 2005).
10.26 Common Stock Purchase Warrant (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 8-K filed April 13,
2005).
10.27 Common Stock Purchase Warrant (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 8-K filed April 13,
2005).
10.28 Warrant Purchase Agreement dated April 11, 2005, between the
Registrant and Sunflower Capital, LLC (incorporated by
reference to Exhibit 10.4 to the Registrant's Form 8-K filed
April 13, 2005).
10.29 Form of Subscription Agreement (Incorporated by reference to
Exhibit 10.1 of Form 8-K dated July 7, 2005)
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10.30 Form of Common Stock Purchase Warrant (Incorporated by
reference to Exhibit 10.2 of Form 8-K dated July 7, 2005)
10.31 Warrant Agreement dated July 7, 2005 between the Registrant
and Sunflower Capital, LLC (Incorporated by reference to
Exhibit 10.3 of Form 8-K dated July 7, 2005)
10.32 Common Stock Purchase Warrant (Incorporated by reference to
Exhibit 10.4 of Form 8-K dated July 7, 2005)
10.33 Loan Agreement dated December 27, 2005, between the Registrant
and Sunflower Capital, LLC (Incorporated by reference to
Exhibit 10.1 of Form 8-K dated December 27, 2005)
10.34 Convertible Promissory Note dated December 27, 2006 issued to
Sunflower Capital LLC (Incorporated by reference to Exhibit
10.2 of Form 8-K dated December 27, 2005)
10.35 Warrant issued to Sunflower Capital LLC dated December 27,
2005 (Incorporated by reference to Exhibit 10.1 of Form 8-K
dated December 27, 2005)
10.36 Consulting Agreement dated November 15, 2005 between the
Registrant and Interactive Resource Group, Inc. (Incorporated
by reference to Exhibit 10.25 to the Registrant's Form 10-KSB
for the year ended September 30, 2005)
10.37 Form of Subscription Agreement (Incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K dated January 31,
2006)
10.38 Form of Common Stock Purchase Warrant (Incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K dated
January 31, 2006)
10.39 Form of Registration rights Agreement (Incorporated by
reference to Exhibit 10.3 to the Registrant's Form 8-K dated
January 31, 2006)
10.40 Form of Placement Agent Warrant (Incorporated by reference to
Exhibit 10.4 to the Registrant's Form 8-K dated January 31,
2006)
10.41 Placement Agent Agreement between the Registrant and Sanders
Morris Harris, Inc. dated December 12, 2005 (Incorporated by
reference to Exhibit 10.5 to the Registrant's Form 8-K dated
January 31, 2006)
10.42 Service Agreement dated June 14, 2004, between the Registrant
and ViaSat, Inc.**
10.43 Loan Agreement dated February 8, 2006 between the Registrant
and Liberty Bank **
10.44 Service Agreement dated May 27, 2004 between the Registrant
and Pilot Travel Centers LLC**
10.45 Service Agreement dated October 4, 2005 between the Registrant
and Love's Travel Stops and Country Stores, Inc. **
10.46 Service Agreement dated December 20, 2005 between the
Registrant and Petro Stopping Centers, LP**
14.2 Code of Ethics for Financial Executives (Incorporated by
reference to Exhibit 14.2 to the Registrant's Form 10-KSB for
the fiscal year ended September 30, 2003)
14.3 Audit Committee Charter (Incorporated by reference to Exhibit
14.3 to the Registrant's Form 10-KSB for the fiscal year ended
September 30, 2004)
23.1 Consent of Sommer & Schneider LLP is contained in Exhibit 5.1
to this Registration Statement*
23.2 Consent of BKD, LLP**
24.1 Power of Attorney is contained on the Signature page of this
Registration Statement
* Filed with the initial filing of the Registration Statement on Form SB-2
** Filed herewith.
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ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b), if in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
the Registration Fee" table in the effective registration statement.
(c) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement; provided, however, that the undertakings set forth in
paragraph (a) and (b) above shall not apply if the information required
to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-10
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Joplin,
State of Missouri, on this 31st day of March, 2006
SIRICOMM, INC.
By: /s/ Henry P. Hoffman
-----------------------------------------
Name: Henry P. Hoffman
Title: President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below hereby constitutes and appoints Henry P. Hoffman and J. Richard Iler as
his true and lawful attorney-in-fact and agent, with full power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do them in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or any of them, or their or his substitute or substitutes, shall do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form SB-2 has been signed below by the following persons in the
capacities and on the dates indicated:
Name Title Date
---- ----- ----
/s/ Henry P. Hoffman President, Chief Executive Officer March 31, 2006
--------------------- and Chairman of the Board (principal
Henry P. Hoffman executive officer)
/s/ David M. Mendez Executive Vice President - Sales and March 31, 2006
--------------------- Marketing and Director
David M. Mendez
/s/ Kory S. Dillman Executive Vice President - Internet March 31, 2006
--------------------- Business Development and Director
Kory S. Dillman
/s/ J. Richard Iler Chief Financial Officer and Director March 31, 2006
--------------------- (principal financial and accounting
J. Richard Iler officer)
/s/ Terry W. Thompson Director March 31, 2006
---------------------
Terry W. Thompson
/s/ William P. Moore Director March 31, 2006
---------------------
William P. Moore
II-11