UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ________________ to _______________
Commission file number 0-49763
CIROND CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0469593
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4185 STILL CREEK DRIVE #B-101, BURNABY, BRITISH COLUMBIA, CANADA V5C 6G9
(Address of principal executive offices)
(604) 205-5039
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
35,210,000 shares of Common Stock, $0.001 par value, as of May 19, 2004
Transitional Small Business Disclosure Format (check one): Yes No X
--- ----
Consolidated Interim Financial Statements of
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
(Expressed in United States dollars)
Three-months ended March 31, 2004
2
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in United States dollars)
March 31, 2004 and December 31 2003
==============================================================================================================
March 31, 2004 December 31, 2003
(unaudited)
- --------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 2,292,203 $ 86,066
Amounts receivable, net of allowance of nil (2003 - $nil) 16,246 19,679
Prepaid expenses and deposits 12,347 12,492
---------------------------------------------------------------------------------------------------------
2,320,796 118,237
Property, plant and equipment 69,325 54,497
Website development 8,720 9,512
- --------------------------------------------------------------------------------------------------------------
$ 2,398,841 $ 182,246
==============================================================================================================
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (note 3) $ 83,678 $ 165,522
Consulting fees payable (note 4) 130,000 130,000
Loan payable - 75,000
Deferred revenue 80,874 6,884
Share subscriptions payable (note 5) 2,000,000 375,000
Due to stockholder 171,576 171,576
---------------------------------------------------------------------------------------------------------
2,466,128 923,982
Stockholder's deficiency:
Capital stock:
25,000,000 preferred shares, issuable in series, with a
par value of $0.001 per share authorized,
nil issued
100,000,000 voting common shares, with $0.001 par value
authorized, 35,210,000 issued
(December 31, 2003 - 34,460,000) 35,210 34,460
Additional paid-in capital 1,290,163 915,913
Deficit accumulated during the development stage (1,392,660) (1,692,109)
---------------------------------------------------------------------------------------------------------
(67,287) (741,736)
Going concern (note 2(a))
Subsequent event (note 5)
Commitments (note 7)
- --------------------------------------------------------------------------------------------------------------
$ 2,398,841 $ 182,246
==============================================================================================================
See accompanying notes to consolidated interim financial statements.
3
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Expressed in United States dollars)
(Unaudited)
===============================================================================================================
From inception Three months Three months
(March 7, 2001) ended ended
to March 31, March 31, March 31,
2004 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Revenue:
Sales (note 6) $ 782,224 $ 754,575 $ -
Expenses:
Advertising and promotion 151,811 39,737 24,119
Amortization 35,560 4,033 2,152
Consulting fees (note 4) 448,912 78,899 45,209
Foreign currency loss (gain) 7,699 1,785 (5,375)
Interest 2,295 317 109
Office and administrative 52,366 21,993 2,066
Professional fees 186,646 33,660 10,209
Research and development 818,061 161,737 80,758
Salaries and benefits 153,537 54,643 8,509
Travel 194,362 59,067 23,108
----------------------------------------------------------------------------------------------------------
2,051,249 455,871 190,864
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before interest income (1,269,025) 298,704 (190,864)
Interest income 1,012 745 4
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,268,013) $ 299,449 $ (190,860)
===============================================================================================================
Weighted average number of common
shares outstanding, basic and diluted 18,834,752 34,460,000 17,000,000
Net income (loss) per share, basic and diluted $ (0.07) $ 0.01 $ (0.01)
===============================================================================================================
See accompanying notes to consolidated interim financial statements.
4
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statement of Stockholder's Deficiency and Comprehensive Income
(Loss)
(Expressed in United States dollars)
From inception (March 7, 2001) to March 31, 2004
(Unaudited)
=========================================================================================================================
Deficit
accumulated Total
Additional during the stockholder's
Common Stock paid-in development equity
Shares Amount capital stage (deficiency)
- -------------------------------------------------------------------------------------------------------------------------
Shares issued for cash 16,540,312 $ 1,654 $ (220) $ - $ 1,434
on March 7, 2001
Comprehensive loss:
Loss - - - (5,466) (5,466)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 16,540,312 1,654 (220) (5,466) (4,032)
Shares issued for cash from
February 12 to March 25, 2002
at $0.75 per share 459,688 46 298,892 - 298,938
Comprehensive loss:
Loss - - - (498,034) (498,034)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 17,000,000 1,700 298,672 (503,500) (203,128)
Shares held by Cirond
stockholders and effect of
recapitalization transaction 16,160,000 1 - (124,647) (124,646)
Promissory notes converted
to shares at $0.50 per share 1,300,000 130 649,870 - 650,000
Adjustment to capital stock to
equal par value of Cirond
capital stock - 32,629 (32,629) - -
Comprehensive loss:
Loss - - - (1,063,962) (1,063,962)
- -------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2003 34,460,000 $ 34,460 $ 915,913 $ (1,692,109) $ (741,736)
Common shares issued for
share subscriptions at $0.50
per share 750,000 750 374,250 - 375,000
Comprehensive income:
Net income - - - 299,449 299,449
- -------------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 2004 35,210,000 $ 35,210 $ 1,290,163 $ (1,392,660) $ (67,287)
=========================================================================================================================
See accompanying notes to consolidated interim financial statements.
5
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
(Unaudited)
==================================================================================================================
From inception Three months Three months
(March 7, 2001) ended, ended
to March 31, March 31, March 31,
2004 2004 2003
- ------------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net income (loss) $ (1,268,013) $ 299,449 $ (190,860)
Item not involving cash:
Amortization 35,560 4,033 2,152
Changes in non-cash working capital:
Amounts receivable (16,246) 3,433 (1,712)
Prepaid expenses and deposits (12,347) 145 (10,810)
Accounts payable and accrued liabilities 82,484 (81,844) (18,931)
Consulting fees payable 130,000 - (45,000)
Deferred revenue 80,874 73,990 -
-------------------------------------------------------------------------------------------------------------
(967,688) 299,206 (265,161)
Financing:
Common shares issued for cash 675,372 - -
Promissory note proceeds 650,000 - -
Share subscriptions proceeds 2,000,000 2,000,000 200,000
Loan payable (75,000) (75,000) -
Advances from stockholder 171,576 - 48,971
-------------------------------------------------------------------------------------------------------------
3,421,948 1,925,000 248,971
Investing:
Expenditures on website development (19,025) - -
Expenditures on property, plant and equipment (94,580) (18,069) (11,887)
Advances to Cirond prior to recapitalization
transaction (55,157) - -
Cash acquired on recapitalization transaction 6,705 - -
-------------------------------------------------------------------------------------------------------------
(162,057) (18,069) (11,887)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 2,292,203 2,206,137 (28,077)
Cash, beginning of period - 86,066 60,135
- ------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 2,292,203 $ 2,292,203 $ 32,058
==================================================================================================================
Supplementary information:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
==================================================================================================================
Non-cash financing and investing activities:
Common shares issued for share subscriptions
proceeds received in previous period $ 375,000 $ 375,000 -
Common shares issued upon conversion of
promissory notes $ 650,000 - -
Net liabilities assumed on recapitalization
Transaction $ 76,194 - -
==================================================================================================================
See accompanying notes to consolidated interim financial statements.
6
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2004
(Unaudited)
================================================================================
1. OPERATIONS:
Cirond Corporation (the "Company") is incorporated under the laws of the
State of Nevada. The Company's principle business activities include the
development and marketing of solutions for wireless networking designed to
enhance the usability, performance, and security of 802.11b and 802.11a
(WiFi) Wireless Local Area Networks (WLAN). The Company is primarily
targeting enterprises and institutional customers requiring the use of
wireless networks. To March 31, 2004, the Company has not generated
significant recurring product sales and is continuing to develop its
business model. Accordingly, the Company is in the development stage for
financial reporting purposes.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Going concern
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities and commitments in the normal course of business for the
foreseeable future. As shown in the unaudited financial statements, the
Company has a loss of $1,268,013 for the period from inception (March
7, 2001) to March 31, 2004, and has a working capital deficiency of
$145,332 at March 31, 2004. These factors raise substantial doubt as to
the Company's ability to continue as a going concern.
The application of the going concern concept is dependent upon the
Company's ability to receive continued financial support from its
creditors, stockholders and external investors and attaining profitable
operations through the sale of its software. These consolidated
financial statements do not give effect to any adjustment should the
Company be unable to continue as a going concern and, therefore, be
required to realize its assets and discharge its liabilities in other
than the normal course of business and at amounts differing from those
reflected in the consolidated financial statements. Management plans to
obtain equity and debt financing from external investors and to
actively market its wireless technology applications.
Management believes the plan described above will be sufficient to meet
the Company's liabilities and commitments as they become payable over
the next twelve months. There can be no assurance that management's
plan will be successful. Failure to obtain the support of additional
external investors to finance the development and marketing of the
Company's wireless technology applications will cause the Company to
curtail operations and impair the Company's ability to continue as a
going concern.
7
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2004
(Unaudited)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) Basis of presentation
The information included in the accompanying consolidated interim
financial statements is unaudited and should be read in conjunction
with the annual audited consolidated financial statements and notes
thereto contained in the Company's Report on Form 10-KSB for the fiscal
year ended December 31, 2003. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for
fair presentation of the results of operations for the interim periods
presented have been reflected herein. The results of operations for the
interim periods presented are not necessarily indicative of the results
to be expected for the entire fiscal year.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Included in accounts payable and accrued liabilities at March 31, 2004 is
$50,776 (December 31, 2003 - $50,776) that is currently being disputed by
management with the supplier.
4. RELATED PARTY TRANSACTIONS:
During the three months ended March 31, 2004, the Company incurred
consulting fees from a company controlled by the president totaling $45,000
(2003 - $30,000). At March 31, 2004, $40,000 (2003 - $40,000) of these
consulting fees were included in consulting fees payable.
The amounts were not subject to a written agreement but were incurred in
the normal course of operations and are recorded at the exchange amount,
which is the amount established and agreed to by the related parties.
5. SHARE SUBSCRIPTIONS PAYABLE:
During the three months ended March 31, 2004, the Company received a
subscription for 4,000,000 common shares and common share purchase warrants
for aggregate cash proceeds of $2 million. The subscriber was granted
common share purchase warrants as follows:
===========================================================================
Number of common shares Exercise price Expiry date
---------------------------------------------------------------------------
1,000,000 $ 0.50 April 19, 2005
1,000,000 $ 0.75 April 19, 2005
1,000,000 $ 1.00 April 19, 2006
1,000,000 $ 1.25 April 19, 2006
Subsequent to March 31, 2004, the subscriber retracted their share
subscription and the Company returned $1.5 million of the $2 million share
subscription to the subscriber. The remaining share subscription of
$500,000 was converted into a demand loan, which matures on September 30,
2004, is unsecured and bears interest at 5% per annum. The demand loan is
not subject to a written agreement. $100,000 of the remaining $500,000 will
be returned once a finder's fee of $100,000, paid in conjunction with the
subscription, is refunded to the Company. $50,000 of the finder's fee was
recovered and applied against the loan subsequent to March 31, 2004.
8
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2004
(Unaudited)
================================================================================
6. REVENUE:
During the three months ended March 31, 2004, the Company issued a
perpetual license for the use of its source code for its existing software
products to a third party in exchange for cash proceeds of $700,000. In
conjunction with this agreement, the Company will provide support and
maintenance services for a one year term for cash proceeds of $100,000.
Support and maintenance services are renewable, at the option of the
customer, at $100,000 per annum.
7. COMMITMENTS:
On May 1, 2003, the Company entered an operating lease for office premises
that requires the following annual minimum lease payments:
===========================================================================
2004 $ 21,893
2005 $ 24,158
2006 $ 8,305
===========================================================================
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
On November 25, 2003, pursuant to a Stock Exchange Agreement (the
"Stock Exchange Agreement") with Seaside Holdings Inc. (f/k/a Cirond
Technologies Inc.), a Colorado corporation ("CTI"), as amended by the First
Amendment to the Stock Exchange Agreement dated November 13, 2003 (the "First
Amendment") (the Exchange Agreement and the First Amendment and collectively
referred to herein as the "Agreement"), we acquired all of the issued and
outstanding capital stock of CTI's wholly owned subsidiary, Cirond Networks
Inc., a Nevada corporation ("CNI"), in exchange for 17,000,000 post-Forward
Split shares of our common stock. As a result of this share exchange, CTI owned
approximately 51.2% (not taking into account the issuance of 750,000 shares of
our common stock in a private placement, the certificates for which were issued
subsequent to December 31, 2003, or 1,300,000 shares of common stock issued for
the CNI Indebtedness described below) of our issued and outstanding shares. In
addition, pursuant to the terms of the Agreement, we issued an aggregate of
1,300,000 post-Forward Split shares of our common stock in exchange for $650,000
in indebtedness of CNI (the "CNI Indebtedness"), which was held by Cirond
Venture Partners Inc., Stumdell Limited, and Steven Velardi.
As a result of the Agreement, effective November 25, 2003, CNI became
our wholly-owned subsidiary. We changed our name to Cirond Corporation as of
October 14, 2003.
For accounting purposes, the acquisition of CNI has been accounted for
as a recapitalization transaction. Under recapitalization accounting, CNI is
considered to have issued shares for consideration equal to our net monetary
assets with the results of our operations included in the consolidated financial
statements from the date of recapitalization on November 25, 2003.
GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of our company as a going concern. We
had net income of $299,449 for the three months ended March 31, 2004; however,
at March 31, 2004, we had an accumulated deficit of $1,392,660 and a working
capital deficit of $145,332. These consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities that might
be necessary should we be unable to continue as a going concern.
CNI entered into a non-exclusive Source Code Licensing Agreement with a
third party on January 21, 2004, which included an annual support fee renewable
at the option of the licensee. The details of the agreement are confidential. As
a result of the Agreement, our revenues increased significantly during the first
quarter of 2004 from the recording of the licensing fee and
10
approximately three months of the annual support fee. Almost all of the increase
in revenue is attributable to this agreement. All of the payments due to us
under this agreement were paid at the time of the contract and, at this time, we
do not anticipate any further payments; however, we will record $8,333 of the
fees received as revenue each month for the nine months from April 2004 to
December 2004 relating to the support services performed.
On March 29, 2004, we received $2,000,000 in funds from a private
investor in connection with a private placement offering. Subsequent to March
31, 2004, we agreed with the investor to restructure the investment and to
return $1,500,000 to the investor. The remaining $500,000 was restructured as a
loan to us repayable at our discretion and bearing interest at 5% per annum. In
connection with the private placement, we paid a $100,000 finder's fee. As of
May 20, 2004, we had recovered $50,000 of the finder's fee, which we repaid to
the investor to reduce the outstanding principal balance on the loan. We
anticipate recovering the remainder of the finder's fee and intend to apply the
$50,000 to the outstanding loan balance at the time of receipt. We anticipate
repayment of the remaining $400,000 of the loan by September 30, 2004 using
funds from future financings.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates, including those related to impairment of long-lived assets, any
potential losses from pending litigation and deferred tax assets or liabilities.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions; however,
we believe that our estimates, including those for the above-described items,
are reasonable.
BASIS OF CONSOLIDATION. Effective November 25, 2003, we issued
17,000,000 common shares in consideration for 100% of the outstanding common
shares of CNI. As CNI stockholders obtained control of Cirond Corporation
through the exchange of shares, the acquisition of CNI has been accounted for in
the consolidated financial statements as a recapitalization transaction,
effectively as if CNI had issued shares for consideration equal to our net
monetary assets followed by a recapitalization of CNI's common shares. On
November 25, 2003, our name was changed from eXmailit.com to Cirond Corporation.
The consolidated statements of loss, stockholders' deficiency and comprehensive
loss and cash flows reflect the results of operations and changes in financial
position of CNI, for the period from its incorporation on March 7, 2001 to March
31, 2004, combined with those of the legal parent, Cirond Corporation, from
November 25, 2003, the date of the recapitalization, in accordance with
accounting principles generally accepted in the United States of America.
11
REVENUE RECOGNITION. Revenue from one-time software license sales is
generally recognized once delivery has occurred, evidence of an arrangement
exists, the fee is fixed and determined and collection of the fee is probable,
provided there are no significant vendor obligations remaining. For multiple
element arrangements, where Vendor Specific Objective Evidence ("VSOE") of fair
value is available for all elements, the contract value is allocated to each
element proportionately based upon relative VSOE of fair value and revenue is
recognized separately for each element. Where VSOE of fair value is available
for all undelivered elements, the residual method is used to value the delivered
elements. Where VSOE of fair value is not available for an undelivered element,
contract accounting is used to account for the entire contract value.
RESULTS OF OPERATIONS
Revenues from operations increased from $nil for the three month period
ended March 31, 2003 to $754,575 for the three month period ended March 31,
2004. Revenue was derived principally from the Source Code Licensing agreement
described above which closed in the first quarter of 2004. We also received
revenue from sales of our WiNc and pocketWiNc software products. Sales of our
WiNc Manager wireless network management and security solution also started in
the first quarter of 2004. Our revenues increased significantly during the first
quarter of 2004 compared to the first quarter of 2003; however, almost all of
the increase is attributable to the Source Code Licensing Agreement. All of the
payments due to us under this agreement were paid at the time of the contract
and, at this time, we do not anticipate any further payments; however, we will
record a portion of the fees received as revenue each month for the 12 months
from January 2004 to December 2004 relating to the support fees earned in
connection with this agreement. In addition, management also expects greater
contributions to revenue from licensing our network security products in 2004,
as development of the Air Patrol Enterprise and Air Patrol Mobile products are
reaching completion in the second quarter of 2004. Management is also seeking to
enter into other license agreements for our technology during the next 12
months; however, there are no assurances that we will be successful in entering
into any such agreements.
As of March 31, 2004, we had significantly more cash than at December
31, 2003, as the result of the Company receiving $2 million on March 29, 2004
from a private investor. As of March 31, 2004, the investment had been accounted
for as a subscription payable. Subsequent to the end of the quarter, the
investment was restructured, as disclosed above.
Receivables of approximately $16,246 consisted of tax refunds owed to
our Canadian subsidiary and March sales of our software through esellerate.net
that were remitted to the Company subsequent to March 31, 2004. As the refunds
are owed by the Canadian government, management is of the opinion
that there are no foreseeable difficulties in recovering the amount. The
receivable at year end December 31, 2003 of $19,679 was collected in the first
quarter of 2004, which resulted in the reduction in accounts receivable.
Prepaid expenses consisted of three months of prepaid rent, which was
paid upon signing of the lease on our office space in Burnaby, B.C. Canada.
12
Property plant and equipment consisted of hardware equipment purchased
from independent suppliers in North America for the development of our products.
Consulting fees payable consisted of payables owed to two of our
officers, Nicholas Miller and Mitchell Burton. There was no change to the
consulting fees payable to the officers during the three months ended March 31,
2004.
Deferred Revenue consisted almost entirely of revenue derived from the
fact that we are recording a portion of the fees received from the Source Code
Licensing Agreement as revenue each month for the 12 months from January 2004 to
December 2004 relating to the support fees paid in connection with this
agreement.
Accounts payable and loan payable were lower at March 31, 2004,
compared to December 31, 2003, due to the cash received from the source code
licensing transaction and from the $2 million investment transaction (discussed
above). As cash at the end of the quarter was higher than at the year end, the
decision was made to reduce various outstanding payables to various parties.
Share subscriptions payable consisted of $2,000,000 that was received
by us prior to the end of the quarter. As discussed above, subsequent to the end
of the quarter, the investment was restructured.
Research and development costs, consisting of certain consulting fees,
rent and salaries and benefits, increased $80,979 in the first quarter of 2004
over 2003 as we did not enter our main development phase until the latter stages
of 2003. The development phase continued into the first quarter of 2004,
aggressively hiring programmers and leasing space for the purpose of completing
development of our WiNc Manager product.
Advertising and promotion was $15,618 higher, and travel was $35,959
higher in the first quarter of 2004 over 2003 as we continued to market our
products at trade shows and through meetings with value-added resellers more
aggressively than in the first quarter of 2003.
Finally, professional fees continued to be $23,451 higher owing to the
completion of the reverse take over transaction and regulatory costs associated
with this event still being incurred in the first quarter 2004. As of May 19,
2004, approximately $50,776 of professional fees charged to the Company related
to the reverse take-over still remains in dispute.
The increase of costs and expenses (including the increases in
consulting fees, salaries and benefits, and office and administrative expenses)
in comparison with the previous corresponding quarter generally reflected the
expansion of our business scope and the increase of staff and research and
development costs as well as increased marketing expenses.
For the three month period ended March 31, 2004, consulting fees
increased $33,690 over the similar period in 2003, due to the hiring of two
consultants for communications and business
13
development purposes. The hiring of the consultants occurred after March 31
2003. Office and administration costs increased $19,927 in the three month
period ended March 31 2004, compared to March 31, 2003, as we moved into our
newer and larger office space. Employee levels were also higher in first quarter
2004, compared to the first quarter of 2003. Finally, salaries and benefits
increased $46,134 as sales and support staff were brought on board in the period
subsequent to March 31, 2003. The salaries for these employees are not
considered research and development and therefore are classified and presented
separately under salaries and benefits in the statement of operations.
Despite these events, and primarily as a result of our source code
licensing agreement which was entered into during the first quarter of 2004, the
first quarter was profitable. Expenses are expected to stay at levels on par
with the first quarter of 2004 until we have completed significant financings in
2004 that will support increasing staffing levels in research and development
and sales and marketing.
No cash dividends were declared during the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2004, we had cash of $2,292,203 and a working capital
deficiency of $145,332.
During the three month period ended March 31, 2004, the net cash
supplied by operating activities was $299,206. In order to proceed with business
development and normal operations, net cash used in investing activities was
$18,069. We were able to meet our cash requirements in the first quarter of 2004
as a result of the cash received in connection with the source code licensing
transaction, which closed in the first quarter.
As disclosed above, on March 29, 2004, we received funds from a private
investor in connection with a private placement which, subsequent to March 31,
2004, was restructured resulting in a return of $1,500,000 to the investor and a
loan to us of $500,000. With the result of these financing initiatives, the net
increase in cash and cash equivalents was $2,206,137 in the first quarter of
2004.
In order to meet our continuing cash requirements and to successfully
implement our growth strategy, other than relying on revenue from our operating
activities, we will continue to seek additional funding from potential
investors. In the event that additional financing is required, no assurances can
be given that such financing will be available in the amount required or, if
available, that it can be on terms satisfactory to us. The Auditors' report on
the Company's consolidated financial statements for the year ended December 31,
2003 includes an explanatory paragraph that states that the Company has incurred
losses since inception and has a working capital deficiency at December 31,
2003, factors which raise substantial doubt about the Company's ability to
continue as a going concern. There has been no change in these factors during
the three months ended March 31, 2004. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
14
PLAN OF OPERATION
We believe we have sufficient funds to cover our operating overhead for
the next four months; however, we do not have sufficient funds to repay the
$400,000 loan (net of anticipated remaining refund of $50,000 finder's fee which
will be applied to the outstanding principal balance on the $450,000 loan). In
order to satisfy our cash requirements in the next twelve months, and to repay
the $400,000 loan, we will need to raise additional funds. Accordingly, we
intend to conduct additional financings to raise funds from private investors;
however, there are no assurances that we will be able to complete any such
financings.
We intend to continue our product research and development activities
to further enhance our existing product line and to create new products focused
on the same markets. We have budgeted in the past, and continue to budget,
approximately $900,000 for research and development costs during fiscal 2004.
We do not plan to purchase or sell any significant plant or equipment
in 2004.
We expect to increase the number of employees by approximately 15
individuals in the areas of engineering, marketing, sales, and customer support
during fiscal 2004, provided we have sufficient funding to support the hiring of
additional employees.
We are engaged in the marketing of Winc Manager, a software product
that is intended to improve wireless network management and security. The
recently-announced Air Patrol Enterprise and Air Patrol Mobile products will be
marketed in 2004. Air Patrol Mobile will be marketed in the second quarter of
2004 and Air Patrol Enterprise will be marketed in the third quarter of 2004. We
anticipate that, if sufficiently funded over the next twelve months our focus
will be: marketing our products, supporting customers, and research and
development.
We also intend to enter into other license agreements for our
technology, similar to the source code licensing agreement described above,
during the next 12 months; however, there are no assurances that we will be
successful in entering into any such agreements.
If we are successful in implementing our growth strategy, management
believes that we can undergo a period of rapid growth. For our AirPatrol
technology, we will actively search for more partners for the provision of
software licenses and related software consultancy and engineering services in
relation to its further development. Management expects Winc and pocketWinc to
ship in greater numbers in 2004, and thus will require further software
developments and upgrades for the remainder of the year.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any material off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
15
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-QSB, as well as
statements made by us in periodic press releases, oral statements made by our
officials to analysts and shareholders in the course of presentations about us,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the
forward looking statements. There are many factors that could cause these
forward-looking statements to be incorrect including, but not limited to, the
following:
o our ability to generate desired technologies;
o the lack of liquidity of our common stock;
o the risks associated with technology companies;
o our ability to find and retain skilled personnel;
o availability of capital;
o the strength and financial resources of our competitors; and
o general economic conditions.
ITEM 3. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures at the end of the
period covered by this report. This evaluation was carried out under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of our
disclosure controls and procedures are effective. There were no changes in our
internal control over financial reporting or in other factors that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES
On March 29, 2004, we received $2,000,000 from a private investor
in connection with an offering that closed April 19, 2004. The
investor purchased, for an aggregate price of $2,000,000,
4,000,000 shares of common stock, a warrant to acquire 1,000,000
shares of common stock at a price of $0.50 per share exercisable
until April 19, 2005, a warrant to acquire 1,000,000 shares of
common stock at a price of $0.75 per share exercisable until April
19, 2005, a warrant to acquire 1,000,000 shares of common stock at
a price of $1.00 per share exercisable until April 19, 2006, and a
warrant to acquire 1,000,000 shares of common stock at a price of
$1.25 per share exercisable until April 19, 2006. In connection
with the private placement, we paid a finder's fee of $100,000 (5%
of the gross proceeds) and agreed to pay an additional 5% finder's
fee upon the exercise of any warrants by the investor. Subsequent
to the closing, we agreed with the investor to restructure the
investment. We returned $1,500,000 to the investor. The remaining
$500,000 was restructured as a loan to us repayable at our
discretion and bearing interest at 5% per annum. $50,000 of the
finder's fee was refunded subsequent to March 31, 2004 and applied
against the loan. We anticipate recovering an additional $50,000
finder's fee that was paid in connection with the private
placement. When the finder's fee is repaid, we intend to apply the
$50,000 to the outstanding loan balance at the time of receipt. We
anticipate repayment of the remaining $400,000 of the loan by
September 30, 2004 using funds from future financings. The
investor was accredited and, as such, the securities were offered
and sold pursuant to the exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended, and Rule
506 of Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Please see the Press Release which is filed as Exhibit 99.1 to
this Quarterly Report and which is hereby incorporated by
reference.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
------------------------------------------------------------------
2.1 Stock Exchange Agreement by and between Cirond
Corporation (f/k/a eXmailit.com) and Seaside Holdings
Inc. (f/k/a Cirond Technologies Inc.) dated August
29, 2003 (1)
------------------------------------------------------------------
2.2 First Amendment to Stock Exchange Agreement by and
between Cirond Corporation and Seaside Holdings Inc.
(f/k/a Cirond Technologies Inc.) dated November 13,
2003 (1)
------------------------------------------------------------------
2.3 Articles of Exchange (2)
------------------------------------------------------------------
3.1 Articles of Incorporation, as amended (2)
------------------------------------------------------------------
3.2 Bylaws, as amended (2)
------------------------------------------------------------------
10.1 Management Advisory Services Agreement with Amber
Tiger Holdings Corp. dated February 1, 2002 (2)
------------------------------------------------------------------
10.2 Management Advisory Services Agreement with Headline
Technologies Ltd. dated February 1, 2002 (2)
------------------------------------------------------------------
10.3 2003 Stock Option Plan (2)
------------------------------------------------------------------
10.4 Management Advisory Services Agreement with Amber
Tiger Holdings Corp. dated January 1, 2004 (2)
------------------------------------------------------------------
31.1 Rule 13a-14(a) Certification of Chief Executive
Officer
------------------------------------------------------------------
31.2 Rule 13a-14(a) Certification of Chief Financial
Officer
------------------------------------------------------------------
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 of Chief Executive Officer
------------------------------------------------------------------
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 of Chief Financial Officer
------------------------------------------------------------------
99.1 Press Release dated May 11, 2004
------------------------------------------------------------------
---------------------
(1) Incorporated by reference to the exhibits to the
registrant's current report on Form 8-K dated November 25,
2003, filed December 5, 2003.
(2) Incorporated by reference to the exhibits to the
registrant's Annual Report on Form 10-KSB, filed May 7,
2004.
Reports on Form 8-K:
The following reports on Form 8-K were filed during the
quarter ended March 31, 2004:
o Report dated December 3, 2003 reporting under Items 5 and 7
the shipment date for WiNc Manager 2.0, the shipment date for
WiNc 2.0 and the announcement of AirPatrol, filed January 20,
2004.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CIROND CORPORATION
Date: May 21, 2004 By: /s/ DAVID REDEKOP
--------------------------------------------
David Redekop
Chief Financial Officer
19