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: JUNE 30, 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 X No
----- ------
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 AUGUST 16, 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)
Six-months ended June 30, 2004
(Unaudited)
2
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in United States dollars)
June 30, 2004 and December 31 2003
=============================================================================================================
June 30, 2004
(unaudited) December 31, 2003
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 521,796 $ 86,066
Amounts receivable, net of allowance of nil (2003 - $nil) 17,836 19,679
Prepaid expenses and deposits 12,006 12,492
----------------------------------------------------------------------------------------------------------
551,638 118,237
Property, plant and equipment 68,086 54,497
Website development 7,927 9,512
- -------------------------------------------------------------------------------------------------------------
$ 627,651 $ 182,246
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (note 3) $ 183,661 $ 165,522
Consulting fees payable (note 4) 106,700 130,000
Share subscriptions payable (note 5(a)) 325,000 375,000
Deferred revenue 64,374 6,884
Loan payable (note 5(b)) 400,000 75,000
Due to stockholder 171,576 171,576
----------------------------------------------------------------------------------------------------------
1,251,311 923,982
Stockholders' 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 (1,949,033) (1,692,109)
----------------------------------------------------------------------------------------------------------
(623,660) (741,736)
Going concern (note 2(a))
Subsequent event (note 5(b)
Commitments (note 6)
- -------------------------------------------------------------------------------------------------------------
$ 627,651 $ 182,246
=============================================================================================================
See accompanying notes to consolidated interim financial statements.
3
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Loss
(Expressed in United States dollars)
(Unaudited)
==============================================================================================================
From inception Six months Six months
(March 7, 2001) ended ended
to June 30, June 30, June 30,
2004 2004 2003
- --------------------------------------------------------------------------------------------------------------
Revenue:
Sales (note 7) $ 849,211 $ 821,562 $ 1,652
Expenses:
Advertising and promotion 270,156 158,082 33,236
Amortization 41,957 10,430 5,411
Consulting fees (note 4) 539,661 169,648 114,248
Foreign currency loss (gain) 9,703 3,789 (5,973)
Interest 2,875 897 556
Office and administrative 67,652 37,279 9,384
Professional fees 279,516 126,530 36,612
Research and development 1,004,128 347,804 158,230
Salaries and benefits 218,886 119,992 53,620
Travel 242,451 107,156 58,947
----------------------------------------------------------------------------------------------------------
2,676,985 1,081,607 464,271
- ---------------------------------------------------------------------------------------------------------------
Loss before interest income (1,827,774) (260,045) (462,619)
Interest income 3,388 3,121 5
- ---------------------------------------------------------------------------------------------------------------
Loss $ (1,824,386) $ (256,924) $ (462,614)
===============================================================================================================
Weighted average number of common
shares outstanding, basic and diluted 20,065,262 34,835,000 17,000,000
Net income (loss) per share, basic and diluted $ (0.09) $ (0.01) $ (0.03)
===============================================================================================================
See accompanying notes to consolidated interim financial statements.
4
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Loss
$ United States
(Unaudited)
===============================================================================================================
Three months Three months
ended ended
June 30, June 30,
2004 2003
- ---------------------------------------------------------------------------------------------------------------
Revenue:
Sales (note 7) $ 66,987 $ 1,652
Expenses:
Advertising and promotion 118,345 9,117
Amortization 6,397 3,259
Consulting fees (note 4) 90,749 69,039
Foreign currency loss (gain) 2,004 (598)
Interest 580 447
Office and administrative 15,286 7,318
Professional fees 92,870 26,403
Research and development 186,067 113,888
Salaries and benefits 65,349 8,694
Travel 48,089 35,839
----------------------------------------------------------------------------------------------------------
625,736 273,406
- ---------------------------------------------------------------------------------------------------------------
Loss before interest income (558,749) (271,754)
Interest income 2,376 -
- ---------------------------------------------------------------------------------------------------------------
Loss $ (556,373) $ (271,754)
===============================================================================================================
Weighted average number of common
shares outstanding, basic and diluted 35,210,000 17,000,000
Loss per share, basic and diluted $ (0.02) $ (0.02)
===============================================================================================================
See accompanying notes to consolidated financial statements.
5
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Deficiency and Comprehensive Income
(Loss)
(Expressed in United States dollars)
From inception (March 7, 2001) to June 30, 2004
(Unaudited)
==================================================================================================================
Deficit
accumulated Total
Additional during the stockholders'
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 loss:
Net loss - - - (256,924) (256,924)
- -----------------------------------------------------------------------------------------------------------------
Balance,
June 30, 2004 (unaudited) 35,210,000 $ 35,210 $ 1,290,163 $ (1,949,033) $ (623,660)
=================================================================================================================
See accompanying notes to consolidated interim financial statements.
6
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
(Unaudited)
===============================================================================================================
From inception Six months Six months
(March 7, 2001) ended, ended
to June 30, June 30, June 30,
2004 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net income (loss) $ (1,824,386) $ (256,924) $ (462,614)
Item not involving cash:
Amortization 41,957 10,430 5,411
Changes in non-cash working capital:
Amounts receivable (17,836) 1,843 (2,605)
Prepaid expenses and deposits (12,006) 486 (11,853)
Accounts payable and accrued liabilities 182,467 18,139 15,737
Consulting fees payable 106,700 (23,300) (21,282)
Deferred revenue 64,374 57,490 -
----------------------------------------------------------------------------------------------------------
(1,458,730) (191,836) (477,206)
Financing:
Common shares issued for cash 300,372 - -
Promissory note proceeds 650,000 - -
Share subscriptions payable 700,000 325,000 425,000
Proceeds from loans payable 500,000 500,000 -
Repayment of loans payable (175,000) (175,000)
Advances from stockholder 171,576 - 48,973
----------------------------------------------------------------------------------------------------------
2,146,948 650,000 473,973
Investing:
Expenditures on website development (19,025) - -
Expenditures on property, plant and equipment (98,945) (22,434) (32,760)
Advances to Cirond prior to recapitalization
transaction (55,157) - -
Cash acquired on recapitalization transaction 6,705 - -
----------------------------------------------------------------------------------------------------------
(166,422) (22,434) (32,760)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 521,796 435,730 (35,993)
Cash, beginning of period - 86,066 60,135
- ---------------------------------------------------------------------------------------------------------------
Cash, end of period $ 521,796 $ 521,796 $ 24,142
===============================================================================================================
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.
7
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Six months ended June 30, 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 June 30, 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 $1,824,386 for the period from inception (March
7, 2001) to June 30, 2004, and has a working capital deficiency of
$699,673 at June 30, 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.
8
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Six months ended June 30, 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 June 30, 2004 is
$50,776 (December 31, 2003 - $50,776) that is currently being disputed by
management with a supplier.
4. RELATED PARTY TRANSACTIONS:
During the three months and six months ended June 30, 2004, the Company
incurred consulting fees from a company controlled by the president
totaling $45,000 and $90,000 (2003 - $30,000 and $60,000 respectively). At
June 30, 2004, $20,000 (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 AND LOAN PAYABLE:
a) Share subscriptions outstanding at June 30, 2004, consist of
subscriptions to acquire 650,000 common shares at a price of $0.50 per
share.
b) During the six months ended June 30, 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
=======================================================================
9
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Six months ended June 30, 2004
(Unaudited)
================================================================================
5. SHARE SUBSCRIPTIONS PAYABLE AND LOAN PAYABLE (CONTINUED):
In May 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 Company returned $100,000 of the remaining
$500,000 when a finder's fee of $100,000, paid in conjunction with the
subscription, was refunded to the Company. The terms of the demand loan is
not currently subject to a written agreement.
Subsequent to June 30, 2004, the Company has entered into negotiations with
the lender to restructure the terms of the loan payable, which is expected
to result in the Company issuing an unsecured convertible note, with
interest at 5%, which, at the option of the lender, could be converted into
1,000,000 shares of common stock. In addition, it is expected that the
Company will issue a warrant to acquire 1,000,000 shares of common stock at
a price of $0.40 per share. A formal written agreement has not been
finalized by the parties and the final agreed terms could be different than
the expected terms indicated above. The outcome of these matters cannot be
determined at this time.
6. 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
=============================================================================
7. REVENUE:
During the six months ended June 30, 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.
10
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 are 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.
CNI entered into a non-exclusive Source Code Licensing Agreement (the
"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 two quarters of 2004 from the recording of the
licensing fee and approximately six months of the annual support fee. Almost all
of the increase in revenue is attributable to the 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 six months from July
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. During the quarter
ended June 30, 2004, we agreed with the investor to restructure the investment
and to return $1,500,000 to the investor.
11
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. During the quarter ended June 30,
2004, we recovered the finder's fee, which we repaid to the investor to reduce
the outstanding principal balance on the loan. We have tentatively agreed with
the investor to (1) grant the investor a warrant to acquire 1,000,000 shares of
our common stock at a price of $0.40 per share and (2) restructure the terms of
the loan as a convertible note with an annual interest rate of 5% which, at the
option of the investor, could be converted into 1,000,000 shares of our common
stock. As of the date of this report, we are in the process of finalizing the
terms of the restructuring of the loan (including the expiration date of the
warrant and the due date of the convertible note) and preparing the documents
necessary to formalize the restructuring.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated interim 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 the valuation of accounts receivable and
inventories, the 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.
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 a net loss of $556,373 and $256,924 for the three months and six months
ended June 30, 2004, respectively. At June 30, 2004, we had an accumulated
deficit of $1,949,033 and a working capital deficit of $699,673. 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 our
ability to receive continued financial support from our creditors, stockholders
and external investors and attaining profitable operations through the sale of
our software. 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. Management plans to obtain
equity and debt financing from external investors and to actively market our
wireless technology applications.
12
Management believes the plan described above will be sufficient to meet
our 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 our wireless technology applications will cause us
to curtail operations and impair our ability to continue as a going concern.
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 June
30, 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.
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
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
Revenues from operations increased from $1,652 for the three month
period ended June 30, 2003 to $66,987 for the three month period ended June 30,
2004. Revenue during the three month period ended June 30, 2004, was derived
principally from software customization and licensing of our Winc Manager, Winc,
pocketWinc and recently-introduced AirPatrol Mobile software products. Revenue
also included the recording of support service fees received under the Source
Code Licensing agreement described above which closed in the first quarter of
2004. Our revenues during the three month period ended June 30, 2004 increased
significantly compared to the same period in 2003. The increase is attributable
to the release of new products (AirPatrol Mobile and Winc Manager 2.0) as well
as increased marketing initiatives including
13
trade shows, print and online advertising - as well as the Source Code Licensing
Agreement (which accounted for a minority of revenue in the quarter). All of the
payments due to us under the Source Code Licensing 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 21, 2004 to January 20, 2005 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 the Air Patrol Enterprise, Air Patrol
Sentinel and AirSafe products begin shipping in the third 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. Management also
anticipates continued increase in sales of our AirPatrol Mobile products,
particular as further marketing initiatives are undertaken in the third and
fourth quarters of this year.
During the second quarter, we invested in a variety of print and online
marketing initiatives and attended three major industry exhibitions in the
United States and the United Kingdom - all of which contributed to an increase
in marketing expenses compared to the prior year. In addition, we increased our
expenditures for research and development in the quarter - all of which resulted
in the announcement of AirPatrol Enterprise, AirPatrol Sentinel, AirSafe, Winc
2.1 and pocketWinc 2.0 in July 2004. We also undertook initiatives to expand our
distribution, which resulted in the conclusion of agreements with leading online
mobile computer software vendors Handango and Pocketgear to carry our products.
Our net loss for the three months ended June 30, 2004 was $556,373
compared to a net loss of $271,754 for the three months ended June 30, 2003. The
increase in the net loss is primarily the result of increased expenditures on
research and development, as well as sales support and marketing initiatives.
Advertising was $118,345 for the quarter compared to $9,117 for 2003 as our
products have advanced from the development stage in 2003 to the sales stage in
2004. Research and development during the three months ended June 30, 2004,
increased $72,179 compared to 2003 as more people were added to the development
team in 2004. Expenses are expected to stay at levels on par with the first half
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 three months ended June 30,
2004.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
Revenues from operations increased from $1,652 for the six month period
ended June 30, 2003 to $821,562 for the six month period ended June 30, 2004.
Revenue from the Source Code Licensing agreement described above, which closed
in the first quarter of 2004, accounted for approximately 91% of revenues for
the six months ended June 30, 2004. We also received revenue from software
customization and licensing of our Winc Manager, Winc, pocketWinc and
recently-introduced AirPatrol Mobile software products. Our revenues during the
six month period ended June 30, 2004 increased significantly compared to the
same period during 2003;
14
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 21, 2004 to January 20, 2005 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 the Air Patrol Enterprise, Air Patrol
Sentinel and AirSafe products begin shipping in the third 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.
During the first six months of 2004, our expenses increased over the
same period in the prior year as we invested in a variety of print and online
marketing initiatives and attended four major industry exhibitions in the United
States and the United Kingdom - all of which contributed to an increase in
marketing expenses compared to the prior year. In addition, we increased
expenditures for research and development in that period - all of which resulted
in the announcement of Winc Manager 2.0, AirPatrol Mobile, AirPatrol Enterprise,
AirPatrol Sentinel, AirSafe, Winc 2.1 and pocketWinc 2.0. We also undertook
initiatives to expand our distribution, which resulted in the conclusion of
agreements with hardware vendor Netgear as well as leading online mobile
computer software vendors Handango and Pocketgear to carry our products.
Our net loss for the six months ended June 30, 2004 was $256,924
compared to a net loss of $462,614 for the six months ended June 30, 2003. The
decrease in the net loss is primarily a result of our Source Code Licensing
agreement which was entered into during the first quarter of 2004; however,
expenses also increased compared to the six-month period ended June 30, 2003. As
in the three month period, the most dramatic increases in expenses are in the
areas of advertising and promotion and research and development. Both of these
areas have seen more intensified expenditures as our products have reached the
sales portion of the sales cycle. Travel has also increased as sales and
marketing personnel attended more trade shows in 2004 compared to 2003. Research
and development is also higher in 2004 as a result of $100,000 of purchased
research and development. Expenses are expected to stay at levels on par with
the first six months 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 six months ended June 30,
2004.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2004, we had cash of $521,796 and a working capital
deficiency of $699,673.
As of June 30, 2004, we had significantly more cash than at December
31, 2003, as the result of funds we received from private financings. A portion
of the cash is attributable to the $2 million received on March 29, 2004 from a
private investor. During the three months ended June 30, 2004, $1,600,000 was
returned to the investor and, as described above, the remaining
15
$400,000 was restructured as a loan to us - and is in the process of being
restructured as an equity investment as also described above. Additionally, in
June 2004, we began another private placement offering. As of June 30, 2004, we
had received subscriptions for $325,000 from private placements, which were
accounted for as share subscriptions payable. As of the date of this report, the
common shares have not been issued to the investors in the private placement, as
we are awaiting additional documentation from some of the investors. If the
investors are unable to provide the additional documentation, we may have to
return the funds to the investors. Additionally, one investor subscribed for
less than the minimum subscription amount. If the investor does not increase his
subscription, we may have to return the funds to the investor.
Receivables of approximately $17,836 consisted of sales made on
Esellerate and Handango websites in June and paid to us in July, as well as
refundable taxes from the Canadian government. The amounts receivable at
December 31, 2003 of $19,679 were collected in the first quarter of 2004, and
this contributed to the reduction in accounts receivable.
Prepaid expenses consisted of prepaid rent.
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. During the six months ended June
30, 2004, consulting fees payable decreased by $23,300 due mostly to an extra
payment made in the quarter to Mr. Miller.
Deferred revenue includes support revenue in connection with the Source
Code Licensing Agreement, which is being recognized each month for the 12 months
from January 21, 2004 to January 20, 2005. Deferred revenue also includes an
$8,500 advance payment related to a customized software license agreement to be
delivered in the third quarter.
Accounts payable and loan payable were higher at June 30, 2004,
compared to December 31, 2003, due to increases in marketing and investor
relations and the $400,000 loan resulting from the restructuring of the $2
million investment transaction (discussed above).
Share subscriptions payable consisted of $325,000 that was received by
us prior to the end of the quarter.
During the six month period ended June 30, 2004, the net cash used
by operating activities was $191,836. In order to proceed with business
development and normal operations, net cash used in investing activities was
$22,434. We were able to meet our cash requirements during the six months ended
June 30, 2004 as a result of the cash received from subscriptions for our common
shares during the second quarter and the loan received from the private
placement investor, discussed above at the end of the first quarter.
As disclosed above, on March 29, 2004, we received funds from a
private investor in connection with a private placement which during the quarter
ended June 30, 2004, was
16
restructured resulting in a return of $1,600,000 to the investor and a loan to
us of $400,000. With the result of these financing initiatives, the net increase
in cash and cash equivalents was $435,730 during the six months ended June 30,
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 our consolidated financial statements for the year ended
December 31, 2003 includes an explanatory paragraph that states that we have
incurred losses since inception and had a working capital deficiency at December
31, 2003, factors which raise substantial doubt about our ability to continue as
a going concern. There has been no change in these factors during the six months
ended June 30, 2004. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PLAN OF OPERATION
We believe we have sufficient funds to cover our operating overhead
for the next three months; however, we do not have sufficient funds to repay the
aforementioned $400,000 loan. In order to satisfy our cash requirements in the
next twelve months, 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.
Instead of our repaying the $400,000 loan, we have tentatively
agreed with the investor to (1) grant the investor a warrant to acquire
1,000,000 shares of our common stock at a price of $0.40 per share and (2)
restructure the terms of the loan as a convertible note with an annual interest
rate of 5% which, at the option of the investor, could be converted into
1,000,000 shares of our common stock. As of the date of this report, we are in
the process of finalizing the terms of the restructuring of the loan (including
the expiration date of the warrant and the due date of the convertible note) and
preparing the documents necessary to formalize the restructuring.
During June 2004, we began a private placement offering of 2,000,000
shares of common stock at a price of $0.50 per share for an aggregate of
$1,000,000. As of June 30, 2004, we had received subscriptions in the offering
totaling $325,000, which were recorded as share subscriptions payable. As of the
date of this report, we have not issued the common shares in connection with the
subscriptions, as we need to obtain further information from some of the
investors prior to completing the subscriptions. In the event the investors are
unable to provide the requested information, we may have to return the funds to
the investors. Additionally, one investor subscribed for less than the minimum
subscription amount. If the investor does not increase his subscription, we may
have to return the funds to the investor.
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
17
have budgeted in the past, and continue to budget, approximately $800,000 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 10
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 AirPatrol Mobile, AirPatrol
Enterprise, AirPatrol Sentinel, AirSafe, Winc 2.1 and pocketWinc 2.0, software
products that are intended to improve network security, wireless security and
wireless connectivity. 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 AirPatrol Mobile,
AirPatrol Enterprise, AirPatrol Sentinel, AirSafe, Winc 2.1 and pocketWinc 2.0
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.
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:
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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. 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.
Subsequent to the closing, we agreed with the investor to restructure
the investment. We have returned $1,600,000 to the investor (including
the $100,000 finder's fee which was repaid to us). The remaining
$400,000 was restructured as a loan to us repayable at our discretion
and bearing interest at 5% per annum.
We have been engaged in discussions with the investor to restructure
the terms of the $400,000 loan. Tentatively, we have agreed with the
investor to (1) grant the investor a warrant to acquire 1,000,000
shares of our common stock at a price of $0.40 per share and (2)
restructure the terms of the loan as a convertible note with an annual
interest rate of 5% which, at the option of the investor, could be
converted into 1,000,000 shares of our common stock. As of the date of
this report, we are in the process of finalizing the terms of the
restructuring of the loan (including the expiration date of the warrant
and the due date of the convertible note) and preparing the documents
necessary to formalize the restructuring.
During June 2004, we began conducting an offering of 2,000,000 common
shares at a price of $0.50 per share, for an aggregate of $1,000,000.
We are not utilizing any underwriters in connection with the offering;
however, we have agreed to pay commissions of up to 10% to persons who
assist us with the offering. We are offering the common shares only to
accredited investors, as such, the securities are being 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
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promulgated thereunder. As of June 30, 2004, we had received
subscriptions for an aggregate of $325,000 (650,000 common shares) from
seven prospective investors. As of the date of this report, the common
shares have not been issued to the investors, as we are awaiting
additional information from certain investors in connection with the
offering. In the event the investors cannot provide the required
information, we may have to return the funds to the investors.
Additionally, one investor subscribed for less than the minimum
subscription amount. If the investor does not increase his
subscription, we may have to return the funds to the investor.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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
-----------------------------------------------------------------------
21
-----------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
-----------------------------------------------------------------------
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
-----------------------------------------------------------------------
-------------------
(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:
(1) Amended Report dated November 25, 2003, filed April 19, 2004,
reporting under Item 1 - Changes in Control of Registrant; Item
2 - Acquisition or Disposition of Assets; Item 4 - Changes in
Registrant's Certifying Accountant; Item 5 - Other Events and
Regulation FD Disclosure; and Item 7 - Financial Statements and
Exhibits. The amended report was filed to include the following
financial statements:
Audited consolidated financial statements of CNI as at December
31, 2002 and 2001 and for the year ended December 31, 2002 and
period from inception (March 7, 2001) to December 31, 2001.
Unaudited consolidated financial statements of CNI as at
September 30, 2003 and for the three months, nine months and
period from inception (March 7, 2001) then ended.
Unaudited Pro Forma Combined Financial Information for Cirond
Corporation and its subsidiaries.
(2) Report dated May 10, 2004, filed on May 10, 2004 reporting under
Item 5 - Other Events and Regulation FD Disclosure and Item 7 -
Financial Statements and Exhibits.
22
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: August 19, 2004 By: /s/ DAVID REDEKOP
-------------------------------------
David Redekop
Chief Financial Officer
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