As filed January 20, 2005 File No.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CIROND CORPORATION
(Name of small business issuer in its charter)
NEVADA 3577 88-0469593
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization Classification Code Number)
4185 STILL CREEK DRIVE #B-101
BURNABY, BRITISH COLUMBIA, CANADA V5C 6G9
(604) 205-5039
(Address and telephone number of principal executive offices)
4185 STILL CREEK DRIVE #B-101
BURNABY, BRITISH COLUMBIA, CANADA V5C 6G9
(Address of principal place of business or intended principal place of business)
FAY M. MATSUKAGE, ESQ.
DILL DILL CARR STONBRAKER & HUTCHINGS, P.C.
455 SHERMAN STREET, SUITE 300
DENVER, COLORADO 80203
(303) 777-3737
(Name, address and telephone number of agent for service)
Copies of all communications to:
FAY M. MATSUKAGE, ESQ.
DILL DILL CARR STONBRAKER & HUTCHINGS, P.C.
455 SHERMAN STREET, SUITE 300
DENVER, COLORADO 80203
(303) 777-3737; (303) 777-3823 FAX
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of the Registration Statement.
If any of the securities registered on this form are being offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act, check the
following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE REGISTERED OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED (1)<F1> (2)<F2> UNIT (3)<F3> PRICE (3)<F3> REGISTRATION FEE
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Common stock, $0.001 par 28,567,564 $0.295 $8,427,431.30 $991.91
value per share
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<FN>
(1)<F1> Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also covers such additional number of shares of
common stock that may become issuable as a result of any stock splits,
stock dividends, or other similar transactions.
(2)<F2> Includes 28,567,564 shares representing 125% of (i) all of the shares
of common stock issuable upon conversion in full of the preferred
stock, (ii) all shares of common stock issuable upon exercise of the
warrants, (iii) all of the Additional Investment Right Shares, (iv) all
shares of common stock issuable upon exercise of the warrants issued to
Ascendiant Securities, LLC, (v) any securities issued or issuable upon
any stock split, dividend or other distribution recapitalization or
similar event with respect to the foregoing and (vi) any additional
shares issuable in connection with any anti-dilution provisions in the
preferred stock, the warrants or the warrants issued to Ascendiant
Securities, LLC.
(3)<F3> Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee, based upon the average of the bid and asked
prices for such shares of common stock on January 18, 2005, as reported
by the OTC Bulletin Board.
</FN>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
Subject to Completion, Dated January 20, 2005
CIROND CORPORATION
UP TO 28,567,564 SHARES OF COMMON STOCK
Unless the context otherwise requires, the terms "we", "our" and "us"
refers to Cirond Corporation.
This prospectus relates to the resale by selling stockholders of up to
28,567,564 shares of common stock. We will not receive any proceeds from sale of
any of the shares offered by the selling stockholders. We will pay the expenses
of registering these shares.
Our common stock is traded on the OTC Bulletin Board under the symbol
"CROO.OB." On January 18, 2005, the closing bid price for our common stock was
$0.27 per share.
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. A
DETAILED EXPLANATION OF THESE RISKS IS INCLUDED IN THE SECTION ENTITLED "RISK
FACTORS" OF THIS PROSPECTUS, BEGINNING ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal OFFENSE.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
____________, 2005
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY.............................................................3
RISK FACTORS...................................................................4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..............................8
USE OF PROCEEDS................................................................8
MARKET FOR COMMON EQUITY.......................................................8
DIVIDEND POLICY................................................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......................9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................................15
BUSINESS......................................................................15
MANAGEMENT....................................................................19
EXECUTIVE COMPENSATION........................................................21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................25
DESCRIPTION OF SECURITIES.....................................................26
SELLING STOCKHOLDERS..........................................................27
PLAN OF DISTRIBUTION..........................................................29
LEGAL MATTERS.................................................................31
EXPERTS.......................................................................31
ADDITIONAL INFORMATION........................................................31
REPORTS TO STOCKHOLDERS.......................................................31
INDEX TO FINANCIAL STATEMENTS.................................................32
2
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should carefully read this entire prospectus and the financial
statements contained in this prospectus before purchasing our securities.
CIROND CORPORATION
We are engaged in the development of technologies designed to securing
wired and wireless networks against the rapidly growing security threat
represented by the deployment of unauthorized wireless devices. We have
developed and market primarily software-based products incorporating our
proprietary technology that are applicable to all segments of the Wireless Local
Area Network (WLAN) marketplace.
Our principal executive offices are located at 4185 Still Creek Drive
#B-101, Burnaby, British Columbia, Canada V5C 6G9, and our telephone number is
(604) 205-5039. Our website is located at WWW.CIROND.COM. Information contained
in our website is not part of this prospectus.
THE OFFERING
Securities offered.............Up to 28,567,564 shares of common stock that may
be acquired by selling stockholders.
Use of proceeds................We will not receive any of the proceeds from the
selling stockholders of shares of our common
stock.
Securities outstanding.........37,110,000 shares of common stock as of December
31, 2004.
Plan of distribution...........The offering is made by the selling stockholders
named in this prospectus, to the extent they sell
shares. Sales may be made in the open market or
in private negotiated transactions, at fixed or
negotiated prices. See "Plan of Distribution."
Risk factors...................An investment is subject to risk. See "Risk
Factors."
SUMMARY SELECTED FINANCIAL INFORMATION
The balance sheet and income statement data shown below were derived
from our audited and unaudited consolidated financial statements. Our results of
operations for any interim period do not necessarily indicate our results of
operations for the full year. You should read this summary financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," and our financial statements.
BALANCE SHEET DATA:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
(UNAUDITED)
Cash.......................................................... $ 59,301 $ 86,066 $ 60,135
Working capital (deficit) .................................... $ (774,946) $ (805,745) $ (238,616)
Total assets.................................................. $ 165,729 $ 182,246 $ 99,548
Total liabilities............................................. $ 871,393 $ 923,982 $ 302,676
Stockholders' equity (deficit)................................ $ (705,664) $ (741,736) $ (203,128)
3
INCOME STATEMENT DATA:
NINE MONTHS NINE MONTHS MARCH 7, 2001
ENDED ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED YEAR ENDED THROUGH
2004 2003 DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED) 2003 2002 2004
Revenue.......................$ 905,108 $ 10,545 $ 27,649 $ -- $ 932,757
Net (loss) ...................$ (741,428) $ (642,274) $ (1,063,962) $ (498,034) $ (2,308,890)
Basic and diluted (loss)
per share.....................$ (0.02) $ (0.04) $ (0.06) $ (0.03) $ (0.11)
RISK FACTORS
Before deciding to invest in us or to maintain or increase your
investment, you should carefully consider the risk factors described below,
together with all other information in this prospectus and in our other filings
with the SEC, before making an investment decision. If any of the following
risks actually occurs, our business, financial conditions or operating results
could be materially adversely affected. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
WE HAVE INCURRED LOSSES SINCE OUR INCEPTION AND WILL CONTINUE TO INCUR LOSSES IN
THE FUTURE.
To date our operations have generated insufficient revenues to provide
working capital for our ongoing overhead and our research and development
efforts. Through September 30, 2004, we have incurred a loss of $2,308,890 since
inception. Without adequate financing, we may not be able to develop and market
successfully any technologies or products and we may not achieve profitability
from operations in the near future or at all.
OUR FUTURE EXISTENCE REMAINS UNCERTAIN AND THE REPORT OF OUR AUDITORS ON OUR
DECEMBER 31, 2003 FINANCIAL STATEMENTS CONTAINS A "GOING CONCERN" QUALIFICATION.
The report of the independent auditors on our financial statements for
the year ended December 31, 2003, includes an explanatory paragraph relating to
our ability to continue as a going concern. We have suffered substantial losses
from operations since inception, require additional financing, and need to
continue the development of our products. Ultimately we need to generate
additional revenues and attain profitable operations. These factors raise
substantial doubt about our ability to continue as a going concern. There can be
no assurance that we will be able to develop a commercially viable product or
marketing system. Even if we are able to develop a commercially viable product,
there is no assurance that we will be able to attain profitable operations.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO CONTINUE OUR OPERATIONS.
We have relied in the past on the sale of equity capital to fund
working capital and our research and development efforts. Failure to generate
sufficient operating cash flow or to obtain additional financing could result in
delay or cause indefinite postponement of further research and development with
the possible loss of any timing advantage.
As of September 30, 2004, we had a working capital deficiency of
$774,946. Our current liabilities include a demand loan in the principal amount
of $400,000. If we are unable to pay the $400,000, we may be forced to cease
operations, in which case an investment in our securities may become worthless.
Our research and development and marketing efforts will require
significant new funding. We intend to conduct additional financings during the
fiscal year ending December 31, 2005. Any future financing through the issuance
of our common stock will likely result in a substantial dilution to our
stockholders.
4
TERMS OF SUBSEQUENT FINANCINGS MAY ADVERSELY IMPACT YOUR INVESTMENT.
We may have to engage in common equity, debt, or preferred stock
financing in the future. Your rights and the value of your investment in the
common stock could be reduced. Interest on debt securities could increase costs
and negatively impacts operating results. Preferred stock could be issued in
series from time to time with such designations, rights, preferences, and
limitations as needed to raise capital. The terms of preferred stock could be
more advantageous to those investors than to the holders of common stock. In
addition, if we need to raise more equity capital from sale of common stock,
institutional or other investors may negotiate terms at least as, and possibly
more, favorable than the terms of your investment. Shares of common stock which
we sell could be sold into the market, which could adversely affect market
price.
THE TECHNOLOGY INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE THAT
REQUIRES CIROND TO DEVELOP NEW TECHNOLOGIES AND PRODUCTS.
Our future will depend upon our ability to successfully develop and
market innovative products in a rapidly changing technological environment. We
will likely require significant capital to develop new technologies and products
to meet changing customer demands that, in turn, may result in shortened product
lifecycles. Moreover, expenditures for technology and product development are
generally made before the commercial viability for such developments can be
assured. As a result, we cannot assure that we will successfully develop and
market these new products, that the products we do develop and market will be
well received by customers, or that we will realize a return on the capital
expended to develop such products.
WE MAY NOT BE ABLE TO SUFFICIENTLY PROTECT OUR INTELLECTUAL PROPERTY.
We have developed certain technology that works with and manages
wireless networks. Our products may not be patentable. If we apply for any
patents, there are no assurances that one will be granted or will afford us
commercially significant protection for the technology or have commercial
application. Furthermore, any patents we are issued will not have been tested in
the courts and litigation may be necessary to determine the validity and scope
of those patents. Moreover the patent laws of foreign countries may differ from
those of the United States and the degree of protection afforded by foreign
patents may therefore be different. In the event our products are successfully
marketed, competitors with greater financial resources and marketing ability may
copy our products or develop equivalent or superior products. In addition, we
may rely on unpatented know-how and there can be no assurance others will not
obtain access to, or independently develop, such know-how. The extent to which
we will utilize confidentiality agreements is unknown, and there are no
assurances that any of our products can be maintained as a trade secret.
OUR COMPETITORS HAVE GREATER RESOURCES, WHICH COULD ENABLE THEM TO ENGAGE IN
ACCELERATED RESEARCH AND DEVELOPMENT EFFORTS.
The industry in which we engage is intensely competitive, and we
compete with other companies that have greater resources. In addition, we have
licensed our technology to another company, and may in the future license our
technology to other companies, with greater financial resources and which may
compete against us. Such companies may be able to hire more programming and
research talent than our financial resources permit. In our industry, often the
first to develop a needed solution gains the competitive edge. In addition, such
companies may have a greater ability to continue research and development
efforts and, if desired technology and/or products are developed, to market such
technology and/or products.
OUR SUCCESS DEPENDS ON OUR KEY MANAGEMENT PERSONNEL, THE LOSS OF ANY OF WHOM
COULD DISRUPT OUR BUSINESS.
The success of our operations and activities is dependent to a
significant extent on the efforts and abilities of our management. The loss of
services of any of our key personnel could have a material adverse effect on our
business. We have not obtained "key man" insurance for any of our management.
Mr. Miller is our President and Chief Executive Officer and Mr. Burton is our
Chief Technology Officer. The loss of either of their services may adversely
affect our business and prospects.
5
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE AND CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS.
Our limited operating history and the lack of established products make
it difficult to predict accurately our future operations. We expect that our
operating results will fluctuate significantly from quarter to quarter, due to a
variety of factors, many of which are beyond our control. If our operating
results fall below the expectations of investors or securities analysts, the
price of our common stock could decline significantly. The factors that could
cause our operating results to fluctuate include, but are not limited to:
o developments in wireless networking technology;
o price and availability of alternative solutions for wireless
networking systems;
o availability and cost of technology and marketing personnel;
o our ability to establish and maintain key relationships with
industry partners;
o the amount and timing of operating costs and capital expenditures
relating to maintaining our business, operations, and
infrastructure; and
o general economic conditions and economic conditions specific to the
technology sector.
These and other external factors have caused and may continue to cause
the market price and demand for our common stock to fluctuate substantially,
which may limit or prevent investors from readily selling their shares of common
stock and may otherwise negatively affect the liquidity of our common stock.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. If securities class action litigation were to be brought against us
it could result in substantial costs and a diversion of our management's
attention and resources, which could hurt our business.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION THAT MAY AFFECT THE
LIQUIDITY FOR OUR COMMON STOCK.
Our common stock is subject to regulations of the Securities and
Exchange Commission relating to the market for penny stocks. These regulations
generally require that a disclosure schedule explaining the penny stock market
and the risks associated therewith be delivered to purchasers of penny stocks
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors. The
regulations applicable to penny stocks may severely affect the market liquidity
for our common stock and could limit your ability to sell your securities in the
secondary market.
OUR ISSUANCE OF THE SERIES B PREFERRED STOCK AND WARRANTS COULD SUBSTANTIALLY
DILUTE THE INTERESTS OF SHAREHOLDERS.
The shares of Series B preferred stock we issued in December 2004 are
convertible by the holders into shares of our common stock at any time prior to
their scheduled redemption in December 2009 at a conversion price of $0.43,
subject to adjustments for stock splits, stock dividends, stock combinations,
and other similar transactions. The conversion price could be lowered, perhaps
substantially, in a variety of circumstances, including our issuance of common
stock below the conversion price, either directly or in connection with the
issuance of most securities that are convertible into, or exercisable for,
shares of our common stock.
In addition, we issued to the holders of Series B preferred stock in
December 2004 five-year warrants entitling the warrant holders to purchase an
aggregate of 2,325,584 shares of our common stock at an exercise price of $0.55
per share. Both the number of warrants and the exercise price are subject to
adjustments that could make them further dilutive to our shareholders. Neither
the Series B preferred stock nor the warrants establish a "floor" that would
limit reductions in the conversion price of the preferred stock or the exercise
price of the warrants that may occur under certain circumstances.
Correspondingly, there is no "ceiling" on the number of shares that may be
issuable under certain circumstances under the anti-dilution adjustment in the
preferred stock and warrants. We also issued to Ascendiant Securities, LLC
warrants for the purchase of an amount equal to 8% of the securities issued in
the December 2004 transaction. Accordingly, our issuance of the preferred stock
and warrants could substantially dilute the interests of our shareholders.
6
OUR FAILURE TO SATISFY OUR REGISTRATION, LISTING, AND OTHER OBLIGATIONS WITH
RESPECT TO THE COMMON STOCK UNDERLYING THE PREFERRED STOCK AND THE WARRANTS
COULD RESULT IN ADVERSE CONSEQUENCES, INCLUDING ACCELERATED REDEMPTION OF THE
PREFERRED STOCK.
We are required to maintain the effectiveness of the registration
statement, of which this document forms a part, covering the resale of the
common stock underlying the preferred stock and warrants, until the earlier of
the date the underlying common stock may be resold pursuant to Rule 144(k) under
the Securities Act of 1933 or the date on which the sale of all the underlying
common stock is completed, subject to certain exceptions. We will be subject to
various penalties for failing to meet our registration obligations and the
related listing obligations for the underlying common stock, which include cash
penalties and either (i) the forced redemption of the preferred stock at a
redemption price equal to a number of shares of common stock calculated by
dividing the Triggering Redemption Amount by 75% of the average of the 10
closing prices immediately prior to the date of redemption or (ii) increasing
the dividend on all of the outstanding preferred stock to equal 18% per annum
thereafter. The Triggering Redemption Amount for each share of preferred stock
means the sum of (i) the greater of (A) $1,200 and (B) the product of (a) the
closing price on the trading day immediately preceding the date of the
triggering event and (b) $1,000 divided by the then conversion price, (ii) all
accrued but unpaid dividends thereon and (iii) all liquidated damages and other
amounts due in respect of the preferred stock.
FUTURE EQUITY TRANSACTIONS, INCLUDING EXERCISE OF OPTIONS OR WARRANTS, COULD
RESULT IN DILUTION.
From time to time, we sell restricted stock, warrants, and convertible
debt to investors in private placements. Because the stock is restricted, the
stock is sold at a greater discount to market prices compared to a public stock
offering, and the exercise price of the warrants sometimes is at or even lower
than market prices. These transactions cause dilution to existing stockholders.
Also, from time to time, options are issued to officers, directors, or
employees, with exercise prices equal to market. Exercise of in-the-money
options and warrants will result in dilution to existing stockholders. The
amount of dilution will depend on the spread between the market and exercise
price, and the number of shares involved.
TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED THEREBY
MAKING IT MORE DIFFICULT FOR INVESTORS TO RESELL THEIR SHARES OF OUR COMMON
STOCK.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin
Board is not an exchange and, because trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on an
exchange or NASDAQ, you may have difficulty reselling any of the shares that you
purchase from the selling shareholders.
THE ISSUANCE OF SHARES UPON EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE
AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon exercise of warrants may result in
substantial dilution to the interests of other stockholders since the selling
stockholders may sell the full amount issuable on exercise. In addition, such
shares would increase the number of shares in the "public float" and could
depress the market price for our common stock.
IT MAY BE DIFFICULT TO ENFORCE JUDGMENTS PREDICATED ON THE FEDERAL SECURITIES
LAWS ON OUR OFFICERS AND DIRECTORS WHO ARE NOT U.S. RESIDENTS.
Most of our officers and directors reside outside the United States and
maintain their assets outside the United States. As a result it may be difficult
or impossible to effect service of process within the United States upon them,
to bring suit in the United States or to enforce, in the U.S. courts, any
judgment obtained there against them predicated upon any civil liability
provisions of the U.S. federal securities laws.
Foreign courts may not entertain original actions against our officers
or directors predicated solely upon U.S. federal securities laws. Furthermore,
judgments predicated upon any civil liability provisions of the U.S. federal
securities laws may not be directly enforceable in foreign countries.
7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements." All statements
other than statements of historical facts included or incorporated by reference
in this report, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"project," "estimate," "anticipate," "believe," or "continue" or the negative
thereof or variations thereon or similar terminology. Although we believe that
the expectations reflected in such forward-looking statements are reasonable, we
cannot give any assurance that such expectations will prove to have been
correct. Important factors that could cause actual results to differ materially
from our expectations ("Cautionary Statements") include, but are not limited to:
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;
o general economic conditions; and
o the securities or capital markets and other factors disclosed under
"Management's Discussion and Analysis or Plan of Operation," "Business"
and elsewhere in this prospectus.
All subsequent written and oral forward-looking statements attributable to us,
or persons acting on our behalf, are expressly qualified in their entirety by
the cautionary statements. We assume no duty to update or revise our
forward-looking statements based on changes in internal estimates or
expectations or otherwise.
USE OF PROCEEDS
We will not receive any of the proceeds from the selling stockholders
of shares of our common stock. However, we may receive the sale price of any
common stock we sell to the selling stockholders upon exercise of the warrants.
We expect to use the proceeds received from the exercise of warrants, if any,
for general working capital purposes. The warrants contain a provision for
cashless exercise. If that provision is utilized, we will not receive any
proceeds.
MARKET FOR COMMON EQUITY
Our common stock has been listed on the over-the-counter bulletin board
("OTCBB") since September 3, 2002, originally under the symbol "EXMA." Since
October 16, 2003, it has been listed under the symbol "CROO." The trading symbol
often appears as "CROO.OB" in quotation requests on the Internet. Trading did
not commence until December 5, 2003. The following table sets forth the range of
high and low bid quotations for each fiscal quarter for the last two fiscal
years and the current fiscal year, and have been adjusted to reflect a 1-for-16
reverse stock split. These quotations reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not necessarily represent actual
transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID
December 31, 2003......................... $ 1.01 $ 1.01
March 31, 2004............................ $ 1.50 $ 0.65
June 30, 2004............................. $ 1.50 $ 1.26
September 30, 2004........................ $ 1.60 $ 0.85
December 31, 2004......................... $ 1.38 $ 0.45
8
On January 18, 2005, the closing bid price for the common stock on the
OTC Bulletin Board was $0.27.
As of December 17, 2004, there were 34 record holders of our common
stock. Since our inception, no cash dividends have been declared on our common
stock.
DIVIDEND POLICY
We do not anticipate paying dividends on our common stock at any time
in the foreseeable future. Our board of directors plans to retain earnings for
the development and expansion of our business. Our directors also plan to
regularly review our dividend policy. Any future determination as to the payment
of dividends will be at the discretion of our directors and will depend on a
number of factors, including future earnings, capital requirements, financial
condition and other factors as the board may deem relevant. We cannot pay any
dividends on our common stock if any dividends due on our outstanding Series B
preferred stock are unpaid.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
On November 25, 2003, pursuant to a 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, 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 with a
third party on January 21, 2004, which included an annual support fee renewable
at the option of the licensee. As a result of the licensing agreement, our
revenues increased significantly during the first three quarters of 2004 from
the recording of the licensing fee and approximately nine months of the annual
support fee. Almost all of the increase in revenue is attributable to the
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 $8,333 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.
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. The remaining $500,000 was
restructured as a loan to us. 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.
9
It is our intent to repay the $400,000 balance of the loan, along with accrued
interest at a commercial rate, at such time as we have completed a further
financing with sufficient proceeds to repay the loan.
In December 2004, we entered into securities purchase agreements with
several accredited investors pursuant to which we agreed to sell, and the
investors agreed to purchase, 2,000 shares of Series B 5% Convertible Preferred
Stock, warrants to purchase 2,325,584 shares of common stock, and Additional
Investment Rights for a total of $2,000,000. The warrants are exercisable for
five years at $0.55 per share. The preferred stock may be converted in shares of
common stock at a price of $0.43 per share. The Additional Investment Rights
entitle the investors to buy up to $4,000,000 of preferred stock and warrants on
the same terms for period of six months following the effective date of the
registration statement we agreed to file, of which this prospectus is a part.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our 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 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 net losses of $741,428 and $1,063,962 for the nine months ended September
30, 2004 and the year ended December 31, 2003, respectively. At September 30,
2004, we had an accumulated deficit of $2,433,537 and a working capital deficit
of $774,946. These factors raise substantial doubt as to our 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
network security applications.
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 network security 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
October 14, 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
September 30, 2004, combined with those of the
10
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 determinable 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
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
Revenues from operations increased from $10,545 for the nine-month
period ended September 30, 2003 to $905,108 for the nine-month period ended
September 30, 2004. Revenue from the Source Code Licensing agreement described
above, which closed in the first quarter of 2004, accounted for approximately
85% of revenues for the nine months ended September 30, 2004. We also received
revenue from software customization and licensing of our Winc Manager, Winc,
pocketWinc and recently introduced AirPatrol Mobile, AirPatrol Sentinel and
AirPatrol Enterprise software products. Our revenues during the nine-month
period ended September 30, 2004 increased significantly compared to the same
period during 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 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 late 2004, as advertising for
the AirPatrol Enterprise, AirPatrol Sentinel and AirSafe products begin.
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 nine months of 2004, our expenses increased over the
same period in the prior year as we invested in a variety of television, 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 and shipment 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. We also expanded our range of international distribution
agreements during this period.
Our net loss for the nine months ended September 30, 2004 was $741,428
compared to a net loss of $642,274 for the nine months ended September 30, 2003.
The increase in the net loss is primarily a result of increased expenses
compared to the nine-month period ended September 30, 2003. During the
nine-month period ended September 30, 2004, the most dramatic increases in
expenses were in the areas of advertising and promotion, consulting fees,
professional fees, research and development and salaries and benefits.
Advertising and promotion and travel expenses have increased as our products
have reached the sales portion of the sales cycle. Professional fees for the
nine month period in 2004 were $160,292 compared to $32,201 during 2003 due to
costs incurred in 2004 as a result of being a public company, compared to 2003
when CNI was privately held, and includes legal fees, accounting fees and costs
associated with corporate communications. Salaries and benefits for the
nine-month period in 2004 were $185,828 compared to $81,967 for 2003 as a result
of our having two more employees in 2004 than in 2003. During the nine months
ended September 30, 2004, consulting fees increased by $282,248 compared to the
same period during 2003. The increase in consulting fees is due to increased
fees paid for online marketing initiatives, corporate finance initiatives and
the expensing of the fair value of shares issued in exchange for services
totaling approximately $104,000. Also contributing was the fact that we retained
on-going marketing and public
11
relations services in 2004, which we did not need in the same period in 2003,
when our products were at an earlier stage of development. 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 three months ended September 30, 2004 until we have completed
significant financings in 2004 and 2005 that will support increasing staffing
levels in research and development and sales and marketing.
No cash dividends were declared during the nine months ended September
30, 2004.
FISCAL YEAR ENDED DECEMBER 31, 2003 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2002
Revenues from operations increased from $nil for the year ended
December 31, 2002 to $27,649 for the year ended December 31, 2003. Revenue was
derived principally from the receipt of sales for our WiNc and pocketWiNc
products, as well as some early sales of our WiNc Manager wireless network
management and security solution.
Share subscriptions payable consisted of $375,000 that was received by
us prior to year end and for which common shares were issued in the 2004 fiscal
year.
Research and development costs, consisting of certain consulting fees,
rent and salaries and benefits, increased $153,448 in 2003 over 2002 as we
entered our main development phase in 2003 and aggressively began hiring
programmers and leasing space for the purpose of completing development of our
WiNc Manager product.
Advertising and promotion was approximately $27,000 higher, and travel
was approximately $87,000 higher as management began marketing the product at
trade shows and through meetings with value-added resellers.
Finally, professional fees were considerably higher owing to the
completion of the reverse take over transaction.
The increase of costs and expenses in comparison with the previous
corresponding year generally reflected the expansion of our business scope and
the increase of staff and research and development costs - as well as increased
marketing expenses - have resulted in a net loss of $1,063,962. For the period
ended December 31, 2003, consulting fees increased over 2002 as two new
consultants were hired in 2003 for communications and business development
purposes. Office and administration costs increased in 2002 over 2003 as we
moved into our newer and larger office space in 2003, and the employee levels
were higher in 2003 over 2002. Finally, salaries and benefits increased as sales
and support staff were brought on board in 2003. The salaries for these
employees are not considered research and development and therefore are
classified and displayed separately.
No cash dividends were declared during 2003 or 2002.
LIQUIDITY AND CAPITAL RESOURCES
As at September 30, 2004, we had cash of $59,301 and a working capital
deficiency of $774,946.
Although our revenues increased over the same period in 2003, our
expenses also increased significantly and, as a result, at September 30, 2004,
we had less cash than at December 31, 2003. During the nine months ended
September 30, 2004, we received the $400,000 loan from the investor (discussed
above) and sold 700,000 shares of our common stock in a private placement for
gross proceeds of $350,000; however, we did not receive sufficient cash from
these activities to offset the increased expenses during the period.
Receivables of approximately $24,428 consisted of sales made to Guest
Tek Corporation in August and sales on Esellerate and Handango websites in
September and paid to us in October, 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.
12
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 nine months ended
September 30, 2004, consulting fees payable decreased by $19,484 due mostly to
an extra payment made to Mr. Miller.
Deferred revenue at September 30, 2004 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.
Accounts payable decreased from December 31, 2003 to September 30, 2004
as a result of liabilities relating to accrued vacation pay for employees being
reduced as our employees took vacations during the period and payment of
payables outstanding at year end for legal fees relating to our acquisition of
CNI. Loan payable was higher at September 30, 2004, compared to December 31,
2003, as a result of the $400,000 loan resulting from the restructuring of the
$2 million investment transaction (discussed above).
Share subscriptions payable consisted of $25,000 received by us during
the quarter by an investor subscribing for shares of our common stock. We issued
those shares during the quarter ended December 31, 2004.
During the nine-month period ended September 30, 2004, the net cash
used by operating activities was $641,714. In order to proceed with business
development and normal operations, net cash used in investing activities was
$23,550.
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 restructured resulting in a return of $1,600,000 to the
investor and a loan to us of $400,000. We also received $350,000 from the sale
of our common stock during the nine months ended September 30, 2004; however,
the sale of the common stock and the loan from the investor did not provide us
with sufficient funds to meet all of our cash obligations. As a result, we
experienced a net decrease in cash and cash equivalents of $26,765 during the
nine months ended September 30, 2004.
In order to meet our continuing cash requirements and to successfully
implement our growth strategy, in addition to 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 nine months ended September
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 do not have sufficient funds to cover our operating
overhead for the next twelve months. 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.
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 September 30, 2004, we had received subscriptions in the
offering totaling $350,000 and we had issued 650,000 shares of common stock to
the subscribers. We issued 50,000 common shares in consideration of share
subscriptions of $25,000 at September 30, 2004 during the quarter ended December
31, 2004.
13
In December 2004, we entered into securities purchase agreements with
several accredited investors pursuant to which we agreed to sell, and the
investors agreed to purchase, 2,000 shares of Series B 5% Convertible Preferred
Stock, warrants to purchase 2,325,584 shares of common stock, and Additional
Investment Rights for a total of $2,000,000. The warrants are exercisable for
five years at $0.55 per share. The preferred stock may be converted in shares of
common stock at a price of $0.43 per share. The Additional Investment Rights
entitle the investors to buy up to $4,000,000 of preferred stock and warrants on
the same terms for period of six months following the effective date of the
registration statement we agreed to file, of which this prospectus is a part. We
disclosed, as a subsequent event, the receipt of common share subscriptions
totaling $250,000 in our September 30, 2004 consolidated interim financial
statements. The subscriber agreed to apply its $250,000 investment to purchase
250 shares of preferred stock in connection with this financing.
In connection with the subscription, we paid Ascendiant Securities, LLC
a cash commission of $160,000 and a non-accountable expense allowance of
$25,000, and issued Ascendiant warrants for the purchase of an amount equal to
8% of the securities issued in the transaction. The warrants are exercisable
into securities similar to those issued in the transaction and have an exercise
price and term consistent with the warrants issued to the Purchasers. The
warrants contain piggyback registration rights and a net exercise provision.
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 approximately $800,000 for research and
development costs during fiscal 2005. Our spending on research and development
is contingent upon us receiving sufficient funding to support such expenditures.
We do not plan to purchase or sell any significant plant or equipment
in 2005.
We expect to increase the number of employees by approximately 10 to 20
individuals in the areas of engineering, marketing, sales, and customer support
during fiscal 2005, provided we have sufficient funding to support the hiring of
additional employees.
We develop software solutions and provide network security products and
consulting services to governments and private sector businesses to combat the
threat to wired networks represented by the deployment of unauthorized wireless
networks. Our solutions can also be used to implement, secure, and manage
wireless networks. We anticipate that, if sufficiently funded over the next
twelve months, our focus will be: marketing our products, supporting customers,
and conducting on-going 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 2005, 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.
14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective December 1, 2003, our board of directors dismissed our
independent auditor, Parker & Co. ("Parker"). The dismissal of Parker was
unrelated to Parker's performance. The dismissal, which was approved by our
board of directors, was related to the acquisition of CNI and the appointment of
CNI's independent auditor, KPMG, LLP, as the independent auditor for the
company.
Parker's report on our financial statements for either of the past two
years did not contain an adverse opinion or disclaimer of opinion, and was not
modified as to uncertainty, audit scope or accounting principles. During our two
most recent fiscal years and the subsequent interim period ending December 1,
2003, there were no disagreements between us and Parker on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of Parker, would
have caused that firm to make reference to the subject matter of the
disagreement in connection with its audit report. During our two most recent
fiscal years and the subsequent interim period ending December 1, 2003, Parker
did not advise us of any of the items listed any Item 304(a)(1)(iv)(B) of
Regulation S-B.
We requested Parker to furnish us a letter addressed to the Securities
and Exchange Commission stating whether it agreed with the above statements. A
copy of that letter, dated December 3, 2003, was filed as Exhibit 16.1 to the
Form 8-K disclosing the change in auditors.
On December 1, 2003, our board of directors of approved the engagement
of KPMG, LLP to audit the financial statements for the fiscal year ended
December 31, 2003. During the two most recent fiscal years and the subsequent
interim period through December 1, 2003, neither we nor anyone on our behalf
consulted KPMG, LLP regarding the application of accounting principles to a
specific completed or contemplated transaction, or the type of audit opinion
that might be rendered on the company's financial statements.
BUSINESS
BUSINESS DEVELOPMENT
We were originally incorporated in the State of Nevada on April 6, 2000
to engage in the business of providing Internet-based email-to-mail printing and
delivery services. We established the eXmailit.com website which had not yet
commenced providing an Internet-based email-to-mail service. The network, which
was still under construction, was intended to consist of a consumer-based,
software product that would have a number of strategically located international
distribution centers enabling users to send email as standard mail. We did not
generate any revenue and therefore only sustained losses.
As a result of our lack of profitability and the receipt of numerous
inquires from entities seeking to merge with us, our operational focus expanded
beyond our email-to-mail service to include reviewing potential merger or
acquisition candidates.
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 ("Shares") of our common stock ("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.
15
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.
OUR BUSINESS
CNI was founded in March 2001 to develop technologies designed to
enhance the performance and security of wireless networking technologies, with
an initial specific focus on 802.11b Wireless Local Area Network ("WLAN")
technology. A WLAN is one in which a mobile user can connect to a local area
network ("LAN") through a wireless (radio) connection. The 802.11b standard for
WLANs - often called "WiFi" - is part of the 802.11 series of WLAN standards
from the Institute of Electrical and Electronics Engineers ("IEEE"). CNI
conducts its research and development activities through its subsidiary, Cirond
Networks (Canada) Inc., a British Columbia corporation.
CNI's initial product set, which was announced in late 2002 and shipped
in 2003, included a wireless network management and security solution, known as
Winc Manager, and a pair of wireless connectivity utilities, known as Winc and
pocketWinc.
In late 2003, we announced a new family of products dedicated primarily
to the goal of securing wired networks against the threat of unauthorized
wireless devices (such as wireless-equipped laptop computers and wireless access
points). These products were announced under the AirPatrol name and included
AirPatrol Enterprise(TM) and AirPatrol Mobile(TM). AirPatrol Enterprise(TM) is a
network security product aimed at securing an organization's network against the
wireless threat around the clock and capable of being repurposed as a wireless
network management solution at such time as the customer implements a wireless
network. AirPatrol Mobile(TM) is a software-only solution that allows customers
to detect and locate unauthorized wireless devices and access points without the
use of any specialized hardware.
On July 19, 2004, we announced that we were focusing our entire
resources around the AirPatrol product line as part of a comprehensive strategy
to deal with the significant threat to network security posed by the
implementation of wireless laptop computers and other wireless devices. We
believe that whenever a wireless-enabled computer is plugged into an
organization's network, and certain wireless capabilities are left on, network
security is potentially compromised, as access to the network can be
inadvertently broadcasted to unauthorized and potentially undetected users
outside the organization's premises. Similarly, we believe that the installation
of unauthorized wireless access points, which are being purchased and installed
increasingly by employees so they can use their laptops wirelessly within an
office, exposes organization networks to a high level of danger.
Our strategy addresses wireless security threats with a two-pronged
approach: first, by addressing the problem at its source, by automatically
disabling the wireless capability of laptops whenever they are connected to the
organization's wired network; and second, by providing a comprehensive
capability to not only detect but also to located unauthorized wireless devices.
We believe this strategy enables organizations to lock out access by preventing
wireless laptops from inadvertently providing unauthorized access to the
organization's network, and to notify the organization by providing wireless
equipment detection and location capability.
PRODUCTS
Our products include the following:
AIRPATROL ENTERPRISE(TM). AirPatrol Enterprise(TM) is a comprehensive
wireless network management and security solution designeD for medium to large
organizations. AirPatrol Enterprise(TM) can be used either by organizations that
have implemented a wireless network to manage and secure it, or by organizations
to ensure against and detect the unauthorized use or implementation of wireless
technology. AirPatrol Enterprise(TM) is priced at $6,995.00
AIRPATROL SENSOR(TM). This is a hardware device that detects and
locates rogue wireless access points and rogue ad hoc networks. It weighs
approximately 1.1 pounds and measures approximately 1.4 inches by 6.1 inches by
3.9 inches. The sensor is compatible with 802.11 a, b, and g standards worldwide
and supports the IEEE 802.3af standard for Power over Ethernet, for easier and
lower cost installation. For organizations that do not currently have a wireless
network and wish to secure their organization against the security threat posed
by the unauthorized
16
installation and use of wireless network equipment, we recommend using several
sensors in conjunction with the AirPatrol Enterprise(TM) in each area to be
monitored for wireless activity. The sensors detect and analyze all wireless
stations and airborne packets within range, process the data, and forward the
information to AirPatrol Enterprise(TM), which runs on a desktop PC connected to
the wired network. A packet is a piece of a message transmitted over a network
that contains the destination address in addition to the data. Our retail price
for this product is $495.00.
AIRSAFE(TM). This is a software utility that automatically disables a
notebook computer's wireless radio whenever the computer is plugged into a wired
organization's network. This is designed to eliminate the possibility of a user
inadvertently wirelessly rebroadcasting an authorized connection to the
organization's network to unauthorized users. This product works with all
wireless enabled Microsoft Windows(TM)-based mobile computers. Our retail price
is $995.00 for 50 client licenses, $2,495.00 for 200 client licenses, and
$8995.00 for 1000 client licenses.
AIRPATROL MOBILE(TM). This is a software-only solution for detecting
and locating rogue wireless devices using a laptop or tabletop mobile computer.
Users running this software can perform scans at different locations on their
premises. By performing a wireless scan at three or more locations per floor,
AirPatrol(TM) Mobile can pinpoint the location of a rogue access point using an
on-screen map of the floor plan of the premises. AirPatrol(TM) Mobile can also
detect and locate "hidden" wireless networks, which are networks configured with
the SSID identity of the wireless access point switched off, as well as 802.11a,
802.11b, and 802.11g-based wireless networks. SSID, which stands for Service Set
Identifier, is essentially a name that identifies a wireless network. Our retail
price for this product is $995.00.
AIRPATROL SENTINEL(TM). This is a software-based network scanning tool
that provides continuous "wired side" detection of unauthorized wireless
devices. It constantly scans the wired network for any evidence of new wireless
devices being attached to the network. Upon detection of a wireless access
point, AirPatrol Sentinel(TM) displays the type of access point, its IP address,
unique MAC address, wireless channel on which it is operating, transmitter
power, and the SSID it is using. IP, which stands for Internet Protocol,
specifies the format of packets and the addressing scheme. MAC address, which is
short of Media Access Control address, is a hardware address that uniquely
identifies each node of a network. Network administrators can then use this
information to determine the location of the access point. Our retail price for
this product is $995.00.
WINC 2.1. CNI's Winc is a software-based wireless access connectivity
tool designed to simplify the process of finding and connecting to wireless
networks, as well as diagnosing various elements of the wireless network
connection to the Internet. Winc works with mobile and desktop personal
computers running Microsoft Windows 2000, Microsoft Windows XP, and Microsoft
Windows XP Tablet PC Edition to automatically detect and connect to networks and
store personalized profiles so that users can automatically connect to networks
without having to reconfigure their settings each time. Winc also allows users
to set up ad hoc networks anywhere to share resources, such as a high-speed
connection to the Internet, and data within a workgroup, without requiring a
wireless access point. Winc is the "client software" required for implementation
of AirPatrol(TM) Enterprise. Winc 2.1 has a retail price of $19.95.
POCKETWINC. This is a wireless access connectivity tool that provides
many of the same features as Winc, but operates on handheld computers running
the Microsoft Pocket PC 2002 and Microsoft Mobile Windows 2003 operating system
platforms. pocketWinc 2.0 has a retail price of $19.95.
SALES AND MARKETING
We use a four-tiered method of sales and distribution as follows:
1) Direct sales - We offer direct sales through our Web site at
http://www.cirond.com - where consumers and businesses alike
can purchase our products online and download them.
2) VAR sales - our products can also be purchased through our
network of value added resellers (VARs), which is the method
often selected by mid-enterprise customers who want
installation and maintenance support for our wireless network
and security management solutions.
17
3) Licensing - In addition to sales of our branded products, we
also achieve revenue through licensing of our technology by
other software development firms and wireless network hardware
manufacturers.
4) Marketing representatives - We have engaged Regency Capital
Partners to introduce our products and services to the Central
Intelligence Agency, the National Security Administration,
various branches of the military, and other government
entities. Through this relationship, we have a presence in
Arlington, Virginia.
COMPETITION
The WiFi, or WLAN industry, is characterized by intense competition.
There are many companies, both public and private, offering WiFi management and
security solutions. Our solutions cover a broad range of competitors. These
competitors include companies such as AirDefense, Airespace, AirMagnet, Inc.,
Aruba Wireless Networks, Cisco Systems, Inc., Network Chemistry, Network
Instruments, LLC, and Newbury Networks, Inc.
RESEARCH AND DEVELOPMENT
During the nine months ended September 30, 2004 and the fiscal years
ended December 31, 2003 and 2002, we spent $468,281, $404,886, and $251,438,
respectively, on research and development activities.
GOVERNMENT REGULATION
We do not anticipate that any government regulations will significantly
affect our business.
EMPLOYEES
As of December 31, 2004, we employed a total of 16 persons, of which 10
were full-time and 6 were consultants. None of our employees is covered by a
collective bargaining agreement.
PRINCIPAL OFFICES
Our principal offices are located at 4185 Still Creek Drive, Suite
B101, Burnaby, British Columbia, Canada. The base rent on the lease is CDN$2,644
per month. The operating costs relating to the lease are approximately CDN$4,256
per month. We lease approximately 3,173 square feet under a lease that expires
April 30, 2006.
We lease approximately 400 square feet of office space at 1999 Bascom
Avenue, Suite 700, Campbell, California, at a cost of approximately $800 per
month, on a month-to-month basis.
LEGAL PROCEEDINGS
There are no legal proceedings pending against us.
18
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are:
NAME AGE POSITION
Nicholas R. Miller 53 CEO, President, and Director
David Redekop 33 Chief Financial Officer and Treasurer
Mitchell G. Burton 41 Chief Technology Officer
Isaac Moss 52 Secretary
Tate Holt 53 Director
Blain Archer 55 Director
Our shareholders elect our directors annually and our board of
directors appoints our officers annually. Vacancies in our board are filled by
the board itself. Set forth below are brief descriptions of the recent
employment and business experience of our executive officers and directors.
NICHOLAS MILLER, CEO, PRESIDENT, AND DIRECTOR. Nicholas Miller has held
his positions with us since November 25, 2003. Immediately prior to his
appointment, he was the founder, officer, director, CEO and chairman of Cirond
Networks, Inc. (a private company based in Campbell, California), Cirond
Technologies Inc. (from June 30, 2002 to present and n/k/a Seaside Holdings
Inc.) and Cirond Networks Canada Inc. (a wholly owned subsidiary of Cirond
Networks, Inc. based in British Columbia, Canada) - Cirond Networks Canada Inc.
and Cirond Networks, Inc. were founded in November 2001. Between 1999 and
November 2001, Mr. Miller was president of Arundel Holdings, a private Canadian
investment company. During that period, he also served as a director of Ezenet
Corp. (a public company traded on the TSX) until it was acquired by Cognicase
Inc. in August 2001. In addition, Mr. Miller was a director of Workfire.com (a
privately-held Nevada company, acquired by Packeteer Inc. in July 2000 - at
which time he ceased to be a director). Mr. Miller was also vice-chairman and a
director of Mulgrave Independent School Society in West Vancouver, British
Columbia on a voluntary basis from 1999 through 2002.
DAVID REDEKOP, CHIEF FINANCIAL OFFICER AND TREASURER. David Redekop has
been Chief Financial Officer of Cirond Corporation since January 1, 2004.
Immediately prior to joining Cirond Corporation, Mr. Redekop was a self-employed
consultant - a position he held from September 2001 to January 2004. In July of
2001, he was appointed a director of Hawkair Aviation Services Ltd. based in
Terrace, British Columbia - a privately-held Canadian company to which he was
also appointed Chief Financial Officer in July 2003. From April 2001 to
September 2001, he served as controller for TCENet, a public Canadian company
based in Calgary, Alberta, that was traded on the TSX Venture Exchange (or CDNX,
as it was known during that period). From October 2000 to March 2001, Mr.
Redekop served as Chief Financial Officer at Boltons Capital Corporation, a
public Canadian company based in Kelowna, British Columbia, and traded on the
TSX Venture Exchange. From April 1998 until September 2000, Mr. Redekop served
as controller for Workfire Technologies Corporation, a private company based in
Kelowna, British Columbia. In addition, since January 2004, Mr. Redekop has
served as controller of Crossflux - a privately-held Canadian company based in
Kelowna, British Columbia, and its subsidiary Itiva Development Corporation.
MITCHELL G. BURTON, CHIEF TECHNOLOGY OFFICER. Mitchell Burton has been
Chief Technology Officer of Cirond Corporation since January 15, 2004.
Immediately prior to joining Cirond Corporation, he was Chief Technology Officer
of Cirond Networks Inc. (a private company based in Campbell, California), a
position he assumed in November 2001. Prior to this, he was founder and CEO of
Headline Technologies Inc., a private British Columbia, Canada-based company
founded in 1993 that provided engineering design services involving analog,
digital, DSP and software design. In 2000, he also became Director of
Engineering for Sentry Telecom - a private British Columbia, Canada-based
company until January of 2001. He joined Cirond Networks Inc. in November 2001.
He is still CEO and a director of Headline Technologies Inc.
ISAAC MOSS, SECRETARY. Isaac Moss has been the Secretary of Cirond
Corporation since September 25, 2004. He is a graduate of the University of Cape
Town with a bachelors degree in Social Science and a masters degree in Public
Administration. Since 1987, Mr. Moss has served as a consultant providing
strategic business
19
advisory services to emerging growth companies in diverse
fields in the chemical, resource, hospitality, entertainment, forest products,
environmental, agro-industrial, telecommunications, and bio-technology sectors.
He has been semi-retired since 2000. Since 1992, Mr. Moss has been a director of
Resource Finance & Investment Ltd., a Bermuda company, which files reports with
the Securities and Exchange Commission and whose common stock is quoted on the
OTC Bulletin Board.
TATE HOLT, DIRECTOR. Tate Holt has been a director of Cirond
Corporation since September 23, 2004. Mr. Holt is the president of Holt &
Associates of Larkspur, California, a company which he founded in 1990 that
provides growth management and turnaround consulting to assist mid-market
companies in maximizing their profits. He is the author of the book
"Prescriptions for Growth, growth management for mid-market businesses." From
May 1974 to December 1989, Mr. Holt served in various senior sales and marketing
positions, which included senior vice president for ADP (October 1986 to
December 1989), national sales manager for Triad Systems Corporation (May 1976
to October 1986), and marketing representative for IBM (May 1974 to May 1976).
Since May 1994, Mr. Holt has been a director of Onsite Energy Corporation,
Carlsbad, California. He was also a director of AremisSoft Corporation,
Minneapolis, Minnesota, from April 1999 to July 2003. From December 2000 to
approximately August 2002, he served as the chief executive officer of dvGarage,
a development stage digital media company. Prior to joining dvGarage, from June
1999 through November 2000, Mr. Holt served as the president and chief executive
officer of NewStar Ltd., a development stage company formed as a subsidiary of
DBS Industries Inc., seeking to market meter reading services via satellite.
BLAIN ARCHER, DIRECTOR. Blain Archer has been a director of Cirond
Corporation since September 23, 2004. He has been a chartered accountant and
founding partner of the accounting firm of Johnsen Archer of Vancouver, British
Columbia, since September 1983. Johnsen Archer primarily addresses the
accounting requirements of Canadian companies and Mr. Archer specializes in
providing strategic advice to high-growth entrepreneurial organizations. Johnsen
Archer is affiliated with JHI (Jeffries Henry International). Prior to
establishing his own firm, Mr. Archer was involved with the tax group of what
was then KPMG Peat Marwick from September 1980 to August 1983.
ADVISORY BOARD
We established an Advisory Board to obtain advice and recommendations
from persons with significant experience in capitalizing, operating, and/or
restructuring corporate organizations. These persons did not want and do not
have any authority to make decisions on our behalf or to bind us. However, they
have committed to provide consulting services to us as requested in the
following areas: identification of marketing opportunities, negotiation of deal
terms, assistance in making presentations about our products, and assistance in
structuring financing arrangements. We pay each of our Advisory Board members
according to individually-negotiated consulting agreements. There is no set rate
of compensation or benefits for service as an Advisory Board member.
RANDOLPH H. BRINKLEY was appointed to our Advisory Board in November
2004. He has served as the chief executive officer of Kistler Aerospace
Corporation, a private company headquartered in Kirkland, Washington, since
August 2004. He has been part of a core team of individual limited partners and
advisors at J.F. Lehman & Company, New York, New York, a private equity
investment firm that focuses on companies with significant technical and
engineering content. Previously, he was the president of Boeing Satellite
Systems Inc., El Segundo, California, a subsidiary of The Boeing Company. He
served as senior vice president of programs for Hughes Space and Communications
Company, Los Angeles, California, from 1999 to 2001. Hughes Space and
Communications was acquired by Boeing in October 2000. From 1995 to 1999, Mr.
Brinkley was the National Aeronautics and Space Administration program manager
for the International Space Station, and from 1993 to 1995 was the mission
director of the Hubble Space Telescope Repair Mission. He managed research and
development activities for advanced aircraft systems and technologies at the
McDonnell Douglas Corporation from 1991 to 1993. Mr. Brinkley retired as a
Colonel after having served in the United States Marine Corps since 1965.
CONFLICTS OF INTEREST
Members of our management are associated with other firms involved in a
range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of our
20
company. While the officers and directors are engaged in other business
activities, we anticipate that such activities will not interfere in any
significant fashion with the affairs of our business.
Our officers and directors are now and may in the future become
shareholders, officers or directors of other companies, which may be formed for
the purpose of engaging in business activities similar to us. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or otherwise.
Currently, we do not have a right of first refusal pertaining to opportunities
that come to their attention and may relate to our business operations.
Our officers and directors are, so long as they are our officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation which come to their attention, either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.
EXECUTIVE COMPENSATION
The following table sets forth information the remuneration of our
chief executive officers and our four most highly compensated executive officers
who earned in excess of $100,000 per annum during any part of our last three
fiscal years:
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------------------------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL FISCAL COMPENSA- AWARD(S) OPTIONS/ PAYOUTS COMPENSA-
POSITION YEAR SALARY ($) BONUS ($) TION ($) ($) SARS (#) ($) TION ($)
- --------------------------------------------------------------------------------------------------------------------------
Nicholas Miller, 2003 120,000 (2)<F2> -0- -0- -0- -0- -0- -0-
CEO (1)<F1>
- --------------------------------------------------------------------------------------------------------------------------
Mitchell Burton, 2003 120,000 (4)<F4> -0- -0- -0- -0- -0- -0-
Chief
Technol-ogy
Officer (3)<F3>
- --------------------------------------------------------------------------------------------------------------------------
M. Kevin Ryan, 2003 -0- -0- -0- -0- -0- -0- -0-
President (5)<F5> 2002 -0- -0- -0- -0- -0- -0- -0-
2001 -0- -0- -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------------
- -----------
<FN>
(1)<F1> Mr. Miller became our CEO in November 2003.
(2)<F2> Pursuant to our contract with Amber Tiger Holding Corp., we incurred
consulting fees of $120,000 during the fiscal period for Mr. Miller's
services.
(3)<F3> Mr. Burton has been CNI's Chief Technology Officer since November 2001.
(4)<F4> Pursuant to our contract with Headline Technologies Ltd., we incurred
consulting fees of $120,000 during the fiscal period for Mr. Burton's
services
(5)<F5> Mr. Ryan was President from our inception in 2000 to November 2003.
</FN>
For fiscal 2005, we pay Nicholas Miller, through Amber Tiger Holding
Corp., $15,000 per month and Mitchell Burton, through Headline Technologies
Ltd., $10,000 per month.
COMPENSATION OF DIRECTORS
Nicholas Miller is not compensated separately for his service as a
director.
21
STOCK OPTION PLAN
By written consent dated September 20, 2004, our Board of Directors
adopted the 2004 Stock Option Plan. Our shareholders adopted the 2004 Stock
Option Plan by written consent dated December 20, 2004, which adoption shall be
effective 20 days from the date that a definitive information statement is
mailed to our shareholders pursuant to Rule 14c2-(b) promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). If the definitive information statement is not mailed
to our shareholders by August 31, 2005, any options granted under the 2004 Stock
Option Plan will be rescinded and void.
Pursuant to the 2004 Stock Option Plan, as of September 20, 2004, an
aggregate of 5,281,500 shares of our common stock (the "Available Shares") had
been reserved for issuance pursuant to the exercise of stock options ("Options")
which may be granted to our employees, officers, directors and consultants. The
2004 Stock Option Plan also provides for quarterly adjustments in the number of
Available Shares, to a number equal to 15% of the number of shares outstanding
as of the end of the preceding fiscal quarter or 5,281,500 shares, whichever is
greater. As of December 31, 2004, the Company had 37,110,000 shares of common
stock issued and outstanding and, accordingly, effective January 1, 2005, the
number of Available Shares was adjusted to 5,566,000 shares.
The 2004 Stock Option Plan is designed to (i) induce qualified persons
to become employees, officers, consultants, or directors of our company; (ii)
reward such persons for past services to our company; (iii) encourage such
persons to remain in the employ of our company or associated with our company;
and (iv) provide additional incentive for such persons to put forth maximum
efforts for the success of our business.
The 2004 Stock Option Plan will be administered by the Board of
Directors (the "Board"). Transactions under the 2004 Stock Option Plan are
intended to comply with all applicable conditions of Rule 16b-3 under the 1934
Act. In addition to determining who will be granted Options, the Board has the
authority and discretion to determine when Options will be granted and the
number of Options to be granted. The Board may determine which Options may be
intended to qualify ("Incentive Stock Option") for special treatment under the
Internal Revenue Code of 1986, as amended from time to time (the "Code"), or
Non-Qualified Options ("Non-Qualified Stock Options") which are not intended to
so qualify. The Board also may determine the time or times when each Option
becomes exercisable, the duration of the exercise period for Options and the
form or forms of the instruments evidencing Options granted under the 2004 Stock
Option Plan. The Board may adopt, amend, and rescind such rules and regulations
as in its opinion may be advisable for the administration of the 2004 Stock
Option Plan. The Board may amend the 2004 Stock Option Plan without shareholder
approval where such approval is not required to satisfy any statutory or
regulatory requirements; provided, however, that the Board may not materially
increase the number of Available Shares (except for allowed quarterly
adjustments and as a result of stock dividends, recapitalizations, stock splits
or combinations), materially increase the benefits accruing to participants
under the Plan or materially modify the eligibility requirements for the
participants.
Grants can be either Non-Qualified Stock Options or Incentive Stock
Options, to the extent that they do not exceed the Incentive Stock Option
exercise limitations, and the portion of an option that exceeds the dollar
limitations of Code Section 422 will be treated as a Non-Qualified Stock Option.
The Board also may construe the 2004 Stock Option Plan and the
provisions in the instruments evidencing options granted under the 2004 Stock
Option Plan to employee and officer participants and is empowered to make all
other determinations deemed necessary or advisable for the administration of the
2004 Stock Option Plan. The Board may not adversely affect the rights of any
participant under any unexercised option or any potion thereof without the
consent of such participant. This Plan will remain in effect until it is
terminated by the Board, except that no Incentive Stock Option will be granted
after September 20, 2014.
The 2004 Stock Option Plan contains provisions for proportionate
adjustment of the number of shares for outstanding options and the option price
per share in the event of stock dividends, recapitalizations, stock splits or
combinations.
Participants in the 2004 Stock Option Plan may be selected by the Board
from directors, employees and officers of our company and its subsidiaries and
consultants to our company and its subsidiaries. In determining the persons to
whom options will be granted and the number of shares to be covered by each
option, the Board will take
22
into account the duties of the respective persons, their present and potential
contributions to our success, and such other factors as the Board deems relevant
to accomplish the purposes of the 2004 Stock Option Plan.
Only employees of our company and its subsidiaries, as the term
"employee" is defined for the purposes of the Code, will be entitled to receive
Incentive Stock Options. Incentive Stock Options granted under the 2004 Stock
Option Plan are intended to satisfy all requirements for incentive stock options
under Section 422 of the Code and the Treasury Regulations thereunder.
Each option granted under the 2004 Stock Option Plan will be evidenced
by a written option agreement between us and the optionee. The option price of
any Incentive Stock Option may be not less than 100% of the Fair Market Value
per share on the date of grant of the option; provided, however, that any
Incentive Stock Option granted under the 2004 Stock Option Plan to a person
owning more than ten percent of the total combined voting power of the common
stock will have an option price of not less than 110% of the Fair Market Value
per share on the date of grant of the Incentive Stock Option. Each Non-Qualified
Stock Option granted under the 2004 Stock Option Plan will be at a price no less
than 85% of the Fair Market Value per share on the date of grant thereof. "Fair
Market Value" per share as of a particular date is defined in the 2004 Stock
Option Plan as the closing price of our common stock as reported on a national
securities exchange or the last transaction price on the NASDAQ System or, if
none, the average of the closing bid and asked prices of our common stock as
reported by NASDAQ or, if such quotations are unavailable, the value determined
by the Board in its discretion in good faith.
The exercise period of Incentive Stock Options granted under the 2004
Stock Option Plan may not exceed ten years from the date of grant thereof.
Incentive Stock Options granted to a person owning more than ten percent of the
total combined voting power of our common stock will be for no more than five
years. The Board will have the authority to modify, extend or renew any
outstanding option at such time and under such circumstances as it, in its sole
discretion, deems appropriate.
To exercise an option, the optionee must pay the full exercise price in
cash, by check or such other legal consideration as may be approved by the
Board. Such other consideration may consist of shares of common stock having a
Fair Market Value equal to the option price or in property or in a combination
of cash, shares, and property, subject to approval of the Board. The Board has
the sole and absolute discretion to determine whether or not property other than
cash or common stock may be used to purchase the shares of common stock
thereunder and, if so, to determine the value of the property received.
An option may not be exercised unless the optionee then is an employee,
consultant, officer, or director of our company or its subsidiaries, and unless
the optionee has remained continuously as an employee, consultant, officer, or
director of our company since the date of grant of the option. If the optionee
ceases to be an employee, consultant, officer, or director of our company or its
subsidiaries other than by reason of death, disability, or for cause, all
options granted to such optionee, fully vested to such optionee but not yet
exercised, will terminate 90 days after the date the optionee ceases to be an
employee, consultant, officer or director of our company.
If the employee is terminated "for cause" (as that term is defined in
the 2004 Stock Option Plan), such employee's options will terminate immediately
on the date the optionee ceases employment or association.
If an optionee dies while an employee, consultant, officer or director
of our company, or if the optionee's employment, consultant, officer, or
director status terminates by reason of disability, all options theretofore
granted to such optionee, whether or not otherwise exercisable, unless earlier
terminated in accordance with their terms, may be exercised at any time within
twelve months after the date of death or disability of said optionee, by the
optionee or by the optionee's estate or by a person who acquired the right to
exercise such options by bequest or inheritance or otherwise by reason of the
death or disability of the optionee.
Options granted under the 2004 Stock Option Plan are not transferable
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or the rules
thereunder. Options may be exercised, during the lifetime of the optionee, only
by the optionee and thereafter only by his legal representative. An optionee has
no rights as a shareholder with respect to any shares covered by an option until
the option has been exercised.
23
As a condition to the issuance of shares upon the exercise of an
option, we will require the optionee to pay to us the amount of our tax
withholding liability required in connection with such exercise. We, to the
extent permitted or required by law, may deduct a sufficient number of shares
due to the optionee upon exercise of the option to allow us to pay such
withholding taxes. We are not obligated to advise any optionee of the existence
of any tax or the amount which we will be so required to withhold.
Unless otherwise specified in an optionee's agreement, options granted
under the 2004 Stock Option Plan will become vested with the optionee over a
two-year period, with one-sixth of the options vesting every four months, in
addition to any other vesting requirements determined by the Board at the time
of grant.
As of December 31, 2004, no stock options were outstanding and as of
January 1, 2005, 5,566,500 shares were available for future grant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information as to our officers and
directors individually and as a group, and the holders of more than 5% of our
common stock, as of December 31, 2004.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1> BENEFICIAL OWNERSHIP PERCENT OF CLASS (2)<F2>
Nicholas Miller 17,000,000 (3)<F3> 45.8%
Seaside Holdings Trust 17,000,000 (3)<F3> 45.8%
Mitchell G. Burton -0- -
David Redekop -0- -
Isaac Moss -0- -
Chris Mossing -0- -
Tate Holt -0- -
Blain Archer -0- -
All officers and directors as a group (7 persons) 17,000,000 (3)<F3> 45.8%
- ----------------------
<FN>
(1)<F1> To our knowledge, except as set forth in the footnotes to this table
and subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2)<F2> This table is based on 37,110,000 shares of Common Stock outstanding as
of December 31, 2004. If a person listed on this table has the right to
obtain additional shares of Common Stock within sixty (60) days from
December 31, 2004, the additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(3)<F3> These shares are held by Seaside Holdings Trust. Mr. Miller is a
beneficiary as to 43.5% of the shares held by Seaside Holdings Trust.
</FN>
Seaside Holdings Trust may be deemed to be the "parent" of our company
within the meaning of the rules and regulations of the Securities and Exchange
Commission. Mr. Miller owns beneficially 43.5% of the shares held by Seaside
Holdings Trust. None of the other officers and directors owns any equity
securities of Seaside Holdings Inc.
24
CHANGES IN CONTROL
There are no agreements known to management that may result in a change
of control of our company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as disclosed below, none of our present directors, officers
or principal shareholders, nor any family member of the foregoing, nor, to the
best of our information and belief, any of our former directors, senior officers
or principal shareholders, nor any family member of such former directors,
officers or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has
materially affected or will materially affect us.
NICHOLAS MILLER. We, through CNI, have entered into a Management
Advisory Services Agreement with Amber Tiger Holdings Corp., a company owned and
controlled by Nicholas Miller, the president and sole director of CNI, and an
officer, director and principal, beneficial shareholder of Cirond Corporation.
The agreement provides for the provision of management services to us by
Nicholas Miller in connection with his role as our president and CEO. During the
years ended December 31, 2003 and 2004, CNI incurred consulting fees of $120,000
and $180,000, respectively, from Amber Tiger.
For the year ended December 31, 2003, we incurred consulting fees to
Amber Tiger in the amount of $120,000 and $40,000 was recorded as a payable at
December 31, 2003 (of which $10,000 related to 2002). For the nine months ended
September 30, 2004, we incurred consulting fees to Amber Tiger in the amount of
$135,000 and $40,000 was recorded as a payable at September 30, 2004.
MITCHELL BURTON. We, through CNI, have entered into a Management
Advisory Services Agreement with Headline Technologies Ltd., a company owned and
controlled by Mitchell Burton, the chief technology officer of CNI and chief
technology officer of Cirond Corporation. The agreement provides for the
provision of management services to us by Mitchell Burton in connection with his
role as our chief technology officer. During the years ended December 31, 2003
and 2004, CNI incurred consulting fees of $120,000 per year from Headline
Technologies.
For the year ended December 31, 2003, we incurred consulting fees to
Headline Technologies in the amount of $85,000 and $90,000 was recorded as a
payable at December 31, 2003 (of which $55,000 related to 2002). For the nine
months ended September 30, 2004, we made incurred consulting fees to Headline
Technologies in the amount of $90,000 and $90,000 was recorded as a payable at
September 30, 2004.
SEASIDE HOLDINGS INC. As of the December 31, 2003, we were indebted to
Seaside Holdings Inc., a company in which Mr. Miller serves as an officer and
director, in the amount of $171,576. The debt relates to inter-company
obligations from CNI to Seaside Holdings Inc. which were incurred prior to our
acquisition of CNI. The debt is unsecured, non-interest bearing and has not
fixed terms of repayment.
Seaside Holdings Trust owns 17,000,000 shares of our outstanding common
stock , which equals 45.8% as of December 31, 2004, and as such may be deemed to
be the "parent" of our company within the meaning of the rules and regulations
of the Securities and Exchange Commission. Mr. Miller owns beneficially 43.5% of
the shares held by Seaside Holdings Trust. Messrs. Burton, Redekop and Mossing
do not own any equity securities of Seaside Holdings Inc.
PROMOTERS. M. Kevin Ryan and Robert Gardner may be deemed to be
"promoters" of our company within the meaning of the rules and regulations of
the Securities and Exchange Commission.
FUTURE TRANSACTIONS. All future affiliated transactions will be made or
entered into on terms that are no less favorable to us than those that can be
obtained from any unaffiliated third party. A majority of the independent,
disinterested members of our board of directors will approve future affiliated
transactions.
We believe that of the transactions described above have been on terms
as favorable to us as could have been obtained from unaffiliated third parties
as a result of arm's length negotiations.
25
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 100,000,000 shares of common stock,
$0.001 par value per share. As of December 31, 2004, there were 37,110,000
shares of common stock outstanding, which were held of record by 34
stockholders. The holders of the common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. We
do not have cumulative voting rights in the election of directors, and
accordingly, holders of a majority of the shares voting are able to elect all of
the directors. Subject to preferences that may be granted to any then
outstanding preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by the board of directors out of funds
legally available therefor as well as any distributions to the stockholders. In
the event of our liquidation, dissolution or winding up, holders of common stock
are entitled to share ratably in all of our assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive or other subscription of
conversion rights. There are no redemption or sinking fund provisions applicable
to the common stock.
PREFERRED STOCK
We are authorized to issue up to 25,000,000 shares of preferred stock,
$0.001 par value per share. There are no shares of preferred stock issued or
outstanding except for our Series B preferred stock.
On December 22, 2004, in connection with the private placement
described above, we filed a Certificate of Designation with the Secretary of
State of the State of Nevada authorizing the creation and establishing the terms
of the Series B 5% Convertible Preferred Stock, consisting of 6,000 shares. As
of the date of this prospectus, 2,000 shares are issued and outstanding. The
following is a description of the principal terms, rights and obligations of the
Series B preferred stock.
DIVIDENDS. A holder of the Series B preferred stock shall be entitled
to receive cumulative dividends of 5% per annum, based on the stated value of
$1,000 per share, payable quarterly beginning January 1, 2005.
VOTING RIGHTS. Except as otherwise required by law, a holder of shares
of Series B preferred stock does not have the right to vote on matters that come
before our shareholders.
LIQUIDATION PREFERENCE. In the event of a dissolution or winding up of
our company, each holder of the Series B preferred stock is entitled to a
liquidation preference of $1,000 per share of preferred stock held plus any
declared but unpaid dividends on such share, prior to any payment to the holders
of our common stock or any other stock of our ranking junior to the Series B
preferred stock with regard to any distribution of assets upon liquidation,
dissolution or winding up of our company.
CONVERSION. Shares of Series B preferred stock may, at the option of
the holder, be converted at any time or from time to time into shares of common
stock at the initial conversion price of $0.43 per share, subject to adjustment;
provided, that a holder of Series B preferred stock may at any given time
convert only up to that number of shares of Series B preferred stock so that,
upon conversion, the aggregate beneficial ownership of our common stock of such
holder and all persons affiliated with such holder does not exceed 4.99% of the
then outstanding common stock. The number of shares into which one share of
preferred stock shall be convertible shall be determined by dividing $1,000 by
the then existing conversion price.
The conversion price may be reduced if we sell common stock or other
securities convertible into or exercisable for common stock at a per share
price, exercise price or conversion price lower than the conversion price then
in effect (other than in connection with an acquisition of the securities,
assets or business of another company, joint ventures and employee stock
options).
REDEMPTION. We are to redeem all of the then outstanding shares of
Series B preferred stock on December 22, 2009. At our option, we may redeem the
Series B preferred stock at 120% of the stated value, plus accrued and
26
unpaid dividends, if certain conditions have been met. Holders may require us to
redeem the Series B preferred stock at 120% of the stated value, plus accrued
and unpaid dividends, should certain events occur, such as our failure to have
this registration statement effective by June 20, 2005, lapse of effectiveness
of this registration statement, our failure to deliver stock certificates upon
conversion of the Series B preferred stock on a timely basis, breach of any of
the terms or covenants of the securities purchase agreement executed with the
purchasers of the preferred stock, a change of control transaction, bankruptcy,
or failure of the common stock to be quoted on the OTC Bulletin Board for more
than five trading days.
This summary description of the Series B preferred stock does not
purport to be complete and is qualified in its entirety by reference to the
Certificate of Designation filed as an exhibit to our current report on Form 8-K
dated December 22, 2004, filed December 23, 2004.
WARRANTS
In connection with the sale of the Series B Preferred Stock, we issued
warrants and may issue additional warrants to the purchasers of the Series B
Preferred Stock. The warrants give the holders the right to initially purchase
from us, for a period of five years, an aggregate of 2,325,584 shares of our
common stock for $0.55 per share as of the date of issuance. Certain events may
transpire that lower the applicable exercise price under the warrants, increase
the number of warrants, or otherwise give the holders rights to additional
shares of common stock. Both the number of warrants and the exercise price of
the warrants are subject to anti-dilution adjustments in the event of certain
future issuances of securities or derivative securities, stock dividends, stock
splits, stock combinations and any other similar transactions. The warrants also
give the holders the right to any additional rights, including those obtained
through the consolidation, merger or sale of assets of the company or a similar
transaction, that are granted, issued or sold to our shareholders as if the
holders had held the number of shares of common stock acquirable upon the
complete exercise of the warrants at the time such rights become available to
the shareholders.
We also issued to the "finders" of this preferred stock financing
transaction warrants for the purchase of an amount equal to 8% of the securities
issued in the preferred stock transaction. The warrants are exercisable into
securities similar to those issued in the transaction and have an exercise price
and term consistent with the warrants issued to the investors. The warrants
contain piggyback registration rights and a net exercise provision.
ADDITIONAL INVESTMENT RIGHTS
We granted Additional Investment Rights to the purchasers of the
preferred stock, which entitle the purchasers to buy up to $4,000,000 of
preferred stock and warrants on the same terms for period of six months
following the effective date of this registration statement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Signature
Stock Transfer, Inc. Its address is One Preston Park, 2301 Ohio Drive, Suite
100, Plano Texas 75093, and its telephone number is (972) 612-4120.
SELLING STOCKHOLDERS
The shares of common stock being offered by the selling shareholders
are issuable upon conversion of or as dividends on the Series B preferred stock
or upon exercise of the warrants. We are registering the shares in order to
permit the selling shareholders to offer the shares of common stock for resale
from time to time. Except in the case of Seaside Holdings Inc. and Ascendiant
Securities LLC, the selling shareholders have not had any material relationship
with us within the past three years, other than the ownership of the preferred
stock and the warrants.
The controlling shareholder of Seaside Holdings Inc. is our president
and chief executive officer and a director, Nicholas Miller. Mr. Miller is also
an officer and director of Seaside Holdings Inc.
27
We entered into an agreement with Ascendiant Securities, LLC on August
26, 2004, in which Ascendiant agreed to use its best efforts to act as a
financial advisor and placement agent for us in connection with the structuring,
issuance, and sale of securities. We agreed to pay Ascendiant a cash commission
of $160,000 and a non-accountable expense allowance of $25,000, and issued
Ascendiant warrants for the purchase of an amount equal to 8% of the securities
issued in the preferred stock transaction. The warrants are exercisable into
securities similar to those issued in the transaction and have an exercise price
and term consistent with the warrants issued to the investors. The warrants
contain piggyback registration rights and a net exercise provision. Accordingly,
we are also registering shares of common stock underlying warrants issued to
Ascendiant Securities, LLC as the "finders" of this preferred stock financing
transaction.
The table below lists the selling shareholders and other information
regarding the beneficial ownership of the common stock by the selling
shareholders. The second column lists the number of shares of common stock held,
plus the number of shares of common stock, based on its ownership of the
preferred stock, the warrants, and Additional Investment Rights, that would have
been issuable to the selling shareholders as of the date of this prospectus,
assuming conversion of all shares of preferred stock and exercise of the
warrants and Additional Investment Rights held by the selling shareholders on
that date, without regard to any limitations on conversions or exercise. The
third column lists the shares of common stock being offered by this prospectus
by the selling shareholders. The fourth column assumes the sale of all of the
shares offered by the selling shareholders pursuant to this prospectus.
In accordance with the terms of the registration rights agreement with
the holders of the preferred stock and the warrants, this prospectus generally
covers the resale of at least that number of shares of common stock equal to
125% of:
(i) all of the shares of common stock issuable upon conversion in
full of the preferred stock,
(ii) all shares of common stock issuable upon exercise of the
warrants,
(iii) all of the Additional Investment Right Shares,
(iv) all shares of common stock issuable upon exercise of the warrants
issued to Ascendiant Securities, LLC,
(v) any securities issued or issuable upon any stock split, dividend
or other distribution recapitalization or similar event with
respect to the foregoing and
(vi) any additional shares issuable in connection with any anti-
dilution provisions in the preferred stock, the warrants or the
warrants issued to Ascendiant Securities, LLC.
Under the terms of the preferred stock and the warrants, the selling
shareholders may not convert the preferred stock, or exercise the warrants, to
the extent such conversion or exercise would cause the selling shareholder,
together with its affiliates, to have acquired a number of shares of common
stock which would exceed 4.99% of our then outstanding common stock, excluding
for purposes of such determination shares of common stock issuable upon
conversion of the preferred stock which has not been converted and upon exercise
of the warrants which have not been exercised. The number of shares in the
second column does not reflect this limitation. The selling shareholders may
sell all, some or none of their shares in this offering. See "Plan of
Distribution."
NUMBER OF OWNERSHIP AFTER OFFERING
SHARES SHARES
BENEFICIALLY REGISTERED FOR NUMBER OF
NAME OF SELLING SHAREHOLDER OWNED (1)<F1>(2)<F2> RESALE (2)<F2> SHARES PERCENT
Ascendiant Capital Group, LLC 1,046,511 1,405,123 0 0%
Ascendiant Securities, LLC 372,093 465,116 0 0%
Bluegrass Growth Fund, LP 2,616,279 3,512,806 0 0%
Bluegrass Growth Fund, Ltd. 2,616,279 3,512,806 0 0%
Bradley N. Rotter Self Employed Pension Plan
& Trust 2,616,279 3,512,806 0 0%
Centrum Bank AG, Vaduz 1,569,768 2,107,684 0 0%
Clarion Finanz AG 1,569,768 2,107,684 0 0%
28
NUMBER OF OWNERSHIP AFTER OFFERING
SHARES SHARES
BENEFICIALLY REGISTERED FOR NUMBER OF
NAME OF SELLING SHAREHOLDER OWNED (1)<F1>(2)<F2> RESALE (2)<F2> SHARES PERCENT
Meadowbrook Opportunity Fund LLC 2,616,279 3,512,806 0 0%
Penn Footwear 1,569,768 2,107,684 0 0%
Seaside Holdings Inc. 523,254 702,561 0 0%
Stonestreet Limited Partnership 2,616,279 3,512,806 0 0%
Whalehaven Capital Fund Limited 1,569,768 2,107,684 0 0%
- -----------------
<FN>
(1)<F1> The shares of common stock considered beneficially owned by each
selling shareholder equal that number of shares of our common stock
that such selling shareholder could acquire by converting its preferred
stock at the initial conversion price of $0.43 per share, by exercising
the warrants, and by exercising the Additional Investment Rights.
Shares issuable as payment of dividends has been excluded.
(2)<F2> The selling shareholders may sell up to 28,567,564 shares of our common
stock under this document. As discussed in footnote (1) above, the
selling shareholders may convert the preferred stock into shares of our
common stock at any time at the initial conversion price of $0.43 per
share, subject to certain adjustments.
Therefore, as required by the registration rights agreement entered
into among us and the selling shareholders, which requires us to
register at least 125% of the shares of our common stock underlying the
preferred stock, warrants, Additional Investment Right Shares, and
warrants issued to Ascendiant Securities, LLC, the total number of
shares of common stock covered by this document and which may be
offered by the selling shareholders is 28,567,564 shares.
</FN>
PLAN OF DISTRIBUTION
Each selling stockholder of the common stock and any of their pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on the trading market or any other stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. A selling
stockholder may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise; or
29
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each selling stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholder has
informed us that it does not have any agreement or understanding, directly or
indirectly, with any person to distribute the common stock.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each selling stockholder has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of the distribution. In addition,
the selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of shares of our common stock
by the selling stockholders or any other person. We will make copies of this
prospectus available to the selling stockholders and
30
have informed them of the need to deliver a copy of this prospectus to each
purchaser at or prior to the time of the sale.
LEGAL MATTERS
Dill Dill Carr Stonbraker & Hutchings, P.C., Denver, Colorado, has
given an opinion on the validity of the securities.
EXPERTS
We have included herein the consolidated financial statements of the
company as of December 31, 2003 and 2002, and for the years ended December 31,
2003 and 2002, and cumulative from inception (March 7, 2001) to December 31,
2003, in reliance upon the report of KPMG LLP, an independent registered public
accounting firm, whose report has also been included in this prospectus, and
upon the authority of that firm as experts in accounting and auditing. The
report of KPMG LLP on the December 31, 2003 consolidated financial statements
includes an explanatory paragraph that states that we have incurred losses since
inception and have a working capital deficiency, factors which raise substantial
doubt about our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
ADDITIONAL INFORMATION
We have been subject to the reporting requirements under federal
securities laws since June 2002. We have filed with the SEC a registration
statement on Form SB-2 and amendments to the registration statement with respect
to the securities offered through this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules that are part of the registration statement. For further
information about the securities and us, you should review the registration
statement and the exhibits and schedules. Statements made in this prospectus
regarding the contents of any contract or document filed as an exhibit to the
registration statement are not necessarily complete. You should review the copy
of such contract or document so filed.
You can inspect the registration statement, as well as the exhibits and
the schedules, filed with the SEC without charge, at the SEC's office at
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. You can also
obtain copies of these materials from the SEC's Public Reference Section at 450
Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. The SEC maintains
a web site on the Internet that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at
REPORTS TO STOCKHOLDERS
We are subject to the reporting requirements of the federal securities
laws, and are required to file periodic reports, proxy statements, and other
information with the SEC. We will furnish our shareholders with annual reports
containing audited financial statements certified by independent public
accountants following the end of each fiscal year, proxy statements, and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year following the end of such fiscal quarter.
31
INDEX TO FINANCIAL STATEMENTS
Unaudited Interim Consolidated Financial Statements - Nine Months Ended
September 30, 2004 and 2003
Consolidated Balance Sheets
September 30, 2004 (Unaudited).........................................F-1
Consolidated Statements of Loss (Unaudited)
Cumulative from Inception (March 7, 2001) to September 30, 2004
and Nine Months Ended September 30, 2004 and 2003......................F-2
Consolidated Statements of Stockholders' Deficiency and Comprehensive
Income (Loss) (Unaudited) From Inception (March 7, 2001)
to September 30, 2004...............................................F-3
Consolidated Statements of Cash Flows (Unaudited)
Cumulative from Inception (March 7, 2001) to September 30, 2004
and Nine Months Ended September 30, 2004 and 2003...................F-4
Notes to Consolidated Interim Financial Statements (Unaudited)............F-5
Consolidated Financial Statements - December 31, 2003 and 2002
Independent Auditors' Report...........................................FF-1
Consolidated Balance Sheets
December 31, 2003 and 2002.........................................FF-2
Consolidated Statements of Loss
Cumulative from Inception (March 7, 2001) to December 31, 2003
and Years Ended December 31, 2003 and 2002.........................FF-3
Consolidated Statement of Stockholders' Deficiency and
Comprehensive Loss From Inception (March 7, 2001) to
December 31, 2003..................................................FF-4
Consolidated Statements of Cash Flows
Cumulative from Inception (March 7, 2001) to December 31, 2003
and Years Ended December 31, 2003 and 2002.........................FF-5
Notes to Consolidated Financial Statements.............................FF-6
32
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in United States dollars)
September 30, 2004 and December 31, 2003
=================================================================================================================
September 30, 2004
(unaudited) December 31, 2003
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 59,301 $ 86,066
Amounts receivable, net of allowance of $nil (2003 - $nil) 24,428 19,679
Prepaid expenses and deposits 12,718 12,492
------------------------------------------------------------------------------------------------------------
96,447 118,237
Property, plant and equipment 63,732 54,497
Website development 5,550 9,512
- -----------------------------------------------------------------------------------------------------------------
$ 165,729 $ 182,246
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (note 3) $ 143,428 $ 165,522
Consulting fees payable (note 4) 110,516 130,000
Share subscriptions payable (note 5(a)) 25,000 375,000
Deferred revenue 30,874 6,884
Loan payable (note 5(b)) 400,000 75,000
Due to stockholder 161,575 171,576
------------------------------------------------------------------------------------------------------------
871,393 923,982
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, 37,060,000 issued
(December 31, 2003 - 34,460,000) 37,060 34,460
Additional paid-in capital 1,690,813 915,913
Deficit accumulated during the development stage (2,433,537) (1,692,109)
------------------------------------------------------------------------------------------------------------
(705,664) (741,736)
Going concern (note 2(a))
Commitments (note 7)
Subsequent event (note 9)
- -----------------------------------------------------------------------------------------------------------------
$ 165,729 $ 182,246
=================================================================================================================
See accompanying notes to consolidated interim financial statements.
F-1
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Loss
(Expressed in United States dollars)
(Unaudited)
=================================================================================================================
From inception Nine months Nine months
(March 7, 2001) ended ended
to September 30, September 30, September 30,
2004 2004 2003
- -----------------------------------------------------------------------------------------------------------------
Revenue:
Sales (note 8) $ 932,757 $ 905,108 $ 10,545
Expenses:
Advertising and promotion 315,016 202,942 48,988
Amortization 49,805 18,278 8,358
Consulting fees (notes 4 and 6) 803,940 433,927 151,679
Foreign currency loss (gain) 2,387 (3,527) 216
Interest 3,426 1,448 812
Office and administrative 80,197 49,824 15,377
Professional fees 313,278 160,292 32,201
Research and development 1,124,605 468,281 246,625
Salaries and benefits 284,722 185,828 81,967
Travel 267,886 132,591 66,601
------------------------------------------------------------------------------------------------------------
3,245,262 1,649,884 652,824
- -----------------------------------------------------------------------------------------------------------------
Loss before interest income (2,312,505) (744,776) (642,279)
Interest income 3,615 3,348 5
- -----------------------------------------------------------------------------------------------------------------
Loss $ (2,308,890) $ (741,428) $ (642,274)
=================================================================================================================
Weighted average number of common
shares outstanding, basic and diluted 21,086,955 34,983,540 17,000,000
Loss per share, basic and diluted $ (0.11) $ (0.02) $ (0.04)
=================================================================================================================
See accompanying notes to consolidated interim financial statements.
F-2
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 September 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 (net of costs) 1,400,000 1,400 672,100 - 673,500
Common shares issued for
consulting services held in
escrow (note 6(b)) 1,200,000 1,200 102,800 - 104,000
Comprehensive loss:
Net loss - - - (741,428) (741,428)
- ---------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 2004 (unaudited) 37,060,000 $ 37,060 $ 1,690,813 $ (2,433,537) $ (705,664)
=====================================================================================================================
See accompanying notes to consolidated interim financial statements.
F-3
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
(Unaudited)
===============================================================================================================
From inception Nine months Nine months
(March 7, 2001) ended, ended
to September 30, September 30, September 30,
2004 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss $ (2,308,890) $ (741,428) $ (642,274)
Item not involving cash:
Amortization 49,805 18,278 8,358
Common shares issued for services 104,000 104,000 -
Changes in non-cash working capital:
Amounts receivable (24,428) (4,749) (4,933)
Prepaid expenses and deposits (12,718) (226) (11,552)
Accounts payable and accrued liabilities 142,233 (22,095) (6,717)
Consulting fees payable 110,516 (19,484) 85,000
Deferred revenue 30,874 23,990 -
----------------------------------------------------------------------------------------------------------
(1,908,608) (641,714) (572,118)
Financing:
Common shares issued for cash (net of costs) 300,372 - -
Promissory note proceeds 650,000 - -
Share subscriptions proceeds 698,500 323,500 -
Loans payable 325,000 325,000 -
Advances from related parties - - 495,000
Advances from (to) stockholder 161,575 (10,001) 55,424
----------------------------------------------------------------------------------------------------------
2,135,447 638,499 550,424
Investing:
Expenditures on website development (19,025) - -
Expenditures on property, plant and equipment (100,061) (23,550) (36,559)
Advances to Cirond prior to recapitalization
transaction (55,157) - -
Cash acquired on recapitalization transaction 6,705 - -
----------------------------------------------------------------------------------------------------------
(167,538) (23,550) (36,559)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 59,301 (26,765) (58,253)
Cash, beginning of period - 86,066 60,135
- ---------------------------------------------------------------------------------------------------------------
Cash, end of period $ 59,301 $ 59,301 $ 1,882
===============================================================================================================
Supplementary information:
Interest paid $ 3,426 $ 1,448 $ 812
Income taxes paid $ - $ - $ -
===============================================================================================================
Non-cash financing and investing activities:
Common shares issued for share subscriptions
proceeds received in previous period $ 673,500 $ 673,500 -
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.
F-4
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Nine months ended September 30, 2004
(Unaudited)
================================================================================
1. OPERATIONS:
Cirond Corporation ("Cirond" or the "Company") is incorporated under the
laws of the State of Nevada. The Company develops software solutions and
provides network security products and consulting services to governments
and private sector businesses to combat the threat to wired networks
represented by the deployment of unauthorized wireless networks. The
Company's solutions can also be used to implement, secure and manage
wireless networks. To September 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 $2,308,890 for the period from inception (March
7, 2001) to September 30, 2004, and has a working capital deficiency of
$774,946 at September 30, 2004. The Company does not currently have
sufficient resources to repay the $400,000 demand loan (note 5(b)), if
demanded by the lender. 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.
F-5
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Nine months ended September 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 September 30, 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 and nine months ended September 30, 2004, the
Company incurred consulting fees from a company controlled by the president
totaling $45,000 and $135,000 (December 31, 2003 - $30,000 and $90,000
respectively). At September 30, 2004, $40,000 (December 31, 2003 - $30,000)
of these consulting fees were included in consulting fees payable.
The amounts were subject to a written agreement, 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 September 30, 2004, consist of
subscriptions to acquire 50,000 common shares at a price of $0.50 per
share.
b) During the nine months ended September 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
=======================================================================
F-6
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Nine months ended September 30, 2004
(Unaudited)
================================================================================
5. SHARE SUBSCRIPTIONS PAYABLE AND LOAN PAYABLE (CONTINUED):
b) 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, with an unspecified maturity date, is
unsecured and bears interest at 5% per annum. The demand loan is not
subject to a written agreement. 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. As at September 30,
2004, the lender has not taken steps to demand repayment.
6. SHARE CAPITAL:
a) During the nine months ended September 30, 2004, 1,400,000 shares were
issued for cash proceeds of $700,000, less offering costs of $26,500,
relating to two separate financings conducted at $.50 per share.
b) On August 2, 2004, Cirond entered into a Management Services Agreement
with Securities Trading Services Inc. ("STS"). The agreement was
effective as of August 2, 2004 and has a term of two years. Pursuant to
the terms of the agreement, Cirond must issue 1,200,000 shares of its
common stock to STS in consideration of services to be provided by STS.
Common shares in the name of STS will be held in escrow by Cirond, with
Cirond releasing 50,000 shares from escrow for every month as services
are performed. STS may not vote any unearned shares held in escrow. In
the event of a termination of the agreement by Cirond for breach or
cause, Cirond may repurchase and cancel any unearned shares for $0.001
per share in an amount equal to 50,000 shares times the number of
months remaining under the agreement after termination. STS was granted
piggy-back registration rights in connection with the agreement and the
shares are subject to anti-dilution provisions in the event of a
consolidation of Cirond's share capital. In addition, upon closing of
an equity financing of $1 million dollars, Cirond shall pay a
consulting fee in the amount of $5,000 to STS upon the first day of
each month over the remaining term of the contract. Upon closing of an
equity financing of $5 million or more, the consulting fee shall be
increased to $8,000 per month. The agreement also provides for the
accelerated release of shares from escrow, if STS secures financing for
Cirond, as follows:
o 100,000 shares upon STS securing an equity financing of $1 million.
o An additional 200,000 shares upon STS securing and additional $2
million of equity financing.
o An additional 450,000 shares upon STS securing an additional $5
million of equity financing.
o An additional 450,000 shares upon STS securing an additional $5
million of equity.
F-7
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Nine months ended September 30, 2004
(Unaudited)
================================================================================
6. SHARE CAPITAL (CONTINUED):
Common shares are valued as services are performed and common shares
are earned and eligible for release from escrow. To September 30, 2004,
$104,000 in compensation expense was recorded for the quarter in
consulting fees and 100,000 shares earned and released from escrow.
Unearned shares that have not been released from escrow have not been
included in the calculation of the weighted average number of common
shares, basic and diluted.
c) The Company has an outstanding stock option plan, that is subject to
final shareholder approval, pursuant to which the Company has reserved
5,281,500 shares of common stock to grant to certain employees,
officers, directors and consultants. As at September 30, 2004, the
Company's board of directors has authorized the grant of options to
purchase up to 5,110,000 common shares, subject to shareholder adoption
of the plan, which is expected to occur in the fourth quarter of 2004
or the first quarter of 2005.
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
===========================================================================
8. REVENUE:
During the nine months ended September 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.
9. SUBSEQUENT EVENT:
Subsequent to September 30, 2004, the Company received $250,000 cash from a
subscriber for Units, at a price of $1.00 per Unit. Each Unit consists of
one share of common stock and one warrant to acquire an additional share of
common stock at a price of $1.00 per share for a period of 12 months from
the date of subscription. The Company is in the process of completing the
documentation necessary to accept the subscription and the funds have been
accounted for as a subscription payable. If the Company does not complete
the documentation to accept the subscription and/or if the investor decides
to rescind the subscription, the Company may have to return the funds to
the investor.
F-8
KPMG
KPMG LLP
Chartered Accountants
300-1674 Bertram Street Telephone (250) 979-7150
Kelowna BC V1Y 9G4 Telefax (250) 763-0044
Canada www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the stockholders of Cirond Corporation (formerly eXmailit.com)
We have audited the accompanying consolidated balance sheets of Cirond
Corporation (a Development Stage Enterprise) as of December 31, 2003 and 2002,
and the related consolidated statements of loss, stockholders' deficiency and
comprehensive loss and cash flows for the years then ended and the period from
inception (March 7, 2001) to December 31, 2003. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Cirond Corporation
as of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended and for the period from inception (March 7, 2001)
to December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2(a) to
the consolidated financial statements, the Company has incurred losses since
inception and has a working capital deficiency, factors that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in note 2(a). The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
Chartered Accountants
Kelowna, Canada
March 19, 2004, except as to note 14 which is as of May 4, 2004
KPMG LLP, a Canadian limited liability partnership is the Canadian Member of
KPMG International, a Swiss nonoperating association.
FF-1
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in United States dollars)
December 31, 2003 and 2002
===================================================================================================================
2003 2002
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 86,066 $ 60,135
Amounts receivable, net of allowance of nil (2002 - $nil) 19,679 3,513
Prepaid expenses and deposits 12,492 412
--------------------------------------------------------------------------------------------------------------
118,237 64,060
Property, plant and equipment (note 4) 54,497 19,634
Website development (note 5) 9,512 15,854
- -------------------------------------------------------------------------------------------------------------------
$ 182,246 $ 99,548
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities (note 6) $ 165,522 $ 94,521
Consulting fees payable (note 7) 130,000 65,000
Loan payable (note 8) 75,000 -
Deferred revenue 6,884 -
Share subscriptions payable (note 9) 375,000 -
Due to stockholder (note 10) 171,576 143,155
--------------------------------------------------------------------------------------------------------------
923,982 302,676
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, 34,460,000 issued (December 31,
2002 - 14,740,250) 34,460 1,474
Additional paid-in capital 915,913 298,898
Deficit accumulated during the development stage (1,692,109) (503,500)
--------------------------------------------------------------------------------------------------------------
(741,736) (203,128)
Going concern (note 2(a))
Subsequent events (notes 8, 9 and 14)
- -------------------------------------------------------------------------------------------------------------------
$ 182,246 $ 99,548
===================================================================================================================
See accompanying notes to consolidated financial statements.
FF-2
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Loss
(Expressed in United States dollars)
===================================================================================================================
From inception
(March 7, 2001) Year ended Year ended
to December 31, December 31, December 31,
2003 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Revenue:
Software licence fees $ 27,649 $ 27,649 $ -
Expenses:
Advertising and promotion 112,074 69,471 42,603
Amortization 31,527 24,650 6,877
Consulting fees (note 6) 370,013 255,945 114,068
Foreign currency exchange loss 5,914 2,408 3,506
Interest 1,978 1,867 111
Office and administrative 30,373 22,192 7,715
Professional fees 152,986 100,071 47,915
Research and development 656,324 404,886 251,438
Salaries and benefits 98,894 98,894 -
Travel 135,295 111,232 24,063
--------------------------------------------------------------------------------------------------------------
1,595,378 1,091,616 498,296
- -------------------------------------------------------------------------------------------------------------------
Loss before interest income (1,567,729) (1,063,967) (498,296)
Interest income 267 5 262
- -------------------------------------------------------------------------------------------------------------------
Loss $ (1,567,462) $ (1,063,962) $ (498,034)
===================================================================================================================
Weighted average number of common
shares outstanding, basic and diluted 17,452,927 18,722,082 16,931,366
Loss per share, basic and diluted $ (0.09) $ (0.06) $ (0.03)
===================================================================================================================
See accompanying notes to consolidated financial statements.
FF-3
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Deficiency and Comprehensive Loss
(Expressed in United States dollars)
From inception (March 7, 2001) to December 31, 2003
===================================================================================================================
Deficit
accumulated Total
Additional during the stockholders'
Common Stock paid-in development equity
Shares Amount capital stage (deficiency)
- -------------------------------------------------------------------------------------------------------------------
Shares issued for cash
on March 7, 2001 16,540,312 $ 1,654 $ (220) $ - $ 1,434
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
(note 3) 16,160,000 1 - (124,647) (124,646)
Promissory notes converted
to shares at $0.50 per share
(note 3) 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)
===================================================================================================================
See accompanying notes to consolidated financial statements.
FF-4
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
===================================================================================================================
From inception
(March 7, 2001) Year ended, Year ended
to December 31, December 31, December 31,
2003 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss $ (1,567,462) $ (1,063,962) $ (498,034)
Item not involving cash:
Amortization 31,527 24,650 6,877
Changes in non-cash working capital:
Amounts receivable (19,679) (16,166) (3,513)
Prepaid expenses and deposits (12,492) (12,080) (412)
Accounts payable and accrued liabilities 164,328 69,807 89,055
Consulting fees payable 130,000 65,000 65,000
Deferred revenue 6,884 6,884 -
--------------------------------------------------------------------------------------------------------------
(1,266,894) (925,867) (341,027)
Financing:
Common shares issued for cash 300,372 - 298,938
Promissory note proceeds 650,000 650,000 -
Share subscriptions proceeds 375,000 375,000 -
Advances from stockholder 171,576 28,421 143,155
--------------------------------------------------------------------------------------------------------------
1,496,948 1,053,421 442,093
Investing:
Expenditures on website development (19,025) - (19,025)
Expenditures on property, plant and equipment (76,511) (53,171) (23,340)
Advances to Cirond prior to recapitalization
transaction (note 3) (55,157) (55,157) -
Cash acquired on recapitalization transaction
(note 3) 6,705 6,705 -
--------------------------------------------------------------------------------------------------------------
(143,988) (101,623) (42,365)
- -------------------------------------------------------------------------------------------------------------------
Increase in cash 86,066 25,931 58,701
Cash, beginning of period - 60,135 1,434
- -------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 86,066 $ 86,066 $ 60,135
===================================================================================================================
Supplementary information:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
===================================================================================================================
Non-cash financing and investing activities:
Common shares issued upon conversion of
promissory notes (note 3) 650,000 650,000 -
Net liabilities assumed on recapitalization
transaction (note 3) 76,194 76,194 -
===================================================================================================================
See accompanying notes to consolidated financial statements.
FF-5
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
1. OPERATIONS:
Cirond Corporation (the "Company" and "Cirond") 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 December 31, 2003, the Company has not
generated significant revenues 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 consolidated financial statements, the Company has incurred a
loss of $1,567,462 for the period from inception (March 7, 2001) to
December 31, 2003, and has a working capital deficiency of $805,745 at
December 31, 2003. 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.
FF-6
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) Basis of consolidation
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America and include the accounts of the Company and its wholly-owned
subsidiaries Cirond Networks Inc. and Cirond Networks (Canada) Inc. All
material intercompany balances and transactions have been eliminated.
Effective November 25, 2003, the Company issued 17,000,000 common
shares in consideration for 100% of the outstanding common shares of
Cirond Networks, Inc. ("CNI"). As CNI stockholders obtained control of
the Company through the exchange of shares, the acquisition of CNI has
been accounted for in these consolidated financial statements as a
recapitalization transaction, effectively as if CNI had issued shares
for consideration equal to the net tangible assets of Cirond followed
by a recapitalization of its common shares (note 3).
On November 25, 2003, the name of the Company 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 December 31, 2003, combined with
those of the legal parent, Cirond, from November 25, 2003, the date of
the recapitalization, in accordance with accounting principles
generally accepted in the United States of America.
c) Property, plant and equipment
Property, plant and equipment, consisting of computer hardware and
software and office equipment, are recorded at cost. The Company
monitors the recoverability of property, plant and equipment based on
estimates using factors such as expected future asset utilization,
business climate and future undiscounted cash flows expected to result
from the use of the related assets or be realized on sale. The Company
recognizes an impairment loss if the projected undiscounted future cash
flows are less than the carrying amount. The amount of the impairment
charge, if any, is measured equal to the excess of the carrying value
over the expected future cash flows discounted using the Company's
average cost of funds. To date no such impairment has been indicated.
Amortization is provided on a straight-line basis at the following
annual rates which are intended to amortize the cost of assets over
their estimated useful life:
=======================================================================
Rate
-----------------------------------------------------------------------
Computer hardware 33%
Computer software 50%
Furniture and equipment 20%
=======================================================================
FF-7
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d) Website development
Website development costs incurred in the planning stage are expensed
as incurred. The costs of application and infrastructure development
incurred subsequent to the preliminary project stage, that have
received management approval for further development, are capitalized
and amortized on the straight-line method over their estimated useful
life (estimated to be three years). Once the website is developed,
operating costs are expensed as incurred.
e) Revenue recognition
In accordance with the provisions of the American Institute of
Certified Public Accountant's Statement of Position 97-2 "Software
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.
f) Income taxes
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
When it is not considered to be more likely than not that a deferred
tax asset will be realized, a valuation allowance is provided for the
excess.
The Company has consolidated non-capital losses available to reduce
future years' taxable income of approximately $1,600,000, expiring in
the 2008 - 2010 taxation years. No amount has been reflected on the
consolidated balance sheet for deferred income taxes as any deferred
income tax asset has been fully offset by a valuation allowance.
FF-8
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
g) Loss per share
Basic loss per share has been calculated by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Income available to common shareholders
is after deduction for dividends declared and cumulative dividends on
preferred shares, if any. As the Company has a net loss in each of the
periods presented, basic and diluted loss per share are the same.
h) Stock option plan
During the year ended December 31, 2003, the Board of Directors
approved a stock option plan whereby employees, officers, consultants
and directors of the Company could be granted options to subscribe for
common stock of the Company up to a maximum of 1,616,000 common shares,
adjusted quarterly to a number equal to the greater of 1,616,000 and
10% of the Company's outstanding common shares. The exercise price,
vesting period and exercise period of options granted pursuant to the
plan are determined by the Board of Directors at the time of grant;
however the exercise price shall be not less than 85% of the fair
market value of the Company's common stock at the date of grant, and
have an exercise period not to exceed 10 years. No options have been
granted pursuant to the plan to date.
i) Translation of financial statements
The Company's functional currency is the United States dollar. The
Company's subsidiary, Cirond Networks (Canada) Inc. operates in Canada
and incurs the majority of its expenses in Canadian dollars, however
the United States dollar has been determined to be its functional
currency, as it is entirely reliant upon the Company to fund its
operations. Accordingly the method of translation of Canadian dollar
balances into the United States dollar is as follows:
i) Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date.
ii) Non-monetary assets and liabilities are translated at the rate of
exchange in effect at the date the transaction occurred.
iii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iv) The net adjustment arising from the translation is included in the
consolidated statement of loss.
FF-9
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
j) Recent accounting pronouncements
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. Statement 146 requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Statement 146 supersedes
accounting guidance previously provided by EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 is applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of
this statement did not have a material impact on the Company's
financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. Interpretation No. 45
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company
must recognize and record an initial liability for the fair value of
the obligations it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The
disclosure provisions are effective for periods ending after December
15, 2002. The initial recognition and initial measurement provisions
apply on a prospective basis to guarantees issued or modified after
December 31, 2002. Implementation of this interpretation did not have a
material effect on the Company's financial position or results of
operations.
During January 2003, the FASB issued, and subsequently revised, its
Interpretation No. 46, Consolidation of Variable Interest Entities. The
interpretation addresses consolidation of certain entities in which
equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated
financial support from other parties. The Company will be required to
apply the consolidation provisions of the interpretation as of the
beginning of its second quarter of fiscal 2004. Implementation of
Interpretation No. 46, as revised, is not expected to have a material
effect on the Company's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 requires that certain financial instruments issued
in the form of shares that are mandatorily redeemable as well as
certain other financial instruments be classified as liabilities in the
financial statements. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. The adoption
of this statement did not have a material impact on the Company's
consolidated financial position or results of operations.
FF-10
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
k) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
3. RECAPITALIZATION TRANSACTION:
Effective November 25, 2003, CNI and Cirond executed an amended share
exchange agreement. At November 25, 2003, Cirond was a shell company
without substantive operations. Just prior to the share exchange, Cirond
effected a 16:1 forward stock split followed by a cancellation of
47,840,000 common shares reducing the total outstanding common shares of
the Company to 16,160,000. The Company then issued 17,000,000 common shares
to the stockholders of CNI in consideration for all of the issued and
outstanding common shares of CNI. As the former stockholders of CNI
obtained control of the Company through the share exchange, this
transaction has been accounted for in these financial statements as a
recapitalization transaction. Under recapitalization accounting, CNI is
considered to have issued common shares for consideration equal to the net
monetary assets of Cirond with the results of Cirond operations included in
the consolidated financial statements from the date of recapitalization.
Net deficiency assumed:
Cash $ 6,705
Accounts payable and accrued liabilities (1,194)
Loan payable (75,000)
Advances from CNI prior to recapitalization transaction (55,157)
---------------------------------------------------------------------------
(124,646)
===========================================================================
Consideration given for net deficiency assumed:
17,000,000 common shares issued 1
Charge to deficit (124,647)
---------------------------------------------------------------------------
$ (124,646)
===========================================================================
Immediately subsequent to the recapitalization transaction, the Company
issued 1,300,000 common shares in exchange for $650,000 of promissory notes
in CNI.
FF-11
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
4. PROPERTY, PLANT AND EQUIPMENT:
===========================================================================================================
2003 Cost Accumulated Net book
amortization value
-----------------------------------------------------------------------------------------------------------
Computer hardware $ 41,892 $ 10,127 $ 31,765
Computer software 9,233 6,457 2,776
Furniture and equipment 25,386 5,430 19,956
-----------------------------------------------------------------------------------------------------------
$ 76,511 $ 22,014 $ 54,497
===========================================================================================================
===========================================================================================================
2002 Cost Accumulated Net book
amortization value
-----------------------------------------------------------------------------------------------------------
Computer hardware $ 13,310 $ 2,218 $ 11,092
Computer software 3,235 808 2,427
Furniture and equipment 6,795 680 6,115
-----------------------------------------------------------------------------------------------------------
$ 23,340 $ 3,706 $ 19,634
===========================================================================================================
5. WEBSITE DEVELOPMENT:
===========================================================================================================
2003 Cost Accumulated Net book
amortization value
-----------------------------------------------------------------------------------------------------------
Website development costs $ 19,025 9,513 $ 9,512
===========================================================================================================
-----------------------------------------------------------------------------------------------------------
2002 Cost Accumulated Net book
amortization value
-----------------------------------------------------------------------------------------------------------
Website development costs $ 19,025 3,171 $ 15,854
-----------------------------------------------------------------------------------------------------------
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Included in accounts payable and accrued liabilities at December 31, 2003
is $50,776 that is currently being disputed by management with a supplier.
FF-12
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
7. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 2003, the Company incurred consulting
fees from a company controlled by the president totaling $120,000 (2002 -
$110,000). At December 31, 2003, $40,000 (2002 - $10,000) 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.
8. LOAN PAYABLE:
The loan payable does not bear interest, is unsecured, has no fixed terms
of repayment and is not subject to a written agreement. On March 1, 2004,
the Company repaid the loan payable.
9. SHARE SUBSCRIPTIONS PAYABLE:
During the year ended December 31, 2003, the Company received subscriptions
for 750,000 common shares at $0.50 per share for aggregate cash proceeds of
$375,000. The common shares were issued subsequent to December 31, 2003.
10. DUE TO STOCKHOLDER:
Due to stockholder is unsecured, non-interest bearing and has no fixed
terms of repayment.
11. 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
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12. FINANCIAL INSTRUMENTS:
The fair values of cash, amounts receivable, accounts payable and accrued
liabilities, consulting fees payable, loan payable and share subscriptions
payable approximate their carrying values due to the relatively short
periods to maturity of these instruments. It is not practical to determine
the fair value for due to stockholder due to the related party nature of
the amount and the absence of a trading market for such financial
instruments. The maximum credit risk exposure for all financial assets is
the carrying amount of that asset.
FF-13
CIROND CORPORATION (FORMERLY EXMAILIT.COM)
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003 and 2002
================================================================================
13. COMPARATIVE FIGURES:
Certain of the comparative figures have been reclassified to conform with
the financial presentation adopted for the current year.
14. SUBSEQUENT EVENTS:
a) On March 26, 2004, the Company received a subscription for 4,000,000
common shares and common share purchase warrants for aggregate cash
proceeds of $2 million. Subsequent to March 26, 2004, the subscriber
retracted their share subscription. On May 4, 2004, the Company
returned $1.5 million to the subscriber. $100,000 of the remaining
$500,000 will be returned once a finders fee of $100,000 is refunded to
the Company. The remaining share subscription of $400,000 was converted
into a demand loan which is due September 30, 2004, is unsecured and
bears interest at 5%. The demand loan is not subject to a written
agreement.
b) Subsequent to December 31, 2003, 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. The annual
support and maintenance services are renewable, at the option of the
customer, at $100,000.
FF-14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the corporate laws of the State of Nevada, the registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). The registrant's Bylaws (Exhibit 3.2
hereto) also provide for mandatory indemnification of its directors and
executive officers, and permissive indemnification of its employees and agents,
to the fullest extent permissible under Nevada law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
Securities and Exchange Commission filing fee........$ 991.91
Accounting fees and expenses......................... 8,000.00
Blue sky fees and expenses........................... 1,000.00
Legal fees and expenses.............................. 20,000.00
Transfer agent fees and expenses..................... 1,000.00
Printing expenses.................................... 1,000.00
Miscellaneous expenses............................... 1,008.09
--------------
Total................................................$ 33,000.00
==============
All amounts are estimates except the SEC filing fee. The Selling
Stockholders will be bearing the cost of its own brokerage fees and commissions
and its own legal and accounting fees.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the registrant has issued and sold the
unregistered securities set forth in the tables below.
- -------------------------------------------------------------------------------------------------------------------
PERSONS OR CLASS OF
DATE PERSONS SECURITIES CONSIDERATION
- -------------------------------------------------------------------------------------------------------------------
09/18/03 - 6 accredited investors 750,000 shares of common stock $375,000
11/14/03
- -------------------------------------------------------------------------------------------------------------------
11/25/03 Cirond Technologies Inc. 17,000,000 shares of common stock Shares of Cirond
(n/k/a Seaside Holdings Networks, Inc.
Inc.)
- -------------------------------------------------------------------------------------------------------------------
11/25/03 Cirond Venture Partners 1,300,000 shares of common stock Payment of $650,000 of
Inc., Stumdell Limited, indebtedness of Cirond
and Steven Velardi Networks, Inc.
- -------------------------------------------------------------------------------------------------------------------
05/27/04 - 8 accredited investors 700,000 shares of common stock $350,000 less cash
09/20/04 commissions of $26,500
- -------------------------------------------------------------------------------------------------------------------
08/02/04 Securities Trading 1,200,000 shares of common stock Consulting services
Services Inc. valued at $1,800,000
- -------------------------------------------------------------------------------------------------------------------
II-1
- -------------------------------------------------------------------------------------------------------------------
PERSONS OR CLASS OF
DATE PERSONS SECURITIES CONSIDERATION
- -------------------------------------------------------------------------------------------------------------------
12/22/04 10 accredited investors 2,000 shares of Series B preferred stock $2,000,000 less cash
and warrants to purchase 2,325,584 shares commissions of $160,000
of common stock
- -------------------------------------------------------------------------------------------------------------------
12/22/04 Ascendiant Securities, Warrants to purchase 160 shares of Series Finder's fee
LLC B preferred stock
- -------------------------------------------------------------------------------------------------------------------
No underwriters were used in the above stock transactions, except for
the placement of securities in December 2004. The registrant relied upon the
exemption from registration contained in Section 4(2) as to all of the
transactions except for the sales of securities to accredited investors. The
registrant relied upon Rule 506 for the sales of securities to accredited
investors. The registrant also relied upon Rule 506 for the issuance of warrants
to Ascendiant Securities, LLC. With regard to the transactions made in reliance
on the exemption contained in Section 4(2), the purchasers were deemed to be
sophisticated with respect to the investment in the securities due to their
financial condition and involvement in the registrant's business. Restrictive
legends were placed on the stock certificates evidencing the securities issued
in all of the above transactions.
ITEM 27. 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 (3)
- --------------------------------------------------------------------------------
3.2 Bylaws, as amended (4)
- --------------------------------------------------------------------------------
4.1 Certificate of Designation of Series B 5% Convertible
Preferred Stock (5)
- --------------------------------------------------------------------------------
5.1 Opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.
- --------------------------------------------------------------------------------
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 Management Advisory Services Agreement with Amber Tiger
Holdings Corp. dated January 1, 2004 (2)
- --------------------------------------------------------------------------------
10.4 2004 Stock Option Plan (6)
- --------------------------------------------------------------------------------
10.5 Agreement with Regency Capital Partners dated October 1,
2004, as amended November 2, 2004 (7)
- --------------------------------------------------------------------------------
II-2
- --------------------------------------------------------------------------------
REGULATION S-B
NUMBER EXHIBIT
- --------------------------------------------------------------------------------
10.6 Form of Securities Purchase Agreement dated as of December
22, 2004 between Cirond Corporation and the Purchaser named
therein (5)
- --------------------------------------------------------------------------------
10.7 Registration Rights Agreement dated December 22, 2004 between
Cirond Corporation and the Purchasers named therein (5)
- --------------------------------------------------------------------------------
10.8 Form of Common Stock Purchase Warrant (5)
- --------------------------------------------------------------------------------
10.9 Form of Additional Investment Right (5)
- --------------------------------------------------------------------------------
16.1 Letter from Parker & Co. (1)
- --------------------------------------------------------------------------------
21 Subsidiaries of the registrant (2)
- --------------------------------------------------------------------------------
23.1 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C.
Reference is made to Exhibit 5.1
- --------------------------------------------------------------------------------
23.2 Consent of KPMG LLP
- --------------------------------------------------------------------------------
- -------------------
(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 for the fiscal year ended December 31, 2003,
filed May 10, 2004.
(3) Incorporated by reference to the exhibits to the registrant's
registration statement on Form 10-SB, filed April 29, 2002.
(4) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated December 17, 2004, filed December 22, 2004.
(5) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated December 22, 2004, filed December 23, 2004.
(6) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated September 20, 2004, filed October 5, 2004.
(7) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated October 1, 2004, filed December 2, 2004.
II-3
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the issuer pursuant to the foregoing provisions, or
otherwise, the issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the issuer in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Burnaby,
Province of British Columbia, on January 19, 2005.
CIROND CORPORATION
By: /s/ NICHOLAS MILLER
-----------------------------------------
Nicholas Miller, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
SIGNATURE TITLE DATE
/s/ NICHOLAS MILLER President, Chief Executive Officer and
- --------------------------------- Director (Principal Executive Officer) January 19, 2005
Nicholas Miller
/s/ DAVID REDEKOP Chief Financial Officer (Principal Financial
- --------------------------------- Officer and Principal Accounting Officer) January 19, 2005
David Redekop
/s/ TATE HOLT
- --------------------------------- Director January 19, 2005
Tate Holt
/s/ BLAIN ARCHER
- --------------------------------- Director January 19, 2005
Blain Archer
II-5