As filed March 23, 2005 File No. 333-122173
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 1
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. [ ]
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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. [ ]
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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 OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
REGISTERED REGISTERED(1)<F1>(2)<F2> UNIT (3)<F3> PRICE (3)<F3> (4)<F4>
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Common stock, $0.001 par 29,776,867 $0.26 $7,741,985.42 $911.23
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 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 March 18, 2005, as reported
by the OTC Bulletin Board.
(4)<F4> A fee of $991.91 was paid upon the initial filing.
</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 March 23, 2005
CIROND CORPORATION
UP TO 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
29,776,867 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 March 21, 2005, the closing bid price for our common stock was
$0.26 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 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The 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................................................................9
MARKET FOR COMMON EQUITY.......................................................9
DIVIDEND POLICY................................................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................10
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................................14
BUSINESS......................................................................16
MANAGEMENT....................................................................20
EXECUTIVE COMPENSATION........................................................22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................26
DESCRIPTION OF SECURITIES.....................................................27
SELLING STOCKHOLDERS..........................................................29
PLAN OF DISTRIBUTION..........................................................31
LEGAL MATTERS.................................................................32
EXPERTS.......................................................................32
ADDITIONAL INFORMATION........................................................33
REPORTS TO STOCKHOLDERS.......................................................33
INDEX TO FINANCIAL STATEMENTS.................................................34
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 focus on products using 802.11b Wireless Local
Area Network ("WLAN") technology.
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 29,776,867 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 March 11,
2005.
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. 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:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
Cash.......................................................... $ 1,308,086 $ 86,066 $ 60,135
Working capital (deficit) .................................... $ 497,618 $ (805,745) $ (238,616)
Total assets.................................................. $ 1,405,059 $ 182,246 $ 99,548
Total liabilities............................................. $ 843,224 $ 923,982 $ 302,676
Redeemable, convertible preferred stock....................... $ 70,500 $ -- $ --
Stockholders' equity (deficit)................................ $ 491,335 $ (741,736) $ (203,128)
3
INCOME STATEMENT DATA:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
Revenue....................................................... $ 27,649 $ 955,931(1)<F1> $ 27,649
Net (loss).................................................... $ (1,063,962) $ (1,437,439) $ (1,063,962)
Basic and diluted (loss) per share............................ $ (0.06) $ (0.04) $ (0.06)
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<FN>
(1)<F1> 83% of these revenues were attributable to a source code licensing
agreement, which was completely performed as of January 20, 2005. We do not
anticipate that any additional revenues will be received from this customer
during the fiscal year ended December 31, 2005.
</FN>
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.
SINCE WE HAVE INCURRED LOSSES SINCE OUR INCEPTION AND WILL CONTINUE TO INCUR
LOSSES IN THE FUTURE, WE CANNOT ASSURE YOU THAT WE WILL SUCCEED OR BE
PROFITABLE.
To date our operations have generated insufficient revenues to provide
working capital for our ongoing overhead and our research and development
efforts. As of December 31, 2004, we had an accumulated deficit of $3,141,514.
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, 2004 FINANCIAL STATEMENTS CONTAINS A "GOING CONCERN" QUALIFICATION.
The report of the independent auditors on our financial statements for
the year ended December 31, 2004, includes an explanatory paragraph relating to
our ability to continue as a going concern. We have suffered substantial losses
and incurred negative cash flow 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.
IF WE CANNOT OBTAIN ADEQUATE FINANCING TO CONTINUE OUR PLANNED OPERATIONS, WE
MAY HAVE TO CURTAIL MARKETING EFFORTS AND/OR RESEARCH AND DEVELOPMENT EFFORTS,
THEREBY IMPAIRING OUR ABILITY TO GENERATE SALES REVENUES.
We have relied in the past on the sale of equity capital to fund
working capital and our research and development efforts, as our revenues are
not sufficient to cover our operating costs. 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 being able to develop new products ahead of our competition.
The lack of adequate cash could also impair our marketing efforts and thereby
decrease our ability to sell our products and generate revenues.
While we had working capital of $497,618 at December 31, 2004, our
projected "burn rate" for the current fiscal year is such that we will need cash
from one or more external sources of approximately $700,000 to $800,000.
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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.
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.
IF WE CANNOT CONTINUE TO DEVELOP NEW TECHNOLOGIES AND PRODUCTS, WE WILL NOT BE
ABLE TO COMPETE WITH OTHERS IN OUR INDUSTRY.
Developments in the information technology industry occur constantly.
Our future will depend upon our ability to not only stay abreast of such
developments, but to successfully develop and market innovative products in this
rapidly changing technological environment. If we cannot offer useful products,
our business will not succeed. We will likely require significant capital to
develop new technologies and products to meet changing customer demands and
communications standards. 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 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, THEREBY
EXPOSING IT TO THE RISK OF BEING PIRATED OR COPIED AND CAUSING US TO LOSE A
COMPETITIVE ADVANTAGE.
We have developed certain technology that works with and manages
wireless networks. We believe that our ability to sell our products using this
technology is dependent on how unique or innovative our technology is perceived
to be by prospective customers. If we cannot protect our proprietary technology,
we will not be able to compete effectively. 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, THEREBY RESULTING IN PRODUCTS
SUPERIOR TO OURS.
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.
5
OUR SUCCESS DEPENDS ON OUR KEY MANAGEMENT PERSONNEL, THE LOSS OF ANY OF WHOM
COULD IMPAIR OUR BUSINESS.
The success of our operations and activities is dependent to a
substantial extent on the efforts and abilities of our Nicholas Miller, our
President and Chief Executive Officer, and Mitchell Burton, our Chief Technology
Officer. Mr. Miller currently spearheads our sales and marketing strategies and
efforts, while Mr. Burton is responsible for developing our products. The loss
of services of either of these men could result in a serious setback in these
critical business functions, which in turn would result in decreased revenues.
We have not obtained "key man" insurance for any of our management.
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. For example, one
customer generated 83% of our revenues for the year ended 2004 and is not likely
to generate any significant revenues for the current fiscal year. Since many of
our products have only been recently introduced, they lack sales history on
which we can project sales revenues for the current year with any reliability.
Therefore, we expect that our operating results will fluctuate significantly
from quarter to quarter, due to our inability to predict or control our
revenues. 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, as some brokers refrain from trades involving penny stocks
to avoid the additional work to comply with these requirements. As a result,
your ability to sell your securities in the secondary market could be limited.
OUR ISSUANCE OF THE SERIES B PREFERRED STOCK AND WARRANTS COULD SUBSTANTIALLY
DILUTE THE INTERESTS OF SHAREHOLDERS BECAUSE THE SHARES AND WARRANTS CAN BE
CONVERTED OR EXERCISED AT A PRICE BELOW MARKET.
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
6
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 result in substantial dilution to the detriment of our other
shareholders.
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 in cash or
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. Payment of the cash penalties or
increased dividends will decrease our then available cash and increase our
expenses. A forced redemption of the preferred stock for cash would also
decrease our then available cash, while a forced redemption for shares would
result in the issuance of common stock at a substantial discount from the market
price at the time. Holders could sell the shares and cause the market price to
decline, to the detriment of other shareholders.
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.
7
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.
WE MAY BE FORCED TO DEFEND OURSELVES IN AN ACTION BY ONE OF OUR INVESTORS, WHICH
COULD RESULT IN A JUDGMENT AND LEGAL FEES BEING ASSESSED AGAINST US.
In April 2004, we received $2,000,000 in funds from a private investor
in connection with a private placement offering pursuant to an irrevocable
written subscription agreement. The investor later requested that his investment
be rescinded and, without waiving any of our rights we may have against the
investor under the subscription agreement, we returned $1,600,000 to the
investor. It is our intent to return the remaining $400,000 balance of the
investment only when the investor enters into a mutual settlement agreement
acceptable to us. To date, our offer to return the remaining $400,000 upon
execution of a mutual settlement agreement has been rejected by the investor. We
have informed the investor that if he continues to refuse to execute the
settlement agreement, we will enforce the terms of the subscription agreement
relating to the remaining $400,000 and issue shares of our common stock and
common stock purchase warrants in accordance with the terms of the subscription
agreement. The investor has indicated that he may initiate an action to recover
the remaining $400,000. If the investor were to be successful, he could recover
the remaining $400,000 and possibly the costs of maintaining the legal action,
including legal fees.
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
8
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
On March 21, 2005, the closing bid price for the common stock on the
OTC Bulletin Board was $0.26.
As of March 11, 2005, there were 164 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. Dividends of $2,466 were accrued to December 31,
2004 related to redeemable, convertible preferred stock issued on December 22,
2004.
9
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 to fulfill CNI's debt obligations totaling $650,000 owed to Cirond
Venture Partners Inc., Stumdell Limited, and Steven Velardi. These three parties
loaned $650,000 to CNI and agreed to be paid in shares at the same price at
which shares were sold in the private placement.
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. 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 January 1, 2003 to December 31, 2003 and January
1, 2004 to December 31, 2004, combined with those of the legal parent, Cirond
Corporation, from November 25, 2003, the date of the recapitalization, in
accordance with accounting principles generally accepted in the United States of
America.
As CNI is a software development company, it earns revenues through
license sales of its products, all of which utilize the proprietary technology
developed by CNI. Development of the technology requires a significant outlay of
cash before a viable product is developed that utilizes the technology. After
development of a product, even more cash is required to market the product
before any revenues are realized. Accordingly, the challenge that faces many
software development companies is being able to obtain enough cash to fund
research and development and marketing expenses and sustain the company until
revenues are generated. Such funds are needed fairly quickly after products are
developed, as the environment in which the products are used is constantly
changing. Companies face the risk of discovering that their products do not meet
the needs of the potential customers or are technologically outdated after a
marketing campaign is launched.
CNI entered into the above transaction with a publicly-held company to
improve its ability to obtain funding for research and development of its
products and marketing efforts. Management believed that it would be easier to
obtain funding if investors identified an "exit strategy" via the public
marketplace. By entering into the non-exclusive source code licensing agreement
with Computer Associates International, Inc. in January 2004, management
believed that CNI had achieved validation of its product by a well-recognized
firm in the computer industry. During 2004, we raised $323,500 through the
issuance of our common shares for cash and $1,815,000 through the sale of
redeemable, convertible preferred shares. In addition, we were able to pay for
the consulting services of Securities Trading Services Inc. with common shares.
We used these funds for operations, which included research and development
expenses of $576,894 and marketing efforts.
While we will continue to improve our products, we believe that we have
now developed a viable suite of products dedicated to the goal of securing wired
networks against the threat of unauthorized wireless devices that is ready for
the marketplace. For the current fiscal year, management is focusing its efforts
and resources on marketing products through several channels. While we are
pursuing the licensing of our technology to other software development firms and
wireless network hardware manufacturers, such as the Computer Associates type of
10
arrangement, we are also trying to offer direct sales through our web site,
through value added resellers, and through marketing representatives.
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 $1,437,439 and $1,063,962 and negative cash flows from
operations of $1,155,226 and $925,867 for the years ended December 31, 2004 and
2003, respectively. At December 31, 2004, we had an accumulated deficit of
$3,141,514. 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 and, therefore, be required
to realize our assets and discharge our liabilities in other than the normal
course of operations. 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.
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.
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 software license sales, both directly and
through value-added resellers, is 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. We estimate allowances for returns arising from warranty
provisions based on historical experience. 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 all revenue for
the arrangement is deferred until the earlier of the point at which VSOE does
exist or all elements of the arrangement have been delivered, unless the
undelivered elements are post contract customer support arrangements, in which
case the arrangement revenue is recognized ratably, or services, in which case
the arrangement revenue is recognized as the services are provided. Periodically
we sell to value-added resellers ("VAR") under terms consistent with those
applied to other customers. We do not offer price protection or rights of return
to VARs and consideration terms and sales are not dependent on the option of the
resellers.
11
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 2004 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2003
Revenues from operations increased from $27,649 for the year ended
December 31, 2003 to $955,931 for the year ended December 31, 2004. Revenue from
the Source Code Licensing agreement described above, which closed in the first
quarter of 2004, accounted for approximately 83% of revenues for the 2004 fiscal
year. We also received revenue from licensing of our Winc Manager, Winc,
pocketWinc and recently introduced AirPatrol Mobile, AirPatrol Sentinel and
AirPatrol Enterprise software products. Our revenues during the 2004 fiscal year
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. We have
recorded 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. Management is 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 fiscal 2004, our expenses increased over 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 year ended December 31, 2004 was $1,437,439
compared to a net loss of $1,063,962 for the year ended December 31, 2003. The
increase in the net loss is primarily a result of the 120% increase in expenses
compared to the year ended December 31, 2003. During the 2004 fiscal year, the
most dramatic increases in expenses were in the areas of advertising and
promotion (218%), consulting fees (239%), office and administrative (226%),
professional fees (104%), and salaries and benefits (141%). Advertising and
promotion and travel expenses have increased as our products have reached the
sales portion of the sales cycle. Professional fees for fiscal 2004 were
$203,775 compared to $100,071 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 fiscal 2004 were $238,598 compared to
$98,894 for 2003 as a result of our having two more employees in 2004 than in
2003, and the result of the accrual of a termination settlement payment for a
terminated employee in the amount of $45,000, which was paid in January 2005.
During fiscal 2004, consulting fees increased by from $255,945 to $868,883. 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 $229,976. Also
contributing was the fact that we retained on-going marketing and public
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.
Dividends of $2,466 were accrued to December 31, 2004 related to
redeemable, convertible preferred stock issued on December 22, 2004. No cash
dividends were declared during the year ended December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2004, we had cash of $1,308,086 and a working
capital surplus of $497,618 due to the completion of a private placement of
redeemable, convertible preferred stock and warrants in late December 2004,
resulting in net proceeds of $1,815,000. In addition, we sold shares of our
common stock during 2004, which resulted in net proceeds of $323,500 and
received share subscription proceeds of $400,000. The $2,403,499 of cash
12
provided by our financing activities offset the $1,155,226 of cash used in
operations and $26,253 used in investing activities.
Receivables of $14,883 at December 31, 2004 consisted of sales made on
Esellerate and Handango websites in December 2004 and paid to us in January
2005, as well as refundable taxes from the Canadian government. The entire
amounts receivable at December 31, 2004 of $14,883 was collected in the first
quarter of 2005. The amounts receivable at December 31, 2003 of $19,679 was
collected in the first quarter of 2004.
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.
Deferred revenue at December 31, 2004 included support revenue in
connection with the Source Code Licensing Agreement, which was recognized each
month for the 12 months from January 21, 2004 to January 20, 2005.
Accounts payable increased from December 31, 2003 to December 31, 2004
as a result of the increased level of operating expenses and liabilities
relating to accrued severance pay of $45,000 for a terminated employee.
In April 2004, we received $2,000,000 in funds from a private investor
in connection with a private placement offering pursuant to an irrevocable
subscription agreement. During the quarter ended June 30, 2004, the investor
requested that his investment be rescinded and, without waiving any of our
rights we may have against the investor under the subscription agreement, we
returned $1,500,000 to the investor of the $2,000,000 received. 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 returned to the
investor as well. It is our intent to return the $400,000 balance of the
investment only when the investor enters into a mutual settlement agreement
acceptable to us. Even though we have offered to return the remaining $400,000
to the investor if the investor executes a mutual settlement agreement, the
investor has refused to execute the settlement agreement. We have informed the
investor that if he continues to refuse to execute the settlement agreement, we
will enforce the terms of the subscription agreement relating to the remaining
$400,000 and issue shares of our common stock and common stock purchase warrants
in accordance with the terms of the subscription agreement. The investor has
indicated that he may initiate an action to recover the remaining $400,000.
Although we have returned $1,600,000 of the $2,000,000 invested, we have not
admitted to any facts or circumstances that would support a legal right to
rescind the investment and we intend to vigorously defend any legal action on
that basis. The $400,000 is reflected as share subscriptions payable at December
31, 2004.
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. We concluded the offering in September 2004, selling a total of
700,000 shares for net cash proceeds of $323,500.
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% Redeemable 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.
13
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 up to 1,674,419
shares of common stock at $0.55 per share. The warrants are exercisable for a
five-year period commencing from the date on which the right to exercise the
warrants vested. The warrants are currently vested as to 372,093 shares. Further
vesting will occur as warrants and the Additional Investment Right securities
are exercised. The warrants contain piggyback registration rights and a net
exercise provision.
PLAN OF OPERATION
We believe we do not have sufficient funds to cover our operating
overhead for the next twelve months. While we had approximately $1,300,000 of
cash at December 31, 2004, our projected "burn rate" for the current fiscal year
is approximately $150,000 per month. This cash flow rate is representative of
the capital requirements over the twelve-month period from the date of the
prospectus, based on our current growth plan. Our plans for the current fiscal
year include doubling the size of research and development expenditures from
$576,894 in 2004 to approximately $1.2 million in 2005 and increasing amounts
spent on marketing and sales from $220,715 in 2004 to approximately $5.4
million. 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 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 $1.2 million 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.
Accordingly, we estimate that we will need cash from one or more
external sources of approximately $700,000 to $800,000 over the next twelve
months. While we issued Additional Investment Rights as part of our December
2004 private placement that could potentially result in gross proceeds of
$4,000,000 if fully exercised, we cannot assure you that any of the rights will
be exercised. Therefore, 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.
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. 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.
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.
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.
14
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.
15
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.
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
16
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. The product is based on the customer's server. Unlike the AirPatrol
Mobile(TM), which scans only when the user is walking around the premises
conducting a scan, the AirPatrol Enterprise(TM) scans constantly. Whenever an
unauthorized or unidentified station is identified, a pop-up box on the system
manager's screen is triggered to alert him or her of a possible problem. The
alert system can be programmed to operate on a remote computer, to an e-mail to
a hand-held computing device, or by a text message to a mobile phone. 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 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
17
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.
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 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.
CUSTOMERS
During the fiscal year ended December 31, 2004, a source code licensing
agreement with Computer Associates generated 83% of our revenues. During the
current fiscal year, we do not expect to be dependent on any key customers.
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. Most of these firms have products
that protect wireless networks from outside attacks. We believe that our most
significant competitive advantage is that our product protects a wired network
against attack from a connected laptop that is wireless enabled.
18
We believe that customers select products based on cost, ease of
installation and use, and product features, and that we compete favorably on
these factors. Since our products are software, with the exception of AirPatrol
Sensor(TM), customers do not have to purchase specialized hardware. Our software
can be downloaded and immediately operational.
Many, if not most of our competitors, however, have greater financial
resources and have been able to market their products more extensively. Some of
our competitors have existing customers bases for non-competitive products,
which provides them with the advantage of greater market recognition.
PATENTS
We recently filed provisional patents in the United States and Canada
on our AirSafe(TM) product. We have until May 29, 2005 to take further action in
order to maintain this patenting pending status.
RESEARCH AND DEVELOPMENT
During the fiscal years ended December 31, 2004, 2003 and 2002, we
spent $576,894, $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 14 persons, of which 7
were full-time and 7 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.
19
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 March 2001. Between 1999 and March
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. Mr.
Redekop has been working on a full-time basis for us since January 2005.
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. Mr. Burton devotes
all of his working time to Cirond, but is paid through his company, Headline
Technologies, for personal tax reasons.
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
20
degree in Public Administration. Since 1987, Mr. Moss has served as a consultant
providing strategic business 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.
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 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, in terms of having adequate time to devote to
the business of the company.
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.
21
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, 2004 $180,000 -0- -0- -0- ___ -0- -0-
CEO(1)<F1> (2)<F2> 2003 $120,000 -0- -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
Mitchell Burton, 2004 $120,000 -0- -0- -0- ___ -0- -0-
Chief Technol- 2003 $120,000 -0- -0- -0- -0- -0- -0-
ogy Officer
(2)<F2>(3)<F3>
- --------------------------------------------------------------------------------------------------------------------
M. Kevin Ryan, 2003 -0- -0- -0- -0- -0- -0- -0-
President(4)<F4> 2002 -0- -0- -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
- -----------------
<FN>
(1)<F1> Mr. Miller became our CEO in November 2003.
(2)<F2> Amounts incurred as consulting fees pursuant to our contracts with
Amber Tiger Holding Corp. and Headline Technologies Ltd. are listed as
salary.
(3)<F3> Mr. Burton has been CNI's Chief Technology Officer since November 2001.
(4)<F4> 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. Beginning in January 2005, we began paying each of our non-officer
directors $1,500 for their attendance at board of director meetings and $1,000
for their attendance at committee meetings.
STOCK OPTION PLAN
By written consent dated September 20, 2004, our Board of Directors
adopted the 2004 Stock Option Plan. The Board of Directors approved an amendment
to the 2004 Stock Option Plan, as of January 26, 2005, to increase the number of
shares available under the Plan to 6,710,000 shares of our common stock (the
"Available Shares") that may be purchased 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
6,710,000 shares, whichever is greater. Our shareholders must still approve this
amendment. If our shareholders do not approve the 2004 Stock Option Plan as
amended by September 20, 2005, any options granted under the 2004 Stock Option
Plan will be rescinded and void.
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
22
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 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.
23
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.
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.
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 March 11, 2005.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1> BENEFICIAL OWNERSHIP (2)<F2> PERCENT OF CLASS(2)<F2>
Nicholas Miller (3)<F3> 7,397,018 19.9%
4185 Still Creek Drive, #B-101
Burnaby, British Columbia, Canada V5C 6G9
24
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1> BENEFICIAL OWNERSHIP (2)<F2> PERCENT OF CLASS(2)<F2>
Kevin O'Neill 2,762,366 7.4%
2985 Rosebery Avenue
West Vancouver, British Columbia, Canada V7V 3A8
Mark Moldenhauer 2,382,833 6.4%
8100 Navidad Drive
Austin, Texas 78735
Mitchell G. Burton -0- -
4185 Still Creek Drive, #B-101
Burnaby, British Columbia, Canada V5C 6G9
David Redekop -0- -
1632 Dickson Avenue #510
Kelowna, British Columbia V1Y 7T2
Isaac Moss -0- -
4185 Still Creek Drive, #B-101
Burnaby, British Columbia, Canada V5C 6G9
Tate Holt -0- -
P.O. Box 1058
Larkspur, California 94977
Blain Archer -0- -
3915 West 36th Avenue
Vancouver, British Columbia, Canada V6N 2S7
All officers and directors as a group (6 persons) 7,397,018(3)<F3> 19.9%
- --------------
<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 March 11, 2005. If a person listed on this table has the right to
obtain additional shares of Common Stock within sixty (60) days from
March 11, 2005, 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. The table does not include shares
issuable upon the exercise of stock options. Stock options were granted
in January 2005, subject to shareholder approval of any amendment to
increase the Available Shares under the 2004 Stock Option Plan. This
approval has not yet been obtained.
(3)<F3> Excludes ownership through the shares of preferred stock and warrants
held by Seaside Holdings Inc.
</FN>
Nicolas Miller may be deemed to be the "parent" of our company within
the meaning of the rules and regulations of the Securities and Exchange
Commission.
CHANGES IN CONTROL
There are no agreements known to management that may result in a change
of control of our company.
25
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 all business management and
executive services to us by Nicholas Miller in connection with his role as our
president and CEO. The agreement is for a term of one year and automatically
renews annually unless terminated by us or Amber Tiger. At the time CNI entered
into the agreement with Amber Tiger, Nicholas Miller was the sole director.
Accordingly, it was not a negotiated contract. For the year ended December 31,
2003, compensation under that agreement was $10,000 per month. It was increased
to $15,000 per month for 2004. 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 year ended December 31, 2004, we incurred consulting fees to Amber Tiger
in the amount of $180,000 and $40,000 was recorded as a payable at December 31,
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 all business management and executive services to us by Mitchell
Burton in connection with his role as our chief technology officer. The
agreement is for a term of one year and automatically renews annually unless
terminated by us or Headline Technologies. At the time CNI entered into the
agreement with Amber Tiger, Nicholas Miller was the sole director. For the year
ended December 31, 2003, we incurred consulting fees to Headline Technologies in
the amount of $120,000 and $80,000 was recorded as a payable at December 31,
2003 (of which $55,000 related to 2002). For the year ended December 31, 2004,
we incurred consulting fees to Headline Technologies in the amount of $120,000
and $70,000 was recorded as a payable at December 31, 2004.
SEASIDE HOLDINGS INC. As of the December 31, 2004 and 2003, we were
indebted to Seaside Holdings Inc., a company in which Mr. Miller serves as an
officer and director, in the amounts of $111,575 and $171,576, respectively.
Seaside Holdings Inc. was the former parent company of CNI. 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.
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, as they took the initiative in founding
and organizing the business of the company, which was formerly eXmailit.com.
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.
26
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 March 11, 2005, there were 37,110,000 shares
of common stock outstanding, which were held of record by 164 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, accruing from December 22, 2004 and 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
in the event of a stock dividend, stock split, sale of common stock by the
company at a price less than the then current exercise price, rights offering to
shareholders, or pro rata distribution to shareholders; 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).
27
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 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.
The above description of the Series B preferred stock summarizes the
material terms and provisions of that series of stock. However, it 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 Ascendiant Securities, LLC warrants for the purchase
of up to 1,674,419 shares of common stock at $0.55 per share. The warrants are
exercisable for a five-year period commencing from the date on which the right
to exercise the warrants vested. The warrants are currently vested as to 372,093
shares. Further vesting will occur as warrants and the Additional Investment
Right securities are exercised. 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.
28
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.
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 up to 1,674,419 shares of common stock
at $0.55 per share. The warrants are exercisable for a five-year period
commencing from the date on which the right to exercise the warrants vested. The
warrants are currently vested as to 372,093 shares. Further vesting will occur
as warrants and the Additional Investment Right securities are exercised. 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."
29
NUMBER OF OWNERSHIP AFTER OFFERING
SHARES SHARES ------------------------
BENEFICIALLY REGISTERED FOR
NAME OF SELLING SHAREHOLDER OWNED(1)<F1>(2)<F2> RESALE(2)<F2> SHARES PERCENT
Ascendiant Capital Group, LLC (3)<F3> 1,046,511 1,405,123 0 0%
Ascendiant Securities, LLC (3)<F3> 372,093 1,674,419 0 0%
Bluegrass Growth Fund, LP (4)<F4> 2,616,279 3,512,806 0 0%
Bluegrass Growth Fund, Ltd. (4)<F4> 2,616,279 3,512,806 0 0%
Bradley N. Rotter Self Employed Pension Plan
& Trust (5)<F5> 2,616,279 3,512,806 0 0%
Centrum Bank AG, Vaduz (6)<F6> 1,569,768 2,107,684 0 0%
Clarion Finanz AG (7)<F7> 1,569,768 2,107,684 0 0%
Meadowbrook Opportunity Fund LLC (8)<F8> 2,616,279 3,512,806 0 0%
Penn Footwear (9)<F9> 1,569,768 2,107,684 0 0%
Seaside Holdings Inc. (10)<F10> 523,254 702,561 0 0%
Stonestreet Limited Partnership (11)<F11> 2,616,279 3,512,806 0 0%
Whalehaven Capital Fund Limited (12)<F12> 1,569,768 2,107,684 0 0%
- ----------------
<FN>
(1)<F1> The number of 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 have been excluded.
(2)<F2> The selling shareholders may sell up to 29,776,867 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, shares issuable as dividends, 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
29,776,867 shares.
(3)<F3> Mark Bergendahl and Bradley J. Wilhite exercise voting and/or
dispositive powers with respect to these shares.
(4)<F4> Deborah Solomon and Brian Shatz exercise voting and/or dispositive
powers with respect to these shares.
(5)<F5> Bradley Rotter exercises voting and/or dispositive powers with respect
to these shares.
(6)<F6> Gerhard Roesli exercises voting and/or dispositive powers with respect
to these shares.
(7)<F7> Carlo Civelli exercises voting and/or dispositive powers with respect
to these shares.
(8)<F8> Michael Ragins exercises voting and/or dispositive powers with respect
to these shares.
(9)<F9> Jeff Davidowitz exercises voting and/or dispositive powers with respect
to these shares.
(10)<F10>Nicholas Miller exercises voting and/or dispositive powers with respect
to these shares.
(11)<F11>Michael Finkelstein exercises voting and/or dispositive powers with
respect to these shares.
(12)<F12>Evan Schemenauer and Arthur Jones exercise voting and/or dispositive
powers with respect to these shares.
</FN>
30
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
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, provided that the short sale is
made after the registration statement is declared effective and a copy of this
prospectus is delivered in connection with the short sale. The selling
stockholders may also 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
31
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. Ascendiant Capital Group, LLC is an affiliated of
Ascendiant Securities, LLC, a registered broker-dealer. It purchased its
preferred shares and warrants in the ordinary course of business.
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 participating person. Regulation M may
also restrict the ability of any person engaged in the distribution of the
shares of common stock to engage in market-making activities with respect to the
shares of common stock. All of the foregoing may affect the marketability of the
shares of common stock and the ability of any person or entity to engage in
market-making activities with respect to the shares of common stock. We will
make copies of this prospectus available to the selling stockholders and have
informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale.
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, 2004 and 2003, and for the years ended December 31,
2004 and 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, 2004 consolidated financial
statements includes an explanatory paragraph that states that we have an
accumulated deficit and have incurred negative cash flows from operations,
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.
32
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 HTTP://WWW.SEC.GOV.
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.
33
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements - December 31, 2004 and 2003
Independent Auditors' Report..............................................F-1
Consolidated Balance Sheets
December 31, 2004 and 2003.............................................F-2
Consolidated Statements of Loss
Years Ended December 31, 2004 and 2003.................................F-3
Consolidated Statement of Stockholders' Equity (Deficiency)
and Comprehensive Loss Years Ended December 31, 2004 and 2003..........F-4
Consolidated Statements of Cash Flows
Years Ended December 31, 2004 and 2003.................................F-5
Notes to Consolidated Financial Statements................................F-6
34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Cirond Corporation
We have audited the accompanying consolidated balance sheets of Cirond
Corporation as of December 31, 2004 and 2003, and the related consolidated
statements of loss, stockholders' equity (deficiency) and comprehensive loss and
cash flows for the years then ended. 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, 2004 and 2003, and the results of its operations and its cash
flows for the years then ended in conformity with U.S. generally accepted
accounting principles.
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 an accumulated deficit
and has negative cash flow from operations, 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
February 10, 2005
F-1
CIROND CORPORATION
Consolidated Balance Sheets
(Expressed in United States dollars)
December 31, 2004 and 2003
========================================================================================================
2004 2003
- --------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 1,308,086 $ 86,066
Amounts receivable, net of allowance of nil (2003 - $nil) 14,883 19,679
Prepaid expenses and deposits 17,873 12,492
---------------------------------------------------------------------------------------------------
1,340,842 118,237
Property, plant and equipment (note 4) 57,875 54,497
Website development (note 5) 6,342 9,512
- --------------------------------------------------------------------------------------------------------
$ 1,405,059 $ 182,246
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities $ 188,698 $ 165,522
Consulting fees payable (note 6) 134,611 130,000
Deferred revenue 5,874 6,884
Dividends payable 2,466 -
Share subscriptions payable (note 7) 400,000 375,000
Loan payable (note 8) - 75,000
Due to stockholder (note 9) 111,575 171,576
---------------------------------------------------------------------------------------------------
843,224 923,982
Redeemable, convertible preferred stock with a par value of
$0.001. 25,000,000 authorized, 2,000 issued (December 31,
2003 - nil), net of deferred financing costs (note 10) 70,500 -
Stockholders' equity (deficiency):
Capital stock:
100,000,000 voting common shares, with $0.001 par value
authorized, 37,110,000 issued (December 31,
2003 - 34,460,000) 37,110 34,460
Additional paid-in capital 3,595,739 915,913
Deficit (3,141,514) (1,692,109)
---------------------------------------------------------------------------------------------------
491,335 (741,736)
Going concern (note 2(a))
Commitments (note 12)
Subsequent event (note 14)
- --------------------------------------------------------------------------------------------------------
$ 1,405,059 $ 182,246
========================================================================================================
See accompanying notes to consolidated financial statements.
F-2
CIROND CORPORATION
Consolidated Statements of Loss
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
=========================================================================================================
2004 2003
- ---------------------------------------------------------------------------------------------------------
Revenue:
Software license fees $ 955,931 $ 27,649
Expenses:
Advertising and promotion 220,715 69,471
Amortization 26,045 24,650
Consulting fees (note 6) 868,883 255,945
Foreign currency exchange loss 4,855 2,408
Interest 3,532 1,867
Office and administrative 72,387 22,192
Professional fees 203,775 100,071
Research and development 576,894 404,886
Salaries and benefits 238,598 98,894
Travel 181,413 111,232
----------------------------------------------------------------------------------------------------
2,397,097 1,091,616
- ---------------------------------------------------------------------------------------------------------
Loss before interest income (1,441,166) (1,063,967)
Interest income 3,727 5
- ---------------------------------------------------------------------------------------------------------
Loss $ (1,437,439) $ (1,063,962)
=========================================================================================================
Weighted average number of common shares outstanding,
basic and diluted 35,451,397 18,722,082
Loss per common share, basic and diluted $ (0.04) $ (0.06)
=========================================================================================================
See accompanying notes to consolidated financial statements.
F-3
CIROND CORPORATION
Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
====================================================================================================================================
Total
Additional stockholders'
Common Stock paid-in equity
Shares Amount capital Deficit (deficiency)
- ------------------------------------------------------------------------------------------------------------------------------------
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 - 132,629 (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 cash at $0.50 per share
(net of costs) 700,000 700 322,800 - 323,500
Common shares issued for share subscriptions 750,000 750 374,250 - 375,000
Common shares issued for consulting services held
in escrow (note 11) 1,200,000 1,200 228,776 - 229,976
Financing cost assigned to warrants issued in
connection with redeemable, convertible preferred
shares less financing costs (note 10) - - 569,000 - 569,000
Beneficial conversion option on redeemable, convertible
of preferred shares (note 10) - - 1,185,000 - 1,185,000
Accretion of discount on redeemable, convertible
preferred shares (note 10) - - - (8,900) (8,900)
Amortization of deferred financing costs (note 10) - - - (600) (600)
Dividend on redeemable, convertible preferred shares - - - (2,466) (2,466)
Comprehensive loss:
Loss - - - (1,437,439) (1,437,439)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 37,110,000 $ 37,110 $ 3,595,739 $ (3,141,514) $ 491,335
====================================================================================================================================
See accompanying notes to financial statements.
F-4
CIROND CORPORATION
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
======================================================================================================
2004 2003
- ------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss $ (1,437,439) $ (1,063,962)
Item not involving cash:
Amortization 26,045 24,650
Common shares issued for services 229,976 -
Changes in non-cash working capital:
Amounts receivable 4,796 (16,166)
Prepaid expenses and deposits (5,381) (12,080)
Accounts payable and accrued liabilities 23,176 69,807
Consulting fees payable (4,611) 65,000
Deferred revenue (1,010) 6,884
-------------------------------------------------------------------------------------------------
(1,155,226) (925,867)
Financing:
Common shares issued for cash, net of costs 323,500 -
Redeemable, convertible, preferred shares and
warrants issued for cash, net of financing costs 1,815,000 -
Promissory note proceeds - 650,000
Share subscriptions proceeds 400,000 375,000
Loan payable repayment (75,000) -
Advances from (to) stockholder (60,001) 28,421
-------------------------------------------------------------------------------------------------
2,403,499 1,053,421
Investing:
Expenditures on website development - -
Expenditures on property, plant and equipment (26,253) (53,171)
Advances to Cirond prior to recapitalization
transaction (note 3) - (55,157)
Cash acquired on recapitalization transaction
(note 3) - 6,705
-------------------------------------------------------------------------------------------------
(26,253) (101,623)
- ------------------------------------------------------------------------------------------------------
Increase in cash 1,222,020 25,931
Cash, beginning of period 86,066 60,135
- ------------------------------------------------------------------------------------------------------
Cash, end of period $ 1,308,086 $ 86,066
======================================================================================================
Supplementary information:
Interest paid $ 3,532 $ 1,867
Income taxes paid $ - $ -
======================================================================================================
Non-cash financing and investing activities:
Common shares issued for share subscription
proceeds in the previous period $ 375,000 $ -
Common shares issued upon conversion of
promissory notes (note 3) $ - $ 650,000
Net liabilities assumed on recapitalization
transaction (note 3) $ - $ 76,194
======================================================================================================
See accompanying notes to consolidated financial statements.
F-5
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
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. The Company's financial statements for the year ended
December 31, 2003 and prior years included additional disclosure for
development stage enterprises.
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. The Company has an accumulated deficit of
$3,141,514 and has incurred negative cash flow from operations. This
factor raises 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-6
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
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 23, 2003, the Company's 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, combined with those of the legal parent, Cirond, from
November 25, 2003, the date of the recapitalization.
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%
=======================================================================
F-7
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
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 software license sales, both
directly and through value-added resellers, is 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. The Company estimates
allowances for returns arising from warranty provisions based on
historical experience. 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 all revenue for the arrangement is deferred
until the earlier of the point at which VSOE does exist or all elements
of the arrangement have been delivered, unless the undelivered elements
are post contract customer support arrangements, in which case the
arrangement revenue is recognized ratably, or services, in which case
the arrangement revenue is recognized as the services are provided.
Periodically we sell to value-added resellers ("VAR") under terms
consistent with those applied to other customers. We do not offer price
protection or rights of return to VARs and consideration terms and
sales are not dependant on the option of the resellers.
f) Product development costs
Costs for the development of new software are expensed as incurred
until technological feasibility has been established, at which time any
additional development costs are capitalized in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". The Company believes its current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, accordingly, no costs have
been capitalized to date.
F-8
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
g) 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 estimated consolidated non-capital losses available to
reduce future years' taxable income of approximately $3,000,000. 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.
h) Loss per common share
Basic loss per common 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.
i) Stock based compensation
The Company has an outstanding stock option plan that is subject to
final shareholder approval, pursuant to which the Company has reserved
6,710,000 shares of common stock to grant to certain employees,
officers, directors and consultants.
The Company accounts for its employee (including director) stock-based
compensation arrangements in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25. "ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES", and related interpretations. Under this method
stock-based compensation expense is only recorded to the extent that
equity securities are issued to employees at an exercise price less
than the market value at the date of grant. Stock options, common stock
and other equity instruments issued to non-employees for services
received is based upon the fair value of the equity instruments issued,
as the services are provided and the securities earned.
F-9
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
i) Stock based compensation (continued)
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", requires
entitles that continue to apply the provisions of APB Opinion No. 25
for transactions with employees to provide pro forma net earnings
(loss) and pro forma earnings (loss) per share disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS
No. 123 had been applied to these transactions.
For the years ended December 31, 2004 and 2003, no stock options were
granted or irrevocably committed to be issued to employees, officers,
directors or consultants. Accordingly, there would be no difference
between the Company's reported loss and loss per common share for these
periods had the Company accounted for compensation costs based on the
fair value of stock options issued for services under SFAS No. 123.
j) Translation of financial statements
The Company's functional currency is the United States dollar. The
Company's subsidiary, Cirond Networks (Canada) Inc. ("CNI Canada")
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 CNI Canada is entirely reliant upon the Company
to fund its operations and the majority of the Company's consolidated
sales are in United States dollars and to the United States customers.
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.
k) Recent accounting pronouncements
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 is 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, has not had a material effect on the Company's
financial position or results of operations.
F-10
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
k) Recent accounting pronouncements (continued)
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. In the year
ended December 31, 2004, the Company issued redeemable, convertible
preferred stock, the presentation of which, in accordance with SFAS
150, was reviewed by management (note 10).
FASB issued a revision of SFAS No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION" ("SFAS No. 123(R)"). SFAS No. 123(R) requires a public
entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant date fair value
of the award. The compensation cost is to be recognized over the
service period which is determined by the vesting period. This
statement is effective as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. The adoption
of a revised SFAS 123 will impact the Company's operating expenses and
shareholders' equity (deficiency) to the extent that the Company issues
a stock option in consideration for services in connection with its
proposed stock option plan (note 2(i)).
l) 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.
F-11
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
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.
F-12
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
4. PROPERTY, PLANT AND EQUIPMENT:
==========================================================================
2004 Cost Accumulated Net book
amortization value
--------------------------------------------------------------------------
Computer hardware $ 56,732 $ 19,545 $ 37,187
Computer software 14,485 9,752 4,733
Furniture and equipment 28,349 12,394 15,955
--------------------------------------------------------------------------
$ 99,567 $ 41,692 $ 57,875
==========================================================================
==========================================================================
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
==========================================================================
5. WEBSITE DEVELOPMENT:
==========================================================================
2004 Cost Accumulated Net book
amortization Value
--------------------------------------------------------------------------
Website development costs $ 19,025 $ 12,683 $ 6,342
==========================================================================
==========================================================================
2003 Cost Accumulated Net book
amortization Value
--------------------------------------------------------------------------
Website development costs $ 19,025 $ 9,513 $ 9,512
==========================================================================
F-13
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
6. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 2004, the Company incurred consulting
fees from a company controlled by the President and Chief Executive Officer
totaling $180,000 (2003 - $120,000). At December 31, 2004, $40,000 (2003 -
$40,000) of these consulting fees were included in consulting fees payable.
During the year ended December 31, 2004, the Company incurred consulting
fees from a Company controlled by the Chief Technology Officer totaling
$120,000 (2003 - $120,000). At December 31, 2004 $70,000 (2003 - $80,000)
of those consulting fees were included in accounts payable and accrued
liabilities consulting fees payable.
The amounts 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.
7. SHARE SUBSCRIPTIONS PAYABLE:
In April 2004, the Company received a subscription for 4,000,000 common
shares and common share purchase warrants for aggregate cash proceeds of $2
million pursuant to an irrevocable subscription agreement. 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
===========================================================================
In May 2004, the subscriber requested that his investment be rescinded and,
without waiving any of its rights it may have against the subscriber, the
Company returned $1.5 million, and subsequently repaid $100,000, of the
$2.0 million share subscription to the subscriber. As at December 31, 2004
and subsequent to December 31, 2004, the Company offered to return the
remaining $400,000 to the subscriber upon execution of a mutual settlement
agreement. The subscriber has refused the offer. If such refusal continues,
the Company intends to issue common shares and common share purchase
warrants under the terms initially agreed to. The outcome of this matter,
including the settlement of the liability through the payment of cash or
issuance of common shares and common share purchase warrants and if
additional costs will be incurred on the settlement of the liability,
cannot be determined at this time.
F-14
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
8. LOAN PAYABLE:
The loan payable was unsecured, non-interest bearing and not subject to a
written agreement. The loan was repaid in the year ended December 31, 2004.
9. DUE TO STOCKHOLDER:
The amount due to a stockholder is unsecured, non-interest bearing and has
no fixed terms of repayment.
10. REDEEMABLE, CONVERTIBLE PREFERRED STOCK:
On December 22, 2004 the Company entered into Securities Purchase
Agreements with several accredited investors pursuant to which the Company
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
consideration of $2,000,000. The warrants are exercisable for five years at
$0.55 per share. The Preferred Stock may be converted into shares of common
stock at a price of $0.43 per share at any time after issuance. The
Additional Investment Rights 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 a Registration Statement on Form SB-2
related to common shares to be issued on conversion or redemption of the
preferred shares. In connection with the subscription, Cirond 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 up to 1,674,419 shares of common stock at
$0.55 per share. The warrants are exercisable for a five-year period
commencing from the date on which the right to exercise the warrants
vested. The warrants are currently vested as to 372,093 shares. Further
vesting will occur as warrants and Additional Investment Right securities
are exercised. The warrants contain piggyback registration rights and a net
exercise provision.
The terms of the preferred stock provide that on the fifth anniversary of
the original issue date (December 22, 2009), the Company shall redeem all
of the then outstanding shares of preferred stock, for an amount in cash,
or if certain conditions are met during the 30 days prior to the redemption
date and at the election of the Company, in shares of common stock.
Accordingly, only unconverted preferred shares will be subject to this
redemption feature. As the redemption feature of the preferred shares is
contingent upon the holder not having converted the preferred shares into
common shares prior to the specified date, management has concluded that
the redeemable, convertible preferred shares are not required to be
classified as a liability under SFAS 150 but that this feature represents a
contingent redemption feature under paragraph 10 of the standard. However,
as all of the conditions, as defined in the Securities Purchase Agreement,
must be met for the Company to be able to redeem any outstanding shares for
other then cash, management has concluded that the preferred shares must be
classified outside of permanent shareholders' deficiency in accordance with
SEC Regulation S-X5-02(28).
F-15
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
10. REDEEMABLE, CONVERTIBLE PREFERRED STOCK (CONTINUED):
The gross proceeds of $2,000,000 and net proceeds of $1,815,000 have been
allocated between the redeemable preferred stock and common share purchase
warrants based on their relative fair values at the issue date. The fair
value of the warrants was estimated using the Black Scholes option pricing
model using the expected useful lives of the warrants, a volatility factor
of 90%, a risk free rate of 4.0% and no assumed dividend rate. Accordingly,
$627,000 of the gross proceeds and $569,000 of the net proceeds were
assigned to warrants and included in additional paid-in capital and
$1,373,000 of the gross proceeds and $1,246,000 of the net proceeds were
assigned to redeemable, convertible preferred shares.
A beneficial conversion option existed at the issue date for the
redeemable, convertible preferred shares, as the conversion price of $0.43
per share was less than the quoted market value of the common shares on the
issue date. The beneficial conversion option was calculated to be
$1,185,000 and recorded as a discount to redeemable, convertible preferred
stock and an increase in additional paid-in capital.
The discount between the redemption amount and allocated proceeds is being
accreted to the redemption price on December 22, 2009 and deferred
financing costs are being amortized to December 22, 2009 by the interest
method with the accretion and amortization charged to deficit. The balances
at December 31, 2004 are as follows:
===========================================================================================================
Redeemable
Convertible Deferred
Preferred Financing
Shares Costs Total
-----------------------------------------------------------------------------------------------------------
Consideration $ 2,000,000 $ (185,000) $ 1,815,000
Assigned to warrants (627,000) 58,000 (569,000)
-----------------------------------------------------------------------------------------------------------
1,373,000 (127,000) 1,246,000
Beneficial conversion option (1,185,000) - (1,185,000)
-----------------------------------------------------------------------------------------------------------
188,000 (127,000) 61,000
Accretion and amortization to
December 31, 2004 8,900 600 9,500
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 $ 196,900 $ (126,400) $ 70,500
===========================================================================================================
F-16
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
11. COMMON SHARES ISSUED FOR CONSULTING SERVICES:
a) 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. Subsequent to
December 31, 2004, the monthly consulting was increased to an agreed
amount of $10,000 per month. 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.
Common shares are valued as services are performed and common shares
are earned and eligible for release from escrow. To December 31, 2004,
$229,976 in compensation expense was recorded for the year in
consulting fees and 250,000 common shares were 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.
12. COMMITMENTS:
On May 1, 2003, the Company entered an operating lease for office premises
that requires the following annual minimum lease payments:
===========================================================================
2004 $ 25,518
2005 $ 28,158
2006 $ 9,674
===========================================================================
F-17
CIROND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2004 and 2003
================================================================================
13. REVENUE:
During the year ended December 31, 2004, the Company issued a perpetual
license for the use of its source code for its existing software products
to a third party in exchange for cash proceeds of $700,000. In conjunction
with this agreement, the Company will provide support and maintenance
services for a one year term for cash proceeds of $100,000. Support and
maintenance services are renewable, at the option of the customer, at
$100,000 per annum. Subsequent to December 31, 2004, the customer elected
not to renew support and maintenance services.
The Company's revenue from its various product families is as follows:
===========================================================================
2004 2003
---------------------------------------------------------------------------
Winc products $ 118,525 $ 27,649
AirPatrol products 43,280 -
Source code license and support 794,126 -
---------------------------------------------------------------------------
$ 955,931 $ 27,649
===========================================================================
14. SUBSEQUENT EVENT:
Subsequent to December 31, 2004, the Company negotiated a revised
consulting agreement with an arms-length service provider. In connection
with the new agreement, the service provider agreed to forgive accounts
payable owing to them at December 31, 2004 of $50,000. Accordingly, a gain
on settlement of accounts payable will be recognized, in connection with
the revised agreement, in the first quarter of 2005.
F-18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the corporate laws of the State of Nevada, the registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). The registrant's Bylaws (Exhibit 3.2
hereto) also provide for mandatory indemnification of its directors and
executive officers, and permissive indemnification of its employees and agents,
to the fullest extent permissible under Nevada law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
Securities and Exchange Commission filing fee........$ 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 each months as
services are performed
- -------------------------------------------------------------------------------------------------------------------
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 $185,000
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)
- --------------------------------------------------------------------------------
10.10 Source Code License Agreement dated January 21, 2004 between
Computer Associates International, Inc. and Cirond Networks,
Inc. (8)
- --------------------------------------------------------------------------------
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.
(8) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the fiscal year ended December 31, 2004,
filed March 23, 2005.
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 March 22, 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) March 22, 2005
Nicholas Miller
/s/ DAVOD REDEKOP Chief Financial Officer (Principal Financial
- ---------------------------- Officer and Principal Accounting Officer) March 22, 2005
David Redekop
/s/ TATE HOLT
- ---------------------------- Director March 22, 2005
Tate Holt
/s/ BLAINE ARCHER
- ---------------------------- Director March 22, 2005
Blaine Archer
II-5