UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _________________ to ________________
Commission file number 0-49763
CIROND CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0469593
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 ALBRIGHT WAY, SUITE D, LOS GATOS, CALIFORNIA 95032
(Address of principal executive offices)
(408) 370-1797
(Issuer's telephone number)
4185 STILL CREEK DRIVE #B-101, BURNABY, BRITISH COLUMBIA, CANADA V5C 6G9
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 96,110,000 SHARES OF COMMON STOCK,
$0.001 PAR VALUE, AS OF JULY 31, 2006
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
Consolidated Interim Financial Statements of
CIROND CORPORATION
(Expressed in United States dollars)
Three months ended March 31, 2006
2
CIROND CORPORATION
Consolidated Balance Sheets
(Expressed in United States dollars)
March 31, 2006 and December 31 2005
====================================================================================================================
March 31, December 31,
2006 2005
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash $ 868 $ 1,272
Amounts receivable, net of allowance
of $nil (December 31, 2005 - $nil) - 9,541
Prepaid expenses and deposits 13,833 13,852
---------------------------------------------------------------------------------------------------------------
14,701 24,665
Property and equipment 42,283 53,291
- --------------------------------------------------------------------------------------------------------------------
$ 56,984 $ 77,956
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities $ 278,366 $ 280,520
Consulting fees payable (note 3) 190,000 145,000
Deferred revenue (note 4) 50,000 -
Dividends payable 124,658 100,000
Share subscriptions payable (note 5) 400,000 400,000
Due to related company (note 6) 4,962 23,478
---------------------------------------------------------------------------------------------------------------
1,047,986 948,998
Redeemable, convertible preferred stock with a par value of
$0.001. 25,000,000 authorized, 2,000 issued (December 31,
2004 - 2,000), net of deferred financing costs (note 7) 163,200 138,000
Stockholders' equity (deficiency):
Capital stock:
100,000,000 voting common shares, with $0.001 par value
authorized, 37,110,000 issued (December 31,
2005 - 37,110,000) 37,110 37,110
Additional paid-in capital 4,095,107 4,095,107
Deficit (5,286,419) (5,141,259)
---------------------------------------------------------------------------------------------------------------
(1,154,202) (1,009,042)
Going concern (note 2(a))
Subsequent events (note 8)
- --------------------------------------------------------------------------------------------------------------------
$ 56,984 $ 77,956
====================================================================================================================
See accompanying notes to consolidated interim financial statements.
3
CIROND CORPORATION
Consolidated Interim Statements of Loss
(Expressed in United States dollars)
Three months ended March 31, 2006 and 2005
(Unaudited)
====================================================================================================================
2006 2005
- --------------------------------------------------------------------------------------------------------------------
Revenue (note 9) $ 6,151 $ 35,882
Expenses:
Advertising and promotion 2,770 70,170
Amortization 4,052 6,204
Consulting fees (note 3) 45,000 198,639
Foreign currency exchange loss (gain) (94) (735)
Gain on recovery of account payable - (50,000)
Loss on disposal of equipment (note 3) 4,105 -
Interest 725 418
Office and administrative 2,865 18,414
Professional fees 4,259 59,034
Research and development 17,035 123,355
Salaries and benefits 11,322 110,579
Travel 9,414 36,396
---------------------------------------------------------------------------------------------------------------
101,453 572,474
- --------------------------------------------------------------------------------------------------------------------
Loss before interest income (95,302) (536,592)
Interest income - 3,362
- --------------------------------------------------------------------------------------------------------------------
Loss $ (95,302) $ (533,230)
====================================================================================================================
Weighted average number of common shares outstanding,
basic and diluted 37,110,000 36,260,000
Loss per common share, basic and diluted $ (0.00) $ (0.01)
====================================================================================================================
See accompanying notes to consolidated interim financial statements.
4
CIROND CORPORATION
Consolidated Interim Statement of Stockholders' Equity (Deficiency) and
Comprehensive Loss
(Expressed in United States dollars)
From December 31, 2005 to March 31, 2006
(Unaudited)
====================================================================================================================================
Total
Additional stockholders'
Common Stock paid-in equity
Shares Amount capital Deficit (deficiency)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005 37,110,000 $ 37,110 $ 4,095,107 $ (5,141,259) $ (1,009,042)
Accretion of discount on redeemable, convertible preferred
stock (note 7) - - - (23,500) (23,500)
Amortization on deferred financing costs (note 7) - - - (1,700) (1,700)
Dividend on redeemable, convertible preferred stock - - - (24,658) (24,658)
Comprehensive loss:
Loss - - - (95,302) (95,302)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2006 37,110,000 $ 37,110 $ 4,095,107 $ (5,286,419) $ (1,154,202)
====================================================================================================================================
See accompanying notes to consolidated interim financial statements.
5
CIROND CORPORATION
Consolidated Interim Statements of Cash Flows
(Expressed in United States dollars)
Three months ended March 31, 2006 and 2005
(Unaudited)
===============================================================================================================
2006 2005
- ---------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss $ (95,302) $ (533,230)
Item not involving cash:
Amortization 4,052 6,204
Loss on sale of property and equipment 4,105 -
Common shares released from escrow in consideration
of consulting services - 47,920
Gain on recovery of account payable - (50,000)
Changes in non-cash working capital:
Amounts receivable 9,541 (9,065)
Prepaid expenses and deposits 19 4,605
Accounts payable and accrued liabilities (2,154) (29,077)
Consulting fees payable 45,000 (38,245)
Deferred revenue 50,000 (5,874)
------------------------------------------------------------------------------------------------------
15,261 (606,762)
Financing:
Repayment of amount due to related company (15,665) -
Advances from (to) stockholder - (186)
Dividends paid - (2,466)
----------------------------------------------------------------------------------------------------------
(15,665) (2,652)
Investing:
Expenditures on property and equipment - (11,455)
- ---------------------------------------------------------------------------------------------------------------
Decrease in cash (404) (620,869)
Cash, beginning of period 1,272 1,308,086
- ---------------------------------------------------------------------------------------------------------------
Cash, end of period $ 868 $ 687,217
===============================================================================================================
Supplementary information:
Interest paid $ 725 $ 418
Income taxes paid $ - $ -
===============================================================================================================
Non-cash financing and investing activities:
Equipment disposed of by way of repayment of
amount due to related company $ 2,851 $ -
===============================================================================================================
See accompanying notes to consolidated interim financial statements.
6
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
1. OPERATIONS:
Cirond Corporation ("Cirond" or the "Company") is incorporated under the
laws of the State of Nevada. The Company develops software solutions and
provides network security products and consulting services to governments
and private sector businesses to combat the threat to wired networks
represented by the deployment of unauthorized wireless networks. The
Company's solutions can also be used to implement, secure and manage
wireless networks.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Going concern
These interim 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 realized a loss of $95,302 for the
three months ended March 31, 2006 and has an accumulated deficit of
$5,286,419 as at March 31, 2006. These factors raise substantial doubt
as to the Company's ability to continue as a going concern.
The application of the going concern concept is dependent upon the
Company's ability to receive continued financial support from its
creditors, stockholders and external investors and attaining profitable
operations through the sale of its software. These consolidated interim
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 plans 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 plans will be successful. Failure to obtain the support of
additional external investors to finance the development and marketing
of the Company's wireless technology applications will cause the
Company to curtail operations and impair the Company's ability to
continue as a going concern.
7
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) Basis of presentation
The information included in the accompanying consolidated interim
financial statements is unaudited and should be read in conjunction
with the annual audited consolidated financial statements and notes
thereto contained in the Company's Report on Form 10-KSB for the fiscal
year ended December 31, 2005. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for
fair presentation of the results of operations for the interim periods
presented have been reflected herein. The results of operations for the
interim periods presented are not necessarily indicative of the results
to be expected for the entire fiscal year.
c) Recent accounting pronouncements
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 for public entities that do not file as small
business issuers as of the beginning of the first fiscal year that
begins after June 15, 2005. The revised SFAS 123 is effective for
annual reporting periods that begin after December 15, 2005 and is
required to be adopted in our first quarter of fiscal 2006. 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 stock options in consideration for services in
connection with its proposed stock option plan. As the Company has not
issued stock options in consideration for services, the adoption of a
revised SFAS 123 has not had an impact on our financial statements.
In May 2005, the FASB issued SFAS No. 154 "Accounting Changes and Error
Corrections" ("SFAS 154"), which replaces APB Opinion No. 20
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements - An Amendment of APB Opinion No. 28" SFAS
154 provides guidance on the accounting for and reporting of accounting
changes ad error corrections. It establishes retrospective application,
unless such an approach is impracticable in which case prospective
application of the change is appropriate, as the required method for
reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted in our first quarter of fiscal
2006. Prior to SFAS 154, most accounting changes were recorded
effective at the beginning of the year of change, with the cumulative
effect at the beginning of the year of change recorded as a charge or
credit to earnings in the period a change was adopted. The impact of
the adoption of SFAS 154 will have on our financial statements is not
yet determinable.
8
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) Recent accounting pronouncements (continued):
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" ("FSP115-1"), which provides guidance on
determining when investments in certain debt and equity securities are
considered impaired, whether that impairment is other-than-temporary,
and on measuring such impairment loss. FSP115-1 also includes
accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. FSP115-1 is required to be applied to reporting periods
beginning after December 15, 2005 and is required to be adopted in our
first quarter of fiscal 2006. As the Company does not have any debt or
equity investments, the impact of the adoption of FSP115-1 is not
expected to impact our financial statements.
d) Loss per share:
Loss per share is calculated by increasing the loss for the period by
distributions, deemed distributions and allocations to the redeemable,
convertible preferred shares to arrive at the loss available for common
shareholders. This number is then divided by the weighted average
number of shares outstanding in the period.
3. RELATED PARTY TRANSACTIONS:
During the three months ended March 31, 2006, the Company incurred
consulting fees from a company controlled by the Company's former President
totaling $45,000 (2005 - $45,000). As at March 31, 2006, $120,000 (2005 -
$25,000) of these consulting fees were included in consulting fees payable.
During the three months ended March 31, 2006 the Company sold certain
computer equipment with a net book value $6,956 to the Company's former
President for proceeds of $2,851 resulting in a loss on disposal of $4,105.
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.
9
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
4. DEFERRED REVENUE:
Effective, January 19, 2006, the Company negotiated a licensing agreement
for the Air Patrol product line with a company in which the Company's
former President has an equity interest. In connection with the agreement,
the entity agreed to pay the Company royalties equal to 20% of gross sales
of Air Patrol products on or before January 19, 2007, 15% of gross sales of
Air Patrol products between January 20, 2007 and January 19, 2008, 10% of
gross sales of Air Patrol products between January 20, 2008 and January 19,
2009, 8% of gross sales of Air Patrol products between January 20, 2009 and
January 19, 2010 and 5% of gross sales of Air Patrol products thereafter.
In addition, the Company will receive royalties equal to 5% of gross sales
from derivative versions of the Air Patrol products. On the effective date
of the transaction, the Company received an advance payment of $50,000 in
consideration of future royalties as provide above. To March 31, 2006, the
Company did not realize any royalties revenue in connection with the
agreement and, accordingly, the full amount of the cash consideration has
been included in deferred revenue.
5. 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 March 31, 2005 and
subsequent to March 31, 2005, 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.
10
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
6. DUE TO RELATED COMPANY:
The amount due to a company controlled by the Company's former President,
totaling CDN$5,812, is unsecured, bears interest at 2% per month, and has
no fixed terms of repayment.
7. 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. As at March 31, 2006, accrued dividends
related to issued preferred shares totaled $124,658, of which $24,658 were
accrued for the three-month period ended March 31, 2006. The warrants were
originally exercisable for five years at $0.55 per share. The Preferred
Stock were originally convertible 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
("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.
As at December 31, 2005, 372,093 Ascendiant warrants were vested.
Ascendiant will be entitled to further vested warrants as the investors
exercise their warrants and the Additional Investment Right securities. 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 as equity but outside of permanent shareholders' deficiency in
accordance with SEC Regulation S-X5-02(28).
11
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
7. REDEEMABLE, CONVERTIBLE PREFERRED STOCK (CONTINUED):
The gross proceeds of $2,000,000 and net proceeds of $1,815,000 was
allocated between the redeemable preferred stock and common share purchase
warrants based on their relative fair values and a beneficial conversion
option was calculated to be recorded as a discount to redeemable,
convertible preferred stock and an increase in additional paid-in capital
at the issue date.
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 March 31, 2006 are as follows:
==========================================================================================================
Redeemable
Convertible Deferred
Preferred Financing
Stock 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, 2005 72,000 5,000 77,000
----------------------------------------------------------------------------------------------------------
Balance, December 31, 2005 260,000 (122,000) 138,000
Accretion and amortization to
March 31, 2006 23,500 1,700 25,200
----------------------------------------------------------------------------------------------------------
Balance, March 31, 2006 $ 283,500 $ (120,300) $ 163,200
==========================================================================================================
12
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
7. REDEEMABLE, CONVERTIBLE PREFERRED STOCK (CONTINUED):
In August 2005, the Company and the investors amended the terms of the
Securities Purchase Agreements including adjusting the conversion price of
the redeemable, convertible preferred stock to $0.25 per share, adjusting
the exercise price of the investors' warrants to $0.30 per share and
terminating the Additional Investment Rights. The Company has recorded a
deemed distribution to the preferred shareholders due to the changes in the
conversion price and warrant exercise price of $390,000, equal to the
excess of the fair value of these rights immediately prior to and
subsequent to the amendment. Fair value was estimated using the Black
Scholes option pricing model using the expected period to conversion or
exercise, a volatility factor of 152%, a risk-free interest rate of 4.13%
and no assumed dividend rate.
8. SUBSEQUENT EVENTS:
a) ServGate Technologies transaction:
The Company entered into a Foreclosure Sale Agreement (the "Agreement")
dated as of April 4, 2006 among Sand Hill Finance, LLC ("Sand Hill"),
the Company, ServGate Technologies, Inc. ("ServGate"), and BSGL, LLC
("BSGL"), pursuant to which the Company agreed to acquire certain of
the personal property assets of ServGate, consisting primarily of
intellectual property, and assume certain of ServGate's liabilities
from Sand Hill and BSGL, who were secured senior lenders holding those
assets as collateral on existing loans that were in default. ServGate
had developed unified threat management software and had more than 100
employees in the United States, Canada, and China. The Company also
issued 9,000,000 shares of the Company's Common Stock to BSGL in
accordance with the terms of the Agreement. The acquisition was made
pursuant to a private foreclosure sale under Section 9610 of the
California Uniform Commercial Code. On April 10, 2006, the Company
completed its acquisition of the assets and the assumption of the
specified liabilities of ServGate pursuant to the terms of the
Agreement. The Company has initially, and on a preliminary basis only,
allocated the assets acquired and liabilities from ServGate and shares
of common stock issued to BSGL, in connection with the transaction as
follows:
Net assets acquired:
Intangible assets - technology and patents $8,081,000
Accounts payable and accrued liabilities (3,121,000)
Promissory note payable to Sand Hill (2,100,000)
Promissory note payable to BSGL (2,500,000)
------------------------------------------------------------------
360,000
Consideration given:
9,000,000 shares of common stock to BSGL $360,000
=======================================================================
13
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
8. SUBSEQUENT EVENTS (CONTINUED):
a) ServGate Technologies transaction (continued):
The allocation of the purchase price on this transaction as described
above is subject to modification based on the Company's formal
assessment of the fair value of the net assets acquired, and any such
modification may be material. In connection with the acquisition of the
assets, the Company obtained a secured bridge loan for $1,700,000 from
Sand Hill and executed the above promissory notes to Sand Hill and
BSGL. All of these obligations are secured by a security interest in
the purchased assets and the $2,100,000 promissory note to Sand Hill is
also guaranteed by certain management of ServGate and Cirond up to
$1,915,000. The security interest of the bridge lender, up to a
principal amount of $1,700,000 (plus interest and costs of
enforcement), has first priority, the security interest of Sand Hill up
to a principal amount of $2,100,000 (plus interest and costs of
enforcement) is second, and the security interest of BSGL up to a
principal amount of $2,500,000 (plus interest and costs of enforcement)
is third.
The $1,700,000 bridge loan accrues interest at 10% per annum, requires
quarterly interest payments beginning July 1, 2006, and is due October
1, 2006. If revenues generated by the Company through June 30, 2006 are
less than $1,500,000, then Sand Hill will have the option to require
payment of the loan in full on the day that is 90 days after June 30,
2006. To June 30, 2006, the Company has not made all scheduled
principal and interest payments and has not generated $1,500,000 in
revenues. Sand Hill has not taken action to demand repayment of the
loan as a result of the events. Proceeds of the bridge loans were used
for payments to Sand Hill to reduce the $2,100,000 principal balance of
its note and accrued liabilities that the Company had assumed.
The note for $2,100,000 made payable to Sand Hill, as amended, is due
December 31, 2006, accrues interest at 18% per annum, and requires
interest payments on July 1, 2006, October 1, 2006 and December 31,
2006, as well as mandatory principal payments as follows: $150,000 by
April 7, 2006, $100,000 by May 15, 2006, $500,000 by June 30, 2006,
$500,000 by September 30, 2006, 25% of the proceeds from any OEM
agreements, and 15% of the proceeds of any sale of equity over
$3,000,000 by December 31, 2006. To June 30, 2006, the Company has not
made all scheduled principal and interest payments. Sand Hill has not
taken action to demand repayment of the loan as a result of the events.
14
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
8. SUBSEQUENT EVENTS (CONTINUED):
a) ServGate Technologies transaction (continued):
The note for $2,500,000 made payable to BSGL is due December 31, 2007,
accrues interest at the prime rate plus 2% per annum and requires
mandatory principal payments as follows: 10% of the net proceeds of an
anticipated issuance by the Company of securities or convertible debt
for an aggregate issuance price of not less than $5,000,000 (the "PIPE
Transaction"), $375,000 on December 31, 2006, $375,000 on March 31,
2007, $375,000 on June 30, 2007, $375,000 on September 30, 2007, and
the remaining outstanding principal balance on December 31, 2007. If
the operating income generated by the ServGate products equals or
exceeds $2,000,000 for the fiscal year ended December 31, 2006, then
the note is to be paid by January 31, 2007. Interest is to be paid upon
maturity by issuing common stock at a per share price equal to the
lesser of (i) the PIPE Transaction Price and (ii) the current market
price on the maturity date.
BSGL can convert the principal amount of the note into shares of the
Company's common stock at any time. BSGL must convert the $1,000,000 of
the principal amount of the note if the revenue from the ServGate
products does not equal or exceed $5,000,000 for the one-year period
commencing April 4, 2006. In either case, conversion would be at a per
share price equal to the lesser of (i) the PIPE Transaction Price and
(ii) the current market price on the conversion date.
Pursuant to the terms of the Agreement, as part of the Closing the
Company issued 9,000,000 shares of its Common Stock to BSGL, LLC. The
shares were issued in reliance on the exemption from the registration
requirements of the Securities Act of 1933 (the "Act") pursuant to
Section 4(2) thereof. The issuance of the shares was pursuant to a
negotiated transaction not involving a public offering. The
certificates representing the shares bear a restrictive legend
prohibiting the sale of the shares in violation of the Act.
The Company also issued a warrant to purchase stock to Sand Hill, which
entitles Sand Hill to purchase, until April 3, 2013 at $0.01 per share,
a number of shares of common stock equal to 10% of the outstanding
capital stock of the Company on a fully diluted basis, assuming
exercise of all stock options, warrants and rights to acquire stock;
conversion of all debt or other instruments convertible into equity
securities; and conversion of all preferred stock of other equity
securities into common stock, with the calculation to be made as of
April 3, 2006 after giving effect to the asset acquisition transaction.
15
CIROND CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in United States dollars)
Three months ended March 31, 2006
(Unaudited)
================================================================================
8. SUBSEQUENT EVENTS (CONTINUED):
b) Conversion of certain Series B preference shares:
In June 2006, the Company authorized the issuance of 50,000,000 shares
of its common stock as partial conversion of certain outstanding Series
B 5% Redeemable, Convertible Preferred Stock (the "Preferred Stock").
Holders of 1,550 shares of Preferred Stock, having a stated value of
$1,550,000, agreed to convert their shares of Preferred Stock into
155,000,000 shares of common stock; however, only the Company
authorized the issuance of 50,000,000 shares of common stock as a
result of a planned reverse stock split.
c) Information statement:
On July 10, 2006, the Company filed a preliminary information statement
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and Regulation 14C and Schedule 14C thereunder, in connection
with certain actions to be taken pursuant to the written consent of
stockholders holding a majority of the Company's outstanding shares of
common stock. These actions, anticipated to be effective August 31,
2006, are as follows:
i) To change the Company's name to Amarium Technologies Inc.;
ii) To effect a 1 for 65 reverse stock split, whereby each stockholder
shall receive 1 shares for every 65 shares owned;
iii) To increase the number of authorized shares of common stock from
100,000,000 to 500,000,000; and
iv) To amend the Company's Stock Option Plan to decrease the number of
options authorized for issuance to the greater of 300,000 or 10%
of the outstanding number of shares at the end the Company's last
completed fiscal quarter, and such number shall be automatically
adjusted at the beginning of each fiscal quarter.
9. REVENUE:
The Company's revenue from its various product families, for the three
months ended March 31, 2006 and 2005, is as follows:
===========================================================================
2006 2005
---------------------------------------------------------------------------
Winc products $ 4,358 $ 20,588
AirPatrol products 1,793 9,420
Source code license - 5,874
---------------------------------------------------------------------------
$ 6,151 $ 35,882
===========================================================================
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
As Cirond Networks Inc. ("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
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.
Believing that we had developed a viable suite of products dedicated to
the goal of securing wired networks against the threat of unauthorized wireless
devices that was ready for the marketplace, management focused its efforts and
resources on marketing products through several channels during 2005. Our
efforts did not result in significant sales revenues and we were unable to
obtain external sources of cash to sustain these marketing efforts. Accordingly,
in January 2006, we entered into a Source Code License Agreement and granted an
exclusive license to AirPatrol Corporation to our software products.
We granted AirPatrol Corporation a worldwide license for the WiNc,
AirPatrol and AirSafe software products and for the associated trademarks and
tradenames. We agreed not to grant any licenses to any third parties so long as
we receive at least $250,000 from AirPatrol Corporation by January 19, 2007. In
consideration for the licenses, AirPatrol Corporation has agreed to pay us a
royalty equal to 20% of the gross sales of the licensed software products that
utilize the Windows 2000, Windows XP, or Windows Mobile 4.0 operating systems
that are generated during the first year of the agreement. The percentage
declines with each year, going to 15% during the second year, 10% during the
third year, 8% during the fourth year, and 5% thereafter. The royalty is 5% for
the sales of licensed software products that utilize operating systems other
than Windows 2000, Windows XP, or Windows Mobile 4.0. AirPatrol Corporation paid
us $50,000 upon execution of the agreement as an advance against this royalty
obligation. The agreement continues until terminated (1) by either party in the
event of breach of the agreement, or (2) by either party in the event of the
other party's bankruptcy, liquidation, insolvency, or assignment for the benefit
of creditors.
In April 2006, we entered into a Foreclosure Sale Agreement (the
"Agreement") dated as of April 4, 2006 among Sand Hill Finance, LLC ("Sand
Hill"), the Company, ServGate Technologies, Inc. ("ServGate"), and BSGL, LLC
("BSGL"), pursuant to which the Company agreed to acquire certain of the
17
personal property assets of ServGate, consisting primarily of intellectual
property, and assume certain of ServGate's liabilities from Sand Hill and BSGL,
who were secured senior lenders holding those assets as collateral on existing
loans that were in default. ServGate had developed unified threat management
software and had more than 100 employees in the United States, Canada, and
China. The Company also issued 9,000,000 shares of the Company's Common Stock to
BSGL in accordance with the terms of the Agreement. The acquisition was made
pursuant to a private foreclosure sale under Section 9610 of the California
Uniform Commercial Code. On April 10, 2006, the Company completed its
acquisition of the assets and the assumption of the specified liabilities of
ServGate pursuant to the terms of the Agreement. We plan to continue as an
Intellectual Property licensing and services company under the new name of
"Amarium Technologies" and use the ServGate assets to establish a Unified Threat
Management network security division.
GOING CONCERN
The accompanying consolidated interim financial statements have been
prepared in conformity with U.S. generally accepted accounting principles, which
contemplate continuation of our company as a going concern. The Company has
realized a loss of $95,302 for the three months ended March 31, 2006 and has an
accumulated deficit of $5,286,419 as at March 31, 2006. These factors raise
substantial doubt as to the Company's ability to continue as a going concern.
The application of the going concern concept is dependent upon our
ability to receive continued financial support from our creditors, stockholders
and external investors and attaining profitable operations through the sale of
our software. The consolidated interim 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 plans 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 plans 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 interim financial statements, which
have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these consolidated interim 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, 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
18
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
Revenues from operations decreased from $35,882 for the three-month
period ended March 31, 2005 to $6,151 for the three-month period ended March 31,
2006, due to our decreased level of activity.
Our loss before interest income for the three-month period ended March
31, 2006 was $95,302 compared to a loss of $536,592 for the three-month period
ended March 31, 2005. The decrease in the net loss reflected our decreased level
of activity. After entering into the source code licensing agreement with
AirPatrol Corporation, we did not conduct active operations.
During the three-month period ended March 31, 2006, the most dramatic
decreases in expenses over the first quarter of 2005 were in the areas of
research and development (-86%), advertising and promotion (-96%), salaries and
benefits fees (-90%), and professional fees (-97%).
Dividends of $24,658 which were accrued to March 31, 2006 related to
redeemable, convertible preferred stock issued on December 22, 2004. Accretion
of the discount to the redeemable, convertible preferred stock, with respect to
a beneficial conversion option and warrants issued in connection with preferred
stock of $23,500 as well as amortization of deferred financing costs of $1,700
were recorded for the three months ended March 31, 2006.
During the three months ended March 31, 2006, we sold assets with a
book value of $6,956 to our president for proceeds of $2,851, resulting in a
loss on disposal of $4,105. During the three months ended March 31, 2005, we had
interest income of $3,362, due to the receipt of private placement offering
proceeds in December 2004.
Accordingly, for the three months ended March 31, 2006, we incurred a
net loss of $95,302, as compared to a net loss of $533,230 for the comparable
2005 period.
LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2006, we had cash of $868 and a working capital
deficiency of $1,033,285, as compared to cash of $1,272 and a working capital
deficiency of $924,333 at December 31, 2005. The increase in the working
deficiency was due primarily to the loss for the period. Our minimal operations
19
provided cash of $15,261 for the three months ended March 31, 2006, which was
used to repay amounts owing to a related company of $15,665. The cash
repayments, and equipment sold by way of a repayment of the amount owing,
reduced the amount owed to this company at March 31, 2006 to $4,962 from $23,478
at December 31, 2005.
Prepaid expenses consisted of prepaid rent.
Property 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. Consulting fees payable were
$190,000 compared to $145,000 as at December 31, 2005.
Accounts payable decreased from $280,520 at December 31, 2005 to
$278,366 at March 31, 2006.
In April 2004, we received $2,000,000 in funds from a private investor,
Andrew Lessman, in connection with a private placement offering pursuant to an
irrevocable subscription agreement. During the quarter ended June 30, 2004, Mr.
Lessman requested that his investment be rescinded and, without waiving any of
our rights we may have against him under the subscription agreement, we returned
$1,500,000 to Mr. Lessman 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 Mr. Lessman
as well. It is our intent to return the $400,000 balance of the investment only
when Mr. Lessman enters into a mutual settlement agreement acceptable to us.
Even though we have offered to return the remaining $400,000 to Mr. Lessman if
he executes a mutual settlement agreement, he has refused to execute the
settlement agreement. Mr. Lessman has initiated 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 the
legal action on that basis. The $400,000 is reflected as share subscriptions
payable at March 31, 2006 and December 31, 2005.
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.
In connection with the subscription, we paid Ascendiant Securities, LLC
a cash commission of $160,000 and an 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 Ascendiant warrants are exercisable for a five-year
period commencing from the date on which the right to exercise the warrants
vested.
As at March 31, 2006, 372,093 Ascendiant warrants were vested.
Ascendiant will be entitled to further vested warrants as the investors exercise
their warrants and the Additional Investment Right securities. The warrants
contain piggyback registration rights and a net exercise provision. In August
2005, the Company and the investors amended the terms of the Securities Purchase
Agreements including adjusting the conversion price of the redeemable,
convertible preferred stock to $0.25 per share, adjusting the exercise price of
the investors warrants to $0.30 per share and terminating the Additional
Investment Rights.
20
In May 2006 and as disclosed in the subsequent events notation to the
financial statements, we offered all of the holders of the preferred stock the
right to convert their shares into shares of common stock at a price of $0.01
per share. Holders representing 77.5% of the preferred stock agreed to the
conversion. The conversion requires the issuance of 155,000,000 shares. We
issued 50,000,000 and are proposing to implement a 1-for-65 reverse split of our
issued and outstanding common stock and increase our authorized common stock to
500,000,000 shares. We believe that this proposal will make available a
sufficient number of shares for our anticipated private placements of equity to
fund operations.
PLAN OF OPERATION
We believe we do not have sufficient funds to cover our operating
overhead for the next twelve months. Accordingly, we estimate that we will need
cash from one or more external sources of approximately $10,000,000 over the
next twelve months. 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.
In connection with the acquisition of the ServGate assets described
above, we obtained a secured bridge loan for $1,700,000 from Sand Hill and
executed promissory notes to Sand Hill and BSGL in the principal amounts of
$2,100,000 and $2,500,000, respectively. All of these obligations are secured by
a security interest in the purchased assets.
The $1,700,000 bridge loan accrues interest at 10% per annum, requires
quarterly interest payments beginning July 1, 2006, and is due October 1, 2006.
If revenues generated by the Company through June 30, 2006 are less than
$1,500,000, then Sand Hill will have the option to require payment of the loan
in full on the day that is 90 days after June 30, 2006. To June 30, 2006, the
Company has not made all scheduled principal and interest payments and has not
generated $1,500,000 in revenues. Sand Hill has not taken any action to demand
repayment of the loan as a result of these events. Proceeds of the bridge loans
were used for payments to Sand Hill to reduce the $2,100,000 principal balance
of its note and accrued liabilities that the Company had assumed.
The note for $2,100,000 made payable to Sand Hill, as amended, is due
December 31, 2006, accrues interest at 18% per annum, and requires interest
payments on July 1, 2006, October 1, 2006 and December 31, 2006, as well as
mandatory principal payments as follows: $150,000 by April 7, 2006, $100,000 by
May 15, 2006, $500,000 by June 30, 2006, $500,000 by September 30, 2006, 25% of
the proceeds from any OEM agreements, and 15% of the proceeds of any sale of
equity over $3,000,000 by December 31, 2006. To June 30, 2006, the Company has
not made all scheduled principal and interest payments. Sand Hill has not taken
any action to demand repayment of the note as a result of these events.
The note for $2,500,000 made payable to BSGL is due December 31, 2007,
accrues interest at the prime rate plus 2% per annum and requires mandatory
principal payments as follows: 10% of the net proceeds of an anticipated
issuance by the Company of securities or convertible debt for an aggregate
issuance price of not less than $5,000,000 (the "PIPE Transaction"), $375,000 on
December 31, 2006, $375,000 on March 31, 2007, $375,000 on June 30, 2007,
$375,000 on September 30, 2007, and the remaining outstanding principal balance
on December 31, 2007. If the operating income generated by the ServGate products
equals or exceeds $2,000,000 for the fiscal year ended December 31, 2006, then
the note is to be paid by January 31, 2007. Interest is to be paid upon maturity
by issuing common stock at a per share price equal to the lesser of (i) the PIPE
Transaction Price and (ii) the current market price on the maturity date.
21
BSGL can convert the principal amount of the note into shares of the
Company's common stock at any time. BSGL must convert the $1,000,000 of the
principal amount of the note if the revenue from the ServGate products does not
equal or exceed $5,000,000 for the one-year period commencing April 4, 2006. In
either case, conversion would be at a per share price equal to the lesser of (i)
the PIPE Transaction Price and (ii) the current market price on the conversion
date.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any material off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-QSB, as well as
statements made by us in periodic press releases, oral statements made by our
officials to analysts and shareholders in the course of presentations about us,
constitute "forward-looking statements". Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the forward
looking statements. There are many factors that could cause these
forward-looking statements to be incorrect including, but not limited to, the
following:
o our ability to generate desired technologies;
o the lack of liquidity of our common stock;
o the risks associated with technology companies;
o our ability to find and retain skilled personnel;
o availability of capital;
o the strength and financial resources of our competitors; and
o general economic conditions.
ITEM 3. CONTROLS AND PROCEDURES.
As required by SEC rules, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures at the end of the
period covered by this report. This evaluation was carried out under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of our
disclosure controls and procedures are effective. There were no changes in our
internal control over financial reporting or in other factors that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In March 2006, Andrew Lessman initiated a proceeding in the District
Court for Clark County, Nevada, against us, CNI, Cirond Networks
(Canada) Inc., AirPatrol Corporation, Nicholas Miller, and Kevin
O'Neill in connection with a subscription transaction between us and
Mr. Lessman. In April 2004, we received $2,000,000 in funds from Mr.
Lessman in connection with a private placement offering pursuant to an
irrevocable subscription agreement. Mr. Lessman later requested that
his investment be rescinded and, without waiving any of our rights we
may have under the subscription agreement, we returned $1,500,000 to
Mr. Lessman of the $2,000,000 received. In connection with the private
placement, we paid a $100,000 finder's fee. We recovered the finder's
fee and returned it to Mr. Lessman as well. It has been our intent to
return the $400,000 balance of the investment only when Mr. Lessman
enters into a mutual settlement agreement acceptable to us. Even though
we have offered to return the remaining $400,000 to Mr. Lessman if he
executes a mutual settlement agreement, he has refused to execute the
settlement agreement. The lawsuit that was filed is an action to
recover the remaining $400,000 plus interest, compensatory damages in
an amount according to proof, special and consequential damages in an
amount according to proof, punitive damages, costs and expenses of the
suit, and attorney's fees. The $400,000 has been reflected as share
subscriptions payable on our balance sheets at December 31, 2005 and
2004. We intend to defend this action and have filed a responsive
pleading. No hearing or trial dates have been scheduled.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
- --------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
- --------------------------------------------------------------------------------
2.1 Foreclosure Sale Agreement made April 4, 2006 among Sand Hill
Finance, LLC, Cirond Corporation, ServGate Technologies, Inc.,
and BSGL, LLC (1)
- --------------------------------------------------------------------------------
2.2 First Amendment to Foreclosure Sale Agreement (2)
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation, as amended (3)
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
- --------------------------------------------------------------------------------
3.2 Bylaws, as amended (4)
- --------------------------------------------------------------------------------
4.1 Certificate of Designation of Series B 5% Convertible Preferred
Stock (5)
- --------------------------------------------------------------------------------
10.1 Management Advisory Services Agreement with Headline Technologies
Ltd. dated February 1, 2002 (6)
- --------------------------------------------------------------------------------
10.2 Management Advisory Services Agreement with Amber Tiger Holdings
Corp. dated January 1, 2004 (6)
- --------------------------------------------------------------------------------
10.3 2004 Stock Option Plan (7)
- --------------------------------------------------------------------------------
10.4 Agreement with Regency Capital Partners dated October 1, 2004, as
amended November 2, 2004 (8)
- --------------------------------------------------------------------------------
10.5 Form of Securities Purchase Agreement dated as of December 22,
2004 between Cirond Corporation and the Purchaser named therein
(5)
- --------------------------------------------------------------------------------
10.6 Registration Rights Agreement dated December 22, 2004 between
Cirond Corporation and the Purchasers named therein (5)
- --------------------------------------------------------------------------------
10.7 Form of Common Stock Purchase Warrant (5)
- --------------------------------------------------------------------------------
10.8 Form of Additional Investment Right (5)
- --------------------------------------------------------------------------------
10.9 Source Code License Agreement dated January 21, 2004 between
Computer Associates International, Inc. and Cirond Networks, Inc.
(9)
- --------------------------------------------------------------------------------
10.10 Amendment No. 1 to the Securities Purchase Agreement, dated
December 22, 2004, by and among Cirond Corporation and the
Purchasers Signatory Thereto (10)
- --------------------------------------------------------------------------------
10.11 Promissory Notes to Amber Tiger Holdings Inc. from Cirond
Networks (Canada) Inc. (2)
- --------------------------------------------------------------------------------
10.12 Source Code License Agreement dated January 19, 2006 between Air
Patrol Corporation and Cirond Networks, Inc. (2)
- --------------------------------------------------------------------------------
10.13 Loan and Security Agreement dated as of April 3, 2006 between
Cirond Corporation and Sand Hill Finance, LLC (1)
- --------------------------------------------------------------------------------
10.14 Promissory Note from Cirond Corporation to Sand Hill Finance, LLC
dated April 3, 2006 in the amount of $1,700,000 (1)
- --------------------------------------------------------------------------------
10.15 Promissory Note from Cirond Corporation to Sand Hill Finance, LLC
dated April 4, 2006 in the amount of $2,100,000 (1)
- --------------------------------------------------------------------------------
10.16 Promissory Note from Cirond Corporation to BSGL, LLC dated April
4, 2006 in the amount of $2,500,000 (1)
- --------------------------------------------------------------------------------
10.17 Warrant to Purchase Stock of Cirond Corporation dated April 3,
2006 issued to Sand Hill Finance, LLC (1)
- --------------------------------------------------------------------------------
10.18 Amendments to the Sand Hill Finance Promissory Notes (2)
- --------------------------------------------------------------------------------
31.1 Rule 13a-14(a) Certification of Chief Executive Officer and
Interim Chief Financial Officer
- --------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
- --------------------------------------------------------------------------------
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Chief Executive Officer and Interim Chief Financial Officer
- --------------------------------------------------------------------------------
- -------------------------
(1) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated April 4, 2006, filed May 2, 2006.
(2) Incorporated by reference to the exhibits to the registrant's annual
report on Form 10-KSB for the fiscal year ended December 31, 2005,
filed August 8, 2006.
(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 annual
report on Form 10-KSB for the fiscal year ended December 31, 2003,
filed May 10, 2004.
(7) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated September 20, 2004, filed October 5, 2004.
(8) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K dated October 1, 2004, filed December 2, 2004.
(9) 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 May 23, 2005.
(10) Incorporated by reference to the exhibits to the registrant's quarterly
report on Form 10-QSB for the quarter ended September 30, 2005, filed
August 7, 2006.
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CIROND CORPORATION
Date: August 7, 2006 By: /s/ FRANCIS E. WILDE
------------------------------------
Francis E. Wilde
Chief Executive Officer
Interim Chief Financial Officer
26