UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-29645
(Commission file number)
CORRIDOR COMMUNICATIONS CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3402831
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1235 Pear Avenue, Suite 109 Mountain View, California 94043
(Address of principal executive offices)
(650) 961-7000
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 1, 2004 - 586,373,631
shares of common stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
CORRIDOR COMMUNICATIONS CORP.
Index
Page
Number
PART I. FINANCIAL INFORMATION 2
Item 1. Consolidated Financial Statements (unaudited) 2
Consolidated Balance Sheet as of June 30, 2004 (unaudited) 2
Consolidated Statements of Operations for the
three and six months ended June 30, 2004 and 2003 (unaudited) 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 2004 and 2003 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operations 12
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Change in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 18
1
PART I. CONSOLIDATED FINANCIAL INFORMATION (unaudited)
Item 1. Financial Statements
Corridor Communications Corp. and Subsidiary
(formerly Amnis Systems, Inc.)
Consolidated Balance Sheet
June 30, 2004
(unaudited)
----------------
Assets
Current Assets:
Cash and cash equivalents $ 6,072
Accounts receivable, net of allowance for doubtful accounts of $ 145,886 18,814
Inventories, net of reserve of $905,762 57,689
Prepaid expenses and other current assets 42,761
Debt issuance costs 14,235
----------------
Total current assets 139,571
----------------
Property and Equipment 198,298
Franchise 49,000
Customer list 180,729
Debt Issuance Costs 46,395
Goodwill 11,542
----------------
$ 625,535
================
Liabilities and Stockholders' Deficit
Current Liabilities:
Secured promissory note $ 500,000
Stockholders' notes payable 155,000
Notes payable, current portion 7,335
Accounts payable 2,039,160
Accrued salaries 1,608,747
Accrued vacation 229,687
Accrued interest payable 581,863
Customer deposits 20,350
Convertible notes payable, current portion (net of discount of $250,347) 2,015,327
Deferred revenue 60,496
Other accrued expenses 1,118,450
----------------
Total current liabilities 8,336,415
Long-Term Liabilities:
Deferred revenue 79,008
Note payable, long-term portion 58,237
Convertible note payable, long-term portion (net of discount of $454,587) 515,990
----------------
Total liabilities 8,989,650
----------------
Stockholders' Deficit:
Preferred stock, $0.0001 par value; 20,000,000 authorized: none issued or outstanding
Common stock, $0.0001 par value:
Authorized - 1,600,000,000 shares
Issued and outstanding - 580,448,001 shares 58,044
Additional paid-in capital 32,462,226
Accumulated deficit (40,884,385)
----------------
Total stockholders' deficit (8,364,115)
----------------
Total liabilities and stockholder's deficit $ 625,535
================
The accompanying notes are an integral part of these
consolidated financial statements.
2
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
June 30, June 30,
For the three and six months ended 2004 2003 2004 2003
---------------------------- --------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales $ - $ - $ - $ -
Cost of Goods Sold - - - -
------------- -------------- -------------- ---------------
Gross profit - - - -
------------- -------------- -------------- ---------------
Operating Expenses
General and administrative 606,286 - 606,286 -
------------- -------------- -------------- ---------------
Total operating exenses 606,286 - 606,286 -
------------- -------------- -------------- ---------------
Loss from operations (606,286) - (606,286) -
Other Income (Expense)
Interest expense, net (146,698) (151,873) (320,336) (205,202)
Amortization of discount on convertible notes payable (322,790) (206,148) (680,839) (415,492)
Financing costs (111,562) (764,881) (67,483) (890,990)
Change in fair value of detachable warrants - (351,189) - (346,820)
Other, net - (426) - (385)
------------- -------------- -------------- ---------------
Total other income (expense) (581,050) (1,474,517) (1,068,658) (1,858,889)
------------- -------------- -------------- ---------------
Net loss before taxes and discontinued operations (1,187,336) (1,474,517) (1,674,944) (1,858,889)
------------- -------------- -------------- ---------------
Income Tax - - - -
Net loss from continuing operations (1,187,336) (1,474,517) (1,674,944) (1,858,889)
Discontinued operations
Loss from operations of discontinued operations (356,610) (777,449) (1,160,623) (1,707,259)
------------- -------------- -------------- ---------------
Net loss $ (1,543,946) $ (2,251,966) $ (2,835,567) $ (3,566,148)
============= ============== ============== ===============
Basic and Diluted Loss per Common Share
Continuing operations $ (0.00) $ (0.01) $ (0.00)$ (0.02)
Discontinued operations (0.00) (0.01) (0.00) (0.02)
------------- -------------- -------------- ---------------
$ (0.00) $ (0.02) $ (0.01)$ (0.04)
------------- -------------- -------------- ---------------
Weighted average shares outstanding - basic & diluted 399,344,537 100,317,803 349,584,927 84,922,487
============= ============== ============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
3
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30,
For the six months ended 2004 2003
-------------------- -----------------
(unaudited) (unaudited)
Cash Flows from Operating Activities:
Net loss $ (2,835,567) $ (3,566,148)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Common stock and options issued for services 673,528 135,467
Value of warrants issued for financing costs 108,666 -
Employee salaries exchanged for stock 62,522 29,598
Depreciation and amortization - 30,259
Amortization of discounts on convertible notes payable 680,839 415,492
Amortization of debt issuance costs 97,845 10,064
Change in fair value of warrant liability - 346,820
(Increase) decrease in accounts receivable 84,739 137,926
Decrease in inventories (11,689) (62,482)
(Increase) in prepaid expenses and other assets 25,766 (47,823)
Increase in accounts payable 58,922 120,184
Increase in accrued salaries 80,210 926,039
Increase (decrease) in accrued vacation (16,109) 24,743
Increase in accrued interest payable 223,873 174,231
Increase in deferred revenue (51,141) 2,434
Increase (decrease) in other accrued expenses (91,738) 916,607
-------------------- ------------------
Net cash provided by (used in) operating activities (909,334) (406,589)
-------------------- ------------------
Cash Flows from Investing Activities:
Payments for acquisition of companies, net (56,235) -
Purchases of property and equipment (6,793) (4,047)
-------------------- ------------------
Net cash used in investing activities (63,028) (4,047)
-------------------- ------------------
Cash Flows from Financing Activities:
Proceeds from financing obligations collateralized by accounts receivable - 792,806
Payments on financing obligations collateralized by accounts receivable - (1,163,672)
Payment of debt issuance costs - (116,500)
Proceeds from issuance of common stock - 3,000
Proceeds from convertible debentures - 1,000,000
Proceeds from the exercise of warrants 25,000 -
Proceeds from secured promissory notes 500,000 -
-------------------- ------------------
Net cash provided by (used in) financing activities 525,000 515,634
-------------------- ------------------
Net decrease in cash and cash equivalents (447,362) 104,998
-------------------- ------------------
Cash and cash equivalents, beginning of period 453,434 87,470
-------------------- ------------------
Cash and cash equivalents, end of period $ 6,072 $ 192,468
==================== ==================
Non Cash Investing and Financing Activities:
Accrued interest exchanged for common stock $ 53,709 $ 194,633
Accrued penalties in exchange for common stock 180,000 -
Convertible note payable exchanged for common stock 721,821 191,700
Note payable and interest in exchange for convertible note payable - -
Discount on convertible note payable - 1,218,247
==================== ==================
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes $ - $ -
==================== ==================
Cash paid for interest $ - $ -
==================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
4
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
(formerly Amnis Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared by
Corridor Communications Corp. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished herein reflects all adjustments (consisting of normal recurring
accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally present in
annual consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes for the year ended
December 31, 2003 included in the Company's Annual Report on Form 10-KSB.
The results of the six months ended June 30, 2004 are not necessarily
indicative of the results to be expected for the full year ending December
31, 2004.
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 the Company as a
going concern. The Company incurred a net loss for the six months ended
June 30, 2004 of $2,835,567 and at June 30, 2004, had an accumulated
deficit of $40,884,385 and a working capital deficit of $8,196,844. These
conditions raise substantial doubt as to the Company's ability to continue
as a going concern. These consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
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 the Company be unable to continue as a going concern.
The Company plans to take the following steps that it believes will be
sufficient to provide the Company with the ability to continue in
existence. The Company has recently acquired Corridor Communications
Corporation, Ashcreek Wireless and Quik Internet of the Valley, Inc. The
Company is also negotiating for the purchase of Eagle West, a cable
company located in Mesa, Arizona. Subsequent to June 30, 2004 the Company
issued 1,457 shares of its Series A Convertible Preferred Stock to
existing investors for gross proceeds of $2,550,000. The Company believes
that with the new acquisitions and sufficient capital to fund operations
that the Company will be able to achieve profitable operations, but there
can be no assurance that the Company will generate positive cash flows
from operations sufficient to sustain operations in the near term.
NOTE 2 - STOCK OPTIONS
The Company has adopted only the disclosure provisions of SFAS No. 148 and
123, "Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its Stock
Option Plan and does not recognize compensation expense for its Stock
Option Plan other than for restricted stock and options issued to outside
third parties. If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for awards under the
Stock Option Plan consistent with the methodology prescribed by SFAS No.
123, the Company's net loss and loss per share would be reduced to the pro
forma amounts indicated below for the six months ended June 30, 2004 and
2003:
5
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
(formerly Amnis Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2004 2003
--------------- ----------------
Net loss as reported $ (2,835,567) $ (3,566,148)
Expense recognized - -
Pro forma expense (40,036) (546,941)
--------------------- ----------------
Pro forma net loss $ (2,875,603) $ (4,113,089)
==================== ================
Basic and diluted loss per common share:
As reported $ (0.01) $ (0.04)
Pro forma $ (0.01) $ (0.04)
The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for the six months ended June 30, 2004: risk-free interest
rate of 3.0%, 3.0% and 3.5%; dividend yields of 0%; volatility factors of
the expected market price of the Company's common stock of 386%, and a
weighted average expected life of the option of 1.0 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of employee stock options.
NOTE 3 - EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," the basic loss per
common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similar to basic loss per common
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. At June 30, 2004, the Company had outstanding warrants and
options to purchase shares of common stock of 81,170,901, of which all
were antidilutive and at June 30, 2004.
NOTE 4 - NOTE RECEIVABLE
The Company advanced to Corridor Communication Corporation, an Oregon
corporation (See Note 10) $60,000 pursuant to a promissory note dated
March 16, 2004. The note bears interest at 8% per annum and is due on
March 16, 2005. This note was forgiven on June 30, 2004 and was considered
part of the purchase price for Ashcreek Wireless. (See Note 9).
NOTE 5 - SECURED PROMISSORY NOTE
6
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
(formerly Amnis Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On March 2, 2004, the Company issued four (4) secured promissory notes for
$75,000 each to Alpha Capital Aktiengesellschaft, Stonestreet Limited
Partnership, SDS Merchant Fund and Bristol Capital. The notes bear
interest at 12% per annum and were due on March 15, 2004. These notes were
repaid in July 2004 from the proceeds of the sale of 1,457 shares of the
Company's Series A Convertible Preferred Stock. (See Note 11).
On April 28, 2004 and May 4, 2004, the Company issued secured promissory
notes for $100,000 each to Bristol Capital. The notes bear interest at 12%
per annum and were due on June 15, 2004. These notes were repaid in July
2004 from the proceeds of the sale of 1,457 shares of the Company's Series
A Convertible Preferred Stock. (See Note 11). In addition, in connection
with these two promissory notes, the Company issued to Bristol Capital a
total of 30,000,000 warrants to purchase shares of the Company's common
stock for $0.005 per shares. In accordance with EITF 00-27, the Company
first determined the value of the notes and the fair value of the
detachable warrants issued in connection with these promissory notes. The
estimated value of the warrants of $240,000 was determined using the
Black-Scholes option pricing model and the following assumptions: term of
7 years, a risk free interest rate of 3.5%, a dividend yield of 0% and
volatility of 402%. The face amount of the notes of $200,000 was
proportionately allocated to the notes and the warrants in the amount of
$91,334 and $108,666, respectively. The amount allocated to the warrants
of $108,666 was recorded as a discount on the notes and as an addition to
additional paid in capital. The discount of $108,666 was amortized over
the year life of the notes. As of June 30, 2004, the entire discount of
$180,666 has been amortized to financings costs in the accompanying
consolidated statements of operations.
NOTE 6 - CONVERTIBLE NOTES PAYABLE
A rollforward of the convertible notes payable is as follows:
Balance, December 31, 2003 $ 2,572,299
Conversions into equity (721,821)
Amortization of discounts 680,839
-----------------
Balance, June 30, 2004 2,531,317
Less current portion (2,015,327)
-----------------
Long-term portion $ 515,990
=================
NOTE 7 - OTHER ACCRUED EXPENSES
Other accrued expenses at June 30, 2004 consisted of the following:
Penalty for not registering shares issued in February 2002 $ 243,641
Penalty for not registering shares underlying
convertible debentures 316,567
Value of reset option provision in September 18, 2002 agreement 447,190
Other 111,052
-----------------
$ 1,118,450
=================
7
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
(formerly Amnis Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' DEFICIT
During the six months ended June 30, 2004, the Company issued the
following shares of its common stock:
o 93,232,524 shares to two officers of the Company for services
rendered valued at $559,395. The value of the services was based on
the market price of the Company's stock at the date of grant times
the number of shares issued;
o 2,164,063 shares to consultants for services rendered valued at
$60,135. The value of the services was based on the market price of
the Company's stock at the date of grant times the number of shares
issued;
o 162,388,613 shares to investors in connection with the conversion of
$721,821 of convertible notes payable;
o 13,131,936 shares to investors in connection with the conversion of
accrued interest on convertible notes payable of $53,709;
o 26,000,000 shares to an investor in connection with accrued
penalties of $180,000 associated with a reset option provision;
o 2,120,000 shares to employees for payment of $62,522 in accrued
salaries;
o 5,000,000 shares to a consultant in connection with the exercise of
warrants; and
o 27,000,000 shares in connection with the acquisitions of Corridor
Communications Corporation, an Oregon corporation, Ashcreek
Wireless, a sole proprietorship, and Quik Internet of the Valley,
Inc., an Oregon corporation.
During the six months ended, the Company issued to a consultant a total of
5,000,000 warrants to purchase 5,000,000 shares of the Company's common
stock at $0.005 per share. These warrants were valued at $54,000 using the
Black-Scholes option pricing model using the following assumptions: term
of 0.083 years, a risk-free interest rate of 3.5%, a dividend yield of 0%
and volatility of 735%. These warrants were exercised during the six
months ended June 30, 2004.
NOTE 9 - ACQUISITIONS
Corridor Communications Corporation
On May 6, 2004, the Company purchased all the assets of Corridor
Communications Corporation, an Oregon corporation ("CCC") for 12,000,000
shares of the Company's common stock. The 12,000,000 shares were valued at
$108,000, the market value of the Company's stock at the acquisition date.
This transaction was accounted for by the purchase method of accounting,
as required by SFAS No. 141, "Business Combinations," and accordingly, the
purchase price has been allocated to the assets acquired and the
8
CORRIDOR COMMUNICATIONS CORP. AND SUBSIDIARY
(formerly Amnis Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
liabilities assumed based upon the estimated fair values at the date of
acquisition. The allocation of the purchase price as shown below is
preliminary, and may be adjusted upon the completion of an appraisal of
the property and equipment and other future analyses.
The allocation of the purchase price is as follows:
Property and equipment $ 108,000
------------------
Purchase price $ 108,000
==================
Ashcreek Wireless
On June 30, 2004, the Company purchased all the assets of Ashcreek
Wireless, a sole proprietorship ("Ashcreek") for 7,500,000 shares of the
Company's common stock plus $60,000 in cash that was previously paid to
Ashcreek. The 7,500,000 shares were valued at $63,750, the market value of
the Company's stock at the acquisition date. This transaction was
accounted for by the purchase method of accounting, as required by SFAS
No. 141, "Business Combinations," and accordingly, the purchase price has
been allocated to the assets acquired and the liabilities assumed based
upon the estimated fair values at the date of acquisition. The allocation
of the purchase price as shown below is preliminary, and may be adjusted
upon the completion of an appraisal of the property and equipment and
other future analyses.
The allocation of the purchase price is as follows:
Cash $ 3,765
Accounts receivable 6,690
Property and equipment 80,980
Customer list 48,700
Goodwill 11,542
Unearned revenue (7,577)
Customer deposits (20,350)
------------------
Purchase price $ 123,750
==================
Quik Internet
On June 30, 2004 the Company purchased all the assets of Quik Internet of
the Valley, Inc., an Oregon corporation ("Quik") for 7,5000,000 shares of
Corridor's common stock plus the issuance of a $50,000 note payable to the
sellers and the assumption of a related party note payable of $65,572. The
7,500,000 shares were valued at $63,750, the market value of the Company's
stock at the acquisition date. This transaction was accounted for by the
purchase method of accounting, as required by SFAS No. 141, "Business
Combinations," and accordingly, the purchase price has been allocated to
the assets acquired and the liabilities assumed based upon the estimated
fair values at the date of acquisition. The allocation of the purchase
price as shown below is preliminary, and may be adjusted upon the
completion of an appraisal of the property and equipment and other future
analyses.
The allocation of the purchase price is as follows:
9
Accounts receivable 15,299
Property and equipment 2,525
Franchise 49,000
Customer list 132,029
Accounts payable (10,710)
Unearned revenue (8,821)
Note payable to sellers (50,000)
Note payable to bank (65,572)
------------------
Purchase price $ 63,750
==================
The operating results of CCC, Ashcreek and Quik will be included in the
Company's consolidated results of operations from their respective
acquisition dates. The following unaudited proforma summary presents the
consolidated results of operations as if the acquisitions had occurred on
January 1, 2003. These proforma results have been presented for
comparative purposes only and are not indicative of what would have
occurred had the acquisitions been made as of January 1, 2003,
appropriately, or of any potential results which may occur in the future.
Six Months Ended
June 30,
2004 2003
----------------- ----------------
Net sales $ 325,729 $ 871,816
================= ================
Gross profit $ 118,584 $ 285,830
================= ================
Operating expenses $ 1,890,537 $ 2,013,357
================= ================
Net loss $ 2,844,135 $ 3,589,480
================= ================
Basic and diluted loss per share $ 0.01 $ 0.03
================= ================
Weighted average shares 376,584,927 111,922,487
================= ================
NOTE 10 - DISCONTINUED OPERATIONS
In January 2004, the Company made the decision to discontinue its video
operation which consisted of the manufacturing of hardware and software
products for the creation, management and transmission of high-quality
digital video over computer networks. At that time the Company decided to
focus its efforts on the acquisition of certain businesses in the wireless
internet service business.
All of the principal assets associated with the Company's video operations
were written down as of December 31, 2003. The Company is still
responsible for all the liabilities incurred by its video operations which
continue to be presented under their proper captions in the accompanying
consolidated balance sheet. The operating results of the Company's video
operations have been presented as discontinued operations in the
accompanying consolidated statements of operations.
Below is a summary of the operating results of the Company's video
operations for the six months ended June 30, 2004 and 2003:
10
Six Months Ended
June 30,
2004 2003
----------------- ----------------
Net sales $ 145,112 $ 701,448
================= ================
Gross profit $ 12,937 $ 197,611
================= ================
Operating expenses $ 1,173,560 $ 1,904,870
================= ================
Loss from operations $ 1,160,623 $ 1,707,259
================= ================
NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104
supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB
104's primary purpose is to rescind accounting guidance contained in SAB
101 related to multiple element revenue arrangements, superseded as a
result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements
with Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's
Revenue Recognition in Financial Statements Frequently Asked Questions and
Answers ("the FAQ") issued with SAB 101 that had been codified in SEC
Topic 13, Revenue Recognition. Selected portions of the FAQ have been
incorporated into SAB 104. While the wording of SAB 104 has changed to
reflect the issuance of EITF 00-21, the revenue recognition principles of
SAB 101 remain largely unchanged by the issuance of SAB 104, which was
effective upon issuance. The adoption of SAB 104 did not impact the
consolidated financial statements.
NOTE 12 - SUBSEQUENT EVENTS
On July 23, 2004 the Company issued 1,457 shares of its Series A
Convertible Preferred Stock to existing investors for gross proceeds of
$2,550,000. The net proceeds received by the Company were $1,741,000 after
repaying the secured promissory notes of $500,000, the payment of $255,000
in commissions and the payment of $54,000 in legal fees associated with
the transaction.
11
Item 2. Management's Discussion and Analysis or Plan of Operations
GENERAL
The following discussion and analysis should be read in conjunction with the our
consolidated financial statements and related footnotes for the year ended
December 31, 2003 included in our Annual Report on Form 10-KSB. The discussion
of results, causes and trends should not be construed to imply any conclusion
that such results or trends will necessarily continue in the future.
In addition to historical information, this Quarterly Report on Form 10-QSB
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in this section. You should carefully review the risks described in other
documents we file from time to time with the Securities and Exchange Commission.
When used in this report, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "targets," "estimates," "looks for," "looks to,"
and similar expressions are generally intended to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this Quarterly Report on Form
10-QSB. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
OVERVIEW
We are a Delaware corporation formed in July 1998. Until our discontinuance of
our video operations in January 2004, we manufactured and marketed hardware and
software products for the creation, management and transmission of high-quality
digital video over computer networks. In May 2004 we acquired Corridor
Communications Corporation, a wireless fidelity internet service provider and in
June 2004 we acquired Quik Internet an Internet Service Provider and AshCreek
Wireless, both located in Salem, Oregon. We are currently negotiating for the
purchase of substantially all of the assets Eagle West Communications, LLC, a
cable company located in Mesa, Arizona. At this time we cannot provide any
guarantee that we will be able to complete this transaction, as the transaction
is subject to extensive due diligence and the negotiation and finalizing of a
definitive agreement.
Amnis was formed on July 29, 1998. On April 16, 2001, Amnis merged with
Optivision, Inc., an operating company, in an exchange of common stock accounted
for as a recapitalization of Optivision Inc accounted for as a reverse merger.
In accounting for this transaction Optivision is deemed to be the purchaser and
surviving company for accounting purposes. Accordingly, its net assets are
included in the balance sheet at their historical book values and the results of
operations of Optivision have been presented for the comparative prior period.
Control of the net assets and business of Amnis was acquired effective April 16,
2001
CRITICAL ACCOUNTING POLICIES
There are no other critical accounting policies other than those noted in Note 1
in our annual consolidated financial statements included in Form 10-KSB for the
year ended December 31, 2003.
RESULTS OF OPERATIONS
Discontinued Operations
In January 2004, we discontinued our video operation which consisted of the
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manufacturing and marketing of hardware and software products for the creation,
management and transmission of high-quality digital video over computer
networks.
All of the principal assets associated with our video operations were written
down as of December 31, 2003. We are still responsible for all the liabilities
incurred by our video operations which continue to be presented under their
proper captions in the accompanying consolidated balance sheet included
elshwhere in this Form 10-QSB. The operating results of our video operations
have been presented as discontinued operations in the accompanying consolidated
statements of operations included elsewhere in this Form 10-QSB.
Below is a summary of the operating results of our video operations for the six
months ended June 30, 2004 and 2003:
Six Months Ended
June 30,
2004 2003
----------------- ----------------
Net sales $ 145,112 $ 701,448
================= ================
Gross profit $ 12,937 $ 197,611
================= ================
Operating expenses $ 1,173,560 $ 1,904,870
================= ================
Loss from operations $ 1,160,623 $ 1,707,259
================= ================
Three Months Ended June 30, 2004 as compared to the Three Months Ended June 30,
2003
Revenue:
We did not generate any revenue from our wireless internet operations for the
three months ended June 30, 2004. Revenue generated from our video operations of
$269,103 for the three months ended June 30, 2003 has been presented in
discontinued operations.
Operating expenses:
Our operating expenses for the three months ended June 30, 2004 were $606,286
which consisted of $46,891 of expenses associated with our wireless internet
operations and the issuance of 93,232,524 shares of our common stock to two
officers for services rendered valued at $559,395. Operating expenses associated
with our video operations for the three months ended June 30, 2003 amounted to
$870,875.
Other income (Expense):
Interest expense decreased 3.4% or $5,175 to $146,698 for the three months ended
June 30, 2004 from $151,873 for the three months ended June 30, 2003.
Amortization on discount of convertible notes payable increased 56.6% or
$116,642 for the three months ended June 30, 2004 to $322,790 from $206,148 for
the three months ended June 30, 2003 due to the issuance of more convertible
notes payable in the latter half of 2003 that had discounts related to the value
of the detachable warrants and the beneficial conversion features and more
conversions of such debentures which resulted the immediate amortization of any
unamortized discounts associated with the amounts converted. Financing costs in
2003 are penalties for not filing and obtaining effectiveness of a registration
statement registering the shares of the Company's common stock underlying the
February 2002 private placement and the two June 2002 convertible debentures.
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Incurrence of penalties ceased on September 5, 2003 when the registration
statement became effective. The value of detachable warrants associated with the
convertible debentures is computed at the end of each accounting period using
Black Sholes calculations. As of December 31, 2003 there was no further
liability associated with the warrants due to the effective registration of such
warrants. For the three months ended June 30, 2004, we recognized financing
costs of $108,666 for the issuance of 30,000,000 warrants associated with two
secured promissory notes.
Six Months Ended June 30, 2004 as compared to the Six Months Ended June 30, 2003
Revenue:
We did not generate any revenue from our wireless internet operations for the
six months ended June 30, 2004. Revenue generated from our video operations of
$701,488 for the six months ended June 30, 2003 has been presented in
discontinued operations.
Operating expenses:
Our operating expenses for the six months ended June 30, 2004 were $606,286
which consisted of $46,891 of expenses associated with our wireless internet
operations and the issuance of 93,232,524 shares of our common stock to two
officers for services rendered valued at $559,395. Operating expenses associated
with our video operations for the six months ended June 30, 2003 amounted to
$1,904,870.
Other income (Expense):
Interest expense increased 56.1% or $115,134 to $320,336 for the six months
ended June 30, 2004 from $205,202 for the six months ended June 30, 2003. The
increase is due to higher note payable balances and the amortization of debt
issuance costs associated with the new convertible notes payable. Amortization
on discount of convertible notes payable increased 63.9% or $265,347 for the six
months ended June 30, 2004 to $680,839 from $415,492 for the six months ended
June 30, 2003 due to the issuance of more convertible notes payable in the
latter half of 2003 that had discounts related to the value of the detachable
warrants and the beneficial conversion features and more conversions of such
debentures which resulted the immediate amortization of any unamortized
discounts associated with the amounts converted. Financing costs in 2003 are
penalties for not filing and obtaining effectiveness of a registration statement
registering the shares of the Company's common stock underlying the February
2002 private placement and the two June 2002 convertible debentures. Incurrence
of penalties ceased on September 5, 2003 when the registration statement became
effective. The value of detachable warrants associated with the convertible
debentures is computed at the end of each accounting period using Black Sholes
calculations. As of December 31, 2003 there was no further liability associated
with the warrants due to the effective registration of such warrants. For the
six months ended June 30, 2004, we recognized financing costs of $108,666 for
the issuance of 30,000,000 warrants associated with two secured promissory notes
offset by other income related to financings costs of $41,183. This income is
related to the reduction in the accrual related to the penalties associated with
the February 2002 private placement. The penalties were calculated at June 30,
2004 based on the formula in the private placement agreement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, we had cash and cash equivalents of $453,434 compared to
$6,072 at June 30, 2004. In the six months ended June 30, 2004, negative working
capital has deteriorated by $2,541,095 to $8,196,844 at June 30, 2004 from
$5,655,749 at December 31, 2003 due to an increase in short -term financing of
$500,000 and an increase in the amount of convertible debentures that come due
within the next twelve months.
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We had continuing losses from operations in the six months ended June 30, 2004
of $606,286. We are currently unable to project when the business may no longer
generate a loss.
On May 9, 2003, we entered into a securities purchase agreement with six
investors for the sale of (i) $1,000,000 in convertible debentures and (ii) a
warrants to buy 5,000,000 shares of our common stock. In addition, in exchange
for cancellation of a reset option by one investor, the Company issued an
investor a convertible debenture in the amount of $910,120.
In September 2003, we entered into a financing agreement with an accredited
investor, pursuant to which we issued and sold 12% two-year secured convertible
debentures in the principal amount of $250,000 and 1,250,000 warrants to
purchase shares of our common stock, subject to antidilution adjustment
In October 2003, we entered into an agreement with two creditors whereby we
agreed to pay the creditors, in connection with a senior security interest in
the amount of $531,397, in shares of common stock
In November 2003, we entered into a financing agreement with accredited
investors, pursuant to which we issued and sold 12% two-year secured convertible
debentures in the principal amount of $1,100,000 and 5,500,000 warrants to
purchase shares of our common stock, subject to antidilution adjustment.
In March 2004, we obtained $300,000 from our current investors. These funds were
repaid from the proceeds of the issuance of 1,457 shares of our Series A
Convertible Preferred Stock in July 2004.
In April and May 2004, we obtained an additional $200,000 from a current
investor. These funds were repaid from the proceeds of the issuance of 1,457
shares of our Series A Convertible Preferred Stock in July 2004.
In July 2004 we issued 1,457 shares of our Series A Convertible Preferred Stock
to existing investors for gross proceeds of $2,550,000. The net proceeds
received by us were $1,741,000 after repaying the secured promissory notes of
$500,000, the payment of $255,000 in commissions and the payment of $54,000 in
legal fees associated with the transaction.
We believe we will still need additional investments in order to continue
operations to cash flow break even. Financing transactions may include the
issuance of equity or debt securities, obtaining credit facilities, or other
financing mechanisms. However, the trading price of our common stock and the
downturn in the U.S. stock and debt markets could make it more difficult to
obtain financing through the issuance of equity or debt securities. Even if we
are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
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
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and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are effective. There were no changes in our internal control over
financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to litigation or other legal proceedings that
we consider to be a part of the ordinary course of our business. We are not
involved currently in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations. We may become involved in material legal proceedings
in the future.
Item 2. Change in Securities
During the three months ended June 30, 2004, the Company issued the following
shares of its common stock:
o 93,232,524 shares to two officers of the Company for services
rendered valued at $559,395. The value of the services was based on
the market price of the Company's stock at the date of grant times
the number of shares issued;
o 95,128,816 shares to investors in connection with the conversion of
$305,000 of convertible notes payable;
o 10,949,038 shares to investors in connection with the conversion of
accrued interest on convertible notes payable of $35,917;
o 27,000,000 shares in connection with the acquisition of all of the
assets of Corridor Communications Corporation, an Oregon
corporation, Ashcreek Wireless, a sole proprietorship, and Quik
Internet of the Valley, Inc., an Oregon corporation.
All of the above offerings and sales were deemed to be exempt under rule 506 of
Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of the Company or executive officers
of the Company and transfer was restricted by the Company in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
Item 3. Defaults Upon Senior Securities
The Company is in default on six (6) promissory notes totaling $500,000 as of
June 30, 2004. All of these notes were repaid in July 2004.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
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Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Acting Chief Financial
Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
On May 12, 2004, the Company filed a Current Report on Form 8-K announcing the
acquisition of all of the assets of Corridor Communications Corporation, an
Oregon corporation for 12,000,000 shares of the Company's common stock. This
filing was amended on Form 8-K/A on May 17, 2004.
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.
CORRIDOR COMMUNICATIONS CORP.
August 16, 2004 By: /s/ J. Michael Heil
----------------------------------
J. Michael Heil
Chief Executive Officer
August 16, 2004 By: /s/ Scott Mac Caughern
----------------------------------
Scott Mac Caughern
Chairman and Acting
Chief Financial Officer
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