UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGES ACT
For the transition period from _____________ to _____________
Commission file number: 000-33231
SRM Networks, Inc.
(Exact name of Small Business Issuer as Specified in Its Charter)
Nevada 95-4868120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1241 North Central Avenue, Suite 7
Glendale, California 91202
(Address of principal executive offices) (Zip Code)
(813)243-1181 (Issuer's telephone number, including area code)
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 [ ]
The number of shares outstanding of the registrant's Common Stock,
$0.001 Par Value, on August 16, 2002 was 35,475,000 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
SRM NETWORKS, INC.
JUNE 30, 2002 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements.......................................1
Item 2. Plan of operation..........................................6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..........................................9
Item 2. Changes in Securities and Use of Proceeds ................9
Item 3. Defaults Upon Senior Securities ...........................9
Item 4. Submissions of Matters to a Vote of Security Holders ......9
Item 5. Other Information..........................................9
Item 6. Exhibits and Reports on Form 8-K...........................9
Signature Page ............................................10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking
statements as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. These cautionary statements and any
other cautionary statements that may accompany the forward-looking statements
expressly qualify all such forward-looking statements. In addition, SRM
Networks, Inc. disclaims any obligation to update any forward-looking statements
to reflect events o r circumstances after the date hereof.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet as of June 30, 2002.......................................1
Statements of Operations for the three and six
months ended June 30, 2002 and 2001..................................2
Statements of Changes in Stockholders'
Equity from Inception through June 30, 2002..........................3
Statements of Cash Flows for the six months
ended June 30, 2002 and 2001.........................................4
Notes to Financial Statements...........................................5
SRM NETWORKS, INC.
BALANCE SHEET
JUNE 30, 2002
(UNAUDITED)
ASSETS
Current assets
Cash $ 2,388
Interest receivable 1,381
8% convertible note receivable 700,000
---------------
Total current assets 703,769
Other assets --
---------------
Total assets $ 703,769
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 23,578
8% convertible note payable 700,000
---------------
Total current liabilities 723,578
Stockholders' Deficit
Preferred stock, $.001 par value;
Authorized shares - 5,000,000
Issued and outstanding shares - (zero) --
Common stock, $.001 par value;
Authorized shares - 50,000,000
Issued and outstanding shares - 35,475,000 3,225
Additional paid-in capital 51,517
Accumulated deficit (74,551)
---------------
Total stockholders' deficit (19,809)
Total liabilities and stockholders' deficit $ 703,769
===============
1
SRM NETWORKS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- -----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net revenues $ -- $ 720 $ 40 $ 720
Operating expenses
Legal and professional fees 26,047 2,675 37,172 2,675
Occupancy 595 145 1,190 145
Office supplies 33 35 293 35
--------------- --------------- --------------- ---------------
Total operating expenses 26,675 2,855 38,655 2,855
--------------- --------------- --------------- ---------------
Loss from operations (26,675) (2,135) (38,615) (2,135)
Provision for income taxes -- -- -- --
--------------- --------------- --------------- ---------------
Net loss/comprehensive loss $ (26,675) $ (2,135) $ (38,615) $ (2,135)
=============== =============== =============== ===============
Net loss per common share ---
basic and diluted $ -- $ -- $ -- $ --
=============== =============== =============== ===============
Weighted average of common
shares --- basic and diluted 35,475,000 2,500,000 27,457,000 2,500,000
=============== =============== =============== ===============
2
SRM NETWORKS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
JUNE 8, 2001 (INCEPTION) THROUGH JUNE 30, 2002
(UNAUDITED)
COMMON STOCK ADDITIONAL
----------------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------------- --------------- --------------- --------------- ---------------
Balance, June 8, 2001 -- $ -- $ -- $ -- $ --
Issuance of common stock,
June 9, 2001 2,500,000 2,500 7,500 -- 10,000
Cost of occupancy
contributed by officer -- -- 145 -- 145
Net loss/comprehensive loss -- -- -- (2,135) (2,135)
--------------- --------------- --------------- --------------- ---------------
Balance, June 30, 2001 2,500,000 2,500 7,645 (2,135) 8,010
=============== =============== =============== =============== ===============
Issuance of common stock,
October 30, 2001 523,000 523 25,627 -- 26,150
Issuance of common stock,
November 1, 2001 202,000 202 9,898 -- 10,100
Registration expenses -- -- 5,967 -- 5,967
Cost of occupancy
contributed by officer -- -- 1,190 -- 1,190
Net loss/comprehensive loss -- -- -- (33,801) (33,801)
--------------- --------------- --------------- --------------- ---------------
Balance, December 31, 2001 3,225,000 3,225 50,327 (35,936) 17,616
=============== =============== =============== =============== ===============
Issuance of 11:1 forward
common stock split,
February 15, 2002 32,250,000 -- -- -- --
Cost of occupancy
contributed by officer -- -- 1,190 -- 1,190
Net loss/comprehensive loss -- -- -- (38,615) (38,615)
--------------- --------------- --------------- --------------- ---------------
Balance, June 30, 2002 35,475,000 $ 3,225 $ 51,517 $ (74,551) $ (19,809)
=============== =============== =============== =============== ===============
3
SRM NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------------
2002 2001
--------------- ---------------
Cash flows from operating activities
Net loss $ (38,615) $ (2,135)
Adjustments to reconcile net loss to net cash used in
operating activities
Occupancy costs contributed by officer 1,190 145
Changes in operating assets and liabilities
(Increase)/decrease in accounts receivable 40 (720)
Increase in accounts payable and accrued expenses 14,026 2,000
--------------- ---------------
Net cash used by operating activities (23,359) (710)
Cash flows from investing activities
Purchase of note receivable (700,000) --
--------------- ---------------
Net cash used by investing activities (700,000) --
Cash flows from financing activities
Receipts on advances to stockholders 20,000 --
Payments on advances from stockholder (4,635) --
Rescission of stock subscriptions payable (14,000) --
Proceeds from issuance of 8% convertible note payable 700,000 --
Proceeds from issuance of common stock -- 10,000
--------------- ---------------
Net cash provided by financing activities 701,365 10,000
--------------- ---------------
Net increase/(decrease) in cash and cash equivalents (21,994) 9,290
Cash and cash equivalents, beginning of period 24,382 --
--------------- ---------------
Cash and cash equivalents, end of period $ 2,388 $ 9,290
=============== ===============
Supplemental disclosure of cash flow information
Income taxes paid $ -- $ --
=============== ===============
Interest paid $ -- $ --
=============== ===============
4
SRM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS
SRM Networks, Inc. (the "Company") is an Internet solutions company
that specializes in website hosting and development services. The Company was
incorporated in the state of Nevada on June 8, 2001 is headquartered in
Glendale, California.
NOTE 2 - BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2002 and 2001 are not necessarily indicative of the results that may be expected
for the years ended December 31, 2002 and 2001. These financial statements and
the related notes should be read in conjunction with the Company's audited
financial statements for the period ended December 31, 2001 included in the
Company's annual report on Form 10-KSB.
NOTE 3 - COMMON STOCK
On June 9, 2001, the Company issued 2,500,000 shares of its common
stock to its officers for cash of $10,000. Since there was no readily available
market value at the time of issuance, the value of $0.004 per share was
considered as a reasonable estimate of fair value between the Company and the
officers.
On October 30 and November 1, 2001, the Company issued 725,000 shares
of its common stock to various individuals and an entity pursuant to its
registration statement filing on Form SB-2 under the Securities Act of 1933. Per
the registration statement, the Company issued the shares at $0.05 per share for
a total of $36,250.
On February 8, 2002, the Company's Board of Directors authorized the
splitting of the Company's common stock on an eleven-to-one (11:1) basis for
stockholders of record on February 14, 2002 and the resulting shares from the
split were distributed on February 15, 2002. On February 15, 2002, there were
35,475,000 shares issued and outstanding.
5
NOTE 4 - RELATED PARTY TRANSACTIONS
On June 9, 2001, the Company issued 2,500,000 shares of its common
stock to its current officers for cash as described in Note 3.
On August 31, 2001, legal and professional expenses related to the
Company's registration statement were paid by its officer in the amount of
$5,967. The payment of the fees was considered an additional contribution to
capital by the officer and the Company.
The Company occupies office space provided by its officer. Accordingly,
occupancy costs have been allocated to the Company based on the square foot
percentage assumed multiplied by the officer's total monthly costs. These
amounts are shown in the accompanying statement of operations for the period
June 8, 2001 (inception) through June 30, 2001 and are considered additional
contributions of capital by the officer and the Company.
NOTE 5 - LETTER OF INTENT
On June 5, 2002, the Company entered into a Letter of Intent to acquire
all of the outstanding common stock of weComm, Ltd., a U.K. corporation, in a
tax-free reverse merger in exchange for 24,000,000 shares of common stock of the
Company. The Letter of Intent is not legally binding on either party and the
transaction will not close until a definitive agreement is reached; a private
placement of the Company's common stock is completed; due diligence has been
completed by both parties; and, weComm has fulfilled certain other contractual
conditions.
NOTE 6 - 8% CONVERTIBLE NOTE RECEIVABLE
On June 21, 2002, the Company received a note from weComm, Ltd., a U.K.
corporation, ("weComm") for cash in the amount of $700,000. Per the terms of the
note, the principal is due and payable on October 7, 2002 together with interest
calculated at the rate of 8% per annum. In the event of default, the interest
rate will increase to 15%.
NOTE 7 - 8% CONVERTIBLE NOTE PAYABLE
On June 21, 2002, the Company received proceeds of $700,000 for
issuance of a convertible note payable to a third party investor. Pursuant to
the terms of the notes, the principal is due and payable on October 9, 2002
together with interest calculated at the rate of 8% per annum. The note also
contains a conversion feature that provides the holder with "conversion units"
equivalent to approximately 700,000 shares of the Company's preferred stock at
$1.00 per share plus a warrant to purchase up to 210,000 shares of the Company's
common stock at $2.50 per share should the Company receive future financing of
not less than $5,000,000.
Item 2. Plan of Operation
This following information specifies certain forward-looking statements of
management of the company. Forward-looking statements are statements that
estimate the happening of future events and are not based on historical fact.
Forward-looking statements may be identified by the use of forward-looking
terminology, such as "may", "shall", "will", "could", "expect", "estimate",
"anticipate", "predict", "probable", "possible", "should", "continue", or
similar terms, variations of those terms or the negative of those terms. The
forward-looking statements specified in the following information have been
compiled by our management on the basis of assumptions made by management and
considered by management to be reasonable. Our future operating results,
however, are impossible to predict and no representation, guaranty, or warranty
is to be inferred from those forward-looking statements.
6
The assumptions used for purposes of the forward-looking statements specified in
the following information represent estimates of future events and are subject
to uncertainty as to possible changes in economic, legislative, industry, and
other circumstances. As a result, the identification and interpretation of data
and other information and their use in developing and selecting assumptions from
and among reasonable alternatives require the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially
from anticipated or projected results, and, accordingly, no opinion is expressed
on the achievability of those forward-looking statements. We cannot guaranty
that any of the assumptions relating to the forward-looking statements specified
in the following information are accurate, and we assume no obligation to update
any such forward-looking statements.
Our current business plan has been to provide Internet solutions including
website hosting and development services to small and medium size businesses. To
date, we have not been successful in fully implementing our business plan due to
lack of funds. Accordingly, we have been researching potential acquisitions or
other suitable business partners which may assist us in realizing our business
objectives. In that regard, on June 5, 2002, we entered into a Letter of Intent
to acquire all of the outstanding common stock of weComm, Ltd., a U.K.
corporation, ("weComm") in a tax-free reverse merger in exchange for 24,000,000
shares of our common stock. The Letter of Intent is not legally binding on
either party and the transaction will not close until a definitive agreement is
reached, and after we complete a private placement of our common stock, both
parties complete due diligence and weComm has fulfilled certain other
contractual conditions. There can be no assurance that the acquisition of weComm
will be co nsummated.
For the six months ended June 30, 2002.
Liquidity and Capital Resources. Our total current assets are $703,769 as of
June 30, 2002, which is represented by $2,388 in cash, $1,381 in interest
receivable and $700,000 in an 8% note receivable. We had no other assets as of
June 30, 2002.
Our total current liabilities were approximately $723,578 as of June 30, 2002,
which is represented by accounts payable and accrued expenses of $23,578, and
$700,000 in an 8% convertible note payable. We had no other commitments or
contingencies as of June 30, 2002.
Results of Operations.
Revenues. For the six month period ended June 30, 2002, we realized revenues of
approximately $40 from providing web hosting and development services, in
comparison to$720 in revenues generated during the same period ending June 30,
2001. If we are not able to complete the transaction with weComm described
above, of which there can be no assurance, we will attempt to generate more
revenues by expanding our customer base for our website hosting and development
business.
7
Operating Expenses. For the six months ended June 30, 2002, our
total expenses were approximately $38,655. The majority of those expenses were
represented by legal and professional fees of $37,172. We also had expenses for
occupying our offices in the amount of $1,190, and for office supplies in the
amount of $293. For the six months ended June 30, 2002, we experienced a net
loss of approximately $38,615. In comparison to the same period ended June 30,
2001, our total expenses were approximately $2,855, and our net loss from
operations was $2,135. The increase in operating expenses was due to increased
legal and professional fees. In connection with the completing the transaction
with weComm, we anticipate that we will continue to incur significant general
and administrative expenses.
Our Plan of Operation for the Next Twelve Months. We expect to complete the
transaction with weCommdescribed above during the third quarter of 2002. We
cannot guarantee that we will acquire or merge with weComm or any other third
party, or that in the event we acquire or merge weComm, or another third party,
such acquisition or merger will increase the value of our common stock.
We had cash of $2,388 as of June 30, 2002. In the opinion of management,
available funds will satisfy our working capital requirements through October
2002. Our forecast for the period for which our financial resources will be
adequate to support our operations involves risks and uncertainties and actual
results could be different as a result of a number of factors. If we are not
able to complete the transaction with weComm, we anticipate that we may need to
raise additional capital to continue operations. Such additional capital may be
raised through public or private financing as well as borrowings and other
sources. We cannot guaranty that additional funding will be available on
favorable terms, if at all. If adequate funds are not available, then our
ability to expand our existing operations may be adversely affected. If adequate
funds are not available, we anticipate that our officers and directors will
contribute funds to pay for our expenses, although we cannot guarantee that our
officers will p ay those expenses.
We are not currently conducting any research and development activities and do
not anticipate conducting such activities in the near future. We do not
anticipate hiring additional employees or independent contractors unless we are
able to expand our current operations. We are focusing our efforts on completing
the transaction with weComm, of which there can be no assurance. We do not
anticipate that we will purchase or sell any significant equipment.
8
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
The Company is not currently involved in any legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
In June 2002, the Company issued a convertible promissory note in the
amount of $700,000 to an investor. Pursuant to the terms of the note, the
investor also received 210,000 warrants to purchase shares of the Company's
common stock at an exercise price of $2.50 per share for a period of five years.
The note is due on the day immediately following the day on which the Borrower
closes a minimum of $5,000,000 in a private placement ("Private Placement") of
its Series A Convertible Preferred Stock, of which there can be no assurance,
unless earlier converted. Upon completion of the Private Placement, of which
there can be no assurance, the Lender shall have seven (7) days to notify the
Company of its intent to: (i) convert the entire amount of principal and
interest due pursuant to this note into shares of the Company's Series A
Convertible Preferred Stock at a price of $1.00 per share, or (ii) be repaid the
principal and interest. The note is convertible at anytime by the investor into
shares of the Compa ny's Series A Convertible Preferred Stock at a conversion
price of $1.00 per share. The Company's Series A Preferred Stock is convertible
into shares of its common stock at a conversion rate of $2.00 per share.
The proceeds from the above-referenced note were loaned to weComm, Ltd.
The note bears interest at a rate of 8% and is due on October 7, 2002.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits.
99.1 - Certification of report filed on Form 10-QSB by President and
CFO.
(b) Reports on Form 8-K.
None.
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on behalf by the undersigned, thereunto duly
authorized.
SRM NETWORKS, INC.
Dated: August 19, 2002 By: /s/ Jan Barcikowski
------------------------------
Jan Barcikowski
President, Acting Chief Financial
Officer, Secretary and Director
10