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 September 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)
Delaware 95-4868120
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hegibachstrasse 22
8032 Zurich
Switzerland
(Address of principal executive offices) (Zip Code)
011 411 422 8284 (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 December 10, 2002 was 35,477,500 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
----------------- ---------------
SRM NETWORKS, INC.
SEPTEMBER 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.....................................................8
Item 3. Controls and Procedures...............................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................11
Item 2. Changes in Securities and Use of Proceeds............................11
Item 3. Defaults Upon Senior Securities......................................11
Item 4. Submissions of Matters to a Vote of Securityholders .................11
Item 5. Other Information....................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................11
Signatures ..........................................................12
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 or circumstances after the date hereof.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet as of September 30, 2002..............................1
Statements of Operations for the three and nine
months ended September 30, 2002 and 2001..........................2
Statements of Changes in Stockholders'
Equity from Inception through September 30, 2002..................3
Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001.................................4
Notes to Financial Statements.......................................5
SRM NETWORKS, INC.
BALANCE SHEET
SEPTEMBER 30, 2002
(UNAUDITED)
ASSETS
Current assets
Cash $ 1,326
Interest receivable 15,381
8% convertible note receivable 700,000
------------
Total current assets 716,707
Other assets --
------------
Total assets $ 716,707
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 18,778
Advances from affiliate 83,000
8% convertible note payable 700,000
------------
Total current liabilities 801,778
Stockholders' Equity
Preferred stock, $.001 par value;
Authorized shares -- 5,000,000
Issued and outstanding shares -- 0 --
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 (139,813)
------------
Total stockholders' equity (85,071)
------------
Total liabilities and stockholders' equity $ 716,707
============
1
SRM NETWORKS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net revenues $ -- $ 1,073 $ 40 $ 1,793
Operating expenses
Consulting 50,000 -- 50,000
Legal and professional fees 15,200 9,508 52,372 12,183
Occupancy -- 595 1,190 740
Office supplies 62 2,670 355 2,705
------------ ------------ ------------ ------------
Total operating expenses 65,262 12,773 103,917 15,628
------------ ------------ ------------ ------------
Loss from operations (65,262) (11,700) (103,877) (13,835)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss/comprehensive loss $ (65,262) $ (11,700) $ (103,877) $ (13,835)
============ ============ ============ ============
Net loss per common share --- basic and
diluted $ -- $ -- $ -- $ --
============ ============ ============ ============
Weighted average of common shares ---
basic and diluted 35,475,000 2,500,000 30,159,000 2,500,000
============ ============ ============ ============
2
SRM NETWORKS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
JUNE 8, 2001 (INCEPTION) THROUGH SEPTEMBER 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 -- -- -- (103,877) (103,877)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2002 35,475,000 $ 3,225 $ 51,517 $ (139,813) $ (85,071)
============ ============ ============ ============ ============
3
SRM NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2002 2001
--------- -----------
Cash flows from operating activities
Net loss $(103,877) $ (13,835)
Adjustments to reconcile net loss to net cash used in operating
activities
Occupancy costs contributed by officer 1,190 740
Registration expenses paid by officer 5,967
Changes in operating assets and liabilities
(Increase) in interest receivable (15,381) --
(Increase)/decrease in accounts receivable 40 (405)
Increase in accounts payable and accrued expenses 10,607 1,000
--------- ---------
Net cash used by operating activities (107,421) (6,533)
Cash flows from investing activities
Payments for issuance of note receivable (700,000) --
--------- ---------
Net cash used by investing activities (700,000) --
Cash flows from financing activities
Receipts on advances from affiliate 83,000 --
Receipts on advances to stockholder 20,000 --
Payments on advances from stockholder (4,635) --
Rescission of stock subscriptions payable (14,000) --
Proceeds from issuance of convertible note payable 700,000 --
Proceeds from issuance of common stock -- 10,000
--------- ---------
Net cash provided by financing activities 784,365 10,000
--------- ---------
Net increase/(decrease) in cash and cash equivalents (23,056) 3,467
Cash and cash equivalents, beginning of period 24,382 --
--------- ---------
Cash and cash equivalents, end of period $ 1,326 $ 3,467
========= =========
Supplemental disclosure of cash flow information
Income taxes paid $-- $--
========= =========
Interest paid $-- $--
========= =========
4
SRM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September
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
it 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 September 2002 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 - ADVANCES FROM AFFILIATE
Periodically, the Company receives cash from an affiliate who provides the
Company with consulting and other services. These advances are non-interest
bearing, are due on demand, and are to be repaid to the affiliate as cash
becomes available.
NOTE 7 - 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%. Subsequent to September 30, 2002, this note was
converted into preferred shares of weComm as described further in Note 9.
NOTE 8 - 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 350,000 shares of the Company's preferred stock at $2.00 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. This note has been extended through December 31, 2002.
6
NOTE 9 - SUBSEQUENT EVENT
On October 4, 2002, the Company converted its 8% note receivable into
Series E Preferred Shares of weComm, Ltd. The conversion constituted full
satisfaction of the outstanding balance of $700,000.
7
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.
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 consummated.
For the nine months ended September 30, 2002.
---------------------------------------------
Liquidity and Capital Resources. Our total current assets are $703,769 as of
September 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
September 30, 2002.
Our total current liabilities were approximately $723,578 as of September 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 September 30, 2002.
8
Results of Operations.
Revenues. For the nine month period ended September 30, 2002, we realized
revenues of approximately $40 from providing web hosting and development
services, in comparison to$1,793 in revenues generated during the same period
ending September 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.
Operating Expenses. For the nine months ended September 30, 2002, our total
expenses were approximately $103,917. The majority of those expenses were
represented by legal, professional and consulting fees of $102,372. We also had
expenses for occupying our offices in the amount of $1,190, and for office
supplies in the amount of $355. For the nine months ended September 30, 2002, we
experienced a net loss of approximately $103,877. In comparison to the same
period ended September 30, 2001, our total expenses were approximately $15,628,
and our net loss from operations was $12,835. 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 weComm described above before the end of the second quarter of
2003. 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 $1,326 as of September 30, 2002. In the opinion of management,
available funds will satisfy our working capital requirements through January
2003. 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 pay 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.
9
Item 3. Controls and Procedures
Included on the signature page of this report is the Certification that is
required under Section 302 of the Sarbanes-Oxley Act of 2002. This section of
the report contains information concerning the controls evaluation referred to
in the Section 302 Certifications and the information contained herein should be
read in conjunction with the Certification.
Internal controls are designed with the objective of ensuring that assets are
safeguarded, transactions are authorized, and financial reports are prepared on
a timely basis in accordance with generally accepted accounting principles in
the United States. The disclosure procedures are designed to comply with the
regulations established by the Securities and Exchange Commission.
Internal controls, no matter how designed, have limitations. It is the Company's
intent that the internal controls be conceived to provide adequate, but not
absolute, assurance that the objectives of the controls are met on a consistent
basis. Management plans to continue its review of internal controls and
disclosure procedures on an ongoing basis.
The Company's chief executive officer, after supervising and participating in an
evaluation of the effectiveness of the Company's internal and disclosure
controls and procedures during the third quarter ended September 30, 2002 (the
"Evaluation Date"), has concluded that as of the Evaluation Date, the Company's
internal and disclosure controls and procedures were effective.
There were no significant changes in the Company's internal and disclosure
controls or in other factors that could significantly affect such internal and
disclosure controls subsequent to the date of their evaluation.
10
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.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders.
On August 21, 2002, the Company held a special meeting of shareholders to
vote upon a proposal to approve an agreement and plan of merger, the purpose of
which was to change the state of incorporation of the Company from Nevada to
Delaware.
There were present in person or by proxy at the Meeting, Shareholders shown
to be the holders of 29,399,000 shares out of a total of 35,475,000 shares of
the Company's Common Stock issued and outstanding and entitled to vote at the
Meeting and that a quorum for the transaction of business was present at the
Meeting.
The proposal was approved by the following vote:
For Against Withheld
29,399,000 -0- -0-
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.
11
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: December 13, 2002 By: /s/ Jan Barcikowski
--------------------------
Jan Barcikowski
President, Acting Chief Financial
Officer, Secretary and Director
Certifications
I, Jan Barcikowski, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SRM Networks, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date.
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
12
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 13, 2002 /s/ Jan Barcikowski
----------------------------------
Jan Barcikowski
President
13