10QSB 1 v05855_10qsb.txt 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 12 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. 13 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. 14 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 15 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. 16 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 17 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 18