UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 2001
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to __________.
Commission File No. 333-3074
NEXLAND, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 37-1356503
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1101 BRICKELL AVENUE, NORTH TOWER, SUITE 200, 33131
MIAMI, FLORIDA
- ------------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305-358-7771)
- --------------------------------------------------- --------------
(1) Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 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
[X] Yes [ ] No
As of August 10, 2001, there were 36,153,385 shares outstanding of the issuer's
common stock.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
NEXLAND, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2001
3
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at June 30, 2001 (Unaudited)
and December 31, 2000................................................... 5
Condensed Consolidated Statements of Operations for the three months
ended June 30, 2001 and 2000 and the six months ended
June 30, 2001 and 2000 (Unaudited)....................................... 6
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 (Unaudited)................................. 7
Notes to Condensed Consolidated Financial Statements....................8-9
4
NEXLAND, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
JUNE 30, DECEMBER 31,
2001 2000*
----------- ------------
Current assets:
Cash $ 66,067 $ 59,523
Accounts receivables 90,776 119,131
Inventory 139,072 75,949
----------- -----------
Total current assets 295,915 254,603
----------- -----------
Property and equipment, net 38,265 32,072
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Other assets:
Deposits and other assets 33,110 30,000
----------- -----------
Total other assets 33,110 30,000
----------- -----------
Total assets $ 367,290 $ 316,675
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 237,821 $ 56,876
Accrued professional fees 209,686 219,194
Accrued expenses 183,987 73,424
Due to related party supplier 577,178 401,819
Other liabilities 97,356 97,356
----------- -----------
Total current liabilities 1,306,028 848,669
----------- -----------
Long-term debt 255,000 -
----------- -----------
Total liabilities 1,561,028 848,669
----------- -----------
Stockholders' deficit:
Preferred stock, $0.0001 par value; 10,000,000 shares
authorized; no shares outstanding - -
Common stock, $0.0001 par value; 50,000,000 shares
authorized; 36,153,385 and 36,027,368 shares
issued and outstanding, respectively 3,617 3,603
Additional paid-in capital 3,467,557 3,001,613
Unearned compensation (208,338) (333,336)
Accumulated deficit (4,456,574) (3,203,874)
----------- -----------
Total stockholders' deficit (1,193,738) (531,994)
----------- -----------
Total liabilities and stockholders' deficit $ 367,290 $ 316,675
=========== ===========
*Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
5
NEXLAND, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 777,473 $ 241,270 $ 1,535,171 $ 440,880
Cost of sales 382,851 91,463 824,484 177,195
----------- ------------ ------------ ------------
Gross profit 394,622 149,807 710,687 263,685
----------- ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 1,068,061 1,504,786 1,881,601 2,035,544
Depreciation 3,035 1,274 5,651 2,114
----------- ------------ ------------ ------------
Total operating expenses 1,071,096 1,506,060 1,887,252 2,037,658
----------- ------------ ------------ ------------
Loss from operations (676,474) (1,356,253) (1,176,565) (1,773,973)
----------- ------------ ------------ ------------
Other income (expense):
Interest expense (70,580) (5,536) (76,135) (11,072)
----------- ------------ ------------ ------------
Total other income (expense) (70,580) (5,536) (76,135) (11,072)
----------- ------------ ------------ ------------
Net loss $ (747,054) $(1,361,789) $(1,252,700) $(1,785,045)
=========== ============ ============ ============
Net loss per common share, basic and diluted $ (0.03) $ (0.04) $ (0.03) $ (0.05)
=========== ============ ============ ============
Weighted-average number of common shares 36,100,189 34,457,472 36,153,385 34,293,178
=========== ============ ============ ============
See notes to condensed consolidated financial statements.
6
NEXLAND, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------------------
2001 2000
----------- ------------
Cash flows from operating activities:
Net loss $ (1,252,700) $ (1,785,045)
Adjustments to reconcile net loss to net cash used in
operating activities:
Compensation expenses in connection with:
Employment agreement 124,998 41,666
Severance - 1,125,000
Stock options issued 214,854 -
Contributed research and development services 127,636 -
Common stock issued for services 88,591 378,929
Interest expense on convertible debentures 76,819 -
Provision for bad debts 16,681 -
Provision for inventory obsolecense 45,307 -
Depreciation expense 5,644 2,114
(Increase) decrease in:
Accounts receivable 11,674 (46,858)
Inventory (108,430) (116,891)
Deposits and other assets (3,110) (30,000)
(Decrease) increase in:
Accounts payable 180,945 322,045
Accrued professional fees (9,508) -
Accrued expenses 110,564 -
Due to related party supplier 175,359 -
--------- ---------
Net cash used in operating activities (194,676) (109,040)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (11,837) (17,046)
--------- ---------
Net cash used by investing activities (11,837) (17,046)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of warrants and options 17 160,000
Proceeds from issuance of convertible debentures 255,000 -
Costs on issuance of convertible debentures (41,960) -
--------- ---------
Net cash provided by financing activities 213,057 160,000
--------- ---------
Net increase in cash 6,544 33,914
Cash, beginning of period 59,523 4,231
--------- ---------
Cash, end of period $ 66,067 $ 38,145
---------- ----------
Supplemental cash flow disclosure:
Interest paid $ - $ -
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Taxes $ - $ -
---------- ----------
7
NOTE 1 - FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and Regulation S-X.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals), which are necessary for a fair presentation for the periods
presented have been included. Certain information and footnote disclosures
normally included in the consolidated financial statements prepared in
accordance with generally accepted accounting principles have been omitted. The
condensed consolidated balance sheet information as of December 31, 2000 was
derived from the audited consolidated financial statements included in the
Company's Form 10-K.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 2000. The results of operations for the six months ended June 30,
2001 are not necessarily indicative of the results to be expected for the full
year.
The consolidated financial statements of the Company for the year ended December
31, 2000 were prepared on a going-concern basis. For the year ended December 31,
2000, the Company incurred a net annual loss of $2,876,244 and had deficits of
$3,203,874. These losses raise substantial doubt about the ability of the
Company to continue as a going concern. Management believes that resources
available from private and public sources in 2001 will ensure the continuation
of the operations of the Company.
NOTE 2 - EARNINGS PER SHARE
Net loss per share of common stock is based on the weighted average number of
common shares outstanding during each period. Diluted loss per share of common
stock is computed on the basis of the weighted average number of common shares
and dilutive options and warrants outstanding. All outstanding options and
warrants have an anti-dilutive effect and are excluded from the calculation.
NOTE 3 - FACTORING ARRANGEMENTS
On January 31, 2001, the Company entered into a factoring agreement. The
agreement expires on January 31, 2002 or until terminated by either party with
proper notice given as defined. The Company has assigned substantially all of
its accounts receivable to the factor, typically on a recourse basis. The
Company may request advances up to 75% of the eligible receivables. The factor
charges the Company a commission equal to 0.0667% per day for each uncollected
receivable from the invoice date to the payment date of such invoice, plus
interest of approximately 10%.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company sold $255,000 of 6% convertible debentures in the three months ended
June 30, 2001 through a Private Placement Agreement under Regulation D. The net
proceeds after costs incurred was $213,040. The intrinsic value of the
beneficial conversion feature was recorded as a non-cash charge of $76,819 to
interest expense and a corresponding credit to the additional paid in capital of
the Company.
8
NOTE 5 - LINE OF CREDIT AGREEMENT
The Company entered into a line of credit agreement where an institutional
investor agreed to purchase $5 million of convertible debentures, if requested
by the Company. At June 30, 2001, the Company had made no requests and no
debentures had been issued.
NOTE 6 - STOCKHOLDERS' EQUITY
During the six months ended June 30, 2001 the Company issued 126,000 shares of
its common stock pursuant to a consulting services agreement relating to capital
investment. The Company recorded a non-cash charge to consulting fees, based on
the then market value of the common stock, of $88,591.
NOTE 7 - STOCK OPTIONS
During the six months ended June 30, 2001, the Company granted options to
purchase 450,000 shares of the Company's common stock to certain employees of
the Company. The Company also granted 666,179 options during the six-month ended
June 30, 2001 to certain consultants. The weighted average fair value of options
granted during the six months ended June 30, 2001, is estimated on the date of
the grant, using an option-pricing model for public companies. The weighted
average grant-date fair value was $0.35 for options whose exercise price was
equal to the market price on the date of the grant. All options granted have an
exercise price equal to the market price on the date of grant.
The Company has elected to account for the stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, no compensation expense has been
recognized on the employee stock options. The Company accounts for stock options
granted to consultants under Financial Accounting Standards Board Statement No.
123, "Accounting For Stock-Based Compensation," and has recorded a non-cash
charge of $214,854 to professional fees.
The fair value of each option is estimated on the date of grant using the fair
value-pricing model with the assumption:
Risk-free interest rate 6.0%
Expected life (years) various
Expected volatility various
Expected dividends None
Had the compensation expense for the employee stock options been determined
based on the fair value of the options at the grant date consistent with the
methodology prescribed under Statement of Financial Standards No. 123,
"Accounting for Stock Based Compensation", the Company's net loss for the six
months ended June 30, 2001, would have been increased by $186,000.
The Company's net loss and loss per share would have been reduced to the pro
forma amounts indicated below:
June 30, 2001
--------------------
Net loss
As reported (1,252,700)
Pro forma (1,438,700)
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This filing contains forward-looking statements, including statements
regarding, among other things, (a) the growth strategies of Nexland, Inc. (the
"Company"), (b) anticipated trends in the Company's industry, (c) the Company's
future financing plans and (d) the Company's ability to obtain financing and
continue operations. In addition, when used in this filing, the words
"believes," "anticipates," "intends," "in anticipation of," and similar words
are intended to identify certain forward-looking statements. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of changes in trends in the economy and
the Company's industry, reductions in the availability of financing and other
factors. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this filing will in fact occur.
The Company does not undertake any obligation to publicly release the results of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
GOING CONCERN
Our Company's auditors stated that the consolidated financial
statements of our Company for the years ended December 31, 2000 and December 31,
1999 were prepared on a going-concern basis. For the years ended December 31,
2000 and 1999, respectively, our Company incurred a net annual loss of
$2,876,244 and $131,343, respectively, and our Company had deficits of
$3,203,874 and $327,630, respectively, in the corresponding periods. These
losses raise substantial doubt about the ability of our Company to continue as a
going concern. Management believes that resources will be available from private
and public sources in 2001 to continue the marketing of our Company's Internet
sharing devices. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
our Company cannot continue in existence. Management has established plans
intended to increase the sales of our Company's products. Management intends to
seek new capital from new equity securities offerings to provide funds needed to
increase liquidity, fund growth and implement its business plan; however, no
assurance can be given that our Company will be able to raise any additional
capital.
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES
We do not currently anticipate any significant plant or equipment
purchases during the next twelve months.
CHANGES IN THE NUMBER OF EMPLOYEES
We currently have twelve (12) employees in Miami and nine (9) in
Canada. If our Company is successful in increasing its sales level or in raising
significant new capital, we anticipate hiring twelve (12) additional personnel
during the remainder of 2001. We believe that these personnel will be adequate
to accomplish the tasks set forth in our plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTHS PERIODS ENDED JUNE 30, 2001
AND 2000
(1) REVENUES. For the three and six month ended June 30, 2001, our
Company had $777,473 and $1,535,171 in revenue consisting of sales of 6,398 and
10,927 units of Internet access "hardware routers" for small office and home
users. During the three and six months ended June 30, 2000, our Company had
sales of $241,270 and $440,880 from the sale of 1,092 and 1,855 units. During
the three and six months ended June 30, 2001, our average selling price per unit
was $122 and $141. The increase on the average selling price is due to higher
selling prices on the some of our new Internet access hardware routers.
(2) COST OF SALES. Cost of sales for the three and six months ended
June 30, 2001 was $382,851 and $824,484, as compared to $91,463 and $177,195 for
the same periods in 2000. Cost of sales consisted substantially of the purchase
price and in-bound freight of pre-assembled finished goods inventory from
10
subcontractors in Taiwan, Republic of China. In June 2001, the Company recorded
a $45,307 non-cash charge to reserve for inventory obsolescence. During the
three and six months ended June 30, 2001, our average purchase cost per unit
decreased by $24 and $20 per unit as compared to the same periods in 2000.
(3) GROSS PROFIT. The gross profit of our products was approximately
51% and 46% for the three and six months ended June 30, 2001, as compared to 62%
and 60% for the same periods in 2000. The decrease in the gross profit is
attributable to lower sales prices given to large volume customers. Our Company
expects pricing pressures from our competition, but we believe that we will
continue to lower our cost procurement from subcontractors by obtaining the
benefits of lower product costs through volume purchases. We expect the gross
margin to be smaller in the near future.
(4) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. THREE MONTHS ENDED
JUNE 30, 2001 and 2000. Selling, general and administrative expenses increased
to $1,068,061 for the three months ended June 30, 2001 as compared to $1,504,786
for the three months ended June 30, 2000. The decrease of $436,725 is primarily
the result of 500,000 shares of common stock valued at $1,125,000, issued to our
former Chief Executive Officer in consideration of the termination of his
employment agreement on June 30, 2000 and a consulting expense of $46,000.
During this period, our payroll costs increased by $188,000, professional fees
increased by $100,500, and commission fees increased to $77,000. During this
period, we had three transactions that resulted in non-cash expenditures by our
Company. A company controlled by one of our principal shareholders incurred
research and development costs on our behalf for the further development of our
Internet access hardware routers. In this connection, we recorded as a capital
contribution $127,736, which represents the actual costs incurred by this
company on our behalf, substantially consisting of technician salaries for
subcontractors located in Taiwan. We have no formal agreement with this company
and we are in the preliminary phase of evaluating the acquisition of this
company during the next 12 months. During the comparable period in 2000, our
Company did not incur any research and development costs, since we purchased
ready-to-sell finished goods inventory. In addition, our Company recorded an
increase in the charge of $20,500 in connection with the issuance of common
stock to our Chief Financial Officer to amortize his unearned compensation in
accordance with his employment agreement. Lastly, we issued 666,179 options to
consultants, recording a charge of $214,854. Our Company expects to increase its
selling, general and administrative in the future in proportion to our Company's
anticipated growth in sales.
SIX MONTHS ENDED JUNE 30, 2001 AND 2000. Selling, general and
administrative expenses decreased to $1,881,601 for the six months ended June
30, 2001 as compared to $2,035,544 for the six months ended June 30, 2000. The
decrease of $153,943 is primarily the result of 500,000 shares of common stock
valued at $1,125,000, issued to our former Chief Executive Officer in
consideration of the termination of his employment agreement on June 30, 2000, a
consulting expense of $139,000 and a penalty of $240,000 for the late filing of
our S-1 Registration Statement. Our payroll costs increased by $364,000,
professional fees increased by $209,000, commission fees increased to $115,000,
and rent and other office expenses decreased by $27,000. During this period, we
had three transactions that resulted in non-cash expenditures by our Company. A
company controlled by one of our principal shareholders incurred research and
development costs on our behalf for the further development of our Internet
access hardware routers. We recorded as a capital contribution $127,636, which
represents the actual costs incurred by this company on our behalf,
substantially consisting of technician salaries for subcontractors located in
Taiwan. We have no formal agreement with this company and we are in the
preliminary phase of evaluating the acquisition of this company during the next
12 months. During the comparable period in 2000, our Company did not incur any
research and development costs, since we purchased ready-to-sell finished goods
inventory. In addition, our Company recorded a charge of $125,000 in connection
with the issuance of common stock to our Chief Financial Officer to amortize his
unearned compensation in accordance with his employment agreement. Our Company
issued 126,000 shares of our common stock to a consultant for services and
recorded a noncash transaction of $88,591. Lastly, we issued 666,179 options to
consultants, recording a charge of $214,854. Our Company expects to increase its
selling, general and administrative in the future in proportion to our Company's
anticipated growth in sales.
LIQUIDITY AND CAPITAL RESOURCES.
Since inception, our Company has relied principally upon the proceeds
of private equity financings and loans to fund its working capital requirements
and capital expenditures. Our Company's net cash used in operating activities
for the six months ended June 30, 2001 was ($194,676), compared to cash used in
operating activities of ($109,040) for the six months ended June 30, 2000, a
decrease of $85,636. This decrease resulted from increases in our Company's net
loss, which included non-cash charges of (i) $124,998 for compensation in
connection with an employment agreement, (ii) $214,854 for compensation to
consultants with options, (iii) $127,636 for contributed research and
development services (iv) $88,591 for expenses paid by issuance of common stock
to a consultant and increases in receivables and inventories, offset by
11
increases in accounts payable, accrued professional fees and expenses, and due
to related party supplier. These increases resulted from the expansion of our
Company's operations.
Our Company's net cash provided by financing activities for the six
months period ended June 30, 2001 was $213,057 resulting from proceeds received
from the issuance of debentures. The company sold $255,000 debentures with net
proceeds of $213,040 after legal and consulting fees. Our Company's short-term
and long-term liquidity requirements are expected to result from working capital
needs to purchase inventory and pay other operating expenses. Although our
Company cannot accurately predict the precise timing of its future capital, we
estimate that we will need to expend approximately $2,000,000, within the next
twelve months. Our Company estimates that of that amount (i) $1,000,000 will be
for pre-assembled finished goods inventory from subcontractors, (ii) $250,000
for sales and marketing forces, (iii) $250,000 for professional fees and (iv)
$500,000 for other operating expenses, such as payroll, rent and office
expenses.
Our Company has no assured available financial resources to meet its
June 30, 2001 working capital deficit of $1,193,738 and future operating costs.
Our Company is seeking additional equity capital from private and
public offerings. There is no assurance that our Company will be able to raise
such additional capital during the next 12 months. If our Company is unable to
obtain the necessary additional capital, our Company may be required to change
its proposed business plan and decrease its planned operations, which could have
a material adverse effect upon its business, financial condition, or results of
operations.
The management of our Company has taken the following steps to improve
its cash flow:
(a) On January 31, 2001, our Company, entered into a Factoring
Agreement. The agreement expires on January 31, 2002 or until terminated by
either party with proper notice given as defined. Our Company has assigned
substantially all of its accounts receivable to the factor, typically on a
recourse basis. Our Company may request advances up to 75% of the eligible
receivables. The factor charges our Company a commission equal to .0667% per day
for each uncollected receivable from the invoice date to the payment date of
such invoice, plus interest on advanced funds equal to the greater of 10% or the
interest publicly announced by Citibank N. A., plus 2%.
(b) On March 19, 2001, we entered into an Equity Line of
Credit Agreement. Pursuant to the equity line of credit, an institutional
investor agreed, if requested by the Company, to purchase up to $5 million of
our debentures. The debentures are convertible into shares of our common stock
at a conversion price equal to a 20% discount of the market price of such stock,
as defined in the agreement. The timing of each sale and the number of
debentures to be sold is at our discretion, subject to various conditions,
including an effective registration of the conversion shares. The dollar amount
that our Company can request under any individual sale is subject to the average
trading volume of our common stock for the preceding 40-day trading period. The
maximum term of the equity line of credit is two years from the date of the
agreement.
The agreement contains various representations, warranties and
covenants by us, including limitations on our ability to sell common stock or
common stock equivalents, all assets, merge or enter into certain other
transactions. There were no amounts outstanding on the equity line of credit at
June 30, 2001.
(c) On March 19, 2001, our Company also entered into a
Securities Purchase Agreement with third-party investors and a Placement Agent
Agreement to provide up to $250,000 less certain fees and expenses of the
placement agent by the issuance of convertible debentures. The debentures bear
interest at 6% per year and convert into our Company's common stock. In
connection with the issuance of such debentures, the difference between the
conversion price and the fair value of the common stock to which the debentures
are convertible, multiplied by the number of shares into which the debt is
convertible at the issuance date of the debt are recorded as intrinsic value of
the beneficial conversion feature and charged to interest expense in our
Company's statement of operations. We recorded $76,819 of interest expense at
June 30, 2001. Through June 30, 2001, our Company issued debentures of $255,000
from which our Company received net proceeds of approximately $213,040. The
debenture holders are entitled to convert all or part of the principal amount
plus accrued interest into shares of our Company's common stock equal to either
(a) an amount equal to 120% of the closing bid price of our Company's common
stock as of the date of the debenture issuance or (b) an amount equal to 80% of
the lowest six closing bid prices of our Company's common stock for the 10 days
immediately preceding the date of conversion of the debenture. Our Company is
obligated to register the resale of the conversion shares under the Securities
Act of 1933, as amended. The debentures are subordinate and junior in right of
payment to all accounts payable of our Company incurred in the ordinary course
of business and/or bank debt of our Company not to exceed $250,000. Our Company
has the right to require the debenture holders to convert any unpaid principal
and accrued interest on the debentures upon the five-year anniversary of the
debenture issuance.
12
PART II
ITEM 1. LEGAL PROCEEDINGS
The officers and directors of our Company believe that to the best of
their knowledge, neither our Company nor any of its officers and Directors are
parties to any legal proceeding or litigation. Further, the officers and
directors know of no threatened or contemplated legal proceedings or litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between April and June 2001, our Company issued debentures of $255,000
from which our Company received net proceeds of aproximately $195,540. The
debenture holders are entitled to convert all or part of the principal amount
plus accrued interest into shares of our Company's common stock equal to either
(a) an amount equal to 120% of the closing bid price of our Company's common
stock as of the date of the debenture issuance or (b) an amount equal to 80% of
the lowest three closing bid prices of our Company's common stock for the 10
days immediately preceding the date of conversion of the debenture. Our Company
is obligated to register the resale of the conversion shares under the
Securities Act of 1933. The debentures are subordinate and junior in right of
payment to all accounts payable of our Company incurred in the ordinary course
of business and/or bank debt of our Company not to exceed $250,000. Our Company
has the right to require the debenture holders to convert any unpaid principal
and and accrued interest on the debentures upon the five-year anniversary of the
debenture issuance.
With respect to the sale of unregistered securities referenced above,
all transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the "1933 ACT"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding our Company so as to make an informed investment decision. More
specifically each purchaser signed a written subscription agreement with respect
to their financial status and investment sophistication in which they
represented and warranted, among other things, that they had:
o the ability to bear the economic risks of an investment in the shares
of common stock of our Company;
o a certain net worth sufficient to meet the suitability standards of
our Company; and
o been provided with all material information requested by the
purchaser or his or her representatives, and been provided an
opportunity to ask questions of and receive answers from our Company
concerning our Company and the terms of the offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
ITEM 5. EXHIBITS
The following documents are incorporated herein by reference from the
Registrant's Form S-1 Registration Statement filed with the Securities and
Exchange Commission (the "Commission"), Commission file #333-3074 on April 1,
1996 and declared effective by the Commission August 16, 1996:
NUMBER DOCUMENT
- ------ --------
3.1 Articles of Incorporation.
3.2 Amended Articles of Incorporation.
3.3 Bylaws of the Company.
4.1 Specimen certificate for Common Stock.
4.2 Specimen certificate for Class A Redeemable Warrants.
4.3 Specimen certificate for Class B Redeemable Warrants.
The following documents are incorporated herein by reference from the
Registrant's Form 10-K Annual Report for the period ended December 31, 1997:
99.1 Stock Purchase Agreement.
99.2 Employment Agreement with Fred Schmid.
The following documents are incorporated herein by reference from the
Registrant's Form 10-K Annual Report for the period ended December 31, 1998:
3.3 Amended Articles of Incorporation dated December 31, 1997.
3.4 Amended Articles of Incorporation dated April 15, 1998.
The following documents are incorporated herein by reference from the
Registrant's Post Effective Amendment 1 to Form S-1 Registration Statement filed
with the Commission, Commission file #333-3074 on June 17,1998 and declared
effective by the Commission June 19,1998:
3.3 Amended Articles of Incorporation dated December 31, 1997.
3.4 Amended Articles of Incorporation dated April 15, 1998.
The following documents are incorporated herein by reference
from the Registrant's Form 8-K Report filed on December 3,
1999:
2. Acquisition Agreement and Exhibits attached thereto.
The following documents are incorporated by reference from the
Registrant's Post-Effective Amendment 2 to Form S-1 Registration Statement filed
with the Commission, Commission file #333-3074 on April 3, 2000.
10.1 March 14, 2000, Consulting Agreement between Nexland S.A.
and the Company.
10.2 November 17, 1999, Mutual Non-Competition Agreement between
Nexland, S.A. and the Company.
10.3 November 17, 1999 Co-Operation Agreement between Smerwick,
Ltd. and the Company.
The following documents are incorporated by reference from the
Registrant's Form 8K filed with the Commission, Commission file #333-3074 on May
12, 2000.
10.4 Employment Contract of Enrique Dillon.
10.5 Employment Contract of Martin Dell'Oca.
14
The following documents are incorporated by reference from the
Registrant's Form 10-K filed with the Commission on May 14, 2001:
4.4 2000 Stock Incentive Plan
10.6 Promissory Note dated August 1, 2000, by the Company payable
to Israel D. Sultan
10.7 Conversion Agreement dated October 26, 2000, between Israel
D. Sultan and the Company.
10.8 Line of Credit Agreement dated March 19, 2001, between
Cornell Capital Partners, L.P. and the Company.
10.9 Registration Rights Agreement dated March 19, 2001, between
Cornell Capital Partners, L.P. and the Company.
10.10 Escrow Agreement dated March 19, 2001, between Cornell
Capital Partners, L.P., the Company, Butler Gonzalez LLP and
First Union National Bank.
10.11 Form of Convertible Debenture
10.12 Consulting Services Agreement dated March 19, 2001, between
Yorkville Advisors Management, L.L.C. and the Company.
10.13 Securities Purchase Agreement dated March 19, 2001, between
the investors on Schedule I attached thereto (the
"Investors") and the Company.
10.14 Registration Rights Agreement dated March 19, 2001, between
the Investors and the Company.
10.15 Placement Agent Agreement dated March 19, 2001, between May
Davis Group, Inc. ("May Davis") and the Company.
10.16 Escrow Agreement dated March 19, 2001, between May Davis,
the Company and First Union National Bank.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: AUGUST 10, 2001 NEXLAND, INC.
By: /s/ Martin Dell'Oca
-------------------------
Martin Dell'Oca