1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K-A #3
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
For the fiscal year ended December 31, 1999
Commission file number 333-3074
--------
Nexland, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 37-1356503
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1101 Brickell Avenue, Suite 200 North Tower, Miami, Florida 33131
------------------------------------------------------------------
(305) 358-7771
--------------
Registrant's telephone number, including area code
--------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of class: Common $0.0001 par value
------------------------
Title of class:
-------------------
Indicate by check mark whether the registrant (1) 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 (filed 12b-25) [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant was approximately $3,797,804.89 as of
May 18, 2000, based upon the closing price of $3.312 on the OTC:BB reported
on such date. Shares of common stock held by each executive officer and director
and by each person who beneficially owns more than 5% of the outstanding common
stock have been excluded in that such persons may under certain circumstances be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of May 18, 2000, there were 35,678,916 shares of the
Registrant's Common stock issued and outstanding. There were no shares of the
Registrant's Preferred stock outstanding.
2
NEXLAND, INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS........................................................................................1
PART I .........................................................................................................2
ITEM 1. BUSINESS.................................................................................................2
GENERAL..................................................................................................2
EXPLANATION AND BACKGROUND OF THE INTERNET...............................................................3
INTERNET ACCESS TECHNOLOGIES FACILITATE NEW APPLICATIONS.................................................4
THE BROADBAND MARKET - HIGH SPEED ACCESS.................................................................4
TODAY'S SMALL BUSINESS OFFICE INTERNET ACCESS ENVIRONMENT................................................5
THE SMALL OFFICE MARKET OPPORTUNITY FOR SHARED INTERNET
ACCESS SOLUTIONS.........................................................................................7
THE BENEFITS OUR PRODUCTS ARE DESIGNED TO PROVIDE........................................................7
A DESCRIPTION OF OUR PRODUCTS............................................................................8
BUSINESS STRATEGY.......................................................................................10
SALES AND MARKETING OVERVIEW............................................................................10
SALES STRATEGY..........................................................................................11
MARKETING STRATEGY......................................................................................11
EXPANSION STRATEGY......................................................................................12
COMPETITION.............................................................................................12
INTELLECTUAL PROPERTY...................................................................................14
EMPLOYEES...............................................................................................15
ITEM 2. PROPERTIES..............................................................................................15
ITEM 3. LEGAL PROCEEDINGS.......................................................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................16
PART II ........................................................................................................16
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS...................................................................................16
VOLATILITY AND FLUCTUATION OF OUR COMMON STOCK..........................................................16
DIVIDEND POLICY.........................................................................................17
ITEM 6. SELECTED FINANCIAL DATA.................................................................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION..............................................................................18
OVERVIEW................................................................................................18
REVERSE SPLIT...........................................................................................20
i
3
RESULTS OF OPERATIONS...................................................................................20
LIQUIDITY AND CAPITAL RESOURCES.........................................................................21
SOURCES OF CASH.........................................................................................21
CAPITAL EXPENDITURES....................................................................................22
GOING CONCERN QUALIFICATION.............................................................................22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.............................................................................................22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................................23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................................23
PART III ........................................................................................................23
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................................23
TERM OF OFFICE........................................................................................24
DIRECTOR AND KEY EMPLOYEE BACKGROUNDS.................................................................24
ITEM 11. EXECUTIVE COMPENSATION..................................................................................25
SUMMARY COMPENSATION TABLE..............................................................................25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..............................................................................................26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................28
PART IV ........................................................................................................30
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8....................................................30
SIGNATURES.......................................................................................................33
ii
4
FORWARD LOOKING STATEMENTS
Some of the information in this Form 10-KA contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," will," "expect,"
"anticipate," "believe," "estimate, and "continue," or similar words. You should
read statements that contain these words carefully because they: (i) discuss our
expectations about our future performance; (ii) contain projections of our
future operating results or of our future financial conditions: or (iii) state
other "forward-looking" information,. We believe it is important to communicate
our expectations to our investors. There may be events in the future, however,
that we are not accurately able to predict or over which we have no control. The
risk factors listed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as any
cautionary language in this form 10-KA provide examples of risks, uncertainties
and events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements.
1
5
PART I
ITEM 1. BUSINESS
GENERAL.
WindStar Resources, Inc., (before the name change to Nexland, Inc.)was
formed in Arizona on March 22, 1995, (under the name Turtleback Mountain Gold
Co., Inc.) to engage in the business of mineral exploration, and if warranted,
development and production, or the sale of precious minerals. WindStar failed to
achieve its goals and business objectives and in 1999 we concluded it was no
longer economical to continue as a public gold exploration mining company.
Nexland, Inc., was incorporated in Florida on December 4, 1994, but was inactive
until November 17, 1999 when it was acquired by us. Nexland LP, a Florida
limited partnership, formed on September 25, 1997, was an operating company
until November 15, 1999 when it assigned all of its partnership assets to
Nexland Fla. in exchange for 17,000 of the latter's common shares.
On November 17, 1999, we acquired Nexland Fla. in a reverse acquisition
transaction resulting in the change of our business from mining to computer
security equipment. We changed our name to "Nexland, Inc." on December 8, 1999.
We were incorporated as an Arizona company on March 22, 1995. As WindStar
Resources, we never owned an operating mine and, prior to the Nexland Fla.
acquisition, had no other revenue-producing mining activities. Since our merger
with Nexland Fla.,
2
6
we have become a supplier of hardware routers and Internet firewall devices and
have shed all connection with the mining business.
Our Internet Sharing Box product line allows multiple users on a local
area network to simultaneously share the same Internet connection while
optimizing each user's access speed and providing firewall security. Our
Internet Sharing Box product line is intended to support multiple operating
systems such as Windows, Macintosh, UNIX and Linux, among others. Our products
are designed to be compatible with existing telephone and data connection lines,
as well as integrated services digital networks and emerging access technologies
such as digital subscriber lines and cable modem connections. An integrated
services digital network is an international telecommunications standard for
providing digital service from the customer's premises to the dial-up telephone
network. A digital subscriber line is a type of technology that increases the
digital capacity of ordinary telephone lines into a home or office. Digital
subscriber line speeds are tied to the distance between the customer and the
telephone company. Our products enable multiple users to securely access the
Internet simultaneously through either regular telephone lines, slow speed data
connections, or highspeed digital connections. We primarily market and sell our
products through North American based Internet service providers, value-added
resellers, and telephone companies; however, in the past, we have had minor
sales to direct end-users. As of year end 1999, we had made sales to over 100
customers.
EXPLANATION AND BACKGROUND OF THE INTERNET.
The Internet is a global collection of interconnected computer networks
that transmit any combination of voice, video and/or data between users. The
Internet allows commercial organizations, educational institutions, government
agencies, and individuals to communicate electronically, access and share
information, and conduct business. As businesses have begun to use e-mail, file
transfer and area networks, commercial usage has become a major component of
Internet traffic.
In the mid-1990s, Internet service providers began to offer access,
e-mail, customized content, and other specialized services and products aimed at
allowing both commercial and residential customers to obtain and transmit
information, as well as access other available resources on the Internet.
The emergence of the Web, which is the graphical, multimedia
environment of the Internet, has resulted in the development of the Internet as
a new mass communication medium. The Internet has experienced rapid growth in
recent years as evidenced by the volume of Internet traffic and the increase in
the number of Internet users, Web sites and Internet-based applications. In
addition, there has been a proliferation of Internet-based services, including:
o chat rooms;
o online magazines;
o news feeds;
o interactive games;
o educational and entertainment information;
o development of online communities; and
o virtual private networking.
3
7
This rapid growth is expected to continue as businesses increasingly
use the Internet to access and share information and to interact with a large
number of geographically dispersed consumers and business partners. Furthermore,
an Internet-based economy is emerging as more businesses use the Internet to
sell products and services, implement electronic commerce initiatives and
utilize new generations of Internet-enabled business applications.
In our opinion, participation in this emerging Internet-based economy
and realization of the benefits and efficiencies facilitated by new
Internet-enabled business applications are becoming increasingly important for
the small business office market as well as the internet service providers and
telephone companies which provide internet service to them. The small
business office market includes small businesses, home offices and remote
offices. We believe the Internet allows these businesses to communicate more
effectively with their suppliers and customers and to access and share critical
business information both internally and externally. Overall, we believe the
Internet and the business applications enabled by the Internet present
tremendous opportunities for businesses to improve communications, collaborate
with partners, suppliers and customers, perform important processes online and
realize cost and operational efficiencies that may position them to compete more
effectively with organizations that have greater resources and market presence.
(A) Internet Access Technologies Facilitate New Applications. Analog
dial-up modems, which utilize regular telephone lines and data connections,
currently represent the most widely utilized method of accessing the Internet.
While many markets worldwide will continue to depend on these slower speed
Internet access technologies, new high-speed and high transmission capacity
Internet access technologies such as digital subscriber lines and cable modems
have emerged in recent years.
(B) The Broadband Market - High Speed Access. At present, integrated
services digital networks are rapidly becoming available in the United States as
a method to transmit more data over existing telephone lines. Integrated
services digital networks are, in most markets, priced comparably to standard
analog telephone circuits. These networks transmit data at greater speeds than
the analog dial-up modems. However, new emerging access technologies offer
greater transmission capacity, provide much faster access speeds and enable a
variety of new data intensive, multimedia and graphical applications. These
broadband markets include:
o Digital Subscriber Line, is a method for moving data over
existing copper telephone lines, but at a much faster
rate than a regular telephone connection;
o Interactive Cable allows for communication across cable
infrastructure,
4
8
cable modems, and cable modem termination centers;
o Wireless Transmissions are movements of packets of information
over airwaves.
As these access technologies become more affordable and widely
available, we believe they will present increasingly attractive alternatives for
satisfying the Internet access requirements of small business offices.
In addition, we believe the small business office environment will
experience an even greater need to access the Internet via these emerging
technologies as new generations of business applications emerge that larger
competitors will be able to access through relatively expensive, dedicated
high-speed leased lines. Furthermore, the higher cost of digital subscriber
lines and cable modem access technologies compared to analog technologies will
increase the need of small business offices to utilize shared Internet access
solutions that enable costs to be allocated across a greater number of users.
(C) Today's Small Business Office Internet Access Environment.
Worldwide, there is an increasing demand for broadband access services. The
Internet is becoming increasingly popular to consumers for conducting business
and personal pursuits. Consequently, these consumers are seeking high-speed,
low-cost solutions that enable them to benefit from advances in data transfer
speed.
o Shared Access. Many small business offices have addressed the
Internet access problem by installing a single dedicated
computer that is connected to the Internet via a modem, an
analog telephone line, and a single Internet
5
9
service account shared by all users in the office. This
approach is inefficient because it requires users to wait in
line until the Internet terminal becomes available. In
addition, productivity is often reduced since many users fail
to access the Internet because it is not conveniently
accessible from their individual workplaces. As an
alternative, some small business offices have added additional
modems, analog phone lines and Internet service accounts for
each employee requiring Internet access. However, maintaining
separate Internet connections for each user is costly and
difficult to manage. Moreover, neither of these solutions
enable shared Internet access among multiple users.
o Ease of Installation and Use. In our opinion, most small
business offices lack in-house information technology
personnel, as well as sufficient resources to hire outside
consultants to implement and maintain complex Internet access
solutions. Therefore, small business offices require Internet
access solutions that are easy to install, use, maintain and
upgrade.
o Affordability. Small business offices are often subject to
budgetary constraints. Therefore, the networking solutions
that have been widely adopted by larger organizations to
accommodate shared access often are prohibitively expensive
for small business offices.
o Expandability and Compatibility. We believe small business
offices need Internet access solutions that accommodate their
current requirements and that can be expanded to accommodate
additional users as their businesses grow. In addition, many
small business offices seek solutions that meet these needs
without having to replace existing systems, invest significant
capital in upgrades or employ in-house information technology
personnel. Many small business offices have already made
significant investments in computer hardware, modems, and
software, and utilize widely available analog access
technologies. As a result, these small business offices
require Internet access solutions that are compatible with
existing hardware and software and flexible enough to support
analog access technologies, as well as emerging high-speed
access technologies.
6
10
In order to more fully participate in the evolving uses of the
Internet, we believe the small business office market will require easy-to-use,
affordable and expandable products that enable shared Internet access by
multiple users and that support a full range of existing and emerging
Internet-enabled applications and services.
THE BENEFITS OUR PRODUCTS ARE DESIGNED TO PROVIDE. Our products are
designed to provide a secure, shared Internet access solution. Our solution
allows multiple users in an office, workplace or home to simultaneously share
the same Internet connection. Our products are designed to support multiple
operating systems such as Windows, Macintosh, UNIX and Linux, while providing
network security during the delivery and receipt of Internet data packets.
Our products are designed to be compatible with traditional telephone
and data connections that operate at slow speeds, and high-speed technologies,
including integrated services digital networks, digital subscriber lines and
cable modems. In addition, our products extend the benefits of analog technology
by enabling multiple users to access the Internet simultaneously through regular
telephone lines and analog modems at up to 30 times the access speed of a single
analog connection. Our products offer the following key benefits:
o Efficient Shared Internet Access. The Internet Sharing Box product line
enables an entire office to share information, use e-mail, and access
the Internet independent of the access technology utilized. Multiple
users in an office can share a single Internet connection and internet
service provider account.
o Ease of Installation and Use. We deliver a shared Internet access
solution. To facilitate easy installation, the Internet Sharing Box
product package contains step-by-step installation instructions and
easy-to-follow diagrams and illustrations for a variety of network
environments. Users can determine whether their computers are
appropriately configured to connect to the product. Our integrated
firmware, which is a category of memory chips that hold their content
without electrical power and is sometimes referred to as "hard
software", provides a single screen configuration to connect the entire
office to the Internet. Our products work within most existing
environments and operating systems, such as Windows, Macintosh, UNIX
and Linux.
7
11
o High-Speed Access. Our Internet Sharing Box product line supports all
major Internet access technologies used by offices, including
traditional telephone and data connections, integrated services digital
networks, digital subscriber lines, and cable and wireless connections.
o Low Cost of Ownership. The Internet Sharing Box product line is
designed to minimize installation, maintenance, and Internet access
expenditures by enabling multiple users in an office to share a single
Internet connection and Internet service provider account. In addition,
the ease of installation and use of the Internet Sharing Box product
line enables small business offices to avoid hiring in-house
information technology personnel that might otherwise be required to
implement and maintain an effective Internet access solution.
o Expandability and Compatibility. The Internet Sharing Box product line
is designed to be compatible with most widely-used computers, software,
modems, and terminal adapters such as those by 3com, CISCO and Alcatel.
This broad compatibility enables most offices to leverage prior
technology investments by utilizing our products with hardware and
software that have already been installed while providing the office
the flexibility to expand Internet access as their needs require.
o Firewall Protection. Our Internet Sharing Box products provide firewall
security among shared users. A firewall is a method for keeping a
network secure. They are also used to keep internal network traffic
secure.
o Virtual Private Network. This name usually refers to a network in which
some of the parts are connected using the public Internet, but the data
is transmitted in encrypted form, thus making the network "virtually
private." This function is supported by our ISB2LAN product.
A DESCRIPTION OF OUR PRODUCTS. Our primary product line is the Internet
Sharing Box (ISB) series. The ISB products include the ISB100e, the ISB2LAN
Cable/xDSL Internet Sharing Box and the ISB2LAN-H4 Cable/xDSL Internet Sharing
Box. The ISB products are hardware routers that allow users connected on an
ethernet local area network, to share Internet access at the same time using
only one modem, one telephone line or cable connection, and one Internet access
account. In addition, the ISB series of products are a "firewall," providing
network security. The ISB products are compatible with personal computers or PC,
Macintosh, UNIX, NT,
8
12
Linux computers or any computer that uses a transmission control
protocol/Internet protocol (TCP/IP) browser interface.
From the simple single port ISB100e, to the powerful cable/digital
subscriber line supporting ISB2LAN and ISB2LAN-H4, we have an Internet sharing
box for most internet connections, from a home office with three or four PCS to
the office with up to 250 PCS. The Internet connection utilized by the company
will determine the choice of the product.
All of the ISB products allow simultaneous and independent Internet
access for all users on a network, as well as firewall security protection to
prevent any unwanted access to the local network.
o ISB100e -- One serial port connection for use with any external analog
or integrated services digital network modem up to a maximum transfer
rate of 230k. Expanded features include modem sharing, fax sharing,
remote access capability and virtual private network functionality.
o ISB2LAN and ISB2LAN-H4 -- Designed specifically for shared Internet
access, the ISB2LAN and ISB2LAN-H4 features step-by-step
installation and configuration. The unit connects to a cable or digital
subscriber line modem through an ethernet connection to accommodate
high-speed data transmission. An ethernet connection is a shared media
LAN (Local Area Network) where all stations share the total bandwidth,
which is either 10 Mbps (Ethernet) or 100 Mbps (Fast Ethernet).
Ethernet was invented by XEROX in 1973. The ISB2LAN-H4 comes with an
integrated 4-Port Hub, which is a device used to connect computers
together and create a Local Area Network (LAN).
9
13
BUSINESS STRATEGY. Our mission is to become a recognized provider of
Internet sharing and firewall security devices. We believe that in order to
accomplish our mission we need to be successful in completing the following
tasks:
o Satisfy Customers. We believe that the Internet access solutions
currently offered by most personal computing and networking vendors
continue to be technically complex and generally unable to satisfy the
unique requirements of the work-at-home employee, telecommuter, or home
office users. Therefore, we believe the opportunity in these markets
are significant and we intend to continue to focus our product
development efforts, distribution strategies and support services to
satisfy the specific requirements of these market segments.
o Continuing to Integrate Emerging Access Technologies into Our Products.
Our products are designed to support most major Internet access
technologies used by consumers. We believe our strategy of developing
products that are capable of being expanded will enable our current and
future customers to benefit from the deployment of emerging high-speed
transmission technologies. Further, we believe emerging high-speed
transmission technologies will increase the demand in offices for
shared Internet access solutions. Therefore, we intend to support the
commercialization of new high-speed transmission technologies by
pursuing partnering relationships with high-speed transmission
technology providers while continuing to penetrate the existing market
for our traditional telephone and data connection products.
o Develop Strategic Alliances. In order to be apprised of industry
trends, to be compatible with emerging technologies, and to be
recognized as a technologically savvy company, we have entered into
strategic alliances with various industry leaders, including Bell
Canada, Alaska Phone Company and Motorola.
SALES AND MARKETING OVERVIEW. Because of our limited working capital
we have not had the resources to fully implement a marketing and sales force. In
order to increase our revenues, we will have to develop a marketing and sales
force with technical expertise and marketing capability. We anticipate that our
future sales staff will be employed both on an independent contractor basis and
as in-house employees.
10
14
We believe that the principal competitive factors for companies seeking
to use our type of products are product reliability and customer service.
We are developing our customer base through an active sales and
marketing campaign, primarily centered on building relationships with Internet
service providers and telephone companies. At present, we are concentrating our
efforts in North America.
We intend to focus on increasing our corporate enterprise and telephone
company relationships. Unlike many of our competitors who target distributors
and retailers, our strategy is to target internet service providers and
telephone companies. We believe these entities can target our ultimate consumer,
the small business office and home user. We believe that this approach will be
more efficient and less expensive than if we only use direct marketing or market
our products through value-added resellers and distributors.
(A) Sales Strategy
Currently, we rely primarily on direct sales to generate new customers
and to maintain relationships with existing customers. We have six sales
representatives. As our capacity and operations grow we anticipate hiring
regional sales engineers and a Vice-President of Marketing and Sales to build a
quality in-house direct sales force.
(B) Marketing Strategy
We plan to utilize a variety of marketing techniques to generate
awareness and inquiries.
o Magazine/Professional Journal/Newspaper Advertisement. We plan to
advertise in major telecommunications and Internet magazines throughout
the country using postcard inserts and other mail-in techniques to
foster inquiries and to solicit sales.
11
15
o Website. We have a website (www.Nexland.com) where information about
our company and our services can be obtained. Users can also e-mail a
request for contact by one of our sales representatives at
Sales@Nexland.com. Interested parties can also call a toll-free number
(888-NEX-5264)and request informational literature to be sent to them.
o Website Banner Advertising. We currently utilize banner advertising on
selected websites such as Microsoft LinkExchange, Practically Networked
and Carrick Solutions.
(C) Expansion Strategy.
Our expansion strategy primarily consists of the following steps:
o Introduce New Products and Services. Our objective is to become a
recognized provider of secured, shared Internet access. We realize that
in order to achieve this, we must be innovative in our product design
and functionality. In addition, we must continue to establish strategic
relationships.
COMPETITION. We compete in several different markets, each having its
own growth potential, expectations, customer base, and competitors. Some of our
competitors are affiliated with major international companies and, as a
result, are well financed and present a formidable challenge. We cannot be
certain that we will be able to compete with significant pricing pressure by our
competitors.
12
16
Our current and potential competitors offer a variety of competitive
products, including shared Internet access devices such as the products offered
by Linksys, Netopia and SMC, and networking equipment such as
routers and switches offered by companies such as Cisco, 3Com, Nortel
and Intel.
Many of our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, and
manufacturing resources, as well as more established distribution channels.
These competitors may be able to respond more rapidly to emerging technologies
and changes in customer requirements, as well as devote greater resources to the
development, promotion and sale of their products. Furthermore, some of our
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties to increase their ability
to rapidly gain market share. Our competitors may enter our existing or future
markets with solutions that may be less expensive, provide higher performance
and additional features or be introduced earlier than our solutions. Given the
market opportunity in the shared Internet access market, we also expect that
other competing companies may enter our market with better products and
technologies. If any technology is more reliable, faster, less expensive or has
other advantages over our technology, then the demand for our products could
decrease, which could seriously harm our business.
We expect our competitors to continue to improve the performance of
their current products and introduce new products and technologies as industry
standards and customer requirements evolve. These new products and technologies
may supplant or provide lower cost alternatives to our products. Successful
new product introductions or enhancements by our competitors could reduce the
sales or market acceptance of our products and services, perpetuate intense
price competition or make our products obsolete. To be competitive, we must
invest in research and development, sales and marketing, and customer support.
We cannot be sure that we will have sufficient resources to make such
investments or that we will be able to make the technological advances necessary
to be competitive. As a result, we may not be able to compete effectively
against our competitors. Our failure to maintain and enhance our competitive
position within the market may seriously harm our business. Increased
competition is likely to result in price reductions, reduced gross margins, and
longer sales cycles, any of which would seriously harm our business. We cannot
be certain that we will be able to compete successfully against current or
future competitors or that competitive pressures will not seriously harm our
business.
Our competitors in the Internet sharing box market are as follows:
o Cayman Systems;
o Sonic Wall;
o Netopia;
o Linksys;
o Nortel;
13
17
o Macsense; and
o UMAX.
On November 17, 1999, we entered into a Mutual Non-Competition
Agreement with Nexland, S.A. a French corporation, owned by several of our
affiliates. We have an option to purchase Nexland France under the following
terms:
o a five year non-competition period;
o Nexland France shall have exclusive sales rights to Europe;
o we shall have exclusive sales and marketing rights to the rest
of the world;
o if either party sells into the other's territory, the sales
contracts shall be assigned to the other party, and the
assignee shall pay the assignor 20% of the gross value of the
contract; and
o the option is exercisable any time prior to November 16, 2004
at a price to be determined by a French accounting firm.
INTELLECTUAL PROPERTY. We rely and intend to rely on a combination of
patent, copyright, trademark and trade secret laws and restrictions on
disclosure to protect our intellectual property rights. We have one patent
pending relating to technology incorporated in our Internet Sharing Box product
line, consisting of an algorithm that allows the virtual private network
encrypted protocol to pass through our network address translation routers, thus
securing the communication from unintended third parties. In addition, we design
and implement proprietary coded "firmware" which is designed to make the
Internet Sharing Box products function.
We also intend to enter into confidentiality agreements with our
employees and consultants, and control access to and distribution of our
documentation and other proprietary information. We cannot assure you that
others will not independently develop similar or competing technology. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
14
18
to copy or otherwise obtain and use our products or technology. We cannot assure
you that these precautions will prevent misappropriation or infringement of our
intellectual property. Monitoring unauthorized use of our products is difficult,
and we cannot assure you that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
Our industry is characterized by the existence of a large number of
patents and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the data
communications and networking markets have extensive patent portfolios with
respect to modem and networking technology. From time to time, third parties,
including these leading companies, have asserted and may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related standards that are important to us. We expect that we
may increasingly be subject to infringement claims as the number of products and
competitors in the small business office market for shared Internet access
solutions increase and the functionality of products overlaps. In addition, we
cannot assure you that third parties will not assert additional claims or
initiate litigation against us or our manufacturers, suppliers or customers
alleging infringement of their proprietary rights with respect to our existing
or future products. We may in the future initiate claims or litigation against
third parties for infringement of our proprietary rights to determine the scope
and validity of our proprietary rights. Any such claims, with or without merit,
could be time-consuming, result in costly litigation and diversion of technical
and management personnel, or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all. In
the event of a successful claim of infringement and our failure or inability to
develop non-infringing technology or license the proprietary rights on a timely
basis, our business, operating results and financial condition could be
materially adversely affected.
EMPLOYEES. As of May, 2000, we employed eight (8) persons, including
four in operations, two in sales and marketing, and two in customer support. We
also employ a number of commissioned sales representatives. None of our
employees is represented by a labor union and we have experienced no work
stoppages to date. We believe our employee relations are good.
ITEM 2. PROPERTIES
As of April 2000, we lease offices located at 1101 Brickell Avenue, 2nd
Floor North Tower, Miami, Florida 33131 consisting of 15,000 square feet of
corporate office space for $8,000 per month plus tax.
ITEM 3. LEGAL PROCEEDINGS
None.
15
19
Further, the Officers and Directors know of no threatened or contemplated legal
proceedings or litigation. None of the Officers and Directors have been
convicted of a felony or none have been convicted of any criminal offense,
felony and misdemeanor relating to securities or performance in corporate
office. To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities investigations
are either pending or threatened at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our security holders
during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ over-the-counter bulletin
board market under the symbol "XLND." There has been trading in our common stock
since December 23, 1999.
The following table sets forth, for each of the fiscal periods
indicated, the high and low bid prices for the common stock, as reported on the
OTC Bulletin Board. These per share quotations reflect inter-dealer prices in
the over-the-counter market without real mark-up, markdown, or commissions and
may not necessarily represent actual transactions.
QUARTER ENDING HIGH/BID LOW/BID
FISCAL YEAR 1999
December 1999 $7.125 $4.00
On May 18, 2000, the closing trade price of the common stock as
reported on the OTC Bulletin Board was $3.312. As of such date, there were
approximately 394 holders of record of our common stock.
VOLATILITY AND FLUCTUATION OF OUR COMMON STOCK. The price of our common
stock is highly volatile, as is the price of common stock of networking and
telecommunication companies in general. During the period from December 23, 1999
to March 27, 2000, the bid and ask price of our common stock has ranged from a
high of $8.00 to a low of $4.00. This volatility may negatively impact the
liquidity and value of your shares. The market price of our common stock could
continue to fluctuate substantially due to a variety of factors, including:
o The number of shares in the market at the time as well as the
number of shares we may be required to issue in the future,
compared to the market demand for our shares.
o The Company's performance, including whether or not we meet
our projections.
16
20
o General economic and market conditions.
o Quarterly fluctuations in results of operations.
o The commencement of or major developments in litigation.
o Announcement of new products or services and key developments
by competitors.
o Announcement and consummation of acquisitions
o Changes in earnings estimates by analysts.
o Press coverage of favorable or unfavorable developments in our
business.
o Loss of key personnel.
o Changes in accounting principles or policies.
o Sales of common stock by existing stockholders.
o Economic and political conditions.
The market price for our common stock may also be affected by our
inability to meet analysts' expectations. Any failure to meet these
expectations, even slightly, could have an adverse effect on the market price of
our common stock.
In addition, the market prices of securities issued by many companies
may change for reasons unrelated to the operating performance of these
companies.
Following periods of volatility in the market price of other companies'
securities, class action securities litigation has often been instituted. If
similar litigation were instituted against us, it could result in substantial
costs and a diversion of our management's attention and resources, which could
have an adverse effect on our business.
DIVIDEND POLICY. We have not declared or paid cash dividends on our
common stock. We currently intend to retain all of our earnings, if any, for use
in our business and do not anticipate paying any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of our Board of Directors, and will depend upon a number of factors,
including future earnings, the success of our business activities, capital
requirements, the general financial condition and future prospects of our
business, general business conditions and such other factors as the Board of
Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from our
financial statements, which have been examined by Williams & Webster, Certified
Public Accountants found at the end of this report. You should read the
information in conjunction with all other financial information and analysis in
this report. Please don't assume that the results below indicate results we'll
achieve in the future, that we will ever have material revenues or that our
operations will be profitable.
17
21
Balance Sheet Data
1997(1) 1998(1) 1999(1)
---- -------- -------
Current Assets.................................. $ 9,540 $ 7,666 $ 139,295
Total Assets.................................... 14,776 11,906 147,250
Current Liabilities............................. 200 10,096 269,553
Long-term debt.................................. -0- 87,136 201,917
Stockholders' Equity (deficit) (2)............ 14,576 (85,326) (324,220)
Total Liabilities
& Stockholders' Equity...................... 14,776 11,906 147,250
Net Tangible Book Value Per Share (3)........... Nil Nil Nil
Statement of Operations
1997 1998 1999
----- ---- ----
Revenues ....................................... $ -0- $ -0- $ 263,338
Cost of Revenues................................ -0- -0- 129,311
Operating Expenses ............................. 53,324 99,902 263,664
Net Income (Loss)............................... (53,324) (99,902) (131,343)
Net Income (Loss) per share(3).................. Nil Nil Nil
Balance Sheet Data:
Working Capital (deficit)..................... $ 9,340 (2,430) (130,258)
Total Assets ................................. 14,776 11,906 147,250
Long-term Debt................................ -0- 87,136 201,917
Stockholders' equity (deficit)................ 14,776 (85,326) (324,220)
(1) Includes the financial information of Nexland LP, the predecessor
organization until November 15, 1999. From August 1997 to November 15, 1999, all
of the operations were conducted through Nexland LP. Nexland Fla. was dormant
during that period.
(2) For 1997 and 1998, Stockholder's Equity is actually partners capital of
Nexland LP and the equity of Nexland Fla.
(3) In the acquisition of Nexland LP and Nexland Fla., the allocated 29,500,000
shares for the interests of the partners in the partnership and the original
shares by Nexland Fla., are used as the net stock outstanding. For 1997 and
1998, these shares are considered as outstanding for purposes of comparison.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW. The following is a discussion of our results of operations
and our liquidity and capital resources. The Company sells Internet access
"hardware routers" for home and small office users. Our products allow multiple
users in an office or home to share one Internet connection simultaneously while
optimizing each user's access speed, and providing a secure firewall (shield
from outside intrusion). Our products support existing telephone lines, as well
as emerging access technologies such as DSL (Digital Subscriber Line) and cable
modems (faster than phone connections).
18
22
RESULTS OF OPERATIONS. The discussion of our historical results set
forth below addresses our historical results of operations for the fiscal year
ended December 31, 1999, as compared to the fiscal year ended December 31, 1998.
The Company had no significant operations until November 17,1999, when the
Company acquired Nexland Inc. (Florida) in a reverse acquisition merger. The
predecessor companies, Nexland LP and Nexland, Inc. (Florida) for 1998 and part
of 1999 are included in the historical comparison.
For Years Ending December 31, 1999 and 1998:
(1) Revenues. For the year ended December 31, 1999, the
Company had $263,338 in revenue consisting of sales of 750
units of shared Internet access "hardware routers" for home
and small office users. Actual product sales did not begin
until January 1999; therefore, there are no comparable sales
in 1998.
(2) Cost of Sales. Cost of sales for the year ended December
31, 1999 was $129,311. Cost of sales consisted of the purchase
price and in-bound freight of pre-assembled finished goods
inventory from subcontractors in Taiwan, Republic of China.
Actual sales did not begin until January 1999; therefore,
there are no cost of sales for 1998. As our sales increase,
the Company expects its cost of sales to also increase.
(3) Gross Profit. The gross profit of the Company's products
was approximately 51% during 1999. The Company expects pricing
pressures from its competition, but will attempt to lower its
product cost by volume purchases as sales increase.
(4) Expenses.
Advertising. Advertising expense for the year ended December
31, 1999 was $10,364 as compared to $3,354 for 1998. The
increase of $7,010 represents the additional advertising used
to promote sales in 1999. The medium the Company used was
banner advertising and print advertisements. In order to grow
the Company's sales the Company expects to increase
advertising costs.
19
23
Professional Services. Professional services for the year
ended December 31, 1999 was $35,512 as compared to $42,814 for
1998. The decrease of $7,302 resulted from reduced
professional services.
Selling and Administrative. Selling and administrative
expenses for the year ended December 31, 1999 was $217,788 as
compared to $53,734 for 1998. The increase of $164,054
consisted of increases in salaries, resulting from hiring new
personnel of approximately $115,909, including casual labor,
postage of approximately $6,000, consulting of approximately
$6,000, rent of approximately $11,454, office supplies of
approximately $4,342, telephone expense of approximately $535,
travel of approximately $3,774 and other office expenses of
approximately $16,000. As the Company's sales increase the
Company expects to increase our selling and administrative
costs.
LIQUIDITY AND CAPITAL RESOURCES.
Since inception, the Company has relied principally upon the proceeds
of private equity financings and loans to fund its working capital requirements
and capital expenditures. The Company has generated only minimal revenues from
operations to date.
Net cash used by operating activities for 1999 was $106,817 compared to
$96,121 for 1998, an increase of $10,696. This increase results from an increase
in the Company's net loss and receivables and inventories offset by increases in
accounts payable and accrued expenses. These increases result from the expansion
of the Company's operations. The Company's net cash provided by financing
activities increased by approximately $28,000 consisting of a loan from a
principal stockholder of the Company.
The 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, the Company cannot accurately predict the
precise timing of its future capital needs, the Company estimates that it will
20
24
need to expend approximately $2,000,000 within the next twelve months. The
Company estimates that of that amount (i) $1,000,000 will be for purchases of
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.
The Company has no assured available financial resources to meet its
December 31, 1999 working capital deficit of $130,258 and expected future
operating costs.
The Company is seeking additional equity capital from private and
public offerings. There is no assurance, that the Company will be able to raise
such additional capital during the next twelve months. If the Company is unable
to obtain necessary additional capital, the Company will be required to change
its proposed business plan and decrease planned operations, which could have a
material adverse effect upon its business, financial condition, or results of
operations. Until such time as the Company has sufficient operating capital, the
Company's liquidity position is not expected to improve.
Although, the Company may be able to raise additional capital through
the exercise of the Class A and Class B Warrants for shares of common stock,
there is no assurance, that the Company will be able to raise such additional
capital.
21
25
GOING CONCERN QUALIFICATION
The Company's auditors stated that the financial statements of the
Company for the year ended December 31, 1999 were prepared on the going-concern
basis. For the year ended December 31, 1999, the Company incurred net annual
loss of $131,343, and the Company had an accumulated deficit of $327,630. These
losses raise substantial doubt about the ability of the Company to continue as a
going concern. Management believes that resources will be available from private
and public sources in 2000 to continue the marketing of its 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 the Company
cannot continue in existence.
Management has established plans to increase the sales of the Company's
products. Management intends to seek new capital from new equity securities
offerings that will provide funds needed to increase liquidity, fund growth and
implement its business plan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange Rate Sensitivity
Currently, the majority of our sales and expenses are denominated in
U.S. dollars and as a result, we have experienced no significant foreign
exchange gains and losses to date. While we have conducted some transactions in
foreign currencies during the year ended December 31, 1999 and expect to
continue to do so, we do not anticipate that foreign exchange gains or losses
will be
22
26
significant. We have not engaged in foreign currency hedging activities to date,
however, we may do so in the future
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Williams & Webster, P.S. report on our financial statements has not
contained an adverse opinion or disclaimer of opinion or was qualified or
modified, as to uncertainty, audit, scope, or accounting principals. The
decision to change accountants was not recommended or approved by any audit
committee or similar committee of the Board of Directors or by the Board of
Directors. During the two most recent fiscal years and during any subsequent
interim periods preceding the decision, there were no disagreements with
Williams & Webster, P.S. on any manner of accounting of principals or practice,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Williams & Webster, P.S.,
would have caused it to make a reference to the subject matter of the
disagreements in connection with its report. The reason for the decision is
that our business and administration is located in Miami, Florida, as opposed to
Spokane, Washington, and as such we engaged the accounting firm and consulting
firm of BDO Seidman, LLP to serve as our independent accountants an prepare the
audited statements for the upcoming fiscal year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each
Officer and Director of the Company:
Name Age Position Term
- ---- --- -------- ----
Gregory S. Levine 33 President/ Chairman of 1999-2000
the Board of Directors
Richard G. Steeves 60 Secretary and Director 1999-2000
Enrique Dillon 38 Chief Executive Officer 2000
Martin E. Dell'Oca 38 Chief Financial Officer 2000
and Director
23
27
(A) Term of Office
The terms of office of the current directors continue until the annual
meeting of stockholders, which the Bylaws provide shall be held on the third
Friday of November of each year; officers are elected at the annual meeting of
the board of directors, which immediately follows the annual meeting of
stockholders. No annual meeting was held during the past year.
(B) Director and Key Employee Backgrounds
Gregory Scott Levine, 33, President and Board Chairman, received his
Bachelor of Arts Degree in Speech Communication and English Writing from the
University of Florida 1989. In 1991, Mr. Levine entered the computer industry by
taking the Purchasing Manager position with All Exim, Miami, Florida, where he
was employed until 1995. In 1995 to 1997, Mr. Levine worked as a consultant In
1997, Mr. Levine was hired as the Business Unit Manager for Mass Storage and
Components for Computer 2000/AmeriQuest Technologies where he supervised the
business unit and was associated with the development of the OEM Memory Broker
Desk. In 1998, when C2000 sold AmeriQuest, Mr. Levine opened his own consulting
firm, the HG America Group, Inc. It served major industry telephone companies
(AT&T, GTE, Bell Atlantic) with internet sharing and firewall products. Mr.
Levine operated HG America Group, Inc. until he joined Nexland in December,
1998. None of Mr. Levine's prior employers are affiliated with the Company.
Richard George Steeves, 60, was Secretary and a member of the Board of
Directors. Mr. Steeves was a member of our Board of Directors since
November 1996 and from 1997 to 1999, was our Treasurer and Chief Financial
Officer. Since August 1994, Mr. Steeves has been the President and a member of
the Board of Directors of JOHSTE, Inc., an Illinois corporation. JOHSTE, Inc.
consults with companies on business management. Since April 1993, Mr. Steeves
has been the President and a member of the Board of Directors of Sandaz
Corporation, a Nevada corporation. Sandaz Corporation is a natural resources
company. Since April 1993, Mr. Steeves has been the President and a member of
the Board of Directors of RGS Services, Inc., an Illinois corporation. RGS
Services, Inc. consults with companies on business management, transportation
and taxes. Mr. Steeves received a B.A. from Hampton Institute, Hampton,
Virginia. None of Mr. Steeves' prior employers are affiliated with the Company.
On July 14, 2000, Mr. Steeves resigned as Secretary and as a member of the Board
of Directors of the Company.
Enrique Dillon, 38, was Chief Executive Officer. Prior to joining
Nexland, Inc., from 1998 to April 2000, Mr. Dillon was engaged as President of
Big Blue, Inc., a consultant in the management and technology field for Latin
America. Mr, Dillon served as President and Chief Executive Officer of Dinexim
Corp. from 1995 to 1998. On June 30, 2000, Mr. Dillon resigned as Chief
Executive Officer and as a member of the Board of Directors of the Company.
Martin E. Dell'Oca, 38, became Chief Financial Officer and a member of
the Board of Directors of Nexland, Inc. in May 2000. From May 1998 to May 2000,
Mr. Dell'Oca served as Chief Financial Officer of CHS Dinexim after Dinexim was
sold to CHS. From 1995 to May 1998, Martin Dell'Oca was the Chief Financial
Officer of Dinexim.
(C) Section 16(a) Beneficial Ownership Reporting Compliance.
No securities of the Company are registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, and the Company files reports under
Section 15(d) of the Securities
24
28
Exchange Act of 1934; accordingly, directors, executive officers and ten percent
stockholders are not required to make filings under Section 16 of the Securities
Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Name & Other Restricted Securities
Principal Annual Stock Underlying LTIP All other
Compensation Year Salary($) Bonus($) Compensation($) Awards Options Payouts Compensation
- ------------- ---- --------- -------- --------------- ----------- ----------- ------- ------------
Greg Levine
President 1999 $100,000 -0- -0- -0- -0- -0- -0-
Richard G.
Steeves,
Secretary 1999 (4) -0- -0- -0- -0- -0- -0-
Fred Schmid
Former Chief
Executive
Officer and
President 1999 (1)(2) (3) -0- -0- -0- -0-
(1) We entered into a three (3) year employment agreement with our former
president, Fred R. Schmid, effective November 11, 1997. Since salary was not
paid, compensation and interest accrued in the approximate amount of $136,422
which was converted into 136,422 (plus 20,463 penalty shares) shares of our
common stock. In April, 1999, the employment agreement was terminated and
replaced with a consulting agreement which compensated Mr. Schmid at the rate of
10,000 shares per month. By
25
29
November, 1999, Mr. Schmid had accumulated 70,000 additional shares of our
common stock.
(2) The April 1997 consulting agreement, and Mr. Schmid, in his capacity as CEO
and president, were terminated in November, 1999, as a result of our merger with
Nexland Fla. and replaced with a new two year consulting agreement with
compensation at the rate of 15,000 common shares, quarterly, half of which was
earned in 1999.
(3) The November 11, 1997 employment agreement also provided Mr. Schmid an
option for the purchase of 160,000 shares at $2.50 per share and 160,000 shares
at $5.00 per shares for a period of ten years. On July 29, 1998, the $2.50
option price was reduced to conform with the offer granted to the Warrant
holders to exercise the Class A Warrants at a reduced price of $1.00 for a
specific time period. In February, 2000, Mr. Schmid exercised 160,000 of these
options.
(4) Mr. Steeves is compensated at the rate of $50.00 per hour.
EMPLOYMENT AGREEMENTS
On May 1, 2000, the Company entered into a five-year employment
agreement with Mr. Levine. Pursuant to this agreement, Mr. Levine is employed
as the President of the Company. Mr. Levine has an annual base salary of
$100,000, which will increase to $150,000 upon the Company obtaining equity
investments and/or debt financing totalling in the aggregate at least
$1,000,000. In addition, Mr. Levine will be entitled to incentive bonus
compensation in an amount to be determined by the Board of Directors. In the
event that Mr. Levine's employment is terminated by the Company without
"cause," other than in connection with a change of control, he is entitled to
receive his salary for a period of 12 months from the date of termination. The
agreement provides that Mr. Levine will not compete with the Company during his
employment and for one year thereafter.
On May 1, 2000, the Company entered into a two-year employment
agreement with Mr. Dell'Oca. Pursuant to this agreement, Mr. Dell'Oca is
employed as the Chief Financial Officer of the Company. Mr. Dell'Oca has an
annual base salary of $100,000, which will increase to $120,000 upon the
Company obtaining equity investments and/or debt financing totalling in the
aggregate at least $1,000,000. In addition, Mr. Dell'Oca received 200,000
shares of common stock of the Company which will be forfeited by Mr. Dell'Oca
if he resigns from the agreement prior to the expiration of the employment term
or if he is terminated for "cause." Mr. Dell'Oca has piggy-back registration
rights with respect to his stock in the Company. In the event that Mr.
Dell'Oca's employment is terminated by the Company on or after May 1, 2001
without "cause," other than in connection with a change of control, he is
entitled to receive his salary for a period of 12 months from the date of
termination. The agreement provides that Mr. Dell'Oca will not compete with the
Company during his employment and for one year thereafter.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of May 18, 2000 as to (i) each
person (or group of affiliated persons) known by us to own beneficially more
than 5% of our outstanding common stock, (ii) each of our directors, (iii)each
of the executive Officers, and (iv) all directors and executive officers of the
Company as a group.
For the purpose of this table, beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. The number
of shares beneficially owned by a person includes shares of common stock subject
to options held by that person that are currently exercisable or exercisable
within 60 days of March 31, 2000. Shares issuable pursuant to such options are
26
30
deemed outstanding for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for the purposes of computing the
percentage ownership of each other person.
Percentage of shares beneficially owned is based on 35,678,916 shares
of common stock outstanding as of May 18, 2000.
Name and Address
of Beneficial Owner (6) Number of Shares Percent of Class (7)
- ------------------- ---------------- --------------------
BH Investor Group, LLC(1) 12,611,250 35.4
P.O. Box 3783,
Hallandale, Fla 33008
Andre Chouraqui 5,044,500 14
Barker Road #2, House #9
The Peak, Hong Kong
Fast-Access Group, LLC (2) 5,044,500 14
P.O. Box 9096
Daytona Beach, Fla. 32120
Broadband Investor Group, LLC(3) 2,602,500 7.3
P.O. Box. 693267
Miami, Fla. 33169
High-Speed Venture, LLC(4) 2,522,250 7.1
P.O. Box 693267
Miami, Fla. 33169
Richard G. Steeves(5) 10,466 .03
1911 E. Meadowlake Drive
Mahomet, Ill. 61586
Enrique Dillon(6) 1,170,000 3.3
c/o Nexland Inc.
1101 Brickell Avenue
Suite 702, North Tower
Miami, Florida 33131
Martin Dell'Oca(6) 200,000 .06
385 Hampton Lane
Key Biscayne, FL 33149
All directors and executive 3,982,966 11.2
officers as a group
27
31
- -------------------------------
(1) this entity is controlled by Israel Daniel Sultan
(2) this entity is controlled by Laurent Solomon
(3) this entity is controlled by Greg Levine, our president
(4) this entity is controlled by Yves Many
(5) Richard Steeves is our Secretary and a director of the Company
(6) These shares were issued pursuant to the officers respective employment
agreements, but are subject to forfeiture under certain conditions. The shares
are held in escrow during the forfeiture period.
To the knowledge of management, there are no present arrangements or
pledges of securities of the Company, which may result in a change in control of
the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Registrant has engaged in no transactions with management or others
in which the amount involved exceeds $60,000 other than the following:
(1) On November 11, 1997, we granted Mr. Schmid an option to purchase
up to 160,000 shares of Common Stock at a purchase price ranging between $1.00
and $2.50 (which was subsequently reduced to between $0.25-2.50) per share. The
option period commenced on the second anniversary of the date of such agreement
and ending ten years after the second anniversary date. The Company estimates
that substantially all of these options will be exercised during the contractual
period. In addition, the Company granted Mr. Schmid an option to purchase an
additional 160,000 shares of Common Stock at a purchase price of $5.00 per
share. The option period commences on the third anniversary date of such
agreement and ends ten years after the third anniversary date. In February 2000,
160,000 options were exercised at $1.00 per share.
(2) On November 3, 1999, Nexland Fla., obtained an option, including a
right of first refusal, to purchase all of the issued and outstanding shares of
Nexland France. The option expired on June 30, 2000. The purchase price was
to be determined by an independent valuation conducted by a French accounting
firm and be mutually acceptable to both parties. Nexland France is controlled,
by Israel Daniel Sultan, Andre Chouraqui, and Yves Many, all of whom are
principal shareholders of our company. In consideration of the option and right
of first refusal, these three individuals received a total of 1,584,000 of our
common shares
(3) On November 17, 1999 we entered in a consulting agreement with Fred
Schmid, our former CEO and president. The agreement provides for the following:
28
32
o 15,000 common shares quarterly, payable in arrears
o two year term subject to automatic renewal unless 30 day
notice not to renew
o consultant is to provide consulting services regarding the
raising of capital
o consultant is subject to the customary confidentiality
restrictions
(4) On January 18, 1999, we executed a Cooperation Agreement with
Smerwick Ltd., a Hong Kong corporation located in Taiwan, in a non-arms length
negotiation. Smerwick's principal owners are two of our principal shareholders,
Laurent Solomon and Andre Chouraqui. Smerwick coordinates all of our
manufacturing efforts, inspects our products, consolidates and organizes our
shipments, and handles our exports prior to leaving Taiwan. Smerwick acts as our
dealer by purchasing our requirements from the manufacturer and reselling the
products to us at a 3% markup. The Cooperation Agreement is cancelable on 30
days notice.
(5) On September 15, 1999, we confirmed a technology sharing agreement
with Nexland France, making their research and manufacturing facilities
available to us.
(6) On November 17, 1999, we acquired, in a reverse acquisition
transaction, Nexland Fla. whose principal shareholders now own approximately
81.2% of our common shares. As a condition of the transaction, we have agreed to
register under cover of a registration statement, approximately 300,635 shares
of certain of our creditors, Fred R. Schmid and Erik Nelson. Included in these
shares are 39,213 shares issued due a 5% penalty provision resulting from the
late filing of a registration statement.
(7) On March 14, 2000, we entered into a five year Consulting Agreement
with Nexland France, which provides for the following:
o $175,000 per annum consulting fee to commence when we obtain
at least $1,000,000 in financing
o the consulting services will be performed by Israel Daniel
Sultan, Nexland LP's founder, and one of our principal
shareholders
o we may terminate without cause after December 31, 2001, other
than in connection with a change of control, in which case the
consultant shall receive one year severance pay
o should consultant be terminated, without cause, 90 days prior,
or one year subsequent, to a change of control, consultant
shall be entitled to twice its annual fee. "Change of control"
is defined as any person or group (as defined by the
Securities Exchange Act of 1934) obtaining 50% or more of our
voting securities, or a restructuring of the Company
(8) As of December 31, 1999, we are obligated to one of our principal
shareholders, Israel Daniel Sultan, on unsecured cash loans in the amount of
$189,218.45. The loans are evidenced by
29
33
demand promissory notes, which bear interest equal to the applicable federal
rate, and are subject to adjustment on August 1, 2000. The notes are all payable
on demand.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements: Balance Sheets, Statements of Operation,
Statements of Stockholders' Equity, Statements of Cash Flows
and Notes to Financial Statements.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(2) Exhibits:
The exhibits listed below are required by Item 601 of Regulation S-K.
Each management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K has been identified.
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.
30
34
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 Securities and Exchange Commission (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 Securities and Exchange Commission (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
31
35
The following documents are incorporated by reference from the
Registrant's Form 8K filed with the Securities and Exchange Commission (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
The following documents are filed herewith:
27 Financial Data Schedule
32
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 5, 2001
Nexland, Inc.
By: /s/ Gregory S. Levine
---------------------------------
Gregory S. Levine, President
33
37
NEXLAND, INC.
Financial Statements
December 31, 1999,
1998 and 1997
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
Bank of America Financial Center
W. 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
38
NEXLAND, INC.
TABLE OF CONTENTS
Pages
-----
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
NOTES TO FINANCIAL STATEMENTS F-6
39
Board of Directors
Nexland, Inc.
Miami, Florida
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of Nexland, Inc. as of December
31, 1999, 1998 and 1997 and the related statements of operations and
stockholders' equity, and cash flows, for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nexland, Inc. as of December
31, 1999, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 17 to the
financial statements, the Company's significant losses raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
the resolution of this issue are also discussed in Note 17. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As described in Note 18 to the financial statements, the Company's original
method of accounting for certain business combinations has been deemed
inappropriate. The Company has elected to correct these financial statements for
the effects of these combinations. Accordingly, 1999, 1998 and 1997 financial
statements have been restated.
Williams & Webster, P.S.
Spokane, Washington
March 13, 2000 (except for Note 18, as to which the date is May 12, 2000 and
Notes 2 and 10, as to which the date is March 3, 2001)
F-1
40
NEXLAND, INC.
BALANCE SHEETS
(Restated) (Restated) (Restated)
December 31, December 31, December 31,
1999 1998 1997
------------ ----------- -----------
A S S E T S
CURRENT ASSETS
Cash $ 4,231 $ 23 $ 9,540
Accounts receivable 78,597 -- --
Inventory 56,467 7,643 --
------------ ----------- -----------
TOTAL CURRENT ASSETS 139,295 7,666 9,540
------------ ----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 8,434 6,183 5,651
Less: accumulated depreciation (3,659) (1,943) (415)
------------ ----------- -----------
TOTAL PROPERTY AND EQUIPMENT 4,775 4,240 5,236
------------ ----------- -----------
OTHER ASSETS
Escrow and security deposits 3,180 -- --
------------ ----------- -----------
TOTAL OTHER ASSETS 3,180 -- --
------------ ----------- -----------
TOTAL ASSETS $ 147,250 $ 11,906 $ 14,776
============ =========== ===========
L I A B I L I T I E S & S T O C K H O L D E R S ' E Q U I T Y (D E F I C I T)
CURRENT LIABILITIES
Accounts payable $ 196,061 $ 7,643 $ --
Accrued expense 53,939 2,453 200
Notes payable 19,553 -- --
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 269,553 10,096 200
------------ ----------- -----------
LONG-TERM LIABILITIES
Notes payable, related parties 201,917 87,136 --
------------ ----------- -----------
TOTAL LIABILITIES 471,470 97,232 200
------------ ----------- -----------
COMMITMENTS AND CONTINGENCIES -- -- --
------------ ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, 10,000,000 shares authorized,
$0.0001 par value; no shares outstanding -- -- --
Common stock, 50,000,000 shares authorized,
$ 0.0001 par value; 34,094,703 , 29,500,000
and 29,500,000 issued and outstanding, respectively 3,410 2,950 2,950
Additional paid-in capital -- 64,950 64,950
Accumulated deficit (327,630) (153,226) (53,324)
------------ ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (324,220) (85,326) 14,576
------------ ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (D E F I C I T) $ 147,250 $ 11,906 $ 14,776
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
41
NEXLAND, INC.
STATEMENTS OF OPERATIONS
(Restated) (Restated) (Restated)
Year Year Year
Ending Ending Ending
December 31, December 31, December 31,
1999 1998 1997
--------------- ---------------- ----------------
R E V E N U E S $ 263,338 $ -- $ --
COST OF REVENUES 129,311 -- --
--------------- ---------------- ----------------
GROSS PROFIT 134,027 -- --
--------------- ---------------- ----------------
E X P E N S E S
Advertising 10,364 3,354 6,698
Professional services 35,512 42,814 20,876
Selling and administrative 217,788 53,734 25,750
--------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 263,664 99,902 53,324
--------------- ---------------- ----------------
LOSS FROM OPERATIONS (129,637) (99,902) (53,324)
OTHER INCOME AND (EXPENSE)
Interest (1,706) -- --
--------------- ---------------- ----------------
LOSS BEFORE INCOME TAXES (131,343) (99,902) (53,324)
INCOME TAXES -- -- --
--------------- ---------------- ----------------
NET LOSS $ (131,343) $ (99,902) $ (53,324)
=============== ================ ================
BASIC AND DILUTED LOSS PER COMMON SHARE $ nil $ nil $ nil
=============== ================ ================
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON STOCK SHARES OUTSTANDING $ 30,053,926 $ 29,500,000 $ 29,500,000
=============== ================ ================
The accompanying notes are an integral part of these financial statements.
F-3
42
NEXLAND, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
---------------------- (Restated) (Restated) (Restated)
Number Additional Accumulated Stockholders'
of Shares Amount Paid-in Capital Deficit Equity
---------- ---------- --------------- ------------- -------------
Issuance of common stock in December, 1997
for cash at $1.00 per share 4,425,000 $ 443 $ 2,557 $ -- $ 3,000
Restated effect of 1999 combination with Nexland LP 25,075,000 2,507 62,393 -- 64,900
Net loss for year ending December, 1997 -- -- -- (53,324) (53,324)
---------- ------ -------- --------- ---------
Balance at December 31, 1997 29,500,000 2,950 64,950 (53,324) 14,576
Net loss for year ending December, 1998 -- -- -- (99,902) (99,902)
---------- ------ -------- --------- ---------
Balance at December 31, 1998 29,500,000 2,950 64,950 (153,226) (85,326)
Stock exchanged in reverse acquisition
of and recapitalization of WindStar
Resources, Inc.
by Nexland, Inc. 4,594,703 460 (64,950) (43,061) (107,551)
Net loss for year ending December 31, 1999 -- -- -- (131,343) (131,343)
---------- ------ -------- --------- ---------
Balance at December 31, 1999 34,094,703 $3,410 $ -- $(327,630) $(324,220)
========== ====== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
43
NEXLAND, INC.
STATEMENTS OF CASH FLOWS
(Restated) (Restated) (Restated)
Year Year Year
Ending Ending Ending
December 31, December 31, December 31,
1999 1998 1997
----------------- ----------------- -----------------
Cash flows from operating activities:
Net loss $(131,343) $(99,902) $(53,324)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 1,716 1,528 415
Decrease (Increase) in:
Accounts receivable (78,597) -- --
Inventory (48,824) (7,643) --
Increase (Decrease) in:
Accounts payable 98,745 7,643 --
Accrued expenses 51,486 2,253 200
--------- -------- --------
Net cash used by operating activities (106,817) (96,121) (52,709)
--------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,251) (532) (5,651)
Deposits paid (3,180) -- --
--------- -------- --------
Net cash used by investing activities (5,431) (532) (5,651)
--------- -------- --------
Cash flows from financing activities:
Proceeds from common stock issued -- -- 67,900
Loans from stockholder 114,781 87,136 --
Net cash acquired in reverse acquisition
with WindStar Resouces, Inc. 1,675 -- --
--------- -------- --------
Net cash provided by financing activities 114,781 87,136 67,900
--------- -------- --------
Net increase (decrease) in cash 2,533 (9,517) 9,540
Cash, beginning of period 23 9,540 --
--------- -------- --------
Cash, end of period $ 2,556 $ 23 $ 9,540
========= ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest expense -- -- --
========= ======== ========
Income taxes -- -- --
========= ======== ========
The accompanying notes are an integral part of these financial statements.
F-5
44
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 1 - BUSINESS ORGANIZATION
Nature of Operations
- --------------------
Nexland, Inc. (hereinafter "Nexland") was incorporated on December 4, 1994 under
the laws of the State of Florida. From inception until November 15, 1999,
Nexland was inactive. On November 15, 1999, the partners of Nexland Limited
Partnership assigned all rights, title and interest in partnership assets to
Nexland, Inc. in exchange for 25,075,000 common stock shares of Nexland, Inc.
Nexland LP was formed on September 25, 1997. The activities of the Partnership
are reflected in the financial statements. The Company is engaged in the
production of internet sharing boxes.
On November 17, 1999, WindStar Resources, Inc. (hereinafter "WindStar") acquired
all of the outstanding common stock of Nexland. For accounting purposes the
acquisition has been treated as a recapitalization of Nexland with Nexland as
the acquirer. This form of business combination is referred to as a "reverse
acquisition." The historical financial statements prior to November 17, 1999 are
those of Nexland. WindStar was incorporated on March 22, 1995, under the laws of
the State of Arizona under the name of Turtleback Mountain Gold Co., Inc. to
conduct business in the fields of mineral exploration, construction and mining.
WindStar Resources, Inc. has been in development stage since inception and had
not realized any significant revenues from its planned operations. Prior to
November 17, 1999, WindStar discontinued all mineral exploration, construction
and mining operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Nexland, Inc. is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Basis of Accounting
- -------------------
Nexland uses the accrual basis of accounting in accordance with generally
accepted accounting principles.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
- -----------
Advertising costs are charged to operations in the year incurred.
F-6
45
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is recorded at cost and depreciated using the
straight-line method over estimated useful lives of three to seven years.
Expenditures for repairs and maintenance that do not extend the useful life of
the related asset are expensed as incurred.
Impairment of Long-lived Assets
- -------------------------------
The Company evaluates the recoverability of long-lived assets when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts.
Income Taxes
- ------------
No provision for taxes or tax benefit has been reported in the financial
statements, as there is not a measurable means of assessing future profits or
losses. The Company's net operating loss is approximately $25,000, and is
available to offset future net income. The Company has no significant deferred
tax assets or liabilities, and the net operating loss is fully reserved by a
valuation allowance.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.
Basic and Diluted Earnings Per Share
- ------------------------------------
In December 1997, the Company adopted Statement of Financial Accounting
Standards Statement (SFAS) No. 128, Earnings Per Share. Basic earnings per share
are computed using the weighted average number of common shares outstanding.
Diluted net loss per share is the same as basic net loss per share as the
inclusion of common stock equivalents would be antidilutive. At December 31,
1999, the Company had 320,000 stock options and 3,200,000 warrants, which were
not included in computing diluted loss per share because their effects were
antidilutive.
Revenue Recognition
- -------------------
Revenues are recognized when products are delivered.
Derivative Instruments
- ----------------------
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
F-7
46
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
At December 31, 1999, the Company has not engaged in any transactions that would
be considered derivative instruments or hedging activities.
Reclassifications
- -----------------
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit or net losses presented.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets of five to
seven years. The Company evaluates the recoverability of property and equipment
when events and circumstances indicate that such assets might be impaired. The
Company determines impairment by comparing the undiscounted future cash flows
estimated to be generated by these assets to their respective carrying amounts.
Major additions and betterments are capitalized. Costs of maintenance and
repairs that do not improve or extend the lives of the respective assets are
expensed as incurred. When property and equipment are retired or otherwise
disposed of, the related costs and accumulated depreciation are removed from the
accounts and any gain or loss is recognized in operations.
NOTE 4 - INVENTORY
Inventories are stated at the lower of cost or market, with cost being
determined on a first-in-first-out basis.
Inventories at December 31, 1999 and 1998 consist of internet sharing devices
valued at $56,467 and $7,643, respectively. The Company did not maintain
inventories at December 31, 1998 or 1997.
NOTE 5 - LEASE COMMITMENT
Nexland leases commercial office space in Miami, Florida on a month-to-month
agreement. The monthly rent is $3,000. The Company is currently negotiating a
lease for a new location.
NOTE 6 - INTANGIBLE ASSETS
At December 31, 1999, the Company's trademark applications were still pending
approval and no costs have been capitalized.
F-8
47
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 7 - NOTES PAYABLE, RELATED PARTIES
Nexland has unsecured cash loans from a stockholder in the amount of $174,318 at
December 31, 1999 and $87,136 at December 31, 1998. The notes bear interest
equal to the applicable federal rate, which is 5.83%, are unsecured and are
subject to adjustment on August 1, 2000. The terms of the notes were not
finalized until after the merger with WindStar Resources, Inc.
Other long-term debt at December 31, 1999 consists of an unsecured note with
Phoenix International Mining, Inc., a related party, dated August 1, 1997, with
interest due at 1% per month and the principal payable at the discretion of
WindStar Resources, Inc. with any remaining principal due not later than five
years from the date of the note. Under terms of the note, the Company may borrow
from time to time in varying amounts up to the sum of one million dollars within
the two years from the date of the note. The balance due at December 31, 1999,
was $27,600.
NOTE 8 - NOTES PAYABLE
In the November 1999 acquisition, the Company acquired notes payable from
WindStar that are short-term, unsecured demand notes with an interest rate of
12% per annum. The balance on these notes at December 31, 1999 is $19,553.
NOTE 9 - PREFERRED STOCK
The Company has the authority to issue 10,000,000 shares of preferred stock,
having a par value of $0.0001 per share. At December 31, 1999, no shares of
preferred stock were issued or outstanding.
NOTE 10 - COMMON STOCK
On November 17, 1999, Nexland, Inc. exchanged each of its shares of common stock
for 1,475 shares of WindStar Resources, Inc. common stock shares. Nexland,
Inc.'s shareholders received 29,500,000 shares of WindStar Resources, Inc.
common stock in exchange for their 20,000 shares of Nexland's common stock.
Furthermore, Nexland contributed $25,000 in cash for the payment of WindStar's
outstanding payables and assumed $82,551 of the net liabilities of WindStar. The
shareholders of WindStar Resources, Inc. retained their 4,594,703 shares of
common stock. This acquisition has been treated as a recapitalization of Nexland
with Nexland as the acquirer (reverse acquisition). The Company had 34,094,703
shares of common stock outstanding at December 31, 1999.
Mr. Israel D. Sultan, the original shareholder of Nexland, was issued 4,425,000
shares of common stock for his original capital contribution of $3,000. On
November 15, 1999, Nexland LP was acquired for the issuance of 25,075,000 shares
of common stock. Mr. Sultan owned 100% of Nexland and 50% of Nexland LP and,
accordingly, as such this transaction is treated as
F-9
48
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 10 - COMMON STOCK (Continued)
a combination of common interests. All financial activity is combined and
reported in these financial statements in a manner similar to a pooling of
interest.
WindStar, the Company's predecessor by reverse acquisition, had during the year
ended December 31, 1995, issued 1,240,000 shares of common stock in exchange for
eight mining claims. The stock was issued at $0.0105 per share.
During the year ended December 31, 1996, WindStar issued 1,600,000 units in
exchange for one hundred twenty eight mining claims (Note 3). Each unit
consisted of one share of common stock, one "Class A Warrant" and one "Class B
Warrant". The stock was issued at $0.04125 per share.
During the year ended December 31, 1998, the Board of Directors of WindStar
authorized a 1-for-250 reverse stock split, thereby decreasing the number of
issued and outstanding shares and increasing the par value of each share to
$0.0001. All references in the accompanying financial statements to number of
common shares and per share amounts for 1997, 1998 and 1999 have been restated
to reflect the reverse stock split.
WindStar issued 22,000 shares of its common stock during the year ended December
31, 1998, in payment of outstanding debt that was owed to Baragan Mountain
Mining, LLC for an unpaid royalty fee and the interest accrued. The shares were
issued at $2.50 per share.
In November 1999, WindStar issued 382,173 shares of common stock to related
parties in payment of debt.
In consideration of Nexland S.A. granting a right of first refusal for purchase
of Nexland S.A. to Nexland, Inc., certain Nexland stockholders conveyed
1,584,000 shares of common stock they received out of the 29,500,000 shares of
common stock to Nexland S.A. for distribution to Nexland S.A. shareholders. See
Note 15.
On November 17, 1999 the Company entered into a consulting agreement with Fred
Schmid, a related party. This agreement provides for compensation to be paid in
common stock at 5,000 shares per month issued quarterly. Either party can
terminate this agreement at any time. The Company values consulting services at
the fair market value of the shares of common stock when issued.
NOTE 11 - STOCK WARRANTS
During the year ended December 31, 1996, the Company's predecessor by reverse
acquisition issued 1,600,000 units. As stated in Note 10, each unit consisted of
one share of common stock, one "Class A Warrant" and one "Class B Warrant". Each
"Class A Warrant" may be exercised to purchase one share of common stock at
exercise prices ranging from $0.25 to $2.50 per share. Each "Class B Warrant"
may be exercised to purchase one share of common stock at an exercise price of
$5.00. The warrants are redeemable at any time upon the Company giving thirty
days
F-10
49
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 11 - STOCK WARRANTS (Continued)
written notice to the holder thereof at redemption price of $0.0025 per warrant.
The warrants are exercisable up to five years from the effective date of the
offering unless called sooner.
As of December 31, 1999, 1,541,558 "Class A Warrants" remain authorized and
outstanding (not exercised). No "Class B Warrants" were exercised during 1997,
1998 or 1999.
NOTE 12 - SALE OF STOCK AND GRANT OF OPTIONS
The Company's predecessor by reverse acquisition sold 540,000 shares of common
stock to its president and chief executive officer for $10,000 cash and also
granted purchase options to him during November 1997. The Company's options
("Stock Options") enable the holder to purchase up to 160,000 shares of the
stock during the ten-year period commencing on the second anniversary of the
date of such agreement for exercise prices ranging from $0.25 to $2.50 per
share, and up to 160,000 additional shares of stock during the ten-year period
commencing on the third anniversary of the date of such agreement for the
exercise price of $5.00 per share. Such agreement was dated November 11, 1997.
No options were granted or exercised during 1998 or 1999.
Following is a summary of the status of fixed options outstanding at December
31, 1999, 1998 and 1997:
Weighted
Exercise Average Remaining Weighted Average
Price Range Number Contractual Life Exercise Price
-------------- ------ ---------------------- ------------------
$0.25 to $5.00 320,000 5-10 years $3.875
Of the 320,000 options referred to above, 160,000 are exercisable beginning
November 11, 1999. These options were exercised in March 2000 at $1.00 per share
with the Company receiving a total of $160,000. The remaining 160,000 options
are not exercisable until November 11, 2000. The Company estimates that
substantially all of these options will be exercised during the contractual
period.
NOTE 13 - YEAR 2000
Like other companies, Nexland could be adversely affected if the computer
systems it, its suppliers or customers use do not properly process and calculate
date-related information and data from the period surrounding and including
January 1, 2000. This is commonly known as the "Year 2000" issue. Additionally,
this issue could impact non-computer systems and devices such as production
equipment, elevators, etc.
The Company has reviewed its business and processing systems and believes that
the majority of its systems are already Year 2000 compliant or can be made so
with software updates. Based on
F-11
50
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 14 -MERGERS AND ACQUISITIONS (continued)
preliminary assessments, the Company regards the costs associated with Year 2000
readiness to be immaterial.
Nexland Limited Partnership
- ---------------------------
The combination of Nexland with Nexland LP is accounted for as a combination of
common interest, which is similar to a pooling of interest. The financial
statements have been restated for all periods presented. As of November 15,
1999, Nexland LP had accumulated losses of $259,461 and a net partners' deficit
of $194,461. The original Partners' capital was $65,000, of which $100 was for
Nexland's one percent general partnership interest.
WindStar Resources, Inc.
- ------------------------
On November 17, 1999, when Nexland, by reverse acquisition, became the successor
entity, WindStar had liabilities in excess of assets of $82,551 after Nexland's
advance payment to reduce WindStar debts of $25,000. The allocation to
additional paid-in capital as part of this combination exceeded the available
balance by $43,061, which was charged to accumulated deficit. In this
combination, WindStar acquired all of the outstanding stock of Nexland. For
accounting purposes, the acquisition has been treated as a recapitalization of
Nexland with Nexland as the acquirer. The historical financial statements prior
to November 17, 1999 are those of Nexland. Proforma information giving effect to
the acquisition as if the acquisition took place on January 1, 1998 is as
follows:
Proforma for year ended December 31, 1999:
Historical
--------------------------- Proforma
Nexland WindStar Total
--------- ---------- -----------
Revenue $ 263,338 $ -- $ 263,338
Net Loss (131,343) (295,059) (426,402)
Loss per share nil nil (0.01)
Weighted average number of
common stock shares outstanding 29,500,000 4,213,23 33,713,230
Proforma for year ended December 31, 1998:
Historical
---------------------------- Proforma
Nexland WindStar Total
----------- ---------- -----------
Revenue $ -- $ -- $ --
Net Loss (99,902) (160,664) (260,566)
Loss per share nil (0.04) (0.01)
Weighted average number of
common stock shares outstanding 29,500,000 4,162,223 33,662,223
As of December 31, 1999, the effect of the above business combination on
Nexland's accumulated deficit is $259,461 of partnership losses from Nexland LP,
$43,061 of recapitalization losses from WindStar, and $25,108 of operating
losses.
F-12
51
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 15 - ACQUISITION OPTION FOR NEXLAND S.A.
Nexland, Inc. has the option to purchase all common stock shares of Nexland
S.A., a French corporation. This option expires on June 30, 2000. The purchase
price is contingent upon a valuation to be performed by an independent French
accounting firm. See Note 10.
NOTE 16 - MINERAL PROPERTIES
WindStar, immediately prior to the reverse acquisition, discontinued all mineral
exploration, construction and mining operations. Although mineral exploration
and mining are inherently speculative and subject to complex environmental
regulations, at the time WindStar discontinued these activities, WindStar was
unaware of any pending litigation or of any specific past or prospective matters
which could affect the Company or its assets. The following disclosures of
mineral properties summarize the recent activities of WindStar.
Eight mining claims were transferred to WindStar on June 30, 1995 by quitclaim
deed in exchange for 1,240,000 shares of common stock. The mining claims were
valued at the transferor cost of $13,000. Prior to November 17, 1999 and the
acquisition, WindStar allowed these claims to expire, resulting in a charge
against operations in the amount of $13,000.
One hundred twenty-eight mining claims located in the La Paz, Maricopa, and Yuma
counties of Arizona were transferred to WindStar on November 16, 1996 by
quitclaim deed in exchange for 1,600,000 units as explained in Note 10. Prior to
November 17, 1999 and the acquisition, WindStar allowed these claims to expire
resulting in a charge against operations in the amount of $66,076.
The four Red Raven II claims purchased from Maxam Gold Corporation have a
royalty fee clause attached to them. The royalty fee, payable to Baragan
Mountain Mining, LLC, is five percent of the net income from operations on the
claims, or $50,000 annually (whichever is greater) beginning July 14, 1996.
During 1998, WindStar settled a default on the $50,000 annual payment, which was
due July 14, 1997, by the exchange of 22,000 shares of its common stock. This
included $5,000 of interest, which had been accrued on the indebtedness. As part
of this settlement, the $50,000 annual fee has been rescinded and future royalty
fees will be calculated on 2.5% of net smelter return from production from those
claims, if any.
NOTE 17 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the accompanying financial statements, the Company and its
predecessor, Nexland LP, have generated no revenues before 1999. The Company
recognized a net loss of $131,343 for 1999 from its activities and that of its
predecessor. Nexland, Inc. has an accumulated deficit of $327,630 at December
31, 1999.
F-13
52
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 17 - GOING CONCERN (Continued)
Management believes that resources will be available from private and public
sources in 2000 to continue the marketing of its 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 the Company
cannot continue in existence.
Management has established plans designed to increase the sales of the Company's
products. Management intends to seek new capital from new equity securities
offerings that will provide funds needed to increase liquidity, fund internal
growth and implement its business plan.
NOTE 18 - CORRECTION OF ACCOUNTING FOR BUSINESS COMBINATIONS AND
SUBSEQUENT EVENTS
The prior issued financial statements for the year ended December 31, 1999, did
not recognize that a strict interpretation of the accounting for reverse
acquisitions, should not result in the recognition of goodwill or intangible
assets. Also, the accounting for a combination of common interests is equivalent
to a pooling of interest.
The accounting for the combination with Nexland LP originally recognized
$211,562 in the value of intangible assets (i.e. trademarks). This has been
corrected and the Company's additional paid-in capital has been reduced by
$211,562. Furthermore, for 1999, 1998, and 1997, the restated financial
statements recognize the net effect of revenue, expenses and losses from
operations from the partnership of $106,235, $99,902 and $53,324, respectively.
The prior issued financial statements recognized an increase in the value of
trademarks of $1,116,976 from the recognition of a minimal stock valuation of
the common stock issued in the combination and the net liabilities acquired from
WindStar as part of the reverse acquisition. The Company should not have
recognized any goodwill or increase in intangible assets as part of this
combination. To correct this overstatement, the Company has reduced its
additional paid-in capital by $1,116,976.
Furthermore, the prior financial statements for the year ended December 31, 1999
included amortization expense from trademarks of $8,292, which has been reduced
to zero from the above changes. This results in a restated net loss of $25,108
from operations prior to the inclusion of Nexland LP's net loss for 1999 of
$106,235.
The financial statements and the notes thereto reflect the appropriate
disclosures for the above corrections.
F-14
53
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 18 - CORRECTION OF ACCOUNTING FOR BUSINESS COMBINATIONS AND
SUBSEQUENT EVENTS (Continued)
In April and May 2000, subsequent to the prior issuance of these financial
statements, the Company entered into employment agreements with a new chief
executive officer and a new chief financial officer. These contracts, which are
for two years, require base salaries of $150,000 and $100,000, respectively, and
the issuance of shares of restricted common stock of 1,170,000 and 200,000,
respectively. The base salary of the chief executive officer is subject to the
Company raising one million dollars. The base salary of the chief financial
officer will increase to $120,000 per year upon the Company raising one million
dollars. The issuance of the shares of restricted common stock is subject to
forfeiture, if the executives terminate their contracts during the initial
two-year periods and other conditions.
F-15