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UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
NEXLAND, INC.
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Arizona 65-0782410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1101 Brickell Avenue, North Tower, Suite 200, Miami, Florida 33131
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Address of principal executive office (Zip code)
(305) 358-7771
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Registrant's telephone number, including area code
(1) Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days
1. [X] Yes [ ] No 2. [X] Yes [ ] No
As of July 28, 2000, there were 35,023,916 shares outstanding of issuer's common
stock.
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TABLE OF CONTENTS
PART I.....................................................................3
Financial Statements
Consolidated Balance Sheets ......................................3
Consolidated Statements of Operations.............................4
Consolidated Statements of Cash Flows.............................5
Notes to The Consolidated Financial Statements....................6
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................8
Forward-looking Statements And Associated Risks...................8
Going Concern ....................................................8
Significant Plant or Equipment Purchases..........................8
Changes in The Number of Employees................................8
Management's Discussion And Analysis..............................8
Revenue...........................................................8
Cost of Sales ....................................................8
Gross Profit......................................................9
Selling, General And Administrative...............................9
Liquidity And Capital Resources...................................9
Capital Expenditures.............................................10
PART II...................................................................11
ITEM 1. Legal Proceedings........................................11
ITEM 2. Changes In Securities and Use of Proceeds ...............11
ITEM 3. Defaults Upon Senior Securities .........................11
ITEM 4. Submission of Matters to a Vote of Security Holders......11
ITEM 5. Other Information........................................11
ITEM 6. Exhibits ................................................11
SIGNATURES................................................................13
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PART 1 - FINANCIAL STATEMENTS
NEXLAND, INC.
BALANCE SHEETS
June 30,
(Unaudited) December 31,
2000 1999
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ASSETS
CURRENT
Cash and cash equivalents $ 38,145 $ 4,231
Accounts receivable 125,455 78,597
Inventory 173,358 56,467
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TOTAL CURRENT ASSETS 336,958 139,295
EQUIPMENT, NET 19,707 4,775
DEPOSITS AND OTHER ASSETS 33,180 3,180
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$ 389,845 $ 147,250
=========== ===========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES
Accounts payable $ 510,586 $ 196,061
Accrued expenses 61,459 53,939
Notes payable 19,553 19,553
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TOTAL CURRENT LIABILITIES 591,598 269,553
NOTES PAYABLE - RELATED PARTIES 201,917 201,917
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793,515 471,470
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CAPITAL DEFICIT
PREFERRED STOCK, 10,000,000 SHARES AUTHORIZED,
$0.0001 PAR VALUE; NO SHARES OUTSTANDING -- --
COMMON STOCK, 50,000,000 SHARES AUTHORIZED,
$0.0001 PAR VALUE; 35,023,916 and 34,094,703 ISSUED
AND OUTSTANDING 3,502 3,410
ADDITIONAL PAID-IN CAPITAL 2,163,837 --
UNEARNED COMPENSATION (458,334) --
ACCUMULATED DEFICIT (2,112,675) (327,630)
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TOTAL CAPITAL DEFICIT (403,670) (324,220)
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$ 389,845 $ 147,250
=========== ===========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
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NEXLAND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE FOR THE FOR THE FOR THE
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
SALES $ 241,270 $ 31,015 $ 440,880 $ 34,902
COST OF SALES 91,463 21,403 177,195 27,342
------------ ------------ ------------ ------------
GROSS PROFIT 149,807 9,612 263,685 7,560
------------ ------------ ------------ ------------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 1,504,786 11,836 2,035,544 15,320
DEPRECIATION 1,274 -- 2,114 --
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,506,060 11,836 2,037,658 15,320
INTEREST EXPENSE 5,536 -- 11,072 --
------------ ------------ ------------ ------------
NET (LOSS) $ (1,361,789) $ (2,224) $ (1,785,045) $ (7,760)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 34,457,472 29,500,000 34,293,178 29,500,000
NET (LOSS) PER COMMON SHARE $ (.04) $ -- $ (.05) $ --
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
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NEXLAND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE FOR THE
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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OPERATING ACTIVITIES:
NET LOSS $(1,785,045) $ (7,760)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
COMPENSATION CHARGES IN CONNECTION WITH
EMPLOYMENT AGREEMENT 41,666 --
COMPENSATION CHARGE IN CONNECTION
WITH SEVERANCE 1,125,000 --
EXPENSES PAID BY ISSUANCE OF COMMON STOCK 378,929 --
DEPRECIATION 2,114 --
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) IN ACCOUNTS RECEIVABLE (46,858) (837)
(INCREASE) IN INVENTORY (116,891) (73,281)
(INCREASE) IN PREPAID EXPENSES AND OTHER ASSETS (30,000) --
INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES 322,045 100,675
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TOTAL ADJUSTMENTS 1,676,005 26,557
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (109,040) 18,797
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INVESTING ACTIVITIES:
PURCHASE OF EQUIPMENT (17,046) (1,943)
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FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF EXERCISE OF OPTIONS 160,000 --
ADVANCES FROM STOCKHOLDER -- 12,916
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NET CASH PROVIDED BY FINANCING ACTIVITIES 160,000 12,916
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NET INCREASE IN CASH AND CASH EQUIVALENTS 33,914 29,770
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,231 23
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,145 $ 29,793
=========== ===========
SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR TAXES $ -- $ --
CASH PAID FOR INTEREST $ -- $ --
ISSUANCE OF COMMON STOCK FOR COMPENSATION $ 500,000 $ --
ISSUANCE OF COMMON STOCK FOR SEVERANCE $ 1,125,000 $ --
ISSUANCE OF COMMON STOCK FOR EXPENSES PAID $ 378,929 $ --
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
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NEXLAND, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 10-Q
and include all adjustments (consisting only of normal recurring accruals) which
are necessary for a fair presentation of the results for the periods presented.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. The results of operations for the six months ended June 30.
2000 are not necessarily indicative of the results to be expected for the full
year.
2. EARNINGS PER SHARE
The following reconciles the components of the earnings per share (EPS)
computation.
For the six months ended June 30, 2000 For the six months ended June 30, 1999
---------------------------------------------- ---------------------------------------------
Loss Shares Per Share Loss Share Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- --------
Loss per common share-basic
and diluted $(1,785,045) 34,293,178 $(.05) $ (7,760) 29,500,000 $ --
Net loss per share of common stock is based on the weighted average number of
common shares outstanding during each period. Diluted loss per share of common
stock is computed on the basis of the weighted average number of common shares
and dilutive options and warrants outstanding. All options and warrants have an
anti-dilutive effect and are excluded from the calculation.
3. CAPITAL DEFICIT
During the six months ended June 30, 2000, the Company issued 30,000
shares of common stock to a consultant for services rendered and recorded a
charge to consulting fees with a corresponding credit to additional paid-in
capital in the amount of $138,750.
During the six months ended June 30, 2000, the Company issued 39,213
shares of common stock in connection with the late filing of the Company's Form
S-1 and recorded a charge to penalty expense with a corresponding credit to
additional paid-in capital in the amount of $240,179.
On April 25, 2000, pursuant to an employment contract between the
Company and Enrique Dillon (the Chief Executive Officer at that time), the
Company issued 1,170,000 shares of common stock to Enrique Dillon. On May 1,
2000, pursuant to an employment contract between the Company
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and Martin Dell'Oca (Chief Financial Officer) the Company issued 200,000 shares
of common stock to Martin Dell'Oca. The shares under both employment contracts,
are subject to forfeiture in the event the employees resign or are terminated
for cause prior to the initial two-year terms of their respective employment
agreements. Pending the forfeiture periods, the shares are held in escrow.
In connection with these employment agreements, the Company recorded as a charge
to stockholders' equity as unearned compensation equivalent to the market value
of the common stock at the date of grant and is being amortized over the period
of the employment agreement. Amortization of $41,666 was recorded during the six
month period ended June 30, 2000.
On June 30, 2000, Mr. Dillon resigned from his position in the Company for
personal reasons. In connection with his resignation, the 1,170,000 shares of
common stock issued in connection with his employment agreement were forfeited.
The Company in consideration of the termination of the employment agreement
issued 500,000 shares of common stock to the former executive. In connection
with this, the Company recorded a charge to operations in the amount of
$1,125,000 during the six-month period ended June 30, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.
This Quarterly Report contains forward-looking statements, including
statements regarding, among other things, (a) the growth strategies of Nexland,
Inc. (the "COMPANY"), (b) anticipated trends in the Company's industry, (c) the
Company's future financing plans and (d) the Company's ability to obtain
financing and continue operations. In addition, when used in this Quarterly
Report, the words "believes," "anticipates," "intends," "in anticipation of,"
and similar words are intended to identify certain forward-looking statements.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, many of which are beyond
the Company's control. Actual results could differ materially from these
forward-looking statements as a result of changes in trends in the economy and
the Company's industry, reductions in the availability of financing and other
factors. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Quarterly Report will in
fact occur. The Company does not undertake any obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.
GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of operation. The Company's ultimate ability to attain
profitable operations is dependent upon obtaining additional financing adequate
to complete its marketing and promotional activities, and to achieve a level of
sales adequate to support its cost structure. Through June 30, 2000, the
Company has incurred losses totaling $1,785,045 and is developing a customer
base for its product, all of which raise substantial doubt about the Company's
ability to continue as a going concern.
As previously reported in its Form 10-K ("FORM 10-K") for the year
ended December 31, 1999, the Company needed to increase the sales of the
Company's product and raise additional capital to continue its operations.
Management believes that resources will be available from private and public
sources in 2000 to continue the marketing of its internet sharing devices.
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. The Company has no commitment for any
additional capital and no assurances can be given that the Company will be
successful in raising any new capital. The Company's inability to increase its
sales and/or to raise new capital will have a material adverse effect on the
Company's ability to continue its operations and financial condition and on its
ability to continue as a going concern. See "Management's Plan of Operations and
Discussion and Analysis - Liquidity and Capital Resources."
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES. The Company does not
currently anticipate any significant plant or equipment purchases during the
next twelve months.
CHANGES IN THE NUMBER OF EMPLOYEES. The Company currently has eight (8)
employees. If the Company is successful in increasing its sales level or in
raising significant new capital, the Company anticipates hiring seventeen (17)
additional personnel during the remainder of 2000. The Company believes that
these personnel will be adequate to accomplish the tasks set forth in its plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the three and six months ended June 30, 2000 and 1999:
(1) Revenues. For the three and six months ended June 30,
2000, the Company had $241,270 and $440,880, respectively in
revenue from sales of 1,092 and 1,855 units of shared Internet
access "hardware routers" for home and small office users.
During the same period in 1999, when sales first began, the
Company had sales of $31,015 and $34,902, respectively.
(2) Cost of Sales. Cost of product sales for the three and six
months ended June 30, 2000 was $91,463 and $177,195,
respectively as compared to $21,403 and $27,342, respectively,
for the same period in 1999. The increase of $70,060 and
$149,853, respectively, consisted of the purchase price and
in-bound freight of pre-assembled finished goods inventory
from subcontractors in Taiwan, Republic of China. The Company
expects the dollar amount of purchases of pre-assembled
finished goods inventory from subcontractors to increase in
the future as the Company increases sales.
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(3) Gross Profit. The gross profit of our products was
approximately 62% and 60%, respectively for the three and six
months ended June 30, 2000. The Company expects pricing
pressures from our competition, but will attempt to lower our
cost procurement from subcontractors by obtaining the benefits
of lower product costs through volume purchases. In order to
maximize the Company's growth from sales, the Company may in
the future reduce selling prices to take advantage of large
volume sales opportunities, thus, possibly lowering the gross
margin in the future.
Selling, General and Administrative Expenses
Three Months Ended June 30, 2000 and 1999
Selling, general and administrative expenses increased to $1,504,786
for the three months ended June 30, 2000 as compared to $11,836 for the three
months ended June 30, 1999. The increase of $1,492,950 is primarily as a result
of our growth, increase in personnel and other related costs which are
explained below. In this connection, our payroll costs increased by $97,000, our
facilities expenses and office expense increased by $66,000, professional fees
by $75,000, and consultant expense by $46,000 and other operating expenses by
$41,000. The consultant was hired to help us raise capital. During this
period, we had two transactions that resulted in noncash expenditures to the
Company. On June 30, 2000, Mr. Dillon, former CEO, resigned for personal
reasons. In connection with his resignation, the 1,170,000 shares of common
stock issued in connection with his employment agreement were forfeited. The
Company in consideration of the termination of the employment agreement issued
500,000 shares of common stock to the former executive. Such shares were valued
based on the then fair market value of the Company's common stock at $1,125,000
In addition, the Company recorded a charge in the amount of $42,000 in
connection with the issuance of common stock to the Chief Financial Officer to
amortize his unearned compensation in accordance with his employment agreement.
The Company expects to increase its selling, general and administrative in the
future in proportion to the Company's anticipated growth in sales.
Six Months Ended June 30, 2000 and 1999
Selling, general and administrative expenses increased to $2,035,544
for the six months ended June 30, 2000 as compared to $15,320 for the six months
ended June 30, 1999. The increase of $2,020,224 is primarily as a result of our
growth, increase in personnel and other related costs which are explained
below. In this connection, our payroll costs increased by $141,000, our
facilities expenses and office expense increased by $108,000, professional fees
by $168,000 and other operating expenses by $57,000. During this period, we had
four transactions that resulted in noncash expenditures to the Company. On June
30, 2000, Mr. Dillon resigned from his position in the Company for personal
reasons. In connection with his resignation, the 1,170,000 shares of common
stock issued in connection with his employment agreement were forfeited. The
Company in consideration of the termination of the employment agreement issued
500,000 shares of common stock to the former executive. Such shares were valued
based on the then fair market value of the Company's common stock at $1,125,000
In addition, the Company recorded a charge in the amount of $42,000 in
connection with the issuance of common stock to the Chief Financial Officer to
amortize his unearned compensation in accordance with his employment agreement.
We also issued common stock valued at $240,000, the then fair market value
pursuant to a penalty provision resulting from the late filing of our Form S-1
Registration Statement. We also issued common stock to a consultant valued at
$139,000, the then market value of the stock. The consultant was hired to help
us raise capital. The Company expects to increase its selling, general and
administrative in the future in proportion to the Company's anticipated growth
in sales.
LIQUIDITY AND CAPITAL RESOURCES 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. The Company's net cash (used in) provided by operating
activities for the three months ended June 30, 2000 was ($109,040) compared to
$18,797 for the three months ended June 30, 1999, a decrease of $127,837. This
decrease resulted from increases in the Company's net loss, which included
non-cash charges of (i) $41,666 for compensation in connection with an
employment agreement, (ii) $1,125,000 for compensation in connection with
severance and (iii) $378,929 for expenses paid by the issuance of common stock
and increases in 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 $160,000 from an option exercised by a consultant.
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The Company's short-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
our future capital, the Company estimates that it will need to expend
approximately $2,000,000, within the next twelve months. The Company estimates
that of this amount (i) $1,000,000 will be for pre-assembled finished goods
inventory from subcontractors, (ii) $250,000 for sales and marketing forces,
(iii) $250,000 for professional fees and (iv) $500,000 for other operating
expenses, such as payroll, rent and office expenses.
The Company has no assured available financial resources to meet its
June 30, 2000 working capital deficit of $254,640 and 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 12 months. If the Company is unable to
obtain necessary additional capital, the Company may be required to change its
proposed business plan and decrease its planned operations, which could have a
material adverse effect upon its business, financial condition, or results of
operations
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.
CAPITAL EXPENDITURES
During the six months ended June 30, 2000, the Company's net capital
additions were $17,046. During fiscal year 2000, the Company anticipates
spending $300,000 in developing new products, purchasing computers and other
systems.
No significant capital additions were made during the comparable period
in 1999.
INFLATION
The Company has not been materially affected by the impact of
inflation.
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PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 25, 2000, pursuant to an employment agreement between the
Company and Enrique Dillon, the Company issued 1,170,000 shares of common stock
to Enrique Dillon. On May 1, 2000, pursuant to an employment agreement between
the Company and Martin Dell'Oca, the Company issued 200,000 shares of common
stock to Martin Dell'Oca. Because the shares were issued for services, neither
transaction involved the payment of money to the Company. The shares under both
employment agreements, are subject to forfeiture in the event the employees
resign or are terminated for cause prior to the initial two-year terms of their
respective employment agreements. Pending the forfeiture periods, the shares are
held in escrow. The Company relied upon the exemption provided by Section 4(2)
of the Securities Act of 1933, for "transactions by an issuer not involving any
public offering."
On June 30, 2000, the employment agreement between the Company and
Enrique Dillon was terminated. Pursuant to the severance agreement, the
1,170,000 shares of common stock issued in connection with the employment
agreement were forfeited and cancelled. In connection with the severance
agreement, the Company issued 500,000 shares of common stock to Enrique Dillon
in consideration of the termination of the employment agreement. The Company has
agreed with Mr. Dillon to register these shares on its next registration
statement for selling shareholders. As a result, the Company recorded a charge
to operations in the amount of $1,125,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company has amended its 10K for the fiscal year ended 1999. The
method of accounting for business combinations has been determined to be
inappropriate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are incorporated by reference from the
Registrant's Form S-1 Registration Statement filed with the Securities and
Exchange Commission (the "Commission") Commission File No. 333-3074 on April 1,
1996 and declared effective by the Commission on August 16, 1996.
Number Document
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3.1 Articles of Incorporation
3.2 Amended Articles of Incorporation
3.3 Bylaws of the Company
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The following documents are incorporated by reference from the
Registrant's Form 10-K Annual Report for the period ended December 31, 1998:
Number Document
------ --------
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 by reference from the
Registrant's Form 8-K Report filed with the Securities and Exchange Commission
(the "Commission") Commission file #333-3074, on December 3, 1999:
Number Document
------ --------
10.1 March 14, 2000 Consulting Agreement between Nexland S.A. and
the Company
10.2 November 17, 1999, Mutual Non-Competition Agreement between
Nexland, S.A. and the Company
10.3 November 17, 1999, Co-Operation Agreement between Smerwick,
Ltd. and the Company
The following documents are incorporated by reference from the
Registrant's Form 8K filed with the 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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nexland, Inc.
Dated: March 5, 2001 By: /s/ Gregory S. Levine
-------------------------------
Gregory S. Levine
President
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