UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2001.
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number: 33-83526
The IXATA Group, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4453386
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(State of Incorporation) (I.R.S. Employer Identification No.)
8989 Rio San Diego Drive, #160, San Diego, CA 92108
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(Address of Principal Executive Offices)
619-400-8800
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(Issuer's Telephone Number, Including Area Code)
Check whether issuer: (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value per share: 14,325,543 (as of March 31, 2001)
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Transition Small Business Disclosure Format (check one):
Yes [_] No [X]
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
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Table of Contents
Item Page
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Part I -- Financial Information 1
Item 1. Financial Statements. 1
Item 2. Management's Discussion and Analysis or Plan of Operations. 12
Introduction 12
Overview 12
Results of Operations 12
Liquidity and Capital Resources 13
Forward-Looking Statements 14
Part II -- Other Information 16
Item 1. Legal Proceedings. 16
Item 2. Changes in Securities and Use of Proceeds. 16
Item 3. Defaults Upon Senior Securities. 16
Item 4. Submission of Matters to a Vote of Security Holders. 16
Item 5. Other Information. 16
Item 6. Exhibits and Reports on Form 8-K. 16
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The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
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Part I -- Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets....................... 2-3
Condensed Consolidated Statements of Operations............. 4
Condensed Consolidated Statements of Cash Flows............. 5-6
Notes to Condensed Consolidated Financial Statements........ 7-11
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The IXATA GROUP, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
=============================================================================================================
March 31, 2001 2000
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Assets
Current Assets
Cash $ 19,820 $ 371,295
Marketable equity security - 180,000
Accounts receivable 98,258 165,712
Prepaid assets - 5,137
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Total current assets 118,078 722,144
Fixed Assets - Net 179,810 71,557
Goodwill - Net - 5,699,133
Other Assets - Net 5,833 9,058
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$ 303,721 $ 6,501,892
=============================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
The IXATA GROUP, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Condensed Consolidated Balance Sheets
======================================================================================================================
March 31, 2001 2000
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Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Notes payable (Note 3) 74,365 625,293
Current portion of capitalized lease 99,814 99,814
Accounts payable and accrued expenses 154,982 284,034
Related party payables (Note 5) 248,308 339,056
Accrued payroll and related taxes 47,264 302,022
Accrued interest 7,954 292,158
Deferred revenue 272,585 102,519
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Total current liabilities 905,272 2,044,896
Long-Term Debt 1,108,765 1,440,450
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Total liabilities 2,014,037 3,485,346
Commitments and Contingencies
Stockholders' Equity (Deficit)
Preferred stock; 10,000,000 shares authorized; 1,495,461
and 0 shares issued and outstanding, respectively
(liquidation preference of $1,540,325) (Note 4) 1,495 -
Common stock, $.001 par value; 100,000,000 shares
authorized; 14,325,543 and 13,671,679 shares issued
and outstanding, respectively 14,326 13,672
Stock subscriptions receivable (2,963) (2,963)
Additional paid-in capital (Note 4) 18,629,610 16,065,783
Accumulated deficit (20,352,784) (12,939,946)
Accumulated other comprehensive loss:
Unrealized holding loss on marketable securities - (120,000)
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Total stockholders' equity (deficit) (1,710,316) 3,016,546
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$ 303,721 $ 6,501,892
======================================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
The IXATA GROUP, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Condensed Consolidated Statements of Operations
====================================================================================================================
Quarters Ended March 31, 2001 2000
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Revenues $ 192,086 $ 82,270
Operating Expenses
Selling, general and administrative expenses
(including non-cash stock-based compensation
of $66,780 and $11,496 for 2001 and 2000,
respectively) (Note 4) 650,923 1,314,055
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Loss from Operations (458,837) (1,231,785)
Other Income (Expense)
Loss on issuance of stock for debt (41,850) -
Interest expense (Note 3) (11,332) (74,171)
Interest income - 909
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Total Other Income (Expense) (53,182) (73,262)
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Net Loss $ (512,019) $ (1,305,047)
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Net Loss Per Share (Basic): $ (0.04) $ (0.11)
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Weighted-Average Shares Outstanding 14,301,816 12,044,639
====================================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
The IXATA GROUP, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Condensed Consolidated Statements of Cash Flows
============================================================================================================
Quarters Ended March 31, 2001 2000
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Cash Flows From Operating Activities
Net loss $ (512,019) $ (1,305,047)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 11,033 339,236
Non-cash equity granted for services 66,780 11,496
Net loss on stock issued for debt 41,850 -
Change in operating assets and liabilities
Accounts receivable 54,872 94,071
Prepaid assets - (5,137)
Accounts payable, accrued payroll and accrued
expenses (10,824) 15,230
Related party payables (26,579) (30,444)
Accrued interest 6,949 62,921
Deferred revenue (25,550) (11,820)
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Net cash used in operating activities (393,488) (829,494)
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Cash Flows From Investing Activities
Purchases of fixed assets (82,945) (12,864)
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Cash Flows From Financing Activities
Proceeds from issuance of notes payable 318,509 -
Principal payments on notes payable (103,000) (2,000)
Net proceeds from sale of preferred stock 30,000 889,508
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Net cash provided by financing activities 245,509 887,508
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Net increase (decrease) in cash (230,924) 45,150
Cash at Beginning of Period 250,744 326,145
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Cash at End of Period $ 19,820 $ 371,295
============================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
The IXATA GROUP, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows, Continued
================================================================================
Quarters Ended March 31, 2001 2000
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 3,155 $ 11,250
Income taxes $ 800 $ -
Noncash Investing and Financing Activities:
During January 2001, the Company issued 450,000 shares of common stock with a
fair value of approximately $41,850 to satisfy debt related to professional
services. The fair value of the shares was calculated using the closing prices
surrounding the issuance dates.
During the first quarter of 2001, the Company granted stock options to purchase
365,000 shares of the Company's common stock. These stock options, in addition
to options vesting in the first quarter of 2001 from earlier grants, were
valued in accordance with SFAS 123 at $66,780. See Note 4.
In March 2001, the Company converted $250,000 of note payable-related party
into 250,000 shares of preferred stock. See Note 3.
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
Notes to Condensed Consolidated Financial Statements
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Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of The IXATA
Group, Inc. and subsidiaries (the "Company") include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. In the opinion
of management, the condensed consolidated financial statements reflect all
normal and recurring adjustments which are necessary for a fair presentation of
the Company's financial position, results of operations and cash flows as of
the dates and for the periods presented. The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. Consequently, these statements do
not include all the disclosures normally required by generally accepted
accounting principles for annual financial statements nor those normally made
in the Company's Annual Report on Form 10-KSB. Accordingly, reference should be
made to the Company's Form 10-KSB filed on April 16, 2001 and other reports the
Company filed with the Securities and Exchange Commission for additional
disclosures, including a summary of the Company's accounting policies, which
have not materially changed. The consolidated results of operations for the
three months ended March 31, 2001 are not necessarily indicative of results
that may be expected for the fiscal year ending December 31, 2001 or any future
period, and the Company makes no representations related thereto.
The accompanying condensed consolidated financial statements as of March 31,
2001 and 2000 have been prepared assuming the Company will continue as a going
concern. However, the Company had a working capital deficit of $787,194 as of
March 31, 2001 and incurred a net loss of $512,019 for the three months then
ended. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. To meet both current and contractual commitments
and business growth objectives, the Company will require additional financing.
To address its financing needs, management's plan is to continue their
relationship with the financing source as discussed in the most recent Annual
Report. There can be no assurance that additional debt and equity financing
needed to fund operations will be consummated or obtained in sufficient amounts
necessary to meet the Company's needs.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities and the results of operations
during the reporting period. Actual results could differ materially from those
estimates.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentations. These
reclassifications had no effect on reported total assets or net loss.
7
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
Notes to Condensed Consolidated Financial Statements
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Note 2. Abbreviated Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies applied consistently
in the preparation of the accompanying condensed consolidated financial
statements follows.
(a) Development stage operations and current business
During 1999, the Company was primarily devoted to developing its databases,
software and customer base. On November 11, 2000, the Company commenced
principal operations and began generating significant revenues. Accordingly,
management no longer considers the Company to be in the development stage. The
Company's principal operations are to provide internet based electronic
commerce services in the travel market for creative solutions for creating,
receiving and managing preferred lodging programs.
(b) New accounting principles
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," established accounting and reporting
standards for derivative instruments. The Company has not in the past, nor does
it anticipate that it will, engage in transactions involving derivative
instruments which will impact the consolidated financial statements.
In December 1999 the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company is in compliance with this standard.
In April 2000 the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB Opinion No. 25," which provides
guidance on accounting for certain stock option transactions, including an
exchange of stock compensation awards in a business combination, stock option
repricings, and other equity arrangements. The adoption of this interpretation
did not have a material effect on the consolidated financial statements.
8
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
Notes to Condensed Consolidated Financial Statements
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3. Notes Payable - Short-Term
Notes payable - short-term consisted of the following:
March 31, 2001 2000
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Notes Payable to NextGen Capital. Advances to the
Company against the March and June traunches of the
Series C preferred stock offering. Notes are intended
to be converted into Series C preferred shares. $70,000 $ -
Interest charged on advances at 10% per annum.
Account payable - vendor converted to a note on June 21,
1999; interest at 8% per annum; payable in monthly
$2,000 installments of principal and interest beginning
July 1, 1999. 4,365 8,365
Note payable - limited partnership; interest at 15% per
annum. This note was settled during 2000. - 300,000
Unsecured note payable; interest at 10% per annum. This
note was settled during 2000. - 130,000
Unsecured note payable to an unrelated party for
advances made to the Company; interest at 10% per
annum. This note was settled during 2000. - 130,000
Note payable for a settlement with the Company's former
CEO to resolve all outstanding Company obligations
related to his employment; interest at 12% per annum.
This note was settled during 2000. - 50,000
Unsecured note payable to a vendor under an agreement
dated October 1997; interest at 6% per annum. This note
was settled during 2000. - 6,928
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$74,365 $625,293
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9
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
Notes to Condensed Consolidated Financial Statements
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4. Stockholders' Equity
Preferred stock
On January 3, 2001, individuals purchased 60,000 shares of Series C Preferred
Stock, which shares are presently convertible into 600,000 shares of common
stock (subject to anti-dilution adjustment in the event of subsequent issuances
of stock by the Company at a price less than the conversion price of the Series
C preferred stock, stock splits, stock dividends, recapitalization and similar
events). The individuals were also granted Series C warrants to purchase 60,000
shares of Series C preferred stock. These Series C warrants are exercisable at
a price of $1.00 per share and expire on January 3, 2006. 40,000 of the shares
were issued to satisfy a $40,000 debt to a related party. The fair value of the
shares at that date was $40,000.
On February 28, 2001, an individual purchased 10,000 shares of Series C
preferred stock, which shares are presently convertible into 100,000 shares of
common stock (subject to anti-dilution adjustment in the event of subsequent
issuances of stock by the Company at a price less than the conversion price of
the Series C preferred stock, stock splits, stock dividends, recapitalization
and similar events). The individual was also granted Series C warrants to
purchase 10,000 shares of Series C preferred stock. These Series C warrants are
exercisable at a price of $1.00 per share and expire on February 28, 2006.
On March 9, 2001, NextGen Fund II, L.L.C. purchased 150,000 shares of Series C
preferred stock and NextGen SBS Fund II, L.L.C. purchased 100,000 shares of
Series C preferred stock for a combined total of 250,000 shares of Series C
preferred stock, which shares are presently convertible into 2,500,000 shares
of common stock (subject to anti-dilution adjustment in the event of subsequent
issuances of stock by the Company at a price less than the conversion price of
the Series C preferred stock, stock splits, stock dividends, recapitalization
and similar events). NextGen was also granted Series C warrants to purchase
250,000 shares of Series C preferred stock. These Series C warrants are
exercisable at a price of $1.00 per share and expire on March 9, 2006.
Stock options
During January through March 2001, the Company granted 365,000 vesting stock
options to employees under the expanded 1997 Employees Non-Qualified Stock
Option Plan. Compensation expense of $66,780 was recorded in accordance with
Statement of Financial Accounting Standards No. 123 as of March 31, 2001.
During January through March 2000, the Company granted 127,000 vesting stock
options to employees, officers and directors under the 1997 Employees Non-
Qualified Stock Option Plan. Compensation expense for these options was $11,496
as of March 31, 2000.
10
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
Notes to Condensed Consolidated Financial Statements
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5. Related Parties
The Secretary of the Company is also a partner in the law firm that represents
the Company in its legal matters.
The Company has employment agreements with officers and directors that contain
compensation arrangements based on the achievement of certain Company goals
established by the Board of Directors. Long-term notes payable due to former
officers and directors of the Company was approximately $413,000 at March 31,
2001. The balance due former officers and directors was carried as a current
payable, accrued salaries, at March 31, 2000 with a balance of $255,839.
The Company had maintained a management and services agreement with a company
that is owned and controlled by stockholders with significant ownership of the
Company. Related expenses for the first quarter of 2001 were $21,500. Related
payables were approximately $273,000 at March 31, 2001. The management services
agreement was largely terminated in June 2000 except for network and internet
services. The remainder of the contract was terminated February 2001 when the
Company purchased and began operating on independent server equipment.
The Company formerly had consulting contracts with members of its Board of
Directors. Related expenses were $0 and $37,000 for the first quarter 2001 and
2000, respectively. Related payables were approximately $175,000 at March 31,
2001.
11
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Introduction
The following describes certain factors that produced changes in the results of
operations of The IXATA Group, Inc. (the "Company") during the quarter ended
March 31, 2001 and as compared with the quarter ended March 31, 2000 as
indicated in the Company's Consolidated Financial Statements. The following
should be read in conjunction with the Consolidated Financial Statements and
related notes. Historical results of operations are not necessarily indicative
of results for any future period. All material inter-company transactions have
been eliminated in the results presented in this Quarterly Report.
Certain matters discussed in this Quarterly Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance or achievements may differ significantly
from the results, performance, or achievements expressed or implied in these
forward-looking statements. See "Forward-Looking Statements."
Overview
The Company was organized to develop and market prepaid wireless products and
services in various markets throughout the United States. In late 1998 the
Company established a new strategic objective of refocusing the Company's
mission to pursue new complimentary Internet-related and e-commerce
opportunities. In 1999 the Company actively implemented its new mission by,
among other actions, selling a portion of the Company's business no longer
considered essential for the new strategy and purchasing IXATA, Inc., a company
whose business thrust was in line with the new strategy.
Upon closing the IXATA, Inc. acquisition, the Company established itself as a
provider of internet-based, business-to-business ("B2B") electronic commerce
services in the travel market, targeting existing and new corporate clients,
hotel and property management groups, and major travel agencies. IXATA, Inc.'s
principal service, RFP Express, integrates a user-friendly, internet-based
interface with a sophisticated data-warehousing system and fax technology to
deliver automated solutions for creating, sending, receiving and managing
preferred lodging programs request for proposal process in the hospitality
services market ("RFP process"). This process typically involves hundreds of, in
some cases, thousands of properties worldwide. By automating the users' RFP
business process, and also providing user-friendly internet access to a
sophisticated data warehousing system, RFP Express provides dramatic cost
savings to users.
On November 11, 2000, the Company commenced principal operations and began
generating significant revenues. Accordingly, management no longer considers
the Company to be in the development stage. The Company's principal operations
are to provide internet-based electronic commerce services in the travel market
for creative solutions for creating, receiving and managing preferred lodging
programs. Although the market reaction to the Company's service has been
positive, there can be no assurance that the Company will be able to obtain
profitiability.
Results of Operations
Revenues
Revenues are from two components, subscription revenues recognized over the life
of contracts and transaction revenues recognized the month of the transaction
activity. The subscription portion continues to generate recognizable revenue
in the period after the sale. The subscription portion of revenues from the
increased sales in
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12
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
- --------------------------------------------------------------------------------
2000 plus new sales in the first quarter of 2001 combined with transaction
revenues during the first quarter 2001 to increase sales to $192,086, more than
double the $82,270 for the same period in 2000.
Operating Expenses
Selling, general and administrative expenses (SG&A) were $650,923 for the
quarter ended March 31, 2001 as compared to $1,314,055 for the quarter ended
March 31, 2000. The largest component of SG&A continues to be payroll and
related expenses. Payroll and related expenses decreased $126,098 during the
first quarter 2001 to $397,732 from $523,830 during the first quarter 2000.
This decrease is attributed to cost control measures instituted by new
management which included staff reductions through attrition during the last six
months of 2000 and layoffs as the Company entered its slow season in January
2001. The second largest component of SG&A expense had been amortization of
goodwill. Goodwill created by the acquisition of IXATA, Inc. in 1999 was deemed
to be impaired in June 2000. As a result of the impairment, the unamortized
balance of goodwill was written off and a loss recognized in June 2000. This
change accounts for a reduction in SG&A expense of $335,243 for the first
quarter 2001 from the first quarter 2000. Travel and entertainment expense
decreased $116,812 during the first quarter 2001 from the first quarter 2000.
The first quarter 2001 reflects both a change in the Company's sales philosophy
and reduced sales and executive staff travel. Expense for consultants and
outside labor decreased $63,207 during the first quarter 2001 from the first
quarter 2000. In the first quarter of 2001 the majority of consulting expense
related to acquiring and maintaining the Company's new independent server
equipment. During the first quarter 2000 the Company still maintained certain
contracts with consultants though consulting expense declined steadily during
2000 as the Company filled fulltime employee positions. The preceding factors
combine to account for $641,360 of the $663,132 decrease in SG&A expense during
the first quarter 2001 from the first quarter 2000.
Interest expense decreased $62,839 to $11,332 in the first three months of 2001
from $74,171 in the first three months of 2000 due to restructuring the
Company's obligations. This restructuring was completed as a condition to the
financing transaction with NextGen Capital in December 2000. The nature of the
restructuring fell under the accounting treatment for troubled debt
restructuring and as such all future interest payable on the restructured notes
was recognized in December 2000 and included in the principal amount of the
note. Thus, in the first quarter 2001 and for all future periods until these
notes are paid, no interest will be accrued for these restructured long-term
obligations. Some short and long-term notes remain and interest will be accrued
on these until the balances are paid in full.
The net loss in the first quarter of 2001 decreased to $512,019 from $1,305,047
in 2000. This net improvement of $793,028 in the first quarter 2001 from the
first quarter 2000 is the result of both increased revenues and decreased
operating expenses. This change is attributable to aggressive cost reduction
efforts while maintaining sales growth targets.
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes.
Deferred tax assets consist primarily of income tax benefits from net operating
loss carry-forwards and amortization of goodwill. A valuation allowance has
been recorded to fully offset the deferred tax asset as it is more likely than
not that the assets will not be utilized. The valuation allowance increased
approximately $160,000 in the first quarter 2001, from $1,839,000 at December
31, 2000 to $1,999,000 at March 31, 2001.
Liquidity and Capital Resources
The Company has incurred significant operating and net losses as a result of the
development and operation of its products, service platform and supporting
networks. The Company expected that such losses would continue to increase as
the Company focused on the development and expansion of product offerings and
its customer base as cash provided by operations would not be sufficient to fund
the expansion. The Company had working capital deficits of $787,194 and
$1,322,752 as of March 31, 2001 and 2000, respectively, and incurred net losses
of
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13
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
- --------------------------------------------------------------------------------
$512,019 and $1,305,047 for 2001 and 2000, respectively. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
To address its financing needs, on September 8, 2000, the Company entered into a
letter of intent with NextGen Capital, LLC for an equity investment by NextGen
in the Company. NextGen is a Virginia-based firm that manages two venture
capital funds specializing in high-technology and internet-related investments.
The financing was consummated on December 5, 2000. As of March 31, 2001, the
Company had issued 1,495,461 shares of its newly-authorized Series C preferred
stock, and warrants to purchase an additional 1,460,000 shares of preferred
stock to NextGen Fund II, LLC, NextGen SBS Fund II, LLC, Michael W. Wynne, the
Company's Chief Executive Officer and Chairman, and additional investors for a
total of $1,710,000. In addition, upon the completion of defined performance
milestones by the Company, NextGen agreed to purchase additional preferred
shares and warrants. The Company reached the first defined performance
milestone in March 2001 at which time NextGen purchased the second round of
preferred shares and warrants. NextGen has agreed to invest another $500,000 in
the Company should additional targeted performance milestones be reached in June
2001.
As of March 31, 2001, the Company had cash and cash equivalents of $19,820 as
compared to $371,295 as of March 31, 2000. This decrease is attributable to
cash used to pay off the Company's $100,000 line of credit and a $75,000
investment in computers and equipment to support the new independent server room
in addition to cash used to support operations. The Company had accounts
receivable totaling $98,258 at March 31, 2001 as compared with $165,712 at March
31, 2000. The decrease in accounts receivable reflects the effect of Y2K during
2000 where Company programs were delayed until after December 31, 1999 when the
Y2K threat was minimal. Net cash used by operating activities was $393,488 for
the first quarter 2001 compared to $829,494 for the first quarter 2000. Net
cash used by investing activities for the first quarter 2001 was $82,945 for the
purchase of fixed assets as compared with $12,864 for the first quarter 2000.
Net cash provided by financing activities for the first quarter 2001 totaled
$245,509 compared to $887,508 during the first quarter 2000. Cash infusions for
the first quarter 2001 and the remainder of the year will reflect a series of
fundings from NextGen Capital and certain related investors based on pre-
determined milestones related to sales and cost targets.
Seasonality
Sales of the Company's RFP Express(SM) products and services are generally
seasonal in nature. Most of the RFP processing transactions and related billable
activities occur in the third and fourth quarter. While the Company is pursuing
new services, which may reduce the revenue volatility of the Company's business,
there can be no assurance when revenues from such services will be realized.
Forward-Looking Statements
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
expansion into new markets, growth in existing markets, and the Company's
ability to attract new sources of financing, are forward-looking statements that
involve risks and uncertainties. These risks and uncertainties include, but are
not limited to:
. The Company has a short operating history upon which to base an investment
decision.
. The Company will require additional capital, which it may not be able to
obtain.
. The continued losses and negative working capital raise substantial doubt
about the Company's ability to continue as a going concern.
. The Company's failure to protect or maintain its intellectual property
rights could place it at a competitive disadvantage and result in loss of
revenue and higher expenses.
. The Company's business prospects depend on demand for and market acceptance
of the Internet.
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14
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
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. If the Company's market does not grow as expected, its revenues will be
below its expectations and its business and financial results will suffer.
. Any failure of the Company's Internet and e-commerce infrastructure could
lead to significant costs and disruptions which could reduce revenues and
harm business and financial results.
. The Company could lose customers and expose itself to liability if breaches
of its network security disrupt service to its customers or jeopardize the
security of confidential information stored in its computer systems.
. Rapid growth in the Company's business could strain its resources and harm
its business and financial results.
. The Company may not be able to compete in its highly competitive market.
. The Company depends on the services of senior management and other key
personnel and the ability to hire, train and retain skilled employees.
. Risks associated with operating in international markets could restrict the
Company's ability to expand globally and harm its business and prospects.
. Government regulation and legal uncertainties could limit the Company's
business or slow its growth.
. The Company's operating results may fluctuate in future periods which may
cause volatility or a decline in the price of its common stock.
. The Company's executive officers, directors, and parties related to them,
in the aggregate, control 83% of the Company's voting Stock and may have
the ability to control matters requiring stockholder approval.
. The Company's common stock may be delisted from the Nasdaq Over-the-Counter
Bulletin Board Service if the Company fails to make required filing with
the Securities and Exchange Commission.
These and other risks described in the Company's most recent Annual Report must
be considered by any investor or potential investor in the Company.
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15
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
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Part II -- Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On December 5, 2000, the Company entered into the Series C Convertible Preferred
Stock and Series C Convertible Preferred Stock Warrant Purchase Agreement.
Pursuant to the stock purchase agreement, on January 3, 2001, private investors
purchased 60,000 shares of Series C preferred stock, on February 28, 2001, a
private investor purchased 10,000 shares of preferred stock, and on March 9,
2001, NextGen purchased 250,000 shares of preferred stock. Each share of
preferred stock is presently convertible into ten shares of common stock
(subject to anti-dilution adjustment in the event of subsequent issuances of
stock by the Company at a price less than the conversion price of the Series C
preferred stock (presently $0.10), stock splits, stock dividends,
recapitalization and similar events). Each investor was also granted Series C
preferred warrants to purchase an equal number of Series C shares. These Series
C warrants are exercisable at a price of $1.00 per share and expire five years
from the date of issuance. The Company believes this issuance to be exempt
under (S) 4(2) and Rule 506 of the Securities Act.
On January 4, 2001, the Company issued 500,000 shares of unregistered common
stock to the law firm of Kohrman Jackson & Krantz P.L.L., which provides legal
services to the Company, in settlement of a $50,000 payable for legal fees. The
Company believes the issuance of this stock to be exempt from registration under
(S) 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
No defaults upon senior securities occurred during the first quarter of 2001.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders in the first
quarter of 2001.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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16
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2001
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The IXATA Group, Inc.
Date: May 18, 2001 /s/ Michael W. Wynne
-------------------------
By Michael W. Wynne, Chief Executive Officer
Date: May 18, 2001 /s/ Robert D. Cuthbertson
-------------------------
By Robert D. Cuthbertson, Chief Financial Officer
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17