UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ 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
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Nexland, Inc.
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(Exact name of registrant as specified in its charter)
Arizona 37-1356503
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1101 Brickell Avenue, Suite 702 Miami, Florida 33131
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(305) 358-7771
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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
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None
Securities registered pursuant to Section 12(g) of the Act:
Title of class: Common $0.0001 par value
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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.
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[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 $6,450,076.24 as of March 31,
2000, based upon the closing price of $5.625 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 April 11, 2000, there were 34,308,916 shares of the Registrant's
Common stock issued and outstanding. There were no shares of the Registrant's
Preferred stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The prospectus from the Registrant's Post-Effective Amendment 2 to Form
S-1 Registration Statement has been filed with the Securities and Exchange
Commission, file #333-3074, on April 3, 2000 and not yet declared effective.
NEXLAND, INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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TABLE OF CONTENTS
PART I .......................................................................................1
ITEM 1. BUSINESS.............................................................................1
GENERAL..............................................................................1
EXPLANATION AND BACKGROUND OF THE INTERNET...........................................1
Internet Access Technologies Facilitate New Applications.............................2
The Broadband Market ................................................................3
Today's Small Business Office Internet Access Environment............................3
The Small Office Market Opportunity for Shared Internet Access Solutions.............5
THE BENEFITS OUR PRODUCTS ARE DESIGNED TO PROVIDE....................................5
A DESCRIPTION OF OUR PRODUCTS........................................................7
BUSINESS STRATEGY....................................................................8
SALES AND MARKETING OVERVIEW.........................................................8
COMPETITION.........................................................................10
INTELLECTUAL PROPERTY...............................................................12
EMPLOYEES...........................................................................13
ITEM 2. PROPERTIES..........................................................................13
ITEM 3. LEGAL PROCEEDINGS....................................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................14
PART II ....................................................................................14
ITEM 5.MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.................................................................14
VOLATILITY AND FLUCTUATION OF OUR COMMON STOCK......................................14
DIVIDEND POLICY.....................................................................15
ITEM 6. SELECTED FINANCIAL DATA..............................................................15
Balance Sheet Data.........................................................15
Statement of Operations....................................................16
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION..............................................................16
OVERVIEW...................................................................16
REVERSE SPLIT..............................................................17
RESULTS OF OPERATIONS......................................................17
LIQUIDITY AND CAPITAL RESOURCES............................................19
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK................................................................................20
Exchange Rate Sensitivity...........................................................20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................................20
PART III ....................................................................................21
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................21
ITEM 11. EXECUTIVE COMPENSATION..............................................................22
SUMMARY COMPENSATION TABLE.................................................22
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................................................22
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................24
PART IV ....................................................................................26
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS..........................................26
SIGNATURES...................................................................................29
FORWARD LOOKING STATEMENTS
Some of the information in this Form 10-K 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-K 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.
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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 Internet
technology. 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.,
we have become a designer, developer and supplier of Internet sharing devices,
Internet firewall devices and networking products and have shed all connection
with the mining business We design and develop easy-to-use, reliable and
affordable shared Internet access solutions for the office and home markets and
similar arrangements.
Our product family allows multiple users on a local area network (LAN)
in an office to share the same Internet connection simultaneously while
optimizing each user's access speed and1 providing firewall security. Our
Internet Sharing Boxes or "ISBs," product family is a flexible and scalable
platform that provides firmware-based routing functionality to deliver
Internet-enabled applications and services. Our products support existing analog
phone lines, as well as Integrated Services Digital Network or "ISDN" and
emerging access technologies such as xDSL, cable modems and wireless
connections. Our products enable multiple users to safely and securely access
the Internet simultaneously through either regular phone lines, analog modems,
or highspeed digital connections. Our products also support Virtual Private
Networks or "VPNs", the passthrough of VPN protocols(IPSec, L2TP and PPTP). We
primarily market and sell our products through North American and South American
based Internet Service Providers or " ISPs", value-added resellers, and
Telephone Companies or "Telcos", with some minor sales to direct end-users. As
of year-end 1999, we had relationships with over 100 customers.
EXPLANATION AND BACKGROUND OF THE INTERNET. The Internet is a global
collection of interconnected computer networks that 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.
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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 information from,
transmit information to, and use resources available on the Internet.
The emergence of the Web, 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 numbers of Internet
users, Web sites and Internet-based applications and 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
o Virtual Private Networking
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 businesses continue to use the Internet
to sell products and services, implement electronic commerce initiatives and
utilize new generations of Internet-enabled business applications.
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 office market as well
as the internet service providers and telephone companies which provide internet
service to them. The office market includes small businesses, home offices and
remote offices. The Internet allows businesses to communicate more effectively
with their suppliers and customers and to access and share critical business
information both internally and with their business partners. Overall, the
Internet and the business applications enabled by the Internet present
tremendous opportunities for offices to improve business communications,
collaborate with partners and suppliers, perform important business processes
online and realize cost and operational efficiencies that will 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 currently represent the most widely utilized method of accessing
the Internet. While many markets worldwide will continue to depend on analog
Internet access technologies, new high-speed and high-bandwidth Internet access
technologies such as xDSL and cable modems have emerged in recent years.
According to TeleChoice, xDSL connections, which utilize the same copper wire
infrastructure that provides telephone service to most residential and business
locations, are projected
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to grow from approximately 250,000 in 1999 to more than 2.3 million in 2002.
Likewise, cable modem service providers and equipment manufacturers have
experienced significant growth in the number of subscribers and deployments over
the past several years. There are approximately 350,000 cable modem subscribers
in North America and industry analysts such as Forrester Research predict there
will be more than 2 million cable modem subscribers during the year 2000.
Furthermore, it is predicted by Forrester Research that 25% or 16 million of all
online households in the U.S. will have high-speed connectivity to the Internet
by 2002 and 3 million xDSL subscribers by 2001.
(B) The Broadband Market - High Speed Access. At present ISDN is
rapidly becoming available to the United States as a method used to transmit
more data over existing regular phone lines. ISDN is, in most markets, priced
comparably to standard analog phone circuits. It can provide speeds of roughly
128,000 bits per second, although, in practice, most users will be limited to
56,000 or 64,000 bits per second. However, new emerging access technologies
offer greater bandwidth and provide much higher access speeds; they enable a
variety of new data intensive, multimedia and graphical applications, as well as
new integrated voice and high-speed data connectivity services. These broadband
markets include:
o Digital Subscriber Line or xDSL, is a method for moving data over
existing copper phone lines, but at a much faster rate than a regular
phone connection.
o Interactive Cable allows for communication across cable infrastructure,
cable modems, or cable modem termination centers; also known as
headends;
o Wireless Transmissions are movements of packets of information over
airwaves
o Fiber to the Curb exists when fiber optic cable supports an alternative
broadband access.
o Future technology will include high speed access based on light and
photonics that offer nearly unlimited bandwidth capacity.
As these access technologies become more affordable and widely
available, they will present increasingly attractive alternatives for satisfying
the Internet access requirements of offices. Because of our ethernet to ethernet
interface, all of the aforementioned broadband options can be securely routed
and shared through our family of products.
In addition, the 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 can already access
through relatively expensive dedicated high-speed leased lines. Furthermore, the
higher cost of xDSL and cable modem access technologies relative to analog
technologies will increase the need of offices for shared Internet access
solutions that enable total implementation costs to be allocated across a
greater number of users.
(C) Today's Small Business Office Internet Access Environment. Access
Media International estimates that in 1998 there were approximately 85 million
small businesses worldwide with fewer than 100 employees that could afford and
benefit from information technology solutions,
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including approximately 7.2 million small businesses in the United States alone.
International Data Corporation estimates that the percentage of the number of
small businesses with access to the Internet increased from approximately 26% in
1997 to approximately 50% in 1998 and is projected to increase to approximately
65% by 2001. 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, those same consumers
are seeking high- speed, low-cost solutions, enabling them to benefit from the
advances in data transfer speed. International Data Corporation predicted that
by the end of 1999, one in three US households would be online. And businesses
have even greater requirements for high-speed access in order to implement
electronic commerce and/or web based business initiatives.
Despite the large size of the small office market and increasing demand
for viable Internet access solutions, most networking and personal computing
vendors have tailored their product offerings and Internet access solutions for
either the large corporate market or the consumer market.
As a result, there are limited shared Internet access solutions
designed to accommodate the specific needs of the small office market. Small
office Internet access requirements include the following:
o Shared Access. Many small offices have addressed the Internet access
problem by installing a single dedicated computer that is connected to
the Internet via a modem, an analog phone line, and a single Internet
service account shared by all users in the office. This approach is
inefficient in that it requires users to wait in line until the
Internet terminal becomes available. In addition, productivity is often
reduced since many users fail to utilize the Internet because it is not
conveniently accessible from their individual workplaces. As an
alternative, some small 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, which is
critical to achieving cost efficiencies and benefitting from the
information sharing, communications and operational advantages offered
by the Internet and Internet-enabled business applications.
o Ease of Installation and Use. Most small offices lack in-house
information technology personnel as well as sufficient resources to
hire outside system integration consultants to implement and maintain
complex Internet access solutions. Therefore, small offices require
Internet access solutions that are easy to install, use, maintain and
upgrade.
o Affordability. Small offices are often subject to tight budgetary
constraints. Therefore, the server-based and router-based local area
networking solutions that have been widely adopted by larger
organizations to accommodate shared access often are prohibitively
expensive for small offices.
o Scalability and Compatibility. Small offices need Internet access
solutions that accommodate their current requirements and can be scaled
to accommodate additional users as their businesses grow. In addition,
small offices seek solutions that meet these needs
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without having to replace existing systems, invest significant capital
in upgrades or employ in-house information technology personnel.
Further, most small offices have already made significant investments
in computer hardware, modems, and software, and in many cases utilize
widely available analog access technologies. As a result, small offices
require Internet access solutions that are compatible with existing
hardware and software and flexible enough to support analog access
technologies, as well as ISDN and emerging high-speed access
technologies such ask xDSL and cable modems.
o Platform for New Applications and Services. Small offices also seek
Internet access solutions that serve as a platform for the deployment
of new applications and services enabled by the Internet and the
emergence of high-speed access technologies.
(D) The Small Office Market Opportunity for Shared Internet Access
Solutions.
Access Media International estimates that the number of small
businesses in the United States using shared Internet access will grow from
400,000 in 1998 to 1.3 million by the year 2000, representing a three year
annual compound growth rate of 80%. However, affordable shared Internet access
products currently offered by networking equipment and software vendors
typically lack the flexibility and features required by most small offices. As a
result, a significant portion of the small office market has been unable to
realize the business benefits of the Internet and fully participate in the
emerging Internet-based economy. As the Internet grows, electronic commerce
initiatives are adopted, and new applications facilitated by emerging high-speed
access technologies are introduced, the inability of small offices to
effectively access the Internet will become an increasingly significant
competitive disadvantage. In order to more fully participate in the evolving
uses of the Internet, the small office market requires easy-to-use, affordable
and scalable products that enable shared Internet access by multiple users and
support a full range of existing and emerging Internet-enabled applications and
services.
THE BENEFITS OUR PRODUCTS ARE DESIGNED TO PROVIDE. Our products
provide an easy-to-use, reliable and affordable shared Internet access solution.
Our solution allows multiple users in an office, workplace or home to share the
same Internet connection simultaneously while optimizing each user's access
speed. Further, our products are designed to overcome the limitations of
existing Internet access solutions by offering a flexible and scalable platform
for firmware-based routing functionality and firewall security to deliver
Internet-enabled applications and services.
Our products inter-operate with Analog modems (28.8K, 33.6K, 56K), and
emerging high-speed technologies such as digital modems including ISDN, xDSL
and Cable or Wireless connections, and are plug and play (meaning the user
simply connects the modem to an ISB box, the ISB box to the network hub, and
everyone has secure shared access). In addition, our products extend the
benefits of analog technology by enabling multiple users to access the Internet
simultaneously through regular phone lines and analog modems at up to 30 times
the access speed of a single analog connection. Our products offer the following
key benefits:
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o Efficient Shared Internet Access. The ISB product family enables the
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 ISP account. In
addition, users are able to connect simultaneously to a remote office
LAN and the Internet.
o Ease of Installation and Use. We deliver a plug-and-play shared
Internet access solution. To facilitate easy installation, the ISB
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 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, or
UNIX, and are compatible with most network architectures and all major
Internet access technologies.
o High-Speed Access. Our product family supports all major Internet
access technologies used by offices, including analog, ISDN, xDSL, and
cable modems. Our routing software allows multiple users to connect
simultaneously to the Internet and allocates bandwidth among active
users to optimize each user's access speed. In addition, our products
aggregate the bandwidth of multiple analog or ISDN lines to create
access speeds that are up to 30 times the access speed of a single
analog or ISDN connection.
o Low Cost of Ownership. The ISB product family is designed to minimize
installation, maintenance, and Internet access expenditures by enabling
users in offices to share a single Internet connection and ISP account.
In addition, the ease of installation and use of the ISB product family
enables small offices to avoid hiring in-house information technology
personnel that would be otherwise required to implement and maintain an
effective Internet access solution.
o Scalability and Compatibility. The ISB product family is designed to
accommodate additional users easily and to be compatible with most
widely-used computers, software, modems, and terminal adapters. This
broad compatibility enables most offices to leverage prior technology
investments by utilizing our products with hardware and software that
has already been installed.
o Platform for New Applications and Services. We have designed the ISB
product family to facilitate effective delivery of value-added
Internet-enabled applications and services such as fax and voice over
Internet, virtual private networking, remote dial-in, and advanced
security features. Our product line architecture allows software-based
applications to be easily downloaded and implemented. It also provides
us a platform to deliver new Internet-enabled applications and services
to our customers.
o Firewall Protection. Our ISB products provide firewall security among
shared users.
o Virtual Private Network or VPN. 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.
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A DESCRIPTION OF OUR PRODUCTS. Our primary product line is the ISB
series. The ISB products include the ISB100e, the ISB200e and the ISB300e as
well as the ISB2LAN Cable/xDSL Internet Sharing Box. The ISB products are
cost-effective network adapters that allow everyone on an Ethernet Local Area
Network or LAN, to share Internet access at the same time using only one modem,
one phone line or cable connection, and one Internet Access Account. In
addition, the ISB series of products act as a "natural firewall," providing
network security. The ISB products are platform independent and are compatible
with personal computers or PC, Macintosh, UNIX, NT, Linux computers or any
computer that uses a TCP/IP browser interface. Retail priced from $199 to $349,
the ISB line of products provides a simple and cost-effective hardware solution
for connecting multiple PCs to the Internet.
From the simple single port ISB100e, to the more advanced three port
ISB300e and powerful cable/xDSL supporting ISB2LAN, we have an ISB for every
application: from the home with three or four PCs to the office with up to 250
PCs. The Internet connection utilized by the company determines the choice of
the product.
The ISB products fill a unique niche in the networking marketplace.
While they can act as routers, the ISB products are less expensive and provide
many additional features, including firewall and VPN security, specifically
IPSec pass-through that are not available in a stand alone router, that are not
available in a stand-alone router.
While the ISB products can provide the same functionality as a proxy
server, our Internet Sharing Box products are much easier to install and
configure and do not require any client software, as a proxy server does. The
ISB2LAN, is a plug and play product that can be installed on a network in a
matter of a few minutes.
All of the ISB products allow simultaneous and independent Internet
access for all users on a network, as well as natural firewall protection to
prevent any unwanted access to the local network.
o ISB100e -- One serial port connection for use with any external analog
or ISDN modem up to a maximum transfer rate of 230k. Expanded features
include modem sharing, fax sharing, and remote access capability and
VPN pass-through functionality.
o ISB200e -- Same product as the ISB100e except with two serial port
connections to allow for up to two external modems. Maximum transfer
rate is 460k when both ports are in use. The ISB200e will dynamically
increase available bandwidth as needed, or ports can be split for
Internet access and other modem functions at the same time.
o ISB300e -- Same product as the ISB200e except with three serial port
connections to allow for up to three external modems. Maximum transfer
rate is 690k when all three ports are in use. The ISB300e will
dynamically increase available bandwidth as needed, or ports can be
split for Internet access and other modem functions at the same time.
o ISB2LAN -- Designed specifically for shared Internet access, the
ISB2LAN features "plug and play" installation and configuration. The
ISB2LAN connects to a cable or xDSL modem through an Ethernet
connection to accommodate high-speed data transmission. The
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maximum transfer rate of the ISB2LAN is 2.5mb. The ISB2LAN supports
PPPoE, remote configuration, and provides VPN functionality.
BUSINESS STRATEGY. Our intent is to become a leading provider of
Internet sharing and firewall security devices in the high-speed broadband
arena. We will accomplish our mission by completing the following tasks:
o Continuing to interoperate with other high-speed backbone
providers.
o Satisfy Customers. We believe that the Internet access
solutions currently offered by most personal computing and
networking vendors continue to be relatively expensive,
technically complex and generally unable to satisfy the unique
requirements of the office market. Therefore, we believe the
opportunity in the office market is significant and we intend
to continue to focus our product development efforts,
distribution strategies and support services to satisfy the
specific requirements of the office market.
o Internet-enabled business applications and services. We
believe that in order to remain competitive, offices will
experience an increasing need to access the Internet.
o Continuing to integrate emerging access technologies into
our products. Our products are designed to support all major
Internet access technologies used by consumers, including
analog, ISDN, xDSL and cable and wireless modems. We believe
our strategy of developing products that are access technology
independent will enable our installed and future customer base
to benefit from the deployment of emerging broadband
technologies. Further, we believe emerging broadband
technologies will increase the demand in offices for shared
Internet access solutions. Therefore, we intend to support the
commercialization of new broadband technologies in the design
of our product offerings and by pursuing partnering
relationships with broadband technology providers while
continuing to penetrate the existing market for our
analog-based products.
o Develop Strategic Alliances. In order to be apprized of
industry trends, to be compatible with all emerging
technologies, and to be recognized as a technologically savvy
company, we have aligned ourselves with various industry
leaders including Redback Networks, Copper Mountain Networks,
and MasTec.
SALES AND MARKETING OVERVIEW. Because of our limited working capital in
the past, 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 intend the
sales staff to be employed both on an independent contractor basis and as
in-house employees.
The market for our products is rapidly evolving. In developing our
sales and marketing strategies we are focused on attracting users for our ISB
network products. We believe that the principal competitive factors for
companies seeking to use our type of products are facility and flexibility of
use, reliability, low cost, quality customer service, and demographic focus.
8
Our marketing and sales director is developing our customer base
through an active sales and marketing campaign, primarily centered on building
relationships with ISP's and Telcos. At present, we are concentrating our
efforts in North America, but anticipate expanding geographically to Latin
America.
We will strategically locate sales engineers in North America. Each
Territory will be comprised of a sales manager, and eventually, a sales team.
Each territory sales manager will be responsible for specified current and
target (ISP and Telco) customers, and will report to the President. Our focus
will be the following:
o Increase Our ISPs and Telco Relationships. Unlike many of our
competitors, who are targeting distributors and retailers, our strategy
is to target ISPs and Telephone Companies. We believe they can target
our ultimate consumer, the office and home users, far more efficiently
and less expensively than we can through direct marketing or through
the use of value added resellers and distributors.
o Become the Recommended Product. We believe we can become the
"recommended" product among ISPs and telephone companies. Our brand
name in the ISP and Telco markets is identified with easy-to-use,
inexpensive, affordable, and flexible innovative shared Internet access
solutions.
(A) Sales Strategy
We rely primarily on direct sales to generate new customers and to
maintain relationships with existing customers. At present, we have six sales
representatives. With the funds generated by this offering, we intend to hire
regional sales engineers. As our capacity and operations grow we will be hiring
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.
o Trade Shows. Trade shows are a critical component for generating
awareness because of their popularity among Internet users. Thousands
of enthusiasts who surf the Net attend trade shows each year, as well
as vendors and product manufacturers. We plan to participate in several
annual local shows and events, as well national shows starting in
fiscal year 2000. We estimate that the cost of exhibiting at a national
trade show ranges from $75,000 to $150,000 and the cost of exhibiting
at a local trade show is between $25,000 and 50,000.
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o Website. We have a website (www.Nexland.com) where information about us
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 Cooperative Advertising. We intend to offer customers a rebate program
for advertising our products in their desired medium
o Website Banner Advertising. We currently advertise on selected
websites.
(C) Expansion Strategy.
Our expansion strategy primarily consists of the following steps:
o Introduce New Products and Services. Our objective is to eventually
become a leading provider of secured shared Internet access. We realize
that in order to do so, we must be innovative in our product design and
capabilities and must continually develop new collaborative management
services. In addition, we will establish strategic relationships with
leading technology developers and distribution alliances with system
integrators, system vendors, consulting companies and Internet Service
Providers.
o Expand through Acquisition. We operate in a highly fragmented segment
of the Internet. This environment provides opportunities for a company
of our size and capabilities to acquire similar smaller firms providing
complementary services. Acquisition is a popular mechanism for building
a diverse customer base through purchase, a grass-roots approach, which
entails a large increase in overhead.
COMPETITION. As with all markets growing at double-digit rates,
competition for these potential revenues are numerous and formidable. We compete
in several different markets, each having its own growth potential,
expectations, customer base, and competitors. Some of these competitors may be
affiliated with major international players and, as a result, are well financed
and may present a formidable challenge. We compete on the basis of certain
factors, including product features, time-to-market, ease of use, product,
performance, product quality, user scalability, customer support and price. We
cannot be certain that we will be able to compete with significant pricing
pressure by our competitors.
Our current and potential competitors offer a variety of competitive
products, including shared Internet access devices such as the products offered
by Linksys, RAMP Networks, Netopia and 3Com, and networking equipment such as
routers and switches offered by companies such as Ascend, Cisco, 3com, Nortel
and Intel.
Many of our competitors are substantially larger than we are and have
significantly greater
10
financial, sales and marketing, technical, manufacturing and other resources and
more established distribution channels. These competitors may be able to respond
more rapidly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products than we can. 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 by
addressing the needs of our prospective customers. These competitors may enter
our existing or future markets with solutions that may be less expensive,
provide higher performance or additional features or be introduced earlier than
our solutions. Given the market opportunity in the shared Internet access
market, we also expect that other companies may enter our market with better
products and technologies. If any technology that is competing with ours is more
reliable, faster, less expensive or has other advantages over our technology,
then the demand for our products and services 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 or new technologies as
industry standards and customer requirements evolve that 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 continue to invest significant
resources 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,
longer sales cycles and loss of market share, 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 potential competitors in the ISB market are as follows:
o Ramp Networks, Inc.
o Flowpoint
o WebBeedle
o Cayman Systems
o Sonic Wall
o Netopia
o Linksys
o Nortel
o Macsense
o UMAX
We believe that we have several advantages over these competitors,
including:
11
o we offer one of the only NAT routers with IPSec VPN pass-through
support and have a patent pending on this technology
o we enjoy a time-to-market advantage and are therefore will positioned
to capture a large percentage of early adopters, which are generally
among the heaviest users
o we have established strategic alliances with major technology
companies.
o we are cost competitive
o our products combine features of various competitors
o we developed one of the first PPPoE routers. the other party, and the
assignee shall pay the assignor 20% of the gross value of the contract
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
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 obtained
registered trademarks for "Nexland" and "The Internet Sharing Box" with the U.S.
Patent and Trademark Office. We have one patent pending relating to technology
incorporated in our ISB family of products, consisting of an algorithm that
allows the VPN IPSec encrypted protocol to pass through our NAT routers, thus
securing the communication from unintended third parties. In addition, we design
and implement proprietary coded "firmware" which is designed to make the ISB
products function.
We cannot assure you that others will not independently develop similar
or competing technology. 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. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt 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,
12
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 numbers of products and competitors in the office market for
shared Internet access solutions grow 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 March, 2000, we employed four persons, including one
in operations, one in sales and marketing, and two in customer support,
engineering, research and development. 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
We currently lease offices located at 1101 Brickell Avenue, Suite 702,
Miami, Florida 33131 consisting of 1035 square feet of corporate office space
for $1,900 per month plus tax. Our inventory is located in a bonded warehouse in
Miami, Florida, near the Miami International Airport, containing more than
10,000 square feet, with a cost of approximately $300 per month. We are
currently under month to month leases on both locations. We do not believe that
we will experience difficulty in locating alternate space should the need arise.
Our telephone number (305) 358-7771.
ITEM 3. LEGAL PROCEEDINGS
The Officers and Directors of the Company certify that to the best of
their knowledge, neither the Company nor any of its Officers and Directors are
parties to any legal proceeding or litigation. Further, the Officers and
Directors know of no threatened or contemplated legal proceedings or litigation.
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.
13
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 April 11, 2000, the closing trade price of the common stock as
reported on the OTC Bulletin Board was $4.562. As of such date, there were
approximately 398 holders of record of our common stock.
VOLATILITY AND FLUCTUATION OF OUR COMMON STOCK. The price of our
common stock and Internet and Telecommunication stock in general, is highly
volatile. 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 Our performance and whether or not we meet our projections.
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 key developments or new products or services by
competitors.
o Announcement and market acceptance of acquisitions
o Changes in earnings estimates by analysts.
14
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.
Balance Sheet Data
1997[1] 1998[1] 1999[1]
---- -------- -------
Current Assets.................................. $ 9,540 $ 7,666 $ 139,295
Total Assets.................................... 14,776 11,906 1,467,496
Current Liabilities............................. 200 97,232 269,553
Long-term debt.................................. -0- -0- 201,917
Stockholders' Equity (deficit) [2].............. 14,576 (85,326) 996,564
15
Total Liabilities
& Stockholders' Equity...................... 14,776 11,906 1,467,496
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 99,902 273,662
Net Income (Loss)............................... (53,324) (99,902) (139,635)
Net Income (Loss) per share[3] Nil Nil Nil
Balance Sheet Data:
Working Capital (deficit)..................... $ 9,340 $ (89,566) $ (130,258)
Total Assets ................................. 14,776 11,906 1,467,496
Long-term Debt................................ -0- -0- 201,917
Stockholders' equity (deficit)................ 14,776 (85,326) 996,026
[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 certain factors affecting
our results for the past three fiscal years ending December 31, 1999 and our
liquidity and capital resources. We are a provider of easy-to-use, reliable and
affordable shared Internet access solutions for the home and small office
market. Our ISB family of products allows multiple users in an office or home
environment (or comparable arrangement) to share the same Internet connection
simultaneously while optimizing each user's access speed, and providing a secure
firewall. Our ISB product family is a flexible and scalable platform that
provides firmware-based routing and functionality to deliver Internet-enabled
applications and services. Our products support existing analog phone lines, as
well as ISDN and emerging access technologies such as xDSL and cable modems. Our
products enable multiple users to securely access the Internet simultaneously
with complete firewall security.
We earn revenue primarily from product sales to ISPs, value added
resellers and telephone companies, which in turn resell or provide a premium
service to their customers seeking shared internet access and security. Our
product sales prices range from $199 to $349, depending upon the type of product
each customer selects. Customers generally pay us directly on a 30 day delayed
basis for these products. From time to time we have also generated revenue from
the sale of traditional networking products.
16
Our costs and expenses primarily fall into the following categories:
o Cost of Contract Manufacturing;
o Sales and marketing;
o General and administrative;
o Amortization and depreciation
o Research and Development
We expect these expenses to increase over time to support our growing
customer base. Our operating expenses also include employee salaries and
benefits, equipment costs, office rent and utilities and customer service and
technical support costs. We expect customer service and support expenses to
increase over time to support new and existing subscribers.
Our sales and marketing expenses to date have been minimal due to the
start of our operations. We expect those expenses to increase as we implement
our business plan in the coming year. We anticipate those expenses to include
advertising and commissions and bonuses paid to our sales and marketing
personnel. We also anticipate hiring additional sales and marketing personnel to
assist us in our rapid growth plans.
We plan to look at certain employment agreements currently in place to
determine the need, if any for modification. We also plan to implement our
employee stock compensation/option plan that will attract new employees, retain
current employees, and will not be disproportionate to our income from
operations.
Our general and administrative expenses consist primarily of
administrative staff and related benefits. We expect our general and
administrative costs to increase to support our growth.
Our amortization and depreciation expense primarily relates to our
equipment and is based on the estimated useful lives of the assets ranging from
three to five years using the straight-line method for the equipment.
Depreciation expense is expected to increase as we place in service equipment
already purchased and as we acquire additional equipment to support our intended
growth.
REVERSE SPLIT. Unless otherwise stated, all share and per share
information contained in this report gives retroactive effect to a 1-for-250
reverse split of all outstanding shares of our common stock.
RESULTS OF OPERATIONS. The discussion of our historical results set
forth below addresses our historical results of operations and annual conditions
as shown on our Financial Statements for the fiscal year ended December 31,
1999, as compared to the fiscal year ended December 31, 1998. However, this
information is not necessarily indicative of our operating results since we had
no significant operations until November 17,1999, when we acquired Nexland Inc.
(Florida) in a reverse acquisition merger, and began our Internet related
operations. Furthermore, for comparison purposes, the information for the
predecessor companies, Nexland LP and Nexland, Inc. (Florida) for 1998 and part
of 1999 are included in the comparable numbers.
17
For Years Ending December 31, 1999 and 1998:
(1) Revenues. For the years ended December 31, 1999, we had
$263,338 in revenue consisting primarily of product sales.
During 1998, the Company and its predecessors recognized no
revenues and were still developing their products and market.
The increase in customer revenues is primarily due to long
sales cycle and the Company will be adding additional sales
positions to continue the expansion of sales.
(2) Expenses and Net Loss From Operations. Cost of product
sales for the year ended December 31, 1999 was $129,311.
Actual product sales did not begin until January 1999, so
there are no comparable costs of product for 1998.
Advertising expenses for the year ending December 31, 1999
were $10,364 which compares to 3,354 for the same period in
1998. The increase represents the additional advertising used
to promote sales in 1999.
Salary expense increased to $42,302 from $17,091 as compared
to the year ended December 31, 1999 to the year ended December
31, 1998. The increase was due to increased activities of the
Company.
General and administrative expenses consist primarily of
office and equipment rent, costs associated with operating our
offices, such as telephones, utilities and supplies, insurance
and professional fees, such as legal, accounting and
consulting. These expenses increased to $201,661 for the year
ended December 31, 1999 as compared to $75,729 for the year
ended December 31, 1998, primarily as a result of our start-up
activities and beginning minimal operations.
Depreciation and amortization for the year ended December 31,
1999 increased to $10,008 from $1,528 for the year ended
December 31, 1998. The increase was due to our placing in
service equipment during the year ended 1999 and the
amortization of intangible assets trademarks acquired as part
of the reverse accounts on November 17, 1999.
(3) Interest expense. For the months ended December 31, 1999
increased to $9,327 from $2,200 for the year ended December
31, 1998 due to the accrual of interest on the note payable to
stockholder.
(4) Income From Operations. These activities resulted in a net
loss for the year ended December 31, 1999 of $33,400 for
Nexland, Inc. and $106,235 for the predecessor Nexland LP.
18
LIQUIDITY AND CAPITAL RESOURCES.
(A) Sources of Cash
Since our inception, we have relied principally upon the proceeds of
private equity financings/loans to fund our working capital requirements and
capital expenditures. We have generated only minimal revenues from operations to
date.
Although we cannot accurately predict the precise timing of our future
capital, we estimate that we will need to expend approximately $2,000,000 on new
product, increasing the Company's sales force and additional research and
development. In addition, our present operating costs are approximately $35,000
per month and we expect to have operating costs of approximately $100,000 per
month by the third quarter of 2000.
Upon organization, Windstar sold 1,992,000 shares of our Common Stock
to nineteen persons and two corporations for $44,450 in cash and property. The
cash has been used for organizational matters and initial start-up.
If we are unable to obtain necessary additional capital, we may be
required to change our proposed business plan and decrease our planned
operations, which would have a material adverse effect upon our business,
financial condition, or results of operations.
As part of the employment agreement dated November 11, 1997, the
Company sold Fred R. Schmid, pursuant to a Stock Purchase Agreement, 540,000
shares of Common Stock at a purchase price of $10,000, which has been paid to
the Company. The agreement also provides an option for the purchase of 160,000
shares at an exercise price of $2.50 per share and 160,000 shares at $5.00 per
share for a period of ten years. On July 29, 1998, the $2.50 option price was
reduced to conform to the offer made to the Class A warrant holders to $1.00 per
share to reduce the exercise price for a specific time period.
The Company must obtain additional capital in order to fully develop
its business plan. The Company intends to raise additional capital through the
exercise of the Class A and Class B Warrants for shares of Common Stock, loans,
and/or to enter into arrangements for such purposes with third parties. There is
no assurance that the Company will be able to raise such additional capital or
that, if available, the terms of such financing will be commercially acceptable
to the Company. The Company has no significant operating history. The foregoing
reflects the 1 for 250 share reverse stock split that took place on April 15,
1998.
(B) Capital Expenditures. Our net capital additions were $225 in 1999,
for computer equipment. During 2000, the Company anticipates spending $20,000
for a phone system and computers.
19
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 transaction 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 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
None.
20
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
(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.
(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, and attending Capital Law and Graduate Center in
Columbus, Ohio without receiving a degree. After leaving law school 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 telcos (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, is Secretary and a member of the Board of
Directors. Mr. Steeves has been a member of our Board of Directors since
November 1996 and from 1997 to 1999, has been 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.
(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 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.
21
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
Position Year Salary Bonus Compensation(3) Awards Options Payouts Compensation
- -------- ---- ------ ----- --------------- ------ ------- ------- ------------
Greg Levine
President 1999-2000 $100,000[1] -0- -0- -0- -0- -0- -0-
Richard G. 1999-2000
Steeves, $[5] -0- -0- -0- -0- -0- -0-
Secretary
Fred Schmid 1999-2000
Former Chief
Executive
Officer and
President 7,500[3] 226,885[2] 320,000[4] -0- -0- -0-
[1] Mr. Levine's base compensation increases to $150,000, upon the Company
raising at least $1,000,000 in debt or equity financing.
[2] 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 and is being registered in this offering. 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
November, 1999, Mr. Schmid had accumulated 70,000 additional shares of our
common stock.
[3] 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.
[4] 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, the underlying shares are covered by this registration statement.
[5] Mr. Steeves is compensated at the rate of $50.00 per hour
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 March 27, 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
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.
22
Percentage of shares beneficially owned is based on 34,308,916 shares
of common stock outstanding as of January 2000.
Name and Address
of Beneficial Owner [6] Number of Shares Percent of Class [7]
- ------------------- ---------------- --------------------
BH Investor Group, LLC[1] 12,611,250 36.8
P.O. Box 3783,
Hallandale, Fla 33008
Andre Chouraqui 5,044,500 14.7
Barker Road #2, House #9
The Peak, Hong Kong
Fast-Access Group, LLC [2] 5,044,500 14.7
P.O. Box 9096
Daytona Beach, Fla. 32120
Broadband Investor Group, LLC[3] 2,602,500 7.6
P.O. Box. 693267
Miami, Fla. 33169
High-Speed Venture, LLC[4] 2,522,250 7.4
P.O. Box 693267
Miami, Fla. 33169
Richard G. Steeves[5] 10,466 0.0003
1911 E. Meadowlake Drive
Mahomet, Ill. 61586
All directors and executive 2,612,966 8.0
officers as a group
- -------------------------------
[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
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.
23
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 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 this 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 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 this
Agreement and ends ten years after the third anniversary date. In February 2000,
160,000 options were exercised at $1.00 per share and the underlying shares are
covered by this registration statement.
(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 will expire on June 30, 2000. The purchase price is
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:
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 this 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 this registration statement
(7) On March 14, 2000, we entered into a five year Consulting Agreement
with Nexland France, which provides for the following:
24
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 David 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 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.
25
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.
(1) Proforma Combined Statements of Operations, Proforma Balance
Sheets and Proforma Combined Statements of Operations.
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.
26
3.3 Bylaws of the Company.
4.1 Specimen certificate for Common Stock.
4.2 Specimen certificate for Class A Redeemable Warrants.
4.3 Specimen certificate for Class B Redeemable Warrants.
The following documents are incorporated herein be 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 be 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 be 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 be 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 and not yet declared effective.
27 Financial Statements December 31, 1999, 1998 and 1997
27
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
5 Consent and Opinion of Allan M. Lerner, P.A.
23 Consent of Allan M. Lerner, P.A. (contained in Exhibit 5)
23.1 Consent of Williams & Webster, P.S., CPA
28
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: April 12, 2000
Nexland, Inc.
By: /s/ Gregory S. Levine
---------------------------------
Gregory S. Levine, President
29
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
NEXLAND, INC.
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6
SUPPLEMENTAL INFORMATION 14-17
[LETTERHEAD]
Williams & Webster, P.S.
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.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The proforma financial statements on
pages 15 through 17 are presented for purposes of additional analysis and are
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Williams & Webster, P.S.
- ----------------------------
Williams & Webster, P.S.
Spokane, Washington
March 13, 2000
1
NEXLAND, INC.
BALANCE SHEETS
December 31, December 31, December 31,
A S S E T S 1999 1998 1997
------------ ------------ ------------
CURRENT ASSETS
Cash $ 4,231 $ - $ -
Accounts receivable 78,597 - -
Receivable from affiliated partnership - 2,900 2,900
Inventory 56,467 - -
Investment in Nexland LP - 100 100
------------- ------------ ------------
TOTAL CURRENT ASSETS 139,295 3,000 3,000
------------- ------------ ------------
PROPERTY AND EQUIPMENT
Furniture and equipment 8,434 - -
Less: accumulated depreciation (3,659) - -
------------- ------------ ------------
TOTAL PROPERTY AND EQUIPMENT 4,775 - -
------------- ------------ ------------
OTHER ASSETS
Escrow and security deposits 3,180 - -
Trademarks, net of amortization 1,320,246 - -
------------- ------------ ------------
TOTAL OTHER ASSETS 1,323,426 - -
------------- ------------ ------------
TOTAL ASSETS $ 1,467,496 $ 3,000 $ 3,000
============= ============ ============
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
CURRENT LIABILITIES
Accounts payable $ 196,061 $ - $ -
Accrued expense 53,939 - -
Notes payable 19,553
------------- ------------ ------------
TOTAL CURRENT LIABILITIES 269,553 - -
------------- ------------ ------------
LONG-TERM LIABILITIES
Notes payable, related parties 201,917 - -
------------- ------------ ------------
TOTAL LIABILITIES 471,470 - -
------------- ------------ ------------
COMMITMENTS AND CONTINGENCIES - - -
------------- ------------ ------------
STOCKHOLDERS' EQUITY
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, 4,425,000
and 4,425,000 issued and outstanding, respectively 3,410 443 443
Additional paid-in capital 1,026,016 2,557 2,557
Accumulated deficit (33,400) - -
------------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 996,026 3,000 3,000
------------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,467,496 $ 3,000 $ 3,000
============= ============ ============
The accompanying notes are an integral part of these financial statements
2
NEXLAND, INC.
STATEMENTS OF OPERATIONS
Year Year Year
Ending Ending Ending
December 31, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
R E V E N U E S $ 67,057 $ - $ -
COST OF REVENUES 34,175 - -
-------------- ------------ -----------
GROSS PROFIT 32,882 - -
-------------- ------------ -----------
E X P E N S E S
Advertising 200 - -
Professional services 20,020 - -
Selling and administrative 44,356 - -
-------------- ------------ -----------
TOTAL OPERATING EXPENSES 64,576 - -
-------------- ------------ -----------
OTHER INCOME AND (EXPENSE)
Interest (1,706) - -
-------------- ------------ -----------
NET LOSS BEFORE INCOME TAXES (33,400) - -
INCOME TAXES - - -
-------------- ------------ -----------
NET LOSS $ (33,400) $ - $ -
============== ============ ===========
Basic and diluted loss per common share $ nil $ nil $ nil
============== ============ ===========
Basic and diluted weighted average number of
common stock shares outstanding $ 11,652,143 $ 4,425,000 $ 4,425,000
============== ============ ===========
The accompanying notes are an integral part of these financial statements
3
NEXLAND, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Total
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
Income (Loss) for year ending December, 1997 - - - - -
---------- -------- --------- ---------- ----------
Balance at December 31, 1997 4,425,000 443 2,557 - 3,000
Income (Loss) for year ending December, 1998 - - - - -
---------- -------- --------- ---------- ----------
Balance at December 31, 1998 4,425,000 443 2,557 - 3,000
Stock exchanged for the acquisition of
Nexland LP 25,075,000 2,508 14,492 - 17,000
Stock exchanged in reverse acquisition of
Windstar Resources, Inc. by Nexland Inc. 4,594,703 459 1,008,967 - 1,009,426
Net loss for year ending December 31, 1999 - - - (33,400) (33,400)
---------- -------- --------- ---------- ----------
Balance at December 31, 1999 34,094,703 $ 3,410 $1,026,016 $ (33,400) $ 996,026
========== ======== ========= ========== ==========
The accompanying notes are an integral part of these financial statements
4
NEXLAND, INC.
STATEMENTS OF CASH FLOWS
Year Year Year
Ending Ending Ending
December 31, December 31, December 31,
1999 1998 1997
----------------- ----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ (33,400) $ - $ -
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 8,292 - -
Decrease (Increase) in:
Accounts receivable (25,608) - -
Inventory 34,071
Increase (Decrease) in:
Accrued expenses 6,724 - -
----------------- ----------------- -----------------
Net cash used by operating activities (9,921) - -
----------------- ----------------- -----------------
Cash flows from investing activities:
Loans to Nexland LP - - (2,900)
Investment in Nexland LP - - (100)
----------------- ----------------- -----------------
Net cash used by investing activities - - (3,000)
----------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from common stock issued - - 3,000
Acquisition of Nexland LP 12,476 - -
Reverse acquisition of Wingstar Resources, Inc. 1,675 - -
----------------- ----------------- -----------------
Net cash provided by financing activities 14,151 - 3,000
----------------- ----------------- -----------------
Net increase (decrease) in cash 4,230 - -
Cash, beginning of period - - -
----------------- ----------------- -----------------
Cash, end of period $ 4,230 $ - $ -
================= ================= =================
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest expense - - -
================= ================= =================
Income taxes - - -
================= ================= =================
The accompanying notes are an integral part of these financial statements
5
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 17, 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 17,000 common stock shares of Nexland, Inc.
Nexland LP was formed on September 25, 1997. The activities of the Partnership
are reflected in the proforma financial statements. The Company is engaged in
the production of internet sharing boxes.
Subsequent to November 17, 1999, Nexland, Inc. exchanged its stock in a
merger-acquisition with Windstar Resources, Inc. See Note 9.
WindStar Resources, Inc. ("the Company") 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. At November 17, 1999, WindStar Resources, Inc. discontinued all
mineral exploration, construction and mining operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 which do not extend the useful life of
the related asset are expensed as incurred.
6
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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
is 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.
Revenue and Cash Recognition
- ----------------------------
Revenues and cost of revenues are recognized when services and products are
furnished or delivered.
Intangibles
- -----------
Intangible assets consist of trademarks pending. Trademarks are amortized using
a straight-line method over twenty years.
Reclassifications
- -----------------
Certain amounts from prior periods have been reclassified to conform with 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. 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.
7
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 3 - PROPERTY AND EQUIPMENT (Continued)
Major additions and betterments are capitalized. Costs of maintenance and
repairs which 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 consist of finished goods. The Company had no
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
On November 15, 1999, trademarks totaling $211,562 were transferred from Nexland
LP to the Company in connection with the transfer of Partnership assets to the
Company. The amount of $211,562 represents the excess of fair market value of
assets transferred over the related liabilities.
On November 17, 1999, Windstar Resources, Inc acquired Nexland, Inc. in a
reverse acquisition accounted for as a purchase. The purchase price exceeded the
net assets of Windstar at the date of acquisition by $1,116,976. This excess was
assigned to trademarks. Trademarks will be capitalized and amortized using the
straight-line method over twenty years. Amortization of trademarks was $8,292
for the year ended December 31, 1999.
At December 31, 1999, the Company's trademark applications were still pending
approval.
NOTE 7 - NOTES PAYABLE, RELATED PARTIES
Nexland has unsecured cash loans with a shareholder in the amount of $174,318 at
December 31, 1999. 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 Winstar
Resources, Inc. See Note 9.
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
8
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 7 - NOTES PAYABLE, RELATED PARTIES (Continued)
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
All Company notes 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 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 share of Nexland's common stock. The
market value of the common shares of Windstar as of the effective merger date
was $0.03125 per share resulting in a value of $921,875. 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. The
Company has 34,094,703 shares of common stock outstanding at December 31, 1999.
Mr. Israel D. Sultan, the original shareholder of Nexland, was issued 3,000
shares of no par common stock for his original capital contribution of $3,000.
On November 15, 1999, Nexland LP was acquired for the issuance of 17,000 shares
of common stock which were valued at $211,562. This transaction which included
the assumption of net debt of Nexland LP of $194,461 and the issuance of common
stock valued at $17,000, was in addition to Nexland, Inc's. original investment
in Nexland LP of $101.
Windstar Resources, Inc., the Company predecessor by reverse acquisition, had
during the year ended December 31, 1995, issued 310,000,000 shares of common
stock in exchange for eight mining claims. The stock was issued at $0.000042 per
share.
9
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 10 - COMMON STOCK (Continued)
During the year ended December 31, 1996, Windstar issued 400,000,000 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 $0.000165 per share. See Note 5.
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 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 payments 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, 382,173 shares of common stock were issued 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 committed to 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. This agreement can be
terminated at any time by either party.
NOTE 11 - STOCK WARRANTS
During the year ended December 31, 1996, the Company issued 400,000,000 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 an exercise price of $0.01.
Each "Class B Warrant" may be exercised to purchase one share of common stock at
an exercise price of $0.02. The warrants are redeemable at any time upon the
Company giving thirty days written notice to the holder thereof at redemption
price of $0.00001 per warrant. The warrants are exercisable up to five years
from the effective date of the offering unless called sooner.
During the year ended December 31, 1998, the Board of Directors voted to reduce
the warrants authorized and outstanding based on a 1 for 250 shares reverse
split. This reduced the authorized and outstanding "Class A Warrants" to
1,600,000 which exercisable to purchase 1,600,000
10
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 11 - STOCK WARRANTS (Continued)
shares of the company's common stock at prices ranging from $0.25 to $2.50 and
the authorized and outstanding "Class B Warrants" to 1,600,000 which exercisable
to purchase 1,600,000 shares of the company's common stock at $5.00. 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 sold 135,000,000 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 40,000,000 shares of the stock during the ten-year period
commencing on the second anniversary of the date of this agreement for the
exercise price of $0.01 per share, and up to 40,000,000 additional shares of
stock during the ten-year period commencing on the third anniversary of the date
of this agreement for the exercise price of $0.02 per share. This agreement was
dated November 11, 1997.
During the year ended December 31, 1998, based on a 1-for-250 reverse stock
split, the Board of Directors reduced these stock options to 160,000 shares
during the ten-year period commencing on the second anniversary of the date of
this agreement at an exercise price ranging from $0.25 to $2.50 per share and
160,000 additional shares of stock during the ten-year period commencing on the
third anniversary of the date of this agreement at an exercise price of $5.00
per share. No options were granted or exercised during 1998 or 1999.
Following is a summary of the status of fixed options outstanding at December
31, 1998, and December 31, 1999:
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. 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.
11
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
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 preliminary assessments, the Company regards the
costs associated with Year 2000 readiness to be immaterial.
NOTE 14 -MERGER /ACQUISITION
The acquisition transactions were used to establish the value of trademarks for
the consolidated company in the proforma filings required by reporting standards
of the Securities and Exchange Commission. As part of the transaction, Nexland,
Inc. agreed to pay $25,000 in debts owed to certain creditors of Windstar
Resources, Inc. See Note 6.
In connection with this transaction, the Company acquired liabilities of $82,551
in excess of Windstar's assets and the Company also adjusted equity and
investments. In the reverse acquisition Nexland acquired $1,675 in cash and
$84,226 in liabilities from Windstar. The value of trademarks was increased by
$1,116,976 in the valuation of the components of the acquisitions. See Note 6.
Nexland was wholly merged into Windstar Resources, Inc. Windstar Resources, Inc.
subsequently changed its name to Nexland, Inc.
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
Eight mining claims were transferred to the Company on June 30, 1995 by
quitclaim deed in exchange for 310,000,000 shares of common stock. The mining
claims were reflected in the balance sheet at the transferor cost of $13,000.
During the year ended December 31, 1999, the Company allowed these claims to
expire resulting in a charge against operations in the amount of $13,000.
12
NEXLAND, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999,
1998 and 1997
NOTE 16 - MINERAL PROPERTIES (Continued)
One hundred twenty-eight mining claims located in the La Paz, Maricopa, and Yuma
counties of Arizona were transferred to the Company on November 16, 1996, by
quitclaim deed in exchange for 400,000,000 units as explained in Note 5. During
the year ended December 31, 1999, the Company 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, the Company 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 predecessor
partnership had a net loss of $98,614 for 1999 at the time it was acquired by
the Company. Nexland, Inc. has an accumulated deficit of $34,000 at December 31,
1999.
Management believes that significant 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 fully implement its business plan.
13
NEXLAND, INC.
PROFORMA FINANCIAL INFORMATION
The following Proforma Combined Balance Sheet as of December 31, 1998 and
Proforma Combined Statements of Operations for the years ended December 31, 1999
and 1998 are audited. These proforma financial statements relate to the reverse
acquisition of Windstar Resources, Inc. by Nexland, Inc. Windstar Resources,
Inc., (subsequently renamed Nexland, Inc.) issued 29,500,000 shares of common
stock for 100% of the outstanding common stock of Nexland, Inc. on November 17,
1999.
The proforma financial information has been prepared utilizing the historical
financial statements of Windstar Resources, Inc. and Nexland, Inc. and its
predecessor, Nexland LP, and should be read in conjunction with the separate
historical financial statements and notes thereto of these companies for the
respective periods presented.
The proforma financial information is based on the purchase method of accounting
and the acquisition as a reverse acquisition with the surviving company being
the operating company, Nexland, Inc., previously Nexland, LP. The Proforma
Combined Statements of Operations assume the acquisition had occurred at the
beginning of the period presented in the statements. All intercompany accounts
and transactions have been eliminated.
The proforma combined financial statements do not purport to be indicative of
the financial positions and results of operations and cash flows which actually
would have been obtained if the acquisition had occurred on the date indicated
or the results which may be obtained in the future. The disclosures concerning
the common stock and losses per share are reported based upon each entity's
share of the common stock at the acquisition date. Accordingly, amounts shown
for Nexland LP are based upon the stock allocated to its respective share of
Nexland, Inc.
14
NEXLAND, INC.
PROFORMA COMBINED STATEMENTS OF OPERATIONS
HISTORICAL PROFORMA
------------------------------------------------------------------------------------------
Nexland, Inc.
Windstar Resources, Inc November 15, 1999 Nexland, LP
January through through January through
November 17, 1999 December 31, 1999 November 15, 1999 Eliminations Total
----------------------- ----------------- ----------------- ------------ -----
REVENUES $ - $ 67,057 $ 196,281 - $ 263,338
COST OF REVENUES - 34,175 95,136 - 129,311
------------------ ----------------- ------------------ -------- -----------
GROSS PROFIT - 32,882 101,145 - 134,027
------------------ ----------------- ------------------ -------- -----------
EXPENSES
Advertising - 200 10,164 - 10,364
Professional services 158,714 20,020 15,492 - 194,226
Selling and administrative expenses 35,376 44,356 181,724 - 261,456
Mining claims 79,076 - - - 79,076
------------------ ----------------- ------------------ -------- -----------
TOTAL EXPENSES 273,166 64,576 207,380 - 545,122
------------------ ----------------- ------------------ -------- -----------
OPERATING INCOME (LOSS) (273,166) (31,694) (106,235) - (411,095)
OTHER INCOME (EXPENSE)
Other income - - - - -
Loss on sale of investments - - - - -
Interest expense (21,893) (1,706) - - (23,599)
------------------ ----------------- ------------------ -------- -----------
TOTAL OTHER INCOME (EXPENSE) (21,893) (1,706) - - (23,599)
INCOME (LOSS) BEFORE INCOME TAXES (295,059) (33,400) (106,235) - (434,694)
INCOME TAX BENEFIT - - - - -
------------------ ----------------- ------------------ -------- -----------
NET (INCOME) LOSS $ (295,059) $ (33,400) $ (106,235) - $ (434,694)
================== ================= ================== ======== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE $ nil $ nil $ nil - $ (0.01)
================== ================= ================== ======== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 4,213,230 4,425,000 25,075,000 - 33,713,230
================== ================= ================== ======== ===========
The accompanying notes are an integral part of these financial statements
15
NEXLAND, INC.
PROFORMA BALANCE SHEETS
Windstar
Resources, Inc. Nexland, Inc. Nexland, LP
A S S E T S December 31, 1998 December 31, 1998 December 31, 1998 Eliminations Total
----------------- ----------------- ----------------- ------------ ---------
CURRENT ASSETS
Cash $ 1,744 $ - $ 23 $ - $ 1,767
Receivable from affiliated partner - 2,900 - (2,900) -
Inventory - - 7,643 - 7,643
Investment in Nexland LP - 100 - (100) -
--------------- --------------- --------------- ----------- ---------
TOTAL CURRENT ASSETS 1,744 3,000 7,666 (3,000) 9,410
--------------- --------------- --------------- ------------ ---------
PROPERTY AND EQUIPMENT
Furniture and equipment - - 6,183 - 6,183
Less: accumulated depreciation - - (1,943) - (1,943)
--------------- --------------- --------------- ------------ ---------
TOTAL PROPERTY AND EQUIPMENT - - 4,240 - 4,240
--------------- --------------- --------------- ------------ ---------
OTHER ASSETS
Organizatonal costs, net 274 - - - 274
Mining claims 79,076 - - - 79,076
Trademarks - - - - -
--------------- --------------- --------------- ------------ ---------
TOTAL OTHER ASSETS 79,350 - - 79,350
--------------- --------------- --------------- ------------ ---------
TOTAL ASSETS $ 81,094 $ 3,000 $ 11,906 $ (3,000) $ 93,000
=============== =============== =============== ============ =========
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
CURRENT LIABILITIES
Accounts payable $ 21,637 $ - $ 7,643 $ - $ 29,280
Accured expense 107,435 - 5,353 - 112,788
Notes payable 53,417 - - - 53,417
Notes payable, related parties 27,600 - 87,136 (2,900) 111,836
---------------- --------------- --------------- ------------ ---------
TOTAL CURRENT LIABILITIES 210,089 - 100,132 (2,900) 307,321
---------------- --------------- --------------- ------------ ---------
COMMITMENTS AND CONTINGENCIES - - - -
---------------- --------------- --------------- ------------ ---------
STOCKHOLDERS' EQUITY
Preferred stock - - - - -
Common stock 421 443 - - 864
Additional paid in capital 162,760 2,557 - - 165,317
Accumulated deficit (292,176) - (88,226) (100) (380,502)
---------------- --------------- --------------- ------------ ---------
TOTAL STOCKHOLDERS' EQUITY (128,995) 3,000 (88,226) (100) (214,321)
---------------- --------------- --------------- ------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 81,094 $ 3,000 $ 11,906 $ (3,000) $ 93,000
================ =============== =============== ============ =========
The accompanying notes are an integral part of these financial statements
16
NEXLAND, INC.
PROFORMA COMBINED STATEMENTS OF OPERATIONS
HISTORICAL PROFORMA
------------------------------------------------------------------------------------------
Windstar Resources,Inc Nexland, Inc. Nexland, LP
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1998 December 31, 1998 Eliminations Total
--------------------- ----------------- ----------------- ------------ --------
REVENUES $ - $ - $ - $ - $ -
COST OF REVENUES - - - - -
---------------- -------------- ------------- ---------- ---------
GROSS PROFIT - - - - -
---------------- -------------- ------------- ---------- ---------
EXPENSES
Advertising - - 3,354 - 3,354
Professional services 33,006 - 42,814 - 75,820
Selling and administrative expenses 112,021 - 53,734 - 165,755
---------------- -------------- ------------- ---------- ---------
TOTAL EXPENSES 145,027 - 99,902 - 244,929
---------------- -------------- ------------- ---------- ---------
OPERATING INCOME (LOSS) (145,027) - (99,902) - (244,929)
OTHER INCOME (EXPENSE)
Other income - - - - -
Loss on sale of investments - - - - -
Interest expense (15,637) - - - (15,637)
---------------- -------------- ------------- ---------- ---------
TOTAL OTHER INCOME (EXPENSE) (15,637) - - - (15,637)
INCOME (LOSS) BEFORE INCOME TAXES (160,664) - (99,902) - (260,566)
INCOME TAX BENEFIT - - - - -
---------------- -------------- ------------- ---------- ---------
NET (INCOME) LOSS $ (160,664) $ - $ (99,902) - $(260,566)
================ ============== ============= ========== =========
BASIC AND DILUTED LOSS PER COMMON
SHARE $ (0.04) $ nil $ nil - $ (0.01)
================ ============== ============= ========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 4,162,223 4,425,000 25,075,000 - 33,662,223
================ ============== ============= ========== =========
The accompanying notes are an integral part of these financial statements
17