UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31,2000
NEXLAND, INC.
Arizona 65-0782410
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1101 Brickell Avenue, Suite 702, North Tower Miami, Florida 33131
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Address of principal executive offices (Zip code)
(305) 358-7771
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Registrant's telephone number, including area code
(1) Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days 1. [X] Yes
___No 2. ___Yes [X] No
As of May 18, 2000, there were 35,678,916 shares outstanding of issuer's common
stock.
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS
Page
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Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
2
Part 1 - Financial Statements
Balance Sheets
NEXLAND, INC.
March 31, 2000 Dec.31, 1999
Unaudited
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ASSETS
CURRENT
Cash and cash equivalents $160,528 $ 4,231
Accounts receivable 104,227 78,597
Inventory 205,478 56,467
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TOTAL CURRENT ASSETS 470,233 139,295
EQUIPMENT, NET 12,315 4,775
OTHER ASSETS 3,180 3,180
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$485,728 $147,250
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LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES
Accounts payable $463,877 $196,061
Accrued expenses 55,803 53,939
Notes payable 19,553 19,553
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TOTAL CURRENT LIABILITIES 539,233 $269,553
NOTES PAYABLE - RELATED PARTIES 201,917 201,917
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741,150 $471,470
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CAPITAL DEFICIT
PREFERRED STOCK, 10,000,000 SHARES AUTHORIZED,
$0.0001 PAR VALUE; NO SHARES OUTSTANDING -- --
COMMON STOCK, 50,000,000 SHARES AUTHORIZED, -- --
$0.0001 PAR VALUE; 34,094,703 ISSUED AND OUTSTANDING 3,410 3,410
ADDITIONAL PAID-IN CAPITAL 160,000
ACCUMULATED DEFICIT (418,832) (327,630)
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TOTAL CAPITAL DEFICIT (255,422) (324,220)
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$ 485,728 $147,250
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SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
3
NEXLAND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE FOR THE
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
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SALES $208,607 $3,887
COST OF SALES 85,732 5,938
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GROSS PROFIT 122,875 (2,051)
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OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 207,701 5,565
DEPRECIATION 840 -
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TOTAL OPERATING EXPENSES 208,541 5,565
INTEREST EXPENSE 5,536 -
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NET (LOSS) $ (91,202) $ (7,616)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 34,201,809 29,500,000
NET (LOSS) PER COMMON SHARE - -
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
4
NEXLAND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE FOR THE
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
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OPERATING ACTIVITIES:
NET LOSS $ (91,202) $(7,616)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTVITIES
PROVISION FOR BAD DEBTS 8,996 -
DEPRECIATION 840 -
(INCREASE) IN ACCOUNTS RECEIVABLE (34,626) -
(INCREASE) IN INVENTORY (149,012) (6,505)
INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES 269,681 14,696
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TOTAL ADJUSTMENTS 95,879 8,191
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,677 575
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INVESTING ACTIVITIES:
PURCHASE OF EQUIPMENT (8,380) -
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FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF EXERCISE OF OPTIONS 160,000 -
ADVANCES FROM STOCKHOLDER - 2,968
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NET CASH PROVIDED BY FINANCING ACTIVITIES 160,000 2,968
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NET INCREASE IN CASH AND CASH EQUIVALENTS 156,297 3,543
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,231 23
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 160,528 $ 3,566
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SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR TAXES $ - $ -
CASH PAID FOR INTEREST $ - $ -
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
5
NEXLAND, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 10-Q
and include all adjustments (consisting only of normal recurring accruals) which
are necessary for a fair presentation of the results for the periods presented.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. The balance sheet information for December 31, 1999 was
derived from the audited financial statements included in the Company's Form
10K. It is suggested that these financial statements be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. EARNINGS PER SHARE
The following reconciles the components of the earnings per share (EPS)
computation.
For the three months ended March 31, 2000 For the three months ended March 31, 1999
--------------------------------------------- ---------------------------------------------
Loss Shares Per Share Loss Share Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
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Loss per common share-basic $(91,202) 34,201,809 - $(7,616) 29,500,00 $ -
and diluted
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Net loss per share of common stock is based on the weighted average number of
common shares outstanding during each period. Diluted loss per share of common
stock is computed on the basis of the weighted average number of common shares
and diluted options and warrants outstanding. Dilutive options and warrants
having an anti-dilutive effect are excluded from the calculation.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.
This Quarterly Report contains forward-looking statements, including
statements regarding, among other things, (a) the growth strategies of Nexland,
Inc. (the "COMPANY"), (b) anticipated trends in the Company's industry, (c) the
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Company's future financing plans and (d) the Company's ability to obtain
financing and continue operations. In addition, when used in this Quarterly
Report, the words "believes," "anticipates," "intends," "in anticipation of,"
and similar words are intended to identify certain forward-looking statements.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, many of which are beyond
the Company's control. Actual results could differ materially from these
forward-looking statements as a result of changes in trends in the economy and
the Company's industry, reductions in the availability of financing and other
factors. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Quarterly Report will in
fact occur. The Company does not undertake any obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.
GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of operation. The Company's ultimate ability to attain
profitable operations is dependent upon obtaining additional financing adequate
to complete its marketing and promotional activities, and to achieve a level of
sales adequate to support its cost structure. Through March 31, 2000, the
Company has incurred losses totaling $418,832 and is developing a customer base
for its product, all of which raise substantial doubt about the Company's
ability to continue as a going concern.
As previously reported in its Form 10-K ("FORM 10-K") for the year
ended December 31, 1999, the Company needed to increase the sales of the
Company's product and raise additional capital to continue its operations.
Management believes that significant resources will be available from private
and public sources in 2000 to continue the marketing of its internet sharing
devices. Management has established plans designed to increase the sales of the
Company's products. Management intends to seek new capital from new equity
securities offerings that will provide funds needed to increase liquidity, fund
internal growth and fully implement its business plan. The Company has no
commitment for any additional capital and no assurances can be given that the
Company will be successful in raising any new capital. The Company's inability
to increase its sales and/or to raise new capital will have a material adverse
effect on the Company's ability to continue its operations and financial
condition and on its ability to continue as a going concern. See "Management's
Plan of Operations and Discussion and Analysis - Liquidity and Capital
Resources."
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES. The Company does not
currently anticipate any significant plant or equipment purchases during the
next twelve months.
CHANGES IN THE NUMBER OF EMPLOYEES. The Company currently has eight (8)
employees. If the Company is successful in increasing its sales level or in
raising significant new capital, the Company anticipates hiring seventeen (17)
additional personnel during the remainder of 2000. The Company believes that
these personnel will be adequate to accomplish the tasks set forth in its plan.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
SALES
Sales increased substantially from the comparable period in 1999. This
increase in sales was attributed to the Company's expansion and the increased
marketability of its product.
COST OF SALES
Cost of sales increased consistent with the increases in sales. The
gross profit improved as a result of the Company being able to obtain better
manufacturing costs due to economies of scale for its internet sharing devices.
The Company began to ship its product during the later part of 1999.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased in the three months ended
March 31, 2000 over the comparable period in 1999. This increase is primarily
attributable to the expenses incurred in connection with the marketability and
sale of the Company's products as well as increase in personnel.
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by the Company in operating activities aggregated $4,677.
This was largely attributable to increased operating expenses, purchases of
inventory and increases in accounts payable. The Company's net cash provided by
financing activities aggregated $160,000 during the three months ended March 31,
2000, consisting of proceeds from exercise of options.
Since inception, the Company has relied principally upon the proceeds of private
equity financings/loans to fund its working capital requirements and capital
expenditures.
Although the Company cannot accurately predict the precise timing of future
capital needs, the Company estimates that it will need to expend approximately
$3,000,000 on new products, increasing its sales force and additional research
and development. In addition, present operating costs are approximately $70,000
- - per month and are expected to increase to approximately $250,000 per month by
the third quarter of 2000.
The Company must obtain additional capital in order to increase marketing and
sales efforts. 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.
8
CAPITAL EXPENDITURES
During the three months ended March 31, 2000, the Company's net capital
additions were $8,380. During 2000, the Company anticipates spending $300,000 in
developing new products, purchasing computers and other systems.
No significant capital additions were made during the comparable period in 1999.
INFLATION
The Company has not been materially affected by the impact of inflation.
YEAR 2000 COMPLIANCE
The potential for software failure due to the Year 2000 calculations is a known
risk. The Company recognizes the need to ensure that its operations, products
and services are not adversely impacted by the Year 2000 risks. The Company has
been advised by its major vendors that they are Year 2000 compliant. The Company
does not anticipate any significant future costs relating to Year 2000, but
continues to monitor the situation for any disruptions, due to Year 2000 related
issues. The Company has not had its operations, products or services disrupted
with any Year 2000 issues and does not expect any material disruptions related
to Year 2000 issues, for the year 2000.
Part II
ITEM 1. 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.
ITEM 2. Changes In Securities And Use of Proceeds
On April 25, 2000, pursuant to an employment contract between
the Company and Enrique Dillon, the Company issued 1,170,000 shares of common
stock to Enrique Dillon. On May 1, 2000, pursuant to an employment contract
between the Company and Martin Dell'Oca, the Company issued 200,000 shares of
common stock to Martin Dell'Oca. Because the shares the were issued for
services, neither transaction involved the payment of money to the Company. The
shares under both employment contracts, are subject to forfeiture in the event
the employees resign or are terminated for cause prior to the initial two-year
terms of their respective employment agreements. Pending the forfeiture periods,
the shares are held in escrow. The Company relied upon the exemption provided by
ss.4(2) of the Securities Act, for "transactions by an issuer not involving any
public offering."
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ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
The Company has amended its 10K for the fiscal year ended 1999. The
method of accounting business combinations employed in connection with the Form
10K dated April 14, 2000 has been determined to be inappropriate. The Company
has elected to correct these financial statements for the effects of these
combinations. Accordingly, 1999, 1998 and 1997 financial statements have been
restated.
ITEM 6. Exhibits and Reports on Form 8-K
The following documents are incorporated by reference from the
Registrant's Form S-1 Registration Statement filed with the Securities and
Exchange Commission (the "Commission") Commission File No. 333-3074 on April 1,
1996 and declared effective by the Commission on August 16, 1996
Number Document
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3.1 Articles of Incorporation
3.2 Amended Articles of Incorporation
3.3 Bylaws of the Company
4.1 Specimen certificate for Common Stock
4.2 Specimen certificate for Class A Redeemable Warrant
4.3 Specimen certificate for Class B Redeemable Warrant
The following documents are incorporated by reference from the
Registrant's Form 10-K Annual Report for the period ended December 31, 1997:
Number Document
99.1 Stock Purchase Agreement
99.2 Employment Agreement with Fred Schmid
The following documents are incorporated by reference from the
Registrant's Form 10-K Annual Report for the period ended December 31, 1998:
Number Document
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3.3 Amended Articles of Incorporation dated December 31, 1997
3.4 Amended Articles of Incorporation dated April 15, 1998
The following documents are incorporated by reference from the
Registrant's Form 8-K Report filed with the Securities and Exchange Commission
(the "Commission") Commission file #333-3074, on December 3, 1999:
10
Number Document
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10.1 March 14, 2000 Consulting Agreement between Nexland S.A. and the
Company
10.2 November 17, 1999, Mutual Non-Competition Agreement between Nexland,
S.A. and the Company
10.3 November 17, 1999, Co-Operation Agreement between Smerwick, Ltd. And
the Company
The following documents are incorporated by reference from the
Registrant's Form 8-K filed with the Securities and Exchange Commission (the
"Commission") Commission file #333-3074, on March 14, 2000
Independent Auditor's Report
Financial Statements and Pro Forma Financial Statements for the periods
ending December 31, 1997, December 31, 1998 and November 17, 1999.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nexland, Inc.
Dated: May 22, 2000 By: /s/ Martin Dell'Oca
-------------------------------
Martin Dell'Oca
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