10-Q/A 1 g67342q2e10-qa.txt NEXLAND, INC. FORM 10-Q/A 06/30/00 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 NEXLAND, INC. -------------------------------------------------------------------------------- Arizona 65-0782410 ------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1101 Brickell Avenue, North Tower, Suite 200, Miami, Florida 33131 -------------------------------------------------------------------------------- Address of principal executive office (Zip code) (305) 358-7771 -------------------------------------------------------------------------------- Registrant's telephone number, including area code (1) Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days 1. [X] Yes [ ] No 2. [X] Yes [ ] No As of July 28, 2000, there were 35,023,916 shares outstanding of issuer's common stock. 2 TABLE OF CONTENTS PART I.....................................................................3 Financial Statements Consolidated Balance Sheets ......................................3 Consolidated Statements of Operations.............................4 Consolidated Statements of Cash Flows.............................5 Notes to The Consolidated Financial Statements....................6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................8 Forward-looking Statements And Associated Risks...................8 Going Concern ....................................................8 Significant Plant or Equipment Purchases..........................8 Changes in The Number of Employees................................8 Management's Discussion And Analysis..............................8 Revenue...........................................................8 Cost of Sales ....................................................8 Gross Profit......................................................9 Selling, General And Administrative...............................9 Liquidity And Capital Resources...................................9 Capital Expenditures.............................................10 PART II...................................................................11 ITEM 1. Legal Proceedings........................................11 ITEM 2. Changes In Securities and Use of Proceeds ...............11 ITEM 3. Defaults Upon Senior Securities .........................11 ITEM 4. Submission of Matters to a Vote of Security Holders......11 ITEM 5. Other Information........................................11 ITEM 6. Exhibits ................................................11 SIGNATURES................................................................13 - 2 - 3 PART 1 - FINANCIAL STATEMENTS NEXLAND, INC. BALANCE SHEETS

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS - 3 - 4 NEXLAND, INC. STATEMENTS OF OPERATIONS (UNAUDITED)

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS. - 4 - 5 NEXLAND, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS - 5 - 6 NEXLAND, INC. NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) 1. FINANCIAL STATEMENTS In the opinion of the Company, the accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the six months ended June 30. 2000 are not necessarily indicative of the results to be expected for the full year. 2. EARNINGS PER SHARE The following reconciles the components of the earnings per share (EPS) computation.

Net loss per share of common stock is based on the weighted average number of common shares outstanding during each period. Diluted loss per share of common stock is computed on the basis of the weighted average number of common shares and dilutive options and warrants outstanding. All options and warrants have an anti-dilutive effect and are excluded from the calculation. 3. CAPITAL DEFICIT During the six months ended June 30, 2000, the Company issued 30,000 shares of common stock to a consultant for services rendered and recorded a charge to consulting fees with a corresponding credit to additional paid-in capital in the amount of $138,750. During the six months ended June 30, 2000, the Company issued 39,213 shares of common stock in connection with the late filing of the Company's Form S-1 and recorded a charge to penalty expense with a corresponding credit to additional paid-in capital in the amount of $240,179. On April 25, 2000, pursuant to an employment contract between the Company and Enrique Dillon (the Chief Executive Officer at that time), the Company issued 1,170,000 shares of common stock to Enrique Dillon. On May 1, 2000, pursuant to an employment contract between the Company - 6 - 7 and Martin Dell'Oca (Chief Financial Officer) the Company issued 200,000 shares of common stock to Martin Dell'Oca. The shares under both employment contracts, are subject to forfeiture in the event the employees resign or are terminated for cause prior to the initial two-year terms of their respective employment agreements. Pending the forfeiture periods, the shares are held in escrow. In connection with these employment agreements, the Company recorded as a charge to stockholders' equity as unearned compensation equivalent to the market value of the common stock at the date of grant and is being amortized over the period of the employment agreement. Amortization of $41,666 was recorded during the six month period ended June 30, 2000. On June 30, 2000, Mr. Dillon resigned from his position in the Company for personal reasons. In connection with his resignation, the 1,170,000 shares of common stock issued in connection with his employment agreement were forfeited. The Company in consideration of the termination of the employment agreement issued 500,000 shares of common stock to the former executive. In connection with this, the Company recorded a charge to operations in the amount of $1,125,000 during the six-month period ended June 30, 2000. - 7 - 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTORY STATEMENTS FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Quarterly Report contains forward-looking statements, including statements regarding, among other things, (a) the growth strategies of Nexland, Inc. (the "COMPANY"), (b) anticipated trends in the Company's industry, (c) the Company's future financing plans and (d) the Company's ability to obtain financing and continue operations. In addition, when used in this Quarterly Report, the words "believes," "anticipates," "intends," "in anticipation of," and similar words are intended to identify certain forward-looking statements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, many of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of changes in trends in the economy and the Company's industry, reductions in the availability of financing and other factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report will in fact occur. The Company does not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. GOING CONCERN The accompanying financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of operation. The Company's ultimate ability to attain profitable operations is dependent upon obtaining additional financing adequate to complete its marketing and promotional activities, and to achieve a level of sales adequate to support its cost structure. Through June 30, 2000, the Company has incurred losses totaling $1,785,045 and is developing a customer base for its product, all of which raise substantial doubt about the Company's ability to continue as a going concern. As previously reported in its Form 10-K ("FORM 10-K") for the year ended December 31, 1999, the Company needed to increase the sales of the Company's product and raise additional capital to continue its operations. Management believes that resources will be available from private and public sources in 2000 to continue the marketing of its internet sharing devices. Management has established plans designed to increase the sales of the Company's products. Management intends to seek new capital from new equity securities offerings that will provide funds needed to increase liquidity, fund internal growth and implement its business plan. The Company has no commitment for any additional capital and no assurances can be given that the Company will be successful in raising any new capital. The Company's inability to increase its sales and/or to raise new capital will have a material adverse effect on the Company's ability to continue its operations and financial condition and on its ability to continue as a going concern. See "Management's Plan of Operations and Discussion and Analysis - Liquidity and Capital Resources." SIGNIFICANT PLANT OR EQUIPMENT PURCHASES. The Company does not currently anticipate any significant plant or equipment purchases during the next twelve months. CHANGES IN THE NUMBER OF EMPLOYEES. The Company currently has eight (8) employees. If the Company is successful in increasing its sales level or in raising significant new capital, the Company anticipates hiring seventeen (17) additional personnel during the remainder of 2000. The Company believes that these personnel will be adequate to accomplish the tasks set forth in its plan. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the three and six months ended June 30, 2000 and 1999: (1) Revenues. For the three and six months ended June 30, 2000, the Company had $241,270 and $440,880, respectively in revenue from sales of 1,092 and 1,855 units of shared Internet access "hardware routers" for home and small office users. During the same period in 1999, when sales first began, the Company had sales of $31,015 and $34,902, respectively. (2) Cost of Sales. Cost of product sales for the three and six months ended June 30, 2000 was $91,463 and $177,195, respectively as compared to $21,403 and $27,342, respectively, for the same period in 1999. The increase of $70,060 and $149,853, respectively, consisted of the purchase price and in-bound freight of pre-assembled finished goods inventory from subcontractors in Taiwan, Republic of China. The Company expects the dollar amount of purchases of pre-assembled finished goods inventory from subcontractors to increase in the future as the Company increases sales. - 8 - 9 (3) Gross Profit. The gross profit of our products was approximately 62% and 60%, respectively for the three and six months ended June 30, 2000. The Company expects pricing pressures from our competition, but will attempt to lower our cost procurement from subcontractors by obtaining the benefits of lower product costs through volume purchases. In order to maximize the Company's growth from sales, the Company may in the future reduce selling prices to take advantage of large volume sales opportunities, thus, possibly lowering the gross margin in the future. Selling, General and Administrative Expenses Three Months Ended June 30, 2000 and 1999 Selling, general and administrative expenses increased to $1,504,786 for the three months ended June 30, 2000 as compared to $11,836 for the three months ended June 30, 1999. The increase of $1,492,950 is primarily as a result of our growth, increase in personnel and other related costs which are explained below. In this connection, our payroll costs increased by $97,000, our facilities expenses and office expense increased by $66,000, professional fees by $75,000, and consultant expense by $46,000 and other operating expenses by $41,000. The consultant was hired to help us raise capital. During this period, we had two transactions that resulted in noncash expenditures to the Company. On June 30, 2000, Mr. Dillon, former CEO, resigned for personal reasons. In connection with his resignation, the 1,170,000 shares of common stock issued in connection with his employment agreement were forfeited. The Company in consideration of the termination of the employment agreement issued 500,000 shares of common stock to the former executive. Such shares were valued based on the then fair market value of the Company's common stock at $1,125,000 In addition, the Company recorded a charge in the amount of $42,000 in connection with the issuance of common stock to the Chief Financial Officer to amortize his unearned compensation in accordance with his employment agreement. The Company expects to increase its selling, general and administrative in the future in proportion to the Company's anticipated growth in sales. Six Months Ended June 30, 2000 and 1999 Selling, general and administrative expenses increased to $2,035,544 for the six months ended June 30, 2000 as compared to $15,320 for the six months ended June 30, 1999. The increase of $2,020,224 is primarily as a result of our growth, increase in personnel and other related costs which are explained below. In this connection, our payroll costs increased by $141,000, our facilities expenses and office expense increased by $108,000, professional fees by $168,000 and other operating expenses by $57,000. During this period, we had four transactions that resulted in noncash expenditures to the Company. On June 30, 2000, Mr. Dillon resigned from his position in the Company for personal reasons. In connection with his resignation, the 1,170,000 shares of common stock issued in connection with his employment agreement were forfeited. The Company in consideration of the termination of the employment agreement issued 500,000 shares of common stock to the former executive. Such shares were valued based on the then fair market value of the Company's common stock at $1,125,000 In addition, the Company recorded a charge in the amount of $42,000 in connection with the issuance of common stock to the Chief Financial Officer to amortize his unearned compensation in accordance with his employment agreement. We also issued common stock valued at $240,000, the then fair market value pursuant to a penalty provision resulting from the late filing of our Form S-1 Registration Statement. We also issued common stock to a consultant valued at $139,000, the then market value of the stock. The consultant was hired to help us raise capital. The Company expects to increase its selling, general and administrative in the future in proportion to the Company's anticipated growth in sales. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY AND CAPITAL RESOURCES. Since inception, the Company has relied principally upon the proceeds of private equity financings and loans to fund its working capital requirements and capital expenditures. The Company has generated only minimal revenues from operations to date. The Company's net cash (used in) provided by operating activities for the three months ended June 30, 2000 was ($109,040) compared to $18,797 for the three months ended June 30, 1999, a decrease of $127,837. This decrease resulted from increases in the Company's net loss, which included non-cash charges of (i) $41,666 for compensation in connection with an employment agreement, (ii) $1,125,000 for compensation in connection with severance and (iii) $378,929 for expenses paid by the issuance of common stock and increases in receivables and inventories offset by increases in accounts payable and accrued expenses. These increases result from the expansion of the Company's operations. The Company's net cash provided by financing activities increased by approximately $160,000 from an option exercised by a consultant. - 9 - 10 The Company's short-term liquidity requirements are expected to result from working capital needs to purchase inventory and pay other operating expenses. Although the Company cannot accurately predict the precise timing of our future capital, the Company estimates that it will need to expend approximately $2,000,000, within the next twelve months. The Company estimates that of this amount (i) $1,000,000 will be for pre-assembled finished goods inventory from subcontractors, (ii) $250,000 for sales and marketing forces, (iii) $250,000 for professional fees and (iv) $500,000 for other operating expenses, such as payroll, rent and office expenses. The Company has no assured available financial resources to meet its June 30, 2000 working capital deficit of $254,640 and future operating costs. The Company is seeking additional equity capital from private and public offerings. There is no assurance, that the Company will be able to raise such additional capital during the next 12 months. If the Company is unable to obtain necessary additional capital, the Company may be required to change its proposed business plan and decrease its planned operations, which could have a material adverse effect upon its business, financial condition, or results of operations Although, the Company may be able to raise additional capital through the exercise of the Class A and Class B Warrants for shares of Common Stock there is no assurance that the Company will be able to raise such additional capital. CAPITAL EXPENDITURES During the six months ended June 30, 2000, the Company's net capital additions were $17,046. During fiscal year 2000, the Company anticipates spending $300,000 in developing new products, purchasing computers and other systems. No significant capital additions were made during the comparable period in 1999. INFLATION The Company has not been materially affected by the impact of inflation. - 10 - 11 PART II ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On April 25, 2000, pursuant to an employment agreement between the Company and Enrique Dillon, the Company issued 1,170,000 shares of common stock to Enrique Dillon. On May 1, 2000, pursuant to an employment agreement between the Company and Martin Dell'Oca, the Company issued 200,000 shares of common stock to Martin Dell'Oca. Because the shares were issued for services, neither transaction involved the payment of money to the Company. The shares under both employment agreements, are subject to forfeiture in the event the employees resign or are terminated for cause prior to the initial two-year terms of their respective employment agreements. Pending the forfeiture periods, the shares are held in escrow. The Company relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, for "transactions by an issuer not involving any public offering." On June 30, 2000, the employment agreement between the Company and Enrique Dillon was terminated. Pursuant to the severance agreement, the 1,170,000 shares of common stock issued in connection with the employment agreement were forfeited and cancelled. In connection with the severance agreement, the Company issued 500,000 shares of common stock to Enrique Dillon in consideration of the termination of the employment agreement. The Company has agreed with Mr. Dillon to register these shares on its next registration statement for selling shareholders. As a result, the Company recorded a charge to operations in the amount of $1,125,000. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION The Company has amended its 10K for the fiscal year ended 1999. The method of accounting for business combinations has been determined to be inappropriate. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following documents are incorporated by reference from the Registrant's Form S-1 Registration Statement filed with the Securities and Exchange Commission (the "Commission") Commission File No. 333-3074 on April 1, 1996 and declared effective by the Commission on August 16, 1996. Number Document ------ -------- 3.1 Articles of Incorporation 3.2 Amended Articles of Incorporation 3.3 Bylaws of the Company - 11 - 12 The following documents are incorporated by reference from the Registrant's Form 10-K Annual Report for the period ended December 31, 1998: Number Document ------ -------- 3.3 Amended Articles of Incorporation dated December 31, 1997 3.4 Amended Articles of Incorporation dated April 15, 1998 The following documents are incorporated by reference from the Registrant's Form 8-K Report filed with the Securities and Exchange Commission (the "Commission") Commission file #333-3074, on December 3, 1999: Number Document ------ -------- 10.1 March 14, 2000 Consulting Agreement between Nexland S.A. and the Company 10.2 November 17, 1999, Mutual Non-Competition Agreement between Nexland, S.A. and the Company 10.3 November 17, 1999, Co-Operation Agreement between Smerwick, Ltd. and the Company The following documents are incorporated by reference from the Registrant's Form 8K filed with the Securities and Exchange Commission (the "Commission") Commission file #333-3074 on May 12, 2000. 10.4 Employment Contract of Enrique Dillon 10.5 Employment Contract of Martin Dell'Oca The following documents are filed herewith: 27 Financial Data Schedule - 12 - 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Nexland, Inc. Dated: March 5, 2001 By: /s/ Gregory S. Levine ------------------------------- Gregory S. Levine President - 13 -

NEXLAND INC 10-Q/A