Form 10-Q
--------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
---------------
(MARK ONE)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2000
---------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------
COMMISSION FILE NUMBER: 000-26881
---------------
NETNATION COMMUNICATIONS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-08034 38
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
1410 - 555 WEST HASTINGS STREET
VANCOUVER, BRITISH COLUMBIA, CANADA, V6B4N6
(Registrant's telephone number, including area code)
604/688-8946
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
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.
Yes [X] No [ ]
The number of shares of the registrant's Common Stock outstanding as of
November 14, 2000 was 15,290,321.
<PAGE>
Page 2
NETNATION COMMUNICATIONS, INC.
FORM 10-Q
SEPTEMBER 30, 2000
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
Consolidated Balance Sheets-September 30, 2000 (unaudited)
and December 31, 1999 (audited) 3
Consolidated Statements of Operations and Deficit--Three-Month
And Nine-Month Periods Ended September 30, 2000 (unaudited) and
1999 (unaudited) 4
Consolidated Statement of Stockholders' Equity-Nine-Month
Period Ended September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows--Nine-Month Periods
Ended September 30, 2000 (unaudited) and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
Page 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETNATION COMMUNICATIONS, INC.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
September 30, December 31,
2000 1999
---------------- ----------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,109,188 $ 988,077
Accounts receivable 55,159 10,961
Prepaid expenses and deposits 814,987 63,208
Prepaid domain name registration fees 511,601 -
---------- ----------
2,490,935 1,062,246
Prepaid domain name registration fees,
non current portion 124,308 -
Fixed assets, net of accumulated depreciation
of $407,290 (1999 - $134,885) 1,331,279 455,919
---------- ----------
$ 3,946,522 $ 1,518,165
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 576,842 $ 189,146
Deferred revenue 1,152,530 400,007
Customer deposits 66,034 -
Debentures payable - 1,100,000
---------- ----------
1,795,406 1,689,153
Deferred revenue, non current portion 248,032 -
Stockholders' equity (deficit):
Common stock
Authorized:
50,000,000 common shares with a par value
of $0.0001 each
Issued:
15,379,000 (December 31, 1999 - 14,607,000)
common shares 1,538 1,461
Additional paid-in capital 5,787,853 2,339,471
Deferred compensation (723,447) (1,015,466)
Deficit (3,177,461) (1,511,055)
Accumulated other comprehensive income 14,601 14,601
---------- ----------
1,903,084 (170,988)
---------- ----------
$ 3,946,522 $ 1,518,165
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
Page 4
NETNATION COMMUNICATIONS, INC.
Consolidated Statements of Operations and Deficit
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 1,390,814 $ 606,601 $ 4,228,933 $ 1,516,800
Operating costs and expenses
Cost of revenues 488,809 174,601 1,196,769 441,477
Sales and marketing 909,457 505,587 2,381,531 1,038,322
Office and administrative 817,847 370,571 1,925,842 702,671
Depreciation and amortization 108,655 51,745 267,522 71,118
---------- ---------- ---------- ----------
2,324,768 1,102,504 5,771,664 2,253,588
---------- ---------- ---------- ----------
Loss from operations 933,954 495,903 1,542,731 736,788
Other income (expense), net (111,853) 521 (123,675) (33,403)
---------- ---------- ---------- ----------
Loss for the period 1,045,807 495,382 1,666,406 770,191
Deficit, start of period 2,131,654 431,377 1,511,055 156,568
---------- ---------- ---------- ----------
Deficit, end of period $ 3,177,461 $ 926,759 $ 3,177,461 $ 926,759
========== ========== ========== ==========
Loss per share, basic and diluted $ 0.07 $ 0.05 $ 0.11 $ 0.08
========== ========== ========== ==========
Weighted average number of common
shares outstanding, basic
and diluted 15,402,478 10,510,000 15,250,324 10,138,015
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Page 5
NETNATION COMMUNICATIONS, INC.
Consolidated Statement of Stockholders' Equity
(Expressed in U.S. Dollars)
Nine month period ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-In Deferred Comprehensive
-------------------------------
Shares Amount Capital Compensation Income Deficit Total
--------------- --------------- ----------- ------------ ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 14,607,000 $ 1,461 $ 2,339,471 $ (1,015,466) $ 14,601 $(1,511,055) $ (170,988)
Conversion of
debentures to
common stock 550,000 55 1,099,945 - - - 1,100,000
Proceeds from sale
of common stock,
net of offering costs 250,000 25 2,348,437 - - - 2,348,462
Amortization of
deferred compensation - - - 292,019 - - 292,019
Cancellation of common
stock net of issuance (28,000) (3) - - - - (3)
Net loss - - - - - (1,666,406) (1,666,406)
---------- ---------- ---------- ----------- ------------ ---------- -----------
Balance at
September 30, 2000 15,379,000 $ 1,538 $ 5,787,853 $ (723,447) $ 14,601 $(3,177,461) $ 1,903,084
========== ========== ========== =========== ============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Page 6
NETNATION COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
Nine month Nine month
period ended period ended
September 30, September 30,
2000 1999
----------------- -----------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(1,666,406) $ (770,191)
Items not involving cash:
Depreciation and amortization 267,522 71,118
Amortization of deferred compensation 292,019 -
Loss on disposal of fixed asset 78,777 -
Change in operating assets and liabilities:
Accounts receivable (44,198) (38,054)
Prepaid expenses and deposits (751,779) (8,457)
Prepaid domain name registration fees (635,909) -
Accounts payable and accrued liabilities 387,696 232,578
Deferred revenue 1,000,555 93,468
Customer deposits 66,034 -
---------- ----------
Net cash used in operating activities (1,005,689) (419,538)
---------- ----------
Cash flows from investing activities:
Acquisition of fixed assets (1,221,659) (320,418)
---------- ----------
Net cash used in investing activities (1,221,659) (320,418)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock, net
of offering costs 2,348,462 916,021
Issue of Series A Convertible Debentures - 1,100,000
Repurchase of shares - (483)
Stock redemption premium paid - (41,406)
Cancellation of shares (3) (24)
---------- ----------
Net cash provided by financing activities 2,348,459 1,974,108
Change in cumulative translation adjustment - 4,122
---------- ----------
Net increase in cash and cash equivalents 121,111 1,238,274
Cash and cash equivalents, beginning of period 988,077 45,863
---------- ----------
Cash and cash equivalents, end of period $ 1,109,188 $ 1,284,137
========== ==========
Supplemental disclosure:
Non-cash transaction
Conversion of debentures into common stock $ 1,100,000 $ -
Cash paid for
Interest $ 142 $ 1,958
See accompanying notes to consolidated financial statements.
<PAGE>
Page 7
NETNATION COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Nine month periods ended September 30, 2000 and 1999
(Unaudited)
GENERAL:
NetNation Communications, Inc. (the "Company") was incorporated on May 7,
1998 under the laws of the State of Delaware as Collectibles Entertainment
Inc. ("Collectibles").
On April 7, 1999, Collectibles acquired all of the outstanding common shares
of NetNation Communications Inc. ("the Canadian Subsidiary"). As
Collectibles was inactive at the time of the transaction, this issuance has
been accounted for as a capitalization of the Canadian Subsidiary,
effectively as if the Canadian Subsidiary issued common shares to acquire
the net monetary assets of Collectibles. As such, the statements of
operations and deficit and cash flows reflect the results for the Canadian
Subsidiary from incorporation on February 19, 1997 to April 7, 1999. From
April 7, 1999, the results of the Canadian Subsidiary are included on a
consolidated basis with those of Collectibles. Subsequent to the
transaction, Collectibles changed its name to NetNation Communications, Inc.
The Company's principal business activities are the provision of web-site
hosting, domain name registration, and related services to small and medium
sized businesses.
1. BASIS OF PRESENTATION:
These interim consolidated financial statements have been prepared using
generally accepted accounting principles in the United States. The interim
financial statements include all adjustments, consisting solely of normal
recurring adjustments, which in management's opinion are necessary for fair
presentation of the financial results for interim periods. The financial
statements have been prepared consistent with the accounting policies
described in the Company's annual audited financial statements. Reference
should be made to those statements included with the Company's annual report
filed with Form 10-K. Certain comparative figures have been reclassified to
conform to the presentation adopted in the current period.
These consolidated financial statements include the accounts of NetNation
Communications, Inc. and its wholly-owned subsidiaries, the Canadian
Subsidiary, NetNation Communications (UK) Inc., NetNation Communications
(USA) Inc., and DomainPeople Inc. All significant intercompany accounts and
transactions have been eliminated.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Revenue recognition:
Revenue is recognized as web-site hosting, domain name registration and
related services are provided. Amounts billed in advance of the provision
of services are deferred and recorded as revenue on a straight-line basis
over the term of services or registration.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides the staff's view on the application of existing generally
accepted accounting principles to revenue recognition in financial
statements, which amends revenue recognition policies followed by the
industry that were previously accepted by the SEC. SAB 101 and related
material indicates that the fair value of initial set-up fees should be
recognized over the estimated period of service. The Company's contracts
generally include such fees. The Company is currently determining the
<PAGE>
Page 8
impact of SAB 101 and the resulting adjustment will be recorded in the
Company's financial statements in the fourth quarter of 2000.
(b) Prepaid domain name registration fees:
Prepaid domain name registration fees represent the amounts paid to the
registry for generic top level domains for updating and maintaining the
registry. Domain name registration fees paid are deferred and charged to
income on a straight-line basis over the registration term, which can
range from 1 to 10 years.
3. COMMITMENTS:
The Company is committed to total operating lease payments for all of its
facilities in 2000, 2001, 2002, 2003 and thereafter of approximately
$120,000, $434,000, $317,000, $258,000 and $960,000, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Our company was incorporated under the laws of the State of Delaware on May 7,
1998, under the name Collectibles Entertainment Inc. ("Collectibles") for the
purpose of operating an online sports card and other tradable memorabilia
distribution business. We entered into the Web hosting business through
the acquisition of NetNation Communications Inc. ("the Canadian Subsidiary").
The Canadian Subsidiary was a private company incorporated under the laws of the
Province of British Columbia, Canada on February 19, 1997. The Canadian
Subsidiary became a wholly owned subsidiary on April 7, 1999 pursuant to an
agreement between the shareholders of the Canadian Subsidiary and Collectibles
(the "Share Purchase Agreement"). Pursuant to the Share Purchase Agreement,
Collectibles acquired 9,000,000 Class A common shares and 1,000,000 Class B
preferred shares of the Canadian Subsidiary, being all of the issued and
outstanding shares of the Canadian Subsidiary. The purchase price for the
shares of the Canadian Subsidiary was $1,000,000 in Canadian currency, which was
paid by the issuance of 10,000,000 common shares of Collectibles. On April 14,
1999, Collectibles changed its name to NetNation Communications, Inc.
We currently have four wholly-owned subsidiaries: NetNation Communications (USA)
Inc., the Canadian Subsidiary, NetNation Communications (UK) Inc., and
DomainPeople Inc.
We are an internet infrastructure solutions provider focused on meeting the
needs of small and medium-sized enterprises ("SMEs") and individuals who are
establishing a commercial or informational presence on the Internet. We compete
in the shared and dedicated web hosting, server co-location and domain name
registration markets. Our products and services are sold worldwide, directly to
customers and through VARs (Value Added Resellers).
In May 1999, we were selected as an official registrar of domain names by ICANN.
The accreditation allowed us to register top-level domain names ("TLD's") ending
in .com, .net and .org, which account for approximately 50% - 75% of the world's
Internet addresses. We became operational as a domain name registrar late in
December of 1999.
During the quarter ended September 30, 2000, the Company participated in the
development of Afilias, a consortium of nineteen registrars, formed to operate
new domain registry for domain names ending in .web, .info or .site.
<PAGE>
Page 9
RESULTS OF OPERATIONS
Revenue
Historically, the majority of our revenues have been derived from the provision
of web hosting services. Our web hosting customers normally pay a set-up fee
plus regular charges, either monthly, quarterly or annually, thereafter. We
offer a variety of hosting packages in addition to a number of value-added
services and products. This enables customers to easily select and modify a
solution that precisely meets their individual requirements.
Our accreditation as an official registrar of domain names has enabled us to
register domain names without the involvement of an intermediary. As an
accredited registrar, we have assumed responsibility for ensuring that we supply
current information obtained from our customers to the central registry.
Amounts billed in advance of the provision of domain name registration services
are deferred and recorded as revenue on a straight-line basis over the term of
registration. The unrecognized portion of the fees has been recorded as
deferred revenue.
Domain name registration fees vary depending upon the term of the registration.
We have experienced an average initial term of domain name registration of
approximately 1.3 years.
The following table compares the composition of revenues for the nine months
ended September 30, 2000 to the nine months ended September 30, 1999 and the
three months ended September 30, 2000 to the three months ended September 30,
1999:
Revenues Nine months ended Three months ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------------------------- ----------------------------
Shared hosting 61% 85% 61% 83%
Domain name
registration 28% 10% 31% 10%
Dedicated hosting 6% 1% 5% 3%
Server co-location 5% 4% 3% 4%
---------------------------- ----------------------------
Total revenue 100% 100% 100% 100%
---------------------------- ----------------------------
The majority of our revenues for the three months ended September 30, 2000 were
generated from the provision of shared web hosting and domain name registration
services to SMEs. Due to the method of revenue recognition for domain name
registration, only a portion of the amount charged was recognized as revenue in
the current quarter. The current portion of deferred revenue on the balance
sheet as at September 30, 2000 includes $714,201 of domain name registration
revenue. The non current portion of deferred revenue on the balance sheet as at
September 30, 2000 relates entirely to domain name registration revenue.
Total revenue increased 129% from $606,601 for the three months ended September
30, 1999 to $1,390,814 for the three months ended September 30, 2000 and total
revenue increased 179% from $1,516,800 for the nine months ended September 30,
1999 to $4,228,933 for the nine months ended September 30, 2000. However, total
revenue decreased 2% from $1,423,387 for the three months ended June 30, 2000 to
$1,390,814 for the three months ended September 30, 2000. The Company has
appointed a new Chief Executive Officer to reverse this trend and to ensure the
Company's revenues continue to grow.
The number of sites hosted increased 78%, from approximately 8,000 as at
September 30, 1999 to over 14,200 as at September 30, 2000. Our partnership
arrangements and reseller network, coupled with a targeted sales and marketing
effort will continue to enhance our growth in the future. We also intend to
grow our revenues through the acquisition of high-quality, strategically
important web hosting providers.
<PAGE>
Page 10
Cost of revenues
Cost of revenues includes the cost of bandwidth, domain name registration fees
paid to the central registry, salaries directly related to the provision of
hosting and domain name registration services, and other related costs. Domain
name registration fees paid to the central registry are recognized as an expense
over the term of registration.
Cost of revenues increased 180% from $174,601 for the three months ended
September 30, 1999 to $488,809 for the three months ended September 30, 2000 and
increases 171% from $441,477 for the nine months ended September 30, 1999 to
$1,196,769 for the nine months ended September 30, 2000. This growth is
expected given the increase in revenues for the three and nine months ended
September 30, 2000 compared to the three and nine months ended September 30,
1999. It also reflects the additional investment in equipment and staff that we
have made during recent quarters.
Sales and marketing expense
Sales and marketing expense consists mainly of salaries, bonuses, commissions
and advertising costs. Our advertising is focused in media types that we
believe best engage the attention of our target market, SMEs.
Sales and marketing expense increased 80% from $505,587 for the three months
ended September 30, 1999 to $909,457 for the three months ended September 30,
2000 and 129% from $1,038,322 for the nine months ended September 30, 1999 to
$2,381,531 for the nine months ended September 30, 2000. Advertising
expenditures are a significant driver of our web hosting and domain name
registration businesses. The increase in the level of expenditures in this area
during the three and nine months ended September 30, 2000 compared to the three
and nine months ended September 30, 1999 is in line with our plans to continue
growing our customer base. With new product offerings coming online in 2000, we
are actively pursuing additional avenues to reach our target market. This may
include strategic acquisitions and partnerships.
Office and administrative expense
Office and administrative expense includes rent and general office costs as well
as the cost of professional advisors, media relations and investor relations.
Office and administrative expense increased 121% from $370,571 for the three
months ended September 30, 1999 to $817,847 for the three months ended September
30, 2000 and 174% from $702,671 for the nine months ended September 30, 1999 to
$1,925,842 for the nine months ended September 30, 2000. The increase was due
mainly to the additional costs of professional advisors, media relations and
investor relations that are normally associated with public companies. There
were no comparable costs for the three or nine months ended September 30, 1999.
Expenditures on office and administrative items will continue to increase in
dollar amounts but are expected to decrease as a percentage of total revenue as
revenue growth outpaces the increase in administrative costs.
Depreciation and amortization
Depreciation and amortization increased 110% from $51,745 for the three months
ended September 30, 1999 to $108,655 for the three months ended September 30,
2000 and 276% from $71,118 for the nine months ended September 30, 1999 to
$267,522 for the nine months ended September 30, 2000. This increase is related
to greater expenditures on data center and computer equipment during the three
months ended September 30, 2000.
Other income and expense
Other expense increased 21,569% from $521 of income for the three months ended
September 30, 1999 to $111,853 of expense for the three months ended September
<PAGE>
Page 11
30, 2000 and 270% from $33,403 for the nine months ended September 30, 1999 to
$123,675 for the nine months ended September 30, 2000. This increase is
primarily related to a software that was disposed of during the three months
ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our business strategy includes the raising of additional capital during 2000
which will be used to make strategic acquisitions, build or expand data centers,
fund marketing campaigns and provide working capital. Our financing strategy
calls for the minimization of debt financing in favor of equity financing
whenever feasible. We may use a combination of both private and public equity
investment in the future.
We were able to raise the capital required for the growth in revenues during
early 1999 through private investment. On April 12, 1999, after the acquisition
of the Canadian Subsidiary, we raised $1,100,000 through the sale of two Series
A Convertible Debentures and on February 18, 2000 the debentures were converted
into 550,000 shares of common stock at the direction of the debenture holders.
Also during 1999, we raised $900,000 through a private placement of 450,000
shares of common stock at $2.00 per share.
On March 3, 2000, we completed a private placement of 250,000 units at $10 per
share for gross proceeds of $2,500,000. Each unit included warrants entitling
the investors to purchase one additional share for every two shares they already
own. The warrants are exercisable during a two-year period at $12 per
additional share purchased. We may require the exercise of the warrants during
this time period if certain financial conditions are met, in which case we will
receive an additional $1,500,000 and will issue a further 125,000 shares of
common stock.
During the nine months ended September 30, 2000, our operating activities used
net cash of $1,005,689 compared to net cash used in operating activities of
$419,538 for the nine month period ended September 30, 1999. The main drivers
were the increase in the net loss for the period, the prepaid expenses and
deposits, and the prepaid domain name registration fees. These factors were
partially offset by the increase in deferred revenue related to domain name
registration and web hosting services and the increase in trade accounts
payable.
Significant fixed asset purchases during the nine months ended September 30,
2000 increased the net cash used in investing activities to $1,221,659 compared
to $320,418 for the nine months ended September 30, 1999. The higher level of
expenditures related mainly to the upgrading of our Vancouver data center to
enable it to scale to anticipated demand. Similar costs may be incurred in the
future for building or expanding additional data centers.
Net cash provided by financing activities was $2,348,459 for the nine months
ended September 30, 2000 compared to net cash provided by financing activities
of $1,974,108 for the nine months ended September 30, 1999. The increase
reflects the proceeds we raised through the private placement that occurred
during the nine months ended September 30, 2000.
As at September 30, 2000, we have cash and cash equivalents on hand of
$1,109,188 compared to $1,284,137 as at September 30, 1999. The slight decrease
reflects the investing activities undertaken and the negative cash flows from
operations being in excess of financing activities during the nine months ended
September 30, 2000. The funds on hand as at September 30, 2000 will be used to
make strategic acquisitions, build or expand data centers, fund marketing
campaigns and provide working capital. We will continue to seek additional
equity financing when required provided that the equity market conditions are
acceptable.
FORWARD-LOOKING STATEMENTS
The statements included in the discussion and analysis above that are not
historical or factual are "forward-looking statements" (as such term is defined
in the Private Securities Litigation Reform Act of 1995). The safe harbor
provisions provided in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, apply to
<PAGE>
Page 12
forward-looking statements made by the Company. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "intends, " "will," "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. Management cautions the
reader that these forward-looking statements addressing the timing, costs and
scope of expansion of operations or investments and other matters contained
herein or therein from time to time regarding matters that are not historical
facts, are only predictions. No assurance can be given that future results
indicated, whether expressed or implied, will be achieved. These forward-
looking statements are based upon a variety of assumptions relating to the
business of the Company, which may or may not be realized. Because of the
number and range of the assumptions underlying Company's forward-looking
statements, many of which are subject to significant uncertainties and
contingencies that are beyond the reasonable control of the Company, some of the
assumptions will not materialize and unanticipated events and circumstances may
occur subsequent to the date of this report. These forward-looking statements
are based on current expectations, and the Company assumes no obligation to
update this information. Therefore, the actual experience of the Company and
results achieved during the period covered by any particular forward-looking
statements may differ substantially from those projected. Consequently, the
inclusion of forward-looking statements are not and should not be regarded as a
representation by the Company, or any other person, that these statements will
be realized. The actual results may vary materially, There can be no assurance
that any other person, that these statements will be realized. The actual
results may vary materially, There can be no assurance that any of these
expectations will be realized or that any of the forward-looking statements
contained in this report will prove to be accurate.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No significant changes in the quantitative and qualitative disclosures about
market risk have occurred from the discussion contained in our report on Form
10-K/A for the year ended December 31, 1999, which was filed with the Commission
on April 26, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 3, 2000, the Company finalized an agreement to issue 250,000 units at
$10 per unit to a group of investors including a leading Swiss investment bank.
Each unit consisted of one common share and one-half of a share purchase
warrant. Each whole warrant entitles the holder to purchase one additional
common share at a price of $12 for a period of two years. Transaction fees and
expenses related to the sale were $151,831 . The Company may require the
exercise of the warrants during this time period if certain financial conditions
are met, in which case the Company will receive an additional $1,500,000 and
will issue a further 125,000 shares of common stock. The certificates
representing the common shares forming part of the units and the common shares
issued upon exercise of the warrants will bear a legend in accordance with Rule
144 promulgated under the Securities Act of 1933 and may not be transferred or
resold except in accordance with Rule 144.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
<PAGE>
Page 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See attached exhibit 27
(b) Reports on Form 8-K
On August 15, 2000, the Company filed a Current Report on Form 8-K, dated June
30, 2000. The Current Report included as an exhibit a press release issued by
the Company announcing the Company's financial results for the second quarter of
2000.
On October 2, 2000, the Company filed a Current Report on Form 8-K, dated
September 25, 2000. The Current Report included as an exhibit a press release
issued by the Company announcing that the Company has promoted a new Chief
Executive Officer and the previous Chief Executive Officer, Chief Financial
Officer and Chief Administrative Office have resigned.
On October 2, 2000, the Company filed a Current Report on Form 8-K, dated
September 26, 2000. The Current Report included as an exhibit a press release
issued by the Company announcing that the Company had entered into a letter of
intent to acquire American Digital Network Corporation, an e-commerce and web
site hosting company.
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.
NETNATION COMMUNICATIONS, INC.
Date: November 14, 2000 /s/ Joseph Kibur
------------------------------
Joseph Kibur
Chief Executive Officer
Date: November 14, 2000 /s/Jag Gill
------------------------------
Jag Gill
General Counsel
<PAGE>
