<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended June 30, 2000.
[_] Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
Commission file number: 33-83526
The IXATA Group, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4453386
--------------------------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8989 Rio San Diego Drive, Suite 160 San Diego, California 92108
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
619-400-8800
--------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
8080 Dagget St., Suite 220 San Diego, California 92111
--------------------------------------------------------------------------------
(Former Address)
Check whether issuer: (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value per share: 14,043,936 (as of September 1, 2000)
--------------------------------------------------------------------------------
Transition Small Business Disclosure Format (check one):
Yes No [X]
----- -----
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Part I-- Financial Information 2
Item 1. Financial Statements. 2
Item 2. Management's Discussion and Analysis or Plan of Operations. 16
The Company 16
Recent Events 17
Results of Operations 17
Second Quarter of 2000 Compared to Second Quarter of 1999 18
First Half of 2000 Compared to First Half of 1999 19
Liquidity and Capital Resources 19
Year 2000 20
Forward-Looking Statements 20
Part II-- Other Information 25
Item 1. Legal Proceedings. 25
Item 2. Changes in Securities and Use of Proceeds. 25
Item 3. Defaults Upon Senior Securities. 25
Item 4. Submission of Matters to a Vote of Security Holders. 25
Item 5. Other Information. 25
Item 6. Exhibits and Reports on Form 8-K. 25
</TABLE>
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Page 1
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
Part I -- Financial Information
Item 1. Financial Statements.
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Consolidated Financial Statements
Quarters Ended June 30, 2000 and 1999
and for the Period from Inception (May 20, 1996)
to June 30, 2000
**** Independent auditors have not performed a SAS 70 Review on the 2/nd/
Quarter ending June 30, 2000 and Inception to June 30, 2000 numbers contained
in this report. ****
--------------------------------------------------------------------------------
Page 2
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Contents
================================================================================
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 4-5
Condensed Consolidated Statements of Operations 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8-15
3
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Condensed Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
June 30, 2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 40,226 $ 7,818
Marketable equity security (Note 3) 90,000 150,000
Accounts receivable - net of allowance for doubtful
accounts of $0 and $32,019 in 2000 and 1999,
respectively 185,583 4,501
-------------------------------------------------------------------------------------
Total current assets 315,809 162,319
Fixed Assets - Net 104,190 83,757
Goodwill - Net 5,363,889 -
Other Assets - Net 8,558 151,225
-------------------------------------------------------------------------------------
$ 5,792,446 $ 397,301
=====================================================================================
</TABLE>
4
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Condensed Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
June 30, 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Notes payable (Note 4) $ 617,365 $ 578,250
Current portion of capitalized leases 99,814 72,419
Accounts payable and accrued expenses 447,609 300,908
Related party payables 439,076 --
Deferred revenue 246,109 --
Accrued payroll and related taxes 313,857 158,678
Accrued interest 370,828 173,653
-----------------------------------------------------------------------------------------------------
Total current liabilities 2,534,658 1,283,908
-----------------------------------------------------------------------------------------------------
Long-Term Debt (Note 5) 1,440,450 1,000,000
Capitalized Leases, Less Current Maturities -- 34,323
-----------------------------------------------------------------------------------------------------
Total liabilities 3,975,108 2,318,231
Commitments and Contingencies (Note 7)
Stockholders' Equity (Deficit)
Preferred stock; 10,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $.001 par value; 100,000,000 shares
authorized, 14,146,289 and 6,275,169 shares
issued and outstanding, respectively 13,883 6,275
Stock subscriptions receivable (2,963) --
Additional paid-in capital 16,268,207 7,583,613
Deficit accumulated during the development stage (14,251,789) (9,360,818)
Accumulated other comprehensive loss:
Unrealized holding loss on marketable securities (Note 3) (210,000) (150,000)
-----------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 1,817,337 (1,920,930)
-----------------------------------------------------------------------------------------------------
$ 5,792,445 $ 397,301
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Consolidated Statements of Operations
================================================================================
<TABLE>
Period from
Inception
(May 20, 1996
2000 1999 to June 30,
---------------------------------------------------------
3 mos 6 mos 3 mos 6 mos 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 50,728 $ 132,998 $ -- $ -- $ 404,587
Costs, Expenses And Other
Selling, general and administrative expenses
(including stock-based compensation of
$264,000 in 1999 and the period from
inception (May 20, 1996) to June 30, 2000) (1,230,506) (2,588,497) (75,698) (100,125) (4,904,365)
Gain on disposal of subsidiary -- -- 708,419 708,419 708,419
Restructuring charge
(including stock-based compensation of
$6,211,000 in 1999 and the period from inception
(May 20, 1996) to June 30, 2000) -- -- (141,520) (505,832) (10,017,906)
Interest Expense (90,056) (164,227) -- (1,206) (420,564)
Loss on impairment of fixed assets -- -- -- -- (59,543)
Realized gain on sale of marketable securities -- -- -- -- 50,000
Cost of revenues (719) -- -- -- (17,278)
Interest income -- 909 -- -- 2,934
-----------------------------------------------------------------------------------------------------------------------------------
Total Costs, Expenses and Other (1,319,844) (2,751,816) 491,201 101,256 (14,658,304)
-----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1,269,116) $ (2,618,818) $ 491,201 $ 101,256 $(14,253,717)
===================================================================================================================================
Net Income (Loss) Per Share:
Net Income (Loss) $ (0.09) $ (0.19) $ 0.08 $ 0.02
-----------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Shares Outstanding 14,146,289 14,146,289 6,275,169 6,275,169
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Condensed Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Period from
Equivalents Inception
(May 20, 1996)
2000 1999 to June 30,
--------------------------------------------------------------
3 mos 6 mos 3 mos 6 mos 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,269,116) $ (2,618,818) $ 491,201 $ 101,256 $ (14,253,717)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 339,737 679,473 11,755 27,499 1,571,580
Gain on sale of subsidiary - - (708,419) (708,419) (708,419)
Net loss on stock issued for debt and
services - - - - 4,390
Stock issued for debt and services 16,000 16,000 - - 119,818
Loss on impairment of fixed assets - - - - 59,543
Stock options granted and contingent
shares issued - - - - 6,211,525
Change in operating assets and liabilities:
Accounts receivable (19,871) 74,200 4,352 2,637 (181,987)
Notes receivable - - - - 5,833
Intangible and other assets - - - - (56,680)
Prepaid assets 5,137 - - 35,000 3,425
Accounts payable, accrued payroll
And accrued expenses (8,110) 107,275 (39,745) (47,973) 841,462
Related party payables 100,020 69,576 - - 263,940
Deferred revenue 143,590 131,770 - - 234,864
Accrued interest 78,670 141,591 - - 290,561
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (613,943) (1,398,933) (240,856) (590,000) (5,593,862)
---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of subsidiary and
related assets - - 472,257 472,257 498,000
Acquisition of goodwill (investment in
subsidiary - - (150,000) (150,000) (181,931)
Cash acquired in acquisition
of subsidiary - - - - 46,978
Purchases of fixed assets (34,126) (49,990) - (157) (409,022)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (34,126) (49,990) 322,257 322,100 (45,975)
---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net proceeds from sale of common
Stock 323,001 1,171,005 346,006 346,006 3,442,252
Proceeds from issuance of long-term
debt and notes payable - - 54,003 416,221 2,316,796
Repayments on advances - - 338,000 (338,000) -
Principal payments on notes payable (6,000) (8,000) (137,718) (143,095) (155,428)
Principal payments on capital leases - - (3,743) (6,946) (83,206)
Proceeds from capitalized lease - - - - 159,650
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 317,001 1,163,005 (79,452) 274,186 5,680,064
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (331,068) (285,918) 1,949 6,286 40,227
Cash and Cash Equivalents at Beginning of
Period 371,295 326,146 5,869 1,532 -
---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 40,227 $ 40,277 $ 7,818 $ 7,818 $ 40,227
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Consolidated Statements of Cash Flows, Continued
================================================================================
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Period from
Equivalents Inception
(May 20,
1996)
2000 1999 to June 30,
---------------------------------------------------------------
3 mos 6 mos 3 mos 6 mos 2000
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 11,250 $ 22,500 $ 3,839 $ 27,806 $ 268,717
Income taxes -- -- -- $ 1,600 $ 4,800
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash Investing and Financing Activities:
In March 1997, the Company acquired $159,650 of fixed assets under a
sale-leaseback arrangement, which was being accounted for as a capital lease
agreement.
On December 3, 1997, the Company issued 620,000 conditional shares of common
stock pursuant to various employment, retainer, consulting and fee arrangements
with a fair value of approximately $3,100,000. The fair value of the shares was
calculated using the closing price surrounding the issuance date.
On November 17, 1998, the Company issued 41,665 shares of common stock for
investment banking services and bridge funding with a fair value of
approximately $33,000. The fair value of the shares was calculated using the
closing price surrounding the issuance date.
During 1999, the Company issued 233,288 shares of common stock to satisfy debt
related to professional services with a fair value of approximately $395,000.
The fair value of the shares was calculated using the closing price surrounding
the issuance dates.
During 1999, 1998 and the period from inception (May 20, 1996) to December 31,
1999, the Company granted stock options to purchase 575,000, 550,000, and
430,900 shares, respectively, of the Company's common stock. These stock options
were valued in accordance with SFAS 123 at approximately $264,000, $1,620,000
and $3,111,000, respectively.
During 1999, the Company acquired 600,000 shares of common stock at a fair
market value of $.50 per share as proceeds from the sale of certain assets held
in its wholly-owned subsidiary, SecurFone, Inc. The change in the unrealized
holding loss on marketable securities was $276,000 for 1999.
In March 2000, the Company issued 600,000 shares of its common stock to Global
One, Inc. related to the acquisition of IXATA, Inc.
In June 2000, the CEO of the Company exercised options to purchase 100,000
shares of its common stock for total proceeds to the company of $16,000. The
option exercise in effect converted a $16,000 cash loan to IXATA, Inc. to
equity.
================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
1. Basis of The accompanying condensed consolidated financial statements
Presentation of The IXATA Group, Inc. and subsidiaries (the "Company")
include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. In the
opinion of management, the condensed consolidated financial
statements reflect all normal and recurring adjustments
which are necessary for a fair presentation of the Company's
financial position, results of operations and cash flows as
of the dates and for the periods presented. The condensed
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Consequently, these
statements do not include all the disclosures normally
required by generally accepted accounting principles for
annual financial statements nor those normally made in the
Company's Annual Report on Form 10-KSB. Accordingly,
reference should be made to the Company's Form 10-KSB for
the year ended December 31, 1999 filed on May 16, 2000 and
other reports the Company filed with the Securities and
Exchange Commission for additional disclosures, including a
summary of the Company's accounting policies, which have not
materially changed. The consolidated results of operations
for the three and six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for
the fiscal year ending December 31, 2000 or any future
period, and the Company makes no representations related
thereto.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities and the results of
operations during the reporting period. Actual results could
differ materially from those estimates.
Certain reclassifications have been made to the prior period
financial statements to conform to the current period
presentation.
Independent auditors have not performed a SAS 70 Review on
the quarter ending June 30, 2000 and Inception to June 30,
2000 numbers
9
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
contained in this report.
2. Abbreviated An abbreviated summary of the Company's significant
Summary of accounting policies applied consistently in the preparation
Significant of the accompanying consolidated financial statements
Accounting follows.
Policies
(a) Development Effective July 1, 1999, the Company is principally engaged
stage in developing, marketing and providing global Internet-based
operations business-to-business electronic commerce services for the
corporate travel and hospitality markets. Because the
Company had not generated significant revenues as of June
30, 2000, the Company believes it is in the development
stage at June 30, 2000. The Company also has entered into
contracts authorizing certain strategic partners to
sublicense its software. The Company invested significant
capital and effort in development of its databases, software
and customer base throughout 1999 and the first half of
2000.
(b) Going concern The accompanying consolidated financial statements as of
June 30, 2000 have been prepared assuming the Company will
continue as a going concern. However, the Company had
working capital deficits of $2,218,894 and $1,121,589 as of
June 30, 2000 and 1999, respectively, and incurred net
losses of $2,618,818 and $14,253,717 for the quarter ended
June 30, 2000 and for the period from inception (May 20,
1996) to June 30, 2000, respectively. These conditions raise
substantial doubt about the Company's ability to continue as
a going concern.
To meet both current and contractual commitments and
business growth objectives, the Company will require
additional financing. To address its financing needs, the
Company is pursuing a multiple phase strategy and has
retained an investment banking firm, Scott & Stringfellow,
Inc., to assist and advise the Company in the process.
During the initial phase, from November 1999 to April 2000,
the Company secured financing from private investors in
exchange for shares of the Company's common stock, raising a
net amount of $1.8
10
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
million from these individuals. The second phase of the
financing plan is to raise between $1.5 and $3.0 million in
equity from strategic and institutional investors. This
phase is currently underway, with both strategic and
institutional investors identified and expressing interest
to an equity investment in the Company. There can be no
assurance that additional debt and equity financing needed
to fund operations will be consummated or obtained in
sufficient amounts necessary to meet the Company's needs.
(c) Revenue The Company recognizes revenue from transaction revenues and
recognition sales of subscriptions. Transaction revenues are recognized,
net of an allowance for uncollectible amounts, when
substantially all significant services to be provided by the
Company have been performed. Subscription revenues are
recognized over the period of the subscription. An allowance
has been provided for uncollectible accounts based on
management's evaluation of the accounts and the customer's
history.
3. Marketable The cost, unrealized holding loss and fair market value of
Securities marketable securities are as follows:
Unrealized
Cost Holding Loss Fair Value
--------------------------------------------
June 30, 2000 $ 300,000 $ (210,000) $ 90,000
============================================================
The net changes in unrealized holding loss on securities
available for sale charged to stockholder's equity (deficit)
in 2000 was $(66,000). The net changes in unrealized holding
loss on securities available for sale charged to
stockholder's equity (deficit) since the securities were
acquired is $210,000. As it is not more likely than not that
the Company will benefit from the realization of this loss,
no tax benefit has been recorded.
11
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
4. Notes Notes payable - short-term consisted of the following:
Payable -
Short-Term June 30, 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to a limited partnership bearing 15% interest;
principal and interest due on November 1, 1999 and was
extended as a demand note; secured by a stock pledge
agreement. $ 300,000 $ -
Unsecured note payable; interest at 10% per annum. Principal
and unpaid interest were due January 30, 1999. The note was
extended as a demand note. 130,000 130,000
Unsecured note payable to unrelated parties for advances
made to the Company; interest at 10% per annum. Principal
and interest were due on September 1, 1999. The note was
extended as a demand note. 130,000 298,250
Note payable for a settlement with the Company's former CEO
to resolve all outstanding Company obligations related to
his employment; assigned to an unrelated party in 1999;
interest at 12% per annum. Principal and unpaid interest due
on demand. 50,000 50,000
Account payable with a vendor converted to a note on June
21, 1999; interest at 8%; payable in
</TABLE>
12
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C> <C>
$2,000 installments of principal and interest beginning July
1, 1999. 7,365 -
<CAPTION>
4. Notes
Payable - June 30, 2000 1999
Short-Term, -----------------------------------------------------------------------------------------------
cont'd <S> <C> <C>
Note payable; interest at 10% per annum. The note was
secured with security interest in 50,000 shares of the
Company's common stock. Paid in 1999. - 100,000
-----------------------------------------------------------------------------------------------
$ 617,365 $ 578,250
===============================================================================================
5. Long-Term Long-term debt consisted of the following:
Debt
June 30, 2000 1999
-----------------------------------------------------------------------------------------------
Convertible debenture in the amount of $1,000,000 issued
August 21, 1998 for advances made to the Company; interest
at 12%, payable quarterly; principal is payable on the
earlier of 1) the Company's receipt of at least $8 million
proceeds from a public offering of Company securities or 2)
August 21, 2001. Non-detachable warrants for 500,000 shares
exercisable at $2.72 per share were issued in connection
with the convertible debenture. The warrants expire on
August 21, 2003. $ 1,000,000 $ 1,000,000
Advances payable to unrelated parties and potential
investors who have committed the funds on a long-term
</TABLE>
13
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C> <C>
basis. Negotiations with various parties have not
characterized the debt and equity nature of the funds or
finalized interest rates, maturity dates, repayment terms
or other features for the advances. 430,450 -
Note payable to a related party; interest at 5%; principal
and interest are due on February 16, 2004. 10,000 -
Amount payable with a vendor converted to a note on June 21,
1999; interest at 8%; payable in $2,000 monthly installments
of principal and interest beginning July 1, 1999. - 6,928
CAPITAL LEASE:
In March of 1997, the Company entered into a sale-leaseback
arrangement under which computer equipment capitalized at
$159,649 is being accounted for as a capital lease - 99,814
Less: Current Portion of Lease - (72,419)
------------------------------------------------------------------------------------------------
$1,440,450 $ 1,034,323
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Future minimum principal payments on long-term debt are as follows:
Year Ending June 30,
-----------------------------------------------------------------------------------------------
<S> <C>
2001 -
2002 1,430,450
2003 -
2004 10,000
-----------------------------------------------------------------------------------------------
$1,440,450
===============================================================================================
</TABLE>
14
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
6. Stockholders'
Equity
Common stock In November 1999, the Company offered shares of its common
stock to investors in an offering exempt from registration
pursuant to Regulation D of the Securities Act of 1933. In
the first quarter of 2000, the Company has sold 1,060,007
shares of common stock for total proceeds to the Company of
$848,004 after deduction of the placement agent fee of $0.05
per share. In the second quarter of 2000, the Company has
sold 354,610 shares of common stock for total proceeds to
the Company of $235,000 after deduction of the placement
agent fee of $0.042 per share.
On April 1, 2000, the Secretary of the Company exercised
options to purchase 20,000 shares of common stock for total
proceeds to the Company of $20,000.
On June 5, 2000, the CEO of the Company exercised options to
purchase 100,000 shares of common stock for total proceeds
to the Company of $16,000.
6. Sale of In conjunction with the Company's acquisition of IXATA, Inc.
SecurFone, and subsequent to the sale of its wholly-owned subsidiary,
Inc. SecurFone, Inc., to TeleData World Services, Inc. ("TWOS"),
the Company discontinued its prepaid cellular operations in
its entirety, effective June 30, 1999. The operations of the
disposed cellular operations have been reclassified, net, as
a restructuring charge. The Company is now focused entirely
on operations in the e-commerce industry.
7. Commitments
and
Contingencies
Litigation In the normal course of business, the Company is
occasionally named as a defendant in various lawsuits. It is
the opinion of management that the outcome of any pending
lawsuits will not materially affect the operations or the
financial position of the Company or cash flows.
15
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following describes certain factors which produced changes in the results of
operations of The IXATA Group, Inc. (the "Company") during the quarter and six
months ended June 30, 2000 and as compared with the quarter and six months ended
June 30, 1999 as indicated in the Company's Condensed Consolidated Financial
Statements. The following should be read in conjunction with the Condensed
Consolidated Financial Statements and related notes. Historical results of
operations are not necessarily indicative of results for any future period. All
material inter-company transactions have been eliminated in the results
presented in this Quarterly Report.
Certain matters discussed in this Quarterly Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance or achievements may differ significantly
from the results, performance or achievements expressed or implied in these
forward-looking statements. See "-- Forward-Looking Statements."
The Company
The Company, through its subsidiary, IXATA, Inc. ("IXATA.COM"), is a provider of
Internet-based, business-to-business ("B2B") electronic commerce services in
rapidly growing market for travel information services, serving an expanding
base of more than twenty major Fortune 500 firms and other organizations.
IXATA.COM's principal service, RFP Express(SM), integrates a user-friendly,
Internet-based interface with a sophisticated data-warehousing system,
interactive telephone and fax technology to deliver automated solutions for
creating, sending, receiving and managing the preferred lodging programs request
for proposal process in the hospitality services market ("RFP process"),
typically involving hundreds or, in some cases, thousands of properties
worldwide. By automating the users' RFP business process, and also providing
user-friendly Internet access to a sophisticated data warehousing system, RFP
Express(SM) provides dramatic cost savings to users, typically 70% or more
compared to costs for manual processes. Pricing for RFP Express includes an
annual subscription fee and transaction fees for each RFP handled. The
Internet-based, electronic commerce and operational platforms developed to
support the RFP Express(SM) offering can be used to address similar needs in
other vertical markets.
The Company currently offers B2B e-commerce solutions to all market participants
including:
. Global Corporate Users
. Property Management and Hotel Chains, and
. Mega-Agencies.
The Company was organized in 1996 to develop and market prepaid wireless
products and services in various markets throughout the United States. In late
1998, the Company established a new strategic objective of refocusing the
Company's mission to pursue new complimentary Internet-related and e-commerce
opportunities. In 1999, the Company actively implemented its new mission by,
among other actions, selling a portion of the Company's business no longer
considered essential for the new strategy and purchasing a company whose
business thrust is in line with the new strategy.
On May 7, 1999, the Company executed an agreement to acquire all outstanding
common stock of "IXATA.COM", a privately held provider of Internet-based
information and electronic commerce solutions servicing the travel and
hospitality market. The acquisition was finalized on July 1, 1999 and is
consistent with the Company's new business objectives of pursuing
Internet-based, "B2B" e-commerce opportunities. The Company plans to
significantly expand IXATA.COM's operations to offer new enhanced information
services in the travel market, targeting existing and new corporate clients,
hotel and property management groups, major travel agencies and worldwide
strategic partners.
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<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
Since closing the IXATA.COM acquisition on July 1, 1999, the Company has
obtained new funding and achieved more than 300 percent growth of its corporate
customer base. The growth of corporate users and hotel property clients attests
to the Company's increasing market visibility and acceptance within the global
travel community. The Company's Internet-based, e-commerce services are now
being used by more than 70 major corporate users, 1700 hotel properties and four
major travel agencies. While there are no assurances such growth can be
sustained or the Company will have sufficient funding to meet future needs,
management believes the Company's growth and performance to date is consistent
with the Company's objective of attaining a leadership position in the market
for Internet-based, business-to-business e-commerce services.
Effective January 31, 2000, the Company changed its name to The IXATA Group,
Inc. from SecurFone America, Inc. The Company believed it was in the best
interest of the Company to change its corporate name to "The IXATA Group, Inc."
to capitalize upon the success of the Company's IXATA.COM subsidiary and to
establish an image that is consistent with the Company's focus on
Internet-related and e-commerce solutions. The Company believes that the name
change will act as a critical facilitator in the expansion of its business
objective to pursue new opportunities in Internet-based business offerings and
e-commerce markets.
The Company's principal executive offices are located at 8989 Rio San Diego,
Suite 160, San Diego, California 92108, its telephone number is (619) 400-8800,
and its website is www.ixata.com.
Recent Events
On July 26, 2000, the Company announced that it had encountered cash flow
problems due to delays in securing new funding. The Company worked with outside
investors and selected financial institutions to resolve the financial situation
and support ongoing operations. On July 27, 2000, the Company announced it had
secured a new bank line of credit to provide limited near term financing to
support operations.
On September 12, 2000, the Company announced a preliminary agreement for funding
from NextGen Capital, L.L.C., a northern Virginia-based venture capital firm
specializing in high technology and Internet-related investments. NextGen has
provided an initial investment in the Company and is providing limited
guarantees for the Company's bank credit. Based on the preliminary agreement,
NextGen will invest up to $1.25 million in convertible preferred stock. The
transaction is subject to completion of a definitive business agreement and due
diligence. There can be no assurances that the transaction will be completed as
proposed or at all.
On January 30, 1999, the Company executed an agreement with TeleData World
Services, Inc., a publicly traded company ("TWOS"), to sell certain of the
Company's prepaid cellular assets to TWOS for cash and TWOS common stock. On
April 22, 1999, TWOS acquired all outstanding shares of SecurFone, Inc., a
wholly-owned subsidiary of the Company, for $498,000 in cash, 600,000 shares of
unregistered TWOS common stock (subject to Rule 144) valued at $300,000 and the
right to receive additional cash or TWOS stock one year from the date of the
transaction if the market price of the TWOS stock is less than $2.50 per share
on that date. As of April 22, 2000, the market price for TWOS stock was $0.2088,
and the Company is entitled to receive approximately $1.3 million in cash or
TWOS stock. The Company is currently in discussions with TWOS to settle this
matter.
Results of Operations
During the second quarter of 2000, the Company reported revenues of $50,728,
with a net loss of $1,269,116. Total year-to date revenues through the second
quarter are $132,998, with a loss of $2,751,816 during the same period. Total
billings for the second quarter of 2000 were $221,167, and total billings
year-to date were $283,763.
The Company, in the second quarter of 1999, sold the Company's
Buy-The-Minute(TM) product and the Company discontinued operation of the
Company's SecurFone America Local Network Solution. As a result of these
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Page 17
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
transactions, certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current-year financial statements. Revenue, cost of goods sold and operating and
other expenses relating to the prepaid cellular product line have been
reclassified as a restructuring charge, resulting in these items being reported
as $0 for periods prior to the sale and discontinuance of the prepaid cellular
products.
The loss in the first half of 2000 increased to $2,751,816 from a gain of
$59,405 in the first half of 1999 primarily due to increased selling, general
and administrative expenses associated with operations of IXATA.COM , offset by
a reduction in the restructuring charge associated with the cellular operation
and a gain on the sale of a subsidiary.
The Company purchased its IXATA.COM subsidiary as of July 1, 1999, and has
consolidated financial results for the IXATA.COM subsidiary commencing in the
third quarter of 1999. Therefore, detailed comparison of financial results of
the current financial with those of a year earlier are not meaningful.
Second Quarter of 2000 Compared to Second Quarter of 1999
Revenues
The Company only purchased IXATA.COM and began the operations of its
Internet-based electronic commerce services in the third quarter of 1999. B2B
e-commerce revenues for the second quarter of 2000 increased to $50,298 from $0
in the second quarter of 1999. The increase was due to the revenues from the RFP
Express(SM) product for the travel and hospitality sectors. The Company expects
that revenues from RFP Express(SM) will continue to grow on a long-term basis.
Costs, Expenses and Other
Selling, general and administrative expenses increased to $1,230,506 in the
second quarter of 2000 from $69,724 in the second quarter of 1999. This increase
was due to the cessation of cellular operations effective June 30, 1999
resulting in negligible ongoing operating expenses in 1998 due to the refocusing
of the Company's direction. See "- The Company." In addition, the increase in
selling, general and administrative expenses was due to the hiring and
development of an experienced management and operations team, as well as funding
the growth of the IXATA.COM e-commerce business. Wages and associated taxes
increased in the second quarter of 2000 to $460,671 from $69,724 in the second
quarter of 1999. An increase in expenses related to consulting services required
while the Company was building its internal capabilities rose to $133,800 in the
second quarter of 2000 from $0 in the second quarter of 1999. The Company
expects to reduce its expenditures for external consultants in the future. Legal
and professional fees increased to $95,041 in the second quarter of 2000 from $0
in the second quarter of 1999. Amortization expense related to goodwill
increased to $335,744 in the second quarter of 2000 from $0 in the second
quarter of 1999.
Costs, expenses, and other increased to $1,319,843 in the second quarter of 2000
from a gain of $449,350 in the second quarter of 1999. The increase in operating
expenses was limited because of the cessation of the Company's prepaid cellular
service offering. The Company incurred a restructuring charge of $0 and $141,520
in the second quarter of 2000 and 1999, respectively.
Interest expense increased to $90,056 in the second quarter of 2000 from $0 in
second quarter of 1999 due to the Company's obligations to lenders that have
extended the Company funds for operations since inception. Interest income
increased to $0 in the second quarter of 2000 from $0 in the second quarter of
1999. The cost of revenues increased to $719 in the second quarter of 2000 from
$0 in the second quarter of 1999. The increase was from the Company's RFP
Express(SM) product for the travel and hospitality sectors.
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Page 18
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
The net loss in the second quarter of 2000 increased to $1,269,116 from a gain
of $449,350 in the second quarter of 1999. This increase was primarily due to
the increase in selling, and general and administrative expenses partially
offset by the reduction in the restructuring charge associated with the cellular
operation.
First Half of 2000 Compared to First Half of 1999
Revenues
The Company only purchased IXATA.COM and began the operations of its
Internet-based electronic commerce services in the third quarter of 1999. B2B
e-commerce revenues for the first half of 2000 increased to $132,998 from $0 in
the first half of 1999. The increase was from the sales from the RFP Express(SM)
product for the travel and hospitality sectors. The Company expects that
revenues from RFP Express(SM) will continue to grow at an accelerated rate on a
long-term basis.
Costs, Expenses and Other
Selling, general and administrative expenses increased to $2,588,497 in the
first half of 2000 from $141,976 in the first half of 1999. This increase was
due to the cessation of cellular operations effective June 30, 1999 resulting in
negligible ongoing operating expenses in 1999 due to the refocusing of the
Company's direction. See "- The Company." In addition, the increase in selling,
general and administrative expenses was due to the hiring and development of an
experienced management and operations team, as well as funding the growth of the
IXATA.COM e-commerce business. Wages and associated taxes increased in the first
half of 2000 to $985,270 from $141,976 in the first half of 1999. An increase in
expenses related to consulting services required while the Company was building
its internal capabilities rose to $218,400 in the first half of 2000 from $0 in
the first half of 1999. The Company expects to reduce its expenditures for
external consultants in the future. Legal and professional fees increased to
$113,506 in the first half of 2000 from $0 in the first half of 1999.
Amortization expense related to goodwill increased to $671,488 in the first half
of 2000 from $0 in the first half of 1999.
Costs, expenses, and other increased to $2,751,816 in the first half of 2000
from a gain of $59,405 in the first half of 1999. The increase in operating
expenses was limited because of the cessation of the Company's prepaid cellular
service offering. The Company incurred a restructuring charge of $0 and $505,832
in the first half of 2000 and 1999, respectively.
Interest expense increased to $164,227 in the first half of 2000 from $1,206 in
the first half of 1999 due to the Company's obligations to lenders that have
extended the Company funds for operations since inception. Interest income
increased to $909 in the first half of 2000 from $0 in the first half of 1999.
The cost of revenues increased to $719 in the first half of 2000 from $0 in the
first half of 1999. The increase was from the launch of it's the Company's RFP
ExpressSM product for the travel and hospitality sectors.
The net loss in the first half of 2000 increased to $2,618,818 from a gain of
$59,405 in the first half of 1999. This increase was primarily due to the
increase in selling, and general and administrative expenses partially offset by
the reduction in the restructuring charge associated with the cellular
operation.
Liquidity and Capital Resources
The Company has incurred significant operating and net losses as a result of the
development and operation of its service platform and supporting networks. The
Company expected that such losses would continue to increase as the Company
focused on the development, construction and expansion of its service platform
and underlying networks and expands its customer base. Cash provided by
operations would not be sufficient to fund the expansion of the product
offerings and resultant subscriber base. The Company is continually reviewing
various sources of additional
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Page 19
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
financing to fund its growth. As of June 30, 2000, the Company had received
advances in the amount of $5,680,064 from private investors.
To meet both current and contractual commitments and business growth objectives,
the Company will require additional financing. To address its financing needs,
the Company is pursuing a multiple phase strategy and has retained an investment
banking firm, Scott & Stringfellow, Inc., to assist and advise the Company in
the process. On October 12, 1999, the Company entered into a relationship with
S&S to act as the exclusive financial advisor to the Company, in connection with
the exploration of potential alternative strategic transactions, including
without limitation one or more private equity offerings, mergers and
acquisitions and a public equity offering. During the initial phase of the
Company's addressing of its financial needs, from November 1999 to April 2000,
the Company secured financing from private investors in exchange for shares of
the Company's common stock, raising a net amount of $1.8 million from these
individuals. The second phase of the financing plan is to raise between $1.5 and
$3.0 million in equity from strategic and institutional investors. This phase is
currently underway, with both strategic and institutional investors identified
and expressing interest to an equity investment in the Company. There can be no
assurance that additional debt and equity financing needed to fund operations
will be consummated or obtained in sufficient amounts necessary to meet the
Company's needs.
At June 30, 2000, the Company had cash and cash equivalents of $40,226 as
compared to $7,818 at June 30, 1999. In addition, the Company had accounts
receivable totaling $185,583 from the sale of the Company's B2B e-commerce
services. Net cash used by operating activities was $613,943 in the second
quarter of 2000 compared to $ 240,856 in the second quarter of 1999. Net cash
used by investing activities in the first quarter of 2000 was $34,126,
consisting of $34,126 used to purchase equipment as compared with the use of $0
to purchase equipment in the second quarter of 1999. Net cash provided by
financing activities in the second quarters of 2000 totaled $317,000 which
consisted primarily of $323,001 in proceeds from equity investment to the
Company from private investors as compared with $(79,452) in the second quarter
of 1999 which consisted primarily of repayments of notes payable of $338,000.
Year 2000
Year 2000 problems did not impact the Company's internal operations or cause it
to incur material costs to modify its systems. However, unforeseen Year 2000
problems may still cause significant unanticipated expenses. Further, the
Company's key vendors or suppliers may suffer from undiscovered Year 2000
problems, which could harm the Company's business and results of operations.
Forward-Looking Statements
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
expansion into new markets, growth in existing markets, and the Company's
ability to attract new sources of financing, are forward-looking statements that
involve risks and uncertainties. These risks and uncertainties include, but are
not limited to:
. The Company requires significant additional capital, which it may not be
able to obtain. As the Company continues to implement its business plan,
present sources of financing will not be adequate to support the Company's
increased cash needs. Furthermore, the Company's entry into new Internet
and electronic commerce business areas will create additional demands for
investment capital. The Company recently encountered cash flow problems due
to delays in securing new funding. The Company may not be able to obtain
future equity or debt financing on satisfactory terms or at all. If the
Company fails to obtain necessary short-term financing, it will not be able
to continue operations. Long-term liquidity will depend on the Company's
ability to obtain long-term financing and attain profitable operations. The
Company's auditors issued an opinion on its most recent audit of the
Company's financial statements that, based on the Company's losses and
negative working capital, there is substantial doubt about the Company's
ability to continue as a going concern if it does not obtain additional
debt or equity financing.
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Page 20
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
. The Company has a short operating history upon which to base an investment
decision. The Company established a new strategic objective of refocusing
the Company's mission to pursue Internet-related and e-commerce
opportunities in late 1998. As a result, its business plan is currently in
the early stage and, accordingly, the Company has a limited operating
history on which to base an evaluation of its business and prospects. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development. To address these risks, the Company must, among other things,
attract a number of major corporate clients/customers and strategic
alliance partners, implement and successfully execute its marketing and
sales strategy, and successfully recruit and motivate qualified sales and
technical personnel. There can be no assurance that the Company will be
successful in addressing these risks, and the failure to do so could have a
material adverse effect on the Company. The likelihood of success of the
Company must be considered in light of the problems, expenses,
complications and delays frequently encountered in connection with the
development of an early stage business. It is impossible to predict the
degree of success the Company will have in achieving the its objectives.
. If the Company is unable to successfully integrate IXATA.COM, its financial
results will suffer. The Company completed its acquisition of IXATA.COM on
July 1, 1999. Its future profitability will depend heavily on its ability
to integrate IXATA.COM. Failure to successfully integrate the companies may
cause significant operating inefficiencies and adversely affect
profitability. To successfully integrate the companies, the Company must,
among other things, install and standardize adequate operational, financial
and control systems.
Although the Company has no definitive plans to acquire any business in the
near future, if it does acquire additional companies, it will face business
integration risks similar to those described above. In addition, during the
beginning stage of development and operation, the Company may encounter
expenses and difficulties that it may not expect or are beyond its control.
As a result, it may not be able to achieve or maintain profitability.
. The Company's failure to protect or maintain its intellectual property
rights could place it at a competitive disadvantage and result in loss of
revenue and higher expenses. The Company's performance and ability to
compete are dependent to a significant degree on its proprietary electronic
commerce system and services. The steps the Company has taken to protect
its proprietary intellectual property rights may not prevent or deter
someone else from using or claiming rights to its intellectual property.
Third party infringement or misappropriation of trade secrets, copyrights,
trademarks or other proprietary information could seriously harm the
Company's business. The Company also cannot assure that it will be able to
prevent the unauthorized disclosure or use of its proprietary knowledge,
practices and procedures if its senior managers or other key personnel
leave it. In addition, although the Company believes that its proprietary
rights do not infringe on the intellectual property rights of others, other
parties may claim that it has violated their intellectual property rights.
These claims, even if not true, could result in significant legal and other
costs and may distract management from day-to-day operations of the
Company.
. The Company's business prospects depend on demand for and market acceptance
of the Internet. The Company is currently dependent on the Internet as an
access and transmission medium to provide its services. Although the
Company believes that the acceptability and usability of the Internet will
increase over time, any increase in the rates charged by Internet service
providers resulting in a decreased usage of the Internet or decreased use
of the Internet for electronic commerce transactions, would have a
materially adverse effect on the Company's operating margins. Failure to
promote Internet access as the preferred means of accessing the Company's
service could also have a materially adverse effect on the Company,
including the possibility that the Company may need to significantly
curtail or cease its Internet based e-commerce operations or to develop its
own capabilities at a cost in excess of the Company's ability to fund such
undertakings.
. If the Company's market does not grow as expected, its revenues will be
below its expectations and its business and financial results will suffer.
The Company is engaged in a developing business with an unproven market.
Accordingly, it cannot accurately estimate the size of its market or the
potential demand for its services. If its customer base does not expand or
if there is not widespread acceptance of its products and services, its
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Page 21
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
business and prospects will be harmed. The Company believes that its
potential to grow and increase its market acceptance depends principally on
the following factors, some of which are beyond its control:
(a) the effectiveness of its marketing strategy and efforts;
(b) its product and service quality;
(c) its ability to provide timely, effective customer support;
(d) its distribution and pricing strategies as compared to its
competitors;
(e) its industry reputation; and
(f) general economic conditions.
. Any failure of the Company's Internet and e-commerce infrastructure could
lead to significant costs and disruptions which could reduce revenues and
harm business and financial results. The Company's success, in particular
its ability to automate the RFP process successfully, largely depends on
the efficient and uninterrupted operation of its computer and
communications hardware and software systems. The Company's systems and
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events.
The Company presently has very limited redundant systems. It does not have
a formal disaster recovery plan and carries no business interruption
insurance to compensate it for losses that may occur. Temporary or
permanent loss of data or systems through casualty or operating malfunction
could have a materially adverse effect on the Company's business.
. The Company could lose customers and expose itself to liability if breaches
of its network security disrupt service to its customers or jeopardize the
security of confidential information stored in its computer systems.
Despite the implementation of network security measures, the Company's
network infrastructure is vulnerable to computer viruses, break-ins and
similar disruptive problems caused by its customers or Internet users. Any
of these acts could lead to interruptions, delays or cessation in service
to the Company's customers and subscribers. Furthermore, such inappropriate
use of the network by third parties could also potentially jeopardize the
security of confidential information stored in the computer systems and the
Company's customers' computer systems, which may result in liability to
existing customers and may also deter potential customers. Any security
measures the Company implements may be circumvented in the future. The
costs and resources required to eliminate computer viruses and alleviate
other security problems may result in interruptions or delays to the
Company's customers that could cause harm to the Company's reputation as
well as its business and financial results.
. Rapid growth in the Company's business could strain its resources and harm
its business and financial results. The planned expansion of the Company's
operations will place a significant strain on its management, financial
controls, operations systems, personnel and other resources. The Company
expects that its customers increasingly will demand additional information,
reports and services related to the services and products the Company
currently provides. If the Company is successful in implementing its
marketing strategy, it also expects the demands on its network
infrastructure and technical support resources to grow rapidly, and it may
experience difficulties responding to customer demand for its services and
providing technical support in accordance with its customers' expectations.
The Company may not be able to keep pace with any growth, successfully
implement and maintain its operational and financial systems or
successfully obtain, integrate and utilize the employees, facilities,
third-party vendors and equipment, or management, operational and financial
resources necessary to manage a developing and expanding business in an
evolving industry. If the Company is unable to manage growth effectively,
it may lose customers or fail to attract new customers and its business and
financial results will suffer.
. The Company may not be able to compete in its highly competitive market.
The Internet-based electronic commerce market has become increasingly
competitive due to the entry of large, well-financed service providers into
the market. Other potential competitors in the market for Internet-based
electronic commerce services for the travel and hospitality industry may
include companies with substantially greater financial and marketing
resources than those of the Company. No assurance can be given that
competitors possessing greater financial resources than the Company will
not be able to develop a product which is more appealing or offer similar
products at lower prices than those of the Company. The Company may not be
able to operate
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Page 22
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
successfully in this competitive environment. Direct competitors today
include JBH and Lanyon, among others seeking to enter the market for e-
commerce services targeting the travel and hospitality sectors. Other
potential competitors, such as Ariba, Inc., have existing, well-established
e-commerce platforms and have also indicated an interest in pursuing
IXATA.COM's target market. While to date the market reaction to the
Company's service has been positive vis-a-vis competitive services, there
is no assurance this will continue in the future.
. The Company depends on the services of senior management and other key
personnel and the ability to hire, train and retain skilled employees. The
success of the Company will be dependent on the skill and experience of
certain key employees. The Company believes that the loss of Paul B.
Silverman, CEO, or Andrew H. Kent, CFO, Robert Steiner, President of
IXATA.COM's Venture Purchasing Solutions Division, or Fred Gluckman Vice-
President -Technology of IXATA.COM, could disrupt or delay the Company's
business or would otherwise have a material adverse effect on the Company's
business. The Company's future success also depends on its ability to
identify, attract, hire, retain and motivate other well qualified
managerial, sales and marketing personnel. There can be no assurance that
these professionals will be available in the market or that the Company
will be able to meet their compensation requirements.
. Risks associated with operating in international markets could restrict the
Company's ability to expand globally and harm its business and prospects.
The Company markets and sells its services and products in the United
States and internationally. The Company's failure to manage its
international operations effectively could limit the future growth of its
business. There are certain risks inherent in conducting the Company's
business internationally, such as:
(a) changes in international regulatory requirements could restrict
the Company's ability to deliver services to its international
customers;
(b) differing technology standards across countries that may impede
the Company's ability to integrate its product offerings across
international borders;
(c) difficulties collecting accounts receivable in foreign
jurisdictions;
(d) political and economic instability could lead to appropriation of
the Company's physical assets, its ability to deliver its
services to customers and harm its financial results;
(e) protectionist laws and business practices favoring local
competitors; and
(f) potentially adverse tax consequences due to unfavorable changes
in tax laws.
. Government regulation and legal uncertainties could limit the Company's
business or slow its growth. Although Internet-based electronic commerce is
not currently subject to government regulation, it is under increased
scrutiny by regulatory agencies and may undergo rapid and drastic
regulatory changes. There can be no assurances that one or more services
currently offered by the Company will not be negatively impacted by
newly-created or interpreted regulations
. The Company's operating results may fluctuate in future periods which may
cause volatility or a decline in the price of its common stock. The Company
may experience significant fluctuations in its future quarterly operating
results due to a variety of factors, many of which are outside the
Company's control. Such fluctuations may cause the price of its common
stock to fall. Factors that may adversely affect the Company's quarterly
operating results include, without limitation:
(a) the Company's ability to retain existing customers, attract new
customers at a steady rate and maintain customer satisfaction;
(b) the mix of products and services sold by the Company;
(c) the announcement or introduction of new products and services by
the Company and its competitors;
(d) price competition in the industry;
(e) the amount and timing of operating costs and capital expenditures
relating to any expansion of the Company's business, operations
and infrastructure;
(f) governmental regulation; and
(g) general economic conditions and economic conditions specific to
the travel and hospitality industry.
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<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
Further, stock prices and trading volumes for many Internet companies
fluctuate widely for a number of reasons, including some reasons which may
be unrelated to their businesses or results of operations. This market
volatility, as well as general domestic or international economic, market
and political conditions, could materially adversely affect the price of
the Company's stock without regard to the Company's operating performance.
In addition, the Company's operating results may be below the expectations
of public market analysts and investors. If this were to occur, the market
price of the stock would likely significantly decrease.
. The Company's executive officers, directors, and parties related to them,
in the aggregate, control over half of the Company's Common Stock and may
have the ability to control matters requiring stockholder approval. The
Company's executive officers, directors and parties related to them own a
large enough stake in the Company to determine matters presented to
stockholders, the approval of significant corporate transactions, such as
any merger, consolidation or sale of all or substantially all of the
Company's assets, and the control of the management and affairs of the
Company. In addition, certain executive officers, directors and other
shareholders, representing 65% of the Company's outstanding common stock,
have entered into a Voting Agreement in which the parties agree to vote
their shares for certain directors. As a result, these stockholders may
have the ability to control the election and removal of directors.
Accordingly, this concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company,
impede a merger, consolidation, takeover or other business combination
involving the Company or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company,
which in turn could have an adverse effect on the market price of the
Company's common stock.
. The Company's common stock may be delisted from the Nasdaq Over-the-Counter
Bulletin Board Service. In order to maintain the listing of its common
stock for trading on the Nasdaq Over-the-Counter Bulletin Board Service,
the Company must make required filings with the Securities and Exchange
Commission. If the Company's stock were to be delisted, there would be no
public market for the Common Stock and stockholders would have difficulty
liquidating their investment. The Company has been deliquent in its filings
on several occasions and Nasdaq has appended an "E" to the Company's
trading symbol, indicating it is not in compliance with its filing
requirements. Although the Company believes that the filing of this
Quartery Report with the Securities and Exchange Commission brings the
Company into compliance, allowing it to retain its stock listing on the
Nasdaq Bulletin Board, there can be no assurance that it will be able to do
so.
These and other risks described in this Quarterly Report must be considered by
any investor or potential investor in the Company.
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<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
--------------------------------------------------------------------------------
Part II -- Other Information
Item 1. Legal Proceedings.
From time to time, the Company is involved in legal matters which are incidental
to its operations. See Part I, Item 3, "Legal Proceedings," of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999 for a
description of significant pending legal proceedings. In the opinion of
management, the ultimate resolution of pending matters will not had a material
adverse effect on the Company's financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
In June of 2000, the Company offered equity investments to private parties in an
offering exempt from registration pursuant to Regulation D of the Securities Act
of 1933. As of June 30, 2000, the Company had sold 354,610 shares of its
unregistered stock for $0.705 a share in connection with the offering. Proceeds
to the Company were $235,000 after the deduction of Scott & Stringfellow, Inc.'s
("S&S") placement agent fee of $0.042 per share. The purchasers in the offering
were granted the right in certain instances to include their shares in future
offerings of registered stock by the Company.
Item 3. Defaults Upon Senior Securities.
No defaults upon senior securities occurred during the second quarter of 2000.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders in the first
quarter of 2000.
Item 5. Other Information.
On July 26, 2000, the Company announced that it had encountered cash flow
problems due to delays in securing new funding. The Company worked with outside
investors and selected financial institutions to resolve the financial situation
and support ongoing operations. On July 27, 2000, the Company announced it had
secured a new bank line of credit to provide limited near term financing to
support operations.
On September 12, 2000, the Company announced a preliminary agreement for funding
from NextGen Capital, L.L.C., a northern Virginia-based venture capital firm
specializing in high technology and Internet-related investments. NextGen has
provided an initial investment in the Company and is providing limited
guarantees for the Company's bank credit. Based on the preliminary agreement,
NextGen will invest up to $1.25 million in convertible preferred stock. The
transaction is subject to completion of a definitive business agreement and due
diligence. There can be no assurances that the transaction will be completed as
proposed or at all.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits being filed with this Quarterly Report:
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<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
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27 Financial Data Schedule
(b) The Company filed the following Current Reports on Form 8-K in the
second quarter of 2000:
Form 8-K dated March 28, 2000 related to a change of auditors for the Company
from Conte Co., C.P.A., Inc. to Nation Smith Hermes Diamond, APC, filed with the
SEC on April 24, 2000.
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<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 2000
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The IXATA Group, Inc.
Date: September 22, 2000 /s/ Paul B. Silverman
---------------------
By Paul B. Silverman, Chief Executive Officer
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