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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. For the fiscal year ended December 31, 1999
OR
/ / 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: 33-83526
THE IXATA GROUP, INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 95-4453386
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(State of Incorporation) (I.R.S. Employer Identification No.)
8080 DAGGET ST., SUITE 220 SAN DIEGO, CALIFORNIA 92111
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: 619-677-5580
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.001 par value
Check whether the 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 requirement for the past 90 days. Yes X No
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State issuer's revenues for the most recent fiscal year: $ 271,589
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within 60 days prior to the date of filing.
COMMON STOCK, $0.001 PAR VALUE: $ 7,439,307 (AS OF APRIL 14, 2000)
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $0.001 PAR VALUE PER SHARE: 13,709,326 (AS OF APRIL 14, 2000)
Transitional Small Business Disclosure Format: Yes No X
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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TABLE OF CONTENTS
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ITEM PAGE
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PART I............................................................................................................1
Item 1. Business.............................................................................................1
Overview.....................................................................................................1
INDUSTRY OVERVIEW............................................................................................3
THE TARGET MARKET............................................................................................4
THE IXATA.COM SOLUTION.......................................................................................4
CURRENT IXATA CUSTOMERS......................................................................................5
PRODUCTS LINES...............................................................................................6
NEW BUSINESS INITIATIVES FOR 2000............................................................................7
DISTRIBUTION.................................................................................................9
COMPETITION..................................................................................................9
EMPLOYEES...................................................................................................10
GOVERNMENT REGULATION.......................................................................................10
SERVICE MARKS AND TRADEMARKS................................................................................10
ITEM 2. PROPERTIES........................................................................................11
ITEM 3. LEGAL PROCEEDINGS.................................................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................11
PART II..........................................................................................................12
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............12
OVERVIEW....................................................................................................13
New Funding ................................................................................................14
RESULTS OF OPERATIONS:......................................................................................14
FISCAL 1999 COMPARED TO FISCAL 1998.........................................................................15
LIQUIDITY AND CAPITAL RESOURCES.............................................................................15
Seasonality.................................................................................................16
TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS..............................................................16
Year 2000...................................................................................................17
FORWARD-LOOKING STATEMENTS..................................................................................17
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............21
PART III.........................................................................................................22
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................22
MEETINGS OF THE BOARD OF DIRECTORS............................................................................23
DIRECTORS' COMPENSATION.......................................................................................23
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.......................................................23
ITEM 10. EXECUTIVE COMPENSATION............................................................................24
OPTION GRANTS IN 1999.......................................................................................25
OPTION EXERCISES IN 1999 AND VALUES AT 1999 YEAR-END........................................................25
LONG-TERM INCENTIVE AND PENSION PLANS.......................................................................26
Employment Agreements ......................................................................................26
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................29
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PART IV..........................................................................................................30
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..................................30
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:.................................................30
(b) REPORTS ON FORM 8-K:....................................................................................30
(c) EXHIBITS:...............................................................................................30
</TABLE>
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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PART I
ITEM 1. BUSINESS.
Certain matters discussed in this Annual Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Forward-Looking Statements."
OVERVIEW
THE COMPANY
The IXATA Group, Inc. (formerly known as SecurFone America, Inc.) (the
"Company") was originally incorporated in Delaware on November 7, 1985, and was
previously engaged in the business of developing and marketing 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. See "The Company's Business
Case for New Electronic Commerce and Internet Business Directions."
On May 7, 1999, the Company executed an agreement to acquire all outstanding
common stock of IXATA, Inc. ("IXATA.COM"), a privately held provider of
Internet-based information and electronic commerce services servicing the travel
and hospitality market. The acquisition was finalized on July 1, 1999. 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.
Upon closing the IXATA.COM acquisition, the Company established itself as 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 seventy 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.
Since closing the IXATA.COM acquisition in July, 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
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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performance to date is consistent with the Company's objective of attaining a
leadership position in the market for Internet-based, B2B e-commerce services.
Subsequent to the sale of selected prepaid cellular assets in the second quarter
of 1999 to Teledata World Services, Inc. ("Teledata") (OTC/BB:TWOS), the Company
had planned to continue to offer prepaid wireless services, focusing on higher
margin opportunities, primarily through resale. Given the opportunities
available through IXATA.COM and the associated resources required, the Company
has discontinued its prepaid cellular operations. The discontinuance of
operations was consistent with the Company's planned strategy of refocusing its
business objectives to pursue new e-commerce and Internet-based business
opportunities to create significant shareholder value.
Effective January 31, 2000, the Company changed its name to The IXATA Group,
Inc. from SecurFone America, Inc. In addition, the Company's Common Stock,
traded on the Nasdaq Over-the-Counter Market, changed to be quoted under the
symbol "IXTA" from "SFAI." 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 8080 Dagget Street,
Suite 220, San Diego, California 92111, and its telephone number is (800)
473-6748.
THE COMPANY'S BUSINESS CASE FOR NEW ELECTRONIC COMMERCE AND INTERNET BUSINESS
DIRECTIONS
Since inception, the Company has primarily pursued opportunities in the prepaid
wireless services market. The Company developed several unique products to
address the prepaid wireless services market and had achieved some success in
1998. However, the emergence of new competition, industry price reductions and
other margin pressures in the prepaid wireless services market suggested that
significant additional investment would be required to achieve the business
scale required to create substantial shareholder value.
Recognizing the explosive growth of the Internet, and the long term prospects
for integrating new wireless and Internet-based services, in late 1998 the
Company established a new business objective to pursue new opportunities in the
Internet and B2B electronic commerce markets. In 1998, the consumer segment of
electronic commerce consumer retailing revenues totaled $7.8 billion, with
business-to-business e-commerce service revenues estimated at $43 billion,
according to a recent study by Forrester Research, a leading information
industry consulting firm. By the year 2003, B2B e-commerce is expected to
increase to $1.3 trillion, representing about 9% of all projected US trade in
the year 2003. The recently-closed acquisition of IXATA.COM is the Company's
initial step in entering the market for B2B, Internet-based electronic commerce
services, which management believes is the optimum strategy to deliver
substantial value to the Company's shareholders.
Another key element in the Company's new growth strategy is to focus on next
generation, "pro-active" B2B electronic commerce solutions which employ
e-commerce solutions to address labor intensive processes, rather than to solely
displace paper-based solutions. Management believes such pro-active e-commerce
solutions, which go well beyond today's basic electronic cataloging, web portals
and web-based ordering services, will change users' business processes, create
significant operating efficiencies and dramatically reduce users' costs. More
importantly, management believes such pro-active e-commerce services will play a
key role in the future market for B2B e-commerce services described above.
IXATA.COM's RFP Express-SM- Service represents a pro-active e-commerce service
which, in management's view, is ideally positioned to meet the needs of the
travel services market. IXATA.COM's expanding corporate user base demonstrates
strong, growing market acceptance for the Company's e-commerce services. Since
acquiring the new IXATA.COM subsidiary, the total base of major corporate users
has increased to more than 70 firms as of January 2000, further attesting to the
growing acceptance of the Company's RFP Express service.
2
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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The Company is expanding its management team and plans to secure new financing
to support both expansion of the IXATA.COM revenue base, as well as development
of new enhancements and related Internet-based services targeting the travel and
hospitality sectors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Events - Management Additions."
While the outlook for Internet-based, electronic commerce services is
impressive, there can be no assurances that the Company will secure the
additional investment capital needed to succeed in this highly competitive,
rapidly changing and technology driven market, nor are there any assurances that
the Company's initial acquisition of IXATA.COM will be successful. Investors
should carefully review the risk factors described in this document and other
documents filed by the Company with the Securities and Exchange Commission. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Forward Looking Statements."
PRODUCTS AND CUSTOMERS
RFP Express-SM- , is the Company's current flagship service and is the first
of a family of new Internet-based e-commerce services developed to meet the
needs of the Company's customers and strategic partners. RFP Express-SM- is
an Internet-based system that automates the RFP process for the travel and
hospitality sector. RFP Express-SM- integrates a user-friendly Internet
interface, sophisticated data-warehousing system, powerful relational
database system and e-mail, interactive telephone and fax technologies to
deliver automated purchasing solutions for the RFP process. RFP Express-SM-
is a commercial, proven end-to-end, B2B electronic commerce solution that
automates users' RFP business processes and dramatically reduces costs,
eliminates paper-based communications, improves operations and enhances
management control of labor and capital.
The Company currently offers B2B e-commerce solutions to all market
participants including:
- Global Corporate Users
- Property Management and Hotel Chains, and
- Mega-Agencies.
As of February 2000, the Company is providing Internet-base e-commerce
services to more than 70 major corporations, 1700 hotel properties and four
major travel agencies.
INDUSTRY OVERVIEW
GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has emerged as a powerful, global communications medium,
enabling millions of people to share information and conduct business
electronically. Businesses and end-users increasingly use the Internet to
share information and conduct business electronically. Businesses are faced
with increasing competitive pressures to lower costs, decrease inventories
and improve sales productivity. To address these challenges, businesses are
replacing paper-based transactions with e-commerce solutions to improve
efficiencies and provide enhanced accuracy and secure exchange of
information. Forrester Research, Inc. estimates that the business-to-business
e-commerce market will increase from $43 billion in 1998 to $1.3 trillion in
2003, representing about 9 percent of all projected U.S. trade.
TRAVEL AND ENTERTAINMENT MARKET
Businesses are increasingly seeking to replace their paper-based travel
procurement processes with e-commerce solutions to improve efficiencies,
reduce costs, increase choices and improve communications. Today, the average
corporation spends $13.9 million annually on travel and entertainment
("T&E"), which represents a median annual cost per traveler of $9,334, up
from $6,107 in 1996 according to the National Business Travel Association
("NBTA"). Related NBTA studies show that travel costs typically represent 1
to 3 percent of sales for the largest
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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global corporations. In 1998, for example, General Electric's global T&E was
$820 million, about 1 percent of sales, compared to T&E costs of $720 million
for Lockheed Martin, representing about 3 percent of global sales. Lodging
costs acccount for about 23 percent of total T&E costs based on NBTA surveys.
Forrester Research estimates that online business travel expenditures will
grow from $5 billion in 1999 to $38 billion in 2003, and that travel will be
the second largest spending category for online business.
THE TARGET MARKET
Given the current state of the industry and its dynamics, the Company views
the following types of clients, with the problems that currently face them,
as potential prospects for its customers services.
CORPORATIONS:
Each year, large businesses examine their global lodging needs to identify
projected "room nights" per city, and the frequency and distribution of
their employees' global travel patterns for the following year. This
information is then used to solicit the lowest rates from lodging sources
for the following year. Typically, these negotiations involve request for
proposal communications by mail, fax, e-mail and telephone with hundreds or
thousands of hotels worldwide. The current paper-based process, often
referred to as Preferred Lodging Programs, is costly, inefficient and
labor-intensive.
HOTELS:
From the hotel perspective, there are two major challenges. First,
responding to the corporate RFPs is cumbersome, costly and inefficient
given the volumes, diversity of formats, communication options and staff
labor needed. Secondly, worldwide properties would like to have the
opportunity to view a global corporate user's projected room nights in
their city, and respond with a competitive bid if the global corporate user
agrees to accept unsolicited bids. Today's paper-based environment does not
facilitate this capability.
NATIONAL ACCOUNT OR PROPERTY MANAGERS:
National account or property managers often manage hundreds or thousands of
hotels. Their challenges, including responding to the diversity of RFPs and
capturing major new global corporate firms, are similar but even greater
than those of individual properties.
MEGA-TRAVEL AGENCIES:
The "mega-travel agencies," such as Rosenbluth and American Express, also
play a key role, working directly with global corporate users to plan,
implement and/or manage Preferred Lodging Programs on their behalf. The
mega-agencies also work with property managers and hotel properties
worldwide to solicit rates for specific clients.
THE IXATA.COM SOLUTION
The IXATA.COM solution, which the Company markets as RFP Express-SM-,
provides automated, Internet-based RFP negotiations and management services
to the travel and hospitality sectors. Shorter cycle times, lower personnel
costs and greater accuracy offer our customers a significant return on their
investment. The Company believes that today's paper-based, manual RFP
approach costs market participants $100 to $200 per RFP, compared to $13 to
$27 per RFP using the Company's automated RFP Express solution.
While other "niche oriented" Internet-based services exist, the Company
believes it is the only global provider of a fully integrated, end-to-end,
Internet-based, e-commerce service addressing the needs of global corporate
users, hotel properties, national account and property managers and
mega-agencies. The Company also believes the market acceptance of its RFP
Express-SM- service, and its ability to attract a premier customer base and
major partners, further exemplifies its leadership position in the corporate
travel market.
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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Building on the Company's success in the Preferred Lodging Program area, the
Company is now creating the network and applications infrastructure to further
enhance its core RFP Express-SM- product, as well as deliver new applications to
its existing and new users and partners.
Advantages of the Company's service to Corporate Customers include:
- - The Company's Internet-based e-commerce solution displaces inefficient,
time-consuming manual processes, thereby saving customers time and money
while providing more choices within the supply chain.
- - The Company's corporate customers realize substantial cost savings through
the use of its online database management tools when developing, managing
and implementing global Preferred Lodging Programs. The Company believes
the estimated industry cost per RFP to range from $100 - $200 without our
service. With its service that cost ranges between $13 and $27 per RFP.
- - The Company intends to offer other "Express" branded services to further
improve its customers' corporate travel procurement in the areas of
meetings, rental cars and airlines.
Advantages of the Company's service to National Account or Property Managers
include:
- - The Company's service displaces the traditional costly, inefficient,
paper-based and labor-intensive RFP response process with an easy-to-use,
Internet-based solution enabling rapid response to submitted RFPs using a
"point, click and submit" approach.
- - Properties are able to capitalize on their new, low-cost and differentiated
sales channel among a growing base of major corporate users by responding
to unsolicited bids invited by corporate users.
- - The Company offers a real-time management tool for developing, managing,
controlling and distributing RFP responses involving multiple properties
within a national account or property manager group.
Advantages of the Company's service to Mega-Agencies include:
- - The Company offers a comprehensive Internet-based, automated solution with
back-end processing support for mega-agencies that develop, implement and
manage Preferred Lodging Programs for corporations.
- - The Company's highly efficient, automated solution displaces costly,
manual, time-consuming and labor intensive Preferred Lodging Program
support tasks, thereby reducing the cost to process RFPs.
- - By combining the Company's private-label solution with their core product,
mega-agencies are able to broaden their respective service mix to
corporations.
CURRENT IXATA CUSTOMERS
The Company currently offers its business-to-business e-commerce solutions to
all market participants including:
- - Global Corporate Users,
- - Property Management and Hotel Chains, and
- - Mega-Agencies.
GLOBAL CORPORATE USERS. As of January 2000, RFP Express-SM- is being used to
develop, implement and manage the Preferred Lodging Programs for more than 70
global corporate users. Of this total, 27 are direct clients, while 43 are
customers of mega-agencies such as American Express, Rosenbluth International or
Maritz Travel which use RFP Express-SM- to serve their corporate clients. The
Company's expanding customer base now includes many leading firms such as the
following:
- - AECOM
- - Bayer Pharmaceuticals
- - Browning Ferris Industries
- - The Church of Jesus Christ of Latter-day Saints
- - Honda (American Division)
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
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- - Merrill Lynch
- - Occidental Petroleum Corporation
- - Panasonic
- - Proctor & Gamble
- - Revlon
- - Sears & Roebuck
- - Toyota Motor Sales USA, Inc.
PROPERTY MANAGEMENT AND HOTEL CHAINS. The Company's hotel database currently
contains detailed information on 47,000 hotels worldwide. The Company currently
has 1,700 hotel property clients using the customized RFP Express-SM- Property
Version software to respond to global corporate RFPs and gain access to new
business opportunities through the unsolicited bid feature provided within RFP
Express-SM-.
The Company also serves three major National Account and Property Managers
("NAM"), which currently represent almost 100 percent of its hotel subscribers.
The NAM sales channel will continue to account for the major portion of hotel
sales.
Representative property management and hotel chains customers are as follows:
- - Adams Mark Hotels
- - Champion International Corporation
- - Choice Hotels International
- - Drury Hotels
- - RIGHA Royal Hotels
- - RSF Management
- - ShoLodge
- - US Franchise Systems, Inc.
- - Warwick Hotels
MEGA-AGENCIES. The Company has established alliances and resale arrangements
with several leading mega-agencies including American Express, Rosenbluth
International and Maritz Travel. For each of these firms, the Company has
trained their respective staffs and developed a customized Internet-based
"front-end" enabling each firm to use RFP Express-SM- and achieve significant
cost and operational benefits. The Company works closely with their
respective corporate clients to ensure it meet the highest quality standards
for its service, as well as meet the professional standards set forth by each
of these major industry participants. The Company has also invested in
creating the appropriate staff resources and processes needed to support
these mega-agencies. As a result, The Company is increasing growth in
transaction volumes and in new corporate users with each of these partners.
During the Company's initial year of providing its Internet-based information
and electronic commerce services for the travel and hospitality market, three
of the Company's clients accounted for approximately 93% of its revenue.
These clients were two mega-agencies, American Express and Rosenbluth
International, and Choice Hotels International. As the Company continues to
grow and establish alliance with and provides services to other
mega-agencies, other major hotels chains, and additional direct corporate
clients, it is anticipated that this concentration of revenue will be reduced.
PRODUCT LINES
RFP EXPRESS-SM- is the Company's current flagship service and is the first of
a family of new Internet-based e-commerce services developed to meet the
needs of the Company's customers and strategic partners. RFP Express-SM- is
an Internet-based system that automates the RFP process for the travel and
hospitality sector. RFP Express-SM- integrates a user-friendly Internet
interface, sophisticated data-warehousing system, powerful relational
database system and e-mail, interactive telephone and fax technologies to
deliver automated solutions for the RFP process. RFP Express-SM- is a
commercial, proven end-to-end, B2B electronic commerce solution that
automates users' RFP
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
business processes and dramatically reduces costs, eliminates paper-based
communications, improves operations and enhances management control of labor and
capital.
In 2000, the Company plans to build on the strong market acceptance for its RFP
Express to develop several related e-commerce services targeting both existing
and new customers, as well as potential strategic alliance partners. Building on
the information repository features available to its customers, the Company will
also explore new data mining and related business opportunities in 2000 and
beyond.
NEW BUSINESS INITIATIVES FOR 2000
Based on Forrester Research estimates for growth of the online business
travel market and positive market acceptance to date for the Company's RFP
Express-SM- service among major corporate travel industry participants, the
Company projects a large, scalable and high growth market for its services.
The Company plans to utilize its RFP Express-SM- service as an entry point to
increase future sales to its customers by:
- - enhancing current RFP Express-SM- service,
- - offering new data mining management tools, and
- - launching additional "Express" branded services in the industry leveraging
our existing customer base, hotel database and technological
infrastructure.
ENHANCE THE RFP EXPRESS-SM- SERVICE WITH RATE LOADING CAPABILITIES
The Preferred Lodging Program Services market includes five RFP related
processes: RFP preparation, RFP submission, RFP bid list, negotiations and
acceptance. Within the RFP Express-SM- service, the Company has developed user
friendly, Internet-based screens to automate these processes, enabling users to
perform and manage each of the above processes quickly and easily, with minimal
training needed.
With the completion of the acceptance process in late 1999, each user has
negotiated final preferred rates, which will apply to all their corporate travel
in 2000. For corporate users to receive these preferred rates at check-in time
however, the new rates must first be "loaded" into three separate systems: the
individual hotel property management system, the "brand" (Hilton, Marriott,
etc.) central reservation systems to ensure rates are available if travelers
call the central reservations number (e.g., 1 800 HILTONS); and the respective
booking engines and Global Distribution Service ("GDS") operators such as Sabre,
Apollo, or others used by the respective corporate users and their travel
agencies. Since each negotiated rate actually includes preferred rates, which
vary by season, each negotiated preferred rate requires an average of four rate
load transactions. Unless the rate loading transactions are completed
immediately upon finalizing the negotiated rates, corporate users will not
receive the preferred rates and may incur considerable additional T&E expense.
Currently, the hotel properties have primary responsibility for loading
preferred rates for corporate users, though many corporations also load their
respective preferred rates directly to ensure the rates are effective and
minimize any potential cost exposures. Some corporate users also use third
parties to provide both rate loading services, as well as rate loading
verification services whereby all preferred properties are contacted to ensure
the preferred rates are in place. Whether performed by hotel properties, end
users or third parties, rate loading today is a costly, labor intensive and
time-consuming process for all participants. The Company believes typical costs
for rate loading services today range from $10 to $20 per rate load transaction
and, given the cost exposures, some firms pay third parties as much as $50 per
rate load for verification services to ensure preferred rates have been loaded
by each property.
Since the RFP Express-SM- service includes all of the final preferred rates for
users, rate loading can be provided by linking the Company's services to the
major on-line booking engines, the GDS operators, central reservations systems
and property management systems for the major property chains. In May 1999, the
Company tested interconnection with Sabre and is working with Sabre to define
rate loading business terms and system
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THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
requirements, as well as other related business opportunities. The Company also
has finalized an agreement with XTRA Online, a major booking engine, and has
discussions in progress with other GDS operators and booking engine providers.
For corporate users, the Company plans to offer basic rate loading services at
$7.50 per rate load, with verification services provided at $2.50 per rate load
transaction. For hotel properties, the Company plans to offer rate load services
at $5.00 per rate load. The Company has tested the proposed pricing plan among
target users and it expects the proposed plan will be well received by its
users.
NEW DATA MINING MANAGEMENT TOOLS
The Company plans to leverage its customer base to offer a family of higher
margin, data mining-based services building upon its rapidly expanding global
hotel database. The Company's planned data mining services will provide users
and hotels with innovative and new capabilities to reduce operating costs,
increase their average revenue per client and create additional market scale
with minimal new capital.
TRALOCOM-SM- DATA MINING SERVICE. For major users and mega-agency partners,
the Company will offer the Travel and Lodging Cost Management, or
"TRALOCOM-SM-" product line starting in the third quarter of 2000. The
TRALOCOM-SM- product family will enable users to:
- - track actual hotel property usage by month, quarter and year in all markets,
- - view planned vs. actual bookings,
- - show cost exposures,
- - recommend preferred hotel properties by city to optimize future cost
savings, and
- - quantify potential financial exposures and ensure users secure the
negotiated, preferred rates for all properties.
Other optional features will enable users to track real-time hotel and lodging
bookings, actual bookings vs. key benchmarks, current usage patterns, new hotel
property options and cost benchmarks vis-a-vis industry standards. Tiered
service levels are planned, and at least one product will be available for
licensing to system integration and enterprise resource management system
partners.
MILLENNIUM 2000-SM- SERVICE. For hotels and property managers, the Company
will offer the Millennium 2000-SM- product family. Millennium 2000-SM- tiered
management reports will:
- - show corporate travel patterns and booked room nights in the area of
specific hotel properties ("Target Area"),
- - track the current distribution of booked room nights in the Target Area,
- - identify Target Area trends,
- - provide a benchmarking analysis of the hotel property's current rates vs.
the competition,
- - identify potential corporate users that have agreed to accept unsolicited
bids via RFP Express-SM-, and
- - identify new sales prospects for the hotel properties based on analysis of
bookings and travel patterns.
LAUNCH ADDITIONAL "EXPRESS" BRANDED SERVICES.
The Company will attempt to increase its average revenue per client by adding
new "Express" branded services to cross sell into its established RFP
Express-SM- customer base and leverage its existing technological
infrastructure.
RFP EXPRESS-SM- LITE SERVICE. The Company plans to launch its RFP Express-SM-
Lite service in the third quarter of 2000 to the 47,000 hotels in its
proprietary, online database. RFP Express-SM- Lite service is intended to
streamline the RFP procurement response process for hotels that do not
currently subscribe to RFP Express-SM-. This service will enable the Company
to reduce its service delivery costs, while penetrating a large potential
customer base with one of its services.
MEETING EXPRESS-SM- SERVICE. The Company expects to target meeting planners,
building on its global database and capabilities in automating complex
business processes with cost-effective, Internet-based, e-commerce solutions.
8
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
The Company believes this service is a natural extension of its RFP
Express-SM- product with the same customers and technology.
AUTO EXPRESS-SM- SERVICE. The Company plans to build upon its existing RFP
Express-SM- B2B e-commerce platform by enabling the Company's corporate users
to negotiate preferred auto rental rates by city. The Company will facilitate
corporate users' desire to further reduce auto transportation costs. In many
markets, the Company expects independent franchisees (Budget, Alamo,
limousine services, others) to be targets for Auto Express-SM- RFPs generated
by corporate users.
AIRLINE EXPRESS-SM- SERVICE. The Company expects to enable corporate users to
negotiate preferred air rates with major airlines, which leverages its
existing RFP Express-SM- B2B e-commerce platform. Corporate travel managers
today spend considerable time tracking changing airline rates, and airlines
seek to lock-in future traffic volumes from major corporate users. The
planned Airline Express-SM- service addresses this need. The Company has
received indications of interest for this service among various corporate
users, as well as one of its mega-agency partners.
DISTRIBUTION
For the new e-commerce and Internet-based services provided in 1999, the Company
is using dedicated sales staff including a National Account Management structure
to support marketing and client liaison activities with Fortune 1000 companies,
major organizations, GDS providers worldwide and strategic alliance partners. In
addition, the Company's services are being offered via alliances and resale
arrangements with several mega-travel agencies.
COMPETITION
The market for information services in the travel and hospitality sector is
complex and rapidly evolving. New strategic relationships are emerging weekly,
and new Internet-enabled solutions are impacting the role of traditional
intermediaries, such as travel agencies. The Company has numerous competitors,
many of which are larger and better established than the Company and have access
to greater financial resources than are presently available to the Company. The
Company's competitive model views the travel and hospitality services market
structure from an electronic commerce perspective. Within its competitive model,
all services within the sector are classified into one of three categories:
- - PRE-TRANSACTIONAL services are provided to potential users before a
transaction is consummated such as viewing prices, RFP processing services
and query services.
- - TRANSACTIONAL services consummate a transaction or settlement, such as
booking a ticket, loading specific rates for lodging or other travel and
clearinghouse services.
- - POST-TRANSACTIONAL services are the management and support services
provided after transactions are completed such as expense management
services, cost benchmarking and utilization reporting.
The Company used its competitive model to review the major industry
participants, to assess their relative positioning in each of the above three
core e-commerce service areas, to examine its positioning, and to project its
outlook in 2000 and beyond. The Company's primary business strategy is to
address pre- and post- transactional service opportunities. The Company's
primary business is not to consummate the sale of tickets or lodging, but
efficiently enable the process (pre-transaction), as well as provide the tools
needed to ensure optimum management of the overall process (post-transaction).
By contrast, the popular web-based travel services focus on rate viewing
services and selling tickets, a highly competitive, "commoditized" business,
with gross margins typically less than those the Company hope to generate under
its service.
The Company's competitive strengths are in preferred lodging programs where it
occupies a unique leading edge position. The Company believes it maintains one
of the world's largest and most robust property databases. The Company also has
a rapidly expanding real time and archived transactional database. Coupled with
the powerful, Internet-based e-commerce services we now offer, the Company
believes these proprietary database capabilities will enable it to retain a
competitive position in the market for pre- and post-transactional services.
9
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
The Company plans to further reinforce its competitive position in 2000 through
its business partnerships with American Express and other mega-agencies. The
Company has successfully established agreements with its mega-agency partners to
private label and resell its RFP Express product line. The Company will continue
to pursue this "ingredient branding" strategy which it believes will enable RFP
Express to continue its strong growth and achieve considerable market share, by
leveraging the marketing resources and corporate relationships provided by its
existing and new alliance partners.
Pre-transactional services will continue to be the Company's major emphasis in
the future. While indirect providers, such as Ariba and Commerce One, are
entering the Company's market, the Company believes they lack the range of
capabilities in place to offer the pre- and post-transactional services
responsive to market needs. Indirect providers also do not have the proprietary
database and archived transactional data needed to be responsive to users'
needs. While the Company anticipates competitors will invest in this area in the
next several years, the Company plans to achieve a competitive edge and a
leading market share.
EMPLOYEES
As of December 31, 1999, the Company employed 51 full-time and one part time
staff in addition to contracted personnel. None of the Company's employees are
covered under any collective bargaining agreement. The Company believes its
relations with its employees to be strong.
GOVERNMENT REGULATION
All of the Company's services are subject to federal and state consumer
protection laws and regulations prohibiting unfair and deceptive trade
practices. The Company is also subject to regulations applicable to businesses
conducting online commerce. Today there are relatively few laws specifically
directed toward online services. However, due to the increasing popularity and
use of the Internet and online services, it is possible that laws and
regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation and personal privacy is uncertain, but any such new legislation
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, some states may require the
Company to qualify in that state to do business as a foreign corporation because
the Company's service is available in that state over the Internet. Although the
Company is qualified to do business in a number of states, failure to meet the
qualifications of certain states could subject the Company to taxes and
penalties.
As the Company expands its international presence, it will also be subject to
various foreign regulations and governing bodies that might limit the Company's
products and services. Likewise, the Company may be subject to unexpected
changes in regulatory requirements and various tariffs and trade barriers in
connection with online commerce. While the Company's licensees will generally be
responsible for complying with applicable regulations, any failure on their part
to comply may have an adverse effect on the Company.
SERVICE MARKS AND TRADEMARKS
The Company has filed U.S. Service Mark Applications for "RFP Express." Another
conflicting registration for "RFP Express" has also been filed. Although the
Company believes it will retain the right to use the RFP Express name, the
conflicting application may cause the Company's registration of the name to be
denied. The Company also relies on common law, including the law of unfair
competition, to protect its service marks and services. The Company is not aware
of any pending claims of infringement or other challenges to the Company's right
to use its service marks.
10
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES.
At the end of 1999, the Company was headquartered in San Diego, California. The
Company leased its headquarters at a cost of $2,300 per month. The Company is
planning to move to a larger facility in the San Diego Area in June of 2000. The
Company has identified a property and is in the process of executing a lease for
the space. There can be no assurance that the Company will be to obtain the
space.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in legal matters which are incidental
to its operations. In the opinion of management, the ultimate resolution of
these matters has not had and is not expected to have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
On February 1, 1998, the Company granted to Wireless Depot, Inc., a Nevada
corporation ("Wireless"), an exclusive license to market and sell products and
services of the Company in the territory of New York City, New York. Wireless
paid to SecurFone a one-time royalty fee in the amount of $350,000. In addition,
Wireless made a loan to SecurFone in the amount of $130,000. Under the terms of
the license agreement, Wireless agreed to meet a minimum $1,000,000 annual
revenue target. Wireless has not met the minimum target revenue requirements. In
addition, the Company granted to Wireless exclusive licenses to market and sell
products and services of the Company in five other territories. In these other
territories, Wireless has not met certain of the license conditions. The
Company believes it can seek damages under the provision of the license. The
parties have agreed verbally to terminate the license agreements. While no legal
action has been discussed or threatened, the parties are in dispute as to their
respective rights and obligations under the license agreement. Currently, the
parties are negotiating a settlement of all claims. The settlement may be
resolved by the issuance to Wireless of restricted common stock of SecurFone. As
of the time of this filing, the terms of the settlement agreement have not been
finalized.
The Company is in the process of negotiating a payment in the amount of $25,000
in full satisfaction of long outstanding debt with American Express. As of the
date of this filing, a settlement agreement with American Express is still being
negotiated.
On October 24, 1997, the Company entered into a Compromise and Settlement
Agreement with Performance Printing Corporation ("Performance"), whereby, among
other things, the Company issued in favor of Performance a promissory note in
the principal amount of $31,921.30, together with 6% interest thereon, in total
satisfaction of a trade debt. The promissory note provided for 24 equal monthly
payments in the amount of $1,407.73, beginning on October 24, 1997 with the last
payment date of September 24, 1999. The Company failed to make some of its
scheduled payments and on March 30, 2000, Performance obtained a judgement in
the matter. In April 2000, the Company settled the matter in full for a payment
of $5,000 to Performance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 15, 1999 the Company's Board of Directors adopted an amendment to
the Company's Certificate of Incorporation to change the Company's name from
"SecurFone America, Inc." to "The IXATA Group, Inc." As of December 15, 1999,
the holders of a majority of the Company's outstanding shares of stock approved
the corporate name change by a written consent signed by each of these
shareholders in accordance with Delaware law. The name change became effective
at the close of business on January 31, 2000. An Information Statement on Form
14C describing the adoption of the name change was distributed to stockholders
and filed with the Securities and Exchange Commission on December 23, 1999.
11
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq Over-the-Counter Market and
has been quoted on the Nasdaq Electronic Bulletin Board under the symbol "IXTA."
Previously, the Company's common stock was traded under the symbol "SFAI." The
following table lists the high and low closing price of the Company's common
stock for each quarter of 1999 and 1998. The information included in the table
represents prices between dealers exclusive of retail mark-up, mark-down and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1999 1998
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter....................... $0.312 $0.125 $6.120 $3.000
Second Quarter...................... 2.500 0.125 5.593 4.00
Third Quarter....................... 3.000 1.218 5.312 1.218
Fourth Quarter...................... 2.031 1.250 1.281 0.156
</TABLE>
As of April 1, 2000 there were approximately 450 stockholders of record of the
common stock of the Company.
The Company has never paid cash dividends on its common stock. The Company
intends to retain earnings, if any, to finance the growth and development of its
business and does not anticipate paying any cash dividends in the foreseeable
future. Any future dividends will depend on the earnings, capital requirements
and financial condition of the Company, and on other factors that the Company's
Board of Directors may consider relevant.
For rendering brokering services and as a part of the transaction to purchase
IXATA.COM, the Company issued Global One, Inc. ("Global") 600,000 shares of
the Company's common stock on March 28, 2000. Global is an international
business corporation in Nevis, British Virgin Islands. The Company believes
the issuance to be exempt from registration under Section 4(2) of the
Securities Act.
In November of 1999, 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 April 7, 2000, the Company had sold 2,254,657
shares of its unregistered common stock for $0.85 a share in connection with the
offering. Proceeds to the Company were $1,803,726 after the deduction of Scott &
Stringfellow, Inc.'s ("S&S") placement agent fee of $0.05 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.
For rendering investment banking services, the Company agreed to issue
643,553 warrants to S&S for the price of $0.01 per warrant. These warrants
expire in October of 2004. The exercise price of the warrants is $1.687 per
warrant. The warrants will be exercisable after the earlier of a) one year
from November 2, 1999, b) immediately upon change of control of the Company,
or c) upon closing of a firmly underwritten public offering of the Company's
equity securities. The Company believes the issuance to be exempt from
registration under Section 4(2) of the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following describes certain factors which produced changes in the results of
operations of the Company during the twelve months ended December 31, 1999 and
as compared with the twelve months ended December 31, 1998 as indicated in the
Company's Consolidated Financial Statements. The following should be read in
conjunction with the Consolidated Financial Statements and related notes.
Historical results of operations are not necessarily
12
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
indicative of results for any future period. All material inter-company
transactions have been eliminated in the results presented in this Annual
Report.
Certain matters discussed in this Annual Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act") 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."
OVERVIEW
The Company was organized 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, Inc. ("IXATA.COM"), a privately held provider of
Internet-based information and electronic commerce services servicing the travel
and hospitality market. The acquisition was finalized on July 1, 1999. 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.
Upon closing the IXATA.COM acquisition, the Company established itself as a
provider of Internet-based, B2B electronic commerce services in rapidly
growing market for travel information services, serving an expanding base of
more than seventy 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.
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, B2B e-commerce services.
Subsequent to the sale of selected prepaid cellular assets in the second quarter
of 1999 to Teledata World Services, Inc. ("Teledata") (OTC/BB:TWOS), the Company
had planned to continue to offer prepaid wireless services, focusing on higher
margin opportunities, primarily through resale. Given the opportunities
available through IXATA.COM and the associated resources required, the Company
has discontinued its prepaid cellular operations. The discontinuance of
operations was consistent with the Company's planned strategy of refocusing its
business
13
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
objectives to pursue new e-commerce and Internet-based business opportunities to
create significant shareholder value.
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.
As of December 31, 1999, the Company is a development stage company. The Company
expects to come out of the development stage by December 31, 2000. Although the
market reaction to the Company's service has been positive and management
believes the Company's progress supports its emergence from a development stage
company, there can be no assurance that the Company will emerge from the
development stage by December 31, 2000 or at all.
NEW FUNDING
Recognizing that new funding is essential to meet the Company's core business
objectives as well as expand into new business areas, the Company has pursued
several options. See "Liquidity and Capital Resources."
In November of 1999, 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 April 7, 2000, the Company had sold 2,254,657
shares of its unregistered common stock for $0.85 a share in connection with the
offering. Proceeds to the Company were $1,803,726 after the deduction of Scott &
Stringfellow, Inc.'s ("S&S") placement agent fee of $0.05 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.
Currently, the Company is exploring the raising of additional capital from
certain accredited investors in a private placement with S&S as the Company's
agent.
RESULTS OF OPERATIONS:
The Company, in the second quarter of 1999, sold the Company's
Buy-The-Minute-TM- ("BTM") product and the Company discontinued operation of the
Company's SFA Local Network Solution ("SFN"). As a result of these 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.
Net loss in 1999 decreased to $2,172,825 from $4,304,943 in the 1998 primarily
due to the reduction in the restructuring charge associated with the cellular
operation, offset by selling, general and administrative expenses, and gain on
disposal of 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.
14
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
FISCAL 1999 COMPARED TO FISCAL 1998
REVENUES
The Company only obtained the operations of its Internet-based information
and electronic commerce services servicing the travel and hospitality market
in the third quarter of 1999. B2B e-commerce revenues for Fiscal 1999
increased to $271,589 from $0 in Fiscal 1998. The increase was from the
launch of its 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 $2,315,868 in 1999
from $0 in 1998. This increase was due to the cessation of pre-paid cellular
operations, effective June 30, 1999 resulting in negligible ongoing operating
expenses in 1998 due to the refocusing of the Company's direction. See "Business
- - Overview - The Company's Business Case for New Electronic Commerce and
Internet Business Directions." 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
e-commerce business. Wages and associated taxes increased in Fiscal 1999 to
$1,057,000 from $0 in Fiscal 1998. An increase in expenses related to consultant
required while the Company was building its internal capabilities rose to
$413,000 in Fiscal 1999 from $0 in Fiscal 1998. The Company expects to reduce
its expenditures for external consultants in the future. Legal and professional
fees increased to $245,000 in Fiscal 1999 from $0 in Fiscal 1998.
Costs, Expenses, and Other decreased to $2,444,414 in 1999 from $4,354,943 in
1998. Offsetting the increase in selling, general and administrative expenses
discussed above, the decrease in Cost, Expense and Other was due to cessation
of the Company's prepaid cellular service offering. The Company recorded a
gain on the disposal of its subsidiary to Teledata of $708,419 in 1999 from
$0 in 1998, while the Company incurred a restructuring charge of $505,832 and
$4,354,943 in 1999 and 1998, respectively. In addition, stranded assets
related to the prepaid cellular business are reflected in a loss of $59,543
in 1999 from $0 in 1998.
Interest expense increased to $256,337 in 1999 from $0 in 1998 due to the
Company's obligations to lenders that have extended the Company funds for
operations since inception. Interest income increased to $2,025 in 1999 from
$0 in 1998. The gain on sale of marketable securities decreased to $0 in 1999
from $50,000 in 1998. The cost of revenues increased to $17,278 in 1999 from
$0 in 1998. The increase was from the launch of the Company's RFP Express-SM-
product for the travel and hospitality sectors.
The net loss before extraordinary items in 1999 decreased to $2,172,825 from
$4,304,943 in 1998. This decrease was primarily due to the reduction in the
restructuring charge associated with the cellular operation, offset by selling,
general and administrative expenses, and gain on disposal of subsidiary.
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. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The Company is
continually reviewing various sources of additional financing to fund its
growth. As of December 31, 1999, the Company had received advances in the amount
of $2,067,743 from private investors.
15
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
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. See "-Overview - New Funding." 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
$2.5 million and $10 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 December 31, 1999, the Company had cash and cash equivalents of $326,145
as compared to $1,532 at December 31, 1998. In addition, the Company had
accounts receivable totaling $259,783 from the sale of the Company's B2B
e-commerce services. Net cash used by operating activities was $1,422,346 in
1999 compared to $1,742,569 in 1998. Net cash provided by investing
activities in 1999 was $318,332, consisting of $498,000 provided by the sale
of a subsidiary and related assets, $181,931 used for investment in
subsidiary, and $46,978 acquired in acquisition of subsidiary in 1998. Net
cash provided by financing activities in 1999 totaled $1,428,627 which
consisted primarily of $951,247 in proceeds from the sale of common stock and
$484,326 from the issuance of notes and other long-term debt by the Company
to private investors, net of repayments, as compared with $1,748,806 in 1998
which consisted primarily of proceeds from advances payable of $1,572,055.
Seasonality
Sales of the Company's RFP Express-SM- products and services are generally
seasonal in nature. Most of the RFP processing transactions and related
billable activities occur in the third and fourth quarter. While the Company
is pursuing new services, which may reduce the revenue volatility of our
business, there can be no assurance when revenues from such services will be
realized.
TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS
Income taxes are provided for based on earnings reported for financial statement
purposes pursuant to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109. The provision for income taxes differs from the
amounts currently payable because of timing differences in the recognition of
certain income and expense items for financial and tax reporting purposes. SFAS
109 uses the asset and liability method to account for income taxes which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities. An allowance has been provided for by
the Company which reduced the tax benefits accrued by the Company for its net
operating losses to zero, as it cannot be determined if it is more likely than
not that the tax benefits will be realized.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," established accounting and reporting
standards for derivative instruments. The Company has not in the past, nor does
it anticipate that it will, engage in transactions involving derivative
instruments which will impact the consolidated financial statements.
Effective December 31, 1998, the Company retroactively changed its method of
recognizing start-up costs in its consolidated financial statements to conform
with the pronouncement of the American Institute of Certified Public Accountants
("AICPA"), Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities." The Company previously amortized these costs over a five-year
period beginning January 1, 1997, using the straight-line method. The
pronouncement requires start-up costs to be expensed as incurred. As a result,
the cumulative effect of applying the new method retroactively was not material.
16
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
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 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 the travel and hospitality service markets 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 its objectives.
- - 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 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.
- - 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.
17
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
- - 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 engaging 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
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
18
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
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 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 and
Vice-President - Marketing of IXATA.COM, 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;
19
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
(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.
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 53% 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, such 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
20
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
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 delinquent in its filings 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 Annual 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 Annual Report must be considered by any
investor or potential investor in the Company.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Attached to this Annual Report and filed as a part of this Annual Report are the
Consolidated Financial Statement and Financial Statement Schedule required by
Regulation S-X.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
PREVIOUS INDEPENDENT ACCOUNTANTS.
On March 20, 2000, the Company and Conte Co., C.P.A., Inc. ("Conte Co.") of
Cleveland, Ohio mutually agreed that Conte Co. would no longer serve as the
Company's independent accountant.
In 1999 the Company discontinued its prepaid cellular business and acquired
IXATA, Inc. IXATA is principally engaged in providing global Internet based
business-to-business e-commerce services for the corporate travel and
hospitality market and is headquartered in San Diego, California. Following the
acquisition, the Board of Directors of the Company concluded that it would be
more efficient to retain Nation Smith Hermes Diamond, APC ("Nation Smith"),
IXATA's independent accountant, as the Company's independent accountant. Because
of Nation Smith's familiarity with IXATA and proximity to San Diego, the Board
decided to retain Nation Smith as the Company's independent accountant.
The reports of Conte Co. on the Company's financial statements for the years
ended December 31, 1998 and 1997 each were modified to reflect the uncertainty
of the Company's ability to continue as a going concern, which management
believes was appropriate. Otherwise, the reports did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to audit
scope or accounting principles. During the Company's two most recent fiscal
years and through March 28, 2000, there have been no disagreements with Conte
Co. on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, that, if not resolved to the
satisfaction of Conte Co., would have caused Conte Co. to make reference to the
disagreement in its audit report. During the two most recent fiscal years and
through March 28, 2000, Conte Co. has not advised the Company of the existence
of any reportable event listed in Regulation S-B Item 304(a)(1)(iv).
NEW INDEPENDENT ACCOUNTANTS.
The Company engaged Nation Smith as its new independent accountant effective
March 20, 2000. During the two most recent fiscal years and through March 20,
2000, the Company has not consulted with Nation Smith on items that were or
should have been subject to Statement of Auditing Standard No. 50 or that
concerned the subject matter of a disagreement or reportable event with the
former accountants as described in Regulation S-B Item 304(a)(2).
21
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information about the directors and executive officers of the Company as
of April 1, 2000 is included below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DIRECTOR OR
NAME AGE POSITION OFFICER SINCE
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fred Gluckman 50 Executive Vice-President - Technology and Automation, July 1999
IXATA.COM and Director
- --------------------------------------------------------------------------------------------------------------------
Michael M. Grand 61 Director April 1997
- --------------------------------------------------------------------------------------------------------------------
Paul Hatch 48 Director July 1999
- --------------------------------------------------------------------------------------------------------------------
Andrew H. Kent 35 Vice President and Chief Financial Officer and Director June 1999
- --------------------------------------------------------------------------------------------------------------------
Paul B. Silverman 55 Chief Executive Officer and Chairman November 1998
- --------------------------------------------------------------------------------------------------------------------
Robert Steiner 45 Executive Vice President, Marketing, IXATA.COM and Director July 1999
- --------------------------------------------------------------------------------------------------------------------
Steven L. Wasserman 46 Secretary April 1996
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The following describes the business background and the experience of each of
the directors and executive officers of the Company:
FRED GLUCKMAN is Executive Vice President - Technology and Automation of the
Company's IXATA.COM subsidiary and was appointed a Director of the Company July
1, 1999. Mr. Gluckman is a co-founder of IXATA.COM. Since 1994, Mr. Gluckman was
co-founder and CEO of Tel.n.Form, Inc., a privately-held provider of automated
sales lead and related information to auto dealerships and financial
institutions. Through Mr. Gluckman's many joint ventures, Mr. Gluckman has
gained a reputation as one of the leading experts in the use of automation to
eliminate costly, redundant business processes. Born in Israel and raised in
Canada, Mr. Gluckman holds a Bachelor of Science degree from McGill University.
MICHAEL M. GRAND has been a director of the Company since its inception. Mr.
Grand is an attorney practicing in the areas of commercial and real estate law.
He is a member of the Michigan bar. Mr. Grand is the President and sole
shareholder of Parthenon Holdings, L.L.C., a holding company and shareholder of
Montpilier Holdings, Inc. ("Montpilier"), a holding company and a significant
stockholder of the Company.
PAUL HATCH was appointed as a member of the Company's Board of Directors on July
1, 1999. Mr. Hatch is currently Senior Vice President at Edelman Public
Relations Worldwide where he directs the firm's state and local programs
practice. Mr. Hatch has more than 25 years experience in political campaigns,
public affairs and communications. Mr. Hatch's background includes serving as
the Executive Director of the Republican Governors' Association (RGA), working
closely with the nation's 32 Republican governors and their staffs. Mr. Hatch
also served as the deputy political director of the Republican National
Committee (RNC). Mr. Hatch has represented Anderson Consulting, Laidlaw, IMG, US
West Communications, Texaco, 3M, the National Education Association, Microsoft,
CSX Transportation Co., Northwest Airlines, and other Fortune 500 clients. Mr.
Hatch currently provides support services to the RGA, the RNC, as well as
Republican Leadership in the U.S House of Representatives. Prior to joining the
RGA, Mr. Hatch resided in Salt Lake City, practiced Law, specializing in
Securities law and regulated industries, and served as a special assistant
Attorney General. Mr. Hatch studied Finance and Economics at University of Utah
and obtained a Juris Doctor Degree from the University's College of Law in 1978.
ANDREW H. KENT joined the management team as Director, Business Development
effective November 1, 1998. In the new position, Mr. Kent reports to the Chief
Executive Officer and played a key role in reshaping the Company's
22
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
overall business strategy to pursue new e-commerce and Internet-related business
opportunities. On June 30, 1999, Mr. Kent was appointed Vice President and Chief
Financial Officer, reporting to the Chief Executive Officer. Mr. Kent was also
elected to serve on the Company's Board of Directors on June 30, 1999.
PAUL B. SILVERMAN became Chief Executive Officer of the Company in November 1998
and a director and Chairman in December 1998. Since January 1997, Mr. Silverman
has been Chairman of the Board and Chief Executive Officer of SCIES, Inc., a
global Internet telephone systems and services company. From 1990 to 1996, Mr.
Silverman was Chief Executive Officer of JMS North America, Inc. (formerly James
Martin Strategy, Inc.), an international management consulting and engineering
company. Previously, Mr. Silverman held senior management consulting positions
with Coopers & Lybrand and Booz Allen and Hamilton. Mr. Silverman's background
also includes more than 20 years experience in senior engineering, marketing and
international business development positions with major information industry
firms including Satellite Business Systems (division of IBM), GTE, Xerox and RCA
Global Communications, Inc.
ROBERT STEINER is President of the Company's IXATA.COM subsidiary and was
appointed a Director of the Company on July 1, 1999. Mr. Steiner is a co-founder
of IXATA.COM. From 1991 to 1994, Mr. Steiner was founder and Managing Partner of
Smith, Steiner & Thomas, one of the largest travel management consulting
companies in the world. Mr. Steiner's background also includes serving as
Manager, Corporate Procurement for Northrop Corporation, and a Contracting
Officer within the United States Air Force. Mr. Steiner holds a BA in Economics
from the University of California, and an MBA from Pepperdine University.
STEVEN L. WASSERMAN has been Secretary and was a Director of the Company since
its inception. Mr. Wasserman is an attorney and a partner of the law firm of
Kohrman Jackson & Krantz P.L.L., Cleveland, Ohio. He also serves as Secretary
and a director of INTEK Global Corporation, a wireless service and technology
company. Mr. Wasserman is a member of the bars of Ohio and Florida. Mr.
Wasserman was a principal of the law corporation of Honahan, Harwood, Chernett &
Wasserman, LPA, Cleveland, Ohio, from 1983 to September 1994. Mr. Wasserman
resigned his position as a Director to pursue other interests effective April
30, 1999. Mr. Wasserman continues as Secretary of the Company.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met once and acted by written consent 10 times in 1999.
During 1999, all members of the Board of Directors participated in each Board
meeting.
DIRECTOR COMPENSATION
Members of the Board of Directors are not compensated for their services as
directors. The Company's 1997 Directors' Option Plan (the "Directors' Option
Plan") provides for the automatic "formula" grant to each director of an option
to purchase 50,000 shares of the Company's common stock, $0.001 par value per
share (the "Common Stock"), on the date of his or her initial election to the
Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's common stock, to file with the Securities and Exchange Commission
("SEC") the initial reports of ownership and reports of changes in ownership of
the common stock. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Andrew H. Kent failed to timely file a Form 3 upon being
appointed to the Board of Directors but subsequently made the required filing.
Paul D. Hatch, Robert A. Steiner, Fred Gluckman, and The Andreoli Family Trust
each failed to timely file Forms 3 upon completion of the IXATA.COM acquisition,
but subsequently made the required filings. Based solely on filings received by
the Company, the Company is not aware of any other delinquent Section 16(a)
filings in 1999.
23
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid by the Company to Paul B.
Silverman, the Company's President and Chief Executive Officer; Andrew H. Kent,
the Company's Vice-President and Chief Financial Officer; Robert Steiner, the
Company's IXATA.COM subsidiary's President; and Fred Gluckman, the Company's
IXATA.COM subsidiary's Vice-President - Technology since they joined the
Company. These executive officers are the only executive officers whose total
annual salary exceeded $100,000 in 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM
---------------------------- COMPENSATION
FISCAL ------------ ALL OTHER
NAME YEAR SALARY OPTION AWARDS COMPENSATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul B. Silverman 1999 $ 152,033(1) 300,000 $ --
1998 23,080 (2) 150,000 (3) 84,991 (4)
- ----------------------------------------------------------------------------------------------------------------
Andrew H. Kent 1999 $ 113,165 (5) 115,000 (3) $ --
1998 18,464 (6) -- 20,995 (7)
- ----------------------------------------------------------------------------------------------------------------
1999 $ 99,000 (8) 50,000 $ --
Robert Steiner 1998 -- -- --
- ----------------------------------------------------------------------------------------------------------------
1999 $ 101,077 (9) 50,000 $ --
Fred Gluckman 1998 -- -- --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) $101,726 of this amount was earned by Mr. Silverman in 1999, but
payment has been deferred.
(2) $23,080 of this amount was earned by Mr. Silverman in 1998, but payment
has been deferred.
(3) Includes 50,000 options granted under the Company's Director Stock
Option plan
(4) The listed amount was paid to Mr. Silverman and SCIES, Inc. for
consulting services provided to the Company in 1998 before Mr. Silverman joined
the Company. Mr. Silverman was Chief Executive Officer of SCIES and owned 40 %
of SCIES. Of this amount, $11,535 for consulting services was earned by Mr.
Silverman in 1998, but payment has been deferred.
(5) $69,704 of this amount was earned by Mr. Kent in 1999, but payment has
been deferred.
(6) $18,464 of this amount was earned by Mr. Kent in 1998, but payment has
been deferred.
(7) The listed amount was paid to Mr. Kent for consulting services provided
to the Company in 1998 before he joined the Company.
(8) $3,000 of this amount was earned by Mr. Steiner in 1999, but payment
has been deferred.
(9) $90,000 of this amount was earned by Mr. Gluckman in 1999, but payment
has been deferred.
24
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
OPTION GRANTS IN 1999
The following table summarizes information concerning options granted during
1999 to Messrs. Silverman, Kent, Steiner and Gluckman:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PERCENT OF
SHARES OF TOTAL OPTIONS
NAME COMMON STOCK GRANTED TO EXERCISE MARKET VALUE
UNDERLYING EMPLOYEES IN PRICE PER PER SHARE ON EXPIRATION
OPTIONS FISCAL 1999 SHARE DATE OF GRANT DATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paul B. Silverman 300,000 53.1% $0.16 $0.16 1/1/09
- -------------------------------------------------------------------------------------------------------------------
20,000 $0.125 $0.125 4/23/09
50,000 * $1.28 $1.28 6/30/09
Andrew H. Kent 20,000 20.4% $0.10 $1.69 7/1/09
25,000 $1.69 $1.69 7/1/09
- -------------------------------------------------------------------------------------------------------------------
Robert Steiner 50,000 8.8% $1.69 $1.69 7/1/09
- -------------------------------------------------------------------------------------------------------------------
Fred Gluckman 50,000 8.8% $1.69 $1.69 7/1/09
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* These options were granted under the Company's 1997 Directors Stock
Option Plan.
OPTION EXERCISE IN 1999 AND VALUES AT 1999 YEAR-END
The following table summarizes information with respect to the unexercised
options held Messrs. Silverman, Kent, Steiner and Gluckman as of December 31,
1999. Also reported are values of "in-the-money" options, that is, the amount by
which the exercise price of the option is exceeded by the last sale price of the
Common Stock on December 31, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ON VALUE ------------------------------- -------------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul B. Silverman -- $- 250,000 200,000 $272,500 $218,000
- ---------------------------------------------------------------------------------------------------------------------
Andrew H. Kent -- $- 40,000 75,000 $45,500 $-
- ---------------------------------------------------------------------------------------------------------------------
Robert Steiner -- $- -- 50,000 $- $-
- ---------------------------------------------------------------------------------------------------------------------
Fred Gluckman -- $- -- 50,000 $- $-
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE AND PENSION PLANS
During 1999, the Company adopted a 401(k) retirement savings plan for its
employees which allows each eligible employee to voluntarily make pre-tax salary
contributions up to 15% of their compensation. The Company matches 25% of the
employee's contributions up to 4% (1% of gross compensation).
EMPLOYMENT AGREEMENTS
The Company executed an employment agreement with Mr. Silverman on November 1,
1998 to serve as Chief Executive Officer. Mr. Silverman's salary compensation is
$150,000, increasing to $180,000 per year after the Company secures minimum new
funding of $750,000. Mr. Silverman also received options to acquire 100,000
shares of the Company's Common Stock upon execution of the employment agreement,
and additional options for 300,000 shares directly linked to the Company's
ability to meet specified market capitalization targets and financial
milestones. On December 11, 1998, Mr. Silverman was appointed a director of the
Company and granted options to purchase 50,000 shares of Common Stock under the
Directors' Option Plan. Mr. Silverman was granted the salary increase to
$180,000 on November of 1999 when the Company secured over $750,000 in new
funding. In addition, at the end of 1999, Mr. Silverman's options to acquire
100,000 shares have vested based on the Company meeting performance goals. On
February 9, 2000, the Company met an additional performance goal, resulting in
Mr. Silverman's options for an additional 100,000 shares having vested. Mr.
Silverman's employment agreement has been extended through December 31, 2000.
Under the terms of the extended agreement, Mr. Silverman's annual salary will
increase to $200,000. Subject to securing a minimum new funding of $3.0 million,
Mr. Silverman's annual salary increases to $225,000. In addition, Mr. Silverman
received options to acquire 100,000 shares of the Company's common stock upon
securing a minimum new funding of $3.0 million.
The Company executed an employment agreement with Mr. Kent effective June 30,
1999 to serve as Chief Financial Officer. Mr. Kent's salary compensation was
$120,000. Mr. Kent also received options to acquire 20,000 shares of the
Company's common stock upon execution of the employment agreement, and
additional options for 25,000 shares directly linked to the Company's ability to
meet specified market capitalization targets and financial milestones. On June
30, 1999, Mr. Kent was appointed a director of the Company and granted options
to purchase 50,000 shares of Common Stock under the Directors' Option Plan. Mr.
Kent's employment agreement has been extended through December 31, 2000. Under
the terms of the extended agreement, Mr. Kent's annual salary will increase to
$150,000. In addition, Mr. Kent received options to acquire 100,000 shares of
the Company's common stock upon securing a minimum new funding of $3.0 million.
The Company executed an employment agreement with Mr. Steiner on April 17, 2000
to serve as President of IXATA.COM. Mr. Steiner's salary compensation is
$160,000, increasing to $200,000 per year in January 2001. The Company also
agreed to issue Mr. Steiner options to acquire 150,000 shares of the Company's
common stock contingent upon continued employment, and additional options for
400,000 shares directly linked to the Company's ability to meet specified market
capitalization targets and financial milestones. On July 1, 1999, Mr. Steiner
was appointed a director of the Company and granted options to purchase 50,000
shares of common stock.
26
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table includes, as of April 1, 2000, information regarding the
beneficial ownership of the Company's Common Stock, by each stockholder known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, each director and executive officer of the Company, and all
directors and executive officers as a group.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP (2)
--------------------------------------------
NAMES AND ADDRESS (1)
SHARES PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Andreoli Family Trust (3) 1,761,875 11.9%
- -----------------------------------------------------------------------------------------------------------------
Fred Gluckman (4) 1,761,875 11.9%
- -----------------------------------------------------------------------------------------------------------------
Robert Steiner (5) 516,250 3.5%
- -----------------------------------------------------------------------------------------------------------------
Andrew H. Kent (6) 40,000 0.3%
- -----------------------------------------------------------------------------------------------------------------
Paul B. Silverman (7) 350,000 2.4%
- -----------------------------------------------------------------------------------------------------------------
Paul Hatch (8) 0 0.0%
- -----------------------------------------------------------------------------------------------------------------
Steven L. Wasserman (9) 136,500 0.9%
- -----------------------------------------------------------------------------------------------------------------
Michael M. Grand (10) 4,350,000 29.3%
- -----------------------------------------------------------------------------------------------------------------
All directors and executive officers
As a group (seven individuals) (11) 7,168,125 48.3%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise indicated, the address of each of the beneficial
owners is c/o The IXATA Group, Inc., 8080 Dagget, Suite 220, San Diego,
California 92111.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is
considered to be the beneficial owner of securities that can be
acquired by such person within 60 days from April 1, 2000 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are
held by that person (but not those held by any other person) and which
are exercisable within 60 days from April 1, 2000 have been exercised.
(3) Andreoli Family Trust's address is 3131 Liberty Circle South, Las
Vegas, NV 89121. Vera Ellen Andreoli is sole trustee of the Andreoli
Family Trust.
(4) (i) Does not include an option to purchase 50,000 shares of Common
Stock granted under the 1997 Stock Option Plan, which is not currently
exercisable and (ii) includes 1,761,875 shares of Common Stock held by
the Gluckman Family Trust. Fred Gluckman is sole trustee of the
Gluckman Family Trust.
(5) (i) Does not include an option to purchase 50,000 shares of Common
Stock granted under the 1997 Stock Option Plan, which is not currently
exercisable.
27
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
(6) Includes options to purchase 40,000 shares of Common Stock. Does not
include an option to purchase 50,000 shares of Common Stock granted
under the Directors' Option Plan, which is not presently exercisable,
or options to acquire up to an additional 25,000 shares of Common Stock
contingent upon our ability to meet specified market capitalization and
financial milestones which have not yet been reached.
(7) Includes an option to purchase 300,000 shares of Common Stock under the
1997 Stock Option Plan and options to acquire 50,000 shares of Common
Stock granted under the Directors' Option Plan. Does not include
options to acquire up to an additional 100,000 shares of Common Stock
contingent upon our ability to meet specified financial milestones
which have not yet been reached.
(8) Does not include an option to purchase 50,000 shares of Common Stock
granted under the Directors' Option Plan, which is not presently
exercisable.
(9) Includes (i) an option to purchase 30,000 shares of Common Stock
granted under the Directors' Option Plan and (ii) 100,000 shares of
Common Stock held by Kohrman Jackson & Krantz P.L.L. Mr. Wasserman is a
partner of the law firm of Kohrman Jackson & Krantz P.L.L., which
provides legal services to the Company.
(10) Includes (i) an option to purchase 50,000 shares of Common Stock
granted under the Directors' Option Plan and (ii) 4,300,000 shares of
Common Stock held by Montpilier. Montpilier is indirectly owned by Mr.
Grand.
(11) Includes options to purchase a total of 480,500 shares of Common Stock.
VOTING AGREEMENT
Michael M. Grand and Montpilier, Gluckman Family Trust, Fred Gluckman, as
Trustee of the Gluckman Family Trust, Andreoli Family Trust, Vera Ellen
Andreoli, as Trustee of the Andreoli Family Trust and Robert A. Steiner
(collectively, the "Investor Group") and certain other of the Company's
shareholders are parties to a Voting Agreement, effective July 1, 1999, that
provides that to the extent that any of the members of the Investor Group or
certain of the Company's shareholders are the legal or beneficial owner of any
shares of the Company's voting stock, they will vote those shares:
(1) in favor of electing Michael M. Grand, Paul B. Silverman and
Andrew H. Kent (so long as each desires to serve) or their
respective replacement appointed by Mr. Grand to the Company's
Board of Directors; and
(2) in favor of electing Fred Gluckman, Robert A. Steiner and Paul
Hatch (so long as each desires to serve) or their respective
replacement appointed by vote or consent of a majority of the
shares held by the former IXATA shareholders to the Company's
Board of Directors.
The Voting Agreement will terminate on the first to occur of:
(1) the mutual written agreement of all of the parties to terminate
the Voting Agreement;
(2) the death or dissolution of the last of certain parties to the
Voting Agreement;
(3) the sale of 80% or more of the Company's outstanding capital
stock;
(4) certain parties to the Voting Agreement cease to collectively own
at least 25% of the Company's outstanding voting stock on a fully
diluted basis; or
(5) the fifth anniversary of the Voting Agreement.
The Voting Agreement covers 8,850,000 shares of the Company's Common Stock,
representing 59.6% of the outstanding shares of Common Stock on a fully
diluted basis.
28
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 1, 1999, IXATA.COM and Tel.n.Form, Inc. ("Tel.n.Form") entered into
a management and support agreement whereby Tel.n.Form agreed to provide selected
consulting services to support IXATA.COM's business development through December
31, 1999. The agreement also provided that IXATA.COM would reimburse Tel.n.Form
for use of certain shared expenses such as office space and computer facilities.
After completion of the acquisition of IXATA.COM by the Company on July 1, 1999,
the Company continued the Tel.n.Form agreement to minimize any potential
disruption of IXATA.COM's operations and support the transition to the Company.
For support services provided by Tel.n.Form, the Company incurs total costs of
approximately $23,840 per month. The Company believes costs incurred under the
agreement are reasonable and no more than it would incur under an agreement with
an unaffiliated third party. The support services agreement expired on December
31, 1999 and to minimize any disruption of operations, the Company continued
selected support services, such as office space and shared computer facilities,
as needed, on a month-by-month basis consistent with the agreement. Since the
Company has added additional IXATA.COM management personnel, expanded the
IXATA.COM staff and has now fully incorporated IXATA.COM into the Company, it no
longer requires the services provided by Tel.n.Form. The Company has notified
Tel.n.Form that the agreement will be terminated in its entirety.
The majority owner of Tel.n.Form is the Gluckman Family Trust, which is a
significant shareholder of the Company. See "Security Ownership of Certain
Beneficial Owners and Management." Fred Gluckman, who currently serves as
Executive Vice President - Technology and Automation of IXATA.COM, and as a
Director of the Company, is the Chairman of the Board of Tel.n.Form. Mr.
Gluckman also serves as a trustee of the Gluckman Family Trust. Vera Ellen
Andreoli is the Trustee of the Andreoli Family Trust, which is a significant
shareholder of the Company. See "Security Ownership of Certain Beneficial Owners
and Management." Mrs. Andreoli also provides consulting services to Tel.n.Form,
and Mrs. Andreoli's husband is a significant owner of Tel.n.Form and a
Tel.n.Form employee and provided selected consulting services to IXATA.COM under
the management services agreement.
In October 1999, the Company appointed Robert Steiner President of the Company's
IXATA.COM subsidiary. Mr. Steiner, one of the co-founders of IXATA.COM, provided
services to IXATA.COM under a consulting contract entered into prior to the
Company purchasing the subsidiary. The consulting contract was a renewable,
one-year contract in an amount of $9,000 per month to be paid to Mr. Steiner.
The Company entered into an a employment agreement with Mr. Steiner in April of
2000 and the consulting agreement has been cancelled. See "Executive
Compensation."
Fred Gluckman currently serves as Executive Vice President - Technology and
Automation of IXATA.COM. Mr. Gluckman, one of the co-founders of IXATA.COM,
provides services to IXATA.COM under a consulting contract entered into prior to
the Company purchasing the subsidiary. The Company is currently negotiating an
employment contract with Mr. Gluckman. The consulting contract is a renewable,
one-year contract in an amount of $10,000 per month to be paid to Mr. Gluckman.
The Company expects to finalize the employment agreement in the second quarter
of 2000.
Steven L. Wasserman, a former director and the present Secretary of the Company,
is a partner of the law firm of Kohrman Jackson & Krantz P.L.L., which provides
legal services to the Company.
29
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: PAGE
<S> <C>
Independent Auditors' Report...............................................................................F-1
Consolidated Balance Sheet at December 31, 1999 and 1998...................................................F-2
Consolidated Statement of Operations for the twelve months ended
December 31, 1999 and 1998............................................................................F-3
Statement of Stockholders' Equity for the twelve months ended December 31, 1999............................F-4
Consolidated Statement of Cash Flows for the twelve months ended
December 31, 1999 and 1998............................................................................F-5
Notes to Consolidated Financial Statements.................................................................F-6
</TABLE>
There are no other accounting schedules required by applicable accounting
regulations of the Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
(c) EXHIBITS:
<TABLE>
----------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement among Montpilier Holdings, Inc.,
SecurFone America, Inc., Material Technology, Inc. and Robert
M. Bernstein dated as of February 17, 1997, (incorporated by
reference to the Company's Form 10-K filed by the Company for
the fiscal year end 1996)
----------------------------------------------------------------------------
3.1 The Company's Amended and Restated Certificate of
Incorporation (incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and
Exchange Commission (File No. 33-83526))
----------------------------------------------------------------------------
3.2 The Company's Bylaws (incorporated by reference to the
Company's S-1 Registration Statement as filed with the
Securities and Exchange Commission (File No. 33-83526))
----------------------------------------------------------------------------
3.3 Certificate of Amendment of Certificate of Incorporation of
SecurFone America, Inc. dated January 31, 2000 (incorporated
by reference to the Company's Form 10-QSB for the Quarter
ended June 30, 1999 as filed with the Securities and Exchange
Commission on March 10, 2000 (File No. 33-83526))
----------------------------------------------------------------------------
4.1 Class A Convertible Preferred Stock Certificate of
Designations (incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and
Exchange Commission (File No. 33-83526))
----------------------------------------------------------------------------
4.2 Class B Convertible Preferred Stock Certificate of
Designations (incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and
Exchange Commission (File No. 33-83526))
----------------------------------------------------------------------------
10.1 The Company's 1997 Stock Option Plan (incorporated by
reference to the Company's S-8 Registration Statement as filed
with the Securities and Exchange Commission (File No.
333-40379))
----------------------------------------------------------------------------
30
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
10.2 The Company's 1997 Director's Stock Option Plan (incorporated
by reference to the Company's S-8 Registration Statement as
filed with the Securities and Exchange Commission (File
No.333-40379))
----------------------------------------------------------------------------
10.3 Employment Agreement, effective as of October 24, 1997,
between the Company and Derek Davis (incorporated by reference
to the Company's S-8 Registration Statement as filed with the
Securities and Exchange Commission (File No. 333-40379))
----------------------------------------------------------------------------
10.4 Executive Employment Agreement, entered into as of November 1,
1997, between William P. Stueber, II and the Company
(incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998 as filed with
the Securities and Exchange Commission on September 28, 1999
(File No. 33-83526))
----------------------------------------------------------------------------
10.5 Settlement Agreement and Mutual Release, entered into between
William P. Stueber, II and the Company (incorporated by
reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998 as filed with the Securities
and Exchange Commission on September 28, 1999 (File No.
33-83526))
----------------------------------------------------------------------------
10.6 Executive Employment Agreement, entered into as of November 1,
1998, between Paul B. Silverman and the Company (incorporated
by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998 as filed with the Securities
and Exchange Commission on September 28, 1999 (File No.
33-83526))
----------------------------------------------------------------------------
10.7 Purchase Agreement, dated February 1999, between the Company
and Teledata World Services, Inc. (incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998 as filed with the Securities and
Exchange Commission on September 28, 1999 (File No. 33-83526))
----------------------------------------------------------------------------
10.8 Security Agreement, dated February 1999, between the Company
and Teledata World Services, Inc. (incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998 as filed with the Securities and
Exchange Commission on September 28, 1999 (File No. 33-83526))
----------------------------------------------------------------------------
10.9 Secured Promissory Note in the original principal amount of
$248,000, dated February 1999, of the Company payable to
Teledata World Services, Inc. (incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998 as filed with the Securities and Exchange
Commission on September 28, 1999 (File No. 33-83526))
----------------------------------------------------------------------------
10.10 First Amendment to Purchase Agreement, dated April 1999,
between Teledata World Services, Inc. and the Company
(incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998 as filed with
the Securities and Exchange Commission on September 28, 1999
(File No. 33-83526))
----------------------------------------------------------------------------
10.11 Stock Purchase Agreement, by and among the Company, Montpiler
Holdings, Inc., IAXATA.COM, Inc., and all of the shareholders
of IXATA, dated July 1, 1999 (incorporated by reference to the
Company's 8-K Current Report as filed with the Securities and
Exchange Commission on July 20, 1999 (File No. 033-83526))
----------------------------------------------------------------------------
10.12 Voting agreement, by and among the Company and certain
stockholders of the Company, dated July 1, 1999 (incorporated
by reference to the Company's 8-K Current Report as filed with
the Securities and Exchange Commission on July 20, 1999 (File
No. 033-83526))
----------------------------------------------------------------------------
10.13 Management Services and Support Agreement dated February 1,
1999, between Tel.n.Form, Inc. and IXATA.COM (incorporated by
reference to the Company's Form 10-QSB for the Quarter ended
June 30, 1999 as filed with the Securities and Exchange
Commission on March 10, 2000 (File No. 33-83526))
----------------------------------------------------------------------------
31
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
10.14 Executive Employment Agreement dated as of August 24, 1999,
between Andrew H. Kent and the Company (incorporated by
reference to the Company's Form 10-QSB for the Quarter ended
June 30, 1999 as filed with the Securities and Exchange
Commission on March 10, 2000 (File No. 33-83526))
----------------------------------------------------------------------------
10.15 Letter Agreement dated as of November 9, 1999 extending the
term of the Executive Employment Agreement between Paul B.
Silverman and the Company (incorporated by reference to the
Company's Form 10-QSB for the Quarter ended June 30, 1999 as
filed with the Securities and Exchange Commission on March 10,
2000 (File No. 33-83526))
----------------------------------------------------------------------------
10.16 Registration Rights Agreement for November, 1999, private
placement equity investment offering (incorporated by
reference to the Company's Form 10-QSB for the Quarter ended
June 30, 1999 as filed with the Securities and Exchange
Commission on March 10, 2000 (File No. 33-83526))
----------------------------------------------------------------------------
10.17 Executive Employment Agreement dated as of April 17, 2000,
between Robert Steiner and the Company
----------------------------------------------------------------------------
10.18 Letter Agreement dated as of April 17, 2000 extending and
modifying the terms of the Executive Employment Agreement
between Paul B. Silverman and the Company
----------------------------------------------------------------------------
10.19 Letter Agreement dated as of April 17, 2000 extending and
modifying the terms of the Executive Employment Agreement
between Andrew H. Kent and the Company
----------------------------------------------------------------------------
23.1 Consent of Nation Smith Hermes Diamond, APC
----------------------------------------------------------------------------
24.1 Reference is made to the Signatures section of this Report for
the Power of Attorney
----------------------------------------------------------------------------
27.1 Financial Data Schedule
----------------------------------------------------------------------------
</TABLE>
32
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
and for the Period from Inception (May 20, 1996)
to December 31, 1999
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT 3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Stockholders' Equity (Deficit) 6-7
Consolidated Statements of Cash Flows 8-9
Notes to Consolidated Financial Statements 10-32
</TABLE>
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
THE IXATA GROUP, INC.
We have audited the accompanying consolidated balance sheet of THE IXATA GROUP,
INC. AND SUBSIDIARIES (formerly SecurFone America, Inc. and Subsidiaries) (a
development stage company) (the "Company") (see Note 1(a)) as of December 31,
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the year then ended and for the period from
inception (May 20, 1996) to December 31, 1999, except that we did not audit the
consolidated financial statements for the period from inception (May 20, 1996)
through December 31, 1998, these consolidated financial statements were audited
by other auditors and whose report dated August 25, 1999 expressed a going
concern uncertainty. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of THE IXATA, GROUP INC.
AND SUBSIDIARIES (formerly SecurFone America, Inc. and Subsidiaries) (a
development stage company) as of December 31, 1999 and 1998, and the results of
its operations and cash flows for the years ended December 31, 1999 and 1998 and
from inception (May 20, 1996) to December 31, 1999, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1(c) to
the consolidated financial statements, the Company incurred net losses of
$2,172,825 and $4,304,943 for the years ended December 31, 1999 and 1998,
respectively, and $11,634,899 for the period from inception (May 20, 1996) to
December 31, 1999 and had working capital deficits of $2,145,081 and $976,346 as
of December 31, 1999 and 1998, respectively, that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1(c). The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
April 7, 2000
3
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 15(a)) $326,145 $1,532
Marketable equity security (Note 1(g) and 2) 24,000 -
Accounts receivable - net of allowance for doubtful
accounts of $0 and $43,568 in 1999 and 1998,
respectively (Note 1(i)) 259,783 7,138
Prepaid assets - 35,000
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 609,928 43,670
FIXED ASSETS - NET (Notes 1(h) and 3) 62,186 174,936
GOODWILL - NET (Notes 1(h) and 4) 6,034,377 -
OTHER ASSETS - NET (Note 5) 9,558 1,225
- --------------------------------------------------------------------------------------------------------------------------
$6,716,049 $219,831
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable (Note 6) $ 627,293 $ 291,356
Current portion of capitalized leases (Note 14) 99,814 47,449
Accounts payable and accrued expenses 327,017 489,400
Related party payables (Note 10) 369,500 -
Deferred revenue 114,339 -
Accrued payroll and related taxes (Note 10) 243,809 111,544
Accrued interest 229,237 80,267
Acquisition cost payable (Note 4) 744,000 -
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,755,009 1,020,016
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 7) 1,440,450 1,358,696
CAPITALIZED LEASES, LESS CURRENT MATURITIES (Note 14) - 59,311
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,195,459 2,438,023
COMMITMENTS AND CONTINGENCIES (Notes 1(c), 14 and 15)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares authorized,
no shares issued and outstanding (Note 8(a)) - -
Common stock, $.001 par value; 100,000,000 shares
authorized, 12,011,672 and 6,091,881 shares
issued and outstanding, respectively (Note 8(b)) 12,012 6,092
Stock subscriptions receivable (2,963) -
Additional paid-in capital (Note 8(d)) 14,422,440 7,237,790
Deficit accumulated during the development stage (11,634,899) (9,462,074)
Accumulated other comprehensive loss:
Unrealized holding loss on marketable securities (Note 2) (276,000) -
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 2,520,590 (2,218,192)
- -------------------------------------------------------------------------------------------------------------------------
$ 6,716,049 $ 219,831
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Period from
Inception
YEARS ENDED DECEMBER 31, (May 20, 1996)
-------------------------------- to December 31,
1999 1998 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 271,589 $ - $ 271,589
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 December 31, 1999)
(Notes 1(n) and 8(b)) (2,315,868) - (2,315,868)
Gain on disposal of subsidiary (Note 13) 708,419 - 708,419
Restructuring charge
(including stock-based compensation of
$1,620,000 and $6,211,000 for 1998 and the
period from inception (May 20, 1996)
to December 31, 1999, respectively) (Note 1(b)) (505,832) (4,354,943) (10,017,906)
Interest expense (256,337) - (256,337)
Loss on impairment of fixed assets (Note 1(h)) (59,543) - (59,543)
Realized gain on sale of marketable securities - 50,000 50,000
Cost of revenues (17,278) - (17,278)
Interest income 2,025 - 2,025
- -------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS, EXPENSES AND OTHER (2,444,414) (4,304,943) (11,906,488)
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS $(2,172,825) $ (4,304,943) $(11,634,899)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE:
Net Loss $ (0.25) $ (0.72)
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE SHARES OUTSTANDING 8,524,155 5,949,174
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Deficit During
-------------------------- Subscriptions Paid-in Development
Shares Amount Receivable Capital Stage
-------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK -
May 20, 1996 4,000,000 $ 39,973 $ - $ 935,827 $ -
Net loss - - - - (385,462)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 4,000,000 $ 39,973 $ - $ 935,827 $ (385,462)
Sale of stock - 1997 120,000 1,200 - 118,800 -
Merger with Material Tech -
August 1, 1997 1,000,216 (36,173) - 36,173 -
Stock options granted -
August to November 1997 - - - 1,227,250 -
Contingent shares issued -
December 31, 1997 620,000 740 - 3,099,260 -
Net loss - - - - (4,771,669)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 5,740,216 $ 5,740 $ - $ 5,417,310 $(5,157,131)
Stock options granted - January 6, 1998 - - - 1,620,000 -
Stock options exercised -
March 19, 1998 225,000 225 - 22,275 -
Stock issued - May 12, 1998 35,000 35 - 139,965 -
Stock options exercised -
August 6, 1998 50,000 50 - 4,950 -
Stock issued for services -
November 17, 1998 41,665 42 - 33,290 -
Net loss - - - - (4,304,943)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Loss Total
-------------------------------------------
<S> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK -
May 20, 1996 $ - $ 975,800
Net loss - (385,462)
- ---------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ - $ 590,338
Sale of stock - 1997 - 120,000
Merger with Material Tech -
August 1, 1997 - -
Stock options granted -
August to November 1997 - 1,227,250
Contingent shares issued -
December 31, 1997 - 3,100,000
Net loss - (4,771,669)
- ---------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ - $ 265,919
Stock options granted - January 6, 1998 - 1,620,000
Stock options exercised -
March 19, 1998 - 22,500
Stock issued - May 12, 1998 - 140,000
Stock options exercised -
August 6, 1998 - 5,000
Stock issued for services -
November 17, 1998 - 33,332
Net loss - (4,304,943)
- ---------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Deficit During
-------------------------- Subscriptions Paid-in Development
Shares Amount Receivable Capital Stage
-------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 6,091,881 $ 6,092 $ - $ 7,237,790 $ (9,462,074)
Stock issued for debt and services -
May 11 to 19, 1999 121,766 122 - 228,751 -
Stock issued for advertising services -
June 30, 1999 61,522 61 - 103,757 -
Acquired IXATA.COM, Inc. -
July 1, 1999 4,500,000 4,500 (3,107) 5,575,500 -
Stock options exercised -
August 18, 1999 9,500 9 - 9,491 -
Stock subscription received -
August 25, 1999 - - 144 - -
Stock issued for legal services -
December 15, 1999 50,000 50 - 62,450 -
Private placement, net of expenses -
November 1999 1,177,003 1,177 - 940,426 -
Compensation expense related to
stock options issued - - - 264,275 -
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net loss - - - - (2,172,825)
Unrealized holding loss on
marketable securities - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 12,011,672 $ 12,011 $ (2,963) $14,422,440 $(11,634,899)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other
Comprehensive
Loss Total
-------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ - $ (2,218,192)
Stock issued for debt and services -
May 11 to 19, 1999 - 228,873
Stock issued for advertising services -
June 30, 1999 - 103,818
Acquired IXATA.COM, Inc. -
July 1, 1999 - 5,576,893
Stock options exercised -
August 18, 1999 - 9,500
Stock subscription received -
August 25, 1999 - 144
Stock issued for legal services -
December 15, 1999 - 62,500
Private placement, net of expenses -
November 1999 - 941,603
Compensation expense related to
stock options issued - 264,275
- ---------------------------------------------------------------------------------------
Comprehensive loss:
Net loss - (2,172,825)
Unrealized holding loss on
marketable securities (276,000) (276,000)
- ---------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ (276,000) $ 2,520,589
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Period from
Inception
YEARS ENDED DECEMBER 31, (May 20, 1996)
------------------------------------ to December 31,
1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,172,825) $ (4,304,943) $(11,634,899)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 703,102 68,266 892,107
Gain on sale of subsidiary (708,419) - (708,419)
Net loss on stock issued for debt and services 4,390 - 4,390
Stock issued for services 103,818 - 103,818
Loss on impairment of fixed assets 59,543 - 59,543
Stock options granted and contingent shares issued 264,275 1,620,000 6,211,525
Change in operating assets and liabilities:
Accounts receivable (249,049) 27,966 (256,187)
Notes receivable - 89,353 5,833
Royalties receivable - 100,000 -
Inventory - 22,153 -
Intangible and other assets - 261,293 (56,680)
Prepaid assets 38,425 (35,000) 3,425
Accounts payable, accrued payroll and accrued expenses 87,966 408,343 734,187
Related party payables 194,364 - 194,364
Deferred revenue 103,094 - 103,094
Accrued interest 148,970 - 148,970
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,422,346) (1,742,569) (4,194,929)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of subsidiary and related assets 498,000 - 498,000
Acquisition of goodwill (investment in subsidiary) (181,931) - (181,931)
Cash acquired in acquisition of subsidiary 46,978 - 46,978
Purchases of fixed assets (44,715) (12,212) (359,032)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 318,332 (12,212) 4,015
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 951,247 224,200 2,271,247
Proceeds from issuance of long-term debt and notes payable 631,754 1,572,055 2,316,796
Principal payments on notes payable (147,428) - (147,428)
Principal payments on capital leases (6,946) (47,449) (83,206)
Proceeds from capitalized lease - - 159,650
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,428,627 1,748,806 4,517,059
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 324,613 (5,975) 326,145
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,532 7,507 -
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 326,145 $ 1,532 $ 326,145
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
8
<PAGE>
<TABLE>
<CAPTION>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Period from
Inception
YEARS ENDED DECEMBER 31, (May 20, 1996)
----------------------------------- to December 31,
1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $73,056 $104,125 $257,467
Income taxes $ 1,600 $ 1,600 $ 4,800
- --------------------------------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
On July 1, 1999, the Company acquired IXATA, Inc. for 4,500,000 shares of
common stock. A summary of the acquired goodwill is as follows:
Acquisition of:
Negative working capital other than cash $ (255,152)
Fixed assets 23,274
Intangibles and other assets 9,333
Long-term debt assumed (173,365)
- -------------------------------------------------------------------------------------
Net assets acquired (395,910)
Fair value of stock issued 5,580,000
Broker fee 744,000
Acquired cash (46,978)
Direct expenses of acquisition 31,931
- -------------------------------------------------------------------------------------
Total consideration given 6,308,953
- -------------------------------------------------------------------------------------
Goodwill acquired $6,704,863
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
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. See Note 8(b).
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. See Note 8(b).
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. See Note 8(b).
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. See Note 8(d).
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. See Note 2.
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
9
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SUMMARY OF A summary of the Company's significant accounting
SIGNIFICANT policies applied consistently inthe preparation
ACCOUNTING of the accompanying consolidated financial
POLICIES statements follows.
(a) ORGANIZATION THE IXATA GROUP, INC. AND SUBSIDIARIES (formerly
SecurFone America, Inc. and Subsidiaries) (the
"Company") was incorporated in Delaware.
The Company was originally organized (under the
name of SecurFone America, Inc.) 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 August 1, 1997, SecurFone, Inc. was acquired by
Material Technology, Inc. (formerly Tensiodyne
Scientific Corporation) and became a publicly
traded corporation. On August 1, 1997, Material
Technology, Inc. was renamed SecurFone America,
Inc. In April of 1999, SecurFone, Inc. changed its
name to SecurFone Services, Inc. and a new
subsidiary was formed named SecurFone, Inc. This
new subsidiary was subsequently sold (see Note
13). On July 1, 1999, the Company acquired IXATA,
Inc. (see Note 4). On January 31, 2000, SecurFone
America, Inc. changed its name to The IXATA Group,
Inc.
As discussed in Note 13, the Company sold its
wholly-owned subsidiary, SecurFone, Inc. The
losses from inception in the cellular industry
have been reclassified as a restructuring charge.
As a result of the sale of the assets in this
subsidiary, the Company recognized a gain of
approximately $708,000.
10
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) DEVELOPMENT Effective July 1, 1999, the Company is principally
STAGE engaged in developing, marketing STAGE and
OPERATIONS providing global Internet-based
business-to-business ("B2B") electronic commerce
services for the corporate travel and hospitality
markets. Because the Company had not generated
significant revenues as of December 31, 1999, the
Company believes it is in the development stage at
December 31, 1999. The Company also 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.
(c) GOING CONCERN The accompanying consolidated financial statements
as of December 31, 1999 have been prepared
assuming the Company will continue as a going
concern. However, the Company had working capital
deficits of $2,145,081 and $976,346 as of December
31, 1999 and 1998, respectively, and incurred net
losses of $2,172,825, $4,304,943 and $11,634,899
for the years ended December 31, 1999 and 1998 and
for the period from inception (May 20, 1996) to
December 31, 1999, 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. ("S&S") 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 million from these individuals.
The second phase of the financing plan is to raise
between $2.5 million and $10 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
11
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
necessary to meet the Company's needs.
(d) PRINCIPLES OF The consolidated financial statements include the
CONSOLIDATION accounts of the Company and its wholly-owned
subsidiaries, SecurFone Services, Inc., SecurFone,
Inc. and IXATA, Inc. (a California corporation).
All significant intercompany balances and
transactions have been eliminated in the
consolidation.
(e) USE OF The preparation of financial statements in
ESTIMATES conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Although management believes that the estimates
and assumptions used in preparing the accompanying
consolidated financial statements and related
notes are reasonable in light of known facts and
circumstances, actual results could differ from
those estimates.
(f) CASH AND The Company considers all highly liquid
CASH investments with an original maturity of three
EQUIVALENTS months or less to be cash equivalents.
(g) MARKETABLE The Company's investments in marketable equity
SECURITIES securities are being accounted for in accordance
with Statement of Financial Accounting Standards
No. 115 (SFAS 115), and are classified as
available-for-sale securities. In accordance with
SFAS 115, the unrealized loss was recorded as a
separate component of stockholder's equity
(deficit).
(h) FIXED ASSETS Fixed assets are depreciated over the estimated
AND GOODWILL useful lives of the related assetsusing an
(LONG-LIVED accelerated depreciation method over periods of
ASSETS) three to five years.
Goodwill was created upon the acquisition of the
Company's subsidiary. Intangible assets are
amortized over their estimated future useful lives
on a straight-line basis over three to five years.
Long-
12
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
lived assets are periodically reviewed for
impairment based on an assessment of future
operations to ensure they are appropriately valued
(h) FIXED ASSETS in accordance with Statement of Financial
AND GOODWILL Accounting Standards No. 121, "Accounting for the
(LONG-LIVED Impairment of Long-Lived Assets and for Long-Lived
ASSETS), CONT'D Assets to be Disposed Of."
During 1999, management determined that certain
equipment in service became impaired and is no
longer used in operations. The net book value at
the time of impairment was written off as a loss
on impairment of fixed assets.
(i) REVENUE The Company recognizes revenue from transaction
RECOGNITION revenues and 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 proved for uncollectible
accounts based on management's evaluation of the
accounts and the customer's history.
(j) INCOME TAXES Deferred income taxes are recognized for the tax
consequences in future years of differences
between the tax basis of assets and liabilities
and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax
rates applicable to the periods in which the
differences are expected to affect taxable income.
Valuation allowances are established when
necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense
is the combination of the tax payable for the
period and the change during the period in
deferred tax assets and liabilities.
(k) COMPREHENSIVE In 1997, the Financial Accounting Standards Board
INCOME issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." The
Company adopted this Statement in 1998. In
accordance with the Statement, comprehensive
income is
13
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
presented in the consolidated statements of
stockholders' equity (deficit).
(l) NEW Statement of Financial Accounting Standards No.
ACCOUNTING 133, "Accounting for Derivative Instruments and
PRINCIPLE Hedging Activities," established accounting and
reporting standards for derivative instruments.
The Company has not in the past, nor does it
anticipate that it will, engage in transactions
involving derivative instruments which will impact
the consolidated financial statements.
(m) START UP Effective December 31, 1998, the Company
COSTS retroactively changed its method of recognizing
start-up costs in its consolidated financial
statements to conform with the pronouncement of
the AICPA's, Statement of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities."
The Company previously amortized these costs over
a five-year period beginning January 1, 1997,
using the straight-line method. The pronouncement
requires start-up costs to be expensed as
incurred. As a result, the cumulative effect of
applying the new method retroactively was not
material.
(n) COMMON STOCK The Company has valued its stock and stock options
AND STOCK at fair value in accordance with the accounting
OPTIONS prescribed in SFAS 123, "Accounting for
Stock-based Compensation," which states that all
transactions in which goods or services are
received for the issuance of equity instruments
shall be accounted for based on the fair value of
the consideration received or the fair value of
the equity instruments issued, whichever is more
reliably measurable.
(o) NET LOSS PER Net loss per common share has been computed on the
COMMON SHARE basis of the weighted average number of shares
outstanding, according to the rules of Statement
of Financial Accounting Standards No. 128,
"Earnings per Share." Diluted net loss per share
has not been presented as the computation would
result in anti-dilution.
14
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(p) FINANCIAL The Company's financial instruments consist
INSTRUMENTS primarily of cash, accounts receivable and notes
payable. These financial instruments are stated at
their respective carrying values, which
approximate their fair values.
(q) RECLASSIFICATIONS Certain accounts in the prior period's
consolidated financial statements have been
reclassified for comparative purposes to conform
with the presentation in the current year's
consolidated financial statements. These
reclassifications have no effect on the financial
position or change in net assets of the Company.
2. MARKETABLE The cost, unrealized holding loss and fair market
SECURITIES value of marketable securities are as follows:
<TABLE>
<CAPTION>
Unrealized
Cost Holding Loss Fair Value
---------------------------------------------------
<S> <C> <C> <C>
December 31, 1999 $ 300,000 $ (276,000) $ 24,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
The net changes in unrealized holding loss on
securities available for sale charged to
stockholder's equity (deficit) in 1999 was
$276,000. 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 (see
Notes 4 and 12).
In 1998, the Company exchanged its investment in
marketable securities for settlement of a $50,000
note payable. The marketable securities had no
cost basis.
15
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. FIXED ASSETS Fixed assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C>
Computer hardware $56,606 $190,373
Computer software 7,383 88,901
Office furniture and equipment 3,000 35,043
-----------------------------------------------------------------------------
66,989 314,317
Accumulated depreciation (4,803) (139,381)
-----------------------------------------------------------------------------
$62,186 $174,936
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
Depreciation expense was approximately $31,000,
$51,000 and $130,000 for 1999 and 1998 and for
the period from inception (May 20, 1996) to
December 31, 1999, respectively.
4. ACQUISITIONS On July 1, 1999, the Company issued 4,500,000
shares of restricted common stock and acquired all
of the outstanding shares of IXATA, Inc.
("IXATA.COM") which was incorporated in February
1999. IXATA.COM was a development stage company in
the business-to-business e-commerce travel
industry. The acquisition was accounted for using
the purchase method of accounting and intangible
assets are being amortized using the straight-line
method. Initial purchase price includes stock
issued at the date of acquisition, direct
acquisition costs and any guaranteed future
consideration. The fair value of the shares issued
was $1.24 per share and was calculated using the
average daily closing prices surrounding the
acquisition. The total purchase price was valued
at $6.7 million including approximately $396,000
of excess liabilities over assets acquired. Also
included in the acquisition price was 600,000
shares of restricted common stock issued to the
business broker valued at $744,000 and
approximately $32,000 of direct acquisition
expenses. The resulting goodwill of $6.7 million
is being amortized over sixty months.
16
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Goodwill from the IXATA.COM acquisition consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<S> <C>
Goodwill $6,704,863
Accumulated amortization (670,486)
--------------------------------------------------------------------------------
$6,034,377
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
Amortization expense was $670,486 for 1999.
The following unaudited pro forma information
presents a summary of consolidated results of
operations of the Company and its subsidiaries as
if the acquisitions had occurred on February 4,
1999, with pro forma adjustments to give effect
to amortization of goodwill and other intangible
assets and certain other adjustments:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------
<S> <C>
Net revenues $ 273
Net losses $ (3,242)
Net loss per share $ (0.31)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
5. INTELLECTUAL On February 16, 1999, IXATA.COM purchased
PROPERTY intellectual property from a company with
AGREEMENT substantially the same stockholders as IXATA, Inc.
for $10,000. The intellectual property consisted
of the key software program used in its
operations. This asset is being amortized on the
straight-line basis over five years. Amortization
expense was approximately $1,000 for both 1999 and
the period from inception (May 20, 1996) to
December 31, 1999.
17
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. NOTES Notes payable - short-term consisted of the
PAYABLE - following:
SHORT-TERM
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
------------------------------------------------------------------------------------------
<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 an unrelated party 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 10,000
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 -
</TABLE>
18
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. NOTES Notes payable - short-term consisted of the
PAYABLE - following:
SHORT-TERM,
cont'd
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Account payable with a vendor converted to a
note on June 21, 1999; interest at 8%;
payable in $2,000 installments of
principal and interest beginning July 1,
1999. 10,365 -
A two-year unsecured note payable to a vendor
under an agreement dated October 1997; interest
at 6% per annum; monthly principal and interest
payments of $1,407; unpaid balance is due
within twelve months. Paid in full subsequent
to December 31, 1999.
6,928 16,356
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
Note payable; interest at 10% per annum; due on
February 18, 1999. Paid in 1999.
- 35,000
----------------------------------------------------------------------------------------
$ 627,293 $ 291,356
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
7. LONG-TERM Long-term debt consisted of the following:
DEBT
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
19
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. LONG-TERM
DEBT, cont'd
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
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 $ 1,000,000 $ 1,000,000
21, 2003.
Advances payable to unrelated parties and potential
investors who have committed the funds on a
long-term 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. 430,450 358,696
Note payable to a related party; interest at 5%;
principal and interest are due on February 16,
2004 (see Note 4). 10,000 -
------------------------------------------------------------------------------------------
$ 1,440,450 $ 1,358,696
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
Future minimum principal payments on long-term
debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------------------------
<S> <C>
2000 $ -
2001 1,430,450
2002 -
2003 -
2004 10,000
---------------------------------------------------
$ 1,440,450
---------------------------------------------------
---------------------------------------------------
</TABLE>
20
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. STOCKHOLDERS'
EQUITY
(a) PREFERRED STOCK At December 31, 1999, the Company had 10,000,000
authorized shares of Class B and Class A preferred
stock. There were no shares of preferred stock
outstanding at December 31, 1999 or 1998.
The Class B shares carry a liquidation preference
equal to $10,000 per share in the event of a
liquidation, dissolution or winding up of the
Company. Shares of Class B preferred stock may be
redeemed at the holder's option anytime after
January 31, 2004.
The Class A preferred stock has a liquidation
preference equal to $0.72 per share in the event
of a liquidation, dissolution or winding up of the
Company and can be converted into common shares
based on a specified formula.
(b) COMMON STOCK At December 31, 1996, 30,000 shares, before the
stock split, of SecurFone America, Inc.'s stock
were authorized and 3,000 shares were issued and
outstanding.
On March 5, 1997, an additional 4,700,000 shares
were authorized by the Board of Directors.
On March 6, 1997, the shareholders of SecurFone
America, Inc. approved a stock split of 1,333,333
to 1 shares, increasing the 3,000 shares issued
and outstanding to 4,000,000 shares with a par
value of $.01 per share. The amount of $39,970 was
transferred from the paid-in capital account to
common stock account to record the stock split.
All shares amounts have been retroactively changed
to effect the split.
In 1997, 120,000 shares were issued as the result
of two stock subscriptions in private placements.
Prior to the reorganization between SecurFone
America, Inc. and Material Technology, Inc., as
of July 31, 1997, Material Technology,
21
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) COMMON STOCK, Inc. had 100,000,000 shares authorized and
CONT'D 5,000,000 shares outstanding with a reverse split
of 1 for 10 resulting in 500,216 shares issued and
outstanding. Also Material Technology, Inc. issued
an additional 4,500,000 shares on July 31, 1997
for a total of 5,000,216 shares issued and
outstanding. On August 1, 1997, SecurFone
America, Inc. completed a reorganization with
Material Technology, Inc. whereby 4,000,000
shares issued and outstanding common stock of
SecurFone, Inc. were exchanged for 4,500,000
shares issued and outstanding common stock of
Material Technology, Inc. As a result of the
reorganization, there were 5,000,216 shares
issued and outstanding and 100,000,000 authorized
shares of the Company's common stock. The amount
of $36,173 was transferred from the common stock
account to the additional paid-in capital account
to reflect the par value change from $.01 to
$.001 per share.
On December 3, 1997, the Company issued 620,000
conditional shares of common stock with a par
value of $.001 per share registered with the Form
S-8 filing (the "S-8 filing"). These shares were
issued pursuant to various employment, retainer,
consulting and fee agreements. As of December 31,
1997, all conditions of these shares had been met
and $3,100,000 was recorded as selling, general
and administrative (SG&A) expense, and as
additions to the common stock and additional
paid-in capital accounts at the issue date.
On August 6, 1998, 50,000 shares of common stock
were issued on the exercise of stock options.
On November 17, 1998, the Company issued 41,665
unregistered shares of common stock in exchange
for investment banking services and bridge funding
and a cash payment of $2,500.
On May 11, 1999, the Company satisfied a $50,000
debt for legal services by issuing of 50,000
unregistered shares of common stock. The fair
value of the shares issued was $71,850 and
resulted in $21,850 of additional legal expense in
1999.
22
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) COMMON STOCK, On May 12, 1999, the Company converted debt to an
CONT'D unrelated individual in the amount of $25,000 by
issuing of 12,500 unregistered shares of common
stock. The fair value of the shares was $20,000
and resulted in a gain of $5,000 in 1999.
On May 19, 1999, the Company converted $118,532 of
debt including a note payable of $115,000 by
issuing of 59,266 unregistered shares of common
stock. The fair value of the shares issued was
$137,023 and resulted in a loss of $18,491 in
1999.
On June 30, 1999, the Company settled a dispute
with the provider of advertising services in the
amount of $103,818 by issuing of 61,522 shares of
common stock. This resulted in additional
advertising expense of $103,818 in 1999.
On July 1, 1999, the Company executed an agreement
to acquire all outstanding common stock of
IXATA.COM, a privately held provider of
Internet-based e-commerce services in exchange for
4,500,000 shares of common stock (see Note 4).
On August 18, 1999, an individual exercised
options under the Directors Option Plan for 9,500
shares of 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 1999, the
Company has sold 1,177,003 shares of common stock
for total proceeds to the Company of $941,602
after deduction of the placement agent fee of
$0.05 per share.
In connection with this financing, the Company
issued a warrant allowing the placement agent to
purchase 5% of the Company's common stock. This
warrant will be exercisable for 643,553 shares of
common stock at an exercise price of $1.687 per
share. The warrants will be exercisable upon the
earlier of a) one year from November 2, 1999, b) a
change of control transaction, or c) the closing
of a firmly underwritten public offering of the
Company's equity securities.
23
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On December 15, 1999, the Company satisfied a
$50,000 debt for legal services by issuing of
50,000 unregistered shares of common stock. The
fair value of the shares issued was $62,500 and
resulted in a loss of $12,500 in 1999.
(c) WARRANTS On March 19, 1998, 225,000 shares were issued
pursuant to warrants exercised by the individuals
providing credit accommodations in connection with
letters of credit issued by the Company.
See Note 8(b) for the agreement with placement
agent to purchase warrants.
(d) STOCK OPTIONS On November 13, 1997, the Company registered with
the Securities and Exchange Commission on Form S-8
(see Note 8(b)) 1,000,000 shares under the 1997
Stock Option Plan to grant incentive stock options
and non-qualified stock options to officers and
key employees. At the same time, a similar
registration for 250,000 shares under the 1997
Directors Non-qualified Stock Option Plan was
made. At various dates in 1997, the Company
granted stock options under the two stock options
plans totaling 830,900 shares consisting of
300,000 shares at an option price of $1.00 per
share, 130,900 shares at an option price of $2.50
per share and 400,000 shares at an option price of
$0.10 per share. These options were exercisable
during 1997 and 1998. These shares were recorded
as $1,227,250 of selling, general and
administrative expense and additional paid-in
capital in accordance with SFAS 123 in 1997.
On January 6, 1998, the Company granted stock
options under the 1997 Stock Option Plan for
400,000 shares at an option price of $.10 per
share. These options were exercisable immediately
and were recorded as $1,620,000 of selling,
general and administrative expense and additional
paid-in capital in accordance with SFAS 123 in
1998. On February 18, 1999, the 350,000
unexercised options were returned.
On November 1, 1998, the Company executed an
employment agreement for the position of Chief
Executive Officer. Upon
24
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
execution of the employment agreement, the CEO was
also granted options to acquire 100,000 shares of
the Company's stock at $0.10 per share. Upon
election to the Board of Directors on December 11,
1998, the CEO was granted options to acquire
50,000 shares of the Company's stock at $0.28 per
share under the Company's 1997 Directors
Non-qualified Stock Option Plan. Compensation
expense in accordance with SFAS 123 was
approximately $42,000 in 1998.
(d) STOCK OPTIONS, In 1999, the CEO was granted incentive stock
CONT'D options to acquire up to 300,000 additional shares
of the Company's stock at $0.16 per share under
the Company's 1997 Employees Non-qualified Stock
Option Plan. These shares vest based on
achievement of Company goals established by the
Board of Directors. Compensation expense of
approximately $23,000 was recorded in accordance
with SFAS 123 in 1999.
During 1999, the Company granted employees,
officers and directors 40,000 fully-vested and
125,000 vesting stock options under the 1997
Employees Non-qualified Stock Option Plan. Certain
shares vest based on achievement of Company goals
established by the Board of Directors. The options
are exercisable at prices between $0.125 and $1.69
per share and expire between April 23 and July 1,
2009. Compensation expense of approximately
$149,000 was recorded in accordance with SFAS 123
in 1999.
In 1999, the Company granted two directors stock
options totaling 100,000 shares (each received
50,000 stock options which fully vest June 30 and
July 1, 2000, respectively) under the 1997
Directors Non-qualified Stock Option Plan that are
exercisable at $1.28 and $1.69 per share,
respectively, with an expiration date of June 30,
2009 and July 1, 2009, respectively. Compensation
expense of approximately $42,000 and $50,000, was
recorded in accordance with SFAS 123,
respectively, in 1999.
25
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) STOCK OPTIONS, The following summarizes stock option activity
CONT'D related to all Plans:
<TABLE>
<CAPTION>
Weighted-
Options Average
Outstanding Exercise Prices
-----------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1997
Granted 430,900 $1.46
Exercised - $ -
Expired (50,000) $1.00
-----------------------------------------------------------------------------------------
Balance at December 31, 1997 380,900 $1.52
Granted 550,000 $0.12
Exercised (50,000) $1.00
Expired (50,000) $0.10
<CAPTION>
Weighted-
Options Average
Outstanding Exercise Prices
-----------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1998 830,900 $0.71
Granted 575,000 $0.75
Exercised (9,500) $1.00
Expired (400,000) $0.21
-----------------------------------------------------------------------------------------
Balance at December 31, 1999 996,400 $0.92
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted
to employees under the Plan during the periods
ended December 31, 1999, 1998 and 1997 was $0.81,
$3.03 and $2.85, respectively. At December 31,
1999, 1998 and 1997, there were 661,400, 785,067
and 267,733 options exercisable at a weighted
average exercise price of $0.92, $0.71 and $1.52,
respectively. The weighted average remaining life
of outstanding options under the Plan at December
31, 1999 was zero years.
26
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
----------------------------------------------------------- ---------------------------
Weighted-
Average
Remaining
Contractual Weighted- Weighted-
Range of Number of Life Average Number of Average
Exercise Shares of Shares Exercisable Shares Exercisable
Price Outstanding Outstanding Price Exercisable Price
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.10-0.99 490,000 8.50 years $0.16 290,000 $0.15
$1.00-1.99 375,500 9.00 years $1.38 240,500 $1.04
$2.00-2.99 130,900 9.50 years $2.50 130,900 $2.50
-------------------------------------------------------------------------------------------
$0.10-2.99 996,400 9.25 years $0.92 661,400 $1.23
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, the Company had
warrants outstanding that allow the holder to
purchase up to 50,000 shares of common stock at
$2.72 per share. The warrants may be exercised
any time within five years of issuance. The
Company granted warrants to the agent
conducting its private placement offering. See
Note 8(c).
The Company has elected to account for its
stock-based compensation plans under SFAS 123.
All options granted during 1999 and 1998 using
the minimum value method as prescribed by SFAS
123. Under this method, the Company used the
risk-free interest rate at date of grant, the
expected volatility, the expected dividend
yield and the expected life of the options to
determine the fair value of options granted.
The risk-free interest rates ranged from 5.5%
to 6.0%; expected volatility of 109% to 269%
and the dividend yield was assumed to be zero,
and the expected life of the options was
assumed to be zero to four years based on the
average vesting period of options granted.
27
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. EMPLOYEE
BENEFIT PLAN
PROFIT SHARING During 1999, the Company adopted a 401(k)
401(k) PLAN retirement savings plan for its employees which
allows each eligible employee to voluntarily
make pre-tax salary contributions up to 15% of
their compensation.
The Company matches 25% of the employee's
contributions up to 4% (1% of gross
compensation). Contribution expense was
approximately $2,000 for both 1999 and the
period from inception (May 20, 1996) to
December 31, 1999.
10. RELATED PARTIES The Secretary of the Company is also a partner in
the law firm that represents the Company in its
legal matters.
The Company has employment agreements with
officers and directors that contain compensation
arrangements based on the achievement of certain
Company goals established by the Board of
Directors. Accrued payroll due to these officers
and directors of the Company was approximately
$209,000 and $116,000 at December 31, 1999 and
1998, respectively. Related payroll expense was
approximately $285,000, $42,000 and $327,000 for
1999 and 1998 and for the period from inception
(May 20, 1996) to December 31, 1999, respectively.
Prior to being purchased by the Company, the
Company's wholly-owned subsidiary, IXATA.COM,
purchased intellectual property and received the
proceeds of accounts receivable generated by the
prior owner of the intellectual property, an
entity having substantially the same owners as
IXATA.COM at that time. See Note 5.
The Company has entered into a management and
services agreement with a company that is owned
and controlled by stockholders with significant
ownership of the Company. Related expenses for
1999 and for the period from inception (May 20,
1996) to December 31, 1999, were approximately
$140,000. Related payables included
28
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
approximately $235,000 at December 31, 1999.
The Company has consulting contracts with members
of its Board of Directors. Related expense for
1999 and for the period from inception (May 20,
1996) to December 31, 1999 was approximately
$94,000. Related payables included approximately
$95,000 at December 31, 1999.
11. LOSS ON In August 1996, the Company entered into a
SECURFONE licensing agreement with SecurFone New York, Inc
NEW YORK, INC. (SFNY). In accordance with terms of the agreement,
the Company forwarded monies to SFNY to cover
various start up costs. Shortly thereafter, SFNY
fell into default under the term of the licensing
agreement and ceased operations. The monies paid
by the Company to SFNY were written off as a
one-time charge to income of $48,980 in the period
from inception (May 20, 1996) to December 31,
1999.
12. INCOME TAXES Deferred income taxes are provided for temporary
differences in recognizing certain income and
expense items for financial and tax reporting
purposes. The deferred tax asset of approximately
$1,500,000 and $960,000 as of December 31, 1999
and 1998, respectively, consisted primarily of the
income tax benefits from net operating loss
carryforwards and amortization of goodwill. A
valuation allowance has been recorded to fully
offset the deferred tax asset as it is not more
likely than not that the asset will be realized.
The valuation allowance increased approximately
$540,000 in 1999 from $960,000 at December 31,
1998 to $1,500,000 at December 31, 1999.
29
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. INCOME TAXES, At December 31, 1999, the Company has federal and
cont'd state tax net operating loss carryforwards of
approximately $3,600,000. The federal and state
tax loss carryforwards may be limited due to
ownership changes in 1999.
A reconciliation of the statutory income tax rates
and the Company's effective tax rate is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Statutory U.S. federal rate 34% 34%
State income taxes - net of federal benefit 5% 5%
Net operating loss for which no tax benefit is
currently available (39)% (39)%
---------------------------------------------------------------------------------------
- -
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
13. SALE OF On January 30, 1999, the Company executed an
SECURFONE, agreement with Teledata World Services, Inc.
INC. ("TWOS"), a publicly traded company, whereby
certain prepaid cellular assets would be sold to
TWOS for cash and TWOS common stock. On April 22,
1999, the Company executed a final agreement to
sell a wholly-owned subsidiary, SecurFone, Inc. to
TWOS for cash and stock. Under the agreement, TWOS
acquired all outstanding shares of SecurFone, Inc.
for $498,000 in cash, 600,000 shares of
unregistered TWOS common stock (subject to Rule
144) valued at $300,000 (see Note 2) and the
option to sell the stock back to TWOS at a price
of $2.50 per share effective one year from the
date of the transaction if the market price of the
TWOS stock is less that $2.50 per share. As of
December 31, 1999, no value has been recorded for
the option. The Company recognized a $708,419 gain
on the sale. SecurFone, Inc. assets include
certain cellular service resale agreements, the
Company's Miami customer service center, rights to
the Buy-The-Minute-TM product and selected
distribution channels. Under the agreement, the
Company could continue to offer prepaid cellular
services and could establish resale and joint
service arrangements to serve selected markets. As
a result of the net operating loss carry-forwards,
there are no income taxes arising from this sale.
30
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13. SALE OF In conjunction with the IXATA.COM acquisition and
SECURFONE, subsequent to the sale of its subsidiary to TWOS,
INC., cont'd 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 will focus
entirely on operations in the e-commerce industry.
14. COMMITMENTS
AND
CONTINGENCIES
(a) CAPITALIZED LEASE At December 31, 1999 and 1998, the Company had a
capitalized lease obligation balance of $99,814
and $106,760, respectively, related to equipment
that is no longer in use. Management is currently
in negotiations to settle this liability for
substantially less than the full value. To date,
negotiations have not been completed.
(b) LITIGATION In the normal course of business, the Company is
occasionally named as a defendant in various
lawsuits. It is the opinion of management and of
legal counsel that the outcome of any pending
lawsuits will not materially affect the
operations, the financial position of the Company
or cash flows.
On February 1, 1998, the Company granted to
Wireless Depot, Inc., a Nevada corporation
("Wireless"), an exclusive license to market and
sell products and services of the Company in the
territory of New York City, New York. Wireless
paid to SecurFone a one-time royalty fee in the
amount of $350,000. In addition, Wireless made a
loan to SecurFone in the amount of $130,000. Under
the terms of the license agreement, Wireless
agreed to meet a minimum $1,000,000 annual revenue
target. Wireless has not met the minimum target
revenue requirements. In addition, the Company
granted to Wireless exclusive licenses to market
and sell products and services of the Company in
five other territories. In these other
territories, Wireless has not met certain of
the license conditions. The Company believes it
can
31
<PAGE>
THE IXATA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SECURFONE AMERICA, INC. AND SUBSIDIARIES)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) LITIGATION, CONT'D seek damages under the provision of the license.
The parties have agreed verbally to terminate the
license agreements. While no legal action has been
discussed or threatened, the parties are in
dispute as to their respective rights and
obligations under the license agreement.
Currently, the parties are negotiating a
settlement of all claims. The settlement may be
resolved by the issuance to Wireless of restricted
common stock of SecurFone. The terms of the
settlement agreement have not been finalized.
15. CONCENTRATIONS
(a) CREDIT RISK Financial instruments that potentially subject the
Company to credit risk include temporary cash
investments and trade receivables. Concentration
of credit risk with respect to trade receivables
is limited due to the Company's large number of
customers and wide range of locations served. The
Company maintains its cash accounts in three
commercial banks. Accounts are guaranteed by the
Federal Deposit Insurance Company (FDIC) up to
$100,000. As of December 31, 1999, the Company had
approximately $195,000 of uninsured cash based on
actual bank balances. Management believes that the
risk is limited by maintaining all deposits in
high quality financial institutions.
(b) CUSTOMER During 1999, the Company had revenue from three
clients totaling approximately 55%, 25% and 13%,
respectively, of revenue. At December 31, 1999,
the amounts receivable from these customers was
approximately $224,000.
16. SUBSEQUENT Effective January 31, 2000, the Company changed
EVENTS its name from SecurFone America, Inc. to The IXATA
Group, Inc.
32
<PAGE>
THE IXATA GROUP, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE IXATA GROUP, INC.
By: /s/ Paul B. Silverman
----------------------
Paul B. Silverman, Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Steven L. Wasserman and
Christopher J. Hubbert, his true and lawful attorney-in-fact, each acting alone,
with full powers of substitution, and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments, to
this report, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact or their substitutes,
each acting alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ PAUL B. SILVERMAN Chief Executive Officer May 15, 2000
- ------------------------- (principal executive officer)
Paul B. Silverman
/s/ ANDREW H. KENT Chief Operating Officer, Chief Financial Officer May 15, 2000
- ------------------------- and Director (principal financial officer)
Andrew H. Kent
/s/ FRED GLUCKMAN Director May 15, 2000
- -------------------------
Fred Gluckman
/s/ PAUL HATCH Director May 15, 2000
- -------------------------
Paul Hatch
/s/ ROBERT STEINER Director May 15, 2000
- -------------------------
Robert Steiner
</TABLE>
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into
as of the date signed below between Robert A. Steiner, (the "Executive"), whose
address is 4014 Calle Isabella, San Clemente, CA 92672, and The IXATA Group,
Inc., a Delaware corporation whose address is 8080 Dagget Street, Suite 220, San
Diego, CA 92111, and its wholly-owned subsidiary, IXATA.COM, Inc. located at the
same address (the "Company" or "IXATA.COM"). All compensation and benefits
addressed herein shall be retroactive to January 1, 2000.
RECITALS:
WHEREAS, IXATA.COM wishes to obtain the services of the Executive; and
WHEREAS, the Executive desires to obtain employment with IXATA.COM
pursuant to the terms of this Agreement;
NOW THEREFORE, in consideration of the mutual promises contained
herein and other consideration the receipt and sufficiency of which is hereby
acknowledged, the Executive and IXATA.COM agree as follows:
1. EMPLOYMENT. IXATA.COM will employ the Executive as President of
IXATA.COM, Inc. The Company reserves the right to assign the Executive
to other roles as the Company's business evolves.
2. DUTIES. The Executive will devote his full time efforts to the
business of IXATA.COM and its related organizations performing such
duties as are customary to his position and as may be reasonably
requested by the Chief Executive Officer of the Company or the Board
of Directors of the Company. The Executive will at all times conduct
himself in conformity with the policies of the Company. The Executive
is required to perform the following duties and responsibilities:
a. Develop and implement the necessary programs and strategies,
consistent with operating budget targets and funding levels, to
further expand the Company's business-to-business ("B2B")
Internet-based e-commerce services in the travel and hospitality
sectors and meet the Company's business objectives for the
duration of this Agreement.
b. Ensure the Company's revenue and profitability targets are
achieved and properly managed and reported, working closely with
the Company's Chief Executive Officer and Chief Financial
Officer.
c. Recruit and effectively manage a qualified management team and
supporting staff to meet the Company's revenue and profitability
targets, consistent with Company operating budget targets and
funding levels.
- 1 -
<PAGE>
d. Support the funding initiatives as required with financial
institutions and funding sources to meet company's funding needs
and maximize shareholder value, working closely with the
Company's Chief Executive Officer and Chief Financial Officer.
e. Identify and pursue new strategic alliance partners consistent
with IXATA.COM's strategic plan and to maximize shareholder value
3. COMPENSATION. For the successful performance of his duties through
December 31, 2000, the Executive will earn an annual salary of $160,000
which will be payable every two weeks, consistent with the Company's
standard payroll system. Executive agrees to defer receipt of the $4,334
monthly difference between his present compensation and the compensation
agreed to herein until closing of new funding expected on or about April
2000 but in no event later than May 31, 2000. All accrued salary under this
Agreement will be settled at that time. For the period January 1, 2001
through December 31, 2001, Executive's annual salary will increase to
$200,000. All further increases will be determined by the Company's Board
of Directors. Upon closing of minimum new funding of $3 million, the
Executive shall also receive payment in full for $3,000 in deferred
compensation from consulting services provided to the Company from its
inception through February 29, 2000, less $ 2,875.30 owed by Executive to
the Company.
4. STOCK OPTION BENEFIT. The Company will grant the Executive stock
options, which will be granted, based upon the Executive's successful
performance, and the ability of the Company to meet specified objectives.
The option schedule is set forth below.
a. The Company shall grant to the Executive Qualified Stock Options
for 150,000 shares of the Company's Common Stock. The Option
shall be granted pursuant to a Plan adopted by the Company's
Board of Directors and approved by the Company's Shareholders.
The exercise price of the option will be the current market price
on the date of the grant. This Option shall vest and be
exercisable if Executive is still employed by the Company
according to the following schedule:
1. Initial 50,000 shares vested and exercisable one year from
the date of this Agreement.
2. Additional 50,000 shares vested and exercisable two years
from the date of this Agreement.
3. Additional 50,000 shares vested and exercisable three years
from the date of this Agreement.
b. The Company shall grant to the Executive Qualified Stock Options
for 150,000 shares of the Company's Common Stock. The Option
shall be granted pursuant to a Plan adopted by the Company's
Board of Directors and approved by the Company's Shareholders.
The exercise price of the option will be the current market price
on the date of the grant. The options will be granted and are
exercisable only in the target
- 2 -
<PAGE>
period specified, subject to the Company meeting the following
market capitalization objectives and Executive being employed by
the Company:
1. Initial 50,000 shares vested and exercisable after Company
achieves minimum market capitalization of $60 million based
on the average Common Stock price over a 10-day period
during the vesting period anytime within calendar year 2000.
2. Additional 50,000 shares vested and exercisable after
Company achieves minimum market capitalization of $100
million based on the average Common Stock price over a
10-day period during the vesting period anytime within
calendar year 2001.
3. Additional 50,000 shares vested and exercisable after
Company achieves minimum market capitalization of $120
million based on the average Common Stock price over a
10-day period during the vesting period anytime within
calendar year 2002.
c. The Company shall grant to the Executive Qualified Incentive
Options for 150,000 shares of the Company's Common Stock. The
Option shall be granted pursuant to a Plan adopted by the
Company's Board of Directors and approved by the Company's
Shareholders. The exercise price of the option will be the
current market price upon the date of the grant. The options will
be granted and are exercisable only in the target period
specified, subject to the Company meeting the following business
performance objectives and Executive being employed by the
Company:
1. Initial 50,000 shares vested and exercisable after Company
achieves minimum reported revenue of $7.0 million in fiscal
year 2000.
2. Additional 50,000 shares vested and exercisable after
Company achieves minimum reported revenue of $25 million in
fiscal year 2001 or in prior year.
3. Additional 50,000 shares vested and exercisable after
Company achieves minimum reported positive EBITDA of $1.5
million in fiscal year 2001 or in prior years.
4. Options will be exercisable after performance targets are
achieved in the period indicated, based on the Company's
quarterly SEC filings issued for the respective quarter, and
at any time thereafter until the termination date of this
Agreement.
d. As additional incentive to increase the Company's shareholder
value through the Executive's business development efforts, the
Company shall grant to the Executive Qualified Incentive Options
for 100,000 shares of the Company's Common Stock. The Option
shall be granted pursuant to a Plan adopted by the Company's
Board of Directors and approved by the Company's Shareholders.
The exercise price of the option will be the current market price
upon the date of the grant. This Option shall vest and be
exercisable only during first quarter Year 2001, subject to the
Company achieving a minimum market capitalization of $100 million
based on the average Common Stock price over a 10-day period
during fourth quarter of fiscal year 2000.
- 3 -
<PAGE>
5. BENEFIT PLANS. During the term of this Agreement, Executive shall be
entitled to participate in all employee benefit plans which are maintained
or established by the Company from time to time and which cover IXATA.COM's
senior executives, provided he satisfies any applicable eligibility
requirements therefore. Executive shall be entitled to participate in other
cash and stock incentives as granted at the discretion of the Board of
Directors based on achieving selected milestones. Executive acknowledges
the right of the Company to amend or terminate such plans at any time in
the exercise of its discretion. Executive further acknowledges that the
Company may wish to maintain insurance on his life for its benefit and
agrees to submit to any physical examination, which may be required in
order to obtain such insurance. Neither the Company nor IXATA.COM has any
current employee benefit plan in existence. Executive will receive a total
monthly car allowance of $700, in addition to a total monthly housing
allowance of $1,200. Executive shall receive four (4) weeks paid vacation
per year, commencing upon execution date of this Agreement.
6. EXPENSES. The Executive will be reimbursed in a timely manner for all
reasonable expenses incurred by him in performing his duties hereunder,
provided that such expenses are incurred and accounted for in accordance
with the policies and procedures established by IXATA.COM.
7. TERMINATION OF EMPLOYMENT.
a. DEATH; DISABILITY. In the event of Executive's death or
Disability (as hereinafter defined), his employment with the
Company shall be deemed terminated as of the end of the month in
which such death or Disability occurs, and all rights, duties and
obligations of the parties hereunder shall thereupon cease,
except that in the case of the termination due to Disability,
Executive's obligations under Sections 11 and 12 shall continue.
For purpose of this Section, Disability shall be deemed to have
occurred if (a) Executive shall be unable to perform his duties
on an active full-time basis by reason of disability or
impairment of health for a period of at least one hundred eighty
(180) consecutive calendar days or (b) the Company shall have
received a certificate from a physician reasonably acceptable to
both the Company and the Executive (or his representative) to the
effect that Executive is incapable of reasonably performing
services under this Agreement in accordance with past practices.
b. BY COMPANY FOR GOOD CAUSE. Executive's employment with the
Company may be terminated at the option of and by written notice
from the Company if the Board of Directors of the Company shall
find Good Cause for termination. For purposes of this Agreement,
Good Cause shall mean only (i) Executive's willful failure to
perform his duties under this Agreement or to abide by the
Company's written employment policies within a reasonable period
of time after receipt of written notice from the Company setting
forth in reasonable detail the duties which Executive has failed
to perform and the corrective actions expected of him; (ii) a
breach of Executive's duty of loyalty to the Company, including
but not limited to a breach of Executive's obligations under
Sections 11 or 12 below; (iii) indictment for, conviction of, or
- 4 -
<PAGE>
written confession to a crime against the Company or a crime
which otherwise materially adversely affects Executive's ability
to perform his obligations under this Agreement, any business
relationship which the Company maintains or the general
reputation and good will of the Company; or (iv) Executive shall
have been found by the Board of Directors of the Company to have
been repeatedly and excessively using alcohol, drugs and/or any
other intoxicating or controlled substance. Upon any such
termination all rights, obligations and duties of the parties
hereunder shall immediately cease, , and except for Executive's
obligations under Sections 11 and 12 hereof.
c. BY COMPANY WITHOUT GOOD CAUSE. The Company may also terminate
Executive's employment at any time by written notice without Good
Cause, whereupon all rights, obligations and duties of the
parties hereunder shall immediately cease, except that the
Company shall fulfill its obligations to Executive under Section
8 hereof, and except for Executive's obligations under Section 12
hereof.
d. BY EXECUTIVE FOR GOOD REASON. Executive may terminate his
employment with the Company upon not less than thirty (30) days
advance written notice for "Good Reason." Upon the effective date
of any such termination all rights, obligations and duties of the
parties hereunder shall immediately cease, except that (i) the
Company shall fulfill its obligations to Executive under Section
8 hereof, and (ii) Executive's obligations under Section 12
hereof shall remain effective. For purposes of this Agreement,
the Executive will have "Good Reason" if the Company shall fail
to pay when due any compensation provided for in this Agreement
and such failure is not corrected within ten (10) days after
notice thereof to the Company by the Executive
e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate his
employment with the Company upon not less than sixty (60) days
advance written notice. Upon the effective date of any such
termination all rights, obligations and duties of the parties
hereunder shall immediately cease, except for Executive's
obligations under Sections 11 and 12 hereof; provided, however,
that the Company shall not be prohibited from terminating
Executive under Section 7(b) above following receipt of a notice
of termination from Executive, subject to its obligations
hereunder.
8 TERMINATION COMPENSATION: SEVERANCE PAY. If Executive's employment is
terminated pursuant to Section 7(c) or 7(d), Executive shall be entitled to
the continued payment of the annual salary and employee benefits described
in Section 2 above for a period of six (6) months following such
termination.
9.TERM. This Agreement will continue in effect from the date hereof until
December 31, 2002 unless sooner terminated under Section 7 hereof. The
Agreement shall automatically renew from year to year unless either party
gives no less than thirty (30) days and no more than ninety (90) days of
its/his intent not to renew this Agreement.
10. SPECIAL PROVISIONS
- 5 -
<PAGE>
a. The issuance of the stock options provided for in this Agreement to
the Executive is contingent upon the Company expanding one of its
existing stock option plans or adopting a new stock option plan. The
Company agrees to use its good faith efforts to obtain stockholder
approval to expand one of its existing plans or adopt a new plan and
agrees to issue the options upon receipt of such approval. If such
approval is not obtained within a reasonable amount of time, the
Company and Executive may agree to issue non-incentive options instead
of qualified options under a stockholder approved plan.
b. Executive recognizes that the Company is now in negotiations with
various financial institutions for additional financing, with an expected
close date on or before April 30, 2000. Recognizing that the results of
these negotiations may involve staff changes, possible re-organization and
reassignment of management personnel, the Executive agrees that all terms
and conditions set forth in the Agreement will be subject to mutual
agreement by the new financing institutions, the Board of Directors of the
Company and the Executive.
c.Executive is currently a major shareholder and principal in a consulting
company now providing travel management services to a Company client.
Recognizing the potential conflict of interest, Executive agrees to work
with the Company to either integrate these operations into the Company
under reasonable terms or terminate all business relationships with the
specified entity. The parties agree that the integration or termination
will occur within 90 days of execution of this Agreement.
11. NON-COMPETITION.
a. RESTRICTIONS. As consideration for the compensation and benefits to be
provided to the Executive under this Agreement, and as an additional
incentive for Executive to enter into this Agreement, the Executive
will not during the term of this Agreement and for a period of six (6)
months thereafter if Executive's employment is terminated pursuant to
Section 7(a), (b) and (e), directly or indirectly, for himself or for
others, in any state of the United States or in any foreign country
where IXATA.COM or any of its Affiliates (as defined below) is then
conducting the Business (as defined below) or has, during the previous
six (6) months, conducted the business:
(1) engage in the Business;
(2) render advice, consultation, or services to or otherwise assist
any other person or entity who competes, directly or indirectly,
with IXATA.COM or any of its Affiliates;
(3) transact any business in any manner pertaining to suppliers or
customers of IXATA.COM or any of its Affiliates which, in any
manner, would have, or is likely to have, an adverse effect upon
the conduct of the Business of IXATA.COM or any of its
Affiliates; or
- 6 -
<PAGE>
(4) induce any employee, agent or representative of IXATA.COM or any
of its Affiliates to terminate his or her employment with
IXATA.COM or such Affiliate.
b. DEFINITIONS. For purposes of this Section 11, the "Business" will mean
the business activities of IXATA.COM and their Affiliates in the
business of offering Internet-based, electronic commerce services in
the travel and hospitality sectors. The term "Affiliates" shall mean
any entity controlling, controlled by or under common control with
IXATA.COM, including, but not limited to, IXATA.COM and other
subsidiaries, and any licensee, franchisee or agent of IXATA.COM
products or services.
c. REASONABLENESS; ENFORCEMENT. The Executive understands that the
foregoing restrictions may limit his ability to engage in certain
business pursuits during the period provided for above, but
acknowledges that he will receive sufficiently higher remuneration and
other benefits from IXATA.COM hereunder than he would otherwise
receive to justify such restriction. The Executive acknowledges that
he understands the effect of the provisions of the provisions of this
Section 11, and that he was encouraged to and had an opportunity to
consult an attorney with respect to these provisions. IXATA.COM and
the Executive consider the restrictions contained in this Section 11
to be reasonable and necessary. Nevertheless, if any aspect of these
restrictions is found to be unreasonable or otherwise unenforceable by
a Court of competent jurisdiction, the parties intend for such
restrictions to be modified by such Court so as to be reasonable and
enforceable and, so as modified by the Court, to be fully enforced. In
the event of a breach or threatened breach of this Section 11 by
Executive, IXATA.COM will be entitled to preliminary and permanent
injunctive relief, sufficient to enforce the provisions thereof and
IXATA.COM will be entitled to pursue such other remedies at law or in
equity which it deems appropriate.
12. CONFIDENTIAL INFORMATION.
a. PROHIBITION ON DISCLOSURE OR USE OF CONFIDENTIAL INFORMATION. The
Executive will at all times keep and maintain Confidential Information
(as defined below) confidential and will not, at any time, either
during or subsequent to his employment with IXATA.COM, unless required
by law or order, either directly or indirectly, use any Confidential
Information for his own benefit, or otherwise divulge, disclose, or
communicate any Confidential Information to any person or entity in
any manner whatsoever, other than employees or agents of IXATA.COM or
its Affiliates who have a need to know such information, and then only
to the extent necessary to perform their responsibilities on behalf of
IXATA.COM or its Affiliates.
b. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential Information"
will mean any and all information (excluding information in the public
domain) relating to the Business, including, without limitation, all
patents and patent applications; copyrights (whether registered or to
be registered in the United States or elsewhere) which are applied
for, issued to or owned by IXATA.COM or any of its Affiliates;
inventions;
- 7 -
<PAGE>
trade secrets; computer programs; engineering and technical data;
drawings or designs; manufacturing techniques; information concerning
pricing and pricing policies; marketing techniques; suppliers; methods
and manner of operations; and information relating to the identity and
location of all past, present and prospective customers.
c. ENFORCEMENT. The Executive's obligations contained in this Section 12
are of a special and unique character, which gives him a peculiar
value to IXATA.COM. The parties recognize that IXATA.COM cannot be
reasonably or adequately compensated in damages alone in an action at
law should the Executive breach such obligations. The Executive
therefore expressly agrees that, in addition to any other rights or
remedies which IXATA.COM may possess, it will be entitled to
injunctive and other equitable relief in the form of preliminary and
permanent injunctions, without bond or other security, in the event of
any actual or threatened breach of such obligations by the Executive,
in order to enforce this Section 12.
13. SUCCESSORS. This Agreement is personal to the Executive and will not be
assignable by him without the prior written consent of IXATA.COM, except
that Executive's right to receive compensation may be assigned by
Executive, in writing. Any amounts payable after the death of the Executive
shall be paid to the executor or administrator of his estate. This
Agreement will inure to the benefit of and be binding upon IXATA.COM, its
Affiliates and their successors and assigns.
14. INDEMNIFICATION. The Certificate of Incorporation of the Company provides,
in Article VII thereof, captioned "Indemnification", that the Company shall
indemnify certain persons under certain conditions. The Company agrees that the
Executive shall be a person covered by Article VII, that the Executive shall be
entitled to the benefit of all of the provisions of Article VII, and that such
provisions shall remain in full force and effect with respect to the Executive
throughout the term of this Agreement, without regard to any amendment to
Article VII which might be adopted after the date hereof.
15 TIME. The parties acknowledge that time is of the essence in the performance
of the obligations of each party hereto, and that the timely performance of such
obligations is a pre-condition to the continuation of the obligations of the
other party.
16. GOVERNING LAW. This Agreement will be governed by and construed iaccordance
with the laws of the State of Delaware without reference to principles of
conflict of laws. Any action brought to enforce this Agreement or to seek
relief based upon any provision of it will be brought in a court of
competent jurisdiction in the State of Delaware.
17. MERGER. This Agreement supersedes any and all prior agreements, whether
written or oral, with respect to the Executive's employment by IXATA.COM or
any of its Affiliates and contains all of the promises, representations,
warranties and agreements between the parties with respect to such
employment.
- 8 -
<PAGE>
18. MODIFICATION. This Agreement may not be amended or modified otherwise than
by a written agreement executed by the parties or their respective
successors.
19. NOTICES. All notices or other communications hereunder will be in writing
and will be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, or by fax, to
the following:
If to the Executive:
Robert A. Steiner
4014 Calle Isabella
San Clemente, CA 92672
If to IXATA.COM:
The IXATA Group, Inc.
8080 Dagget Street, Suite 220
San Diego, CA 92111
Fax: (858)-677-5579
- 9 -
<PAGE>
With a copy to:
Christopher Hubbert, Esq.
Kohrman Jackson & Krantz P.L.L.
20th Floor, One Cleveland Center
Cleveland, OH 44114
Fax: (216)-621-6536
Any party may from time to time change its address for purposes of this
Agreement by giving notice of such change to the other party, but no such change
will be deemed effective until actually received by the party to whom it is
directed. Notice and communications under this Agreement will be effective when
actually received by the party to whom they are directed.
IN WITNESS WHEREOF the parties have executed this April 17, 2000.
The IXATA Group, Inc.
a Delaware corporation
By: /s/ Paul B. Silverman
--------------------------------------------
Its: Chairman and Chief Executive Officer
-------------------------------------------
/s/ Robert A. Steiner
-----------------------------------------------
ROBERT A. STEINER
- 10 -
<PAGE>
April 17, 2000
Paul B. Silverman
Chairman and Chief Executive Officer
The IXATA Group, Inc.
8080 Dagget Street
San Diego, CA 92111
Re: Extension of Current Employment Agreement
Dear Mr. Silverman:
The Board of Directors of The IXATA Group, Inc. has proposed that the term of
the Executive Employment Agreement between you and The IXATA Group, Inc.
(formerly Securfone America, Inc.) dated November 1, 1999, as modified by the
letter agreement dated November 9, 1999, be extended to December 31, 2000. The
current agreement, as extended, has expired on December 31, 1999. All terms of
the agreement, as modified, would remain unchanged, with the exception of the
following:
1. ANNUAL SALARY
Total annual salary compensation is currently $180,000, based on successfully
securing minimum additional funding of $750,000. Effective January 1, 2000, your
annual salary will be increased to $200,000. You agree to defer $40,000 of
annual salary until closing of minimum new funding of $3 million. Upon closing
minimum new funding of $3 million, all accrued salary will be payable, and
Executive's annual salary will increase to $225,000, with no deferrals.
2. INCENTIVE STOCK OPTIONS
As an incentive for you to extend your employment agreement, the Board has
authorized an amendment to modify your Incentive Stock Option Agreement dated
January 1, 1999, as follows:
A. To provide additional incentive to successfully accelerate the
Company's growth of shareholder value, you will be provided with
an additional 100,000 qualified incentive stock options. Stock
options will be priced at the closing market price on the date of
this letter. Options will vest upon signing this amended
agreement and are exercisable upon closing minimum new funding of
$3 million.
<PAGE>
B. Paragraph 2(c) of your existing Incentive Stock Option Agreement
for 100,000 shares will be replaced with the following revised
language:
The Option shall become exercisable with respect to 100,000
Shares upon the closing of a minimum total funding commitment of
the Company of $3 million in cash, debt or equity funding from
external sources.
The original paragraph 2(c) of your Incentive Stock Option
Agreement reads as follows:
The Option shall become exercisable with respect to 100,000 of
the Shares upon issuance of a written report to the Committee,
certified by the Chief Financial Officer of the Company, that the
Company has maintained a positive cash flow from operations for a
minimum of 60 consecutive days.
All other terms of the option and employment agreements would remain unchanged.
The Board of Directors has approved the above agreement modifications subject to
your acceptance. Please sign below to acknowledge your agreement with the terms
of this agreement.
Sincerely,
The IXATA Group, Inc.
/s/ Steven L. Wasserman
By Steven L. Wasserman, Secretary
I agree to the terms of this letter as of the date appearing above.
/s/ Paul B. Silverman
- ---------------------
Paul B. Silverman
Individually
<PAGE>
April 17, 2000
Andrew H. Kent
Vice President and Chief Financial Officer
The IXATA Group, Inc.
8080 Dagget Street
San Diego, CA 92111
Re: Extension of Current Employment Agreement
Dear Mr. Kent:
The Board of Directors of The IXATA Group, Inc. has proposed that the term of
the Executive Employment Agreement between you and The IXATA Group, Inc.
(formerly Securfone America, Inc.) dated September 9, 1999, be extended to
December 31, 2000. The current agreement expires on July 1, 2000. All terms of
the agreement, as modified, would remain unchanged, with the exception of the
following:
1. ANNUAL SALARY
Total annual salary compensation is currently $120,000. Effective January 1,
2000, your annual salary will be increased to $150,000. You agree to defer
$20,000 of annual salary until closing of minimum new funding of $3 million.
Upon closing minimum new funding of $3 million, all accrued salary will be
payable, and your annual salary will increase to $150,000, with no deferrals.
2. INCENTIVE STOCK OPTIONS
As an incentive for you to extend your employment agreement, the Board has
authorized an amendment to modify your Incentive Stock Option Agreement dated
August 24, 1999, as follows
1. To provide additional incentive to successfully accelerate the
Company's growth of shareholder value, you will be provided with
an additional 100,000 qualified incentive stock options. Stock
options will be priced at the closing market price on the date of
this letter. Options will vest upon signing this amended
agreement and are exercisable upon closing minimum new funding of
$3 million.
2. Paragraph 2(b) of your existing Incentive Stock Option Agreement
for 10,000 shares will be replaced with the following revised
language:
The Option shall become exercisable with respect to 10,000 of the
Shares upon the closing of a minimum total funding commitment of
the Company of $3 million in cash, debt or equity funding from
external sources.
<PAGE>
The original paragraph 2(b) of your Incentive Stock Option
Agreement reads as follows:
The Option shall become exercisable with respect to 10,000 of the
Shares upon the issuance of a written report to the Committee
that the Company has maintained a positive cash flow from
operations for a minimum of 60 consecutive days.
3. Paragraph 2 (c) specifying "Optionee may only elect to exercise
the option for up to 5,000 Shares in any 30-day period" will be
eliminated.
3. OTHER TERMS:
You will receive a monthly car allowance of $500.
All other terms of your option and employment agreements would remain unchanged.
The Board of Directors has approved the above agreement modifications subject to
your acceptance. Please sign below to acknowledge your agreement with the terms
of this agreement.
Sincerely,
The IXATA Group, Inc.
/s/ Steven L. Wasserman
By Steven L. Wasserman, Secretary
I agree to the terms of this letter as of the date appearing above.
/s/ Andrew H. Kent
- ------------------
Andrew H. Kent
Individually
<PAGE>
May 15, 2000
We hereby consent to the incorporation by reference of our report dated April
7, 2000, appearing in the Annual Report on Form 10-KSB for the year ended
December 31, 1999 of The IXATA Group, Inc. (the "Company"), to the Company's
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on November 17, 1997.
Nation Smith Hermes Diamond
San Diego, California
May 15, 2000
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 326,145
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0
0
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