<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 2000.
[_] Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
Commission file number: 33-83526
The IXATA Group, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4453386
---------------------------------------- --------------------------------
(State of Incorporation) (I.R.S. Employer Identi-
fication No.)
8989 Rio San Diego Drive, Suite 160 San Diego, California 92108
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
619-400-8800
----------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether issuer: (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ______
-
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value per share: 14,043,936 (as of November 1, 2000)
--------------------------------------------------------------------------------
Transition Small Business Disclosure Format (check one):
Yes ______ No X
-
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Part I -- Financial Information 2
Item 1. Financial Statements. 2
Item 2. Management's Discussion and Analysis or Plan of Operations. 17
The Company 17
Financing 18
Recent Events 18
Results of Operations 18
Third Quarter of 2000 Compared to Third Quarter of 1999 19
First Nine Months of 2000 Compared to First Nine Months of 1999 19
Liquidity and Capital Resources 20
Year 2000 21
Forward-Looking Statements 21
Part II -- Other Information 26
Item 1. Legal Proceedings. 26
Item 2. Changes in Securities and Use of Proceeds. 26
Item 3. Defaults Upon Senior Securities. 26
Item 4. Submission of Matters to a Vote of Security Holders. 26
Item 5. Other Information. 26
Item 6. Exhibits and Reports on Form 8-K. 26
</TABLE>
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Consolidated Financial Statements
Quarters Ended September 30, 2000 and 1999
and for the Period from Inception (May 20, 1996)
to September 30, 2000
**** Independent auditors have not performed a SAS 71 Review on the 3rd Quarter
ending September 30, 2000 and Inception to September 30, 2000 numbers contained
in this report. ****
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Contents
Part I -- Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6-8
Notes to Condensed Consolidated Financial Statements 9-16
2
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Condensed Consolidated Balance Sheets
September 30, 2000 1999
-------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 62,502 $ 22,538
Marketable equity security (Note 3) 6,000 56,250
Accounts receivable - net of allowance for doubtful
accounts of $0 and $0 in 2000 and 1999,
respectively 286,863 165,163
-------------------------------------------------------------------------------
Total current assets 355,365 243,951
Fixed Assets - Net 100,198 142,275
Goodwill - Net 5,028,645 6,369,619
Other Assets - Net 8,058 10,058
-------------------------------------------------------------------------------
$5,492,266 $6,765,903
===============================================================================
3
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Condensed Consolidated Balance Sheets
<TABLE>
September 30, 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Notes, deposits and advances payable (Note 4) $ 832,365 $ 190,000
Current portion of capitalized leases 99,814 94,976
Accounts payable and accrued expenses 522,348 1,177,507
Related party payables 454,076 269,016
Deferred revenue 285,585 114,856
Accrued payroll and related taxes 360,012 195,262
Accrued interest 438,248 235,783
----------------------------------------------------------------------------------------------------
Total current liabilities 2,992,448 2,277,400
----------------------------------------------------------------------------------------------------
Long-Term Debt (Note 5) 1,440,450 1,798,250
Capitalized Leases, Less Current Maturities - 23,131
----------------------------------------------------------------------------------------------------
Total liabilities 4,432,898 4,098,781
Commitments and Contingencies (Note 7)
Stockholders' Equity (Deficit)
Preferred stock; 10,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.001 par value; 100,000,000 shares
authorized, 14,146,289 and 6,275,169 shares
issued and outstanding, respectively 14,238 10,784
Stock subscriptions receivable (2,963) (2,963)
Additional paid-in capital 16,517,852 13,168,604
Deficit accumulated during the development stage (15,175,759) (10,265,553)
Accumulated other comprehensive loss:
Unrealized holding loss on marketable securities (Note 3) (294,000) (243,750)
----------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 1,059,368 2,667,122
----------------------------------------------------------------------------------------------------
$ 5,492,266 $ 6,765,903
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from
Inception (May
20, 1996 to
2000 1999 September 30,
------------------------------------------------------
3 mos 9 mos 3 mos 9 mos 2000
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 319,074 $ 452,072 $ 86,468 $ 86,468 $ 723,661
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 September 30, 2000) (1,169,898) (3,758,395) (942,677) (1035,136) (6,074,263)
Gain on disposal of subsidiary - - - 708,419 708,419
Restructuring charge (including
stock-based compensation of $6,211,000
in 1999 and the period from inception
(May 20, 1996) to Sept. 30, 2000) - - - (505,832) (10,017,906)
Interest Expense (71,218) (235,445) (59,732) (60,938) (491,782)
Loss on impairment of fixed assets - - - - (59,543)
Realized gain on sale of marketable - - - - 50,000
securities
Cost of revenues - - - - (17,278)
Interest income - 908 - - 2,933
------------------------------------------------------------------------------------------------------------------
Total Costs, Expenses and Other (1,241,116) (3,992,932) (1,002,399) (893,487) (15,899,420)
------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (922,042) $(3,540,860) $ (915,931) $ (807,019) $(15,175,759)
==================================================================================================================
Net Income (Loss) Per Share:
Net Income (Loss) $ (0.07) $ (0.25) $ (0.15) $ (0.13)
------------------------------------------------------------------------------------------------------------------
Weighted-Average Shares Outstanding 14,146,289 14,146,289 6,275,169 6,275,169
------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Period from
Cash Equivalents Inception
For the Period Ended September For the Period Ended September 30, (May 20, 1996)
30, 2000 1999 to September 30,
----------------------------------------------------------------------
3 mos 9 mos 3 mos 9 mos 2000
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(922,042) $(3,540,860) $(915,931) $(807,019) $(15,175,759)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 339,737 1,019,210 347,850 375,349 1,911,317
Gain on sale of subsidiary - - - (708,419) (708,419)
Net loss on stock issued for debt
and services - - - - 4,390
Stock issued for debt and services - 16,000 - - 119,818
Loss on impairment of fixed assets - - - - 59,543
Stock options granted and
contingent shares issued - - - - 6,211,525
Change in operating assets and
liabilities:
Accounts receivable (101,280) (27,080) (157,066) (154,430) (283,267)
Notes receivable - - - - 5,833
Intangible and other assets - - - - (56,680)
Prepaid assets - - 3,425 38,425 3,425
Accounts payable, accrued payroll
and accrued expenses 118,964 226,238 254,773 199,144 960,426
Related party payables 15,000 84,576 - - 278,940
Deferred revenue 39,476 171,246 104,329 104,329 274,340
Accrued interest 67,420 209,011 - - 357,981
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating (442,725) (1,841,659) (362,620) (952,621) (6,036,587)
activities
-------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of subsidiary
and related assets - - - 472,257 498,000
Acquisition of goodwill
(investment in
subsidiary - - - (150,000) (181,931)
Cash acquired in acquisition of
subsidiary - - (31,930) (31,930) 46,978
Purchases of fixed assets - (49,990) (47,351) (47,509) (409,022)
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities - (49,990) (79,281) 242,818 (45,975)
-------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net proceeds from sale of common
Stock 250,000 1,421,005 9,644 355,650 3,692,252
Proceeds from issuance of long-term
debt and notes payable 215,000 215,000 400,000 816,221 2,531,796
Repayments on advances - - - (338,000) -
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Principal payments on notes payable - (8,000) - (143,095) (155,428)
Principal payments on capital
leases - - - (6,946) (83,206)
Proceeds from capitalized lease - - - - 159,650
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 465,000 1,628,005 409,644 683,830 6,145,064
-------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 22,275 (263,644) (32,258) (25,973) 62,502
Cash and Cash Equivalents at
Beginning of Period 40,227 326,146 54,796 48,511 -
-------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of
Period $ 62,502 $ 62,502 $ 22,538 $ 22,538 $ 62,502
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash
Equivalents Period from
Inception
For the Period Ended, September 30, For the Period Ended, September 30, (May 20, 1996)
2000 1999 to Sept. 30,
----------------------------------------------------------------------------
3 mos 9 mos 3 mos 9 mos 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $3,750 $26,250 $3,839 $27,806 $272,467
Income taxes - - - $ 1,600 $ 4,800
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash Investing and Financing Activities:
In March 1997, the Company acquired $159,650 of fixed assets under a sale-
leaseback arrangement, which was being accounted for as a capital lease
agreement.
On December 3, 1997, the Company issued 620,000 conditional shares of common
stock pursuant to various employment, retainer, consulting and fee arrangements
with a fair value of approximately $3,100,000. The fair value of the shares was
calculated using the closing price surrounding the issuance date.
On November 17, 1998, the Company issued 41,665 shares of common stock for
investment banking services and bridge funding with a fair value of
approximately $33,000. The fair value of the shares was calculated using the
closing price surrounding the issuance date.
During 1999, the Company issued 233,288 shares of common stock to satisfy debt
related to professional services with a fair value of approximately $395,000.
The fair value of the shares was calculated using the closing price surrounding
the issuance dates.
During 1999, 1998 and the period from inception (May 20, 1996) to December 31,
1999, the Company granted stock options to purchase 575,000, 550,000, and
430,900 shares, respectively, of the Company's common stock. These stock options
were valued in accordance with SFAS 123 at approximately $264,000, $1,620,000
and $3,111,000, respectively.
During 1999, the Company acquired 600,000 shares of common stock at a fair
market value of $.50 per share as proceeds from the sale of certain assets held
in its wholly-owned subsidiary, SecurFone, Inc. The change in the unrealized
holding loss on marketable securities was $276,000 for 1999.
In March 2000, the Company issued 600,000 shares of its common stock to Global
One, Inc. related to the acquisition of IXATA, Inc.
In June 2000, the CEO of the Company exercised options to purchase 100,000
shares of its common stock for total proceeds to the Company of $16,000. The
option exercise in effect converted a $16,000 cash loan to IXATA, Inc. to
equity.
In October 2000 the Company issued warrants to purchase $1.5 million shares in
exchange for a line of credit guarantee from NextGen Capital, LLC.
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
<TABLE>
<S> <C>
1. Basis of The accompanying condensed consolidated financial statements of The
Presentation IXATA Group, Inc. and subsidiaries (the "Company") include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation. In the opinion of management, the
condensed consolidated financial statements reflect all normal and
recurring adjustments which are necessary for a fair presentation of
the Company's financial position, results of operations and cash
flows as of the dates and for the periods presented. The condensed
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Consequently, these statements do not include all the
disclosures normally required by generally accepted accounting
principles for annual financial statements nor those normally made in
the Company's Annual Report on Form 10-KSB. Accordingly, reference
should be made to the Company's Form 10-KSB for the year ended
December 31, 1999 and other reports the Company filed with the
Securities and Exchange Commission for additional disclosures,
including a summary of the Company's accounting policies, which have
not materially changed. The consolidated results of operations for
the three and nine months ended September 30, 2000 are not
necessarily indicative of results that may be expected for the fiscal
year ending December 31, 2000 or any future period, and the Company
makes no representations related thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabilities and
the results of operations during the reporting period. Actual results
could differ materially from those estimates.
Certain reclassifications have been made to the prior period
financial statements to conform to the current period presentation.
Independent auditors have not performed a SAS 70 Review on the
quarter or nine months ending September 30, 2000 and
Inception to
</TABLE>
9
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
<TABLE>
<S> <C>
September 30, 2000 numbers contained in this report.
2. Abbreviated An abbreviated summary of the Company's significant accounting policies
Summary of applied consistently in the preparation of the accompanying consolidated
Significant financial statements follows.
Accounting
Policies
(a) Development Effective July 1, 1999, the Company is principally engaged in developing,
stage marketing and providing global Internet-based business-to-business
operations electronic commerce services for the corporate travel and hospitality
markets. Because the Company had not generated significant revenues as of
September 30, 2000, the Company believes it is in the development stage at
September 30, 2000. The Company also has entered into contracts
authorizing certain strategic partners to sublicense its software. The
Company invested significant capital and effort in development of its
databases, software and customer base throughout 1999 and the first half of
2000.
(b) Going concern The accompanying consolidated financial statements as of September 30, 2000
have been prepared assuming the Company will continue as a going concern.
However, the Company had working capital deficits of $2,637,083 and
$2,033,449 as of September 30, 2000 and 1999, respectively, and incurred
net losses of $3,540,860 and $807,019 for the nine months ended September
30, 2000 and 1999, respectively and a net loss of $15,175,759 for the
period from inception (May 20, 1996) to September 30, 2000. These
conditions raise substantial doubt about the Company's ability to continue
as a going concern.
To meet both current and contractual commitments and business growth
objectives, the Company will require additional financing. To
address its financing needs, the Company is pursuing a multiple phase
strategy and has retained an investment banking firm, Scott &
Stringfellow, Inc., to assist and advise the Company in the process.
During the initial phase, from November 1999 to April 2000, the
Company secured financing from private investors in exchange for
shares of the Company's common stock, raising a net amount
of $1.8
</TABLE>
10
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
<TABLE>
<S> <C>
million from these individuals. The second phase of the financing
plan is to raise between $1.5 and $3.0 million in equity from
strategic and institutional investors. This phase is currently
underway, with both strategic and institutional investors identified
and expressing interest to an equity investment in the Company.
There can be no assurance that additional debt and equity financing
needed to fund operations will be consummated or obtained in
sufficient amounts necessary to meet the Company's needs.
(c) Revenue The Company recognizes revenue from transaction revenues and sales of
recognition subscriptions. Transaction revenues are recognized, net of an allowance
for uncollectible amounts, when substantially all significant services to
be provided by the Company have been performed. Subscription revenues are
recognized over the period of the subscription. An allowance has been
provided for uncollectible accounts based on management's evaluation of the
accounts and the customer's history.
3. Marketable The cost, unrealized holding loss and fair market value of marketable
Securities securities are as follows:
Unrealized
Cost Holding Loss Fair Value
-----------------------------------------------------
September 30, 2000 $300,000 $(294,000) $6,000
==========================================================================
The net changes in unrealized holding loss on securities available
for sale charged to stockholder's equity (deficit) in 2000 was
$(18,000). The net changes in unrealized holding loss on securities
available for sale charged to stockholder's equity (deficit) since
the securities were acquired is $(294,000). 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.
</TABLE>
11
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
4. Notes, Deposits Notes, deposits and advances payable - short-term
& Advances - consisted of the following:
Short-Term September 30, 2000 1999
------------------------------------------------------------
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 $300,000
Unsecured note payable; interest at 10%
per annum. Principal and unpaid
interest were due January 30, 1999. The
note was extended as a demand note. 130,000 130,000
Unsecured note payable to unrelated
parties for advances made to the
Company; interest at 10% per annum.
Principal and interest were due on
September 1, 1999. The note was
extended as a demand note. 130,000 130,000
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 50,000
Account payable with a vendor converted to
a note on June 21, 1999; interest at 8%;
payable in
12
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C>
$2,000 installments of principal and
interest beginning July 1, 1999. 7,365 11,365
4. Notes
Payable - September 30, 2000 1999
--------------------------------------------------------------------------
Note payable to BB&T Bank for a line of
credit bearing prime plus 2% interest;
principal and interest due on December 5,
2000; guaranteed by NextGen Capital, LLC. $100,000 -
Deposit payable to an individual investor
for unissued shares contingent upon
closing the next round of funding. 50,000 -
Advances payable to a major shareholder
who has committed funds on a short-term
basis. Negotiations 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. 65,000 -
-------------------------------------------------------------------------
$832,365 $621,365
=========================================================================
</TABLE>
5. Long-Term Long-term debt consisted of the following:
Debt
September 30, 2000 1999
--------------------------------------------------------------
Convertible debenture in the amount
of $1,000,000 issued August 21, 1998
for advances made to the Company;
interest at 12%, payable
13
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
================================================================================
<TABLE>
<S> <C> <C>
quarterly;
principal is payable on the earlier
of 1) the Company's receipt of at
least $8 million proceeds from a
public offering of Company
securities or 2) August 21, 2001.
Non-detachable warrants for 500,000
shares exercisable at $2.72 per share
were issued in connection with the
convertible debenture. The warrants
expire on August 21, 2003. $1,000,000 $1,000,000
Advances payable to unrelated parties
and potential investors who have
committed the funds on a long-term
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. 430,450 368,250
Note payable to a related party;
interest at 5%; principal and
interest are due on February 16, 2004. 10,000 10,000
Amount payable with a vendor
converted to a note on June 21, 1999;
interest at 8%; payable in $2,000
monthly installments of principal and
interest beginning July 1, 1999. - 6,928
CAPITAL LEASE:
In March of 1997, the Company entered
into a sale-leaseback arrangement
under which computer equipment
capitalized at $159,649
</TABLE>
14
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
is being accounted for as a capital
lease - 99,814
Less: Current Portion of Lease
- (83,611)
-------------------------------------------------------------
$1,440,450 $1,401,381
=============================================================
Future minimum principal payments on long-term debt are as
follows:
Year Ending September 30,
-------------------------------------------------------------
2001 1,430,450
2002 -
2003 -
2004 10,000
-------------------------------------------------------------
$1,440,450
=============================================================
6. Stockholders'
Equity
Common stock
In November 1999, the Company offered shares of its common
stock to investors in an offering exempt from registration
pursuant to Regulation D of the Securities Act of 1933. In
the first quarter of 2000, the Company has sold 1,060,007
shares of common stock for total proceeds to the Company of
$848,004 after deduction of the placement agent fee of $0.05
per share. In the second quarter of 2000, the Company has
sold 354,610 shares of common stock for total proceeds to the
Company of $235,000 after deduction of the placement agent
fee of $0.042 per share.
On April 1, 2000, the Secretary of the Company exercised
options to purchase 20,000 shares of common stock for total
proceeds to the Company of $20,000.
On June 5, 2000, the CEO of the Company exercised options to
purchase 100,000 shares of common stock for total proceeds to
the Company of $16,000.
15
<PAGE>
The IXATA Group, Inc. and Subsidiaries
(formerly SecurFone America, Inc. and Subsidiaries)
(a development stage company)
Notes to Condensed Consolidated Financial Statements
<TABLE>
<S> <C>
On June 30, 2000, the Company sold 354,610 shares of common
stock at $.001 per share for total proceeds to the Company of
$250,000.
6. Sale of In conjunction with the Company's acquisition of IXATA, Inc. and
SecurFone, subsequent to the sale of its wholly-owned subsidiary, SecurFone,
Inc. Inc., to TeleData World Services, Inc. ("TWOS"), the Company
discontinued its prepaid cellular operations in their entirety,
effective June 30, 1999. The operations of the disposed cellular
operations have been reclassified, net, as a restructuring charge.
The Company is now focused entirely on operations in the e-commerce
industry.
7. Commitments
and
Contingencies
Litigation In the normal course of business, the Company is occasionally named as a
defendant in various lawsuits. It is the opinion of management that the
outcome of any pending lawsuits will not materially affect the operations
or the financial position of the Company or cash flows.
</TABLE>
16
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following describes certain factors which produced changes in the results of
operations of The IXATA Group, Inc. (the "Company") during the quarter and nine
months ended September 30, 2000 and as compared with the quarter and nine months
ended September 30, 1999 as indicated in the Company's Condensed Consolidated
Financial Statements. The following should be read in conjunction with the
Condensed Consolidated Financial Statements and related notes. Historical
results of operations are not necessarily indicative of results for any future
period. All material inter-company transactions have been eliminated in the
results presented in this Quarterly Report.
Certain matters discussed in this Quarterly Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance or achievements may differ significantly
from the results, performance or achievements expressed or implied in these
forward-looking statements. See "-- Forward-Looking Statements."
The Company
The Company, through its subsidiary, IXATA, Inc. ("IXATA.COM"), is a provider of
Internet-based, business-to-business ("B2B") electronic commerce services in the
rapidly growing market for travel information services, serving an expanding
base of more than sixty major Fortune 500 firms, two thousand hotel
properties,and other organizations. IXATA.COM's principal service, RFP
Express(SM), integrates a user-friendly, Internet-based interface with a
sophisticated data-warehousing system, interactive telephone and fax technology
to deliver automated solutions for creating, sending, receiving and managing the
preferred lodging programs request for proposal process in the hospitality
services market ("RFP process"), typically involving hundreds or, in some cases,
thousands of properties worldwide. By automating the users' RFP business
process, and also providing user-friendly Internet access to a sophisticated
data warehousing system, RFP Express(SM) provides dramatic cost savings to
users, typically 70% or more compared to costs for manual processes. Pricing for
RFP Express includes an annual subscription fee and transaction fees for each
RFP handled. The Internet-based, electronic commerce and operational platforms
developed to support the RFP Express(SM) offering can be used to address similar
needs in other vertical markets.
The Company currently offers B2B e-commerce solutions to all market participants
including:
. Global Corporate Users
. Property Management and Hotel Chains, and
. Mega-Agencies.
The Company was organized in 1996 to develop and market prepaid wireless
products and services in various markets throughout the United States. In late
1998, the Company established a new strategic objective of refocusing the
Company's mission to pursue new complimentary Internet-related and e-commerce
opportunities. In 1999, the Company actively implemented its new mission by,
among other actions, selling a portion of the Company's business no longer
considered essential for the new strategy and purchasing a company whose
business thrust is in line with the new strategy.
On July 1, 1999, the Company acquired all of the outstanding common stock of
"IXATA.COM", a privately held provider of Internet-based information and
electronic commerce solutions servicing the travel and hospitality market. The
Company plans to significantly expand IXATA.COM's operations to offer new
enhanced information services in the travel market, targeting existing and new
corporate clients, hotel and property management groups, major travel agencies
and worldwide strategic partners.
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The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
Since closing the IXATA.COM acquisition on July 1, 1999, the Company has
obtained new funding and achieved more than 300 percent growth of its corporate
customer base. The growth of corporate users and hotel property clients attests
to the Company's increasing market visibility and acceptance within the global
travel community. The Company's Internet-based, e-commerce services are now
being used by more than 60 major corporate users, 2,000 hotel properties and
four major travel agencies. While there are no assurances such growth can be
sustained or the Company will have sufficient funding to meet future needs,
management believes the Company's growth and performance to date is consistent
with the Company's objective of attaining a leadership position in the market
for Internet-based, business-to-business e-commerce services.
Effective January 31, 2000, the Company changed its name to The IXATA Group,
Inc. from SecurFone America, Inc. The Company believed it was in the best
interest of the Company to change its corporate name to "The IXATA Group, Inc."
to capitalize upon the success of the Company's IXATA.COM subsidiary and to
establish an image that is consistent with the Company's focus on Internet-
related and e-commerce solutions. The Company believes that the name change will
act as a critical facilitator in the expansion of its business objective to
pursue new opportunities in Internet-based business offerings and e-commerce
markets.
The Company's principal executive offices are located at 8989 Rio San Diego,
Suite 160, San Diego, California 92108, its telephone number is (619) 400-8800,
and its website is www.ixata.com.
Financing
On July 26, 2000, the Company announced that it has encountered cash flow
problems due to delays in securing new funding. The Company worked with outside
investors and selected financial institutions to resolve the financial situation
and support ongoing operations. On July 27, 2000, the Company announced it
secured a new bank line of credit to provide limited near term financing to
support company operations.
On September 12, 2000, the Company entered a preliminary agreement for funding
from NextGen Capital, L.L.C., a northern Virginia-based venture capital firm
specializing in high technology and Internet-related investments. NextGen has
provided an initial investment of $250,000 and is providing limited guarantees
for the Company's bank credit. Based on the preliminary agreement, NextGen will
invest up to $1.25 million in convertible preferred stock. NextGen has also
advanced the Company $250,000, structured as a bridge loan, to cover cash
requirements prior to the closing of the transaction. On November 9, 2000, the
Company filed a report with the Securities and Exchange Commission regarding the
change of control aspects of the transaction. The transaction is subject to
completion of a definitive business agreement and due diligence. There can be no
assurances that the transaction will be completed as proposed or at all.
Recent Events
The Company has taken several actions to improve the Company's financial
position since it announced that it had encountered cash flow problems. These
actions include reducing operations costs, as well as restructuring the
Company's pricing for its flagship e-commerce service, RFP Express. To date, the
cost containment strategies employed have not materially impacted the Company's
ability to deliver its service, and the price restructuring has been accepted by
the Company's customers. The Company is continuing to take additional actions
to improve its financial outlook. While these actions, coupled with projected
growth of the Company's business base, should improve the Company's financial
outlook, there can be no guarantee that the Company will have sufficient capital
to meet its future obligations. See "--Financing."
Results of Operations
The Company, in the second quarter of 1999, sold the Company's
Buy-The-Minute(TM) product and the Company discontinued operation of the
Company's SecurFone America Local Network Solution. As a result of these
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
Page 18
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The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
and other expenses relating to the prepaid cellular product line have been
reclassified as a restructuring charge, resulting in these items being reported
as $0 for periods prior to the sale and discontinuance of the prepaid cellular
products.
The 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.
Third Quarter of 2000 Compared to Third Quarter of 1999
The net loss in the third quarter of 2000 increased to $922,055 from a loss of
$915,931 in the third quarter of 1999. This increase was primarily due to the
increase in selling, and general and administrative expenses partially offset by
the increase in revenues from the Company's e-commerce business.
Revenues
The Company purchased IXATA.COM and began the operations of its Internet-based
electronic commerce services in the third quarter of 1999. B2B e-commerce
revenues for the third quarter of 2000 increased to $319,074 from $86,468 in the
third quarter of 1999. The increase was due to the revenues from the RFP
Express(SM) product for the travel and hospitality sectors. The Company expects
that revenues from RFP Express(SM) will continue to grow on a long-term basis.
Costs, Expenses and Other
Selling, general and administrative expenses increased to $1,169,911 in the
third quarter of 2000 from $941,461 in the third quarter of 1999. This increase
was due to the hiring and development of an experienced management and
operations team, as well as funding the growth of the IXATA.COM e-commerce
business. Wages and associated taxes increased in the third quarter of 2000 to
$617,601 from $318,300 in the third quarter of 1999. Expenses related to
consulting services, which were required while the Company was completing
building its internal capabilities over the last year, decreased to $62,343 in
the third quarter of 2000 from $106,155 in the third quarter of 1999. The
Company expects to reduce its expenditures for external consultants in the
future. Legal and professional fees decreased to $28,671 in the third quarter of
2000 from $74,396 in the third quarter of 1999. Amortization expense related to
goodwill were $335,744 in the third quarter of 2000 compared to $335,243 in the
third quarter of 1999.
Interest expense increased to $71,217 in the third quarter of 2000 from $59,732
in third quarter of 1999 due to an increase in the Company's obligations to
lenders that have extended the Company funds for operations since inception.
Costs, expenses, and other increased to $1,241,129 in the third quarter of 2000
from $1,002,399 in the third quarter of 1999.
First Nine Months of 2000 Compared to First Nine Months of 1999
The net loss in the first nine months of 2000 increased to $3,543,860 from a
loss of $807,019 in the first nine months of 1999. This increase was primarily
due to the increase in selling, and general and administrative expenses
partially offset by the reduction in the restructuring charge associated with
the cellular operation.
Revenues
The Company purchased IXATA.COM and began the operations of its Internet-based
electronic commerce services in the third quarter of 1999. B2B e-commerce
revenues for the first nine months of 2000 increased to $452,072 from $86,468 in
the first nine months of 1999. The increase was from the sales from the RFP
Express(SM) product for the
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The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
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 $3,758,395 in the
first nine months of 2000 from $1,035,136 in the first nine months of 1999. This
increase was due to the cessation of cellular operations effective June 30, 1999
resulting in negligible ongoing operating expenses in 1999 due to the refocusing
of the Company's direction. See "- The Company." In addition, the increase in
selling, general and administrative expenses was due to the hiring and
development of an experienced management and operations team, as well as funding
the growth of the IXATA.COM e-commerce business. Wages and associated taxes
increased in the first nine months of 2000 to $1,602,871 from $460,276 in the
first nine months of 1999. Expenses related to consulting services required
while the Company was building its internal capabilities rose to $280,744 in the
first nine months of 2000 from $106,155 in the first nine months of 1999. The
Company expects to reduce its expenditures for external consultants in the
future. Legal and professional fees increased to $142,177 in the first nine
months of 2000 from $74,396 in the first nine months of 1999. Amortization
expense related to goodwill increased to $1,007,232 in the first nine months of
2000 from $335,243 in the first nine months of 1999.
Interest expense increased to $235,445 in the first nine months of 2000 from
$60,938 in the first nine months of 1999 due to an increase in the Company's
obligations to lenders that have extended the Company funds for operations since
inception. Interest income increased to $908 in the first nine months of 2000
from $0 in the first nine months of 1999. The increase was from the launch of
it's the Company's RFP Express(SM) product for the travel and hospitality
sectors.
Costs, expenses, and other increased to $3,992,932 in the first nine months of
2000 from $893,487 in the first nine months of 1999. The increase in operating
expenses was limited because of the cessation of the Company's prepaid cellular
service offering. The Company incurred a restructuring charge of $0 and $505,832
in the first nine months of 2000 and 1999, respectively.
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,
development of new applications, and expands its customer base. Cash provided by
operations would not be sufficient to fund the expansion of the product
offerings and resultant subscriber base. The Company is continually reviewing
various sources of additional financing to fund its growth. As of September 30,
2000, since its inception the Company had received advances in the amount of
$5,980,064 from private investors.
To meet both current and contractual commitments and business growth objectives,
the Company will require additional financing. To address its financing needs,
the Company is pursuing a multiple phase strategy and has retained an investment
banking firm, Scott & Stringfellow, Inc., to assist and advise the Company in
the process. On October 12, 1999, the Company entered into a relationship with
S&S to act as the exclusive financial advisor to the Company, in connection with
the exploration of potential alternative strategic transactions, including
without limitation one or more private equity offerings, mergers and
acquisitions and a public equity offering. During the initial phase of the
Company's addressing of its financial needs, from November 1999 to April 2000,
the Company secured financing from private investors in exchange for shares of
the Company's common stock, raising a net amount of $1.8 million from these
individuals. The second phase of the financing plan is to raise between $1.5
and 3.0 million in equity from strategic and institutional investors. This
phase is currently underway, with both strategic and institutional investors
identified and expressing interest to an equity investment in the Company. See
"Financing." 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.
Page 20
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
At September 30, 2000, the Company had cash and cash equivalents of $63,815 as
compared to $22,538 at September 30, 1999. In addition, the Company had accounts
receivable totaling $285,551 from the sale of the Company's B2B e-commerce
services. Net cash used by operating activities was $1,775,345 in the first
three quarters of 2000 compared to $ 952,621 in the first three quarters of
1999. Net cash used by investing activities in the first three quarters of 2000
was $49,900, consisting of $49,900 used to purchase equipment as compared with
the proceeds of $242,818, consisting of $472,257 provided by the sale of a
subsidiary and related assets, $150,000 used for investment in subsidiary, and
$47,509 used to purchase equipment in the first three quarters of 1999. Net cash
provided by financing activities in the first three quarters of 2000 totaled
$1,563,005 which consisted primarily of $1,471,005 in proceeds from equity
investment to the Company from private investors as compared with $683,830 which
consisted primarily of $816,221 in proceeds from notes payable to the Company
from private investors in the third quarter of 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 requires significant additional capital, which it may not be able
to obtain. As the Company continues to implement its business plan, present
sources of financing will not be adequate to support the Company's increased
cash needs. Furthermore, the Company's entry into new Internet and electronic
commerce business areas will create additional demands for investment capital.
The Company recently encountered cash flow problems due to delays in securing
new funding. The Company may not be able to obtain future equity or debt
financing on satisfactory terms or at all. If the Company fails to obtain
necessary short-term financing, it will not be able to continue operations.
Long-term liquidity will depend on the Company's ability to obtain long-term
financing and attain profitable operations. The Company's auditors issued an
opinion on its most recent audit of the Company's financial statements that,
based on the Company's losses and negative working capital, there is
substantial doubt about the Company's ability to continue as a going concern
if it does not obtain additional debt or equity financing.
. The Company has a short operating history upon which to base an investment
decision. The Company established a new strategic objective of refocusing the
Company's mission to pursue Internet-related and e-commerce opportunities in
late 1998. As a result, its business plan is currently in the early stage and,
accordingly, the Company has a limited operating history on which to base an
evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development. To address these
risks, the Company must, among other things, attract a number of major
corporate clients/customers and strategic alliance partners, implement and
successfully execute its marketing and sales strategy, and successfully
recruit and motivate qualified sales and technical personnel. There can be no
assurance that the Company will be successful in addressing these risks, and
the failure to do so could have a material adverse effect on the Company. The
likelihood of success of the Company must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the development of an early stage business. It is impossible
to predict the degree of success the Company will have in achieving the its
objectives.
Page 21
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
. If the Company is unable to successfully integrate IXATA.COM, its financial
results will suffer. The Company completed its acquisition of IXATA.COM on
July 1, 1999. Its future profitability will depend heavily on its ability to
integrate IXATA.COM. Failure to successfully integrate the companies may cause
significant operating inefficiencies and adversely affect profitability. To
successfully integrate the companies, the Company must, among other things,
install and standardize adequate operational, financial and control systems.
Although the Company has no definitive plans to acquire any business in the
near future, if it does acquire additional companies, it will face business
integration risks similar to those described above. In addition, during the
beginning stage of development and operation, the Company may encounter
expenses and difficulties that it may not expect or are beyond its control. As
a result, it may not be able to achieve or maintain profitability.
. The Company's failure to protect or maintain its intellectual property rights
could place it at a competitive disadvantage and result in loss of revenue and
higher expenses. The Company's performance and ability to compete are
dependent to a significant degree on its proprietary electronic commerce
system and services. The steps the Company has taken to protect its
proprietary intellectual property rights may not prevent or deter someone else
from using or claiming rights to its intellectual property. Third party
infringement or misappropriation of trade secrets, copyrights, trademarks or
other proprietary information could seriously harm the Company's business. The
Company also cannot assure that it will be able to prevent the unauthorized
disclosure or use of its proprietary knowledge, practices and procedures if
its senior managers or other key personnel leave it. In addition, although the
Company believes that its proprietary rights do not infringe on the
intellectual property rights of others, other parties may claim that it has
violated their intellectual property rights. These claims, even if not true,
could result in significant legal and other costs and may distract management
from day-to-day operations of the Company.
. The Company's business prospects depend on demand for and market acceptance of
the Internet. The Company is currently dependent on the Internet as an access
and transmission medium to provide its services. Although the Company believes
that the acceptability and usability of the Internet will increase over time,
any increase in the rates charged by Internet service providers resulting in a
decreased usage of the Internet or decreased use of the Internet for
electronic commerce transactions, would have a materially adverse effect on
the Company's operating margins. Failure to promote Internet access as the
preferred means of accessing the Company's service could also have a
materially adverse effect on the Company, including the possibility that the
Company may need to significantly curtail or cease its Internet based e-
commerce operations or to develop its own capabilities at a cost in excess of
the Company's ability to fund such undertakings.
. If the Company's market does not grow as expected, its revenues will be below
its expectations and its business and financial results will suffer. The
Company is engaged in a developing business with an unproven market.
Accordingly, it cannot accurately estimate the size of its market or the
potential demand for its services. If its customer base does not expand or if
there is not widespread acceptance of its products and services, its 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
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<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
redundant systems. It does not have a formal disaster recovery plan and
carries no business interruption insurance to compensate it for losses that
may occur. Temporary or permanent loss of data or systems through casualty or
operating malfunction could have a materially adverse effect on the Company's
business.
. The Company could lose customers and expose itself to liability if breaches of
its network security disrupt service to its customers or jeopardize the
security of confidential information stored in its computer systems. Despite
the implementation of network security measures, the Company's network
infrastructure is vulnerable to computer viruses, break-ins and similar
disruptive problems caused by its customers or Internet users. Any of these
acts could lead to interruptions, delays or cessation in service to the
Company's customers and subscribers. Furthermore, such inappropriate use of
the network by third parties could also potentially jeopardize the security of
confidential information stored in the Company's 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, 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.
Because of the cash flow difficulties recently experienced by the Company,
five employees have recently left the Company. 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.
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The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
. Risks associated with operating in international markets could restrict the
Company's ability to expand globally and harm its business and prospects. The
Company markets and sells its services and products in the United States and
internationally. The Company's failure to manage its international operations
effectively could limit the future growth of its business. There are certain
risks inherent in conducting the Company's business internationally, such as:
(a) changes in international regulatory requirements could restrict the
Company's ability to deliver services to its international customers;
(b) differing technology standards across countries that may impede the
Company's ability to integrate its product offerings across
international borders;
(c) difficulties collecting accounts receivable in foreign jurisdictions;
(d) political and economic instability could lead to appropriation of the
Company's physical assets, impair 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 over half of the Company's Common Stock and may have
the ability to control matters requiring stockholder approval. The Company's
executive officers, directors and parties related to them own a large enough
stake in the Company to determine matters presented to stockholders, the
approval of significant corporate transactions, such as any merger,
consolidation or sale of all or substantially all of the Company's assets, and
the control of the management and affairs of the Company. In addition, certain
executive officers, directors and other shareholders, representing 65% of the
Company's outstanding common stock, have entered into a Voting Agreement in
which the parties agree to vote their shares for certain directors. As a
result, these stockholders
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The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
may have the ability to control the election and removal of directors.
Accordingly, this concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company, impede a merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company, which in turn could have an
adverse effect on the market price of the Company's common stock.
. The Company's common stock may be delisted from the Nasdaq Over-the-Counter
Bulletin Board Service. In order to maintain the listing of its common stock
for trading on the Nasdaq Over-the-Counter Bulletin Board Service, the Company
must make required filings with the Securities and Exchange Commission. If the
Company's stock were to be delisted, there would be no public market for the
Common Stock and stockholders would have difficulty liquidating their
investment. The Company has been deliquent in its filings on several occasions
and Nasdaq has appended an "E" to the Company's trading symbol, indicating it
is not in compliance with its filing requirements. Although the Company
believes that the filing of this Quartery Report with the Securities and
Exchange Commission keeps the Company into compliance, allowing it to retain
its stock listing on the Nasdaq Bulletin Board, there can be no assurance that
it will be able to do so.
These and other risks described in this Quarterly Report must be considered by
any investor or potential investor in the Company.
Page 25
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
Part II -- Other Information
Item 1. Legal Proceedings.
From time to time, the Company is involved in legal matters which are incidental
to its operations. See Part I, Item 3, "Legal Proceedings," of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999 for a
description of significant pending legal proceedings. In the opinion of
management, the ultimate resolution of pending matters will not had a material
adverse effect on the Company's financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
No defaults upon senior securities occurred during the third quarter of 2000.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders in the third
quarter of 2000.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits being filed with this Quarterly Report:
27 Financial Data Schedule
(b) The Company filed the following Current Reports on Form 8-K in the third
quarter of 2000:
None
Page 26
<PAGE>
The IXATA Group, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 2000
--------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The IXATA Group, Inc.
Date: November 20, 2000 /s/ Paul B. Silverman
---------------------
By Paul B. Silverman, Chief Executive Officer
Page 27
